Computer And Technologies Holdings Limited — Annual Report 2015

Apr 22, 2016

Annual Report 2015

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CONTENTS

2 3 8 13 22 25 30 32 33 34 36 38 40 111 112

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Corporate Information
Chairman’s Statement
Management Discussion and Analysis
Corporate Governance Report
Biographical Details of Directors
Directors’ Report
Independent Auditor’s Report
Consolidated Statement of Profit or Loss
Consolidated Statement of Profit or Loss and Other Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
Appendix I Financial Summary
Appendix II Investment Properties
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China Aerospace International Holdings Limited

CORPORATE INFORMATION

BOARD OF DIRECTORS Executive Directors

Mr Li Hongjun (President) Mr Jin Xuesheng

COMPANY SECRETARY

Mr Chan Ka Kin, Ken

AUDITOR

Deloitte Touche Tohmatsu

Non-Executive Directors

Mr Zhang Jianheng (Chairman) Mr Luo Zhenbang (Independent) Ms Leung Sau Fan, Sylvia (Independent) Mr Wang Xiaojun (Independent) Mr Chen Xuechuan Mr Shi Weiguo

AUDIT COMMITTEE

Mr Luo Zhenbang (Chairman) Ms Leung Sau Fan, Sylvia Mr Shi Weiguo

REMUNERATION COMMITTEE

Ms Leung Sau Fan, Sylvia (Chairman) Mr Wang Xiaojun Mr Chen Xuechuan

NOMINATION COMMITTEE

Mr Zhang Jianheng (Chairman) Mr Luo Zhenbang Ms Leung Sau Fan, Sylvia Mr Wang Xiaojun Mr Chen Xuechuan

SHARE REGISTRAR

Tricor Standard Limited

LEGAL COUNSEL

Reed Smith Richards Butler

PRINCIPAL BANKS & FINANCIAL INSTITUTIONS

Bank of China (Hong Kong) Limited Aerospace Science & Technology Finance Company Limited* (航天科技財務有限責任公司) Industrial and Commercial Bank of China Limited Bank of China Limited

REGISTERED OFFICE

Room 1103–1107A, One Harbourfront 18 Tak Fung Street, Hung Hom Kowloon, Hong Kong Tel: (852) 2193 8888 Fax: (852) 2193 8899 E-mail: public@casil-group.com Website: http://www.casil-group.com

• These PRC entities mentioned in this Annual Report do not have English names, the English names set out herein are for identification purposes only.

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Annual Report 2015

CHAIRMAN’S STATEMENT

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Zhang Jianheng
Chairman of the Board
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China Aerospace International Holdings Limited

CHAIRMAN’S STATEMENT

OVERVIEW

In 2015, the global economies continued to struggle through the impacts of financial crisis and the recovery remained sluggish. The growth momentum of the U.S. economy was weaker than expected and the European economy had been continuously affected by the subsequent impacts of the debt crisis and therefore was yet to recover to normal level. The Japanese economy remained stagnant. The economies of emerging markets and developing countries suffered from greater downside pressure. With the weak bulk commodity trading prices, leading commodity exporters such as Russia and Brazil even fell into recession. The growth drivers of traditional economies in the PRC were weakening, however, with the constant optimization of economic structure, the overall economic performance was stable. Confronted with adverse factors such as volatility of financial markets, declining market demand, continuous rise of various costs, the Company and its subsidiaries had basically fulfilled their full-year business targets, thanks to their persistent efforts to overcome all difficulties and challenges.

For the year ended 31 December 2015, the Company and its subsidiaries reported a turnover of HK$2,765,720,000 (2014: HK$2,791,175,000), which was comparable to that of last year. Overall gross profit margin was 20.26% (2014: 21.85%). Benefitted from various factors including the continuous improvement in commercial property market in Shenzhen and the completion of construction works of Shenzhen Aerospace Science & Technology Plaza, the fair value gain of investment property of the Company recorded a significant increase. However, the overall profit level of the Company had been adversely affected by factors such as the decrease in gross operating profit, depreciation in Renminbi, and the impairment provisions made for individual investment projects with unsatisfactory progress. In 2015, the Company recorded a profit of HK$1,626,323,000, representing an increase of 206.17% as compared with that of HK$531,181,000 in 2014; profit attributable to shareholders was HK$984,696,000, representing an increase of 136.88% as compared with that of HK$415,692,000 in 2014; earnings per share attributable to shareholders was HK31.92 cents (2014: HK13.47 cents). The Board recommends the payment of a dividend of HK1 cent per share for the year.

BUSINESS REVIEW

In 2015, the Company’s high-tech manufacturing business remained stable despite its exposure to greater operational pressure. Shenzhen Aerospace Science & Technology Plaza was completed successfully, and the construction of the resettlement zone of Complex Zone of the Launching Site in Hainan Province has entered the final stage. The business of internet of things tapped into a new area of cross-border e-commerce logistics business.

Hi-tech Manufacturing

In 2015, the hi-tech manufacturing business progressed steadily in general. Facing with unfavourable economic conditions, including weakening demand from overseas markets, rapid slowdown of domestic economic growth, decrease in import and export trade volumes, rising labour costs, depreciation of various currencies such as Japanese Yen and Euro, the hi-tech manufacturing business effectively ensured a steady business development by continuously strengthening its efforts in technological upgrade and equipment updates, which is complemented with measures such as joint research and development of new products with customers and active market development. The turnover of the hi-tech manufacturing business for the year was HK$2,731,794,000 (2014: HK$2,759,428,000), which was comparable to that of last year; the operating profit was HK$275,333,000 (2014: HK$307,933,000), representing a decrease of 10.59% as compared with last year.

Among the hi-tech manufacturing businesses, the plastic product business has consolidated and broadened its existing market share by actively cooperating with customers for their new products and new project developments, thereby strengthening the cooperation relationship with major customers. Driven by the lithium battery power pack business, the sales of the intelligent charger business remained stable. However, the overall business was still affected by various factors such as the change of market strategies of major customers and intense market competition. In 2015, the electroplating line set up by the hi-tech manufacturing business in the Electroplating Industrial Park in Boluo, Huizhou had commenced production, which can cater for the needs of large auto parts, gradually bringing the business in line with the auto parts electroplating market. 2015 was a difficult year for the operation of printed circuit board (“PCB”)

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Annual Report 2015

CHAIRMAN’S STATEMENT

business. With the change in the landscape of the electronic information industry, there was a relatively large-scale of shift in the supply chain of the consumer electronics market and the competition became more intense. The handset and automobile markets, representing more than half of the sales from the PCB business, showed a relatively large volatility and decline and thus exerted much pressure on the operation of the business. For the liquid crystal display (“LCD”) business, under the influence of weakening demands from the domestic and overseas markets, the decrease in number of orders placed by major customers, the excessive capacity of the domestic LCD manufacturers and intense price competition, the income and profits of the LCD business were therefore affected.

Shenzhen Aerospace Science & Technology Plaza

The construction and inspection of Shenzhen Aerospace Science & Technology Plaza had been fully completed in 2015. Shenzhen Aerospace Technology Investment Company Limited (深圳市航天高科投資管理有限公司) (“Shenzhen Aerospace”) determined the proposal of the overall business and leasing promotion, and completed the preparation of tender documents. Shenzhen Aerospace established a property management company, Shenzhen Aerospace Technology Property Management Company Limited (深圳市航天高科物業管理有限公司) based on the operational needs of the project. With the support of China Aerospace Science and Technology Corporation (“China Aerospace”), the substantial shareholder, the Company overcame various difficulties during the construction of Shenzhen Aerospace Science & Technology Plaza. The construction of the whole project was completed after years of efforts. Shenzhen Aerospace Science & Technology Plaza sprouted at the central business district of Shenzhen Bay and becomes a new landmark of China Aerospace in the Southern China, representing a cornerstone for the start of the Company’s development under the 13th Five-Year Plan. With continuous and promising prospect of the commercial property market in Shenzhen over the past few years, Shenzhen Aerospace Science & Technology Plaza has contributed to the satisfactory asset appreciation of the Company. As at the end of 2015, construction in progress of Shenzhen Aerospace Science & Technology Plaza, together with the land use rights, were valued at approximately RMB5,777,000,000 (2014: RMB3,418,000,000).

The Complex Zone of the Launching Site in Hainan Aerospace

The land expropriation work for the Complex Zone of the Launching Site in Hainan Aerospace (the “Complex Zone”) was basically completed. The construction of the resettlement zone of Complex Zone includes resettlement houses, municipal projects, landscaping and ancillary facilities such as housing for the elderly, schools, post offices and hospitals, with a total gross floor area of approximately 186,000 square metres. The construction project includes 134 resettlement houses with 960 households, and 23 municipal roads. As at the end of 2015, all resettlement houses were topped out and renovation works were underway. Constructions of roads in the zone had been fully commenced, and the ancillary construction works of other commercial and public facilities, such as primary schools, kindergartens, banks, village committees and healthcare centres, had also been commenced.

Internet of Things and Cross-border E-commerce Logistics

In 2015, Aerospace Digitnexus Information Technology (Shenzhen) Limited* (航天數聯信息技術（深圳）有限公司) (“Aerospace Digitnexus”) made adjustments on its major businesses and determined that cross-border e-commerce logistics as well as warehouse and logistics would be the two major business directions. Relying on the huge market potential of cross-border e-commerce logistics as well as warehouse and logistics, Aerospace Digitnexus proposed a new development concept, which is to push forward product research and development by providing customs clearance as well as warehouse and logistics services for international parcels and incoming mails business. Leveraging the traditional customs clearance and transit business, Aerospace Digitnexus cooperated with export parcel mail branch of China Post in Shenzhen and Mail Express of China Post in Jiangmen, Guangdong to gradually launch the import and export businesses related to cross-border e-commerce logistics. During the year, Aerospace Digitnexus cooperated with Kaiping Post and jointly established a public service platform for cross-border e-commerce in Kaiping. Through this cooperation, a sorting and customs clearance centre for express mails of cross-border e-commerce logistics will be built in Kaiping. Moreover, by fully leveraging their respective advantages, the parties actively strived for more support from the Kaiping Government and the Customs in terms of policies and resources, so as to facilitate the

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China Aerospace International Holdings Limited

CHAIRMAN’S STATEMENT

development of external economic cooperation and foreign trade business. In 2015, the turnover of Aerospace Digitnexus amounted to HK$30,997,000, of which HK$22,817,000 (approximately 73.61%) was attributable to crossborder e-commerce logistics business. The overall turnover of Aerospace Digitnexus increased by 22.74% as compared with that of HK$25,255,000 for last year. Due to business adjustment, Aerospace Digitnexus had made impairment provisions for the existing internet of things business, resulting in a loss of HK$46,823,000 during the year (2014: a loss of HK$3,609,000).

PROSPECTS

Looking forward, the increasing uncertainties in macro-economic environment may deepen the adjustments of global economy. Many Asian and emerging market economies are expected to encounter huge economic and financial pressure due to weak economic recovery, softening international trade growth, volatility in financial markets, sluggish performance of international bulk commodities trading and outflow of capital. Meanwhile, China will still be exposed to risks like excessive capacities, de-stocking and de-leveraging, therefore, the overall demand will remain weak with increasing economic downside pressure. The Hong Kong economy is currently affected by a number of uncertainties. In particular, there are increased efforts in price corrections in the property market, which is expected to bring negative influence to both consumption and domestic demand. In anticipation of an unfavourable operating environment, the Company will adhere to the principles of prudent operation and stringent risk control, at the same time proactively pushing forward the progress of various tasks.

In terms of hi-tech manufacturing, the plastic products business plans to establish a mold development centre, so as to strengthen its mold development capability to satisfy the demands of plastic products business and electronic products business including electroplating products. The electroplating products business will gradually change its original focus from electronic consumer products to the development of auto part products. It will also set up an enclosed and fully-automatic electroplating line in due course, progressively shifting its development towards products with higher margins. The intelligent chargers business will foster existing customer relationships and actively develop new customer base with a view to minimize the influence of individual customer’s issues on overall business growth. The PCB business plans to complete the construction of high-density PCB factory and the equipment installation thereof in pursuit of fulfilling the conditions for trial-production by the end of 2016. The LCD business will make a dedicated effort to optimize the customer structure, so as to reduce the reliance on any single customer. It is also devoted to providing better solutions to the customers. On the basis of the newly-established STN production line in 2015, it will step up its efforts in technical innovation to explore new technologies for high performance in-car products and nurture new major customers.

With the completion of Shenzhen Aerospace Science & Technology Plaza, Shenzhen Aerospace will accelerate the development of its property management team and commence market planning and leasing work in full scale. Since the syndicated loan in respect of the construction project will fall due for repayment in 2016, Shenzhen Aerospace will negotiate with various financial institutions to seek appropriate alternatives in advance, including replacing the syndicated loan with a mortgage loan, so as to satisfy the conditions for operations.

Hainan Aerospace Investment Management Company Limited* (海南航天投資管理有限公司) (“Hainan Aerospace”) plans to complete the construction of resettlement houses, public facilities and commercial ancillary facilities as well as regional landscaping in 2016. Hainan Aerospace will complete the construction, inspection and transfer of the resettlement zone properly and assist the government to complete the resettlement of local residents, the construction of other public facilities as well as the initial preparation for infrastructure construction in the Complex Zone. As the construction of the resettlement zone has entering the final stage, Hainan Aerospace expected that it will be confronted with increasing financial pressure and various problems in relation to project implementation and management. The Company believes that, with the support of the shareholders of Hainan Aerospace, Hainan Aerospace will be able to make appropriate financing arrangements for the construction of the resettlement zone. Meanwhile, the Company will re-examine the business model of the project with Hainan Aerospace, and closely coordinate with the shareholders

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Annual Report 2015

CHAIRMAN’S STATEMENT

of Hainan Aerospace to continue obtaining respective support from China Aerospace and Hainan Provincial Government to push forward the construction of the resettlement zone. The Company will closely monitor the progress of the Hainan project, strictly control investment risks and adjust the project investment strategies when appropriate in order to conform with the overall development strategies of the Company.

Aerospace Digitnexus will continue to focus on its cross-border e-commerce logistics business, including export parcel mails, import postal articles, customs clearance operation and bonded warehouse, and improve its cross-border e-commerce logistics platform and intelligent warehouse system based on its software platform for internet of things, thereby forming a new cross-border e-commerce logistics business with unique market competitiveness. In 2016, Aerospace Digitnexus plans to complete the establishment of a sorting and customs clearance centre for express mails of cross-border e-commerce in Kaiping as well as the establishment of cross-border e-commerce logistics platform, aiming to push forward the development of relevant businesses in full force.

The Company has formulated the 13th Five-Year Plan as a blueprint for its mid-to-long term development. The existing electronic information product manufacturing business (hi-tech manufacturing) of the Company will achieve transformation, upgrade and stable development through enhanced efforts in research and development, technological upgrade and merger and acquisition. Under the policy guidance of the overall planning of “Made in China 2025” issued by the State Council in 2015 and the strategic plan of China Aerospace in the relevant areas, the Company will explore the possibilities of developing businesses related to high-end intelligent equipment manufacturing business. Meanwhile, the Company will proactively enhance itself as the internationalization platform for China Aerospace to expand international businesses and initiate international cooperation while seeking new business opportunities. The Company will continue to identify and develop investment projects with promising prospects, such as new materials, internet of things and cross-border e-commerce logistics, real-estate investment, etc., which are in line with the national strategic policy of emerging industries and capture China Aerospace’s resources advantages. With the full support from China Aerospace, the Company believes that it would comprehensively push forward the progress of its projects in accordance with 13th Five-Year Plan and strives to realize progressive development during the 13th Five-Year Plan period, thereby maximizing the investment values of and returns to the shareholders of the Company.

APPRECIATION

I hereby express my profound gratitude to my fellow Directors and all staff of the Company for their dedication, loyal services and invaluable contributions. Grateful thanks are also due to shareholders, bankers, business partners and members of the public who have supported the Company’s development all along.

By order of the Board,

Zhang Jianheng Chairman

Hong Kong, 24 March 2016

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China Aerospace International Holdings Limited

MANAGEMENT DISCUSSION AND ANALYSIS

RESULTS PERFORMANCE

The audited turnover of the Company and its subsidiaries for the year ended 31 December 2015 was HK$2,765,720,000, representing more or less the same as compared with that of HK$2,791,175,000 for 2014. The profit for the year was HK$1,626,323,000, representing a substantial increase of 206.17% as compared with that of HK$531,181,000 for 2014.

PROFIT ATTRIBUTABLE TO SHAREHOLDERS OF THE COMPANY

Profit attributable to shareholders of the Company was HK$984,696,000 for the year ended 31 December 2015, representing an increase of 136.88% as compared with that of HK$415,692,000 for 2014. Both the turnover and the profits of the major businesses decreased slightly and an exchange loss was recorded as a result of changes in the exchange rate of Renminbi, whereas the fair value of investment properties increased substantially. Hence, the profit attributable to equity holders of the Company substantially increased as compared to 2014.

Based on the issued share capital of 3,085,022,000 shares during the year, the basic earnings per share was HK31.92 cents, representing an increase of 136.97% as compared with that of HK13.47 cents for 2014.

DIVIDENDS

The Board proposed the distribution of 2015 final dividend of HK1 cent per share in March 2016, subject to the approval by shareholders at the Annual General Meeting to be held on 25 May 2016. If approved, warrants of which will be dispatched to all shareholders on or about 22 June 2016.

The 2014 final dividend of HK1 cent per share had been approved by shareholders at the Annual General Meeting in May 2015 and warrants of which were dispatched to all shareholders on 18 June 2015.

RESULTS OF CORE BUSINESSES

Core businesses of the Company and its subsidiaries are hi-tech manufacturing and aerospace services.

The turnover of the hi-tech manufacturing is the main source of the Company’s turnover and that contributes a significant profit and cash flow. This enables the Company to fulfill gradual development of the business of aerospace services and other new businesses such as science and technology, tourism and culture driven real estate business, so as to achieve the Company’s new development target and minimize individual business risk.

Hi-tech Manufacturing

Hi-tech Manufacturing

In 2015, global macroeconomic downturn and sluggish demands both at home and abroad had resulted in continuous depreciation of various major foreign currencies to promote export. Meanwhile, the manufacturing industry in the PRC witnessed an obvious accelerated slowdown and continuous rise in labour costs. Manufacturers therefore experienced excess capacities and extremely intense price competition. Under such circumstances, hi-tech manufacturing was also affected significantly with a decrease in orders or the need to offer discounts to retain customers. Some customers even decided to shift the manufacturing of OEM products back to their homelands or other regions, making market development extremely difficult.

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Annual Report 2015

MANAGEMENT DISCUSSION AND ANALYSIS

The turnover of the hi-tech manufacturing business for the year ended 31 December 2015 was HK$2,731,794,000, representing more or less the same as compared with last year; the operating profit was HK$275,333,000, representing a decrease of 10.59% as compared with last year. The turnover and the results of the hi-tech manufacturing business are shown below:

Turnover 2015 2014 Changes (HK$’000) (HK$’000) (%)	Operating Profit 2015 2014 Changes (HK$’000) (HK$’000) (%)
Plastic Products 1,013,162 876,732 15.56 Printed Circuit Boards 601,994 610,571 (1.40) Intelligent Chargers 621,842 649,604 (4.27) Liquid Crystal Display 480,553 607,817 (20.94) Industrial Property Investment 14,243 14,704 (3.14) Total 2,731,794 2,759,428 (1.00)	73,304 69,631 5.27 109,436 133,147 (17.81) 42,295 44,380 (4.70) 32,719 35,337 (7.41) 17,579 25,438 (30.89) 275,333 307,933 (10.59)

Looking forward to 2016, the competition in the electronic information industry will remain intense. The hi-tech manufacturing strives to explore markets of high end products and expand products varieties, continue to put effort in the research and development of new products and market development, raise automation in production, expand in scale and capacity of production, and in the meantime, strives to reduce inventory and receivables, explore business by ways of merger and acquisition or cooperation etc., in order to ensure a continuous and stable growth of the hitech manufacturing.

Aerospace Services Business

The Complex Zone of the Launching Site in Hainan Province

In 2015, the loss of Hainan Aerospace Investment Management Company Limited* (海南航天投資管理有限公司) (“Hainan Aerospace”) attributable to the Company amounted to HK$3,624,000. Looking into 2016, Hainan Aerospace will strive to complete all construction and decoration works of the resettlement zone, finish the completion check and handover, align with the government in resettling local residents, aggressively discuss with the government in solving problems arised during development, prepare well in overall project strategy, as well as putting efforts in exploring financing options so as to satisfy its funding needs for the construction works.

Shenzhen Aerospace Science & Technology Plaza

In 2015, Shenzhen Aerospace Technology Investment Company Limited (深圳市航天高科投資管理有限公司) (“Shenzhen Aerospace”) achieved the overall completion of Shenzhen Aerospace Science & Technology Plaza, and entered the stages of inspections and improvement, as well as the development of proposals of business promotion and leasing. Shenzhen Aerospace Technology Property Management Company Limited (深圳市航天高科物業管理有限公司) (“Shenzhen Aerospace Property Management”), its wholly-owned subsidiary, commenced the preliminary preparation of planning and property management, as well as construction patrolling and checking, and inspections and improvement. Starting from 1 January 2016, Shenzhen Aerospace Property Management has taken over and starts the property management of Shenzhen Aerospace Science & Technology Plaza. In 2016, Shenzhen Aerospace will continue to step up those remaining construction works and decorations, striving for completion of the construction work and inspection as early as possible, and will aggressively commence business promotion and leasing etc., so as to strive for the rental income of Shenzhen Aerospace Science & Technology Plaza contributing to the Company’s results as early as possible.

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China Aerospace International Holdings Limited

MANAGEMENT DISCUSSION AND ANALYSIS

Shenzhen Aerospace recorded a fair value gain of investment property of HK$2,608,207,000 in 2015. As at 31 December 2015, the property under construction and land use right of Shenzhen Aerospace Science & Technology Plaza was valued at approximately HK$6,820,543,000.

Internet of Things and Cross-border E-commerce Logistics

In 2015, the performance of Aerospace Digitnexus Information Technology (Shenzhen) Limited* (航天數聯信息技術(深 圳)有限公司) (“Aerospace Digitnexus”) was not ideal, which realized a turnover of HK$30,997,000 and an operating loss of HK$46,823,000. In 2016, Aerospace Digitnexus will continue to put effort in optimizing its product techniques, and doing well on the development in cold-chain logistics warehouse management while it will develop cross-border e-commerce logistics and related business and strive to realize profit as soon as possible.

On 22 July 2014, the Company, Digilink Systems Limited, a wholly-owned subsidiary of the Company which in turn owns the entire interest in Aerospace Digitnexus, entered into the Subscription Agreement with two strategic investors. Both strategic investors, owing to self reasons, did not fulfil the terms as stated in the Subscription Agreement. Thereby, the Subscription was expired and became void on 31 March 2015. Details of which please refer to the announcements of the Company made on 22 July 2014 and 1 April 2015 respectively.

ASSETS

ASSETS
				31 December 2015			31 December 2014			Changes
				(HK$’000)			(HK$’000)			(%)
Non-Current Assets				8,981,919			6,561,520			36.89
Current Assets				2,993,724			3,010,867			(0.57)
Total Assets				11,975,643			9,572,387			25.11

The increase in non-current assets was mainly due to an increase in the input of construction cost and the fair value of investment properties.

The equity attributable to shareholders of the Company was HK$5,705,770,000, representing an increase of 14.29% as compared with that of HK$4,992,235,000 as at 31 December 2014. Based on the issued share capital of 3,085,022,000 shares during the period, the net assets per share attributable to shareholders of the Company was HK$1.85.

As at 31 December 2015, a cash deposit of the Company and its subsidiaries of HK$36,035,000 had been pledged to banks to obtain credit facilities, and Shenzhen Aerospace had obtained a syndicated loan by securing the land use right and property under construction thereof at value of RMB5,777,000,000 to a syndicate comprising banks and a financial institution.

LIABILITIES

LIABILITIES
				31 December 2015			31 December 2014			Changes
				(HK$’000)			(HK$’000)			(%)
Non-Current Liabilities				2,278,002			2,500,800			(8.91)
Current Liabilities				2,494,379			1,140,769			118.66
Total Liabilities				4,772,381			3,641,569			31.05

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Annual Report 2015

MANAGEMENT DISCUSSION AND ANALYSIS

The change in non-current liabilities was mainly due to the increase of deferred tax and the reclassification of syndicated loan as current liabilities this year, whereas the increase in current liabilities was mainly due to the reclassification of syndicated loan as current liabilities this year. As at 31 December 2015, the Company and its subsidiaries had bank and other borrowings of HK$1,930,579,000.

Shenzhen Aerospace entered into a syndicated loan agreement of RMB1,500,000,000 with a syndicate of financial institutions in 2011 for the payment of construction costs of Shenzhen Aerospace Science & Technology Plaza. With the construction works nearly completes, the payable construction costs will increase significantly. Shenzhen Aerospace will gradually drawdown the loan to pay the construction costs. Therefore, the relevant bank debt will gradually increase. As at 31 December 2015, Shenzhen Aerospace had drawn down the loan in the amount of RMB1,107,200,000.

