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2 CORPORATE INFORMATION

CHAIRMAN’S STATEMENT

MANAGEMENT DISCUSSION AND ANALYSIS

CORPORATE GOVERNANCE REPORT

ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT

BIOGRAPHICAL DETAILS OF DIRECTORS

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DIRECTORS’ REPORT

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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

129

APPENDIX I FINANCIAL SUMMARY

130

APPENDIX II INVESTMENT PROPERTIES

2016 ANNUAL REPORT

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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 Gong Bo (Chairman)

(appointed on 24 February 2017) Mr Luo Zhenbang (Independent) Ms Leung Sau Fan, Sylvia (Independent) Mr Wang Xiaojun (Independent)

Mr Mao Yijin (appointed on 24 August 2016) Mr Xu Liangwei (appointed on 24 August 2016) Mr Zhang Jianheng (Chairman) (resigned on 24 February 2017) Mr Chen Xuechuan (resigned on 24 August 2016) Mr Shi Weiguo (resigned on 24 August 2016)

AUDIT COMMITTEE

Mr Luo Zhenbang (Chairman) Ms Leung Sau Fan, Sylvia Mr Mao Yijin (appointed on 24 August 2016) Mr Shi Weiguo (resigned on 24 August 2016)

REMUNERATION COMMITTEE

Ms Leung Sau Fan, Sylvia (Chairman) Mr Wang Xiaojun Mr Xu Liangwei (appointed on 24 August 2016) Mr Chen Xuechuan (resigned on 24 August 2016)

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: [email protected] Website: http://www.casil-group.com

NOMINATION COMMITTEE

Mr Gong Bo (Chairman) (appointed on 24 February 2017) Mr Luo Zhenbang Ms Leung Sau Fan, Sylvia Mr Wang Xiaojun Mr Xu Liangwei (appointed on 24 August 2016) Mr Zhang Jianheng (Chairman) (resigned on 24 February 2017) Mr Chen Xuechuan (resigned on 24 August 2016)

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

2016 ANNUAL REPORT

Chairman’s Statement

Gong Bo Chairman of the Board

2016 ANNUAL REPORT

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Chairman’s Statement (continued)

OVERVIEW

The dampened growth of the global economy continued in 2016, the economic growth of both China and the U.S. were lower than the previous year. The U.S. experienced a sluggish economic recovery as it is being hindered by several problems including the weak productivity growth and its aging population; Europe is a beneficiary of low interest rate, weak exchange rate, quantitative easing and the diminished magnitude of financial austerity, and recorded a moderate growth in economy; with the accelerated pace of structural adjustment and evident effect of supply side reform in China, as well as the implementation of financial and monetary policies, the development of the economy remained steady; having affected by factors including the uncertainty in global economy, the volatility in global financial markets and the weak export trading, Hong Kong is expected to persist a low growth trend in its economy. The Company and its subsidiaries had fulfilled their full-year business targets better than expected, thanks to their efforts of hardworking and innovation to overcome all difficulties and challenges.

For the year ended 31 December 2016, the Company and its subsidiaries reported a turnover of HK$3,087,848,000 (2015: HK$2,765,720,000), representing an increase of 11.65% as compared with that of last year, whereas overall gross profit margin was 25.63% (2015: 20.26%). Owing to the fair value gain of investment properties, Shenzhen Aerospace Science & Technology Plaza, decreased substantially as compared to last year, the overall profit of the Company was reduced accordingly. In 2016, the Company recorded a profit of HK$1,203,252,000, representing a decrease of 26.01% as compared with that of HK$1,626,323,000 in 2015; profit attributable to shareholders was HK$796,108,000, representing a decrease of 19.15% as compared with that of HK$984,696,000 in 2015; earnings per share attributable to shareholders was HK25.81 cents (2015: HK31.92 cents). The Board recommended the payment of a dividend of HK2 cents per share for the year.

BUSINESS REVIEW

In 2016, the Company’s high-tech manufacturing business remained stable despite of its exposure to greater pressure in operations. Rental income of Shenzhen Aerospace Science & Technology Plaza was recorded for the first time upon its completion successfully. Hainan Aerospace Investment Management Company Limited*(海南航天投資管理有限公司) (“Hainan Aerospace”) decided to withdraw from the development project of the Complex Zone of the Launching Site in Hainan. The business of internet of things determined that cross-border e-commerce logistics as well as warehouse and logistics would be the two new major business development directions.

Hi-tech Manufacturing

In 2016, in the face of several adverse factors including complicated economic situation, the downturn of overseas consumption markets, the continued increase in the costs of raw materials and labour, and the decrease of orders from several major customers, the hi-tech manufacturing business underwent many challenges. However, through active market development, adjustment in cost structure and lowering the cost, the hi-tech manufacturing business managed to grow steadily. The turnover of the hi-tech manufacturing business for the year was HK$2,843,681,000 (2015: HK$2,731,794,000), representing an increase of 4.10% as compared with last year; the operating profit was HK$306,068,000 (2015: HK$275,333,000), representing an increase of 11.16% as compared with last year.

The business of the printed circuit board (“PCB”) business is the relative outperformer among the hi-tech manufacturing businesses. With the experience gained in technologies such as surface finishing, fine circuit, embedded devices and mix of rigid and flexible boards, the PCB business established a stronger competitiveness, and achieved a certain extent of outcome in market development in sectors like optoelectronics, camera, security and carrier. It had also completed the construction of factory expansion for high-density circuit board, and the first phase of equipment introduction and trial production. The liquid crystal display (“LCD”) business allocated its resources timely and appropriately in response to the request of major customers, and hence gained their trustworthiness. There was also achievement in the development of domestic market for the LCD business, and the business has successfully entered the market of electric meter.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Chairman’s Statement (continued)

The plastic product business was being affected by the relocation of the production base by several Japanese customers, and their orders were reduced correspondingly. The task on developing the domestic market in mainland China is getting better, the overall market of the office equipment is relatively stable, while the plastic products from the newly developed high-end audio equipment and auto parts become new segments for business growth. The decrease in the number of orders from major customers, and the stricter policy requirements in environmental protection and consumption tax from the government are factors that led to the decline in the performance of the battery business. For the intelligent charger business, it is currently focusing on developing five main product categories, namely the charger, the lithium battery charger, the mobile power pack, the Ni-MH charger and the intelligent remote control, and is gradually developing from low-power battery products to medium-power in order to broaden the market. The lithium battery charger for electronic tools and electronic bikes will be the target products of the intelligent charger business. The product structure of the electroplating business expands from electro-digital products to auto parts products and home appliances products. The newly completed electroplating factory in Boluo, Huizhou will enhance and innovate the electroplating technology, which includes the enhancement for the simple external appearance technology to new industrial technology in the integration of externals appearance and function, and in the meantime, the factory will develop diversified types of electroplating (such as the colour diversification of pearl nickel), and thus increase the market competitiveness significantly.

Shenzhen Aerospace Science & Technology Plaza

With the completion of Shenzhen Aerospace Science & Technology Plaza, the function of Shenzhen Aerospace Technology Investment Company Limited (深圳市航天高科投資管理有限公司) (“Shenzhen Aerospace”) was switched from project construction to operation management. In 2016, the construction and inspection of the Shenzhen Aerospace Science & Technology Plaza was completed, its property management company commenced the property management and services and achieved tenant leasing following its property management team recruitment. During the year, Shenzhen Aerospace borrowed an operating properties mortgage loan from a connected person, Aerospace Science & Technology Finance Company Limited (航天科技財務有限責任公司), so as to repay the outstanding balance of the existing syndicate loan. The connected transaction was approved by independent shareholders of the Company at the extraordinary general meeting held in October 2016. Shenzhen Aerospace recorded rental and property management incomes for the first time upon the completion of Shenzhen Aerospace Science & Technology Plaza. Its income and operating profits, including fair value gain of investment properties, of HK$163,943,000 and HK$1,523,913,000 respectively, were recorded. Shenzhen Aerospace Science & Technology Plaza will provide a new source of income for the Company and that significantly strengthens the cashflow of the Company and its subsidiaries. As at the end of 2016, Shenzhen Aerospace Science & Technology Plaza was valued at approximately RMB7,345,000,000 (2015: RMB5,777,000,000).

The Complex Zone of the Launching Site in Hainan

With the effects brought by the changes on the austerity measures, the increase in demolition and relocation settlement standards and the developing costs increased substantially in recent years, causing the risks increased with respect to the development of the Complex Zone of the Launching Site in Hainan and the benefit on return diminishes gradually. After a careful study, Hainan Aerospace, a joint venture, had decided to withdraw from the development of the Complex Zone of the Launching Site in Hainan, and initiated a dialogue with the Provincial Government of Hainan and the Municipal Government of Wenchang, trying to have the funds injected, which will refer to the audited project costs, to be returned to Hainan Aerospace in the form of cash and assets. Hainan Aerospace will be in its best effort to reach an agreement with the Municipal Government of Wenchang.

Internet of Things and Cross-border E-commerce Logistics

In 2016, Aerospace Digitnexus Information Technology (Shenzhen) Limited* (航天數聯信息技術（深圳）有限公司) (“Aerospace Digitnexus”) determined that cross-border e-commerce logistics as well as warehouse and logistics would be the two major business development directions. In cooperation with the export parcel mail branch of China Post in Shenzhen, Aerospace Digitnexus established a cross-border channel, of which a customs clearance centre in Kaiping

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Chairman’s Statement (continued)

will act as the core to consummate the cross-border import service, providing efficient and convenient professional services including clearance, warehouse and logistics to cross-border e-commerce business. In April 2016, Kaiping Cross-border E-commerce Express Mail Clearance and Sorting Centre* (開平市跨境電子商務快件清關分揀中心) (“Kaiping Clearance Centre”) commenced clearance services, providing the transshipment, clearance and delivery services of cross-border express mail for the customers. The clearance volume of Kaiping Clearance Centre increased steadily from 500 mails per day during the initial stage to the current daily peak volume of 11,000 mails, and that had handled the declaration and clearance for more than 800,000 express mails in 2016. It possesses the functions of business-to-consumer (B2C), consumer-to-consumer (C2C), business express mails and so forth, and has become the port in Southern China with the most comprehensive qualifications.

In reliance on the internet of things intelligent application platform, Aerospace Digitnexus performs the research and development, production and sales of related products, and provides system solutions that are mainly applied in sectors such as warehouse and logistics. In 2016, the sales from major customers had been increased beyond expectation, the turnover amounted to HK$75,001,000, representing an increase of 141.96% as compared with that of HK$30,997,000 for 2015. Aerospace Digitnexus achieved turning loss into profit, with a profit of HK$7,134,000 during the year (2015: a loss of HK$46,823,000).

PROSPECTS

Looking forward, an improvement in the global economic growth is expected in 2017, but the risk that may bring by uncertainties still exists. With initial observation, the policies implemented by the U.S. after President Donald Trump took office are all helpful in boosting the economic growth, whereas there are evident signs on the stabilization of China’s economy. The stable performance from the two large economies, China and the U.S., will support the global economic development, and the economy of Hong Kong will benefit from it. However, the economy of China is in the crucial stage of structural transition and upgrade, at the same time the global economy is being confined to low growth pattern, and factors including the rate hike in the U.S., the commencement of negotiation about the Brexit, the potential of the implementation of trade protectionism by the U.S. President Donald Trump, and the elections in France, Germany and Netherlands may bring uncertainties to the peripheral economic conditions. 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 will strengthen the marketing magnitude in Hong Kong and China, enhance efforts in technological upgrade and maintain a strong competitiveness. The electroplating products business based in Boluo will promote to install new electroplating lines, widen product types and expand the production capacity. The wireless charging and large-power battery products are the target markets of the intelligent charger business, and the business will accelerate the research and development of core technologies of battery products, enhance the market competitiveness by catering to the satisfaction for the demand of the customers. For printed circuit board business, more resources will be allocated to production lines of high-density PCB, rigid PCB, flexible PCB and surface-mount technology, etc., and it will emphasis on developing the markets of package substrate, auto electronic board, camera module, optoelectronics application and security, in order to expand the market segments. The LCD business will optimize its customer structure, strive for more new customers, and develop the high-end communication and electric meter market.

The project inspection, settlement of accounts and final accounts will be completed by Shenzhen Aerospace in 2017. The quality of the property management services will also be enhanced. Shenzhen Aerospace will monitor the property leasing and explore more sources for operating incomes.

China Aerospace International Holdings Limited

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Chairman’s Statement (continued)

Aerospace Digitnexus will proactively launch the clearance services for B2C, C2C and C types express mails, and will strive to reach the target for annual clearance volume of 1.5 million mails. At the same time, it will develop the import and export supervised warehouse and bonded warehouse business, and will ensure the smooth launching of projects including automated stereoscopic warehouse.

2017 is the crucial year on implementing the development planning of the 13th Five-Year Plan. The Company will achieve transformation and upgrade of hi-tech manufacturing through enhanced efforts in research and development and technological upgrade. The Company will enhance itself as the internationalization platform for China Aerospace Science & Technology Corporation (“China Aerospace”) to expand international businesses and initiate international cooperation while seeking new business opportunities, and will proactively identify and develop investment projects with promising prospects which are in line with the national strategic policy of emerging industries and capture China Aerospace’s resources advantages. With the great support from China Aerospace, the Company expects it would comprehensively push forward the progress of its projects, thereby maximizing the investment values of and returns to the shareholders.

APPRECIATION

On behalf of the Board, I would like to extend my highly praised respect and heartfelt gratitude to Mr Zhang Jianheng for his outstanding contributions to the Company’s development during his tenure of services as Chairman, and heartfelt gratitude to Mr Chen Xuechuan and Mr Shi Weiguo for their contributions to the Company during their tenure of services as Non-Executive Directors.

I also 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,

Gong Bo Chairman

Hong Kong, 28 March 2017

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2016 ANNUAL REPORT

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Management Discussion and Analysis

RESULTS PERFORMANCE

The audited turnover of the Company and the subsidiaries for the year ended 31 December 2016 was HK$3,087,848,000, representing an increase of 11.65% as compared with that of HK$2,765,720,000 for 2015. The profit of this year was HK$1,203,252,000, representing a decrease of 26.01% as compared with that of HK$1,626,323,000 for 2015.

PROFIT ATTRIBUTABLE TO THE OWNERS OF THE COMPANY

Profit attributable to the owners of the Company was HK$796,108,000, representing a decrease of 19.15% as compared with that of HK$984,696,000 for 2015.

The increase in turnover was mainly due to the improvement of performance in hi-tech manufacturing and cross-border e-commerce logistics, and the rental income and property management income of Shenzhen Aerospace Science & Technology Plaza was recorded for the first time. The decrease in profit attributable to the owners was mainly due to the substantial decrease in fair value gain of Shenzhen Aerospace Science & Technology Plaza upon its completion in June 2016.

Based on the issued share capital of 3,085,022,000 shares during the year, the basic earnings per share was HK25.81 cents, representing a decrease of 19.14% as compared with that of HK31.92 cents for 2015.

DIVIDENDS

The Board proposed the distribution of 2016 final dividend of HK2 cents per share in March 2017, subject to the approval by shareholders at the Annual General Meeting to be held on 31 May 2017. If approved, warrants of which will be dispatched to all shareholders on or about 28 June 2017.

The distribution of 2015 final dividend of HK1 cent per share was approved by shareholders at the Annual General Meeting in May 2016 and warrants of which were dispatched to all shareholders on 22 June 2016.

RESULTS OF CORE BUSINESSES

The core businesses of the Company and the subsidiaries are hi-tech manufacturing, internet of things and crossborder e-commerce logistics, and the operation of Shenzhen Aerospace Science & Technology Plaza. 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 new businesses, such as having turned the property construction of Shenzhen Aerospace Science & Technology Plaza into asset management, so as to achieve the Company’s new development target and minimize individual business risk.

Hi-tech manufacturing

In 2016, global macroeconomic downturn and sluggish demands both at home and abroad had resulted in continuous depreciation of various foreign currencies by major countries to promote export. Meanwhile, the manufacturing industry in the mainland China witnessed an obvious accelerated slowdown and continuous rise in labour costs, manufacturers therefore experienced excess capacities and extremely intense price competition. Under such circumstances, certain businesses under hi-tech manufacturing was also affected significantly with a decrease in orders or the need to offer discounts to retain customers, which led to a decrease in profits. Further, the technological development cannot follow the pace of market needs resulting from rapid market changes and cannot enhance the products’ quality on time. Some customers even shifted the manufacturing of OEM products back to their homelands or other regions, making market development extremely difficult.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

Management Discussion and Analysis (continued)

During the year, hi-tech manufacturing strengthened investment in technology innovation and automation in production, having introduced advanced equipments and underwent business transformation. Within which, the construction of high precision PCB factory was completed. Besides, equipments were brought in and trial production was finished at the end of 2016, productivity is expected to be raised in 2017. The business of intelligent chargers developed medium power battery products while the business of plastic products renewed equipments and expanded the electroplating products in vehicle accessories and household appliances.

The turnover of the hi-tech manufacturing businesses for the year ended 31 December 2016 was HK$2,843,681,000, representing an increase of 4.10% as compared with last year; the operating profit was HK$306,068,000, representing an increase of 11.16% as compared with last year. The results of the hi-tech manufacturing business are shown below:

Turnover (HK$’000) 2016 2015 Changes (%)	Operating Profit (HK$’000) 2016 2015 Changes (%)
Plastic Products 1,111,678 1,013,162 9.72 Printed Circuit Boards 678,919 601,994 12.78 Intelligent Chargers 516,356 621,842 (16.96) Liquid Crystal Display 521,174 480,553 8.45 Industrial Property Investment 15,554 14,243 9.20 Total 2,843,681 2,731,794 4.10	79,375 73,304 8.28 133,525 109,436 22.01 37,717 42,295 (10.82) 40,969 32,719 25.21 14,482 17,579 (17.62) 306,068 275,333 11.16

Looking forward to 2017, the competition in the electronic information industry will remain intense. The hi-tech manufacturing strives to explore markets of high end products, 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, establish and reach the target of market diversification soon so as to maintain stable business and sustained development, explore business by ways of merger and acquisition or cooperation etc., in order to ensure a continuous and stable growth of the hi-tech manufacturing.