OPERATING EXPENSES

The administrative expenses of the continuing operations of the Company and its subsidiaries in 2015 were HK$307,166,000, representing a decrease of 1.80% as compared with last year. The finance costs amounted to HK$107,734,000, of which HK$74,338,000 had been capitalized and recorded as the construction cost of Shenzhen Aerospace Science & Technology Plaza.

CONTINGENT LIABILITIES

As at 31 December 2015, the Company and its subsidiaries did not have any other material contingent liabilities.

FINANCIAL RATIOS

FINANCIAL RATIOS
				2015			2014
Gross Profit Margin				20.26%			21.85%
Return on Net Assets				22.58%			8.96%
				31 December			31 December
				2015			2014
Assets-Liabilities Ratio				39.85%			38.04%
Current Ratio				1.20			2.64
Quick Ratio				1.10			2.41

LIQUIDITY

The source of funds of the Company and its subsidiaries mainly relies on internal resources, banking facilities and short term deposits. As at 31 December 2015, the free cash, bank balance and short-term bank deposits amounted to HK$2,045,506,000, the majority of which were in Hong Kong Dollars and Renminbi.

CAPITAL EXPENDITURE AND INVESTMENT COMMITMENT

As at 31 December 2015, the capital commitments of the Company and the relevant subsidiaries contracted for but not provided in the consolidated financial statements was HK$194,521,000, mainly for the capital expenditure of the construction of Shenzhen Aerospace Science & Technology Plaza. With the construction of Shenzhen Aerospace Science & Technology Plaza nearly completes, Shenzhen Aerospace will draw down the syndicated loan by stages to settle related construction costs.

FINANCIAL RISKS

The Company and its subsidiaries review the cash flow and financial position periodically and do not presently engage into any financial instruments or derivatives to hedge the exchange and the interest rate risks.

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China Aerospace International Holdings Limited

MANAGEMENT DISCUSSION AND ANALYSIS

HUMAN RESOURCES AND REMUNERATION POLICIES

The remuneration policy of the Company and its subsidiaries is based on the employee’s qualifications, experience and performance on the job, with reference to the current market situation. The Company and its subsidiaries will continue to upgrade the level of human resources management and strictly implement the performance-based appraisal system, in order to motivate employees to make continuous improvement in their individual performance and contributions to the Company.

As at 31 December 2015, the Company and its subsidiaries had a total of approximately 6,250 employees based in the mainland and Hong Kong respectively.

THE 13TH FIVE-YEAR PLAN

In 2015, the Company and its subsidiaries drafted a development plan for the next five years, making clear the development aims and setting up major measures in achieving those targets, so as to bring forth a sustained healthy development of the Company.

RISK MANAGEMENT AND INTERNAL CONTROL

The Company and its subsidiaries had reviewed the effectiveness of its entire risk management and internal control system during the year, as well as all internal rules and regulations, so as to encounter the risks in operation, market, finance and so on in daily operation. The review covered all important control level such as financial control, operation control, compliance control, and risk management control, especially in regulating the decision procedures in major affairs, major personnel appointment and removal, major project arrangement and large sum of capital movement. The Company considers that the present internal control procedures adopted are sufficient to comply with the requirements under the Listing Rules, but the Company will continue to review, revise and strengthen its internal control from time to time, so as to meet with further requirements of internal management, the Listing Rules, and rules and regulations.

APPRECIATION

I would like to express my heartfelt thanks to our employees, and shareholders, banks, business partners and all other people from the society who have rendered support to the Company’s development.

By order of the Board,

Li Hongjun Executive Director and President

Hong Kong, 24 March 2016

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Annual Report 2015

CORPORATE GOVERNANCE REPORT

The Company had complied throughout the reporting period with the provisions of the Corporate Governance Code and Corporate Governance Report as set out in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

BOARD OF DIRECTORS

In 2015, the Board of Directors of the Company comprises the Executive Directors, namely, Mr Li Hongjun (President) and Mr Jin Xuesheng; the Non-Executive Directors, namely, Mr Zhang Jianheng (Chairman), Mr Chen Xuechuan and Mr Shi Weiguo; and the Independent Non-Executive Directors, namely, Mr Luo Zhenbang, Ms Leung Sau Fan, Sylvia and Mr Wang Xiaojun.

Mr Zhang Jianheng had been appointed as Chairman of the Company and Mr Li Hongjun had been appointed as President of the Company. Mr Zhang Jianheng and Mr Li Hongjun are not related to in financial, business or family aspects. The roles of Chairman and President have been divided according to respective written Terms of Reference.

Each of the Directors of the Company will receive a comprehensive and formal induction on the first occasion of their respective appointment, so as to ensure that they have a proper understanding of the operations and business of the Company and are fully aware of their responsibilities under common law, the Listing Rules, applicable legal requirements, other regulatory requirements and the business and governance policies of the Company.

The specific term for each Non-Executive Director (including Independent Non-Executive Directors) of the Company is two years, provided that each Non-Executive Director is subject to retirement by rotation and re-election, if eligible, under the Articles of Association of the Company.

Those Directors appointed by the Board during the year shall hold office only until the next general meeting and shall then be eligible for re-election. The process for re-election of a Director is in accordance with the Company’s Articles of Association, which requires that, other than those Directors appointed during the year, one-third of the Directors for the time being (or the nearest number) are required to retire by rotation at each annual general meeting and are eligible to stand for re-election. The annual report and the circular for annual general meeting contain detailed information on re-election of Directors including detailed biography of all Directors standing for election or re-election so as to ensure shareholders to make an informed decision on their election. If shareholders propose a person for election as a director of the Company, it should be made in pursuant to procedures stipulated in the Hong Kong Companies Ordinance, the Listing Rules and the Company’s Articles of Association etc.. Procedures of Articles of Association can be downloaded in the Company’s website for reference.

The Company had complied with the requirements of the Listing Rules to appoint three Independent Non-Executive Directors during 2015, namely, Mr Luo Zhenbang, Ms Leung Sau Fan, Sylvia and Mr Wang Xiaojun. Among those Independent Non-executive Directors, Mr Luo Zhenbang has appropriate professional qualifications or accounting or related financial management expertise as required under Rule 3.10(2) of the Listing Rules. The Company had received a letter from each of the Independent Non-Executive Directors confirming his independence in compliance with Rule 3.13 of the Listing Rules. Among which, Mr Luo Zhenbang has been the Company’s Independent Non-Executive Director for nine years consecutively who continuously demonstrates the characters of being an Independent NonExecutive Director, providing independent opinion. As such, the Board of Directors confirmed the same upon the Nomination Committee had reviewed and confirmed that all Independent Non-Executive Directors are independent. The Independent Non-Executive Directors of the Company are unrelated to each other in every aspect, including financial, business or family.

~~13~~

China Aerospace International Holdings Limited

CORPORATE GOVERNANCE REPORT

The Company entered into an engagement letter with each of the Directors, in which specified that their responsibilities to comply with the rules and regulations and the Articles of Association and to report director’s duties, their right to receive a director’s remuneration and to reimburse their expenses incurred reasonably, their length of term and the ways to terminate their appointment and so on. The Directors have understood their duty that they should commit sufficient time and effort to deal with the Company’s matters and have confirmed the same to the Company.

The Company had adopted the Model Code for Securities Transactions by Directors of Listed Issuers , Appendix 10 of the Listing Rules, as the required standard for the Directors of the Company to trade the securities of the Company. The Company had also adopted a code for employees as the required standard to trade the securities of the Company. The Company has required that, from 30 days before the publication of interim results and 60 days before the publication of annual results, Directors, senior management and each of their respective associates are not allow to trade any securities of the Company.

The Company had enquired with all the Directors as to whether they had complied with Appendix 10 while trading the securities of the Company during 2014. So far as was known to the Company, all Directors had complied with Appendix 10 during the period.

The Board is responsible for determining the Company and its subsidiaries’ objectives, strategies, policies, principal business plans and corporate governance, and the management is delegated the responsibilities of running the Company’s businesses, making day-to-day decisions concerning business operations and the implementation of the approved strategies in achieving the overall development strategies of the Company.

The attendance records of individual Directors during 2015 are set out below (Mr Zhang Jianheng, Chairman of both the Board and the Nomination Committee, due to business reason, was unable to attend the annual general meeting):

				Annual General Meeting	Annual General Meeting	Annual General Meeting	Annual General Meeting					Board Meeting	Board Meeting	Board Meeting	Board Meeting
				Number of								Number of
				meetings entitled			Number	of				meetings entitled			Number of
Directors				to attend			attendance					to attend			attendance
Zhang Jianheng				1				0				4			3
Li Hongjun				1				1				4			4
Jin Xuesheng				1				1				4			4
Chen Xuechuan				1				0				4			4
Shi Weiguo				1				0				4			4
Luo Zhenbang				1				1				4			4
Leung Sau Fan, Sylvia				1				1				4			4
Wang Xiaojun				1				1				4			3

~~14~~

Annual Report 2015

CORPORATE GOVERNANCE REPORT

CORPORATE GOVERNANCE POLICY

The Board is responsible for the Company’s corporate governance and shall review and approve the Company’s corporate governance in board meeting(s) in a timely manner. This includes but not limited to reviewing the effectiveness and sufficiency of corporate governance measures and policies, reviewing the training arrangements of Directors and senior management, whether the Company policies comply with requirements of rules and regulations, applicability of the Company’s internal codes, whether the Company complies with requirements of the Corporate Governance Code and Corporate Governance Report , and whether these have been disclosed in the Corporate Governance Report. The corporate governance policy has been covered in the Company’s Rules of Board Procedure which mainly regulate and monitor the discussion and decision making procedure of the Board in order to raise the effectiveness of corporate governance. Besides, the Board has made an appropriate internal control and whistle-blowing system so as to effectively monitor the Company’s financial and governance situation. At the same time, the Company also made a Shareholder’s Communication Policy to effectively put forward disclosures of information and increase the Company’s transparency.

In pursuant to the Company’s Rules of Board Procedure, regular board meetings are held at least four times a year, and, if necessary, additional meetings would be arranged. In 2015, the Company held four board meetings, and Mr Zhang Jianheng, the Chairman, also convened a meeting with the Non-Executive Directors (including the Independent Non-Executive Directors) without the presence of the Executive Directors and other management.

The Company Secretary assists the Directors in establishing the meeting agenda. Notice of meeting and information package will be sent to Directors within reasonable and practical time prior to a regular board meeting in order to facilitate the Directors informed discussion and decision-making.

The Company Secretary is responsible for taking minutes of meetings. Draft minutes will be sent to all Directors for their comments within a reasonable time after each meeting and will be approved by the Board at the immediate following meeting. Final versions of the board minutes will be sent to all Directors for inspection. The minutes books are kept by the Company Secretary and are open for inspection by the Directors upon request. All Directors have access to the advice and services of the Company Secretary, who is responsible to the Board and advising the Board that the procedures are followed and that the Listing Rules are complied with.

BOARD COMMITTEES

The Board has established an Audit Committee, a Remuneration Committee and a Nomination Committee, all of which respectively monitors the Company’s governance such as financial situation, directors and senior management’s remuneration policy, and nomination of directors. The Committees are governed by their respective Terms of Reference and accountable to the Board.

Audit Committee

In 2015, the Audit Committee of the Company comprises Mr Luo Zhenbang (Chairman) and Ms Leung Sau Fan, Sylvia, both being Independent Non-Executive Directors; and Mr Shi Weiguo, being a Non-Executive Director. The major functions of the Audit Committee include serving as a focal point for communication between the Directors and external auditors, reviewing the Company’s financial information as well as overseeing the Company’s financial reporting system, risk management and internal control procedures. The Terms of Reference of the Audit Committee can be downloaded in the websites of both The Hong Kong Exchanges and Clearing Limited and the Company for reference.

The Audit Committee met twice during 2015 for the purpose of assessing and reviewing the internal control system, risk management, the financial statements and corporate governance practices and so on. The external auditors, the Financial Controller, the General Managers of both Finance Department and Internal Audit Department, and the Company Secretary attended both meetings.

~~15~~

China Aerospace International Holdings Limited

CORPORATE GOVERNANCE REPORT

The Audit Committee had also reviewed, discussed and approved the financial statements for the year ended 31December 2015.

The attendance records of individual Audit Committee members during 2015 are set out below:

				Number of
				meetings eligible			Number of
				to attend			attendance
Luo Zhenbang				2			2
Leung Sau Fan, Sylvia				2			2
Shi Weiguo				2			2

Remuneration Committee

In 2015, the Remuneration Committee comprises Ms Leung Sau Fan, Sylvia (Chairman) and Mr Wang Xiaojun, both being Independent Non-Executive Directors, and Mr Chen Xuechuan, being a Non-Executive Director. The Remuneration Committee takes the role of advisory and proposes to the Board on the emoluments of the Directors and senior management with regard to the operating results of the Company, the individual performance and the comparable market information. The Terms of Reference of the Remuneration Committee can be downloaded in the websites of both The Hong Kong Exchanges and Clearing Limited and the Company for reference.

The Remuneration Committee met once during 2015. The Controller of Human Resources and the Company Secretary also attended the meeting. The Remuneration Committee reviewed the remuneration and appraisal policy of the Company’s Directors and senior management. In 2015, no Director was involved in deciding his/her remuneration.

The attendance records of individual Remuneration Committee members during 2015 are set out below:

					Number of
					meetings eligible			Number of
					to attend			attendance
Leung	Sau Fan, Sylvia				1			1
Wang	Xiaojun				1			1
Chen	Xuechuan				1			1

The Directors’ fees and any other reimbursement or emolument payable to each Director during the year were fully disclosed in the Company’s financial statements.

~~16~~

Annual Report 2015

CORPORATE GOVERNANCE REPORT

Nomination Committee

In 2015, the Nomination Committee comprises Mr Zhang Jianheng (Chairman) and Mr Chen Xuechuan, all being NonExecutive Directors, and Mr Luo Zhenbang, Ms Leung Sau Fan, Sylvia and Mr Wang Xiaojun, all being Independent Non-Executive Directors. Main functions of the Nomination Committee are to review the structure and size of the Board in order to implement the Company’s strategy. The Terms of Reference can be downloaded in the websites of both The Hong Kong Exchanges and Clearing Limited and the Company for reference.

The board diversity policy is a reference base of the Company for the selection of director candidates. With reference to the Company’s unique corporate culture and background, the Company will consider the candidate’s different personal factors, including skills, regional and industrial experience, background, expertise, culture, independence, age, sex and other professional qualifications etc. in assessing the board’s most suitable composition. Appointment depends on capability. Besides, as practically as possible, the Company will maintain the right balance and recruit the most suitable personnel with ample experience to manage various business of the Company. The Nomination Committee reviews the implemented board diversity policy at appropriate time and set up measurable targets in order to ensure effectiveness of the policy and fit into the ongoing business development of the Company.

At present, there are 8 members in the Board of the Company, including 7 male directors and 1 female director. All directors possess university or above educational level whereas some possess qualifications in accountancy, chartered secretary and lawyer etc., and have ample experiences of giant enterprise management, financial management, legal and human resources etc. of different fields.

The Nomination Committee met once during 2015 while the Company Secretary attended the meeting. The Nomination Committee reviewed the structure of the Board, confirmed the rotation list of Directors at the Annual General Meeting, and reviewed the independency of each of the Independent Non-Executive Directors and confirmed all of them are independent, and the Board, based on the recommendation of the Nomination Committee, also confirmed that all of them have an independency.

The attendance records of individual Nomination Committee members during 2015 are set out below:

				Number of
				meetings eligible			Number of
				to attend			attendance
Zhang Jianheng				1			1
Luo Zhenbang				1			1
Leung Sau Fan, Sylvia				1			1
Wang Xiaojun				1			0
Chen Xuechuan				1			1

~~17~~

China Aerospace International Holdings Limited

CORPORATE GOVERNANCE REPORT

DIRECTORS’ TRAINING

The Directors have been reported the financial and the operational information by the Company periodically, and will be informed, both in written and by meetings, the latest amendments of the relevant laws related to listed companies and the Listing Rules (if any) in order to let them to understand the related directors’ duties and responsibilities. Besides, the Company already informed each Director of the requirement of receiving relevant training each year and the provision of a record of the training they received to the Company. In 2015, the Company arranged to review the materials related to the latest two years’ requirements of Hong Kong Companies Ordinance, the amendments of the Listing Rules, and the requirements of Environment, Social and Governance Report. All Directors had participated appropriate trainings according to their own needs and provided a training record during 2015 to the Company pursuant to the Corporate Governance Code and Corporate Governance Report .

LIABILITY INSURANCE

The Company had already purchased an insurance for Directors and senior management of the Company and its subsidiaries in respect of the protection against contingent loss and liabilities arising from daily operations that may be borne by Directors and senior management.

COMPANY SECRETARY

The Company Secretary should report to the Chairman of the Board and the President. The selection, appointment or dismissal of Company Secretary in future (if any) should be approved by the Board at a meeting.

The Company Secretary of the Company is Mr Chan Ka Kin, Ken, who is a member of the Hong Kong Institute of Chartered Secretaries, has been servicing the Company for many years and he had taken not less than 15 hours’ professional training in 2015 which met the requirements as stipulated in Rule 3.28 of the Listing Rules.

INTERNAL CONTROL

The Company has gradually established, maintained and operated an effective system of internal control, which has clearly defined the authorities and key responsibilities of each business and operational unit. Internal Audit Department had been set up and that will audit those businesses and operational units periodically and randomly, so as to ensure adequate checks and balances, together with maintaining and implementing risk management and internal control system.

The Directors of the Company considers that it is adequate in resources, qualifications and experience of staff of the Company’s accounting, financial reporting and internal audit functions, as well as their training programmes.

ACCOUNTABILITY AND AUDIT

The Directors are responsible for preparing the accounts of each financial year, which give a true and fair view of the state of affairs, the results and the cash flows of the Company and its subsidiaries for that period. In preparing the accounts for the year ended 31 December 2015, the Directors had selected suitable accounting policies and adopted Hong Kong Financial Reporting Standards and applied them consistently. Based on judgments and estimates that are prudent and reasonable, the Directors prepared the accounts on the going concern basis. Auditor’s reporting responsibilities are set out on the financial statements by the auditor.

During 2015, the Directors were not aware of any material uncertainties relating to events or conditions which may cast significant doubt on the Company’s ability to continue as a going concern. The Company aims at presenting a balanced, clear and comprehensive assessment of the Company’s performance, position and prospects in all published documents such as announcements, circulars, interim reports and annual reports. The Company has announced its annual and interim results in a timely manner within the limits of 3 months and 2 months respectively after the end of the relevant period, as laid down in the Listing Rules.

~~18~~

Annual Report 2015

CORPORATE GOVERNANCE REPORT

In 2015, the Company paid a total of approximately HK$4,840,000 to the auditor, of which included an audit fee of approximately HK$4,155,000 and a non-audit fee of approximately HK$685,000. The latter comprised fees for provision of services in reviewing interim report and annual results announcement, and continuing connected transactions.

INVESTORS’ RELATION

The information on the website of the Company will be updated in a proper and timely manner to maintain a quick, fair and transparent disclosure of its information.

The Company, when holding any general meeting, will propose a separate resolution for each substantially separate issue. No “bundling” resolution will be proposed, including nomination of each director.

Meanwhile, the Company, according to the requirements of Rule 13.39(4) of the Listing Rules, has set out clearly in the circulars to its shareholders that all resolutions to be made at general meetings would be conducted by poll. Besides, all proxies are counted at the general meeting whereas poll results are announced promptly at the meeting, of which the same will be uploaded in the websites of both The Hong Kong Exchanges and Clearing Limited and the Company on the same day.

The Company held an annual general meeting in May 2015. Circular of the meeting was sent beforehand as required by related rules. In the annual general meeting, the shareholders reviewed and approved the resolutions on the Company’s financial results of 2014, the payment of a final dividend, re-election and remuneration fixing of Directors, the re-election and remuneration fixing of auditors, the general mandate to the Board to issue and repurchase shares. All proposed resolutions were approved by shareholders of the Company.

The Company had set aside enough time for shareholders to raise questions and for Directors to respond in the general meeting. Resolutions being put forward in the general meeting were duly approved by shareholders and the Company Secretary, representing the meeting chairman, announced all poll results promptly during the meeting, of which the same were uploaded in the websites of both The Hong Kong Exchanges and Clearing Limited and the Company respectively on the same day’s afternoon.

The Company did not amend its Articles of Association in 2015.

SHAREHOLDERS’ RIGHTS

Shall any shareholder of the Company demand the holding of an extraordinary general meeting for approval of any specific resolution, he/she may so demand in accordance to the requirements of Hong Kong Companies Ordinance and the Company’s Articles of Association. The said requirements can be downloaded from the Company’s website for reference.

Shall any shareholder intend to put forward suggestions in any general meeting or enquiries to the Board, he/she shall do so in written to the Company Secretary of the Company. The letter shall state clearly the identity of the shareholder, the number of shareholding, correspondence address and telephone number, and the related suggestions and enquiries. The Company shall, in a reasonable and practicable manner, pass the said matter to the Board or the President and respond according to the situation.

In addition, the Company receives letters or phone enquiries from shareholders from time to time, the Company shall, in a reasonable and practicable manner, respond as quickly as possible. For matters concerning the Company’s shares and basic information of announcements, enquiries shall be put forward to the email of comsec@casil-group.com while for matters concerning investor relations and enquiries from reporters, enquiries shall be put forward to the email of investor.relations@casil-group.com.

~~19~~

China Aerospace International Holdings Limited

CORPORATE GOVERNANCE REPORT

SUFFICIENCY OF PUBLIC FLOAT

As at 31 December 2015, the issued share capital was 3,085,021,882 shares, and the market capitalization was about HK$3,240,000,000.

As at 31 December 2015, the Company had total registered shareholders of 1,113, of which included the substantial shareholder, China Aerospace Science & Technology Corporation, holding approximately 38.37%. Since many other shareholders hold shares through HKSCC Nominees Limited in Hong Kong, the actual number of shareholders should be greater than the registered numbers.

According to the public information obtained by the Company and to the best knowledge of the Directors, the Company complied with the sufficiency of public float of not less than 25% as required by the Listing Rules as of the date of this Annual Report.

CORPORATE SOCIAL RESPONSIBILITY

In the midst of continuous business development, the Company, endeavouring to become a company with social responsibility, through consistently encouraging and advising staff and by complying related rules, hopes to gradually deliver the message of corporate social responsibility in minimising impacts on the environment and consumption of resources so as to contribute to the society and raise the society’s capability of sustainability.

Working Environment

The Company and its subsidiaries adhere to the principle of fair recruitment regardless of age, gender, marital status, race, nationality, religion or disability, and always regard staff as the most important assets and appoint them according to their ability. Every staff enjoys equal opportunities. The remuneration policy is determined based on the employee’s qualifications, experience and performance on the job, with reference to the current market situation. The Company and its subsidiaries will continue to enhance the level of human resources management and strictly implement the performance-based appraisal system, in order to motivate employees to make continuous improvement in their individual performance and contributions to the Company.

In response to regulations and actual needs, all industrial enterprises have in place various provisions, including but not limited to labour protection for female workers and underage workers, adequate protection of staff’s work and rest time, paid annual and causal leaves and occupational injury management, in order to comprehensively and reasonably protect the welfare of staff.

The Company and its subsidiaries provide the staff with a comparatively reasonable salary, appropriate medical protection and other insurance coverage. This helps to maintain a comparatively stable working environment for the staff. Meanwhile, the Company and its subsidiaries also adequately sponsor the staff to attend some professional seminars and short-term courses and encourage staff to continuously develop themselves and increase their own competitiveness, in order to adapt to the ever-changing market and to meet with the requirements of the Company. Some industrial enterprises also set up a training management centre for staff training, including staff ability building, occupational safety and health, various trainings in vocational skills, etc.

In 2015, the Company and its subsidiaries had no significant labour disputes.

As at 31 December 2015, the Company and its subsidiaries had a total of approximately 6,250 employees based in Mainland China and Hong Kong respectively.

Environmental Protection

The Company has long been encouraging staff to lessen the consumption of natural resources and adopt energy saving measures. It also requires its subsidiaries to comply with the related environmental protection regulations and ensure such compliance during production and operation, with a view to reducing unnecessary utilisation of natural resources and environmental pollution.

~~20~~

Annual Report 2015

CORPORATE GOVERNANCE REPORT

On the other hand, the industrial enterprises have always strictly complied with the provisions of laws concerning environmental protection, waste collection, pollutant emission and noise emission in Mainland China. In response to the needs of different industries, they have also established energy management system, pollutant emission and waste management control procedures and safety management system for hazardous chemicals. Besides, they have also hired qualified companies to detect whether the levels of noise, exhaust gas and waste water exceed the standard, and to handle various hazardous industrial wastes, thereby striving to control and reduce pollution on communities.

In 2015, the emissions of industrial enterprises were lower than the standard prescribed by laws. Also, neither significant violation of environmental protection laws nor accidents exerting significant adverse impact on the environment occurred.

Operating Practices

The industrial enterprises are responsible for producing different types of products, and have established a sound internal test and detection system. The reject rate has remained at a relatively low level and the products are in compliance with relevant product safety regulations, so as to ensure the production process does not affect staff’s health and safety and final products do not affect customers’ health and safety. In 2015, products of all hi-tech manufacturing business had no significant quality problems.

Additionally, in response to the needs of different industries and the requirements of customers, major industrial enterprises have applied for and acquired relevant international certifications, such as Quality Management System Standard (ISO 9001), Environmental Management System Standard (ISO 14001), Occupational Health and Safety Management Standard (OHSAS 18001), Restriction of Hazardous Substances Directive (ROHS 2.0) and Quality System Requirements for Automotive Products and Services (ISO/TS 16949). Some industrial enterprises even established manuals for green products and technical specifications for green product management. Relevant management and staff must learn and be familiar with all provisions, and strive for compliance with varied specific requirements in the production process, which also reflects the Company’s emphasis on social responsibility and willingness to safeguard the interests of all stakeholders and to reasonably assume social responsibility.

The Company has always attached importance to fair trading. The Company and its subsidiaries have engaged in business with each of their business partners and lending banks based on equitable, fair and reasonable terms and complied with the related rules and regulations so as to reduce the exposure of risks, and have always maintained good relationships with such partners and banks. The Company and its subsidiaries execute agreements and settle payables within a reasonable and practicable period according to the related agreement terms without unreasonable delay. The Company and its subsidiaries also demand the same on its customers so as to facilitate persistent cash flow without affecting business operations.

Pursuant to the requirements of the Listing Rules, the Company has developed the Arrangements for Staff’s Raising Concerns about Improprieties in Financial Reporting . If an employee of the Company or its subsidiaries lodges complaints about improprieties in financial reporting, such improprieties will be independently investigated and handled by the Chairman of the Audit Committee. Besides, major industrial enterprises have established the Supplier Management and Control Procedures , covering the qualification accreditation, annual assessment and regular monitoring of the suppliers, and developed provisions for anti-commercial bribery as well as product delivery and service management system, including product quality control methods and product complaint handling.

In 2015, the Company did not receive any complaints regarding improprieties in financial reporting; and there were no material disputes between the Company and its subsidiaries and business partners and lending banks.

~~21~~

China Aerospace International Holdings Limited

BIOGRAPHICAL DETAILS OF DIRECTORS

Mr Zhang Jianheng, aged 54, a Senior Engineer, is a Non-Executive Director and Chairman of the Company. Mr Zhang graduated from Dalian Institute of Technology in 1982. From 1982 to 1989, he joined the First Film Factory of the Ministry of Chemical Industry and from 1989 to 1996, he joined the First Film Factory of China Lucky Film Company. From 1996 to 2011, he was the Director, Deputy General Manager and General Manager of China Lucky Film Corporation. During the same period, he also served as Deputy Chairman and General Manager, and Chairman of Lucky Film Co., Ltd., the shares of which are listed on Shanghai Stock Exchange (stock code: 600135). From 2011 till now, he serves as Deputy General Manager of China Aerospace Science & Technology Corporation and from April 2012 as Vice Chairman of ZTE Corporation, the shares of which are listed on The Stock Exchange of Hong Kong Limited (stock code: 763) and Shenzhen Stock Exchange (stock code: 000063). Mr Zhang was a Standing Committee Member of the 10th Session of All China Youth Federation and Deputy Chairman of the 2nd Session of the State Enterprise Youth Federation. He was assessed as National Labour Model in 2010 and elected as a deputy of the 12th National People’s Congress in 2013. Mr Zhang has extensive experience in corporate administration. He was appointed as a Non-Executive Director and Chairman of the Company in March 2012.

Mr Li Hongjun, aged 50, a Senior Engineer, is an Executive Director of the Company and President of the Group. He started his career in China Academy of Aerospace Propulsion Technology in September 1985 and held such posts as Technician, Vice President and President of Academy of Metrology, Director General of Civilian Products Department of China Academy of Aerospace Propulsion Technology, Deputy General Manager and General Manager of Shaanxi Aerospace Power High-tech Company Limited (stock code: 600343), the shares of which are listed on Shanghai Stock Exchange. In the meantime, he studied in the Party School of the Central Committee majoring in Economic Management by correspondence, the Northwest University majoring in Administrative Management and obtained a master degree of Public Administration, and the Nanyang Technological University, Singapore majoring in Business Administration and obtained a degree of EMBA. He was the Vice President of China Spacesat Company Limited (stock code: 600118), the shares of which are listed on Shanghai Stock Exchange, from May 2004 to June 2005. He was the Deputy Director General of the Business Investment Department of China Aerospace Science & Technology Corporation from June 2005 and was promoted to Director General from December 2007 until May 2010. He has been involved in the senior posts in listed companies for years and has extensive experience in corporate management, market exploration and capital operation. He was appointed as a Non-Executive Director of the Company in March 2008 and was re-designated as an Executive Director of the Company and appointed as President of the Group in May 2010.

Mr Jin Xuesheng, aged 53, a Senior Engineer, is an Executive Director of the Company and Executive Vice President of the Group. He graduated from Harbin Institute of Technology with an engineering bachelor degree and the University of Lancaster in the United Kingdom with a MBA degree. From 1984, he held such positions as Deputy Division Director and Division Director of the Planning and Operation Division, Engineer and Deputy Factory Director at Capital Engineering Factory under China Academy of Launch Vehicle Technology, as well as Managing Director of Langfang Hangxing Packaging Machinery Company Limited, the Vice President and Financial Controller of China Spacesat Company Limited (stock code: 600118), the shares of which are listed on Shanghai Stock Exchange, Deputy General Manager of Beijing Aerospace Satellite Applications Company and Deputy General Manager of Aerospace Technology Investment Holdings Limited. Among which, he was the Executive Director and Vice President of the Company from September 1999 to May 2001, the Director, Deputy General Manager and Financial Controller of Shanghai Aerospace Technology Investment Management Company Limited, a subsidiary of the Company, from November 2006. Mr Jin possesses extensive corporate management experience, especially the experience in financial management. He was appointed as a Non-Executive Director of the Company in March 2008 and was re-designated as an Executive Director of the Company and appointed as Executive Vice President of the Group in May 2010.

~~22~~

Annual Report 2015

BIOGRAPHICAL DETAILS OF DIRECTORS

Mr Luo Zhenbang, aged 49, is an Independent Non-Executive Director of the Company and a director and senior partner of BDO China Shu Lun Pan CPAs. Mr Luo graduated from the School of Business of Lanzhou in 1991 majoring in Enterprise Management. He has been managing the audit works for many listed companies since 1994. He has been an expert supervisor of China Xinda Asset Management Corporation and China Great Wall Asset Management Corporation. He was also an independent director of Long March Vehicle Technology Company Limited, Orient Tantalum Industry Company Limited, Wuzhong Instrument Company Limited, Shengxue Company Limited and Avic Heavy Machinery Co. Ltd., as well as an internal audit expert of Northeast Securities Company Limited, shares of which are listed on Shenzhen Stock Exchange (stock code: 000686). He currently serves as independent director of Digital China Information Service Company Ltd., shares of which are listed on Shenzhen Stock Exchange (stock code: 000555), China City Railway Transportation Technology Holdings Company Limited, shares of which are listed on The Stock Exchange of Hong Kong Limited (stock code: 1522), and Xinjiang Goldwind Science & Technology Co., Ltd., shares of which are listed on Shenzhen Stock Exchange (stock code: 002202) and The Stock Exchange of Hong Kong Limited (stock code: 2208) and Guorui Properties Limited, shares of which are listed on The Stock Exchange of Hong Kong (stock code: 2329). Mr Luo possesses several professional qualifications, such as Chinese certified public accountant, certified accountant in securities and futures industry, Chinese certified assets valuer and Chinese certified tax accountant and has in-depth experience in accounting, auditing and financial management. He is familiar with the audit of listed companies from various sectors and extensively participates in corporate restructuring for listing, listed company restructure and other business consultation services. He was appointed as an Independent Non-Executive Director of the Company in December 2004.

Ms Leung Sau Fan, Sylvia, aged 52, is an Independent Non-Executive Director of the Company. Ms Leung holds a Bachelor’s degree in Accountancy from City University of Hong Kong and a Bachelor of Laws degree from the University of London and is a chartered secretary. Ms Leung is currently an independent non-executive director of Poly Property Group Co., Limited (stock code: 119), the shares of which are listed on The Stock Exchange of Hong Kong Limited. She has over 20 years of experience in dealing with listing related and corporate finance areas. She was appointed as an Independent Non-Executive Director of the Company in March 2012.

Mr Wang Xiaojun, aged 61, is an Independent Non-Executive Director of the Company. Mr Wang is a practicing solicitor admitted in the Mainland China, Hong Kong and the United Kingdom. Mr Wang Xiaojun obtained a Bachelor’s degree in Laws from the Renmin University of China in 1983 and a Master of Laws from the Chinese Academy of Social Sciences in 1986. He joined The Stock Exchange of Hong Kong Limited in 1992 and served Richards Butler from 1993 to 1996. In 1996, he served as an associate director of Peregrine Capital Limited. From 1997 to 2001, he served as a director of ING Barings. He established X. J. Wang & Co. in 2001 and that was associated with Jun He Law Offices in 2009. He is currently a partner of Jun He Law Offices. From 2011 to 2012, Mr Wang Xiaojun served as managing director of CCB International (Holdings) Limited. He was an independent non-executive director of Norinco International Company Limited, shares of which are listed on Shenzhen Stock Exchange (stock code: 000065), Guangzhou Shipyard International Company Limited, shares of which are listed on The Stock Exchange of Hong Kong Limited (stock code: 317) and Shanghai Stock Exchange (stock code: 600685), and Zijin Mining Group Company Limited, shares of which are listed on The Stock Exchange of Hong Kong Limited (stock code: 2899) and Shanghai Stock Exchange (stock code: 601899), and currently serves as an independent non-executive director of OP Financial Investments Limited, shares of which are listed on The Stock Exchange of Hong Kong Limited (stock code: 1140), Yanzhou Coal Mining Company Limited shares of which are listed on The Stock Exchange of Hong Kong Limited (stock code: 1171), Shanghai Stock Exchange (stock code: 600188) and New York Stock Exchange (stock code: YZC), and Livzon Pharmaceutical Group Co., Ltd., shares of which are listed on The Stock Exchange of Hong Kong Limited (stock code: 1513) and Shenzhen Stock Exchange (stock code: 000513). Mr Wang Xiaojun is familiar with corporate listing, merger and acquisition and restructuring, direct investment and so on and possesses many years of relevant experience. Mr Wang was appointed as an Independent Non-Executive Director of the Company in March 2013.

~~23~~

China Aerospace International Holdings Limited

BIOGRAPHICAL DETAILS OF DIRECTORS

Mr Chen Xuechuan, aged 53, a Research Fellow, is a Non-Executive Director of the Company. Mr Chen graduated from the Dailian University of Technology with a master’s degree in engineering and started his career and held such posts as Deputy Factory Officer, Chief Metallurgist, Deputy Chief Engineer and Deputy General Manager of Capital Aerospace Machinery Company from 1983, Person-in-charge of Personnel & Education Department of the First Academy of China Aerospace Corporation from 1997, Person-in-charge of the Academy of Beijing Aerospace System Engineering from 2000, Director General of Human Resources Department of China Aerospace Science & Technology Corporation from April 2005 to 2015, Assistant to General Manager, Director of both General Office and Legal Affairs Office of China Aerospace Science & Technology Corporation from March 2015 till now, and to serve concurrently standing council member of Chinese Society of Astronautics, China Institute of Space Law and China Space Foundation, and Director of Aerospace Science & Technology Finance Company Limited from 2007 to 2011. Mr Chen has been engaged into the machinery manufacturing of launch vehicles, the management of corporations and academies, as well as human resources management and has substantial experience in corporate management and human resource management. He was appointed as a Non-Executive Director of the Company in August 2008.

Mr Shi Weiguo, aged 45, is a Non-Executive Director of the Company. He studied applied physics at Soochow University from 1988 to 1992 and obtained a Bachelor’s degree in Science. Since 1992, he served as Technician in Suzhou Nuclear Power Research Institute under the Ministry of Power Industry. He served as Executive of Foreign Trade Branch of China Suzhou International Economic Technical Cooperation Corporation since 1995, and that of Deputy General Manager of Asian Pacific Engineering Branch and Manager of Fujian Branch since 2003, respectively, during which he completed a postgraduate class of National Economic Investment in Nanjing University. Since 2005, he served as Deputy General Manager of Wan Yuan Industrial Company under China Academy of Launch Vehicle Technology. From March 2007 to December 2007, he served as Deputy General Manager of CASIL Telecommunications Holdings Limited (now known as China Energine International (Holdings) Limited, stock code: 1185), the shares of which are listed on The Stock Exchange of Hong Kong Limited. He was a Deputy Director General of the Business Investment Department of China Aerospace Science & Technology Corporation since December 2007 and is currently that of the Director General since June 2010. Mr Shi has ample experience and ability in market development and operating management. He was appointed as a Non-Executive Director of the Company in July 2010.

~~24~~

Annual Report 2015

DIRECTORS’ REPORT

The Directors present their annual report and the audited consolidated financial statements of the Company and its subsidiaries for the year ended 31 December 2015.

PRINCIPAL ACTIVITIES

The principal activity of the Company is investment holding and the activities of its principal subsidiaries, associates and joint ventures are set out in notes 42, 43 and 44 to the consolidated financial statements, respectively.

BUSINESS REVIEW

The business review of the Company and its subsidiaries for the year ended 31 December 2015 is set out in the sections headed “Chairman’s Statement”, “Management Discussion and Analysis” and “Corporate Governance Report” respectively. Description of the risks and uncertainties facing the Company can be found throughout this Annual Report.

RESULTS AND APPROPRIATION

The results of the Company and its subsidiaries for the year ended 31 December 2015 are set out in the consolidated statement of profit or loss on page 32.

A final dividend of HK1 cent per share in respect of the year ended 31 December 2015 (2014: HK1 cent per share) had been proposed by the directors and is subject to approval by the shareholders in the Annual General Meeting.

PROPERTY, PLANT AND EQUIPMENT

During the year, the Company and its subsidiaries acquired land and buildings, plant and equipment and motor vehicles, furniture and other equipment of HK$14,129,000, HK$116,476,000 and HK$9,996,000 respectively and project in progress of HK$78,589,000 to cope with the expansion of the Company and its subsidiaries. Details of movements in property, plant and equipment are set out in note 14 to the consolidated financial statements.

INVESTMENT PROPERTIES

Details of the movements in investment properties during the year are set out in note 16 to the consolidated financial statements.

DISTRIBUTABLE RESERVES OF THE COMPANY

The Company’s reserves available for distribution to shareholders as at 31 December 2015 comprised the retained profits of approximately HK$804,358,000(2014: HK$832,471,000).

PURCHASE, SALE AND REDEMPTION OF SHARES

Neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company’s listed securities during the year.

MAJOR CUSTOMERS AND SUPPLIERS

In the year under review, the aggregate turnover attributable to the Company and its subsidiaries’ largest customer and five largest customers were 13.8% and 31.6% of the Company and its subsidiaries’ consolidated turnover, respectively. The aggregate purchases attributable to the Company and its subsidiaries’ five largest suppliers were less than 30% of the Company and its subsidiaries’ total purchases.

~~25~~

China Aerospace International Holdings Limited

DIRECTORS’ REPORT

DIRECTORS

The Directors during 2015 and up to the date of this Report were:

Executive

Li Hongjun (President) Jin Xuesheng

Non-Executive

Zhang Jianheng (Chairman) Luo Zhenbang (Independent ) Leung Sau Fan, Sylvia (Independent) Wang Xiaojun (Independent) Chen Xuechuan Shi Weiguo

Non-Executive Directors are appointed for a period of 2 years and, being eligible, offer themselves for re-election at the Annual General Meeting of the Company in accordance with the Company’s Articles of Association.

Mr Zhang Jianheng, Mr Chen Xuechuan, Mr Shi Weiguo and Ms Leung Sau Fan, Sylvia, due to expiry of their twoyear term, retire by rotation at the Annual General Meeting in accordance with Article 103(A) of the Company’s Articles of Association, and Mr Li Hongjun retire by rotation at the Annual General Meeting in accordance with Article 103(A) of the Company’s Articles of Association and Code A.4.2 of Appendix 14 of the Listing Rules and, being eligible, offer themselves for re-election. Mr Zhang Jianheng, if being re-elected, will resume the office of Chairman of the Company.

During 2015 and up to the date of this Report, the directors of subsidiary undertakings of the Company in alphabetical order were Messrs. Chan Ka Kin Ken, Chen Yongjie, Cheng Liwei, Chi Keung, Chu Kam Ching, Gao Shiwen, Gao Yuda, Gong Benning, Guo Xianpeng, Han Jinguang, Hu Min, Jin Xuesheng, Lam Yuk Nan, Li Gang, Li Guangneng, Li Hongjun, Lin Jianming, Lin Zhijian, Niu Zhanjie, Shi Lei, Shum King Mo, Song Dasheng, Sun Jingguo, Tse Wai Hong Francis, Wang Hai, Wong Siu Fong Jenny, Wu Hongju, Yang Honghui, Yin Guang, Zhao Jinlong, Zhen Feng, Zhen Zhiping, Zhong Shangqiong and Zhou Weibing.

• Resigned during 2015 or the period up to the date of this Report.

DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS IN SHARES

The Company had adopted the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 of the Listing Rules as the required standard for the Directors of the Company to trade the securities of the Company. Having made specific enquiry to all the Directors of the Company and in accordance with information provided, all the Directors have complied with the provisions under the Model Code in 2015.

As at 31 December 2015, save for Mr Zhang Jianheng, Mr Chen Xuechuan and Mr Shi Weiguo, the Directors of the Company, are the officers of China Aerospace Science & Technology Corporation, the substantial shareholder of the Company, none of the directors, chief executives or their associates have any beneficial or non-beneficial interests or short positions in the share capital, warrants and options of the Company or its subsidiaries or any of its associated corporations which is required to be recorded in the Register of Directors’ Interests pursuant to Part XV of the Securities & Futures Ordinance or as otherwise notified to the Company and The Stock Exchange of Hong Kong Limited pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers .

~~26~~

Annual Report 2015

DIRECTORS’ REPORT

DIRECTORS’ SERVICE CONTRACTS

None of the Directors has any service contract with the Company or any of its subsidiaries not determinable by the employing company within one year without payment of compensation, other than statutory compensation.

DIRECTORS’ INTERESTS IN CONTRACTS OF SIGNIFICANCE

No contracts of significance, to which the Company or any of its subsidiaries was a party and in which a Director of the Company had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year.

DIRECTORS’ RIGHTS TO ACQUIRE SHARES AND DEBENTURES

At no time during the year was the Company or any of its subsidiaries a party to any arrangements to enable the Directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate, and neither the Directors nor the Chief Executive, nor any of their spouses or children under the age of 18, had any right to subscribe for the securities of the Company, or had exercised any such right.

SUBSTANTIAL SHAREHOLDERS

As at 31 December 2015, the register of substantial shareholders maintained by the Company pursuant to Part XV of the Securities & Futures Ordinance discloses the following companies as having 5% or more of the issued capital of the Company:

Name Capacity Direct interest (Yes/No)	Number of shares interested (Long Position)	Percentage of issued share capital
China Aerospace Science & Technology Corporation Interests in controlled corporation No Jetcote Investments Limited Beneficial owner Yes Interests in controlled corporation No Burhill Company Limited Beneficial owner Yes Sin King Enterprises Company Limited Beneficial owner Yes	1,183,598,636 131,837,011 1,051,761,625 1,183,598,636 579,834,136 471,927,489	38.37% 4.27% 34.10%
		38.37% 18.80% 15.30%

Notes:

Jetcote Investments Limited, Burhill Company Limited and Sin King Enterprises Company Limited are subsidiaries of China Aerospace Science & Technology Corporation, the shares held by them form the total number of shares in which China Aerospace Science & Technology Corporation was deemed interested.

Save as disclosed above, the Company has not been notified of any other relevant interests or short positions in the issued share capital or underlying shares of the Company as at 31 December 2015.

~~27~~

China Aerospace International Holdings Limited

DIRECTORS’ REPORT

LITIGATION

As at the issue date of this Annual Report, neither the Company nor any of its subsidiaries was engaged in any litigation or arbitration or claim of material importance and, so far as the Directors were aware of, no litigation or arbitration or claim of material importance was pending or threatened by or against any member of the Company and its subsidiaries.

EMOLUMENT POLICY

The remuneration policy of the Company and its subsidiaries is based on the employee’s qualifications, experience and performance, with reference to the current market situation. The Company and its subsidiaries will continue to strengthen the human resources management and strictly implement the performance-based appraisal system, in order to motivate employees to make continuous improvement in their individual performance and contributions to the Company.

PERMITTED INDEMNITY PROVISION

Pursuant to the Articles of Association, every director shall be indemnified out of funds of the Company against all liabilities incurred by them to the extent permitted by the Hong Kong Companies Ordinance. In addition, the Company has bought and maintained a director and officer liability insurance for the benefit of directors and officers of the Company and its subsidiaries against liability which may lawfully be insured by the Company.

CONTINUING CONNECTED TRANSACTIONS

The auditor of the Company has reviewed the below continuing connected transactions and issued a letter to the Board confirming that:

1. nothing has come to auditor’s attention that causes them to believe that the continuing connected transactions have not been approved by the Company’s board of directors.

2. nothing has come to auditor’s attention that causes them to believe that the transactions were not entered into, in all material respects, in accordance with the relevant agreements governing such transactions.

3. with respect to the aggregate amount of each of the continuing connected transactions set out in the attached list of continuing connected transactions, nothing has come to auditor’s attention that causes them to believe that the continuing connected transactions have exceeded the maximum aggregate annual value disclosed in the previous announcements by the Company in respect of each of the continuing connected transactions.

The below continuing connected transactions, as confirmed by Independent Non-Executive Directors of the Company, were entered into:

1. in the ordinary course of business of the Company;

2. on normal commercial terms or on terms not less favourable to the terms offered by independent third parties; or on the terms which were fair; and

3. in accordance with the terms of the relevant agreements or contracts, respectively, which were fair and reasonable and in the interest of the Company and its shareholders as a whole.

~~28~~

Annual Report 2015

DIRECTORS’ REPORT

List of Continuing Connected Transactions for the year ended 31 December 2015

The Company and/or its							Continuing connected							Amount outstanding as	Amount outstanding as
subsidiary(ies) involved			Connected person(s)				transactions			Annual cap				of 31 December 2015
Shenzhen Aerospace Hi-tech			Aerospace Science &				The provision of security by			N/A				RMB1,107,200,000 or
Investment Management				Technology			Shenzhen Aerospace to a								equivalent to
Company Limited* (深圳市				Finance Company			connected person who is								HK$1,307,202,000
航天高科投資管理有限公				Limited* (航天科技			a member of the finance
司) (“Shenzhen Aerospace”)				財務有限責任公司)			syndicate of a syndication
				(“Aerospace			loan in the amount of
				Finance”)			RMB1,500,000,000.
CASIL New Century Technology			China Aerospace				China Aerospace Science &			N/A				RMB500,000,000 or
Development (Shenzhen)				Science &			Technology Corporation								equivalent to
Company Limited* (航科新				Technology			entrusted a loan in the sum								HK$590,319,000
世紀科技發展（深圳）有限				Corporation			of RMB500,000,000 to
公司)(“New Century”)							New Century with maturity
							of 60 months through
							Bank of Beijing.
Certain subsidiaries of the			Aerospace Finance				The provision of deposits with			RMB100,000,000				RMB12,000 or
Company							the accounts of Aerospace								equivalent to
							Finance by certain								HK$14,000
							subsidiaries of the
							Company in the amount of
							not more than
							RMB100,000,000 in
							aggregate.

AUDITOR

A resolution will be submitted to the Annual General Meeting to re-appoint Messrs. Deloitte Touche Tohmatsu as auditor of the Company.

By order of the Board,

Li Hongjun Executive Director & President

Hong Kong, 24 March 2016

~~29~~

China Aerospace International Holdings Limited

INDEPENDENT AUDITOR’S REPORT

TO THE SHAREHOLDERS OF CHINA AEROSPACE INTERNATIONAL HOLDINGS LIMITED 中國航天國際控股有限公司

(incorporated in Hong Kong with limited liability)

We have audited the consolidated financial statements of China Aerospace International Holdings Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) set out on pages 32 to 110, which comprise the consolidated statement of financial position as at 31 December 2015, and the consolidated statement of profit or loss, consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

DIRECTORS’ RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS

The directors of the Company are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants and the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

AUDITOR’S RESPONSIBILITY

Our responsibility is to express an opinion on these consolidated financial statements based on our audit and to report our opinion solely to you, as a body, in accordance with section 405 of the Hong Kong Companies Ordinance 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 Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of consolidated financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

~~30~~

Annual Report 2015

INDEPENDENT AUDITOR’S REPORT

OPINION

In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as at 31 December 2015, and of its financial performance and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in compliance with the Hong Kong Companies Ordinance.