The Complex Zone of the Launching Site in Hainan

In 2016, the loss of joint venture, 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$29,634,000. Hainan Aerospace had decided to withdraw from the land development project of the Complex Zone of the Launching Site in Hainan as a result of, including but not limited to, the austerity measures, the changes in government compensation standard, the substantial increase in construction costs and so on in recent years which may bring to Hainan Aerospace a stability risk if the development of Hainan project is continued. Hainan Aerospace commenced to negotiate with the Provincial Government of Hainan and the Municipal Government of Wenchang. The consideration will refer to the audited project costs and will be settled by cash and assets, and the terms of which are subject to both parties’ confirmation. In 2017, Hainan Aerospace will continue to negotiate with the Provincial Government of Hainan and the Municipal Government of Wenchang, so as to strive for finalization of the agreement terms and to execute an agreement as early as possible. Detail of which please refer the Company’s announcement published on 8 March 2017.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

Management Discussion and Analysis (continued)

On 1 July 2016, CASIL New Century Technology Development (Shenzhen) Company Limited* (航科新世紀科技發展（深圳）有限公司) (“New Century”), a wholly-owned subsidiary of the Company, entered into a loan agreement with Hainan Aerospace. Pursuant to which New Century will provide a loan, with a maturity on 30 June 2018, in the sum of RMB45,000,000 to Hainan Aerospace for its working capital. The outstanding balance of the loan was RMB25,000,000 as at 31 December 2016. Details of which please refer to the Company’s announcement published on 4 July 2016.

Shenzhen Aerospace Science & Technology Plaza

In 2016, Shenzhen Aerospace Technology Investment Company Limited (深圳市航天高科投資管理有限公司) (“Shenzhen Aerospace”) completed all the construction works of Shenzhen Aerospace Science & Technology Plaza, and started launching 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), its wholly-owned subsidiary, had taken over and commenced the property management of Shenzhen Aerospace Science & Technology Plaza on 1 January 2016 and recorded a turnover of RMB15,306,000 and operating profits of RMB1,324,000. From 2017, the work of Shenzhen Aerospace has changed from property construction to asset management, and its rental income will contribute as a consistent and stable revenue and cash flow to the Company.

On 30 August 2016, Shenzhen Aerospace entered into a Facility Agreement with Aerospace Science & Technology Finance Company Limited*(航天科技財務有限責任公司) (“Aerospace Finance”) in respect of a RMB1,300,000,000 facility for a period of 12 years and a provision of a portion of the Shenzhen Aerospace Science & Technology Plaza with a valuation amount of approximately RMB1,900,000,000 as mortgage. The connected transaction was approved by independent shareholders of the Company at the extraordinary general meeting held in October 2016. Details of which please refer to the announcements of the Company made on 30 August 2016 and 7 October 2016, and the circular made on 14 September 2016.

Shenzhen Aerospace recorded a fair value gain of investment property of HK$1,402,000,000 in 2016. As at 31 December 2016, Shenzhen Aerospace Science & Technology Plaza was valued at approximately RMB7,345,000,000.

Internet of Things and Cross-border E-commerce Logistics

In 2016, Aerospace Digitnexus Information Technology (Shenzhen) Limited* (航天數聯信息技術（深圳）有限公司) (“Aerospace Digitnexus”) recorded a turnover of HK$75,001,000 and an operating profit of HK$7,134,000. During the year, except for continued to maintain and complete the prevailing projects of internet of things, Aerospace Digitnexus completed the establishment of a sorting and customs clearance centre in Kaiping and commenced its operations, and continued to develop an e-commerce logistics service platform. In 2017, Aerospace Digitnexus will continue to put effort in optimizing its product techniques, and doing well on the development in internet of things applications and cold-chain logistics warehouse management while integrating with mature products in the market and form market influence speedily in order to strive to realize profit as soon as possible.

The Company, through its direct wholly-owned subsidiary, Digilink Systems Limited, increased capital in its direct wholly-owned subsidiary, Aerospace Digitnexus, a sum of Hong Kong dollars in equivalent to RMB20,000,000, whereas Shenzhen Yuan Heng Fu Bang Investment Partnership Enterprise (Limited Partnership)* (深圳市元亨富邦投資合伙企業 (有限合伙)) (“Yuan Heng Fu Bang”), an independent third party, invested a sum of Hong Kong dollars in equivalent to RMB25,000,000 in Aerospace Digitnexus, and all the procedures are completed. The Company’s indirect interest in Aerospace Digitnexus is reduced from 100% to 72.128% and that of Yuan Heng Fu Bang is 27.872%. Details of which please refer to the Company’s announcement published on 20 July 2016.

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2016 ANNUAL REPORT

Management Discussion and Analysis (continued)

ASSETS

ASSETS
(HK$’000)	31 December 2016	31 December 2015	Changes (%)
Non-Current Assets	10,463,151	8,981,919	16.49
Current Assets	2,321,425	2,993,724	(22.46)
Total Assets	12,784,576	11,975,643	6.75

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, whereas the decrease in current assets was mainly due to the payment to suppliers, and the principal repayment and interest payment of bank loans and so on, resulting in a decrease in bank deposits. The equity attributable to shareholders of the Company was HK$6,190,158,000, representing an increase of 8.49% as compared with that of HK$5,705,770,000 as at 31 December 2015. Based on the issued share capital of 3,085,022,000 shares during the year, the net assets per share attributable to shareholders of the Company was HK$2.01.

As at 31 December 2016, a cash deposit of the Company and the subsidiaries of HK$6,158,000 had been pledged to banks to obtain credit facilities. As to the mortgage of part of Shenzhen Aerospace Science & Technology Plaza at value of approximately RMB1,900,000,000 by Shenzhen Aerospace to Aerospace Finance, which will be performed once the application of property right certificates is completed.

LIABILITIES

LIABILITIES
(HK$’000)	31 December 2016	31 December 2015	Changes (%)
Non-Current Liabilities	3,166,056	2,278,002	38.98
Current Liabilities	1,643,386	2,494,379	(34.12)
Total Liabilities	4,809,442	4,772,381	0.78

Shenzhen Aerospace had entered into a loan of RMB1,300,000,000 with Aerospace Finance in 2016 for the repayment of a syndicated loan, and the outstanding loan amount was RMB509,100,000 as at 31 December 2016.

The increase in non-current liabilities was mainly due to the increase in deferred tax and the drawdown of a term loan, whereas the decrease in current liabilities was mainly due to the repayment of a syndicated loan. As at 31 December 2016, the Company and the subsidiaries had bank and other borrowings of HK$1,152,334,000.

OPERATING EXPENSES

The administrative expenses of the Company and the subsidiaries in 2016 were HK$312,660,000, representing an increase of 1.79% as compared with last year. The finance costs amounted to HK$87,638,000, of which HK$34,198,000 had been capitalized and recorded as the construction cost of Shenzhen Aerospace Science & Technology Plaza.

CONTINGENT LIABILITIES

As at 31 December 2016, the Company and the subsidiaries did not have any other material contingent liabilities.

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2016 ANNUAL REPORT

Management Discussion and Analysis (continued)

FINANCIAL RATIOS

FINANCIAL RATIOS
	2016	2015
Gross Profit Margin	25.63%	20.26%
Return on Net Assets	15.09%	22.58%
	31 December	31 December
	2016	2015
Assets-Liabilities Ratio	37.62%	39.85%
Current Ratio	1.41	1.20
Quick Ratio	1.25	1.10

LIQUIDITY

The source of funds of the Company and the subsidiaries mainly relies on internal resources and banking facilities. As at 31 December 2016, the free cash and bank balance amounted to HK$1,150,271,000, the majority of which were in Hong Kong Dollars and Renminbi.

CAPITAL EXPENDITURE AND INVESTMENT COMMITMENT

As at 31 December 2016, the capital commitments of the Company and the relevant subsidiaries contracted for but not provided in the consolidated financial statements was HK$73,845,000, mainly for the acquisition of fixed assets.

FINANCIAL RISKS

The Company and the 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.

HUMAN RESOURCES AND REMUNERATION POLICIES

The remuneration policy of the Company and the subsidiaries is based on the employee’s qualifications, experience and performance on the job, with reference to the current market situation. The Company and the subsidiaries will continue to upgrade the human resources management skills 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 2016, the Company and the subsidiaries had a total of approximately 6,600 employees based in the mainland and Hong Kong respectively.

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Management Discussion and Analysis (continued)

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, 28 March 2017

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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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 2016, 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 Mao Yijin (appointed on 24 August 2016), Mr Xu Liangwei (appointed on 24 August 2016), Mr Chen Xuechuan (resigned on 24 August 2016) and Mr Shi Weiguo (resigned on 24 August 2016); 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 2016, 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 more than nine years who continuously demonstrates the characters of being an Independent Non-Executive Director and is able to provide 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.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

Corporate Governance Report (continued)

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 2016. So far as was known to the Company, all Directors had complied with Appendix 10 during the year.

The Board is responsible for determining the Company and its subsidiaries’ objectives, strategies, policies, principal business plans, risk management and internal control, 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 2016 are set out below (due to business reasons, Mr Zhang Jianheng, Chairman of both the Board and the Nomination Committee, and Mr Luo Zhenbang, Chairman of the Audit Committee, were unable to attend both general meetings, whereas Ms Sylvia Leung Sau Fan, Chairman of the Remuneration Committee, was unable to attend the annual general meeting):

	Annual/Extraordinary	Annual/Extraordinary	Annual/Extraordinary
	General	Meeting		Board Meeting
	Number of			Number of
	meetings entitled		Number of	meetings entitled	Number of
Directors	to attend		attendance	to attend	attendance
Zhang Jianheng	2		0	4	4
Li Hongjun	2		0	4	4
Jin Xuesheng	2		2	4	4
Mao Yijin	1		0	2	2
Xu Liangwei	1		0	2	2
Luo Zhenbang	2		0	4	4
Leung Sau Fan, Sylvia	2		1	4	4
Wang Xiaojun	2		2	4	2
Chen Xuechuan	1		0	2	2
Shi Weiguo	1		0	2	2

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Corporate Governance Report (continued)

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, risk management system 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.

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 2016, 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 are 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 are sent to all Directors for their comments within a reasonable time after each meeting and approved by the Board at the immediate following meeting. Final versions of the board minutes are 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. The Terms of Reference of respective committees can be downloaded in the websites of both The Hong Kong Exchanges and Clearing Limited and the Company for reference.

Audit Committee

In 2016, 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 Mao Yijin (appointed on 24 August 2016) and Mr Shi Weiguo (resigned on 24 August 2016), both being Non-Executive Directors. 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 Audit Committee met twice during 2016 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 Manager of Finance Department and the Company Secretary attended both meetings, while the General Manager of Internal Audit Department attended one of the meetings.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Corporate Governance Report (continued)

The Audit Committee had also reviewed, discussed and approved the financial statements for the year ended 31December 2016.

The attendance records of individual Audit Committee members during 2016 are set out below:

	Number of
	meetings eligible	Number of
	to attend	attendance
Luo Zhenbang	2	2
Leung Sau Fan, Sylvia	2	2
Mao Yijin	0	0
Shi Weiguo	2	2

Remuneration Committee

In 2016, the Remuneration Committee comprises Ms Leung Sau Fan, Sylvia (Chairman) and Mr Wang Xiaojun, both being Independent Non-Executive Directors, and Mr Xu Liangwei (appointed on 24 August 2016) and Mr Chen Xuechuan (resigned on 24 August 2016), both being Non-Executive Directors. 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 Remuneration Committee met once during 2016. The General Manager of Human Resources Department 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 2016, no Director was involved in deciding his/her remuneration.

The attendance records of individual Remuneration Committee members during 2016 are set out below:

	Number of
	meetings eligible	Number of
	to attend	attendance
Leung Sau Fan, Sylvia	1	1
Wang Xiaojun	1	1
Xu Liangwei	0	0
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.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Corporate Governance Report (continued)

Nomination Committee

In 2016, the Nomination Committee comprises Mr Zhang Jianheng (Chairman), Mr Xu Liangwei (appointed on 24 August 2016) and Mr Chen Xuechuan (resigned on 24 August 2016), all being Non-Executive 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 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. in different fields.

The Nomination Committee met twice during 2016 while the Company Secretary attended both meetings. The Nomination Committee reviewed the structure of the Board, confirmed the rotation list of Directors at the Annual General Meeting, reviewed the qualifications and experience of all candidates of directors, 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 2016 are set out below:

	Number of
	meetings eligible	Number of
	to attend	attendance
Zhang Jianheng	2	2
Luo Zhenbang	2	2
Leung Sau Fan, Sylvia	2	2
Wang Xiaojun	2	2
Xu Liangwei	0	0
Chen Xuechuan	2	2

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Corporate Governance Report (continued)

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 2016, the Company arranged a training to introduce the risk management and internal control system of the Company. All Directors had participated appropriate trainings according to their own needs and provided a training record during 2016 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 2016 which met the requirements as stipulated in Rule 3.28 of the Listing Rules.

RISK MANAGEMENT AND INTERNAL CONTROL SYSTEM

The Company’s Board of Directors is responsible for the risk management and internal control system and ensuring their effectiveness. The Company has gradually established, maintained and implemented an effective internal control system with clear definition of the responsibilities and duties of all businesses and operating departments, and has set up an internal audit department which is responsible for conducting regular or irregular audit on relevant businesses and operating departments to ensure effective check and balance of power, and for maintaining and implementing the risk management and internal control system.

The Company’s management evaluates the risk management and internal control system each year. Firstly, each of the subsidiaries reviews and evaluates the design and actual operation of their organizational structure, development strategy, human resource, corporate culture, social responsibility and so on. Secondly, the head of each department of the Company reviews the internal control of such companies mainly by examining the risk identification and analysis and solutions taken, as well as reviewing and verifying the design and operation of relevant control measures on such as financing activities, asset management, purchase, sales, research and development, engineering project, guarantees, outsourcing, overall budget and contract management. If any potential loophole is noted and recognized, the Company will put forward proposals, requiring relevant companies to enact or revise their rules and rectify the loophole within a specified period. Appraisal of the internal control environment will be carried out each year. Continuous improvements can strengthen the Company and its subsidiaries’ internal control and reduce the possibility of risk occurrence.

During this year, the Company and its subsidiaries had inspected whether or not the risk management and internal control system is effective, and reviewed and restructured the internal rules and systems to confront the potential operational, market and financial risks during daily operation. The inspection covered all major control levels including financial, operational, compliance and risk management control. It especially standardized the decision-making on major issues, important appointment and removal, arrangement for material projects and use of large-amount of funds.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

Corporate Governance Report (continued)

The Company has enacted the Rules on Administration of Information Disclosure Affairs to maintain sound corporate governance and duly fulfill information disclosure obligations of a listed company and protect the rights and interests of the Company and investors. The Company and its subsidiaries shall regularly monitor their transactions and identify whether or not the counter-party is a related party. Where a possibly notifiable transaction is suspected, it shall report to the Company immediately. Where a transaction has been identified as a notifiable transaction, the Company Secretary will draw up disclosure documents as soon as possible, publish an announcement upon obtaining approval from the Board of Directors. During the period, employees who have become aware of the transaction shall bear the duty of confidentiality and may not disclose it to the public without authorization.

The Model Code for Securities Transactions by Employees of the Company also provides that specific employees who are aware of or privy to any negotiations or agreements related to a notifiable transaction, connected transaction or any insider information must refrain from dealing in the Company’s securities as soon as they become aware of them or privy to them.

The Board of Directors has considered and believed that the Company has sufficient resources; employee qualification and experience in executing accounting, financial reporting and internal audit functions, and relevant employees have received sufficient and proper training courses.

The Company’s management has provided the Board of Directors with a confirmation letter relating to the effectiveness of the risk management and internal control system. The Board of Directors believes that such risk management and internal control system was designed to manage rather than eliminate the risks arising from the failure to meet business objectives, and will only make a reasonable but no absolute guarantee shall there be no significant misrepresentation or loss to be incurred. Therefore, the Company believes it is sufficient to implement the current risk management and internal control system, but it will make necessary review and revision from time to time to meet the requirements of laws and regulations, Listing Rules and internal management and to strengthen its risk management and internal control.

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 2016, 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 2016, 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.

In 2016, the Company paid a total of approximately HK$5,151,000 to the auditor, of which included an audit fee of approximately HK$4,155,000 and a non-audit fee of approximately HK$996,000. The latter comprised fees for provision of services in reviewing interim report, results announcements, and continuing connected transactions and so on.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Corporate Governance Report (continued)

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 and 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 2016. 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 2015, 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 the shareholders.

The Company also held an extraordinary general meeting in October 2016. Circular of the meeting was sent beforehand as required by related rules. In the extraordinary general meeting, the independent shareholders reviewed and approved the resolution on the entering into of a facility agreement and the provision of mortgages to a connected person; and the shareholders reviewed and approved the resolutions on re-election of Non-Executive Directors respectively.

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 the 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 2016.

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 [email protected] while for matters concerning investor relations and enquiries from reporters, enquiries shall be put forward to the email of [email protected].