Deloitte Touche Tohmatsu Certified Public Accountants

Hong Kong 24 March 2016

~~31~~

China Aerospace International Holdings Limited

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

For the year ended 31 December 2015

								2015	2015	2014	2014
					NOTES			HK$’000		HK$’000
	Continuing operations
	Turnover				5			2,765,720		2,787,871
	Cost of sales							(2,205,494)		(2,178,253)
	Gross profit							560,226		609,618
	Other income				7			75,832		82,075
	Gain on disposal of investment properties							—		65,654
	Other gains and losses				7			(109,238)		(51,308)
	Selling and distribution expenses							(49,538)		(45,462)
	Administrative expenses							(307,166)		(312,805)
	Other expenses							(57,734)		(40,425)
	Fair value changes of investment properties				16			2,622,170		446,949
	Finance costs				9			(33,396)		(34,473)
	Share of results of associates							(51,117)		32
	Share of results of joint ventures							(2,626)		(8)
	Profit before taxation				10			2,647,413		719,847
	Taxation				11			(1,021,090)		(196,478)
	Profit for the year from continuing operations							1,626,323		523,369
	Discontinued operations
	Profit for the year from discontinued operations				33			—		7,812
	Profit for the year							1,626,323		531,181
	Profit attributable to the owners of the Company:
	From continuing operations							984,696		406,884
	From discontinued operations							—		8,808
	Profit for the year attributable to the owners of the Company							984,696		415,692
	Profit (loss) attributable to non-controlling interests:
	From continuing operations							641,627		116,485
	From discontinued operations							—		(996)
	Profit for the year attributable to non-controlling interests							641,627		115,489
	Earnings per share				12
	From continuing and discontinued operations
	— basic							HK31.92 cents		HK13.47 cents
	From continuing operations — basic							HK31.92 cents		HK13.19 cents

~~32~~

Annual Report 2015

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the year ended 31 December 2015

				2015	2015		2014	2014
				HK$’000			HK$’000
	Profit for the year			1,626,323			531,181
	Other comprehensive income includes:
	Items that may be reclassified subsequently to profit or loss:
	Exchange differences arising on translating foreign operations			(274,674)			(88,060)
	Share of translation reserve of associates			(7,678)			(4,886)
	Share of translation reserve of joint ventures			(40,677)			(19,642)
	Reclassification adjustments for non-controlling interests upon deemed
	disposal of a subsidiary			—			(24,390)
	Reclassification adjustments for the cumulative exchange differences upon
	deemed disposal of foreign operations			—			739
	Other comprehensive expense for the year			(323,029)			(136,239)
	Total comprehensive income for the year			1,303,294			394,942
	Total comprehensive income attributable to:
	Owners of the Company			744,385			327,071
	Non-controlling interests			558,909			67,871
				1,303,294			394,942

~~33~~

China Aerospace International Holdings Limited

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 31 December 2015

			2015	2014
		NOTES	HK$’000	HK$’000
	Non-current assets
	Property, plant and equipment	14	806,722	762,104
	Prepaid lease payments	15	94,626	106,238
	Investment properties	16	7,155,275	4,595,088
	Intangible assets	17	—	23,415
	Interests in associates	18	132,293	191,088
	Interests in joint ventures	19	783,630	826,933
	Available-for-sale investments	20	—	29,000
	Deposit paid for investment properties under construction		—	16,411
	Deposit paid for intangible assets and property, plant and
	equipment		9,373	11,243
			8,981,919	6,561,520
	Current assets
	Inventories	21	243,604	257,703
	Trade and other receivables	22	647,547	702,433
	Prepaid lease payments	15	3,849	4,064
	Amount due from a related party	23	14	124,579
	Financial assets at fair value through profit or loss	24	17,169	39,624
	Pledged bank deposits	25	36,035	33,428
	Short-term bank deposits	25	—	123,118
	Bank balances and cash	25	2,045,506	1,725,918
			2,993,724	3,010,867
	Current liabilities
	Trade and other payables	26	1,093,748	1,014,845
	Amount due to an associate	27	—	1,050
	Taxation payable		51,909	78,532
	Bank and other borrowings	28	1,340,260	37,406
	Other loan	29	8,462	8,936
			2,494,379	1,140,769
	Net current assets		499,345	1,870,098
	Total assets less current liabilities		9,481,264	8,431,618

~~34~~

Annual Report 2015

CONSOLIDATED STATEMENT OF FINANCIAL POSITION At 31 December 2015

								2015	2015		2014	2014
					NOTES			HK$’000			HK$’000
	Non-current liabilities
	Loan from a major shareholder				30			590,319			623,441
	Bank and other borrowings				28			—			1,088,529
	Deferred taxation				31			1,687,683			788,830
								2,278,002			2,500,800
								7,203,262			5,930,818
	Capital and reserves
	Share capital				32			1,154,511			1,154,511
	Reserves							4,551,259			3,837,724
	Equity attributable to owners of the Company							5,705,770			4,992,235
	Non-controlling interests							1,497,492			938,583
								7,203,262			5,930,818

The consolidated financial statements on pages 32 to 110 were approved and authorised for issue by the Board of Directors on 24 March 2016 and are signed on its behalf by:

Li Hongjun Director

Jin Xuesheng Director

~~35~~

China Aerospace International Holdings Limited

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2015

	Attributable to owners of the Company Share capital Share premium Special capital reserve General reserve Translation reserve Property revaluation reserve Capital reserve Capital redemption reserve Retained profits Total Non- controlling interests Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (note 41(b)) (note a) (note b)
At 1 January 2014	308,502 844,929 14,044 23,916 347,909 11,010 14,309 1,080 3,130,315 4,696,014 870,712 5,566,726
Profit for the year Exchange differences arising on translating foreign operations Reclassification adjustments for the cumulative exchange differences upon deemed disposal of foreign operations_(note 33) Reclassification adjustments for non-controlling interests upon deemed disposal of a subsidiary(note 33)_ Share of reserve of joint ventures Share of reserve of associates	— — — — — — — — 415,692 415,692 115,489 531,181 — — — — (64,832) — — — — (64,832) (23,228) (88,060) — — — — 739 — — — — 739 — 739 — — — — — — — — — — (24,390) (24,390) — — — — (19,642) — — — — (19,642) — (19,642) — — — — (4,886) — — — — (4,886) — (4,886)
Total comprehensive (expense) income for the year	— — — — (88,621) — — — 415,692 327,071 67,871 394,942
Transfer upon abolition of par value under the new Hong Kong Companies Ordinance Dividend recognised as distribution_(note 13)_	846,009 (844,929) — — — — — (1,080) — — — — — — — — — — — — (30,850) (30,850) — (30,850)
At 31 December 2014	1,154,511 — 14,044 23,916 259,288 11,010 14,309 — 3,515,157 4,992,235 938,583 5,930,818

Notes:

(a) The general reserve is non-distributable and represents reserve fund and enterprise expansion fund of the subsidiaries in the People’s Republic of China other than Hong Kong (the “PRC”) used to (i) make up prior years’ losses or (ii) expand production operations.

(b) The capital reserve represents (i) capital contribution from a major shareholder of the Company arising from acquisition of subsidiaries and (ii) the difference between the amount of non-controlling interests and fair value of consideration paid upon acquisition of additional interests in subsidiaries.

~~36~~

Annual Report 2015

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2015

	Attributable to owners of the Company Share capital Share premium Special capital reserve General reserve Translation reserve Property revaluation reserve Capital reserve Capital redemption reserve Retained profits Total Non- controlling interests Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (note 41(b)) (note a) (note b)
At 1 January 2015
	1,154,511 — 14,044 23,916 259,288 11,010 14,309 — 3,515,157 4,992,235 938,583 5,930,818
Profit for the year Exchange differences arising on translating foreign operations Share of reserve of joint ventures Share of reserve of associates
	— — — — — — — — 984,696 984,696 641,627 1,626,323
	— — — — (191,956) — — — — (191,956) (82,718) (274,674)
	— — — — (40,677) — — — — (40,677) — (40,677)
	— — — — (7,678) — — — — (7,678) — (7,678)
Total comprehensive (expense) income for the year
	— — — — (240,311) — — — 984,696 744,385 558,909 1,303,294
Dividend recognised as distribution_(note 13)_
	— — — — — — — — (30,850) (30,850) — (30,850)
At 31 December 2015
	1,154,511 — 14,044 23,916 18,977 11,010 14,309 — 4,469,003 5,705,770 1,497,492 7,203,262

Notes:

(a) The general reserve is non-distributable and represents reserve fund and enterprise expansion fund of the subsidiaries in the People’s Republic of China other than Hong Kong (the “PRC”) used to (i) make up prior years’ losses or (ii) expand production operations.

(b) The capital reserve represents (i) capital contribution from a major shareholder of the Company arising from acquisition of subsidiaries and (ii) the difference between the amount of non-controlling interests and fair value of consideration paid upon acquisition of additional interests in subsidiaries.

~~37~~

China Aerospace International Holdings Limited

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2015

		2015	2014
		HK$’000	HK$’000
	OPERATING ACTIVITIES
	Profit before taxation	2,647,413	727,659
	Adjustments for:
	Interest income	(60,805)	(56,393)
	Interest expense	33,396	34,977
	Depreciation of property, plant and equipment	105,005	95,517
	Amortisation of prepaid lease payments	3,933	3,735
	Amortisation of intangible assets	12,633	16,007
	Gain on disposal of investment properties	—	(65,654)
	Fair value changes of investment properties	(2,622,170)	(446,949)
	Fair value changes of financial assets at fair value through profit or loss	22,455	9,720
	Allowance for doubtful debts	8,828	5,324
	Allowance for (reversal of allowance for) obsolete inventories	985	(7,613)
	Share of results of associates	51,117	(32)
	Share of results of joint ventures	2,626	8
	Gain on deemed disposal of subsidiaries	—	(9,583)
	Gain on disposal of an associate	(3,716)	—
	Loss on disposal/written-off of property, plant and equipment	2,074	5,503
	Impairment loss recognised in respect of intangible assets	11,715	—
	Impairment loss recognised in respect of available-for-sale investments	29,000	—
	Operating cash flows before movements in working capital	244,489	312,226
	Decrease (increase) in inventories	2,537	(11,759)
	Increase in trade and other receivables	(25,013)	(46,344)
	Increase in trade and other payables	120,232	71,188
	Cash generated from operations	342,245	325,311
	Hong Kong Profits Tax paid	(30,923)	(18,665)
	PRC Enterprise Income Tax paid	(14,809)	(5,155)
	Taxation in other jurisdiction paid	(8,417)	—
	NET CASH FROM OPERATING ACTIVITIES	288,096	301,491

~~38~~

Annual Report 2015

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2015

								2015	2015		2014	2014
					NOTE			HK$’000			HK$’000
	INVESTING ACTIVITIES
	Development costs/deposits paid for investment properties under
	construction							(227,926)			(475,504)
	Purchase of property, plant and equipment							(217,813)			(173,554)
	Placement of pledged bank deposits							(38,057)			(34,104)
	Addition of intangible assets							(2,376)			(5,996)
	Withdrawal of (deposits placed with) a related company							123,945			(117,515)
	Withdrawal of short term bank deposit							122,507			14,008
	Settlement of receivables on disposal of investment properties							108,933			—
	Interest received							60,805			56,393
	Withdrawal of pledged bank deposits							33,428			20,075
	Proceeds from disposal of interests in an associate							2,666			—
	Proceeds from disposal of property, plant and equipment							2,109			229
	Addition of prepaid lease payments							—			(9,632)
	Deposit paid for intangible assets and property, plant and
	equipment							—			(6,220)
	Disposal of subsidiaries, net of cash and cash equivalents
	disposed of				33			—			27,965
	Proceeds from disposal of financial assets at fair value
	through profit or loss							—			1,911
	NET CASH USED IN INVESTING ACTIVITIES							(31,779)			(701,944)
	FINANCING ACTIVITIES
	New bank loans raised							325,310			570,328
	Interest paid							(107,734)			(87,272)
	Repayment of bank loans							(37,221)			(60,606)
	Dividend paid							(30,832)			(30,832)
	NET CASH FROM FINANCING ACTIVITIES							149,523			391,618
	NET INCREASE (DECREASE) IN CASH AND CASH
	EQUIVALENTS							405,840			(8,835)
	CASH AND CASH EQUIVALENTS AT BEGINNING OF THE
	YEAR							1,725,918			1,768,008
	EFFECT OF FOREIGN EXCHANGE RATE CHANGES							(86,252)			(33,255)
	CASH AND CASH EQUIVALENTS AT END OF
	THE YEAR REPRESENTING
	BANK BALANCES AND CASH							2,045,506			1,725,918

~~39~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

1. GENERAL

The Company is a public limited company incorporated in Hong Kong and its shares are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). The address of the registered office and principal place of business of the Company are disclosed in the corporate information to the annual report.

The consolidated financial statements are presented in Hong Kong dollars, which is also the functional currency of the Company.

The principal activity of the Company is investment holding. The principal activities of its major subsidiaries, associates and joint ventures are set out in notes 42, 43 and 44, respectively.

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”)

The Group has applied the following amendments to HKFRSs issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) for the first time in the current year:

Amendments to HKAS 19 Defined benefit plans: Employee contributions Amendments to HKFRSs Annual improvements to HKFRSs 2010–2012 cycle Amendments to HKFRSs Annual improvements to HKFRSs 2011–2013 cycle

The application of the amendments to HKFRSs in the current year has had no material impact on the Group’s financial performance and positions for the current and prior years and/or on the disclosures set out in these consolidated financial statements.

The Group has not early applied the following new and revised HKFRSs that have been issued but are not yet effective:

HKFRS 9 Financial instruments[1] HKFRS 15 Revenue from contracts with customers[1] Amendments to HKFRS 11 Accounting for acquisitions of interests in joint operations[2] Amendments to HKAS 1 Disclosure initiative[2] Amendments to HKAS 16 Clarification of acceptable methods of depreciation and amortisation[2] and HKAS 38 Amendments to HKAS 16 Agriculture: Bearer plants[2] and HKAS 41 Amendments to HKFRS 10 Sale and contribution of assets between an investor and its associate and HKAS 28 or joint venture[3] Amendments to HKFRS 10, Investment entities: Applying the consolidation exception[2] HKFRS 12 and HKAS 28 Amendments to HKFRSs Annual improvements to HKFRSs 2012–2014 cycle[2]

• 1 Effective for annual periods beginning on or after 1 January 2018. 2 Effective for annual periods beginning on or after 1 January 2016. 3 Effective for annual periods beginning on or after a date to be determined.

~~40~~

Annual Report 2015

For the year ended 31 December 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”) (continued)

HKFRS 9 “Financial instruments”

HKFRS 9 issued in 2009 introduced new requirements for the classification and measurement of financial assets. HKFRS 9 was subsequently amended in 2010 to include requirements for the classification and measurement of financial liabilities and for derecognition, and further amended in 2013 to include the new requirements for general hedge accounting. Another revised version of HKFRS 9 was issued in 2014 mainly to include a) impairment requirements for financial assets and b) limited amendments to the classification and measurement requirements by introducing a ‘fair value through other comprehensive income’ (FVTOCI) measurement category for certain simple debt instruments.

Key requirements of HKFRS 9 are described below:

• All recognised financial assets that are within the scope of HKAS 39 “Financial instruments: Recognition and measurement” are subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. Debt instruments that are held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets, and that have contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, are measured at FVTOCI. All other debt investments and equity investments are measured at their fair value at the end of subsequent accounting periods. In addition, under HKFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognised in profit or loss.

• With regard to the measurement of financial liabilities designated as at fair value through profit or loss, HKFRS 9 requires that the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the recognition of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value of financial liabilities attributable to changes in the financial liabilities’ credit risk are not subsequently reclassified to profit or loss. Under HKAS 39, the entire amount of the change in the fair value of the financial liability designated as fair value through profit or loss was presented in profit or loss.

• In relation to the impairment of financial assets, HKFRS 9 requires an expected credit loss model, as opposed to an incurred credit loss model under HKAS 39. The expected credit loss model requires an entity to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised.

• The new general hedge accounting requirements retain the three types of hedge accounting. However, greater flexibility has been introduced to the types of transactions eligible for hedge accounting, specifically broadening the types of instruments that qualify for hedging instruments and the types of risk components of non-financial items that are eligible for hedge accounting. In addition, the effectiveness test has been overhauled and replaced with the principle of an ‘economic relationship’. Retrospective assessment of hedge effectiveness is also no longer required. Enhanced disclosure requirements about an entity’s risk management activities have also been introduced.

~~41~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”) (continued)

HKFRS 15 “Revenue from Contracts with Customers”

HKFRS 15 was issued which establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. HKFRS 15 will supersede the current revenue recognition guidance including HKAS 18 “Revenue”, HKAS 11 “Construction contracts” and the related interpretations when it becomes effective.

The core principle of HKFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the Standard introduces a 5-step approach to revenue recognition:

Step 1: Identify the contract(s) with a customer Step 2: Identify the performance obligations in the contract Step 3: Determine the transaction price Step 4: Allocate the transaction price to the performance obligations in the contract Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation

Under HKFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer. Far more prescriptive guidance has been added in HKFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by HKFRS 15.

The directors of the Company anticipate that the HKFRS 9 and HKFRS 15 will be adopted in the Group’s consolidated financial statements for the annual period beginning 1 January 2018. The application of these two standards may have significant impact on amounts reported in the consolidated financial statements. However, it is not practicable to provide a reasonable estimate of the effect until the Group performs a detailed review.

The directors of the Company do not anticipate that the application of the other new and revised HKFRSs will have a material impact on the Group’s consolidated financial statements.

~~42~~

Annual Report 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

3. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared in accordance with HKFRSs issued by the HKICPA. In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities (“Listing Rules”) on the Stock Exchange and by the Hong Kong Companies Ordinance (“CO”).

The provisions of the new Hong Kong Companies Ordinance (Cap. 622) regarding preparation of accounts and directors’ reports and audits became effective for the Company for the financial year ended 31 December 2015. Further, the disclosure requirements set out in the Listing Rules regarding annual accounts have been amended with reference to the new CO and to streamline with HKFRSs. Accordingly the presentation and disclosure of information in the consolidated financial statements for the financial year ended 31 December 2015 have been changed to comply with these new requirements. Comparative information in respect of the financial year ended 31 December 2014 are presented or disclosed in the consolidated financial statements based on the new requirements. Information previously required to be disclosed under the predecessor CO or Listing Rules but not under the new CO or amended Listing Rules are not disclosed in these consolidated financial statements.

The consolidated financial statements have been prepared on the historical cost basis except for certain properties and financial instruments that are measured at fair values, as explained in the accounting policies set out below. Historical cost is generally based on the fair value of the consideration given in exchange for goods.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for sharebased payment transactions that are within the scope of HKFRS 2 “Share-based payment”, leasing transactions that are within the scope of HKAS 17 “Leases”, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in HKAS 2 “Inventories” or value in use in HKAS 36 “Impairment of Assets”.

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

• Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and

• Level 3 inputs are unobservable inputs for the asset or liability.

~~43~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

The principal accounting policies are set out below.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company and its subsidiaries. Control is achieved when the Company:

• has power over the investee;

• is exposed, or has rights, to variable returns from its involvement with the investee; and

• has the ability to use its power to affect its returns.

The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss from the date the Group gains control until the date when the Group ceases to control the subsidiary.

Profit or loss and each item of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies.

All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

Changes in the Group’s ownership interests in existing subsidiaries

When the Group loses control of a subsidiary, a gain or loss is recognised in profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. All amounts previously recognised in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to another category of equity as specified/ permitted by applicable HKFRSs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under HKAS 39, when applicable, the cost on initial recognition of an investment in an associate or a joint venture.

~~44~~

Annual Report 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Investments in associates and joint ventures

An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.

The results and assets and liabilities of associates and joint ventures are incorporated in these consolidated financial statements using the equity method of accounting. The financial statements of associates and joint ventures used for equity accounting purposes are prepared using uniform accounting policies as those of the Group for like transactions and events in similar circumstances. Appropriate adjustments have been made to conform the associate’s and the joint venture’s accounting policies to those of the Group. Under the equity method, an investment in an associate or a joint venture is initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group’s share of the profit or loss and other comprehensive income of the associate or joint venture. When the Group’s share of losses of an associate or joint venture exceeds the Group’s interest in that associate or joint venture (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate or joint venture), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture.

An investment in an associate or a joint venture is accounted for using the equity method from the date on which the investee becomes an associate or a joint venture. On acquisition of the investment in an associate or a joint venture, any excess of the cost of the investment over the Group’s share of the net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is recognised immediately in profit or loss in the period in which the investment is acquired.

The requirements of HKAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in an associate or a joint venture. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with HKAS 36 “Impairment of Assets” as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs of disposal) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with HKAS 36 to the extent that the recoverable amount of the investment subsequently increases.

When a group entity transacts with an associate or a joint venture of the Group, profits and losses resulting from the transactions with the associate or joint venture are recognised in the Group’s consolidated financial statements only to the extent of interests in the associate or joint venture that are not related to the Group.

~~45~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial instruments

Financial assets and financial liabilities are recognised when a group entity becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

Financial assets

Financial assets are classified into the following specified categories: financial assets at fair value through profit or loss (“FVTPL”), loans and receivables and available-for-sale (“AFS”) financial assets. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Interest income is recognised on an effective interest basis for debt instruments other than those financial assets classified as at FVTPL, of which interest income is included in net gains or losses.

Financial assets at FVTPL

Financial assets at FVTPL are mainly investments held for trading.

• A financial asset is classified as held for trading if:

• it has been acquired principally for the purpose of selling in the near term; or

• on initial recognition it is a part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or

• it is a derivative that is not designated and effective as a hedging instrument.

Financial assets at FVTPL are measured at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss includes any dividend or interest earned on the financial assets. Fair value is determined in the manner described in note 24.

~~46~~

Annual Report 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial instruments (continued)

Financial assets (continued)

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including trade and other receivables, pledged bank deposits, short-term bank deposits, amount due from a related party and bank balances and cash) are measured at amortised cost using the effective interest method, less any impairment (see accounting policy on impairment of financial assets below).

AFS financial assets

AFS financial assets are non-derivatives that are either designated or not classified as financial assets at FVTPL, loans and receivables or held-to-maturity investments. The Group designated equity securities held for an identified long term strategic purpose as AFS investments.

Equity securities held by the Group that are classified as AFS financial assets and are traded in an active market are measured at fair value at the end of each reporting period. Changes in the carrying amount of AFS equity investments are recognised in other comprehensive income and accumulated under the heading of investment revaluation reserve. When the equity investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the investment revaluation reserve is reclassified to profit or loss (see the accounting policy in respect of impairment loss on financial assets below).

Dividends on AFS equity instruments are recognised in profit or loss when the Group’s right to receive the dividends is established.

AFS equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, they are measured at cost less any identified impairment losses at the end of the reporting period (see accounting policy on impairment of financial assets below).

Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of the reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been affected.

For an available-for-sale equity investment, a significant or prolonged decline in the fair value of that investment below its cost is considered to be objective evidence of impairment.

~~47~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial instruments (continued)

• Financial assets (continued)

• Impairment of financial assets (continued)

For all other financial assets, objective evidence of impairment could include:

• significant financial difficulty of the issuer or counterparty; or

• breach of contract, such as default or delinquency in interest and principal payments; or

• it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

For certain categories of financial assets, such as trade debtors that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of debtors could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the credit period granted, observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortised cost, the amount of the impairment loss recognised is the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the financial assets’ original effective interest rate.

For financial assets carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. When a trade or other receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.

When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses previously recognised in other comprehensive income are reclassified to profit or loss in the period.

For financial assets measured at amortised cost, if, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

In respect of available-for-sale equity investments, impairment losses previously recognised in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to impairment loss is recognised directly in other comprehensive income and accumulated in investment revaluation reserve.

~~48~~

Annual Report 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial instruments (continued)

Financial liabilities and equity instruments

Debt and equity instruments issued by a group entity are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.

Financial liabilities

Financial liabilities including trade and other payables, amount due to an associate, bank and other borrowings, loan from a major shareholder and other loan are subsequently measured at amortised cost, using the effective interest method.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Interest expense is recognised on an effective interest basis.

Derecognition

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.

On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss.

The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

~~49~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods sold and services provided in the normal course of business, net of discounts and sales related taxes.

Sale of goods

Revenue from sales of goods are recognised when goods are delivered and title has passed, at which time all the following conditions are satisfied:

• the Group has transferred to the buyer the significant risks and rewards of ownership of the goods;

• the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

• the amount of revenue can be measured reliably;

• it is probable that the economic benefits associated with the transaction will flow to the Group; and

• the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Rendering of services

Service income is recognised when services are provided.

Dividend and interest income

Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established (provided that it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably).

Rental income

The Group’s accounting policy for recognition of revenue from operating leases is described in the accounting policy for leasing below.

~~50~~

Annual Report 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Property, plant and equipment

Property, plant and equipment including buildings and leasehold land (classified as finance leases) held for use in the production or supply of goods or services, or for administrative purposes (other than properties under construction as described below) are stated in the consolidated statement of financial position at cost less subsequent accumulated depreciation and subsequent accumulated impairment losses, if any.

Properties in the course of construction for production, supply or administrative purposes are carried at cost, less any recognised impairment loss. Costs include professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Group’s accounting policy. Such properties are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Depreciation is recognised so as to write off the cost of assets other than properties under construction less their residual values over their estimated useful lives, using the straight line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of the reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

Construction in progress including property, plant and equipment in the course of construction for production, supply or administrative purposes are carried at cost, less any recognised impairment loss. Construction in progress is classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.

Investment properties

Investment properties are properties held to earn rentals and/or for capital appreciation (including properties under construction for such purposes). Investment properties include land held for undetermined future use, which is regarded as held for capital appreciation purpose.

Investment properties are initially measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment properties are measured at their fair values. Gains or losses arising from changes in the fair value of investment property are included in profit or loss for the period in which they arise.

Construction costs incurred for investment properties under construction are capitalised as part of the carrying amount of the investment properties under construction.

An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use or no future economic benefits are expected from its disposals. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the period in which the property is derecognised.

~~51~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Group as lessor

Rental income from operating leases is recognised in profit or loss on a straight line basis over the term of the relevant lease.

The Group as lessee

Operating lease payments are recognised as an expense on a straight line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

Leasehold land and building

When a lease includes both land and building elements, the Group assesses the classification of each element as a finance or an operating lease separately based on the assessment as to whether substantially all the risks and rewards incidental to ownership of each element have been transferred to the Group, unless it is clear that both elements are operating leases in which case the entire lease is classified as an operating lease. Specifically, the minimum lease payments (including any lump-sum upfront payments) are allocated between the land and the building elements in proportion to the relative fair values of the leasehold interests in the land element and building element of the lease at the inception of the lease.

To the extent the allocation of the lease payments can be made reliably, interest in leasehold land that is accounted for as an operating lease is presented as “prepaid lease payments” in the consolidated statement of financial position and is amortised over the lease term on a straight line basis except for those that are classified and accounted for as investment properties under the fair value model. When the lease payments cannot be allocated reliably between the land and building elements, the entire lease is generally classified as a finance lease and accounted for as property, plant and equipment.

Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded at the rates of exchanges prevailing on the dates of the transactions. At the end of the reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

~~52~~

Annual Report 2015

For the year ended 31 December 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Foreign currencies (continued)

Exchange differences on monetary items are recognised in profit or loss in the period in which they arise except for:

• exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings;

• exchange differences on transactions entered into in order to hedge certain foreign currency risks (see the accounting policies below); and

• exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognised initially in other comprehensive income and reclassified from equity to profit or loss on repayment of the monetary items.

For the purpose of presenting the consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into the presentation currency of the Group (i.e. Hong Kong dollars) using exchange rates prevailing at the end of the reporting period. Income and expenses items are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity under the heading of translation reserve (attributed to non-controlling interests as appropriate).

On the disposal of a foreign operation (i.e. a disposal of the Group’s entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, or a partial disposal of an interest in a joint arrangement or an associate that includes a foreign operation of which the retained interest becomes a financial asset), all of the exchange differences accumulated in equity in respect of that operation attributable to the owners of the Company are reclassified to profit or loss.

In addition, in relation to a partial disposal of a subsidiary that does not result in the Group losing control over the subsidiary, the proportionate share of accumulated exchange differences are re-attributed to non-controlling interests and are not recognised in profit or loss. For all other partial disposals (i.e. partial disposals of associates or jointly arrangements that do not result in the Group losing significant influence or joint control), the proportionate share of the accumulated exchange differences is reclassified to profit or loss.

Goodwill and fair value adjustments on identifiable assets acquired arising on an acquisition of a foreign operation are treated as assets and liabilities of that foreign operation and retranslated at the rate of exchange prevailing at the end of each reporting period. Exchange differences arising are recognised in other comprehensive income.

~~53~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Intangible assets

Intangible assets acquired in a business combination

Intangible assets acquired in a business combination are recognised separately from goodwill and are initially recognised at their fair value at the acquisition date (which is regarded as their cost).

Subsequent to initial recognition, intangible assets acquired in a business combination with finite useful lives are reported at costs less accumulated amortisation and any accumulated impairment losses, being their fair value at the date of the revaluation less subsequent accumulated amortisation and any accumulated impairment losses, on the same basis as intangible assets that are acquired separately. Alternatively, intangible assets acquired in a business combination with indefinite useful lives are carried at cost less any subsequent accumulated impairment losses (see the accounting policy in respect of impairment losses on tangible and intangible assets below).

An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains and losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in profit or loss when the asset is derecognised.

Internally-generated intangible assets — research and development expenses

Expenditure on research activities is recognised as an expense in the period in which it is incurred.

An internally-generated intangible asset arising from development activities (or from the development phase of an internal project) is recognised if, and only if, all of the following have been demonstrated:

• the technical feasibility of completing the intangible asset so that it will be available for use or sale;

• the intention to complete the intangible asset and use or sell it;

• the ability to use or sell the intangible asset;

• how the intangible asset will generate probable future economic benefits;

• the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

• the ability to measure reliably the expenditure attributable to the intangible asset during its development.

The amount initially recognised for internally-generated intangible asset is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internallygenerated intangible asset can be recognised, development expenditure is recognised in profit or loss in the period in which it is incurred.

Subsequent to initial recognition, internally-generated intangible assets are measured at cost less accumulated amortisation and accumulated impairment losses (if any), on the same basis as intangible assets acquired separately.

~~54~~

Annual Report 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Impairment on tangible and intangible assets other than goodwill

At the end of the reporting period, the Group reviews the carrying amounts of its tangible and intangible assets with finite useful lives to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any.

Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.

When an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost of inventories are determined on a weighted average method. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.

Retirement benefits costs

Payments to defined contribution retirement benefit schemes including Mandatory Provident Fund Scheme and state-managed retirement benefit scheme are recognised as an expense when employees have rendered service entitling them to the contributions.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from “profit before taxation” as reported in the consolidated statement of profit or loss and other comprehensive income because it excludes items of income and expense that are taxable or deductible in other years and items that are never taxable and deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

~~55~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Taxation (continued)

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. In addition, deferred tax liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill.

Deferred tax liabilities are recognised for taxable temporary difference associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

For the purposes of measuring deferred tax liabilities or deferred tax assets for investment properties that are measured using the fair value model, the carrying amounts of such properties are presumed to be recovered entirely through sale, unless the presumption is rebutted. The presumption is rebutted when the investment property is depreciable and is held within a business model whose objective is to consume substantially all of the economic benefits embodied in the investment property over time, rather than through sale.

Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.

~~56~~

Annual Report 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Government grants

Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received.

Government grants are recognised in profit or loss on a systematic basis over the periods in which the Group recognises as expenses the related costs for which the grants are intended to compensate. Specifically, government grants whose primary condition is that the Group should purchase, construct or otherwise acquire non-current assets are recognised as a deduction from the carrying amount of the relevant asset in the consolidated statement of financial position and transferred to profit or loss on a systematic and rational basis over the useful lives of the related assets.

Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognised in profit or loss in the period in which they become receivable.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets until such time as the assets are substantially ready for their intended use or sale.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group’s accounting policies, which are described in note 3, the directors of the Company are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

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

Critical judgements in applying accounting policies

The following are the critical judgements, apart from those involving estimations (see below), that the directors have made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in the consolidated financial statements.

~~57~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (continued)

Critical judgements in applying accounting policies (continued)

(a) Deferred taxation on investment properties

For the purposes of measuring deferred tax liabilities or deferred tax assets arising from investment properties that are measured using the fair value model, the management has reviewed the Group’s investment properties portfolios and concluded that while the Group’s investment properties located in Hong Kong and certain investment properties in the PRC are depreciable, they are not held under a business model whose objective is to consume substantially all of the economic benefits embodied in the investment properties over time. Therefore, in determining the Group’s deferred taxation arising from these investment properties in these locations, the management determined that the presumption that these investment properties measured using the fair value model are recovered through sale is not rebutted.

For certain of the Group’s investment properties located in Shenzhen of the PRC, the management concluded that they are depreciable and are being held under a business model whose objective is to consume substantially all of the economic benefits embodied in the investment properties over time, rather than through sale. Therefore, in determining the Group’s deferred taxation arising from these investment properties located in this location, the management determined that the presumption that investment properties measured using the fair value model are recovered through sale is rebutted. The potential deferred tax impact to the Group is recognised at the end of the reporting period as shown in note 31.

Key sources of estimation uncertainty

The following is the key sources of estimation uncertainty at the end of the reporting period, that has a significant risk of causing a material adjustment to the carrying amounts of assets within the next financial year.

(a) Allowance for trade receivables

In determining whether there is objective evidence of impairment loss, the Group takes into consideration the estimation of future cash flows. The amount of 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. Where the actual future cash flows are less than expected, further impairment loss may arise. The management closely monitors the settlement status of trade receivables (as described in note 22) and will strengthen its effort to chase the debts and thus considers that the trade receivables with carrying amount of HK$572,182,000 (2014: HK$504,663,000) are recoverable due to its good credit quality.

(b) Allowances for inventories

The management of the Group reviews an aged analysis at the end of each reporting period, and makes allowance for obsolete and slow-moving inventory items identified that are no longer suitable for use in production. The management estimates that the net realisable value for such finished goods and consumables based primarily on the latest invoice prices and current market conditions. Where the net realisable value is less than the carrying amount, impairment loss may arise. As at 31 December 2015, the carrying amount of inventories is HK$243,604,000 (2014: HK$257,703,000) (net of allowances for inventories of HK$24,870,000 (2014: HK$24,513,000)).

~~58~~

Annual Report 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2015

4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (continued)

Key sources of estimation uncertainty (continued)

(c) Investment properties

Investment properties are stated at fair value based on the valuation performed by independent professional valuers. In determining the fair value, the valuers have based on a method of valuation which involves certain estimates of market conditions and assumptions made on the investment properties, including:

• comparable market transactions with adjustments to reflect different locations or conditions; and

• comparable market rents and transactions, occupancy rate, discount rate and cost to be expended to complete the development of investment properties under construction.

In relying on the valuation report, the directors of the Company have exercised their judgement and are satisfied that the assumptions used in the valuation is reflective of the current market conditions and current development of the investment properties. Changes to these assumptions would result in changes in the fair values of the Group’s investment properties and the corresponding adjustments to the amount of gain or loss reported in the consolidated statement of profit or loss. As at 31 December 2015, the carrying amount of investment properties is HK$7,155,275,000 (2014: HK$4,595,088,000).

5. TURNOVER

Turnover represents the gross invoiced amount of sales of goods and services, less discounts and sales related taxes, and rental income as follows:

				2015	2015		2014	2014
				HK$’000			HK$’000
	Continuing operations
	Sales of goods and services			2,748,548			2,769,979
	Rental income			17,172			17,892
				2,765,720			2,787,871
	Discontinued operations
	Sales of goods			—			3,304

~~59~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

6. SEGMENT INFORMATION

The Group determines its operating segments based on the internal reports reviewed by the President, the chief operating decision maker (“CODM”) of the Group, that are used to make strategic decisions. In prior year, there are 9 reportable and operating segments, namely Hi-Tech Manufacturing Business (including plastic products, liquid crystal display, printed circuit boards, intelligent chargers and the related industrial property investment), New Material Business (including polyimide films manufacturing), Aerospace Service (including the Shenzhen Aerospace Science & Technology Plaza of property investment project, the Hainan Launching Site Complex Zone of land development project and Internet of Things) which represents the major industries in which the Group engaged. During the year, the CODM reassessed the current business segments.

The Group engaged in a new business namely Cross-border e-commerce during the year, which will provide customs clearance, warehouse and logistics services for international parcels, luggage and mails. The CODM considered it as a separate reportable and operating segment and hence Cross-border e-commerce becomes the new reportable and operating segment under the Group’s business development.

Other business represents income and expenses relating to investment properties which cannot be allocated to other operating segments.

~~60~~

Annual Report 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

6. SEGMENT INFORMATION (continued)

(a) An analysis of the Group’s turnover and results by reportable segments is as follows:

For the year ended 31 December 2015

	Turnover External sales Inter- segment sales Total HK$’000 HK$’000 HK$’000	Segment results HK$’000
Hi-Tech Manufacturing Business Plastic products Liquid crystal display Printed circuit boards Intelligent chargers Industrialpropertyinvestment
	1,013,162 63,608 1,076,770	73,304
	480,553 722 481,275	32,719
	601,994 — 601,994	109,436
	621,842 1,671 623,513	42,295
	14,243 21,171 35,414	17,579
	2,731,794 87,172 2,818,966	275,333
New Material Business Polyimide films manufacturing (Note)
	— — —	(50,584)
Aerospace Service Property investment in Shenzhen Aerospace Science & Technology Plaza Land development in Hainan Launching Site Complex Zone Internet of Things Cross-border e-commerce
	— — —	2,590,285
	— — —	(3,624)
	8,180 — 8,180	(46,228)
	22,817 — 22,817	(595)
	30,997 — 30,997	2,539,838
Reportable segment total Elimination Other Business
	2,762,791 87,172 2,849,963	2,764,587
	— (87,172) (87,172)	—
	2,929 — 2,929	5,068
	2,765,720 — 2,765,720	2,769,655
Unallocated corporate income Unallocated corporate expenses Gain on disposal of an associate Share of results of associates_(Note)_ Share of results of joint ventures Finance costs Impairment loss recognised in respect of available-for-sale investments Profit before taxation
		65,119
		(129,146)
		2,705,628
		3,716
		(533)
		998
		(33,396)
		(29,000)
		2,647,413

~~61~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

6. SEGMENT INFORMATION (continued)

(a) An analysis of the Group’s turnover and results by reportable segments is as follows: (continued)

For the year ended 31 December 2014

	Turnover External sales Inter- segment sales Total HK$’000 HK$’000 HK$’000	Segment results HK$’000
Hi-Tech Manufacturing Business Plastic products Liquid crystal display Printed circuit boards Intelligent chargers Industrialpropertyinvestment	876,732 61,246 937,978 607,817 367 608,184 610,571 — 610,571 649,604 2,249 651,853 14,704 21,332 36,036	69,631 35,337 133,147 44,380 25,438
	2,759,428 85,194 2,844,622	307,933
New Material Business Polyimide films manufacturing (Note)	3,304 — 3,304	(1,084)
Aerospace Service Property investment in Shenzhen Aerospace Science & Technology Plaza Land development in Hainan Launching Site Complex Zone Internet of Things Cross-border e-commerce	— — — — — — 25,255 — 25,255 — — —	413,138 (1,706) (3,609) —
	25,255 — 25,255	407,823
Reportable segment total Elimination Other Business	2,787,987 85,194 2,873,181 — (85,194) (85,194) 3,188 — 3,188	714,672 — 65,115
	2,791,175 — 2,791,175	779,787 64,077 (92,358)
Unallocated corporate income Unallocated corporate expenses Gain on deemed disposal of a subsidiary Share of results of associates_(Note)_ Share of results of joint ventures Finance costs Less: Profit for the year from discontinued operations Profit before taxation from continuingoperations
		751,506 9,583 (151) 1,698 (34,977)
		727,659 (7,812)
		719,847

~~62~~

Annual Report 2015

For the year ended 31 December 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

6. SEGMENT INFORMATION (continued)

• (a) An analysis of the Group’s turnover and results by reportable segments is as follows: (continued)

• Note: During the year ended 31 December 2014, the Polyimide films manufacturing business is held by Shenzhen Rayitek Hi-tech Film Company Limited (“Shenzhen Rayitek”), which became an associate of the Group as a result of deemed disposal as detailed in note 33.

The share of loss of Shenzhen Rayitek for the year ended 31 December 2015 amounted to HK$50,584,000 (share of profit for the year ended 31 December 2014: HK$183,000) was included in the segment “Polyimide films manufacturing”.

The President continuously reviews these segment information for the purpose of resources allocation and performance assessment. Thus, there is no change on the segment information reported to the President.

The accounting policies of the operating segments are the same as the Group’s accounting policies described in note 3. Segment results represents the profit earned by/loss from each segment without allocation of interest income, change in fair value of financial assets at fair value through profit or loss, share of results of associates, share of results of joint ventures, interest expenses and other corporate income and corporate expenses. This is the measure reported to the President for the purpose of resource allocation and performance assessment.

Inter-segment sales are charged at cost-plus basis.

~~63~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

6. SEGMENT INFORMATION (continued)

(b) The following is an analysis of the Group’s assets and liabilities by reportable segments:

				2015	2015		2014	2014
				HK$’000			HK$’000
	Segment assets
	Hi-Tech Manufacturing Business
	Plastic products			695,203			611,373
	Liquid crystal display			314,422			373,217
	Printed circuit boards			523,858			410,550
	Intelligent chargers			230,749			277,715
	Industrial property investment			275,407			274,694
				2,039,639			1,947,549
	New Material Business
	Polyimide films manufacturing			119,367			176,902
	Aerospace Service
	Property investment in Shenzhen Aerospace Science &
	Technology Plaza			6,821,347			4,280,155
	Land development in Hainan Launching Site Complex Zone			716,507			760,351
	Internet of Things			6,977			44,687
	Cross-border e-commerce			3,919			—
				7,548,750			5,085,193
	Total assets for reportable segments			9,707,756			7,209,644
	Other Business			61,008			62,190
	Available-for-sale investments			—			29,000
	Interests in joint ventures			67,123			66,582
	Interests in associates			12,926			14,186
	Unallocated assets			2,126,830			2,190,785
	Consolidated assets			11,975,643			9,572,387

~~64~~

Annual Report 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2015

6. SEGMENT INFORMATION (continued)

(b) The following is an analysis of the Group’s assets and liabilities by reportable segments: (continued)

				2015	2015		2014	2014
				HK$’000			HK$’000
	Segment liabilities
	Hi-Tech Manufacturing Business
	Plastic products			216,981			197,772
	Liquid crystal display			70,161			82,518
	Printed circuit boards			155,001			121,071
	Intelligent chargers			111,100			131,995
	Industrial property investment			13,493			12,245
				566,736			545,601
	New Material Business
	Polyimide films manufacturing			—			—
	Aerospace Service
	Property investment in Shenzhen Aerospace Science &
	Technology Plaza			203,994			188,733
	Land development in Hainan Launching Site Complex Zone			—			—
	Internet of Things			6,809			6,932
	Cross-border e-commerce			1,562			—
				212,365			195,665
	Total liabilities for reportable segments			779,101			741,266
	Other Business			1,087			1,382
	Unallocated liabilities			3,992,193			2,898,921
	Consolidated liabilities			4,772,381			3,641,569

For the purposes of monitoring segment performances and allocating resources between segments:

• all assets are allocated to operating segments other than bank balances and cash, short-term bank deposits, pledged bank deposits, financial assets at fair value through profit or loss and the other unallocated assets; and

• all liabilities are allocated to operating segments other than taxation payable, deferred taxation, other loan, bank and other borrowings, loan from a major shareholder and the other unallocated liabilities.

~~65~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

6. SEGMENT INFORMATION (continued)

(c) Other segment information

Amounts included in the measure of segment profit or loss or segment assets:

2015

										Loss (gain)	Loss (gain)
								Fair value		on disposal
						Depreciation		gain on		of property,
				Capital		and		investment		plant and
				additions		amortisation		properties		equipment
				HK$’000		HK$’000		HK$’000		HK$’000
	Hi-Tech Manufacturing Business
	Plastic products			37,427		27,202		—		1,821
	Liquid crystal display			35,822		13,389		—		21
	Printed circuit boards			120,650		42,209		—		(57)
	Intelligent chargers			9,661		8,962		—		202
	Industrial property investment			13,864		14,350		11,144		—
				217,424		106,112		11,144		1,987
	New Material Business
	Polyimide films manufacturing			—		—		—		—
	Aerospace Service
	Property investment in Shenzhen
	Aerospace Science & Technology
	Plaza			318,798		158		2,608,207		—
	Land development in Hainan
	Launching Site Complex Zone			—		—		—		—
	Internet of Things			1,049		25,832		—		62
	Cross-border e-commerce			—		—		—		—
				319,847		25,990		2,608,207		62
	Segment total			537,271		132,102		2,619,351		2,049

~~66~~

Annual Report 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2015

6. SEGMENT INFORMATION (continued)

(c) Other segment information (continued)

Amounts included in the measure of segment profit or loss or segment assets: (continued)

2014

																	(Gain) loss	(Gain) loss
													Fair value				on disposal
									Depreciation				gain on				of property,
					Capital				and				investment				plant and
					additions				amortisation				properties				equipment
					HK$’000				HK$’000				HK$’000				HK$’000
	Hi-Tech Manufacturing Business
	Plastic products				54,645				16,909				—				309
	Liquid crystal display				35,018				12,420				—				3,695
	Printed circuit boards				65,991				42,159				—				(42)
	Intelligent chargers				11,788				7,892				—				120
	Industrial property investment				3,270				14,394				19,966				114
					170,712				93,774				19,966				4,196
	New Material Business
	Polyimide films manufacturing				9,960				929				—				—
	Aerospace Service
	Property investment in Shenzhen
	Aerospace Science & Technology
	Plaza				575,363				259				420,883				—
	Land development in Hainan
	Launching Site Complex Zone				—				—				—				—
	Internet of Things				1,498				2,733				—				—
	Cross-border e-commerce				—				—				—				—
					576,861				2,992				420,883				—
	Segment total				757,533				97,695				440,849				4,196

~~67~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

6. SEGMENT INFORMATION (continued)

(d) Geographical information

The Group operates in three principal geographical areas — Hong Kong, the PRC and Canada.

The Group’s revenue from external customers and information about its non-current assets (other than available-for-sale investments) by geographical location are detailed below:

				Revenue from	Revenue from	Revenue from
				external customers					Non-current			assets
				2015		2014			2015			2014
				HK$’000		HK$’000			HK$’000			HK$’000
	Hong Kong			2,098,043		2,211,557			333,448			232,630
	The PRC			667,677		579,377			8,648,371			6,299,876
	Canada			—		241			100			14
				2,765,720		2,791,175			8,981,919			6,532,520

Information about major customers

Revenues from customers of the corresponding years contributing over 10% of the total sales of the Group are as follows:

				2015	2014
				HK$’000	HK$’000
	Customer A1			383,014	410,254

1 Revenue from intelligent chargers.

~~68~~

Annual Report 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2015

7. OTHER INCOME AND OTHER GAINS AND LOSSES

				2015	2015	2014	2014
				HK$’000		HK$’000
	Continuing operations
	The Group’s other income mainly comprises:
	Interest income			60,805		56,393
	The Group’s other gains and losses mainly comprise:
	Net exchange loss			(51,318)		(30,761)
	Net loss from change in fair value of financial assets at fair value
	through profit or loss			(22,455)		(9,720)
	Allowance for doubtful trade debts			(8,828)		(5,324)
	Loss on disposal/written off of property, plant and equipment			(2,074)		(5,503)
	Gain on disposal of an associate			3,716		—
	Impairment loss recognised in respect of available-for-sale investments			(29,000)		—
	Discontinued operations
	The Group’s other gains and losses mainly comprise:
	Net exchange loss			—		(5)

~~69~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2015

8. DIRECTORS’ AND HIGHEST PAID INDIVIDUALS’ EMOLUMENTS

(a) Directors’ emoluments

The emoluments paid or payable to each of the 8 (2014: 9) directors are as follows:

																																	Leung
					Li				Jin			Zhang							Chen							Shi					Luo		Sau Fan,				Wang				2015
				Hongjun				Xuesheng				Jianheng					Xuechuan					Weiguo					Zhenbang						Sylvia				Xiaojun				Total
				HK$’000				HK$’000				HK$’000					HK$’000					HK$’000							HK$’000				HK$’000			HK$’000					HK$’000
	Directors’ fees
	Executives				—					—					—						—					—					—		—				—				—
	Non-executives (excluding
	independent non-executives)				—					—					—						—					—					—		—				—				—
	Independent non-executives				—					—					—						—					—					150		150				150				450
					—					—					—						—					—					150		150				150				450
	Other emoluments
	Salaries and other benefits			1,594				1,594							—						—					—					80		110				55				3,433
	Bonuses			509				509							—						—					—					—		—				—				1,018
				2,103				2,103							—						—					—					80		110				55				4,451
	Total emoluments			2,103				2,103							—						—					—					230		260				205				4,901
																																	Leung
				Li				Jin				Zhang					Wu				Chen						Shi				Luo		Sau Fan,				Wang				2014
				Hongjun				Xuesheng				Jianheng					Zhuo#				Xuechuan					Weiguo					Zhenbang		Sylvia				Xiaojun				Total
				HK$’000				HK$’000				HK$’000				HK$’000					HK$’000					HK$’000					HK$’000		HK$’000				HK$’000				HK$’000
	Directors’ fees
	Executives			—				—				—					—					—					—				—		—				—				—
	Non-executives (excluding
	independent non-executives)			—				—				—					—					—					—				—		—				—				—
	Independent non-executives			—				—				—					—					—					—				150		150				150				450
				—				—				—					—					—					—				150		150				150				450
	Other emoluments
	Salaries and other benefits			1,594				1,432				—					—					—					—				80		110				45				3,261
	Bonuses			791				953				—					—					—					—				—		—				—				1,744
				2,385				2,385				—					—					—					—				80		110				45				5,005
	Total emoluments			2,385				2,385				—					—					—					—				230		260				195				5,455

Note: The bonuses are determined with reference to the operating results, individual performance and comparable market statistics for the year.