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Corporate Governance Report (continued)

SUFFICIENCY OF PUBLIC FLOAT

As at 31 December 2016, the issued share capital was 3,085,021,882 shares, and the market capitalization was about HK$3,116,000,000.

As at 31 December 2016, the Company had total registered shareholders of 1,115, 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 human resources management skill 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.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

Corporate Governance Report (continued)

In 2016, the Company and its subsidiaries had no significant labour disputes.

As at 31 December 2016, the Company and its subsidiaries had a total of approximately 6,600 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.

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 2016, 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 2016, products of all hi-tech manufacturing business had no significant quality problems.

In addition, 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.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

Corporate Governance Report (continued)

The Company has always emphasized on arm’s length transaction. The Company and its subsidiaries always enter into transactions with partners of various businesses and lending banks etc. on fair, equal and reasonable terms in compliance with relevant laws and regulations, so as to reduce risks and maintain good relationship with them. The Company and its subsidiaries will perform agreements in accordance with provisions therein, and settle accounts payable within a reasonable and feasible period as prescribed therein and never defer payment without cause. It also hopes its clients to perform agreements likewise and settle their accounts payable within a reasonable and feasible period and never defer payment without cause to ensure nil interruption of respective capital flow and respective businesses will not be affected.

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 2016, 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.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

Environmental, Social and Governance Report

The Company had complied throughout the reporting period with the “comply or explain” provisions in the ESG Reporting Guide as set out in Appendix 27 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

The Board of Directors of the Company is responsible for evaluating and determining relevant environmental, social and governance risks, ensuring that the Company has a proper and effective management and internal control system in place for environmental, social and governance risks. It assumes all responsibilities for environmental, social and governance strategies and reporting. The management of the Company has confirmed to the Board of Directors that the above-mentioned risk management and internal control system is effective.

CORE BUSINESSES

The Company and its subsidiaries mainly engage in hi-tech manufacturing business, which includes manufacturing of plastic products, liquid crystal display, printed circuit boards and intelligent chargers, the operations of Shenzhen Aerospace Science & Technology Plaza, and internet of things applications and cross-border e-commerce.

The hi-tech manufacturing business is not only a main source of the Company’s revenue, but also a main source of its profit and cash flow from operation. In the recent years, the Company has been gradually making inroads into other new businesses, such as turning property construction of Shenzhen Aerospace Science & Technology Plaza into asset management, so as to achieve the Company’s new development objectives and reduce the risk arising from engaging in a single business.

CORPORATE SOCIAL RESPONSIBILITY

In the midst of continuous business development, the Company endeavours to become a company committed to social responsibility by complying related laws and regulations, satisfying customers’ requirements on environment and social responsibility and providing on-going encouragement and advice to staff in anticipation of gradually delivering the message of corporate social responsibility. This helps to enable all company-wide entities minimize environmental impacts and reduce consumption of resources, while providing employees with a stable and protected work environment so as to reward the society and enhance the sustainability of the society.

Scope of coverage

Unless otherwise stated, the Environmental, Social and Governance Report mainly covers major enterprises incorporated in Mainland China in hi-tech manufacturing business (hereinafter referred to as Major Industrial Enterprise(s)), and the Key Performance Indicators (“KPIs”) for Major Industrial Enterprises cover a period from 1 January 2016 to 31 December 2016.

A. Environment

General disclosure

Emission

The Major Industrial Enterprises discharge various wastes, pollutants and noise during their daily operations, emissions are mainly such as greenhouse gases, exhaust gas, waste water and waste materials in the production course. Accordingly, they have always strictly complied with the provisions of laws of Mainland China concerning environmental protection, waste collection, pollutant emission and noise emission. Each Major Industrial Enterprise has also established energy management system, pollutant emission and waste management control procedures and safety management system for hazardous chemicals in response to the needs of different industries. Besides, each Major Industrial Enterprise has also engaged qualified professional companies to test whether their noise, exhaust gas and waste water emission levels exceed the stipulated standard, and to dispose of and recycle various hazardous industrial wastes, thereby striving to control and reduce pollution on communities.

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Environmental, Social and Governance Report (continued)

In 2016, the wastes, pollutants and noise emitted by each Major Industrial Enterprise were lower than the standard prescribed by laws. Also, no material violation of environmental protection laws or accidents exerting material adverse impact on the environment was noted.

Use of resources

The Company always encourages staff to reduce the consumption of natural resources and adopt energy saving measures. Its subsidiaries are also required to comply with the related environmental protection regulations and ensure such compliance during the process of production and operation. Further, the Major Industrial Enterprises have strengthened education to their staff about energy saving and environmental protection, implemented target management for use of water and electricity to gradually reduce the consumption, and maximize the use of recyclable packaging materials instead of disposables with a view to reducing unnecessary consumption of natural resources and environmental pollution. Therefore, the emissions of greenhouse gases and waste materials by the Major Industrial Enterprises had exhibited a downward trend and their costs for production and operation decreased in recent years.

Environment and natural resources

The Major Industrial Enterprises, as manufacturers of electronic products, affect the environment mainly due to emission of waste gas and waste water, production of solid wastes, consumption of electricity, water resources and various materials. By doing this, they have identified the impact of their business scope over the environment and relevant environmental factors, place them in orders according to their environmental impact using a scientific method and determine significant environmental factors, and take appropriate measures accordingly. These measures include improving the manufacturing technique, complying with regulatory requirements (including 24hour real-time testing of waste water volume and its pH scale as required by relevant government departments), reducing emissions, recycling, contingency plans and setting goals for consumption reduction for reasonable management purpose.

The KPIs for the Major Industrial Enterprises relating to the environment are roughly as follows:

Indicators	Indicators	Indicators
Emissions A1.2 Total greenhouse gas emissions A1.3 Total hazardous waste produced A1.4 Total non-hazardous waste produced Use of Resources A2.1 Total direct and indirect energy consumption A2.2 Total water consumption A2.5 Total packaging material used	108,702 tonnes 1,062 tonnes 707 tonnes
	Electricity	67,519,063 kilowatts
	LNG	120,026 kilograms
	Environmental-friendly fuel	24,300 liters
	Gasoline	44,888 liters
	Diesel	13,756 liters
	876,332 tonnes 2,060 tonnes

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Environmental, Social and Governance Report (continued)

B. Social: Employment and Labour Practice

General disclosure

Employment

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. On the other hand, the Company and its subsidiaries continuously enhance their human resources management skill 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.

The Company and its subsidiaries provide the staff with a reasonable salary, appropriate medical protection and other insurance coverage, which helps to maintain a comparatively stable working environment for the staff. All employees enjoy equal opportunity and the salary policy is based on the qualification, experience and work performance of employees as well as the prevailing market rates.

Subject to regulations and based on actual needs, all industrial enterprises have put in place various requirements, 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, so as to provide full and reasonable protection of staff’s benefits.

Health and safety

The Major Industrial Enterprises have established a complete set of occupational safety and health management system in accordance with the provisions of regulations by establishing methods for evaluation, disposal and administration of hazard sources, rules and methods for safe operation as well as relevant methods for administration of safety performance. The Major Industrial Enterprises will monitor and check the above-mentioned methods on a regular basis, evaluate hazard sources once each year, offer training on safe operation rules on a regular basis, manage and drill emergency plans on a regular basis, and evaluate and assess safety performance.

The Major Industrial Enterprises will provide employees with body check on a regular basis, and new employees will receive pre-employment training and can only be recruited after they pass the assessment.

Development and training

The Company and its subsidiaries will provide certain funding to their staff for attending some professional seminars and short-term courses, and encourage their staff to continuously develop themselves and increase their own competitiveness so as to adapt themselves to the ever-changing market and to meet with the requirements of the companies. Certain industrial enterprises also set up a specialized training management centre to steer for staff training, including staff ability building, occupational safety and health, various trainings in vocational skills, etc. All training costs are borne by such enterprises. All industrial enterprises also arrange for employees to attend ball games and other recreational activities held internally by the enterprises.

Labour standards

The Company and its subsidiaries expressively stipulate that they will not employ child labour of less than 16 years old and endeavor not to employ child labour by accident, and will not support the practice of employing child labour by other companies or social groups. Currently, all staff employed are 18 years old or above.

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Environmental, Social and Governance Report (continued)

During recruitment, staff of the human resource department of all industrial enterprises must carry out a strict inspection of the personal documentation of candidates; verify their photos to confirm it is the candidate himself/ herself before such application can be registered. The candidate must fill in a registration form and staff of the human resource department will check the information filled in by the candidate and verify the information in the registration form if necessary. If the enterprise finds out that child labour is employed out of negligence, it must stop the child labour from working and arrange as soon as possible the child labour back to the place where he/she was domiciled under the supervision of his/her parents or guardian and report to the local labour authority.

The Company and its subsidiaries also make it clear that they will not mandatorily require employees to work overtime persistently and employees can work overtime only on a voluntary basis.

In 2016, the Company and its subsidiaries had no significant labour disputes.

As at 31 December 2016, the Company and its subsidiaries had a total of approximately 6,600 employees based in Mainland China and Hong Kong.

The KPIs of the Major Industrial Enterprises relating to employees and safety are roughly as follows:

Employment Indicator	Type Total number	Type Total number	Age Region	Age Region
B1.1 Total workforce by employment type, age group and geographical region B1.2 Employee turnover rate by age group and geographical region	Clerical staff	977	18–30, accounting for 54.86% of the total	China: 100%
			above 30, accounting for 45.14% of the total	China: 100%
	Factory worker	3,970	18–30, accounting for 63.90% of the total	China: 100%
			above 30, accounting for 36.10% of the total	China: 100%
			18–30, accounting for 6.42% of the total	China: 100%
			above 30, accounting for 2.36% of the total	China: 100%
Safety Indicator
B2.1 Number and rate of work- related fatalities B2.2 Lost working days due to work injury B3.1 The percentage of employees trained by employee category B3.2 The average training hours completed per employee by employee category			0 (0%) 26 days
			Senior management	100%
			Middle management	100%
			Other employees	100%
			Senior management	10–50 hours
			Middle management	30–80 hours
			Other employees	12–110 hours

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Environmental, Social and Governance Report (continued)

C. Social: Operational practices

General disclosure

Supply chain management

Prior to engaging a supplier, the Major Industrial Enterprises will identify appropriate suppliers based on actual needs while collecting information such as quality, service, delivery terms, price and reputation in the industry as the basis for selection, and request suppliers to provide their basic information and product samples.

In addition, the Major Industrial Enterprises have put into place procedures for administration and control of suppliers, including qualification identification, annual review and regular supervision for suppliers, formulated anti-commercial bribery rules. Meanwhile, management system for product delivery and service has been established, in which including product quality control methods and complaint handling.

The KPI of the Major Industrial Enterprises relating to the number of suppliers by geographical region is roughly as follows:

			Number of	Overseas	Mainland China
	Indicator		suppliers	proportion	proportion
B5.1	Number of suppliers by		650	16%	84%
		geographical region

Product liability

The industrial enterprises are responsible for producing different types of products, and have established a sound internal testing 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 the health and safety of staff and the finished products do not affect the health and safety of customers. In 2016, products of the industrial enterprises had no significant quality problems.

In addition, in response to the needs of different industries and the requirements of customers, the Major Industrial Enterprises have applied for and obtained 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). Certain individual 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 various specific requirements in the production process. This also implies that the Company attaches much importance to its social responsibility and is willing to safeguard the interests of all stakeholders and to reasonably assume its social responsibility.

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Environmental, Social and Governance Report (continued)

The Major Industrial Enterprises have established methods of product quality inspection. It will be carried out during purchase of materials, manufacturing and delivery. In case of recall of products or complaints, the enterprises will conduct sufficient communication with the counterparty and take provisional measures to avoid similar problems. In the meantime, the enterprises will analyze and verify preliminarily the cause of problem so that improvement and precautionary measures can be formed to reduce the possibility of problem recurrence, and will conclude and verify the effectiveness of such measures.

The Major Industrial Enterprises always take appropriate measures to protect clients’ information, intellectual property and privacy in accordance with laws and upon clients’ reasonable request.

The KPI of the Major Industrial Enterprises relating to the products subject to recalls for safety and health reasons is roughly as follows:

Indicator

B6.1 Percentage of total products sold or shipped subject to 0% recalls for safety and health reasons

Anti-corruption

The Major Industrial Enterprises have established relevant anti-corruption rules. An employee who finds improper trade or operation can place a complaint in the mailbox of the general manager or a complaint box, which will be handled by a personnel designated by the general manager. If necessary, law enforcement agency may be required to intervene.

In 2016, the Major Industrial Enterprises did not receive any complaint from any organization or individual against an employee’s misconduct or other illegal activities.

In addition, the Company has put into place the Arrangement for Employee’s Concern on Misconduct in Financial Reporting in accordance with the provisions of Listing Rules. In case of a complaint lodged by an employee of the Company or its subsidiaries against any misconduct in financial reporting, it will be subject to independent investigation and handling by the chairman of the Audit Committee.

In 2016, the Company did not receive complaints against misconduct in financial reporting. There was no significant dispute between the Company and its subsidiaries and partners of various businesses and lending banks.

The KPI of the Company and the Major Industrial Enterprises relating to the number of concluded legal cases regarding corrupt practices is as follows:

Indicator B7.1 Number of concluded legal cases regarding corrupt practices brought 0 against the Company and the Major Industrial Enterprises or their respective employees and the outcomes of the legal actions

Community investment

The Major Industrial Enterprises will conduct necessary assistance to neighboring communities or people in need in accordance with different circumstances, and will use proper resources to support activities of communities.

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Environmental, Social and Governance Report (continued)

CONCLUSION

The Company believes that the implementation of current measures on environmental protection and social responsibility is sufficient for compliance with relevant laws, regulations and Listing Rules, but it will make necessary review and revision from time to time in response to the requirements of laws, Listing Rules and internal management to strengthen its measures on environmental protection and social responsibility.

The Company’s Board of Directors had reviewed, discussed and approved the contents of the Environmental, Social and Governance Report and its publication on 28 March 2017.

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INDEX OF ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT

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Position in
the Report
Subject Areas Aspects KPI & Disclosure (Page)
A. Environment A1: Emissions General Disclosure Information on exhaust gas and greenhouse
gas emissions, discharges into water and
land, and generation of hazardous and
non-hazardous waste:
25–26
(a) the policies; and
(b) compliance with relevant laws and
regulations that have a significant
impact on the issuer
A1.1 The types of emissions and respective
25
emissions data
A1.2 Total greenhouse gas emissions and 26
intensity
A1.3 Total hazardous waste produced and
26
intensity
A1.4 Total non-hazardous waste produced and
26
intensity
A1.5 Description of measures to mitigate 26
emissions and results achieved
A1.6 Description of how hazardous and non-
hazardous wastes are handled, reduction 25
initiatives and results achieved
A2: Use of General Disclosure Policies on the effective use of resources,
Resources including energy, water and other raw 26
materials
A2.1 Total direct and/or indirect energy 26
consumption by type and intensity
A2.2 Total water consumption and intensity 26
A2.3 Description of energy use efficiency 26
initiatives and results achieved
A2.4 Description of whether there is any issue in
sourcing water that is fit for purpose, water 26
efficiency initiatives and results achieved
A2.5 Total packaging material used for finished
products and with reference to per unit 26
produced
A3: The Environment General Disclosure Policies on minimizing the issuer’s significant
and Natural impact on the environment and natural 26
Resources resources
A3.1 Description of the significant impacts of
activities on the environment and natural
26
resources and the actions taken to manage
them
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Environmental, Social and Governance Report (continued)

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Position in
the Report
Subject Areas Aspects KPI & Disclosure (Page)
B. Social B1: Employment General Disclosure Information on compensation and dismissal,
recruitment and promotion, working hours,
rest periods, equal opportunity, diversity,
anti-discrimination, and other benefits and
welfare: 27
(a) the policies; and
(b) compliance with relevant laws and
regulations that have a significant
impact on the issuer
B1.1 Total workforce by employment type, age 28
group and geographical region
B1.2 Employee turnover rate by age group and 28
geographical region
B2: Health and General Disclosure Information on providing a safe working
Safety environment and protecting employees from
occupational hazards:
(a) the policies; and 27
(b) compliance with relevant laws and
regulations that have a significant
impact on the issuer
B2.1 Number and rate of work-related fatalities 28
B2.2 Lost working days due to work injury 28
B2.3 Description of occupational health and
safety measures adopted, how they are 27
implemented and monitored
B3: Development General Disclosure Policies on improving employees’ knowledge
and Training and skills for discharging duties at work. 27
Description of training activities
B3.1 The percentage of employees trained by 28
employee category
B3.2 The average training hours completed per 28
employee by employee category
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Environmental, Social and Governance Report (continued)

Subject Areas Aspects	KPI & Disclosure Position in the Report (Page)	KPI & Disclosure Position in the Report (Page)	KPI & Disclosure Position in the Report (Page)

B4: Labour Standards	General Disclosure	Information on prevention of child and forced labour:	27–28
		(a) the policies; and
		(b) compliance with relevant laws and regulations that have a significant impact on the issuer
B5: Supply Chain Management	B4.1	Description of measures to review employment practices to avoid child and forced labour	28
	B4.2	Description of steps taken to eliminate such practices when discovered	28
	General Disclosure	Policies on managing environmental and social risks of the supply chain	29
	B5.1	Number of suppliers by geographical region	29
	B5.2	Description of practices relating to engaging suppliers, number of suppliers where the practices are being implemented, how they are implemented and monitored	29–30
B6: Product Responsibility	General Disclosure	Information on health and safety, advertising, labeling and privacy matters relating to products and services provided and methods of redress:	29–30
		(a) the policies; and
		(b) compliance with relevant laws and regulations that have a significant impact on the issuer
	B6.1	Percentage of total products sold or shipped subject to recalls for safety and health reasons	30
	B6.2	Number of products and service related complaints received and how they are dealt with	30
	B6.3	Description of practices relating to observing and protecting intellectual property rights	30
	B6.4	Description of quality assurance process and recall procedures	30
	B6.5	Description of consumer data protection and privacy policies, how they are implemented and monitored	30

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Environmental, Social and Governance Report (continued)

Subject Areas Aspects	KPI & Disclosure Position in the Report (Page)	KPI & Disclosure Position in the Report (Page)	KPI & Disclosure Position in the Report (Page)

B7: Anti-corruption	General Disclosure	Information on prevention of bribery, extortion, fraud and money laundering:	30
		(a) the policies; and
		(b) compliance with relevant laws and regulations that have a significant impact on the issuer
B8: Community Investment	B7.1	Number of concluded legal cases regarding corrupt practices brought against the issuer or its employees during the reporting period and the outcomes of the legal actions	30
	B7.2	Description of preventive measures and whistle-blowing procedures, how they are implemented and monitored	30
	General Disclosure	Policies on community engagement to understand the needs of the communities where the issuer operates and to ensure its activities take into consideration the communities’ interests	30
	B8.1	Focus areas of contribution	30
	B8.2	Resources contributed to the focus areas	30

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Biographical Details of Directors

Mr Gong Bo, aged 51, a Research Fellow, is a Non-Executive Director and Chairman of the Company. Mr Gong obtained a bachelor’s degree from Beijing Institute of Technology, a master’s degree from Beijing Polytechnic University, and an Executive MBA from the business school of the University of Texas at Arlington. Joined China Academy of Launch Vehicle Technology in 1987, he served as a Deputy Director General of Quality & Technology Department, then as a Deputy Director General and a Director General of Quality Assurance & Supervision Department, and a Director General of Business Investment Department of China Aerospace Science & Technology Corporation. From 2006 to 2016, he also served as an Executive Director and General Manager of Aerospace Technology Investment Holdings Limited, the Dean of Sichuan Academy of Aerospace Technology, and the Chairman of Sichuan Aerospace Industrial Group Company Limited. He was a Non-Executive Director of the Company from June 2005 to March 2008, and has been serving as the Chief Engineer of China Aerospace Science & Technology Corporation since December 2016. He was appointed as a Non-Executive Director and Chairman of the Company in February 2017.