Mr. Li Hongjun is also the Chief Executive of the Company and his emoluments disclosed above include those for services rendered by him as the Chief Executive.

Retired in 2014

~~70~~

Annual Report 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2015

8. DIRECTORS’ AND HIGHEST PAID INDIVIDUALS’ EMOLUMENTS (continued)

(b) Highest paid individuals’ emoluments

During the year, the five highest paid individuals included two directors (2014: two directors), details of whose emoluments are set out above. The emoluments of the remaining three (2014: three) highest paid individuals are as follows:

	individuals are as follows:
				2015		2014
				HK$’000		HK$’000
	Salaries and other benefits			1,495		3,393
	Bonuses_(Note)_			9,587		2,331
	Contributions to retirement benefits scheme			—		—
				11,082		5,724

Note: The bonuses are determined with reference to the operating results, individual performance and comparable market statistics during the year.

The emoluments of these individuals were within the following band:

	Emoluments band			Number of individuals	Number of individuals	Number of individuals
				2015			2014
	HK$6,000,001 to HK$6,500,000			1			—
	HK$3,000,001 to HK$3,500,000			1			—
	HK$1,500,001 to HK$2,000,000			1			3
				3			3

During the year, no emoluments were paid by the Group to the five highest paid individuals, including directors, as an inducement to join or upon joining the Group or as compensation for loss of office. In addition, no director waived any emoluments during the year.

9. FINANCE COSTS

				2015	2015	2014	2014
				HK$’000		HK$’000
	Continuing operations
	Interest expenses on bank and other borrowings			107,734		87,107
	Less: Amount capitalised to investment properties under construction			(74,338)		(52,634)
				33,396		34,473
	Discontinued operations
	Interest expenses on bank and other borrowings			—		504

Interest expenses capitalised during the year arose on the borrowings specifically in relation to the investment properties under construction in Shenzhen Aerospace Science & Technology Plaza and are calculated by applying a capitalisation rate of 5.88% (2014: 6%) per annum to expenditure on qualifying assets.

~~71~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

10. PROFIT BEFORE TAXATION

				2015	2015		2014	2014
				HK$’000			HK$’000
	Continuing operations
	Profit before taxation has been arrived at after charging (crediting):
	Amortisation of prepaid lease payments			3,933			3,675
	Amortisation of intangible assets (included in cost of sales)			12,633			15,433
	Auditors’ remuneration
	— current year			4,458			4,205
	— underprovision in prior years			106			38
	Cost of inventories charged to profit or loss including allowance for
	obsolete inventories of HK$985,000 (2014: reversal of allowance for
	obsolete inventories of HK$7,613,000)			2,204,509			2,175,212
	Depreciation of property, plant and equipment			105,005			94,648
	Minimum lease payments under operating leases in respect of land
	and buildings			20,514			17,120
	Impairment loss recognised in respect of intangible assets
	(included in administrative expenses)			11,715			—
	Research and development expenses (included in other expenses)			57,734			40,425
	Staff costs, including directors’ remuneration			546,077			527,473
	Gross rental income			(17,172)			(17,892)
	Less: Direct operating expenses for investment properties that
	generated rental income during the year			2,878			2,826
				(14,294)			(15,066)
	Discontinued operations
	Profit before taxation has been arrived at after charging:
	Amortisation of prepaid lease payments			—			60
	Amortisation of intangible assets (included in cost of sales)			—			574
	Cost of inventories charged to profit or loss			—			3,041
	Depreciation of property, plant and equipment			—			869
	Minimum lease payments under operating leases in respect of land
	and building			—			169
	Staff costs, including directors’ remuneration			—			13,413

~~72~~

Annual Report 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2015

11. TAXATION

Continuing operations

The tax charge (credit) for the year comprises:

	TAXATION Continuing operations The tax charge (credit) for the year comprises:
				2015		2014
				HK$’000		HK$’000
	Current tax:
	Hong Kong Profits Tax			23,943		25,484
	PRC Enterprise Income Tax			9,774		13,535
	Canada Corporate Income Tax			—		9,204
				33,717		48,223
	(Over) underprovision in prior years:
	Hong Kong Profits Tax			(491)		55
	PRC Enterprise Income Tax			—		108
				(491)		163
	Deferred tax charge_(note 31)_			987,864		148,092
				1,021,090		196,478

The tax charge for the year can be reconciled to the profit before taxation per consolidated statement of profit or loss as follows:

				2015	2015	2014	2014
				HK$’000		HK$’000
	Profit before taxation (from continuingoperations)			2,647,413		719,847
	Tax at Hong Kong Profits Tax of 16.5%			436,823		118,775
	Tax effect of share of results of associates			8,434		(5)
	Tax effect of share of results of joint ventures			433		1
	Tax effect of expenses not deductible for tax purposes			15,124		7,806
	Tax effect of income not taxable for tax purpose			(78,356)		(26,844)
	Land appreciation tax			443,353		58,855
	Tax effect of tax losses not recognised			17,723		6,446
	Utilisation of tax losses previously not recognised			(4,439)		(6,745)
	Deferred tax effect of disposal of investment properties			—		(5,508)
	Effect of different tax rates of subsidiaries operating in other
	jurisdictions			183,199		45,537
	Effect of income tax on concessionary rates for certain subsidiaries			(442)		(907)
	(Over) underprovision in prior years			(491)		163
	Others			(271)		(1,096)
	Income tax expenses for the year (relatingto continuingoperations)			1,021,090		196,478

~~73~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

11. TAXATION (continued)

Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable profit for both years.

Under the Law of the People’s Republic of China on Enterprise Income Tax (the “EIT Law”) and Implementation Regulation of the EIT Law, the tax rate of the PRC subsidiaries is 25%. A subsidiary of the Company operating in the PRC is eligible as High and New Technology Enterprise and the income tax rate of this subsidiary is 15%.

Taxation arising in other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions.

12. EARNINGS PER SHARE

The calculation of the basic earnings per share attributable to the owners of the Company is based on the following data:

For continuing operations and discontinued operations

				2015	2015	2014	2014
				HK$’000		HK$’000
	Earnings
	Profit for the year attributable to owners of the Company for the
	purpose of basic earnings per share			984,696		415,692
				2015		2014
				Number of		Number of
				shares		shares
	Number of shares
	Number of ordinary shares for the purpose of basic earnings per share			3,085,022,000		3,085,022,000
	For continuing operations
				2015		2014
				HK$’000		HK$’000
	Earnings
	Profit for the year attributable to owners of the Company for the
	purpose of basic earnings per share			984,696		406,884
				2015		2014
				Number of		Number of
				shares		shares
	Number of shares
	Number of ordinary shares for the purpose of basic earnings per share			3,085,022,000		3,085,022,000

~~74~~

Annual Report 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

12. EARNINGS PER SHARE (continued)

For discontinued operations

				2015	2015	2014	2014
				HK$’000		HK$’000
	Earnings
	Profit for the year attributable to owners of the Company for the
	purpose of basic earnings per share			—		8,808
				2015		2014
				Number of		Number of
				shares		shares
	Number of shares
	Number of ordinary shares for the purpose of basic earnings per share			3,085,022,000		3,085,022,000

No diluted earnings per share have been presented as there were no potential ordinary shares outstanding for both years.

13. DIVIDENDS

				2015	2015		2014	2014
				HK$’000			HK$’000
	Dividends recognised as distribution during the year:
	2014 final, paid — HK1 cent
	(2014: 2013 final dividend of HK1 cent) per share			30,850			30,850

A final dividend of HK1 cent per share in respect of the year ended 31 December 2015 (2014: HK1 cent) has been proposed by the directors and is subject to approval by the shareholders in the annual general meeting.

~~75~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2015

14. PROPERTY, PLANT AND EQUIPMENT

					Medium-term	Medium-term			Long-term	Long-term			Medium-term	Medium-term
					leasehold land				leasehold land				leasehold land								Motor vehicles,
					and buildings in				and buildings in				and buildings in				Plant and				furniture and				Construction
					Hong Kong				the PRC				the PRC				equipment				other equipment				in progress				Total
					HK$’000				HK$’000				HK$’000				HK$’000				HK$’000				HK$’000				HK$’000
	THE GROUP
	COST
	At 1 January 2014				76,875				8,368				498,247				810,139				231,859				17,170				1,642,658
	Exchange realignment				—				(204)				(13,376)				(16,255)				(5,248)				(162)				(35,245)
	Additions				—				—				3,242				105,061				53,395				11,856				173,554
	Disposals/written off				—				—				—				(90,746)				(15,164)				—				(105,910)
	Eliminated on disposal of
	subsidiaries_(note 33)_				—				—				(32,619)				(142,961)				(5,884)				(16,251)				(197,715)
	At 31 December 2014				76,875				8,164				455,494				665,238				258,958				12,613				1,477,342
	Exchange realignment				—				(424)				(29,062)				(57,536)				(11,879)				(4,436)				(103,337)
	Additions				—				—				14,129				116,476				9,996				78,589				219,190
	Disposals/written off				—				—				(531)				(34,510)				(5,607)				—				(40,648)
	At 31 December 2015				76,875				7,740				440,030				689,668				251,468				86,766				1,552,547
	DEPRECIATION AND
	IMPAIRMENT
	At 1 January 2014				34,865				1,441				175,046				418,187				135,135				—				764,674
	Exchange realignment				—				(33)				(5,225)				(5,934)				(2,652)				—				(13,844)
	Provided for the year				1,985				126				12,353				49,904				31,149				—				95,517
	Eliminated on disposals/
	written off				—				—				—				(85,835)				(14,343)				—				(100,178)
	Eliminated on disposal of
	subsidiaries_(note 33)_				—				—				(4,352)				(24,006)				(2,573)				—				(30,931)
	At 31 December 2014				36,850				1,534				177,822				352,316				146,716				—				715,238
	Exchange realignment				—				(78)				(11,917)				(18,859)				(7,099)				—				(37,953)
	Provided for the year				1,985				121				13,186				58,827				30,886				—				105,005
	Eliminated on disposals/
	written off				—				—				(531)				(31,363)				(4,571)				—				(36,465)
	At 31 December 2015				38,835				1,577				178,560				360,921				165,932				—				745,825
	CARRYING VALUES
	At 31 December 2015				38,040				6,163				261,470				328,747				85,536				86,766				806,722
	At 31 December 2014				40,025				6,630				277,672				312,922				112,242				12,613				762,104

Note:

(a) Depreciation is provided to write off the cost of items of property, plant and equipment other than properties under construction over their estimated useful lives and after taking into account their estimated residual values, using the straight line method, at the following rates per annum:

Leasehold land and buildings Plant and equipment Motor vehicles, furniture and other equipment

Over the shorter of the term of lease, or 50 years 5%–15% 6%–25%

~~76~~

Annual Report 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2015

15. PREPAID LEASE PAYMENTS

				2015	2015	2014	2014
				HK$’000		HK$’000
	The Group’s prepaid lease payments comprise leasehold land in the
	PRC held under medium-term leases and are analysed for reporting
	purposes as:
	Non-current portion			94,626		106,238
	Current portion			3,849		4,064
				98,475		110,302

16. INVESTMENT PROPERTIES

									Investment	Investment
					Completed				properties
					investment				under
					properties				construction				Total
					HK$’000				HK$’000				HK$’000
	FAIR VALUE
	At 1 January 2014				384,269				3,361,893				3,746,162
	Exchange realignment				(8,642)				(96,262)				(104,904)
	Construction costs incurred				—				575,329				575,329
	Disposal				(68,448)				—				(68,448)
	Net increase in fair value recognised in profit or loss				26,065				420,884				446,949
	At 31 December 2014				333,244				4,261,844				4,595,088
	Exchange realignment				(12,475)				(368,100)				(380,575)
	Construction costs incurred				—				318,592				318,592
	Net increase in fair value recognised in profit or loss				13,963				2,608,207				2,622,170
	At 31 December 2015				334,732				6,820,543				7,155,275
	Unrealised gain on property revaluation included in profit or
	loss of this year				13,963				2,608,207				2,622,170

~~77~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

16. INVESTMENT PROPERTIES (continued)

The fair values of the Group’s investment properties at 31 December 2015 and 31 December 2014 have been arrived at on the basis of valuations carried out on that date by Jones Lang LaSalle Corporate Appraisal & Advisory Limited (“Jones Lang”) for properties situated in Hong Kong and Knight Frank Petty Limited (“Knight Frank”) for properties situated in the PRC. Jones Lang and Knight Frank are independent qualified professional valuers not connected with the Group and are members of the Institute of Valuers. The valuation of investment properties other than properties under construction was arrived at by reference to market evidence of transaction prices for similar properties. The valuation of investment properties under construction was arrived at by reference to market evidence of transaction prices for similar properties and by capitalisation of income potential of similar properties, on the basis that the properties will be developed and completed in accordance with the Group’s development plan, after taking into account of the estimated construction costs to completion to reflect the quality of the completed development, developer’s profits and the restrictions imposed on the development properties to lease or to sell to the third parties.

In estimating the fair value of the properties, the highest and best use of the properties is their current use.

The following table gives information about how the fair values of these investment properties are determined (in particular, the valuation techniques and inputs used), as well as the fair value hierarchy into which the fair value measurements are categorised (Levels 1 to 3) based on the degree to which the inputs to the fair value measurements is observable.

~~78~~

Annual Report 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2015

16. INVESTMENT PROPERTIES (continued)

		Fair value	Fair value				Relationship of
		as at	as at	Fair value	Valuation technique(s)		unobservable inputs
		31.12.2015	31.12.2014	hierarchy	and key input(s)	Significant unobservable input(s)	to fair value
		HK$’000	HK$’000
	Units 402, 405 to 407	85,100	77,700	Level 2	Direct comparison method based	N/A	N/A
	on 4th Floor, 17th Floor				on market observable
	China Aerospace Centre				transaction of similar properties
	143 Hoi Bun Road				and adjust to reflect the
	Kwun Tong				conditions and location of the
	Kowloon				property
	Car Park Nos. P1, L3, LD1, LD2 and	11,900	12,975	Level 2	Direct comparison method based	N/A	N/A
	LD5 on Ground Floor, Car Park				on market observable
	Nos. P17, P18 and P24 on 1st				transaction of similar properties
	Floor and Car Park Nos. P34,				and adjust to reflect the
	P36 and P37				conditions and location of the
	on 2nd Floor				property
	China Aerospace Centre
	143 Hoi Bun Road
	Kwun Tong
	Kowloon
	Unit A on 2nd Floor of Tsun	9,530	9,100	Level 2	Direct comparison method based	N/A	N/A
	Win Factory Building				on market observable
	No. 60 Tsun Yip Street				transaction of similar properties
	Kwun Tong				and adjust to reflect the
	Kowloon				conditions and location of the
					property
	Car Parking Space Nos. 4, 5, 8,	5,250	5,000	Level 2	Direct comparison method based	N/A	N/A
	12 and 13 on Ground Floor of				on market observable
	Wah Hing Industrial Mansions				transaction of similar properties
	No. 36 Tai Yau Street and Nos.				and adjust to reflect the
	21–25 Tseuk Luk Street				conditions and location of the
	San Po Kong				property
	Kowloon
	China Aerospace Industrial	162,044	166,292	Level 3	Direct Capitalisation Approach	Capitalisation rate, taking into account of	The higher the capitalisation
	Estate					the capitalisation of rental income	rate, the lower the fair
	Zhong Kai Development Zone Huizhou City Guangdong Province The PRC				The key inputs are: (1) Capitalisation rate; (2) Monthly rent	potential, nature of the property, prevailing market condition, of 8.25% (2014: 8.75%). Monthly rent, based on net floor area,	value. The higher the level
						using direct market comparable and	adjustment, the lower the
						taking into account of age, location	fair value.
						and individual factors such as size of
						property and layout/design, of RMB8/
						sq.m. (2014: RMB8/sq.m.) on average
						for the base level.
	Office Unit Nos 801-819 on	22,773	21,901	Level 3	Direct Capitalisation Approach	Capitalisation rate, taking into account of	The higher the capitalisation
	Level 8 together with Car					the capitalisation of rental income	rate, the lower the fair
	Parking Space Nos 2355–2357, 3105–3107, Zhong Hai Hua Ting North Zone, No. 399 Fu Hua Road,				The key inputs are: (1) Capitalisation rate; (2) Monthly rent	potential, nature of the property, prevailing market condition, of 5.25% (2014: 4.5%).	value.
	Futian District, Shenzhen,					Monthly rent, based on net floor area,	The higher the level
	Guangdong Province					using direct market comparable and	adjustment, the lower the
	The PRC					taking into account of age, location	fair value.
						and individual factors such as size of
						property and layout/design, of
						RMB170/sq.m. (2014: RMB131/sq.m.)
						on average for the base level.

~~79~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

16. INVESTMENT PROPERTIES (continued)

		Fair value	Fair value				Relationship of
		as at	as at	Fair value	Valuation technique(s)		unobservable inputs
		31.12.2015	31.12.2014	hierarchy	and key input(s)	Significant unobservable input(s)	to fair value
		HK$’000	HK$’000
	South of Bin Hai Avenue and	6,820,543	4,261,844	Level 3	Market-based Approach	Gross development value on completion	The higher the gross
	the East of Hou Hai Bin Road					basis, taking into account the time,	development value, the
	Nanshan District				The key inputs are:	location and individual factors, such as	higher the fair value.
	Shenzhen				(1) Gross development value;	size, location, between comparable
	Guangdong Province				(2) Developer’s profit;	and the property, of RMB7,094 million
	The PRC				(3) Capitalisation rate;	(2014: RMB4,284 million).
					(4) Monthly rent;	Developer’s profit, taking into account of	The higher the developer’s
					(5) Construction costs	the comparable land transactions and	profit, the lower the fair
						progress of the property of 5% (2014:	value.
						5%).
						Capitalisation rate, taking into account of	The higher the capitalisation
						the capitalisation of rental income	rate, the lower the fair
						potential, nature of the property,	value.
						prevailing market condition, of 4.75%
						(2014: 5%).
						Monthly rent, based on net floor area,	The higher the monthly rent,
						using direct market comparable and	the higher the fair value.
						taking into account of age, location
						and individual factors such as size of
						property and layout/design of RMB164/
						sq.m. (2014: RMB134/sq.m.) on
						average for office and RMB43/sq.m.—
						RMB183/sq.m. (2014: RMB48/sq.m.—
						RMB208/sq.m.) for commercial.
						Construction costs, according to the	The higher the construction
						management’s experience and	costs, the lower the fair
						construction budget.	value.
	Level 8	38,135	40,276	Level 3	Direct Capitalisation Approach	Capitalisation rate, taking into account of	The higher the capitalisation
	Qian Cun Commercial Building					the capitalisation of rental income	rate, the lower the fair
	Block No. 2 of 5th District of				The key inputs are:	potential, nature of the property,	value.
	An Zhen West Lane				(1) Capitalisation rate;	prevailing market condition, of 4%
	Chao Yang District				(2) Monthly rent	(2014: 4%).
	Beijing
	The PRC					Monthly rent, based on net floor area,	The higher the monthly rent,
						using direct market comparable and	the higher the fair value.
						taking into account of age, location
						and individual factors such as size of
						property and layout/design, of RMB83/
						sq.m. (2014: RMB83/sq.m.) on
						average.

~~80~~

Annual Report 2015

For the year ended 31 December 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

16. INVESTMENT PROPERTIES (continued)

Fair value measurements and valuation processes

In estimating the fair value of the Group’s investment properties, the Group uses market observable data to the extent it is available. Where Level 1 inputs are not available, the Group engages third party qualified valuers to perform the valuation of the Group’s investment properties. At the end of each reporting period, the management of the Group works closely with the qualified external valuers to establish and determine the appropriate valuation techniques and inputs for Level 2 and Level 3 fair value measurements. The Group will first consider and adopt Level 2 inputs where inputs can be derived from observable quoted prices in the active market. When Level 2 inputs are not available, the Group will adopt valuation techniques that include Level 3 inputs. Where there is a material change in the fair value of the assets, the causes of the fluctuations will be reported to the board of directors of the Company.

Information about the valuation techniques and inputs used in determining the fair value of the Group’s investment properties are disclosed above.

There were no transfers into or out of Level 3 during the year.

~~81~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

17. INTANGIBLE ASSETS

					Technical	Technical			Development	Development
					knowhow				costs				Total
					HK$’000				HK$’000				HK$’000
	COST
	At 1 January 2014				63,247				34,498				97,745
	Exchange realignment				—				(962)				(962)
	Additions				—				20,189				20,189
	Derecognised on disposal of a subsidiary_(note 33)_				(63,247)				—				(63,247)
	At 31 December 2014				—				53,725				53,725
	Exchange realignment				—				(2,586)				(2,586)
	Additions				—				1,049				1,049
	At 31 December 2015				—				52,188				52,188
	AMORTISATION AND IMPAIRMENT
	At 1 January 2014				14,827				15,340				30,167
	Exchange realignment				—				(463)				(463)
	Provided for the year				574				15,433				16,007
	Derecognised on disposal of a subsidiary_(note 33)_				(15,401)				—				(15,401)
	At 31 December 2014				—				30,310				30,310
	Exchange realignment				—				(2,470)				(2,470)
	Provided for the year				—				12,633				12,633
	Impairment loss recognised in the year				—				11,715				11,715
	At 31 December 2015				—				52,188				52,188
	CARRYING VALUES
	At 31 December 2015				—				—				—
	At 31 December 2014				—				23,415				23,415

The above intangible assets have finite useful lives. Such intangible assets are amortised on a straight line basis over the following periods:

Technical knowhow 8 years Development costs 4 years

~~82~~

Annual Report 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

17. INTANGIBLE ASSETS (continued)

During the year, the directors have determined that the Group’s developments costs in relation to its Internet of Things business are impaired as a result of the decline in its expected future cash flows. Accordingly, an impairment loss of HK$11,715,000 (2014: nil) has been recognised in profit or loss. The impairment on the development costs is made to the cash generating unit for the Internet of Things and based on their recoverable amounts. The recoverable amounts have been determined on the basis of their value in use calculations based on financial budgets approved by the management covering a 3 year period. The discount rate in measuring the amounts of value in use was 17% in relation to those assets. Other key assumptions included estimation of cash inflow/outflows on budget sales and expected gross margins based on the unit’s past performance and management’s expectation for the market development.

18. INTERESTS IN ASSOCIATES

				2015	2014
				HK$’000	HK$’000
	Cost of unlisted investments in associates			193,589	197,189
	Share of other comprehensive expense			(12,564)	(4,886)
	Share ofpost-acquisition losses, net of dividends received			(48,732)	(1,215)
	Share of net assets			132,293	191,088

During the year, the directors conducted an impairment review of the carrying amount of an associate which is engaged in polyimide film manufacturing. Based on the assessment, the recoverable amount of the cash generating unit for polyimide film manufacturing is estimated to be less than the carrying amount of the interest in that associate. Accordingly, the management of the Group determined that an impairment loss of HK$49,628,000 (2014: nil) is recognised in the profit or loss included under share of results of associates for the year ended 31 December 2015.

The recoverable amount of the cash generating unit is determined based on value in use calculations which are derived from cash flow projections based on the most recent financial budgets for the next 5 years approved by the management. Cash flows beyond the 5-year period have been extrapolated using growth rates of 3.0% per annum. Key assumptions are those regarding the discount rates, growth rates and expected revenue stream and gross margin during the year. Management estimates discount rate of 19.5% using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the cash generating unit. The growth rates are based on industry growth forecasts.

Particulars of the associates of the Group at 31 December 2015 and 2014 are set out in note 43.

Summarised financial information of material associates

Summarised financial information in respect of each of the Group’s material associates is set out below. The summarised financial information below represents amounts shown in the associate’s financial statements prepared in accordance with HKFRSs.

All associates are accounted for using the equity method in these consolidated financial statements.