Mr Li Hongjun, aged 51, 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 54, 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. Mr Jin possesses extensive corporate management experience, especially the experience in financial management. He was appointed as a NonExecutive 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.

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Biographical Details of Directors (continued)

Mr Luo Zhenbang, aged 50, 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 Limited (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 53, is an Independent Non-Executive Director of the Company. Ms Leung holds a bachelor’s degree of arts in accountancy from City University of Hong Kong and had studied as an external student and passed the approved examinations and obtained a bachelor of laws degree from the University of London. She is an associate of The Hong Kong Institute of Chartered Secretaries. Ms Leung is currently an independent nonexecutive director of both Poly Property Group Co., Limited (stock code: 119) and Prosper Construction Holdings Limited (stock code: 6816), shares of both are listed on The Stock Exchange of Hong Kong Limited, and is also a director of VC Capital Limited, a company licensed to conduct type 6 (advising on corporate finance) regulated activity under the Securities and Futures Ordinance. She has over 20 years of experience in company secretarial and corporate finance advisory. She was appointed as an Independent Non-Executive Director of the Company in March 2012.

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Biographical Details of Directors (continued)

Mr Wang Xiaojun, aged 62, 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), CSSC Offshore & Marine Engineering (Group) Company Limited (formerly known as 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.

Mr Mao Yijin, aged 54, graduated from the Faculty of Industrial Economics, Hubei Institute of Finance and Economics in 1985. He joined No. 1 Research Academy under China Aerospace Science & Technology Corporation shortly after graduation and held such posts as staff of the Planning Department, a Deputy Division Director and Senior Engineer of the Planning Division, a Division Director of the Finance Division, a Deputy Director General of the General Business Department; a Deputy Director General of No. 18 Research Institute, the Chief Accountant of No 11 Research Academy, and the Chief Accountant and Deputy Head of Shanghai Academy of Spaceflight Technology. Since June 2016, he has served as a Consultant of Shanghai Academy of Spaceflight Technology and a Director of both China Lucky Group Corporation and China Great Wall Industry Corporation. Mr Mao has ample experience in administration management and financial management. Mr Mao was appointed as an Non-Executive Director of the Company in August 2016.

Mr Xu Liangwei, aged 62, graduated from the Faculty of Chinese, Shanghai Television University, and obtained a Master degree in Business Administration from Fudan University. Mr Xu joined Shanghai Academy of Spaceflight Technology in 1991 and held such posts as a Deputy Director, Director of General Office and Assistant to Academy General. He served as a Vice President of Shanghai Aerospace Corporation from 1995 to 1998; as a Deputy Academy General of Shanghai Academy of Spaceflight Technology, the Chairman and President of Shanghai Aerospace Industrial Company Limited, the Chairman of both Shanghai Instrument Company Limited and Shanghai Aerospace Energy Company Limited from 2000 to 2011; and he served as Deputy Director of the preparation group of China Academy of Launch Vehicle Technology Company Limited and as a Consultant of Shanghai Academy of Spaceflight Technology from 2011 to 2015. Mr Xu has ample experience in administration management. Mr Xu was appointed as an NonExecutive Director of the Company in August 2016.

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Biographical Details of Directors (continued)

Mr Zhang Jianheng, aged 55, a Senior Engineer, was a former 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 and resigned in February 2017.

Mr Chen Xuechuan, aged 54, a Research Fellow, was a former 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 and resigned in August 2016.

Mr Shi Weiguo, aged 46, was a former 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 and resigned in August 2016.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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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 2016.

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 43, 44 and 45 to the consolidated financial statements, respectively.

BUSINESS REVIEW

The business review of the Company and its subsidiaries for the year ended 31 December 2016 is set out in the sections headed “Chairman’s Statement”, “Management Discussion and Analysis”, “Corporate Governance Report” and “Environmental, Social and 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 2016 are set out in the consolidated statement of profit or loss on page 52.

A final dividend of HK2 cents per share in respect of the year ended 31 December 2016 (2015: HK1 cent) has 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 and construction in progress of HK$478,000, HK$92,642,000 and HK$27,473,000 and HK$189,833,000 respectively to cope with the expansion of the Company and its subsidiaries. Details of movements in property, plant and equipment of the Company and its subsidiaries during the year 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 2016 comprised the retained profits of approximately HK$784,571,000 (2015: HK$804,358,000).

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 largest customer and five largest customers were 7.4% and 24.7% of the Company and its subsidiaries’ consolidated turnover, respectively. The aggregate purchases attributable to the Group’s five largest suppliers were less than 30% of the Company and its subsidiaries’ total purchases.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

Directors’ Report (continued)

DIRECTORS

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

Executive

Li Hongjun (President) Jin Xuesheng

Non-Executive

Gong Bo (Chairman) (appointed on 24 February 2017) Luo Zhenbang (Independent) Leung Sau Fan, Sylvia (Independent) Wang Xiaojun (Independent) Mao Yijin (appointed on 24 August 2016) Xu Liangwei (appointed on 24 August 2016) Zhang Jianheng (Chairman) (resigned on 24 February 2017) Chen Xuechuan (resigned on 24 August 2016) Shi Weiguo (resigned on 24 August 2016)

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 Gong Bo retires by rotation pursuant to Code A.4.2 of Appendix 14 of the Listing Rules and Article 94 of the Company’s Articles of Association that all directors of listed issuers appointed to fill a casual vacancy should be subject to election by shareholders at the first general meeting after their appointment, Mr Luo Zhenbang and Mr Wang Xiaojun, due to expiry of their two-year term, retire by rotation at the Annual General Meeting in accordance with Article 103(A) of the Company’s Articles of Association, and Mr Jin Xuesheng retires by rotation at the Annual General Meeting in accordance with Article 103(A) of the Company’s Articles of Association and, being eligible, offer themselves for reelection.

Mr Gong Bo, if being re-elected, will resume the office of Chairman of the Company.

During 2016 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, Cheng Zhanheng, Chi Keung, Chu Kam Ching, Gao Shiwen, Gao Yuda, Gong Benning, Guo Xianpeng, Guo Xiaokui, Han Jinguang, Hu Min, Jin Xuesheng, Lam Yuk Nam, Li Gang, Li Guangneng, Li Hongjun, Li Wenjie, Lin Jianming, Lin Zhijian, Liu Weixiong, Liu Weida, Liu Xiangyang, Niu Zhanjie, Qi Zhan, Qiu Jihua, Shi Lei, Shum King Mo, Song Dasheng, Sun Jingguo, Tse Wai Hong Francis, Wang Hai, Wang Muchun, Wong Siu Fong Jenny, Wu Hongju*, Yang Honghui, Yin Guang, Yu Kehu, Zhao Jinlong, Zhen Feng, Zhen Zhiping, Zheng Xiaoping, Zhong Shangqiong and Zhou Weibing.

Resigned during 2016 or the period up to the date of this Report.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

Directors’ Report (continued)

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 and in accordance with information provided, all the Directors have complied with the provisions under the Model Code in 2016.

As at 31 December 2016, save for Mr Zhang Jianheng, Mr Mao Yijin and Mr Xu Liangwei, the Directors of the Company, are the officers of the substantial shareholder China Aerospace Science & Technology Corporation and its subsidiaries, 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 .

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 TRANSACTIONS, ARRANGEMENTS AND CONTRACTS OF SIGNIFICANCE

No transactions, arrangements and contracts of significance, to which the Company or any of its subsidiaries was a party and in which a Director or a connected entity of 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.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Directors’ Report (continued)

SUBSTANTIAL SHAREHOLDERS

As at 31 December 2016, 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%

Note: 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 2016.

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.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Directors’ Report (continued)

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

On 1 July 2016, CASIL New Century Technology Development (Shenzhen) Company Limited (航科新世紀科技發展（深圳）有限公司) (“New Century”), a wholly-owned subsidiary of the Company, entered into a loan agreement with a connected person, Hainan Aerospace Investment Management Company Limited (海南航天投資管理有限公司) (“Hainan Aerospace”). Pursuant to which New Century will provide a loan, with a maturity on 30 June 2018, in the sum of RMB45,000,000 to Hainan Aerospace. Details of which please refer the Company’s announcement published on 4 July 2016.

On 30 August 2016, Shenzhen Aerospace Technology Investment Company Limited (深圳市航天高科投資管理有限公司) entered into a Facility Agreement with a connected person, Aerospace Science & Technology Finance Company Limited (航天科技財務有限責任公司) (“Aerospace Finance”), in respect of a RMB1,300,000,000 facility for a period of 12 years and a provision of a portion of the Shenzhen Aerospace Science & Technology Plaza with a valuation amount of approximately RMB1,900,000,000 as mortgage. Details of which please refer to the announcements of the Company made on 30 August 2016 and 7 October 2016, and the circular made on 14 September 2016.

Independent Non-Executive Directors of the Company had reviewed and confirmed that the above connected transactions had been entered into on normal commercial terms and is fair and reasonable and in the interests of the Company and its shareholders as a whole.

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

in the ordinary course of business of the Company;
on normal commercial terms or on terms not less favourable to the terms offered by independent third parties; and
in accordance with the terms of the relevant agreements or contracts, respectively, which were fair and reasonable and in the interests of the Company and its shareholders as a whole.

The Company’s auditor was engaged to report on the Company and its subsidiaries’ continuing connected transactions in accordance with Hong Kong Standard on Assurance Engagements 3000 (Revised), Assurance Engagements Other Than Audits or Reviews of Historical Financial Information and with reference to Practice Note 740, Auditor’s Letter on Continuing Connected Transactions under the Hong Kong Listing Rules issued by the Hong Kong Institute of Certified Public Accountants. The auditor has issued its unqualified letter containing its findings and conclusions in respect of the continuing connected transactions disclosed by the Company and its subsidiaries in page 45 of the Annual Report in accordance with Main Board Listing Rule 14A.56. A copy of the auditor’s letter has been provided by the Company to The Stock Exchange of Hong Kong Limited.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Directors’ Report (continued)

List of Continuing Connected Transactions for the year ended 31 December 2016

The Company and/or its			Continuing			Amount outstanding as	Amount outstanding as
subsidiary(ies) involved	Connected person(s)		connected transactions	Annual cap		of 31 December 2016
Shenzhen Aerospace	Aerospace Science &		The provision of security by		N/A		Nil
Technology Investment		Technology	Shenzhen Aerospace to a
Management Company		Finance Company	connected person who is
Limited*		Limited* (航天科技	a member of the finance
(深圳市航天高科投資管理		財務有限責任公司)	syndicate of a syndication
有限公司) (“Shenzhen		(“Aerospace	loan in the amount of
Aerospace”)		Finance”)	RMB1,500,000,000.
CASIL New Century	China Aerospace		China Aerospace Science &		N/A	RMB500,000,000 or
Technology Development		Science &	Technology Corporation				equivalent to
(Shenzhen) Company		Technology	entrusted a loan in the sum				HK$555,556,000
Limited* (航科新世紀科技		Corporation	of RMB500,000,000 to
發展（深圳）有限公司)			New Century with maturity
(“New Century”)			of 60 months through
			Bank of Beijing.
Certain subsidiaries of the	Aerospace Finance		The provision of deposits with	RMB100,000,000		RMB14,500 or
Company			the accounts of Aerospace				equivalent to
			Finance by certain				HK$16,000
			subsidiaries of the
			Company in the amount of
			not more than
			RMB100,000,000 in
			aggregate.
New Century	Hainan Aerospace		The provision of loan by New		N/A	RMB25,000,000 or
		Investment	Century to Hainan				equivalent to
		Management	Aerospace in the amount				HK$ 27,778,000
		Limited* (海南航天	of RMB45,000,000
		投資管理有限公司)
		(“Hainan
		Aerospace”)
Shenzhen Aerospace	Aerospace Finance		The provision of security by		N/A	RMB509,100,000 or
			Shenzhen Aerospace to				equivalent to
			Aerospace Finance for a				HK$565,667,000
			loan in the amount of
			RMB1,300,000,000

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

Directors’ Report (continued)

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, 28 March 2017

This PRC entity does not have an English name, the English name sets out in this report is for identification purpose only.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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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)

OPINION

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 52 to 128, which comprise the consolidated statement of financial position as at 31 December 2016, 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 notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2016, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) and have been properly prepared in compliance with the Hong Kong Companies Ordinance.

BASIS FOR OPINION

We conducted our audit in accordance with Hong Kong Standards on Auditing (“HKSAs”) issued by the HKICPA. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the HKICPA’s Code of Ethics for Professional Accountants (the “Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Independent Auditor’s Report (continued)

KEY AUDIT MATTERS

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matters

How our audit addressed the key audit matters

Valuation of investment properties

We have identified the valuation of investment properties as a key audit matter due to the significant judgements and assumptions in determining the fair value.

As disclosed in notes 4 and 16 to the consolidated financial statements as at 31 December 2016, the fair value of investment properties is HK$8,492,873,000, with a fair value gain recorded in the consolidated statement of profit or loss of HK$1,412,301,000.

All the Group’s investment properties are stated at fair value based on valuations performed by independent qualified professional valuers. Details of the valuation techniques and key inputs used in the valuations are disclosed in note 16 in the consolidated financial statements. The valuations are dependent on certain key assumptions that require significant management judgements. The fair value of investment properties is assessed based on a method of valuation which involves certain estimates of similar market conditions and assumptions made on the investment properties including comparable market transactions with adjustments to reflect different locations or conditions, capitalisation rate and fair market rent.

Our procedures in relation to the valuation of investment properties included:

Obtaining the valuation reports and evaluating the management’s process in respect of reviewing the valuation performed by independent qualified professional valuers.
Evaluating the competence, capabilities and objectivity of independent qualified professional valuers.
Evaluating the valuation techniques and assessing the reasonableness of the key inputs used in the valuations based on our knowledge of the property industry.
Checking, on a sample basis, the market transactions and market rents of similar properties and locations, and assessing the appropriateness of specific assumptions made on adjustments of the properties by reference to age, location and individual factors which affect the valuation of properties.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Independent Auditor’s Report

(continued)

Key audit matters

How our audit addressed the key audit matters

Impairment assessment of trade receivables

We identified the impairment assessment of trade receivables as a key audit matter due to the use of judgment and estimates in assessing the recoverability of trade receivables by the management.

In determining the allowance for trade receivables, the management considers the credit history including default or delay in payments, settlement records, subsequent settlements and aging analysis of the trade receivables as set out in note 4 to the consolidated financial statements.

Our procedures in relation to impairment assessment of trade receivables included:

Obtaining an understanding of how allowance for trade receivables is estimated by the management.
Understanding the Group’s process in preparation of aging analysis of trade receivables.
Testing the aging analysis of trade receivables, on a sample basis, to the source documents.

As disclosed in note 23 to the consolidated financial statements, the carrying amount of trade receivables is HK$718,121,000 (net of allowance for doubtful debts of HK$26,509,000) as at 31 December 2016.

Assessing the reasonableness of recoverability of trade receivables with reference to the credit history including default or delay in payments, settlement records, subsequent settlements and aging analysis of individual trade debtors.