~~83~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

18. INTERESTS IN ASSOCIATES (continued)

Summarised financial information of material associates (continued)

Shenzhen Rayitek

				2015	2014
				HK$’000	HK$’000
	Current assets			136,997	147,939
	Non-current assets			317,249	284,780
	Current liabilities			(38,461)	(27,704)
	Non-current liabilities			(51,613)	(18,162)
	Revenue			87,513	63,280
	(Loss) profit for the year			(2,236)	429
	Other comprehensive expense for the year			(20,445)	(10,578)
	Total comprehensive expense for the year			(22,681)	(10,149)

Reconciliation of the above summarised financial information to the carrying amount of the interest in Shenzhen Rayitek recognised in the consolidated financial statements:

				2015	2014
				HK$’000	HK$’000
	Net assets of Shenzhen Rayitek			364,172	386,853
	Proportion of the Group's ownershipinterest in Shenzhen Rayitek			42.75%	42.75%
				155,684	165,380
	Effect of fair value adjustments at acquisition			11,817	11,817
	Impairment loss recognised			(49,628)	—
	Exchange realignment			1,494	(295)
	Carryingamount of the Group's interest in Shenzhen Rayitek			119,367	176,902

~~84~~

Annual Report 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2015

18. INTERESTS IN ASSOCIATES (continued)

Aggregate information of associates that are not individually material

				2015	2014
				HK$’000	HK$’000
	The Group's share of loss for theyear			(533)	(152)
	The Group's share of other comprehensive expense for theyear			(727)	(365)
	The Group's share of total comprehensive expense for theyear			(1,260)	(517)
	Aggregate carryingamount of the Group's interests in these associates			12,926	14,186
				2015	2014
				HK$’000	HK$’000
	Unrecognised share ofprofit(loss)of an associate for theyear			20	(102)
	Accumulated unrecognised share of losses of an associate			(10,340)	(12,841)

19. INTERESTS IN JOINT VENTURES

				2015	2014
				HK$’000	HK$’000
	Cost of unlisted investments in joint ventures			849,825	849,825
	Share of other comprehensive (expense) income			(26,204)	14,473
	Share ofpost-acquisition losses			(39,991)	(37,365)
				783,630	826,933

Particulars of the principal joint ventures of the Group at 31 December 2015 and 2014 are set out in note 44.

Summarised financial information of material joint ventures

Summarised financial information in respect of the Group’s material joint venture is set out below. The summarised financial information below represents amounts shown in the joint venture’s financial statements prepared in accordance with HKFRSs.

The joint ventures are accounted for using the equity method in these consolidated financial statements.

~~85~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

19. INTERESTS IN JOINT VENTURES (continued)

Summarised financial information of material joint ventures (continued)

Hainan Aerospace

				2015	2015	2014	2014
				HK$’000		HK$’000
	Current assets			124,376		225,526
	Non-current assets			1,541,446		1,346,330
	Current liabilities			(16,566)		(36,532)
	Non-current liabilities			(248,978)		(49,874)
	Revenue			4,158		8,631
	Loss for the year			(7,248)		(3,412)
	Other comprehensive expense for the year			(80,440)		(38,936)
	Total comprehensive expense for the year			(87,688)		(42,348)
	The above loss for the year included the following:
				2015		2014
				HK$’000		HK$’000
	Depreciation and amortisation			(948)		(1,217)
	Interest income			671		5,737

Reconciliation of the above summarised financial information to the carrying amount of the interest in Hainan Aerospace recognised in the consolidated financial statements:

				2015	2014
				HK$’000	HK$’000
	Net assets of Hainan Aerospace			1,400,278	1,485,450
	Effect of fair value adjustments at acquisition			32,736	35,252
				1,433,014	1,520,702
	Proportion of the Group’s ownership interest in Hainan Aerospace			50%	50%
	Carrying amount of the Group’s interest in Hainan Aerospace			716,507	760,351

~~86~~

Annual Report 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2015

19. INTERESTS IN JOINT VENTURES (continued)

Information of a joint venture that is not individually material

				2015	2014
				HK$’000	HK$’000
	The Group’s share of profit from continuing operations			998	1,698
	The Group’s share of other comprehensive expense			(457)	(174)
	The Group’s share of total comprehensive income			541	1,524
	Aggregate carrying amount of the Group’s interests in this joint venture			67,123	66,582

20. AVAILABLE-FOR-SALE INVESTMENTS

				2015	2015	2014
				HK$’000		HK$’000
	Unlisted equity securities in Hong Kong, at cost			29,000		29,000
	Less: Impairment loss recognised			(29,000)		—
	At 31 December 2015			—		29,000

The unlisted equity securities represent investments in unlisted equity interests and are measured at cost less impairment because the range of reasonable fair value estimates was so significant that the directors of the Company were of the opinion that the fair value cannot be measured reliably.

During the year, the directors conducted a review of the recoverable amount of the Group’s available-for-sale investments. Based on the assessment, the recoverable amount of the Group’s available-for-sale investments is estimated to be less than its carrying amount with reference to the financial position of the investee company. Accordingly, the management of the Group determined that an impairment loss of HK$29,000,000 (2014: nil) is recognised in the profit or loss for the year ended 31 December 2015.

21. INVENTORIES

				2015	2014
				HK$’000	HK$’000
	Raw materials			91,303	101,589
	Work-in-progress			54,493	53,853
	Finished goods			97,808	102,261
				243,604	257,703

~~87~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

22. TRADE AND OTHER RECEIVABLES

					2015	2014
					HK$’000	HK$’000
	Trade	receivables			608,347	541,019
	Less:	Allowance for doubtful debts			(36,165)	(36,356)
					572,182	504,663
	Other	receivables, deposits and prepayments			75,365	197,770
					647,547	702,433

Included in the Group’s other receivables, deposits and prepayments at 31 December 2015 is consideration receivable for disposal of investment properties of HK$11,569,000 (31 December 2014: HK$122,784,000).

The following is an aged analysis of trade receivables net of allowance for doubtful debt presented based on invoice date at the end of the reporting period:

				2015	2014
				HK$’000	HK$’000
	Within 90 days			549,751	473,349
	Between 91–180 days			21,460	26,331
	Between 181–365 days			971	4,983
				572,182	504,663

The Group allows an average credit period of 90 days to its trade customers. Receivables are unsecured and interest-free. Before accepting any new customer, the Group will internally assess the credit quality of the potential customer and defines appropriate credit limits.

Management closely monitors the credit quality of trade and other receivables and considers the trade and other receivables that are neither past due nor impaired to be of a good credit quality. Included in the Group’s trade receivable balance are debtors with aggregate carrying amount of HK$22,431,000 (2014: HK$31,314,000) which are past due at the end of the reporting period for which the Group has not provided for impairment loss. The Group does not hold any collateral over these balances. There are no balances included in other receivables which have been past due.

The following is an aged analysis of trade receivables which are past due but not impaired:

					2015	2014
					HK$’000	HK$’000
	Overdue	1–90 days			21,460	26,331
	Overdue	91–270 days			971	4,983
					22,431	31,314

~~88~~

Annual Report 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2015

22. TRADE AND OTHER RECEIVABLES (continued)

Based on the historical experience of the Group, trade receivables aged within 180 days which are past due but not impaired are generally recoverable.

The following is a movement in the allowance for doubtful debts:

	The following is a movement in the allowance for doubtful debts:
				2015		2014
				HK$’000		HK$’000
	At 1 January			36,356		31,255
	Allowance for doubtful debts			8,828		5,324
	Derecognised on disposal of a subsidiary			—		(181)
	Amount written off as uncollectible			(9,019)		(42)
	At 31 December			36,165		36,356

23. AMOUNT DUE FROM A RELATED PARTY

The amount represents the deposits placed with Aerospace Science & Technology Finance Company Limited (航天科技財務有限責任公司) (“Aerospace Finance”), a subsidiary of China Aerospace Science & Technology Corporation (“CASC”). The amount is unsecured, receivable on demand and carries interests at prevailing market rate.

24. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

				2015	2015	2014	2014
				HK$’000		HK$’000
	Financial assets at fair value through profit or loss held for trading is
	analysed as follows:
	Equity securities
	— listed in Hong Kong			17,169		39,621
	— listed in the PRC			—		3
				17,169		39,624

At 31 December 2015, the fair value of listed securities is determined by the quoted market bid price available on the relevant exchange. The classification of the measurement of all the listed equity securities is Level 1 under the fair value hierarchy. Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active market for identical assets or liabilities.

~~89~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

25. PLEDGED BANK DEPOSITS, SHORT-TERM BANK DEPOSITS, BANK BALANCES AND CASH

The Group’s bank deposits amounting to HK$36,035,000 (2014: HK$33,428,000) have been pledged to secure general banking facilities of the Group and are therefore classified as current assets.

Bank balances and pledged bank deposits carry interest at prevailing market rates which range from 0.01% to 4.70% (2014: 0.01% to 3.12%) per annum at 31 December 2015.

At 31 December 2014, short-term bank deposits with original maturity more than three months carried fixed interest ranging from 2.90% to 3.30% per annum.

26. TRADE AND OTHER PAYABLES

				2015	2014
				HK$’000	HK$’000
	Trade payables			314,815	305,298
	Accrued charges			154,771	160,192
	Receipt in advance			130,605	105,664
	Other payables			493,557	443,691
				1,093,748	1,014,845

Other payables included an amount of HK$54,000,000 (2014: HK$54,000,000) received on behalf of CASC and payables to contractors for investment properties under construction of HK$198,194,000 (2014: HK$184,022,000).

The following is an aged analysis of trade payables based on invoice date at the end of the reporting period:

				2015	2014
				HK$’000	HK$’000
	Within 90 days			240,803	283,135
	Between 91–180 days			14,232	16,167
	Between 181–365 days			48,450	1,356
	Over 1 year			11,330	4,640
				314,815	305,298

27. AMOUNT DUE TO AN ASSOCIATE

The amount due to an associate was of non-trade nature, unsecured, non-interest bearing and repayable on demand.

~~90~~

Annual Report 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2015

28. BANK AND OTHER BORROWINGS

The bank and other borrowings at the end of the reporting period comprise:

				2015	2015	2014	2014
				HK$’000		HK$’000
	Borrowings from the Finance Syndicate_(note 40(a)(iv))_			1,307,202		1,088,529
	Bank borrowings			33,058		37,406
				1,340,260		1,125,935
				2015		2014
				HK$’000		HK$’000
	Unsecured			33,058		37,406
	Secured			1,307,202		1,088,529
				1,340,260		1,125,935
	The borrowings are repayable as follows:
	Within one year			1,340,260		37,406
	More than one year but not exceeding two years			—		1,088,529
				1,340,260		1,125,935
	Less: Amounts due within one year shown under current liabilities			(1,340,260)		(37,406)
	Amounts due after one year			—		1,088,529

The borrowings carry interest at variable market rate ranging from 4.75% to 6.00% (2014: 5.88% to 6.40%) per annum.

29. OTHER LOAN

The amount represents advances from a non-controlling shareholder of a non-wholly owned subsidiary. The amount is unsecured, non-interest bearing and repayable on demand.

30. LOAN FROM A MAJOR SHAREHOLDER

The loan is unsecured, bears a fixed interest at 5% per annum and is repayable in 2018 (note 40(a)(iii)) .

~~91~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

31. DEFERRED TAXATION

The followings are the major deferred tax liabilities recognised and movements thereon during the current and prior years:

	prior years:
					Accelerated				Revaluation
					tax			of investment
					depreciation				properties				Others				Total
					HK$’000				HK$’000				HK$’000				HK$’000
													(Note)
	At 1 January 2014				3,745				658,412				15,415				677,572
	Exchange realignment				—				(18,207)				—				(18,207)
	Charge to profit or loss for the year				(69)				148,161				—				148,092
	Derecognised on disposal of a subsidiary
	(note 33)				—				—				(18,627)				(18,627)
	At 31 December 2014				3,676				788,366				(3,212)				788,830
	Exchange realignment				—				(89,011)				—				(89,011)
	Charge to profit or loss for the year				(21)				987,885				—				987,864
	At 31 December 2015				3,655				1,687,240				(3,212)				1,687,683

Note: The amount mainly represents temporary differences arising from allowances for doubtful debts and deferred tax liabilities arising from fair value adjustments on assets acquired (i.e. intangible assets, prepaid lease payments and property, plant and equipment) upon acquisition of subsidiaries.

For the purpose of presentation in the consolidated statement of financial position, the above deferred tax assets and liabilities have been offset.

At 31 December 2015, the Group has unused tax losses of approximately HK$1,202 million (2014: HK$1,121 million) available for offset against future profits. No deferred tax asset has been recognised in respect of such tax losses due to the unpredictability of future profit streams. Included in the unrecognised tax losses, HK$1,020 million (2014: HK$1,015 million) may be carried forward indefinitely and the remaining balance will expire at various dates up to 2019.

Deferred taxation has not been recognised in respect of the temporary differences attributable to the undistributable retained profits earned by the subsidiaries in the PRC amounting to approximately HK$2,186 million (2014: HK$1,266 million) starting from 1 January 2008 under the EIT Law of the PRC that requires withholding tax upon the distribution of such profits to the non-PRC shareholders as the directors are of the opinion that the Group is able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.

~~92~~

Annual Report 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2015

32. SHARE CAPITAL

					Share capital	Share capital
					HK$’000
	Authorised:
	At 1 January 2014
	— 100,000,000,000 ordinary shares of HK$0.10 each				10,000,000
	At 31 December 2014 and 31 December 2015_(Note)_				Note
	Issued and fully paid:
	At 1 January 2014
	— 3,085,022,000 ordinary shares of HK$0.10 each				308,502
	Transfer from share premium and capital redemption reserve upon abolition of par
	value				846,009
	At 31 December 2014 and 31 December 2015
	— 3,085,022,000 ordinary shares with no par value_(Note)_				1,154,511

Note: Under the Hong Kong Companies Ordinance (Cap. 622), with effect from 3 March 2014, the concept of authorised share capital no longer exists and the Company’s shares no longer have a par value. There is no impact on the number of shares in issue or the relative entitlement of any of the shareholders as a result of this transition.

33. DISPOSAL OF SUBSIDIARIES (DISCONTINUED OPERATIONS)

Shenzhen Rayitek

On 19 December 2013, the Group entered into a capital increment agreement with several existing and strategic investors in which the registered capital of Shenzhen Rayitek would be increased from RMB30,000,000 to RMB98,442,972. The Group, through its wholly-owned subsidiary, CASIL New Century Technology Development (Shenzhen) Company Limited (“New Century”), agreed to subscribe for registered capital of RMB25,583,059.

The transaction was completed on 21 January 2014. The equity interests held by the Group in Shenzhen Rayitek decreased from 55% to 42.75%. Shenzhen Rayitek ceased to be a subsidiary of the Company and represented the entire segment of “Polyimide films manufacturing” under “New Material Business”. Accordingly, the operation of Shenzhen Rayitek is presented as discontinued operations for the year ended 31 December 2014. Shenzhen Rayitek became an associate of the Company, and is accounted for in the consolidated financial statements using equity-accounting method since 21 January 2014.

~~93~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

33. DISPOSAL OF SUBSIDIARIES (DISCONTINUED OPERATIONS) (continued)

Shenzhen Rayitek (continued)

The profits from the discontinued operations for the prior year are analysed as follows:

	Shenzhen Rayitek(continued) The profits from the discontinued operations for the prior year are analysed as follows:
					HK$’000
	Turnover				3,304
	Cost of sales				(3,041)
	Other gains and losses				(5)
	Selling and distribution expenses				(459)
	Administrative expenses				(1,066)
	Finance costs				(504)
	Gain on deemed disposal of a subsidiary				9,583
	Profit for the year				7,812
	Profit for the year attributable to:
	Owners of the Company				8,808
	Non-controlling interests				(996)
					7,812

~~94~~

Annual Report 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2015

33. DISPOSAL OF SUBSIDIARIES (DISCONTINUED OPERATIONS) (continued)

Shenzhen Rayitek (continued)

The major classes of assets and liabilities of Shenzhen Rayitek as at the date of disposal are as follows:

					HK$’000	HK$’000
	Property, plant and equipment				166,784
	Prepaid lease payments				41,137
	Deposit paid for acquisition of intangible assets and property, plant and equipment				18,121
	Intangible assets				47,846
	Bank balances and cash				320,697
	Trade and other receivables				60,269
	Inventories				8,955
	Amount due from a related party				107
	Amount due to the Group				(134,426)
	Trade and other payables				(21,201)
	Bank loans				(16,624)
	Loan from a related party				(76,726)
	Deferred taxation				(18,627)
	Net assets disposed of				396,312
	Gain on the deemed disposal
	Fair value of the equity interest retained in Shenzhen Rayitek				181,240
	Net assets disposed of				(396,312)
	Goodwill on acquisition, net of impairment loss				(13,232)
	Non-controlling interests				24,390
	Contribution from new investors				214,236
	Exchange differences arising on translation released				(739)
					9,583
	Net cash inflow arising on disposal:
	Bank balances and cash disposed of				320,697
	Amount due to the Group				(134,426)
	Contribution from new investors				(214,236)
					(27,965)

Shenzhen Rayitek contributed HK$73,276,000 to the Group’s net operating cash inflows, paid HK$44,039,000 in respect of investing activities and generated cash inflows of HK$281,895,000 in respect of financing activities.

The fair value of the equity interest retained in Shenzhen Rayitek had been arrived at on the basis of a valuation carried out by American Appraisal China Limited, who is an independent qualified professional valuer not connected with the Group and is a member of the Institute of Valuers.

~~95~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

34. CAPITAL RISK MANAGEMENT

The Group manages its capital to ensure that entities in the Group will be able to continue as going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The Group’s overall strategy remains unchanged from prior year.

The capital structure of the Group consists of net debt, which mainly includes the borrowings disclosed in notes 28, 29 and 30, net of cash and cash equivalents, and equity attributable to owners of the Company, comprising issued share capital and reserves including retained earnings.

The directors of the Company review the capital structure on a regular basis. As part of this review, the directors consider the cost of capital and the risks associated with each class of capital. Based on recommendations of the directors, the Group will balance its overall capital structure through the payment of dividends and new share issues as well as the issue of new debt or the redemption of existing debt.

35. FINANCIAL INSTRUMENTS

a. Categories of financial instruments

				2015	2015		2014	2014
				HK$’000			HK$’000
	Financial assets
	Fair value through profit or loss
	Held for trading			17,169			39,624
	Loans and receivables (including cash and cash equivalents)			2,689,660			2,668,800
	Available-for-sale investments			—			29,000
	Financial liabilities
	Amortised cost			2,747,413			2,508,630

b. Financial risk management objectives and policies

The Group’s major financial instruments include pledged bank deposits, short-term bank deposits, trade and other receivables, financial assets at fair value through profit or loss, amount due from a related party, bank balances and cash, trade and other payables, loan from a major shareholder, bank and other borrowings and other loan. Details of the financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

~~96~~

Annual Report 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

35. FINANCIAL INSTRUMENTS (continued)

b. Financial risk management objectives and policies (continued)

Market risk

Interest rate risk

The Group is exposed to fair value interest rate risk in relation to fixed-rate bank deposits and loan from a major shareholder (see notes 28 and 30 for details of these borrowings). The Group currently does not have a policy on hedging of interest rate risks. However, the management monitors interest rate exposures and will consider hedging significant interest rate risk should the need arise.

The Group is also exposed to cash flow interest rate risk in relation to floating-rate borrowings (see note 28 for details). In addition, the Group is exposed to cash flow interest rate risk in relation to the fluctuation of the prevailing market interest rate on bank balances. However, the management consider the Group’s exposure of the bank balances is not significant as interest bearing bank balances are within short maturity period and thus it is not included in sensitivity analysis.

Sensitivity analysis

The sensitivity analyses below have been determined based on the exposure to cash flow interest rate risk for bank and other borrowings after considering the impact of interest expenses being capitalised to investment properties under construction in 2015. For variable-rate bank and other borrowings, the analysis is prepared assuming the stipulated changes taking place at the beginning of the financial year and held constant throughout the reporting period. A 50-basis-point increase or decrease is used which represents management’s assessment of the reasonably possible change in interest rates.

If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Group’s profit after taxation for the year ended 31 December 2015 would decrease/increase by HK$5,596,000 (2014: HK$4,701,000).

Other price risk

The Group is exposed to equity price risk through its investments in listed and unlisted equity securities. The management manages this exposure by maintaining a portfolio of investments with different risks. The Group’s equity price risk is mainly on equity instruments operating in aerospace and energy sector quoted in the Stock Exchange. In addition, the Group has appointed a special team to monitor the price risk and will consider hedging the risk exposure should the need arise.

Sensitivity analysis

The sensitivity analyses below have been determined based on the exposure to equity price risks (excluding those available-for-sale investments stated at cost less impairment) at the end of the reporting period.

If the prices of the financial assets at fair value through profit or loss had been 10% (2014: 10%) higher/ lower, the Group’s profit for the year ended 31 December 2015 would increase/decrease by HK$1,434,000 (2014: HK$3,309,000) as a result of the changes in fair value of the financial assets at fair value through profit or loss.

~~97~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

35. FINANCIAL INSTRUMENTS (continued)

b. Financial risk management objectives and policies (continued)

Market risk (continued)

Foreign currency risk

Foreign currency risk refers to the risk that movement in foreign currency exchange rate which will affect the Group’s financial results and its cash flows. The management considers the Group is not exposed to significant foreign currency risk as majority of its transactions are denominated in Hong Kong dollars and Renminbi (“RMB”) (the functional currencies of the Group’s major subsidiaries) and there were only insignificant balances of financial assets and liabilities denominated in foreign currency at the end of the reporting period.

Credit risk

The Group’s maximum exposure to credit risk in the event of the counterparties failure to perform their obligations as at 31 December 2015 and 2014 in relation to each class of recognised financial assets is the carrying amount of these assets as stated in the consolidated statement of financial position.

In order to minimise the credit risk, the management of the Group has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each individual trade debt at the end of the reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Company consider that the Group’s credit risk is significantly reduced.

Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. The Group has no significant concentration of credit risk in trade receivable, with exposure spread over a number of counterparties and customers. The credit risk on liquid funds is limited because the counterparties are banks with good reputation.

Liquidity risk

In the management of the liquidity risk, the Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Group’s operations and mitigate the effects of fluctuations in cash flows. The management monitors the utilisation of bank and other borrowings and ensures compliance with loan covenants.

The following table details the Group’s remaining contractual maturity for its non-derivative financial liabilities based on the agreed repayment terms. When the amount payable is not fixed, the amount disclosed has been determined by reference to the interest rates at year end. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows.

~~98~~

Annual Report 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

35. FINANCIAL INSTRUMENTS (continued)

b. Financial risk management objectives and policies (continued)

Liquidity risk (continued)

Liquidity tables

		Weighted	On demand			Total
		average	and less than	1 month		undiscounted	Carrying
		interest rate	1 month	to 1 year	1–5 years	cash flows	amount
		%	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	At 31 December 2015
	Financial liabilities
	Non-interest bearing	—	314,815	502,019	—	816,834	816,834
	Loan from a major
	shareholder	5.00	—	—	678,867	678,867	590,319
	Bank and other borrowings
	— variable rate	5.87	—	1,418,152	—	1,418,152	1,340,260
			314,815	1,920,171	678,867	2,913,853	2,747,413
	At 31 December 2014
	Financial liabilities
	Non-interest bearing	—	305,298	453,956	—	759,254	759,254
	Loan from a major
	shareholder	5.00	—	—	748,129	748,129	623,441
	Bank and other borrowings
	— variable rate	6.38	—	108,117	1,158,195	1,266,312	1,125,935
			305,298	562,073	1,906,324	2,773,695	2,508,630

c. Fair value measurements of financial instruments

This note provides information about how the Group determines fair values of various financial assets and financial liabilities.

Fair value of the Group’s financial assets and financial liabilities are measured at fair value on a recurring basis.

The fair value of financial assets and financial liabilities are determined as follows:

• The fair value of financial assets with standard terms and conditions and traded in active liquid markets is determined with reference to quoted market bid prices; and

• The fair values of other financial assets and financial liabilities is determined in accordance with generally accepted pricing models based on discounted cash flow analysis.

The classification of the Group’s financial assets at 31 December 2015 and 2014 using the fair value hierarchy is Level 1 (see note 24). The directors consider that the fair value of financial assets and financial liabilities recorded at amortised cost in the consolidated financial statements approximates to the carrying amount.

~~99~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

36. PLEDGE OF ASSETS

At 31 December 2015, bank deposits of HK$36,035,000 (2014: HK$33,428,000) and investment properties with an aggregated carrying amount of HK$6,820,543,000 (2014: HK$4,261,844,000) respectively were pledged to banks and related parties to secure general banking facilities and loan facilities granted to the Group.

37. CAPITAL COMMITMENTS

				2015	2015	2014	2014
				HK$’000		HK$’000
	Capital expenditure authorised but not contracted for:
	— acquisition of property, plant and equipment			—		33,361
	— properties under construction			120,121		309,053
				120,121		342,414
	Capital expenditure contracted for but not provided in the consolidated
	financial statements in respect of:
	— acquisition of property, plant and equipment			93,227		24,168
	— properties under construction			101,294		211,070
				194,521		235,238

In addition, at 31 December 2014, a joint venture had committed in an investment for the land development in Hainan Launching Site Complex Zone amounting to RMB137,886,000 (equivalent to approximately HK$171,928,000) (2015: nil).