OTHER INFORMATION

The directors of the Company are responsible for the other information. The other information comprises the information included in the annual report, but does not include the consolidated financial statements and our auditor’s report thereon.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Independent Auditor’s Report (continued)

RESPONSIBILITIES OF DIRECTORS AND THOSE CHARGED WITH GOVERNANCE FOR THE CONSOLIDATED FINANCIAL STATEMENTS

The directors of the Company are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with HKFRSs issued by the HKICPA 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.

In preparing the consolidated financial statements, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes 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. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with HKSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with HKSAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit 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 Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

Independent Auditor’s Report (continued)

Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in the independent auditor’s report is Au Mei Yin.

Deloitte Touche Tohmatsu Certified Public Accountants

Hong Kong 28 March 2017

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Consolidated Statement of Profit or Loss

For the year ended 31 December 2016

		2016	2015
	NOTES	HK$’000	HK$’000
Turnover	5	3,087,848	2,765,720
Cost of sales		(2,296,492)	(2,205,494)
Gross profit		791,356	560,226
Other income	7	53,632	75,832
Other gains and losses	7	(19,481)	(109,238)
Selling and distribution expenses		(57,925)	(49,538)
Administrative expenses		(312,660)	(307,166)
Research and development expenses		(63,089)	(57,734)
Fair value changes of investment properties	16	1,412,301	2,622,170
Finance costs	9	(53,440)	(33,396)
Share of results of associates		1,880	(51,117)
Share of results of joint ventures		(29,909)	(2,626)
Profit before taxation	10	1,722,665	2,647,413
Taxation	11	(519,413)	(1,021,090)
Profit for the year		1,203,252	1,626,323
Profit attributable to:
Owners of the Company		796,108	984,696
Non-controlling interests		407,144	641,627
Profit for the year		1,203,252	1,626,323
Earnings per share	12
Basic		HK25.81 cents	HK31.92 cents

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Consolidated Statement of Profit or Loss and Other Comprehensive Income

For the year ended 31 December 2016

	2016	2015
	HK$’000	HK$’000
Profit for the year	1,203,252	1,626,323
Other comprehensive income includes:
Items that may be reclassified subsequently to profit or loss:
Exchange differences arising on translating foreign operations
— subsidiaries	(370,195)	(274,674)
— associates	(7,888)	(7,678)
— joint ventures	(41,618)	(40,677)
Reclassification adjustments for the cumulative exchange differences
upon deregistration of a foreign operation	1,138	—
Other comprehensive expense for the year	(418,563)	(323,029)
Total comprehensive income for the year	784,689	1,303,294
Total comprehensive income attributable to:
Owners of the Company	485,622	744,385
Non-controlling interests	299,067	558,909
	784,689	1,303,294

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Consolidated Statement of Financial Position

At 31 December 2016

		2016	2015
	NOTES	HK$’000	HK$’000
Non-current assets
Property, plant and equipment	14	953,527	806,722
Prepaid lease payments	15	94,711	94,626
Investment properties	16	8,492,873	7,155,275
Interests in associates	18	126,285	132,293
Interests in joint ventures	19	712,103	783,630
Deposit paid for property, plant and equipment		22,766	9,373
Other long term assets	21	33,108	—
Loan to a joint venture	24	27,778	—
		10,463,151	8,981,919
Current assets
Inventories	22	262,021	243,604
Trade and other receivables	23	873,050	647,547
Prepaid lease payments	15	4,234	3,849
Amount due from a related party	25	16	14
Financial assets at fair value through profit or loss	26	25,675	17,169
Pledged bank deposits	27	6,158	36,035
Bank balances and cash	27	1,150,271	2,045,506
		2,321,425	2,993,724
Current liabilities
Trade and other payables	28	1,545,965	1,093,748
Taxation payable		58,347	51,909
Bank and other borrowings	29	31,111	1,340,260
Other loan	30	7,963	8,462
		1,643,386	2,494,379
Net current assets		678,039	499,345
Total assets less current liabilities		11,141,190	9,481,264

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Consolidated Statement of Financial Position (continued)

At 31 December 2016

		2016	2015
	NOTES	HK$’000	HK$’000
Non-current liabilities
Loan from a controlling shareholder	31	555,556	590,319
Loan from a related party	32	565,667	—
Deferred taxation	33	2,044,833	1,687,683
		3,166,056	2,278,002
		7,975,134	7,203,262
Capital and reserves
Share capital	34	1,154,511	1,154,511
Reserves		5,035,647	4,551,259
Equity attributable to owners of the Company		6,190,158	5,705,770
Non-controlling interests		1,784,976	1,497,492
		7,975,134	7,203,262

The consolidated financial statements on pages 52 to 128 were approved and authorised for issue by the Board of Directors on 28 March 2017 and are signed on its behalf by:

Li Hongjun Director

Jin Xuesheng Director

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Consolidated Statement of Changes in Equity

For the year ended 31 December 2016

	Attributable to owners of the Company Share capital Special capital reserve General reserve Translation reserve Property revaluation reserve Other reserves 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 (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 — subsidiaries — associates — joint ventures	— — — — — — 984,696 984,696 641,627 1,626,323 — — — (191,956) — — — (191,956) (82,718) (274,674) — — — (7,678) — — — (7,678) — (7,678) — — — (40,677) — — — (40,677) — (40,677)
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

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Consolidated Statement of Changes in Equity (continued)

For the year ended 31 December 2016

	Attributable to owners of the Company Share capital Special capital reserve General reserve Translation reserve Property revaluation reserve Other reserves 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 (Note a) (Note b)
At 1 January 2016	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
Profit for the year Exchange differences arising on translating foreign operations — subsidiaries — associates — joint ventures Reclassification adjustments for the cumulative exchange differences upon deregistration of a foreign operation	— — — — — — 796,108 796,108 407,144 1,203,252 — — — (262,118) — — — (262,118) (108,077) (370,195) — — — (7,888) — — — (7,888) — (7,888) — — — (41,618) — — — (41,618) — (41,618) — — — 1,138 — — — 1,138 — 1,138
Total comprehensive income (expense) for the year	— — — (310,486) — — 796,108 485,622 299,067 784,689
Dividend recognised as distribution (note 13) Deemed disposal of partial interest in a subsidiary without a loss of control Dividend paid to non-controlling interests of a subsidiary	— — — — — — (30,850) (30,850) — (30,850) — — — — — 29,616 — 29,616 — 29,616 — — — — — — — — (11,583) (11,583)
	— — — — — 29,616 (30,850) (1,234) (11,583) (12,817)
At 31 December 2016	1,154,511 14,044 23,916 (291,509) 11,010 43,925 5,234,261 6,190,158 1,784,976 7,975,134

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 other reserves represent (i) capital contribution from a controlling shareholder of the Company arising from acquisition of subsidiaries, (ii) the difference between the amount of non-controlling interests and fair value of consideration paid upon acquisition of additional interests in subsidiaries and (iii) amount arising from deemed disposal of partial interest in a subsidiary without a loss of control.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Consolidated Statement of Cash Flows

For the year ended 31 December 2016

	2016	2015
	HK$’000	HK$’000
OPERATING ACTIVITIES
Profit before taxation	1,722,665	2,647,413
Adjustments for:
Interest income	(30,282)	(60,805)
Interest expense	53,440	33,396
Depreciation of property, plant and equipment	97,343	105,005
Amortisation of prepaid lease payments	3,085	3,933
Amortisation of intangible assets	—	12,633
Fair value changes of investment properties	(1,412,301)	(2,622,170)
Fair value changes of financial assets at fair value through profit or loss	(8,506)	22,455
(Reversal of allowance for) allowance for doubtful debts	(2,738)	8,828
Allowance for obsolete inventories	421	985
Share of results of associates	(1,880)	51,117
Share of results of joint ventures	29,909	2,626
Loss on deregistration of a subsidiary	1,138	—
Gain on disposal of an associate	(3)	(3,716)
Loss on disposal/written-off of property, plant and equipment	7,491	2,074
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	459,782	244,489
(Increase) decrease in inventories	(33,122)	2,537
Increase in trade and other receivables	(307,738)	(25,013)
Increase in trade and other payables	166,439	120,232
Cash generated from operations	285,361	342,245
Hong Kong Profits Tax paid	(15,627)	(30,923)
PRC Enterprise Income Tax paid	(12,643)	(14,809)
Taxation in other jurisdiction paid	(2,243)	(8,417)
NET CASH FROM OPERATING ACTIVITIES	254,848	288,096

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Consolidated Statement of Cash Flows (continued)

For the year ended 31 December 2016

	2016	2015
	HK$’000	HK$’000
INVESTING ACTIVITIES
Purchase of property, plant and equipment	(301,075)	(217,813)
Placement of pledged bank deposits	(62,235)	(38,057)
Loan to a joint venture	(29,308)	—
Deposit paid for property, plant and equipment	(23,206)	—
Addition of prepaid lease payments	(12,256)	—
Development costs paid for investment properties
under construction	(10,286)	(227,926)
Withdrawal of pledged bank deposits	92,095	33,428
Interest received	30,282	60,805
Proceeds from disposal of property, plant and equipment	1,154	2,109
Proceeds from disposal of an associate	3	2,666
Withdrawal of deposits placed with a related company	—	123,945
Withdrawal of short term bank deposits	—	122,507
Settlement of receivables on disposal of investment properties	—	108,933
Addition of intangible assets	—	(2,376)
NET CASH USED IN INVESTING ACTIVITIES	(314,832)	(31,779)
FINANCING ACTIVITIES
Loan from a related party	596,835	—
New bank loans raised	76,084	325,310
Capital contribution from a non-controlling interest	29,616	—
Repayment of bank and other loans	(1,374,091)	(37,221)
Dividend paid	(30,834)	(30,832)
Interest paid	(86,726)	(107,734)
Dividend paid to non-controlling interests	(5,811)	—
NET CASH (USED IN) FROM FINANCING ACTIVITIES	(794,927)	149,523
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(854,911)	405,840
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR	2,045,506	1,725,918
EFFECT OF FOREIGN EXCHANGE RATE CHANGES	(40,324)	(86,252)
CASH AND CASH EQUIVALENTS AT END OF THE YEAR
REPRESENTING BANK BALANCES AND CASH	1,150,271	2,045,506

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

Notes to the Consolidated Financial Statements

For the year ended 31 December 2016

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 43, 44 and 45, respectively.

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

Amendments to HKFRSs that are mandatorily effective for the current year

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 HKFRS 11	Accounting for acquisitions of interest in joint operations
Amendments to HKAS 1	Disclosure initiative
Amendments to HKAS 16	Clarification of acceptable methods of depreciation and amortisation
and HKAS 38
Amendments to HKAS 16	Agriculture: Bearer plants
and HKAS 41
Amendments to HKFRS 10,	Investment entities: Applying the consolidation exception
HKFRS 12 and HKAS 28
Amendments to HKFRSs	Annual improvements to HKFRSs 2012–2014 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.

New and amendments to HKFRSs in issue but not yet effective

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

not yet effective:
HKFRS 9	Financial instrument1
HKFRS 15	Revenue from contracts with customers and the related Amendments1
HKFRS 16	Leases2
Amendments to HKFRS 2	Classification and measurement of share-based payment transactions1
Amendments to HKFRS 4	Applying HKFRS 9 “Financial instruments” with HKFRS 4 “Insurance
	contracts”1
Amendments to HKFRS 10	Sale or contribution of assets between an investor and its associate
and HKAS 28	or joint venture3
Amendments to HKAS 7	Disclosure initiative4
Amendments to HKAS 12	Recognition of deferred tax assets for unrealised losses4
Amendments to HKFRSs	Annual improvements to HKFRSs 2014–2016 cycle5

1 Effective for annual periods beginning on or after 1 January 2018. 2 Effective for annual periods beginning on or after 1 January 2019. 3 Effective for annual periods beginning on or after a date to be determined. 4 Effective for annual periods beginning on or after 1 January 2017. 5 Effective for annual periods beginning on or after 1 January 2017 or 1 January 2018, as appropriate.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

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

HKFRS 9 “Financial instruments”

HKFRS 9 introduces new requirements for the classification and measurement of financial assets, financial liabilities, general hedge accounting and impairment requirements for financial assets.

Key requirements of HKFRS 9 which are relevant to the Group are described below:

all recognised financial assets that are within the scope of HKFRS 9 are required to be subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. 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 that give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, are generally measured at fair value through other comprehensive income (“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.
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.

Based on the Group’s financial instruments and risk management policies as at 31 December 2016, application of HKFRS 9 in the future may have an impact on the measurement of the Group’s financial assets. The expected credit loss model may result in early provision of credit losses which are not yet incurred in relation to the Group’s financial assets measured at amortised cost. However, it is not practicable to provide a reasonable estimate of the effect of HKFRS 9 until the Group performs a detailed review.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

2. APPLICATION OF NEW AND AMENDMENTS TO 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

Upon application of 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.

In 2016, the HKICPA issued Clarifications to HKFRS 15 in relation to the identification of performance obligations, principal versus agent considerations, as well as licensing application guidance.

The directors of the Company anticipate that the application of HKFRS 15 in the future may result in more disclosures, however, the directors of the Company do not anticipate that the application of HKFRS 15 will have a material impact on the timing and amounts of revenue recognised in the respective reporting periods.

HKFRS 16 “Leases”

HKFRS 16 introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors and lessees. HKFRS 16 will supersede HKAS 17 “Leases” and the related interpretations when it becomes effective.

HKFRS 16 distinguishes lease and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions of operating leases and finance leases are removed for lessee accounting, and is replaced by a model where a right-of-use asset and a corresponding liability have to be recognised for all leases by lessees, except for short-term leases and leases of low value assets.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

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

HKFRS 16 “Leases” (continued)

The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others. For the classification of cash flows, the Group currently presents upfront prepaid lease payments as investing cash flows in relation to leasehold lands for owned use and those classified as investment properties while other operating lease payments are presented as operating cash flows. Upon application of the HKFRS 16, lease payments in relation to lease liability will be allocated into a principal and an interest portion which will be presented as financing cash flows by the Group.

Under HKAS 17, the Group has already recognised prepaid lease payments for leasehold lands where the Group is a lessee. The application of HKFRS 16 may result in potential changes in classification of these assets depending on whether the Group presents right-of-use assets separately or within the same line item at which the corresponding underlying assets would be presented if they were owned.

In contrast to lessee accounting, HKFRS 16 substantially carries forward the lessor accounting requirements in HKAS 17, and continues to require a lessor to classify a lease either as an operating lease or a finance lease.

Furthermore, extensive disclosures are required by HKFRS 16.

As at 31 December 2016, the Group has non-cancellable operating lease commitments of HK$48,687,000 as disclosed in note 37. A preliminary assessment indicates that these arrangements will meet the definition of a lease under HKFRS 16, and hence the Group will recognise a right-of-use asset and a corresponding liability in respect of all these leases unless they qualify for low value or short-term leases upon the application of HKFRS 16. In addition, the application of new requirements may result in changes in measurement, presentation and disclosure as indicated above. However, it is not practicable to provide a reasonable estimate of the financial effect until the directors complete a detailed review.

Amendments to HKAS 7 “Disclosure initiative”

The amendments require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities including both changes arising from cash flows and non-cash changes. Specially, the amendments require the following changes in liabilities arising from financing activities to be disclosed: (i) changes from financing cash flows; (ii) changes arising from obtaining or losing control of subsidiaries or other businesses; (iii) the effect of changes in foreign exchange rates; (iv) changes in fair values; and (v) other changes.

The amendments apply prospectively for annual periods beginning on or after 1 January 2017 with earlier application permitted. The application of the amendments will result in additional disclosures on the Group’s financing activities, specifically reconciliation between the opening and closing balances in the consolidated statement of financial position for liabilities arising from financing activities will be provided on application.

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

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

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.

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”.

A fair value measurement of a non-financial asset takes into account a market participants ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

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.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

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

Changes in the Group’s ownership interests in existing subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s relevant components of equity including reserves and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted after re-attribution of the relevant equity component, and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Basis of consolidation (continued)

Changes in the Group’s ownership interests in existing subsidiaries (continued)

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 attributable to the owners of the Company. 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.

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. 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.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Investments in associates and joint ventures (continued)

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.

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 and points 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.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial instruments (continued)

Financial assets (continued)

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 26.

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, loan to a joint venture, pledged bank deposits, amounts due from subsidiaries, 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).

Interest income is recognised by applying the effective interest rate, except for short-term receivables where the recognition of interest would be immaterial.

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.

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 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).

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial instruments (continued)

Financial assets (continued)

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 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.

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 recognised 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.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial instruments (continued)

Financial assets (continued)

Impairment of financial assets (continued)

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.

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 Company are recognised at the proceeds received, net of direct issue costs.

Financial liabilities

Financial liabilities including trade and other payables, bank and other borrowings, loan from a controlling shareholder, loan from a related party 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 and points 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.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial instruments (continued)

Derecognition

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire.

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 have expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances.

Revenue is recognised when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the Group and when specific criteria have been met for each of the Group’s activities, as described below.

Sale of goods

Revenue from the sale of goods is recognised when goods are delivered and titles have passed.

Rendering of services

Service income is recognised when services are provided.

Dividend and interest income

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.

Rental income

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

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

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.

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 are 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.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

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. Where the lease includes a rent-free period, the rental income foregone is allocated evenly over the lease term.

The Group as lessee

Operating lease payments are recognised as an expense on a straight line basis over the lease term.

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.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are recognised in profit or loss in the period in which they arise, except for 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 disposal or partial disposal of the Group’s interests.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Foreign currencies (continued)

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.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Intangible assets

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.

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. In allocating the impairment loss, the impairment loss is allocated first to reduce the carrying amount of any goodwill (if applicable) and then to the other assets on a pro-rata basis based on the carrying amount of each asset in the unit. The carrying amount of an asset is not reduced below the highest of its fair value less costs of disposal (if measurable), its value in use (if determinable) and zero. The amount of the impairment loss that would otherwise have been allocated to the asset is allocated pro rata to the other assets of the unit. An impairment loss is recognised immediately in profit or loss.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Impairment on tangible and intangible assets other than goodwill (continued)

Where 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.

Short-term employee benefits

Short-term employee benefits are recognised at the undiscounted amount of the benefits expected to be paid as and when employees rendered the services. All short-term employee benefits are recognised as an expense unless another HKFRS requires or permits the inclusion of the benefit in the cost of an asset.

A liability is recognised for benefits accruing to employees (such as wages and salaries, annual leave and sick leave) after deducting any amount already paid.

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.

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.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Taxation (continued)

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 taxes 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.

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.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

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.

(a) Deferred taxation on investment properties

For the purposes of measuring deferred taxes 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 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 these locations, the management determined that the presumption that investment properties measured using the fair value model are recovered through sale is rebutted.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

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

Critical judgements in applying accounting policies (continued)

(a) Deferred taxation on investment properties (continued)

For certain of the Group’s other investment properties located in the PRC, the management concluded that they are depreciable and 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, the management determined that the presumption that these investment properties measured using the fair value model are recovered through sale is not rebutted. As a result, the Group has recognised deferred tax liabilities on changes in fair value of these investment properties on the assumption that these investment properties will be recovered through sale.

The deferred tax impact of the Group is recognised at the end of the reporting period as shown in note 33.

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) 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 2016, the carrying amount of investment properties is HK$8,492,873,000 (2015: HK$7,155,275,000). Information about the valuation techniques and inputs used in determining the fair value of the Group’s investment properties is described in note 16.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

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

Key sources of estimation uncertainty (continued)

(b) Allowance for trade receivables

The Group makes allowance for doubtful debts based on an assessment of the recoverability of trade receivables. Allowance is applied to trade receivables where events or changes in circumstances indicate that the balances may not be collectible. In determining whether an allowance for doubtful debts is required, the Group takes into consideration of credit history including default or delay in payments, settlement records, subsequent settlements and aging analysis of trade receivables. Where the expectation of the recoverability of trade receivables is different from the original estimate, such difference will impact the carrying value of trade receivables and allowance for doubtful debts in the period in which such estimate has changed.

The management closely monitors the settlement status of trade receivables and will strengthen its effort to chase the debts and thus considers that the trade receivables with carrying amount of HK$718,121,000 (2015: HK$572,182,000) are recoverable due to its good credit quality.

5. TURNOVER

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

		2016	2015
		HK$’000	HK$’000
Sales	of goods and services	2,905,469	2,748,548
Rental	income and building management fee income	182,379	17,172
		3,087,848	2,765,720

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. The management has identified 10 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, Internet of Things and Cross-border e-commerce) which represents the major industries in which the Group engaged.

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

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

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 2016

	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	1,111,678 56,651 1,168,329 521,174 232 521,406 678,919 — 678,919 516,356 1,556 517,912 15,554 20,273 35,827	79,375 40,969 133,525 37,717 14,482
	2,843,681 78,712 2,922,393	306,068
New Material Business Polyimide films manufacturing	— — —	2,660
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	163,943 — 163,943 — — — 8,960 — 8,960 66,041 — 66,041	1,523,913 (29,634) 5,619 1,515
	238,944 — 238,944	1,501,413
Reportable segment total Elimination Other Business	3,082,625 78,712 3,161,337 — (78,712) (78,712) 5,223 — 5,223	1,810,141 — 5,341
	3,087,848 — 3,087,848	1,815,482 46,771 (83,958)
Unallocated corporate income Unallocated corporate expenses Gain on disposal of an associate Share of result of an associate Share of result of a joint venture Finance costs Loss on deregistration of a subsidiary Profit before taxation
		1,778,295 3 (780) (275) (53,440) (1,138)
		1,722,665

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

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 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 1,076,770 480,553 722 481,275 601,994 — 601,994 621,842 1,671 623,513 14,243 21,171 35,414	73,304 32,719 109,436 42,295 17,579
	2,731,794 87,172 2,818,966	275,333
New Material Business Polyimide films manufacturing	— — —	(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	— — — — — — 8,180 — 8,180 22,817 — 22,817	2,590,285 (3,624) (46,228) (595)
	30,997 — 30,997	2,539,838
Reportable segment total Elimination Other Business	2,762,791 87,172 2,849,963 — (87,172) (87,172) 2,929 — 2,929	2,764,587 — 5,068
	2,765,720 — 2,765,720	2,769,655 65,119 (129,146)
Unallocated corporate income Unallocated corporate expenses Gain on disposal of an associate Share of result of an associate Share of result of a joint venture Finance costs Impairment loss recognised in respect of available-for-sale investments Profit before taxation
		2,705,628 3,716 (533) 998 (33,396) (29,000)
		2,647,413

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

6. SEGMENT INFORMATION (continued)

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

The President regularly 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 result of an associate, share of result of a joint venture, interest expenses, gain on disposal of an associate, loss on deregistration of a subsidiary, impairment loss recognised in respect of available-for-sale investments 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.

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

6. SEGMENT INFORMATION (continued)

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

	2016	2015
	HK$’000	HK$’000
Segment assets
Hi-Tech Manufacturing Business
Plastic products	631,631	695,203
Liquid crystal display	365,669	314,422
Printed circuit boards	831,211	523,858
Intelligent chargers	246,968	230,749
Industrial property investment	273,665	275,407
	2,349,144	2,039,639
New Material Business
Polyimide films manufacturing	114,860	119,367
Aerospace Service
Property investment in Shenzhen Aerospace Science &
Technology Plaza	8,294,693	6,821,347
Land development in Hainan Launching Site
Complex Zone	646,228	716,507
Internet of Things	6,860	6,977
Cross border e-commerce	4,868	3,919
	8,952,649	7,548,750
Total assets for reportable segments	11,416,653	9,707,756
Other Business	66,079	61,008
Interest in a joint venture	65,875	67,123
Interest in an associate	11,425	12,926
Unallocated assets	1,224,544	2,126,830
Consolidated assets	12,784,576	11,975,643

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

6. SEGMENT INFORMATION (continued)

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

	2016	2015
	HK$’000	HK$’000
Segment liabilities
Hi-Tech Manufacturing Business
Plastic products	213,036	216,981
Liquid crystal display	110,572	70,161
Printed circuit boards	272,795	155,001
Intelligent chargers	91,392	111,100
Industrial property investment	9,101	13,493
	696,896	566,736
New Material Business
Polyimide films manufacturing	—	—
Aerospace Service
Property investment in Shenzhen Aerospace Science &
Technology Plaza	575,309	203,994
Land development in Hainan Launching Site
Complex Zone	—	—
Internet of Things	734	6,809
Cross border e-commerce	3,222	1,562
	579,265	212,365
Total liabilities for reportable segments	1,276,161	779,101
Other Business	1,172	1,087
Unallocated liabilities	3,532,109	3,992,193
Consolidated liabilities	4,809,442	4,772,381

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, pledged bank deposits, financial assets at fair value through profit or loss, interest in a joint venture, interest in an associate 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 controlling shareholder, loan from a related party and the other unallocated liabilities.

China Aerospace International Holdings Limited

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

6. SEGMENT INFORMATION (continued)

(c) Other segment information

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

2016

				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	35,780	24,131	—	2,434
Liquid crystal display	10,251	11,888	—	5,069
Printed circuit boards	265,508	39,733	—	(180)
Intelligent chargers	6,450	9,071	—	122
Industrial property investment	498	13,270	8,037	—
	318,487	98,093	8,037	7,445
New Material Business
Polyimide films manufacturing	—	—	—	—
Aerospace Service
Property investment in Shenzhen
Aerospace Science & Technology
Plaza	436,634	173	1,401,850	7
Land development in Hainan
Launching Site Complex Zone	—	—	—	—
Internet of Things	785	490	—	(33)
Cross border e-commerce	1,723	618	—	—
	439,142	1,281	1,401,850	(26)
Reportable segment total	757,629	99,374	1,409,887	7,419

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

6. SEGMENT INFORMATION (continued)

(c) Other segment information (continued)

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

2015

				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
Reportable segment total	537,271	132,102	2,619,351	2,049

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

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 by geographical location are detailed below:

location are detailed below:
	Revenue from
	external	customers		Non-current assets
	2016		2015	2016	2015
	HK$’000		HK$’000	HK$’000	HK$’000
Hong Kong	1,997,362		2,098,043	236,539	333,448
The PRC	1,090,486		667,677	10,226,518	8,648,371
Canada	—		—	94	100
	3,087,848		2,765,720	10,463,151	8,981,919

Information about major customers

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

				2016			2015
				HK$’000			HK$’000
Customer A1				N/A2			383,014

1 Revenue from intelligent chargers.

2 The corresponding revenue did not contribute over 10% of the total sales of the Group.

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

7. OTHER INCOME AND OTHER GAINS AND LOSSES

	2016	2015
	HK$’000	HK$’000
The Group’s other income mainly comprises:
Interest income	30,282	60,805
The Group’s other gains and losses mainly comprise:
Net exchange loss	(22,079)	(51,318)
Net gain (loss) from change in fair value of financial assets
at fair value through profit or loss	8,506	(22,455)
Reversal of allowance for (allowance for) doubtful trade debts	2,738	(8,828)
Loss on disposal/written off of property, plant and equipment	(7,491)	(2,074)
Gain on disposal of an associate	3	3,716
Impairment loss recognised in respect of available-for-sale investments	—	(29,000)
Loss on deregistration of a subsidiary	(1,138)	—

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

8. DIRECTORS’ AND HIGHEST PAID INDIVIDUALS’ EMOLUMENTS

(a) Directors’ emoluments

The emoluments paid or payable to each of the 10 (2015: 8) directors are as follows:

	Executive directors	Executive directors		Non-executive directors	Non-executive directors	Independent non-executive directors Luo Zhenbang Leung Sau Fan, Sylvia Wang Xiaojun 2016 Total HK$’000 HK$’000 HK$’000 HK$’000
	Li Hongjun Jin Xuesheng HK$’000 HK$’000		Zhang Jianheng HK$’000	Chen Xuechuan# Shi Weiguo# Mao Yijin## Xu Liangwei## HK$’000 HK$’000 HK$’000 HK$’000
Directors’ fees Executives Non-executives (excluding independent non-executives) Independent non-executives	— — — — — —		— — —	— — — — — — — — —	— 33 —	— — — — — — — 33 150 150 150 450
	— —		—	— — —	33	150 150 150 483
Other emoluments Salaries and other benefits Bonuses	1,602 1,602 716 716		— —	— — — — — —	5 —	80 110 50 3,449 — — — 1,432
	2,318 2,318		—	— — —	5	80 110 50 4,881
Total emoluments	2,318 2,318		—	— — —	38	230 260 200 5,364
		Executive	directors	Non-executive directors	Independent non-executive directors Luo Zhenbang Leung Sau Fan, Sylvia Wang Xiaojun 2015 Total HK$’000 HK$’000 HK$’000 HK$’000
		Li Hongjun HK$’000	Jin Xuesheng HK$’000	Zhang Jianheng Chen Xuechuan# Shi Weiguo# HK$’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 Bonuses		1,594 509	1,594 509	— — — — — —	80 110 55 3,433 — — — 1,018
		2,103	2,103	— — —	80 110 55 4,451
Total emoluments		2,103	2,103	— — —	230 260 205 4,901

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 while Mr. Jin Xuesheng’s emoluments shown above are for his services in connection with the management of the affairs of the Company and the Group.

The non-executive and independent non-executive directors’ emoluments shown above are for their services as directors of the Company.

Resigned on 24 August 2016

Appointed on 24 August 2016

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

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

(b) Highest paid individuals’ emoluments

During the year, the five highest paid individuals included two directors (2015: two directors), details of whose emoluments are set out above. The emoluments of the remaining three (2015: three) highest paid individuals are as follows:

individuals are as follows:
	2016	2015
	HK$’000	HK$’000
Salaries and other benefits	1,510	1,495
Bonuses_(Note)_	10,796	9,587
Contributions to retirement benefits scheme	—	—
	12,306	11,082

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 and all directors were within the following band:

Emoluments band	Number of
	2016	2015
HK$6,000,001 to HK$6,500,000	—	1
HK$5,500,001 to HK$6,000,000	1	—
HK$3,500,001 to HK$4,000,000	1	—
HK$3,000,001 to HK$3,500,000	—	1
HK$2,500,001 to HK$3,000,000	1	—
HK$2,000,001 to HK$2,500,000	2	2
HK$1,500,001 to HK$2,000,000	—	1
Nil to HK$1,500,000	8	6

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

	2016	2015
	HK$’000	HK$’000
Interest expenses on bank and other borrowings	87,638	107,734
Less: Amount capitalised to investment properties under construction	(34,198)	(74,338)
	53,440	33,396

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 4.75% (2015: 5.88%) per annum to expenditure on qualifying assets.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

10. PROFIT BEFORE TAXATION

	2016	2015
	HK$’000	HK$’000
Profit before taxation has been arrived at after charging (crediting):
Amortisation of prepaid lease payments	3,085	3,933
Amortisation of intangible asset (included in cost of sales)	—	12,633
Auditors’ remuneration
— current year	4,152	4,458
— (over)underprovision in prior years	(368)	106
Cost of inventories charged to profit or loss including allowance for
obsolete inventories of HK$421,000 (2015: HK$985,000)	2,228,608	2,204,509
Depreciation of property, plant and equipment	97,343	105,005
Minimum lease payments under operating leases in respect
of land and buildings	21,508	20,514
Impairment loss recognised in respect of intangible assets	—	11,715
Research and development expenses	63,089	57,734
Staff costs, including directors’ remuneration	573,052	546,077
Gross rental income	(164,435)	(17,172)
Less: Direct operating expenses for investment properties that
generated rental income during the year	3,926	2,878
	(160,509)	(14,294)

China Aerospace International Holdings Limited

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

11. TAXATION

The tax charge (credit) for the year comprises:

TAXATION The tax charge (credit) for the year comprises:
	2016	2015
	HK$’000	HK$’000
Current tax:
Hong Kong Profits Tax	21,600	23,943
PRC Enterprise Income Tax	14,530	9,774
Taxation in other jurisdiction	2,034	—
	38,164	33,717
Under(over)provision in prior years:
Hong Kong Profits Tax	(104)	(491)
PRC Enterprise Income Tax	622	—
	518	(491)
Deferred tax charge_(note 33)_	480,731	987,864
	519,413	1,021,090

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

11. TAXATION (continued)

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

	2016	2015
	HK$’000	HK$’000
Profit before taxation	1,722,665	2,647,413
Tax at Hong Kong Profits Tax of 16.5%	284,240	436,823
Tax effect of share of results of associates	(310)	8,434
Tax effect of share of results of joint ventures	4,935	433
Tax effect of expenses not deductible for tax purposes	4,418	15,124
Tax effect of income not taxable for tax purpose	(7,892)	(4,157)
Withholding tax paid in other jurisdiction	2,034	—
Land appreciation tax	150,226	443,353
Tax effect of land appreciation tax deductible for PRC Enterprise
Income Tax	(24,787)	(73,153)
Tax effect of additional deduction for research and development
expenses	(2,197)	(1,046)
Tax effect of tax losses not recognised	2,535	17,723
Utilisation of tax losses previously not recognised	(8,177)	(4,439)
Effect of different tax rates of subsidiaries operating in other
jurisdictions	117,792	183,199
Effect of income tax on concessionary rates for certain subsidiaries	(3,122)	(442)
Under(over)provision in prior years	518	(491)
Others	(800)	(271)
Income tax expenses for the year	519,413	1,021,090

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%. Two subsidiaries (2015: one subsidiary) of the Company operating in the PRC are eligible as High and New Technology Enterprise and the income tax rate of these subsidiaries is 15%.

Taxation arising in other jurisdiction, representing withholding tax on dividend income, is calculated at the rate prevailing in the relevant jurisdiction.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

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:

	2016	2015
	HK$’000	HK$’000
Earnings
Profit for the year attributable to owners of the Company for the
purpose of basic earnings per share	796,108	984,696
	2016	2015
	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

	2016	2015
	HK$’000	HK$’000
Dividends recognised as distribution during the year:
2015 final, paid — HK1 cent
(2015: 2014 final dividend of HK1 cent) per share	30,850	30,850

China Aerospace International Holdings Limited

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

14. PROPERTY, PLANT AND EQUIPMENT

	Medium-		Medium-
	term	Long-term	term		Motor
	leasehold	leasehold	leasehold		vehicles,
	land and	land and	land and		furniture	Construction
	buildings in	buildings	buildings	Plant and	and other	in
	Hong Kong	in the PRC	in the PRC	equipment	equipment	progress	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
THE GROUP
COST
At 1 January 2015	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
Exchange realignment	—	(445)	(30,588)	(41,110)	(13,076)	(14,504)	(99,723)
Additions	—	—	478	92,642	27,473	189,833	310,426
Disposals/written off	—	—	(179)	(65,398)	(18,864)	(1,430)	(85,871)
Transfer	—	—	—	7,693	—	(7,693)	—
At 31 December 2016	76,875	7,295	409,741	683,495	247,001	252,972	1,677,379
DEPRECIATION AND
IMPAIRMENT
At 1 January 2015	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
Exchange realignment	—	(88)	(13,459)	(20,147)	(8,396)	—	(42,090)
Provided for the year	1,985	114	13,078	62,289	19,877	—	97,343
Eliminated on disposals/
written off	—	—	(153)	(58,209)	(18,864)	—	(77,226)
At 31 December 2016	40,820	1,603	178,026	344,854	158,549	—	723,852
CARRYING VALUES
At 31 December 2016	36,055	5,692	231,715	338,641	88,452	252,972	953,527
At 31 December 2015	38,040	6,163	261,470	328,747	85,536	86,766	806,722

Note:

(a) Depreciation is provided to write off the cost of items of property, plant and equipment other than construction in progress over their estimated useful lives and after taking into account 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%

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

15. PREPAID LEASE PAYMENTS

	2016	2015
	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	94,711	94,626
Current portion	4,234	3,849
	98,945	98,475

16. INVESTMENT PROPERTIES

		Investment
	Completed	properties
	investment	under
	properties	construction	Total
	HK$’000	HK$’000	HK$’000
FAIR VALUE
At 1 January 2015	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
Exchange realignment	(13,421)	(497,650)	(511,071)
Construction costs incurred	—	436,368	436,368
Net increase in fair value recognised in profit or loss	10,451	1,401,850	1,412,301
Transfer upon completion	8,161,111	(8,161,111)	—
At 31 December 2016	8,492,873	—	8,492,873
Unrealised gain on property revaluation included in
profit or loss of current year	10,451	1,401,850	1,412,301

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

16. INVESTMENT PROPERTIES (continued)

The investment properties under construction have been completed during the year.