38. OPERATING LEASES

The Group as lessee

At the end of the reporting period, the Group had commitments for future minimum lease payments under noncancellable operating leases which fall due as follows:

	cancellable operating leases which fall due as follows:
				2015	2014
				HK$’000	HK$’000
	Within one year			16,808	13,837
	In the second to fifth year inclusive			35,711	23,481
	Over five years			35,029	32,036
				87,548	69,354

Operating lease payments represent rentals payable by the Group for certain of its manufacturing plants, office properties and quarters. Leases are generally negotiated and rentals are fixed for a term of two to thirty years (2014: two to thirty years).

~~100~~

Annual Report 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

38. OPERATING LEASES (continued)

The Group as lessor

At the end of the reporting period, the Group had contracted with tenants for the following future minimum lease payments:

	payments:
				2015	2014
				HK$’000	HK$’000
	Within one year			9,705	10,367
	In the second to fifth year inclusive			12,135	8,014
				21,840	18,381

The properties held have committed tenants for the next one to three years (2014: one to three years).

39. RETIREMENT BENEFIT SCHEMES

The Group operates a Mandatory Provident Fund Scheme for all qualifying employees in Hong Kong. The assets of the scheme are held separately from those of the Group in funds under the control of trustee. The Group basically contributes 5% of relevant payroll costs to the scheme, limit to HK$18,000 per annum (2014: HK$1,250 per month from 1 January 2014 to 31 May 2014 and HK$1,500 per month from 1 June 2014 onwards) per staff.

The employees in the Company’s PRC subsidiaries are members of the state-managed pension scheme operated by the PRC government. The Company’s PRC subsidiaries are required to contribute a certain percentage of their payroll to the pension scheme to fund the benefits. The only obligation of the Group with respect to the pension scheme is to make the required contributions under the scheme.

The total cost charged to the consolidated statement of profit or loss of HK$19,835,000 (2014: HK$17,809,000) represents contribution to the schemes by the Group at the rates specified in the rules of the schemes.

40. RELATED PARTY TRANSACTIONS

Balances of related parties of the Group have been disclosed in respective notes. In addition to the transactions and balances disclosed elsewhere in the consolidated financial statements, the Group entered into the following related party transactions:

The Group operates in an economic environment currently predominated by enterprises directly or indirectly owned or controlled or significantly influenced by the PRC government (hereinafter collectively referred to as “government-related entities”). The Company’s substantial shareholder with significant influence over the Group, CASC, is a state-owned enterprise under the direct supervision of the State Council of the PRC. During the year, except as disclosed below, the Group did not have any individually significant transactions with other government-related entities in its ordinary and usual course of business.

(a) Transactions with the CASC Group

• (i) During the year ended 31 December 2013, the Group renewed a loan facility with Aerospace Finance, for an amount of RMB60,000,000 (equivalent to approximately HK$76,726,000) for a period of one year. The loan was disposed upon the deemed disposal of interest in a subsidiary, as detailed in note 33. The interest paid to Aerospace Finance in prior year amounting to HK$396,000.

~~101~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

40. RELATED PARTY TRANSACTIONS (continued)

(a) Transactions with the CASC Group (continued)

• (ii) During the year ended 31 December 2012, the Group entered into electronic commercial service agreements (the “Agreement”) with新商務信息, an associate of the Group, for an amount of RMB300,000 per year for a period of five years commencing from the date of the Agreement. CASC and its related companies also have substantial interests and significant influence over 新商務信息.

• (iii) During the year ended 31 December 2013, the Group entered into a long-term loan agreement with CASC for an amount of RMB500,000,000 for a period of five years from the first drawdown date. As at 31 December 2015, the Group has drawn down RMB500,000,000 (equivalent to approximately HK$590,319,000) (2014: RMB500,000,000 (equivalent to approximately HK$623,441,000)). Such loan carries a fixed interest of 5% per annum and the interest incurred to CASC for the year ended 31 December 2015 is RMB25,353,000 (equivalent to approximately HK$31,455,000) (for the year ended 31 December 2014: RMB25,616,000 (equivalent to approximately HK$32,343,000)).

• (iv) During the year ended 31 December 2011, the Group entered into a facility (“Facility”) with a syndicate of financial institutions including Aerospace Finance, a subsidiary of CASC, and certain governmentrelated banks (together “Finance Syndicate”) for a bank guarantee of up to RMB150,000,000 and advances of RMB1,350,000,000 for the construction of Shenzhen Aerospace Science and Technology Plaza (“Aerospace Plaza”) for a period of 5 years from the first drawdown date. The land use right of Aerospace Plaza has been mortgaged in favour of the Finance Syndicate as security. As at 31 December 2015, the Group has drawn down RMB1,107,200,000 (equivalent to approximately HK$1,307,202,000) (2014: RMB873,000,000 (equivalent to approximately HK$1,088,529,000)). The interest paid to loans drawn from the Facility in the current year amounting to RMB59,916,000 (equivalent to approximately HK$74,338,000) (2014: RMB41,686,000 (equivalent to approximately HK$52,634,000)).

• (v) During the year ended 31 December 2013, the Group entered into an agreement with Aerospace Finance, pursuant to which Aerospace Finance shall provide deposit services and settlement services to the Group which allow the Group to make deposits or withdrawals through the RMB deposit accounts with Aerospace Finance, subject to the condition that the maximum daily outstanding balance of all deposits placed by the Group shall not be more than RMB100,000,000 in aggregate within three years from the date of the agreements. As at 31 December 2015, such deposits placed by the Group amounted to RMB12,000 (equivalent to approximately HK$14,000) (2014: RMB99,912,000 (equivalent to approximately HK$124,579,000)), was included in amount due from a related party and carries interests at prevailing market rate.

(b) Transactions with other government-related entities

Apart from the transactions with CASC Group which have been disclosed above, the Group also conducts business with other government-related entities.

The Group has deposits placements, borrowings and other general banking facilities, with certain banks which are government-related entities in its ordinary course of business. Other than the substantial amount of bank balances, bank borrowings (note 28) and the Facility with these banks, transactions with other government-related entities are individually insignificant.

(c) Compensation of key management personnel

The key management personnel are the directors of the Company. The details of the remuneration paid to them are set out in note 8.

~~102~~

Annual Report 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2015

41. FINANCIAL INFORMATION OF THE COMPANY

(a) Statement of financial position of the Company is set out below:

				2015	2015	2014	2014
				HK$’000		HK$’000
	Non-current assets
	Property, plant and equipment			1,417		600
	Interests in subsidiaries			779,845		716,306
	Amounts due from subsidiaries			1,425,560		1,440,883
	Interests in joint ventures			15,000		15,000
				2,221,822		2,172,789
	Current assets
	Other receivables			2,018		1,587
	Amounts due from subsidiaries			541,272		599,794
	Bank balances and cash			31,736		22,250
				575,026		623,631
	Current liabilities
	Other payables			64,199		66,230
	Amounts due to subsidiaries			142,723		111,101
	Amount due to an associate			—		1,050
	Taxation payable			80		80
				207,002		178,461
	Net current assets			368,024		445,170
				2,589,846		2,617,959
	Capital and reserves
	Share capital			1,154,511		1,154,511
	Reserves_(note 41(b))_			1,435,335		1,463,448
				2,589,846		2,617,959

Li Hongjun Director

Jin Xuesheng Director

~~103~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

41. FINANCIAL INFORMATION OF THE COMPANY (continued)

(b) Reserves

									Special	Special			Capital	Capital
					Share				capital				redemption				Retained
					premium				reserve				reserve				profits				Total
					HK$’000				HK$’000				HK$’000				HK$’000				HK$’000
					(note a)				(note a)
	At 1 January 2014				844,929				630,977				1,080				873,807				2,350,793
	Loss and total comprehensive
	expense for the year				—				—				—				(10,486)				(10,486)
	Dividend recognised as distribution				—				—				—				(30,850)				(30,850)
	Transfer upon abolition of par value
	under the new Hong Kong
	Companies Ordinance_(note c)_				(844,929)				—				(1,080)				—				(846,009)
	At 31 December 2014				—				630,977				—				832,471				1,463,448
	Profit and total comprehensive
	income for the year				—				—				—				2,737				2,737
	Dividend recognised as distribution				—				—				—				(30,850)				(30,850)
	At 31 December 2015				—				630,977				—				804,358				1,435,335

Notes:

(a) Under the terms of the court order in the reduction of the share premium on 11 July 1994 and 1 November 2005 (the “effective date”), the Company had given an undertaking to the court that a sum equal to the amount of the distributable profits of the Company as at 11 July 1994 and 1 November 2005 and any write back of the total provisions which have been made against at the effective date on the investments will be transferred to a special capital reserve account until the amount of paid up capital, share premium and the special capital reserve exceeds the overall aggregate limit thereof after any reduction of such overall aggregate limit pursuant to provisions stated in (3) and or (4) below of this note. The Company is unable to distribute the special capital reserve until the actual and contingent liabilities outstanding at the effective date are paid off.

On 1 November 2005, an order of petition (the “Order”) was granted by the High Court of Hong Kong Special Administrative Region (the “High Court”). Pursuant to the Order, the reduction of the share capital and the cancellation of the share premium account of the Company as resolved and effected by a special resolution passed at an extraordinary general meeting of the Company held on 25 August 2005, was confirmed.

The capital of the Company was by virtue of special resolutions of the Company with the sanction of the Order reduced from HK$10,000,000,000 divided into 10,000,000,000 ordinary shares of HK$1.00 each (of which 2,142,420,000 shares had been issued and were fully paid up or credited as fully paid) to HK$1,000,000,000 divided into 10,000,000,000 ordinary shares of HK$0.10 each. The Company further by ordinary resolution provided that forthwith upon such reduction of capital taking effect, the authorised share capital of the Company would be increased from HK$1,000,000,000 to HK$10,000,000,000 by creation of additional 90,000,000,000 share of HK$0.10 each. Accordingly, after the approval of the Order, the authorised share capital of the Company was HK$10,000,000,000 divided into 100,000,000,000 shares of HK$0.10 each, of which 2,142,420,000 shares had been issued and were fully paid up or credited as fully paid and the remaining shares are unissued. The sum of HK$939,048,000 standing to the credit of the share premium account of the Company was reduced and cancelled against the accumulated losses of the Company.

~~104~~

Annual Report 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

41. FINANCIAL INFORMATION OF THE COMPANY (continued)

(b) Reserves (continued)

Notes: (continued)

• (a) (continued)

The Company provided an undertaking that in the event of the Company makes any future recoveries in respect of the assets, in respect of which provisions for impairment were made in the financial statements of the Company for the 7 years ended 31 December 2004 “Non-Permanent Loss Assets” beyond the written down value in the Company’s audited financial statements as at 31 December 2004, all such recoveries beyond that written down value will be credited to a special capital reserve in the accounting records of the Company and that so long as there shall remain outstanding any debt of or claim against the Company which, if the date on which the proposed reduction of capital and cancellation of the share premium account becomes effective were the date of the commencement of the winding up of the Company would be admissible to proof in such winding up and the persons entitled to the benefit of such debts or claims shall not have agreed otherwise, such reserve shall not be treated as realised profits and shall, for so long as the Company shall remain a listed company, be treated as an un-distributable reserve of the Company for the purposes of Sections 290 and 298 of the Companies Ordinance or any statutory re-enactment or modification thereof provided that:

• (1) the Company shall be at liberty to apply the said special capital reserve for the same purposes as a share premium account may be applied;

• (2) the amount standing to the credit of the special capital reserve shall not exceed the lesser of (a) the amount of provision provided for in respect of the Non-Permanent Loss Assets for the 7 years ended 31 December 2004; or (b) the amount due to the creditors of the Company as at the date when the proposed reduction of capital and cancellation of share premium shall become effective;

• (3) the said overall aggregate limit in respect of the special capital reserve may be reduced by the amount of any increase, after the effective date, in the paid up share capital or the amount standing to the credit of the share premium account of the Company as the result of the payment up of shares by the receipt of new consideration or the capitalisation of distributable profits;

• (4) the said overall aggregate limit in respect of the special capital reserve may be reduced upon the realisation, after the date on which the proposed reduction of capital and cancellation of the share premium account becomes effective, of any of the Non-Permanent Loss Assets by the total provision made in relation to each such assets as at 31 December 2004 less such amount (if any) as is credited to the said special capital reserve as a result of such realisations; and

• (5) in the event that the amount standing to the credit of the said special capital reserve exceeds the overall aggregate limit thereof after any reduction of such overall aggregate limit pursuant to provisos (3) and or (4) above, the Company shall be at liberty to transfer the amount of any such excess to the general reserves of the Company and the same shall become available for distribution.

The Company further undertook that for so long as the undertaking remains effective, to (1) cause or procure its statutory auditors to report by way of a note or otherwise a summary of the undertaking in its audited consolidated financial statements or in the management accounts of the Company published in any other form; and (2) publish or cause to be published in any prospectus issued by or on behalf of the Company a summary of the undertaking.

• (b) The Company’s reserves available for distribution to shareholders as at 31 December 2015 comprised the retained profits of HK$804,358,000 (2014: HK$832,471,000).

~~105~~

China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

41. FINANCIAL INFORMATION OF THE COMPANY (continued)

(b) Reserves (continued)

Notes: (continued)

(c) The Company has no authorised share capital and its shares have no par value from the commencement date of new Hong Kong Companies Ordinance (i.e. 3 March 2014).

42. PARTICULARS OF PRINCIPAL SUBSIDIARIES

Details of the Company’s principal subsidiaries at 31 December 2015 and 2014 are as follows:

Name of subsidiary Nominal value of issued ordinary share capital/ registered capital

Percentage of equity Principal activities held by the Company held by subsidiaries attributable to the Company % % %

Incorporated and operating in Hong Kong: CASIL Clearing Limited HK$10,000,000 CASIL Electronic Products Limited HK$15,000,000 CASIL Hainan Holdings Limited HK$1 CASIL Optoelectronic Product Development Limited HK$3,000,000 CASIL Semiconductor Limited HK$15,000,000 China Aerospace Industrial Limited HK$1,000,000 Chee Yuen Industrial Company Limited HK$20,000,000 Digilink Systems Limited HK$60,000,000 Hong Yuen Electronics Limited HK$5,000,000 Jeckson Electric Company Limited HK$5,000,000 Incorporated and operating in Canada: Vanbao Development (Canada) Limited CAD1,080,000 Incorporated in the British Virgin Islands and operating in Hong Kong: Sinolike Investments Limited US$1

100 — 100 Provision of treasury services 100 — 100 Distribution of plastic and metal products and moulds — 100 100 Investment holding — 100 100 Distribution of liquid crystal display modules — 100 100 Distribution of liquid crystal displays 100 — 100 Investment holding and property investment — 100 100 Distribution of plastic and metal products and moulds 100 — 100 Investment holding — 100 100 Distribution of printed circuit boards — 100 100 Distribution of intelligent battery chargers and electronic components — 79.25 79.25 Property investment 100 — 100 Investment holding

~~106~~

Annual Report 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

42. PARTICULARS OF PRINCIPAL SUBSIDIARIES (continued)

Name of subsidiary Nominal value of issued ordinary share capital/ registered capital

Percentage of equity Principal activities held by the Company held by subsidiaries attributable to the Company % % %

Registered and operating in the PRC: Chee Yuen Plastic Products (Huizhou) Company Limited# HK$72,000,000 China Aerospace (Huizhou) Industrial Garden Limited## US$12,000,000 Conhui (Huizhou) Semiconductor Company Limited# HK$90,400,000 東莞康源電子有限公司# HK$320,020,000 Huizhou Jeckson Electric Company Limited## US$1,000,000 Huizhou Zhi Fat Metal & Plastic Electroplating Company Limited## US$720,000 志源表面處理(惠州)有限公司# RMB30,000,000 Shenzhen Chee Yuen Plastics Company Limited# HK$25,000,000 航科新世紀科技發展(深圳)有限公司# US$50,000,000 深圳市航天高科投資管理有限公司## RMB700,000,000 深圳市航天高科物業管理有限公司 RMB5,000,000 航天數聯信息技術(深圳)有限公司# HK$50,000,000

— 100 100 Manufacturing of plastic and metal products and moulds 90 — 90 Property investment — 100 100 Manufacturing and distribution of liquid crystal displays and LCD modules — 100 100 Manufacturing and distribution of printed circuit boards — 90 90 Manufacturing of intelligent battery chargers and electronic products — 90 90 Electroplating of metals — 100 100 Electroplating of metals — 100 100 Manufacturing and distribution of plastic products 100 — 100 Investment holding — 60 60 Property investment — 60 60 Property management — 100 100 Development and sale of software and related products, and warehouse and logistic services

Wholly foreign-owned enterprises registered in the PRC

Sino-foreign joint equity enterprises registered in the PRC

The above table lists the subsidiaries of the Company which, in the opinion of the directors, principally affected the results or assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length.

None of the subsidiaries had issued any debt securities at the end of the year or at any time during the year.

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China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2015

42. PARTICULARS OF PRINCIPAL SUBSIDIARIES (continued)

Details of non-wholly owned subsidiaries that have material non-controlling interests

The table below shows details of non-wholly-owned subsidiaries of the Group that have material non-controlling interests:

interests:
Name of subsidiary Place of incorporation and principal place of business Proportion of ownership interests and voting rights held by non-controlling interests Profit allocated to non-controlling interests 2015 2014 2015 2014 HK$’000 HK$’000	Accumulated non- controlling interests 2015 2014 HK$’000 HK$’000
深圳市航天高科投資管理有限公司 PRC 40% 40% 642,337 105,676 Individually immaterial subsidiaries with non- controlling interests	1,462,628 899,155 34,864 39,428
	1,497,492 938,583

Summarised financial information in respect of each of the Group’s subsidiaries that has material non-controlling interests is set out below. The summarised financial information below represents amounts before intragroup eliminations.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

42. PARTICULARS OF PRINCIPAL SUBSIDIARIES (continued)

Details of non-wholly owned subsidiaries that have material non-controlling interests (continued)

深圳市航天高科投資管理有限公司

				2015	2015		2014	2014
				HK$’000			HK$’000
	Current assets			11,672			15,306
	Non-current assets			6,821,076			4,278,770
	Current liabilities			(1,511,196)			(188,733)
	Non-current liabilities			(1,664,982)			(1,857,456)
	Equityattributable to owners of the Company			2,193,942			1,348,732
	Non-controllinginterests			1,462,628			899,155
	Other income			2,608,332			421,330
	Expenses			(1,002,489)			(157,141)
	Profit for theyear			1,605,843			264,189
	Profit attributable to owners of the Company			963,506			158,513
	Profit attributable to the non-controllinginterests			642,337			105,676
	Profit for theyear			1,605,843			264,189
	Other comprehensive expense attributable to owners of the Company			(118,296)			(32,463)
	Other comprehensive expense attributable to the non-controlling
	interests			(78,864)			(21,643)
	Other comprehensive expense for theyear			(197,160)			(54,106)
	Total comprehensive income attributable to owners of the Company			845,210			126,050
	Total comprehensive income attributable to the non-controllinginterests			563,473			84,033
	Total comprehensive income for theyear			1,408,683			210,083
	Net cash inflow from operatingactivities			10,149			44,273
	Net cash outflow used in investingactivities			(302,591)			(414,001)
	Net cash inflow from financingactivities			290,571			362,014
	Effect of foreign exchange rate changes			(649)			—
	Net cash outflow			(2,520)			(7,714)

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China Aerospace International Holdings Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2015

43. PARTICULARS OF ASSOCIATES

	Details of the Group’s associates at 31	Details of the Group’s associates at 31	Details of the Group’s associates at 31	December 2015 and	December 2015 and	December 2015 and	December 2015 and	December 2015 and	2014 are as	follows:	follows:	follows:	follows:
					Nominal value of				Percentage
					issued ordinary				of equity
					share capital/				attributable
	Name of associates				registered capital				to the Group			Principal activities
									%
	Registered and operating in the PRC:
	航天新商務信息科技有限公司*				RMB63,800,000				15.70			Provision of information service
	深圳瑞華泰薄膜科技有限公司				RMB98,442,972				42.75			Manufacturing and distribution of
													polyimide films and related
													composite materials
	Incorporated and operating in Hong Kong:
	Postel Development Company Limited				HK$10,000				30			Trading
	Sonconpak Limited#				HK$12,000,000				30			Manufacturing of carton box

• The Group has the ability to exercise significant influence over this associate because it has the power to appoint one representative in the board of that company. Accordingly, it is regarded as an associate of the Group.

At 31 December 2014, Sonconpak Limited was an associate which engaged in manufacturing of carton box. During the year ended 31 December 2015, it was disposed of and ceased to be an associate of the Group.

44. PARTICULARS OF PRINCIPAL JOINT VENTURES

Details of the Group’s principal joint ventures at 31 December 2015 and 2014 are as follows:

					Nominal value of	Nominal value of			Percentage	Percentage
					issued ordinary				of equity
					share capital/				attributable
	Name of joint ventures				registered capital				to the Group			Principal activities
									%
	Incorporated and operating in Hong Kong:
	China Aerospace New World				HK$30,000,000				50			Investment holding
	Technology Limited
	Registered and operating in the PRC:
	海南航天投資管理有限公司			RMB1,200,000,000					50			Land development

According to the legal form and the contractual arrangements, each of the joint venture in the joint ventures that has joint control of the arrangement has rights to the net assets of the arrangement, hence it is regarded as joint venture.

The above table lists the joint ventures of the Company which, in the opinion of the directors, principally affected the results or assets of the Group. To give details of other joint ventures would, in the opinion of the directors, result in particulars of excessive length.

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Annual Report 2015

APPENDIX I FINANCIAL SUMMARY

RESULTS

							Year	Year	ended 31 December	ended 31 December	ended 31 December	ended 31 December	ended 31 December	ended 31 December	ended 31 December
				2015			2014				2013				2012				2011
				HK$’000			HK$’000				HK$’000				HK$’000				HK$’000
																			(Restated)
	Turnover			2,765,720			2,791,175				2,611,138				2,615,101				2,187,006
	Profit before taxation			2,647,413			727,659				957,729				411,973				564,047
	Taxation			(1,021,090)			(196,478)				(214,761)				(113,962)				(115,608)
	Profit for the year			1,626,323			531,181				742,968				298,011				448,439
	Attributable to:
	Owners of the Company			984,696			415,692				617,011				246,725				387,231
	Non-controlling interests			641,627			115,489				125,957				51,286				61,208
				1,626,323			531,181				742,968				298,011				448,439

ASSETS AND LIABILITIES

								At 31 December	At 31 December	At 31 December	At 31 December	At 31 December	At 31 December	At 31 December
				2015			2014				2013				2012				2011
				HK$’000			HK$’000				HK$’000				HK$’000				HK$’000
																			(Restated)
	Non-current assets			8,981,919			6,561,520				5,842,135				4,600,412				4,017,469
	Current assets			2,993,724			3,010,867				2,845,045				2,034,947				1,922,948
	Current liabilities			(2,494,379)			(1,140,769)				(1,203,368)				(1,117,212)				(976,396)
	Non-current liabilities			(2,278,002)			(2,500,800)				(1,917,086)				(677,456)				(434,795)
	Shareholders’ funds			7,203,262			5,930,818				5,566,726				4,840,691				4,529,226
	Attributable to:
	Owners of the Company			5,705,770			4,992,235				4,696,014				4,118,102				3,863,672
	Non-controlling interests			1,497,492			938,583				870,712				722,589				665,554
				7,203,262			5,930,818				5,566,726				4,840,691				4,529,226

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APPENDIX II INVESTMENT PROPERTIES

													Approximate	Approximate
													gross floor				Group’s
	Location			Lot number				Existing use				area/site area					interest
													(sq.m.)				(%)
	MEDIUM TERM LEASES IN HONG KONG
	Units 402, 405 to 407 on 4th Floor			Kwun Tong				Industrial					3,290				100
	the whole of 17th Floor				Inland Lot.
	and Car Park				No. 528
	Nos. P1, L3, LD1, LD2 and LD5
	on Ground Floor, Car Park
	Nos. P17, P18 and P24 on 1st Floor
	and Car Park Nos. P34,
	P36 and P37 on 2nd Floor
	China Aerospace Centre
	143 Hoi Bun Road
	Kwun Tong
	Kowloon
	Unit A on 2nd Floor of			Kwun Tong				Industrial					230				100
	Tsun Win Factory Building				Inland Lot
	No. 60 Tsun Yip Street				No. 10
	Kwun Tong
	Kowloon
	MEDIUM TERM LEASES IN THE PRC
	China Aerospace Industrial Estate			—				Industrial					118,867				90
	Zhong Kai Development Zone
	Huizhou City
	Guangdong Province
	The PRC
	South of Bin Hai Avenue and			—				Under development					12,619				60
	the East of Hou Hai Bin Road
	Nanshan District
	Shenzhen
	Guangdong Province
	The PRC
	LONG TERM LEASEHOLD IN THE PRC
	Level 8, Zhong Hai Building			—				Office					1,043				100
	Zhong Hai Hua Ting North Zone
	No. 399 Fu Hua Road
	Futian District
	Shenzhen
	Guangdong Province
	The PRC

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