The fair values of the Group’s investment properties at 31 December 2016 and 31 December 2015 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 and developer’s profits.

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.

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.

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

16. INVESTMENT PROPERTIES (continued)

	Fair value	Fair value
	as at	as at	Fair value	Valuation technique(s)			Relationship of unobservable
	31.12.2016	31.12.2015	hierarchy	and key input(s)	Significant unobservable input(s)		inputs to fair value
	HK$’000	HK$’000
China Aerospace Industrial Estate	155,521	162,044	Level 3	Direct Capitalisation Approach	Capitalisation rate, taking into account of		The higher the capitalisation
Zhong Kai Development Zone						the capitalisation of rental income		rate, the lower the fair
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% (2015: 8.25%).		value.
					Monthly rent, based on net floor area,		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
						RMB7.85/sq.m. (2015: RMB7.94/sq.m.)
						on average for the base level.
Office Unit Nos 801-819 on Level 8	22,055	22,773	Level 3	Direct Capitalisation Approach	Capitalisation rate, taking into account of		The higher the capitalisation
together with Car Parking Space						the capitalisation of rental income		rate, the lower the fair
Nos 2355–2357, 3105–3107, Zhonghai Building, 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% (2015: 5.25%).		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
						RMB179/sq.m. (2015: RMB174/sq.m.)
						on average for the base level.
South of Bin Hai Avenue and the	8,161,111	6,820,543	Level 3	Direct Capitalisation Approach	Capitalisation rate, taking into account of		The higher the capitalisation
East of Hou Hai Bin Road						the capitalisation of rental income		rate, the lower the fair
Nanshan District Shenzhen Guangdong Province The PRC				The key inputs are: (1) Capitalisation rate; (2) Monthly rent		potential, nature of the property, prevailing market condition, of 7.25% (retail) and 3.6% (office).		value.
					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 RMB121/
						sq.m. for retail and RMB163/sq.m. for
						office.
				2015	2015
				Market-based Approach	Capitalisation rate, taking into account of		The higher the capitalisation
						the capitalisation of rental income		rate, the lower the fair
				The key inputs are: (1) Capitalisation rate; (2) Monthly rent;		potential, nature of the property, prevailing market condition, of 6% (retail) and 3.5% (office).		value.
				(3) Gross development value; (4) Developer’s profit	Monthly rent with adjustment based on net floor area using direct market		The higher the monthly rent, the higher the fair value.
						comparable and taking into account of
						age, location and individual factors
						such as size of property and layout/
						design of RMB89/sq.m. for retail and
						RMB132/sq.m. for office.
					Gross development value on completion		The higher the gross
						basis, taking into account the time,		development value, the
						location and size, between comparable		higher the fair value.
						and the properties, and developer’s
						profit, taking into account of the progress of the property.	The higher the developer’s profit, the lower the fair
								value.

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

16. INVESTMENT PROPERTIES (continued)

	Fair value	Fair value
	as at	as at	Fair value	Valuation technique(s)				Relationship of unobservable
	31.12.2016	31.12.2015	hierarchy	and key input(s)		Significant unobservable input(s)		inputs to fair value
	HK$’000	HK$’000
Level 8	37,556	38,135	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 An Zhen West Lane Chao Yang District Beijing				The key inputs are: (1) Capitalisation rate; (2) Monthly rent			potential, nature of the property, prevailing market condition, of 4% (2015: 4%).		value.
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 RMB87/
							sq.m. (2015: RMB83/sq.m.) on
							average.
Units 402, 405 to 407	88,600	85,100	Level 3	Direct comparison method based		Market unit rate, mainly taking into account		A significant increase in the
on 4th Floor, 17th Floor					on market observable		the conditions and location, between		market unit rate used
China Aerospace Centre					transactions of similar		the comparables, HK$5,400		would result in a
143 Hoi Bun Road					properties		(2015: HK$5,200) per square foot.		significant increase in the
Kwun Tong									fair value of the
Kowloon									investment properties, and
									vice versa.
Nos. P1, L3, LD1, LD2 and LD5 on	13,000	11,900	Level 3	Direct comparison method based		Market unit rate, mainly taking into account		A significant increase in the
Ground Floor, Car Park, Nos. P17,					on market observable		the conditions and location, between		market unit rate used
P18 and P24 on 1st Floor and					transactions of similar		the comparables, HK$1,150,000		would result in a
Car Park Nos. P34, P36 and					properties		(2015: HK$1,058,000).		significant increase in the
P37 on 2nd Floor									fair value of the
China Aerospace Centre									investment properties, and
143 Hoi Bun Road									vice versa.
Kwun Tong
Kowloon
Unit A on 2nd Floor of	9,530	9,530	Level 3	Direct comparison method based		Market unit rate, mainly taking into account		A significant increase in the
Tsun Win Factory Building					on market observable		the conditions and location, between		market unit rate used
No. 60 Tsun Yip Street					transactions of similar		the comparables, HK$3,800 (2015:		would result in a
Kwun Tong					properties		HK$3,800) per square foot.		significant increase in the
Kowloon									fair value of the
									investment properties, and
									vice versa.
Car Parking Space Nos. 4,5,8, 12	5,500	5,250	Level 3	Direct comparison method based		Market unit rate, mainly taking into account		A significant increase in the
and 13 on Ground Floor of					on market observable		the conditions and location, between		market unit rate used
Wah Hing Industrial Mansions					transactions of similar		the comparables, HK$1,100,000 (2015:		would result in a
No. 36 Tai Yau Street and					properties		HK$1,050,000).		significant increase in the
Nos. 21–25 Tseuk Luk Street									fair value of the
San Po Kong									investment properties, and
Kowloon									vice versa.

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

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

17. INTANGIBLE ASSETS

				Development	Development
				costs
				HK$’000
COST
At 1 January 2015				53,725
Exchange realignment				(2,586)
Additions				1,049
At 31 December 2015				52,188
Exchange realignment				(3,073)
At 31 December 2016				49,115
AMORTISATION AND IMPAIRMENT
At 1 January 2015				30,310
Exchange realignment				(2,470)
Provided for the year				12,633
Impairment loss recognised in the year				11,715
At 31 December 2015				52,188
Exchange realignment				(3,073)
At 31 December 2016				49,115
CARRYING VALUES
At 31 December 2016				—
At 31 December 2015				—

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

Development costs 4 years

At 31 December 2015, the directors have determined that the Group’s developments costs in relation to its Internet of Things business were impaired as a result of the decline in its expected future cash flows. Accordingly, an impairment loss of HK$11,715,000 (2016: nil) has been recognised in profit or loss for the year ended 31 December 2015. The impairment on the development costs was 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 rates 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.

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

18. INTERESTS IN ASSOCIATES

	2016	2015
	HK$’000	HK$’000
Cost of unlisted investments in associates	193,586	193,589
Share of other comprehensive expense	(20,452)	(12,564)
Share of post-acquisition losses, net of dividends received	(46,849)	(48,732)
Share of net assets	126,285	132,293

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. An impairment loss of HK$49,628,000 (2016: nil) was recognised in the profit or loss included under share of results of associates for the year ended 31 December 2015.

Particulars of the associates of the Group at 31 December 2016 and 2015 are set out in note 44.

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

18. INTERESTS IN ASSOCIATES (continued)

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.

Shenzhen Rayitek Hi-tech Film Company Limited (“Shenzhen Rayitek”)

	2016	2015
	HK$’000	HK$’000
Current assets	117,996	136,997
Non-current assets	340,699	232,298
Current liabilities	(46,252)	(38,461)
Non-current liabilities	(143,764)	(51,613)
Revenue	97,073	87,513
Profit (loss) for the year	6,223	(118,325)
Other comprehensive expense for the year	(16,765)	(16,260)
Total comprehensive expense for the year	(10,542)	(134,585)

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

	2016	2015
	HK$’000	HK$’000
Net assets of Shenzhen Rayitek	268,679	279,221
Proportion of the Group’s ownership interest in Shenzhen Rayitek	42.75%	42.75%
Carrying amount of the Group’s interest in Shenzhen Rayitek	114,860	119,367

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

18. INTERESTS IN ASSOCIATES (continued)

Aggregate information of associates that are not individually material

	2016	2015
	HK$’000	HK$’000
The Group’s share of loss for the year	(780)	(533)
The Group’s share of other comprehensive expense for the year	(721)	(727)
The Group’s share of total comprehensive expense for the year	(1,501)	(1,260)
Aggregate carrying amount of the Group’s interests in these associates	11,425	12,926
	2016	2015
	HK$’000	HK$’000
Unrecognised share of profit of an associate for the year	—	20
Accumulated unrecognised share of losses of an associate	—	(10,340)

19. INTERESTS IN JOINT VENTURES

	2016	2015
	HK$’000	HK$’000
Cost of unlisted investments in joint ventures	849,825	849,825
Share of other comprehensive expenses	(67,822)	(26,204)
Share of post-acquisition losses	(69,900)	(39,991)
	712,103	783,630

Particulars of the joint ventures of the Group at 31 December 2016 and 2015 are set out in note 45.

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.

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

19. INTERESTS IN JOINT VENTURES (continued)

Hainan Aerospace Investment Management Company Limited （海南航天投資管理有限公司） (“Hainan Aerospace”)

	2016	2015
	HK$’000	HK$’000
Current assets	78,991	124,376
Non-current assets	1,823,696	1,574,182
Current liabilities	(304,675)	(16,566)
Non-current liabilities	(305,556)	(248,978)
The above amounts of assets and liabilities include the following:
Cash and cash equivalents	78,949	124,331
	2016	2015
	HK$’000	HK$’000
Revenue	4,221	4,158
Loss for the year	(59,268)	(7,248)
Other comprehensive expense for the year	(81,290)	(80,440)
Total comprehensive expense for the year	(140,558)	(87,688)
The above loss for the year included the following:
	2016	2015
	HK$’000	HK$’000
Depreciation and amortisation	(599)	(948)
Interest income	890	671
Interest expense	—	—

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

	2016	2015
	HK$’000	HK$’000
Net assets of Hainan Aerospace	1,292,456	1,433,014
Proportion of the Group’s ownership interest in Hainan Aerospace	50%	50%
Carrying amount of the Group’s interest in Hainan Aerospace	646,228	716,507

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

19. INTERESTS IN JOINT VENTURES (continued)

Information of a joint venture that is not individually material

	2016	2015
	HK$’000	HK$’000
The Group’s share of (loss) profit for the year	(275)	998
The Group’s share of other comprehensive expense for the year	(973)	(457)
The Group’s share of total comprehensive (expense) income
for the year	(1,248)	541
Aggregate carrying amount of the Group’s interests in this joint venture	65,875	67,123

20. AVAILABLE-FOR-SALE INVESTMENTS

	2016	2015
	HK$’000	HK$’000
Unlisted equity securities in Hong Kong, at cost	29,000	29,000
Less: Impairment loss recognised	(29,000)	(29,000)
At 31 December 2016	—	—

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.

At 31 December 2015, the directors conducted a review of the recoverable amount of the Group’s availablefor-sale investments. Based on the assessment, the recoverable amount of the Group’s available-for-sale investments was 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 (2016: nil) is recognised in the profit or loss for the year ended 31 December 2015.

21. OTHER LONG TERM ASSETS

The amounts represent accrued rental income taking into account of rent free periods and are recognised in profit or loss on a straight line basis over the term of the relevant leases.

China Aerospace International Holdings Limited

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

22. INVENTORIES

	2016	2015
	HK$’000	HK$’000
Raw materials	78,974	91,303
Work-in-progress	73,603	54,493
Finished goods	109,444	97,808
	262,021	243,604

23. TRADE AND OTHER RECEIVABLES

		2016	2015
		HK$’000	HK$’000
Trade	receivables	744,630	608,347
Less:	Allowance for doubtful debts	(26,509)	(36,165)
		718,121	572,182
Other	receivables, deposits and prepayments	154,929	75,365
		873,050	647,547

Included in the Group’s other receivables, deposits and prepayments at 31 December 2016 is current portion of other long term assets of HK$83,237,000 (2015: nil), value-added tax recoverable of HK$35,024,000 (2015: HK$21,203,000) and consideration receivable for disposal of investment properties of HK$6,375,000 (2015: HK$11,569,000).

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:

	2016	2015
	HK$’000	HK$’000
Within 90 days	687,412	549,751
Between 91–180 days	30,377	21,460
Between 181–365 days	332	971
	718,121	572,182

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.

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

23. TRADE AND OTHER RECEIVABLES (continued)

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$30,709,000 (2015: HK$22,431,000) 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:

		2016	2015
		HK$’000	HK$’000
Overdue	1–90 days	30,377	21,460
Overdue	91–270 days	332	971
		30,709	22,431

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

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

	2016	2015
	HK$’000	HK$’000
At 1 January	36,165	36,356
(Reversal of allowance for) allowance for doubtful debts	(2,738)	8,828
Amount written off as uncollectible	(6,918)	(9,019)
At 31 December	26,509	36,165

24. LOAN TO A JOINT VENTURE

The amount represents the loan made to Hainan Aerospace. The amount is unsecured, receivable in 2018 and carries variable interest rate at 4.75% per annum.

25. 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.

China Aerospace International Holdings Limited

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

26. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

	2016	2015
	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	25,675	17,169

At 31 December 2016, 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.

27. PLEDGED BANK DEPOSITS AND BANK BALANCES AND CASH

The Group’s bank deposits amounting to HK$6,158,000 (2015: HK$36,035,000) 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 6% (2015: 0.01% to 4.70%) per annum at 31 December 2016.

28. TRADE AND OTHER PAYABLES

	2016	2015
	HK$’000	HK$’000
Trade payables	414,874	314,815
Accrued charges	154,329	154,771
Receipt in advance	105,839	130,605
Other payables	870,923	493,557
	1,545,965	1,093,748

Other payables included an amount of HK$54,000,000 (2015: HK$54,000,000) received on behalf of CASC and payables to contractors for investment properties of HK$540,031,000 (2015: HK$198,194,000).

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

28. TRADE AND OTHER PAYABLES (continued)

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

	2016	2015
	HK$’000	HK$’000
Within 90 days	330,524	240,803
Between 91–180 days	31,004	14,232
Between 181–365 days	47,573	48,450
Over 1 year	5,773	11,330
	414,874	314,815

29. BANK AND OTHER BORROWINGS

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

	2016	2015
	HK$’000	HK$’000
Borrowings from the Finance Syndicate_(note 41(b)(ii))_	—	1,307,202
Bank borrowings	31,111	33,058
	31,111	1,340,260
	2016	2015
	HK$’000	HK$’000
Unsecured	31,111	33,058
Secured	—	1,307,202
	31,111	1,340,260

The borrowings are repayable within one year.

The borrowings carry interest at variable market rate at 4.59% (2015: 4.75% to 6.00%) per annum.

30. 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.

31. LOAN FROM A CONTROLLING SHAREHOLDER

The loan is unsecured, bears a fixed interest at 5% per annum and is repayable in 2018 (note 41(b)(i)) .

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

32. LOAN FROM A RELATED PARTY

The amount represents loan from Aerospace Finance. The amount is secured, bears a variable interest rate at 4.41% per annum and is repayable in 2028 (note 41(b)(v)) .

33. DEFERRED TAXATION

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

		Revaluation of
	Accelerated tax	investment
	depreciation	properties	Others	Total
	HK$’000	HK$’000	HK$’000	HK$’000
			(Note)
At 1 January 2015	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
Exchange realignment	—	(122,795)	(786)	(123,581)
Charge to profit or loss for the year	(39)	465,711	15,059	480,731
At 31 December 2016	3,616	2,030,156	11,061	2,044,833

Note: The amount mainly represents temporary differences arising from allowances for doubtful debts, tax losses 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 and accrued rental income.

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 2016, the Group has unused tax losses of approximately HK$1,168 million (2015: HK$1,202 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$979 million (2015: HK$1,020 million) may be carried forward indefinitely and the remaining balance will expire at various dates up to the end of 2019 (2015: expire at various dates up to the end of 2018).

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$2,721 million (2015: HK$2,186 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.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

34. SHARE CAPITAL

				HK$’000	HK$’000
Issued and fully paid:
At 1 January 2015, 31 December 2015 and 31 December 2016
— 3,085,022,000 ordinary shares with no par value				1,154,511

35. PLEDGE OF ASSETS

At 31 December 2016, bank deposits of HK$6,158,000 (2015: HK$36,035,000) were pledged to banks to secure general banking facilities granted to the Group.

At 31 December 2015, investment properties with an aggregated carrying amount of HK$6,820,543,000 (2016: nil) were pledged to banks and related parties to secure loan facilities granted to the Group.

36. CAPITAL COMMITMENTS

	2016	2015
	HK$’000	HK$’000
Capital expenditure contracted for but not provided in the
consolidated financial statements in respect of:
— acquisition of property, plant and equipment	73,845	93,227
— properties under construction	—	101,294
	73,845	194,521

37. 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:

	2016	2015
	HK$’000	HK$’000
Within one year	14,804	16,808
In the second to fifth year inclusive	17,336	35,711
Over five years	16,547	35,029
	48,687	87,548

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 (2015: two to thirty years).

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

37. 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:

	2016	2015
	HK$’000	HK$’000
Within one year	100,055	9,705
In the second to fifth year inclusive	1,224,059	12,135
Over five years	2,501,322	—
	3,825,436	21,840

The properties held have committed tenants for the next one to fifteen years (2015: one to three years).

38. 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 (2015: HK$18,000 per annum) 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$26,691,000 (2015: HK$19,835,000) represents contribution to the schemes by the Group at the rates specified in the rules of the schemes.

39. 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 29, 30, 31 and 32, 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.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

114

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

40. FINANCIAL INSTRUMENTS

a. Categories of financial instruments

	2016	2015
	HK$’000	HK$’000
Financial assets
Fair value through profit or loss
Held for trading	25,675	17,169
Loans and receivables (including cash and cash equivalents)	1,904,757	2,689,660
Financial liabilities
Amortised cost	2,058,746	2,747,413

b. Financial risk management objectives and policies

The Group’s major financial instruments include trade and other receivables, loan to a joint venture, amount due from a related party, pledged bank deposits, bank balances and cash, financial assets at fair value through profit or loss, trade and other payables, loan from a controlling shareholder, loan from a related party, 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.

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 controlling shareholder (see notes 27 and 31 for details of these deposits and 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, loan to a joint venture and loan from a related party (see notes 24, 29 and 32 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.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

40. FINANCIAL INSTRUMENTS (continued)

b. Financial risk management objectives and policies (continued)

Market risk (continued)

Interest rate risk (continued)

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 in 2016. For variable-rate, loan to a joint venture, loan from a related party and 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 2016 would decrease/increase by HK$2,376,000 (2015: HK$5,596,000).

Equity price risk

The Group is exposed to equity price risk through its investments in listed 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 at the end of the reporting period.

If the prices of the financial assets at fair value through profit or loss had been 10% (2015: 10%) higher/ lower, the Group’s profit for the year ended 31 December 2016 would increase/decrease by HK$2,144,000 (2015: HK$1,434,000) as a result of the changes in fair value of the financial assets at fair value through profit or loss.

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.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

40. FINANCIAL INSTRUMENTS (continued)

b. Financial risk management objectives and policies (continued)

Credit risk

As at 31 December 2016, the carrying amounts of financial assets as stated in the consolidated statement of financial position represent the maximum exposure to credit risk which will cause a financial loss to the Group due to failure to discharge an obligation by the counterparties.

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.

In addition, the Group has concentration risk in relation to the loan to a joint venture. The Group monitors the exposure to credit in respect of the loan to a joint venture through exercising control over its financial and operating policy decisions and reviewing their financial position on a regular basis.

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.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

40. FINANCIAL INSTRUMENTS (continued)

b. Financial risk management objectives and policies (continued)

Liquidity risk (continued)

Liquidity tables

		On demand
	Weighted	and				Total
	average	less than	1 month to		Over	undiscounted	Carrying
	interest rate	1 month	1 year	1–5 years	5 years	cash flows	amount
	%	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
At 31 December 2016
Financial liabilities
Non-interest bearing	—	422,837	483,575	—	—	906,412	906,412
Loan from a controlling
shareholder	5.00 p.a.	—	—	611,112	—	611,112	555,556
Loan from a related party	4.41 p.a.	—	—	—	856,703	856,703	565,667
Bank and other borrowings
— variable rate	4.59 p.a.	—	32,227	—	—	32,227	31,111
		422,837	515,802	611,112	856,703	2,406,454	2,058,746
At 31 December 2015
Financial liabilities
Non-interest bearing	—	314,815	502,019	—	—	816,834	816,834
Loan from a controlling
shareholder	5.00 p.a.	—	—	678,867	—	678,867	590,319
Bank and other borrowings
— variable rate	5.87 p.a.	—	1,418,152	—	—	1,418,152	1,340,260
		314,815	1,920,171	678,867	—	2,913,853	2,747,413

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 liabilities are determined as follows:

The fair value of financial assets with standard terms and conditions and traded in active 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.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

118

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

40. FINANCIAL INSTRUMENTS (continued)

c. Fair value measurements of financial instruments (continued)

The classification of the Group’s financial assets at 31 December 2016 and 2015 using the fair value hierarchy is Level 1 (see note 26). 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.

41. 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) During the year ended 31 December 2012, the Group entered into electronic commercial service agreements (the “Agreement”) with 航天新商務信息科技有限公司 (“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 subsidiaries also have substantial interests and significant influence over 新商務信息.

(b) Transactions with the CASC and its subsidiaries

(i) 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 2016, the Group has drawn down RMB500,000,000 (equivalent to approximately HK$555,556,000) (2015: RMB500,000,000 (equivalent to approximately HK$590,319,000)). Such loan carries a fixed interest rate of 5% per annum and the interest incurred to CASC for the year ended 31 December 2016 is RMB25,417,000 (equivalent to approximately HK$29,797,000) (2015: RMB25,353,000 (equivalent to approximately HK$31,455,000)).
(ii) 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 & 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 had drawn down RMB1,107,200,000 (equivalent to approximately HK$1,307,202,000) (2016: nil). The interest paid to loans drawn from the Facility in the current year amounting to RMB43,514,000 (equivalent to approximately HK$51,013,000) (2015: RMB59,916,000 (equivalent to approximately HK$74,338,000)). The pledged land use right of Aerospace Plaza has been released upon settlement of the loan. The loan is fully settled during the year.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

41. RELATED PARTY TRANSACTIONS (continued)

(b) Transactions with the CASC and its subsidiaries (continued)

(iii) 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 2016, such deposits placed by the Group amounted to RMB14,500 (equivalent to approximately HK$16,000) (2015: RMB12,000 (equivalent to approximately HK$14,000)) was included in amount due from a related party and carries interests at prevailing market rate.
(iv) During the year ended 31 December 2016, the Group entered into a loan agreement with Hainan Aerospace for an amount of RMB45,000,000 (equivalent to approximately HK$50,000,000) for a period of two years from the first drawdown date. As at 31 December 2016, Hainan Aerospace has drawn down RMB25,000,000 (equivalent to approximately HK$27,778,000). The interest income from Hainan Aerospace during the year ended 31 December 2016 amounting to RMB573,000 (equivalent to approximately HK$671,000).
(v) For the year ended 31 December 2016, the Group entered into a facility (“New facility”) with Aerospace Finance, for advances up to RMB1,300,000,000 for a period of 12 years from the first drawdown date. The property ownership certificate(s) of a portion of the Aerospace Plaza with a valuation amount of approximately RMB1,900,000,000 will be subsequently mortgaged in favour of Aerospace Finance after Shenzhen Aerospace Technology Investment Company Limited (“Shenzhen Aerospace”) has obtained the relevant certificate(s). As at 31 December 2016, the Group has drawn down RMB509,100,000 (equivalent to approximately HK$565,667,000). The interest paid to loans drawn from the New facility in the current year amounting to RMB4,415,000 (equivalent to approximately HK$5,176,000).

(c) 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 29), the facility with these banks and sales transactions, remaining transactions with other government-related entities are individually insignificant.

(d) 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.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

42. FINANCIAL INFORMATION OF THE COMPANY

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

	2016	2015
	HK$’000	HK$’000
Non-current assets
Property, plant and equipment	1,693	1,417
Interests in subsidiaries	1,782,506	779,845
Amounts due from subsidiaries	1,449,126	1,425,560
Interests in joint ventures	15,000	15,000
	3,248,325	2,221,822
Current assets
Other receivables	2,368	2,018
Amounts due from subsidiaries	49,205	541,272
Bank balances and cash	56,747	31,736
	108,320	575,026
Current liabilities
Other payables	64,439	64,199
Amounts due to subsidiaries	722,065	142,723
Taxation payable	82	80
	786,586	207,002
Net current (liabilities) assets	(678,266)	368,024
	2,570,059	2,589,846
Capital and reserves
Share capital	1,154,511	1,154,511
Reserves_(Note 42(b))_	1,415,548	1,435,335
	2,570,059	2,589,846

Li Hongjun Director

Jin Xuesheng Director

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

42. FINANCIAL INFORMATION OF THE COMPANY (continued)

(b) Reserves

		Special	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 2015	—	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
Profit and total comprehensive
income for the year	—	—	—	11,063	11,063
Dividend recognised as distribution	—	—	—	(30,850)	(30,850)
At 31 December 2016	—	630,977	—	784,571	1,415,548

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 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.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

42. 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 2016 comprised the retained profits of HK$784,571,000 (2015: HK$804,358,000).

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

43. PARTICULARS OF PRINCIPAL SUBSIDIARIES

Details of the Company’s principal subsidiaries at 31 December 2016 and 2015 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
2016
2015
2016
2015
2016
2015
%
%
%
%
%
%

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
Jeckson Electronics Company Limited
HK$10,000,000

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

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

43. 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
2016
2015
2016
2015
2016
2015
%
%
%
%
%
%

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
志源電子科技(惠州)有限公司#
RMB10,500,000
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$100,340,000

—
—
100
100
100
100
Manufacturing of plastic
and metal products
and moulds
90
90
—
—
90
90
Property investment
—
—
100
100
100
100
Manufacturing and
distribution of liquid
crystal displays and
LCD modules
—
—
100
100
100
100
Manufacturing and
distribution of printed
circuit boards
—
—
90
90
90
90
Manufacturing of intelligent
battery chargers and
electronic products
—
—
90
90
90
90
Electroplating of metals
—
—
100
100
100
100
Electroplating of metals
—
—
100
100
100
100
Distribution of packing
products
—
—
100
100
100
100
Manufacturing and
distribution of plastic
products
100
100
—
—
100
100
Investment holding
—
—
60
60
60
60
Property investment
—
—
100
100
60
60
Property management
—
—
72.13
100
72.13
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

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

43. PARTICULARS OF PRINCIPAL SUBSIDIARIES (continued)

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.

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:

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 2016 2015 2016 2015 HK$’000 HK$’000	Accumulated non-controlling interests 2016 2015 HK$’000 HK$’000
Shenzhen Aerospace (深圳市航天高科投資管理有限公司) and itssubsidiary PRC 40% 40% 404,864 642,337 Individually immaterial subsidiaries with non-controlling interests	1,760,218 1,462,628 24,758 34,864
	1,784,976 1,497,492

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.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

126

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

43. PARTICULARS OF PRINCIPAL SUBSIDIARIES (continued)

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

Shenzhen Aerospace and its subsidiary

	2016	2015
	HK$’000	HK$’000
Current assets	120,849	11,672
Non-current assets	8,195,016	6,821,076
Current liabilities	(1,318,763)	(1,511,196)
Non-current liabilities	(2,596,557)	(1,664,982)
Equityattributable to owners of the Company	2,640,327	2,193,942
Non-controllinginterests	1,760,218	1,462,628
Income	1,565,988	2,608,332
Expenses	(553,828)	(1,002,489)
Profit for theyear	1,012,160	1,605,843
Profit attributable to owners of the Company	607,296	963,506
Profit attributable to the non-controllinginterests	404,864	642,337
Profit for theyear	1,012,160	1,605,843
Other comprehensive expense attributable to owners of the Company	(160,911)	(118,296)
Other comprehensive expense attributable to the
non-controllinginterests	(107,274)	(78,864)
Other comprehensive expense for theyear	(268,185)	(197,160)
Total comprehensive income attributable to owners of the Company	446,385	845,210
Total comprehensive income attributable to the non-controllinginterests	297,590	563,473
Total comprehensive income for theyear	743,975	1,408,683
Net cash inflow from operatingactivities	187,064	10,149
Net cash outflow used in investingactivities	(236,424)	(302,591)
Net cash inflow from financingactivities	54,781	290,571
Effect of foreign exchange rate changes	(954)	(649)
Net cash inflow(outflow)	4,467	(2,520)

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Notes to the Consolidated Financial Statements

(continued)

For the year ended 31 December 2016

44. PARTICULARS OF ASSOCIATES

Details of the Group’s associates at 31 December 2016 and 2015 are as follows:

Nominal value of issued ordinary Percentage of share capital/ equity attributable registered capital to the Group Principal activities 2016 2015 % %

Name of associates registered capital to the Group Principal activities 2016 2015 % % Registered and operating in the PRC: 航天新商務信息科技有限公司* RMB63,800,000 15.7 15.7 Provision of information service 深圳瑞華泰薄膜科技有限公司 RMB98,442,972 42.75 42.75 Manufacturing and distribution of polyimide films and related composite materials Incorporated and operating in Hong Kong: Postel Development Company HK$10,000 — 30 Trading Limited[#]

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 2015, Postel Development Company Limited was an associate which was engaged in trading. During the year ended 31 December 2016, it was disposed of and ceased to be an associate of the Group.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2016

45. PARTICULARS OF JOINT VENTURES

Details of the Group’s joint ventures at 31 December 2016 and 2015 are as follows:

Nominal value of 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.

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

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Appendix I Financial Summary

RESULTS

		Year	Year	ended 31 December	ended 31 December
	2016	2015		2014	2013	2012
	HK$’000	HK$’000		HK$’000	HK$’000	HK$’000
Turnover	3,087,848	2,765,720		2,791,175	2,611,138	2,615,101
Profit before taxation	1,722,665	2,647,413		727,659	957,729	411,973
Taxation	(519,413)	(1,021,090)		(196,478)	(214,761)	(113,962)
Profit for the year	1,203,252	1,626,323		531,181	742,968	298,011
Attributable to:
Owners of the Company	796,108	984,696		415,692	617,011	246,725
Non-controlling interests	407,144	641,627		115,489	125,957	51,286
	1,203,252	1,626,323		531,181	742,968	298,011
ASSETS AND LIABILITIES
			At 31 December
	2016	2015		2014	2013	2012
	HK$’000	HK$’000		HK$’000	HK$’000	HK$’000
Non-current assets	10,463,151	8,981,919		6,561,520	5,842,135	4,600,412
Current assets	2,321,425	2,993,724		3,010,867	2,845,045	2,034,947
Current liabilities	(1,643,386)	(2,494,379)		(1,140,769)	(1,203,368)	(1,117,212)
Non-current liabilities	(3,166,056)	(2,278,002)		(2,500,800)	(1,917,086)	(677,456)
Shareholders’ funds	7,975,134	7,203,262		5,930,818	5,566,726	4,840,691
Attributable to:
Owners of the Company	6,190,158	5,705,770		4,992,235	4,696,014	4,118,102
Non-controlling interests	1,784,976	1,497,492		938,583	870,712	722,589
	7,975,134	7,203,262		5,930,818	5,566,726	4,840,691

China Aerospace International Holdings Limited

2016 ANNUAL REPORT

130

Appendix II Investment Properties

					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 and Car Park		Inland Lot.
Nos. P1, L3, LD1, LD2 and LD5		No. 528
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	—		Retail and office		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

China Aerospace International Holdings Limited

AI assistant

Computer And Technologies Holdings Limited — Annual Report 2016

48900_rns_2017-04-27_81f497ee-5864-47c4-ae6a-ec74e0bccd63.pdf

CONTENTS

Corporate Information

BOARD OF DIRECTORS Executive Directors

COMPANY SECRETARY

AUDITOR

Non-Executive Directors

AUDIT COMMITTEE

REMUNERATION COMMITTEE

SHARE REGISTRAR

LEGAL COUNSEL

PRINCIPAL BANKS & FINANCIAL INSTITUTIONS

REGISTERED OFFICE

NOMINATION COMMITTEE

Chairman’s Statement

Chairman’s Statement (continued)

OVERVIEW

BUSINESS REVIEW

Hi-tech Manufacturing

Chairman’s Statement (continued)

Shenzhen Aerospace Science & Technology Plaza

The Complex Zone of the Launching Site in Hainan

Internet of Things and Cross-border E-commerce Logistics

Chairman’s Statement (continued)

PROSPECTS

Chairman’s Statement (continued)

APPRECIATION

Gong Bo Chairman

Management Discussion and Analysis

RESULTS PERFORMANCE

PROFIT ATTRIBUTABLE TO THE OWNERS OF THE COMPANY

DIVIDENDS

RESULTS OF CORE BUSINESSES

Hi-tech manufacturing

Management Discussion and Analysis (continued)

The Complex Zone of the Launching Site in Hainan

Management Discussion and Analysis (continued)

Shenzhen Aerospace Science & Technology Plaza

Internet of Things and Cross-border E-commerce Logistics

ASSETS

LIABILITIES

OPERATING EXPENSES

CONTINGENT LIABILITIES

FINANCIAL RATIOS

LIQUIDITY

CAPITAL EXPENDITURE AND INVESTMENT COMMITMENT

FINANCIAL RISKS

HUMAN RESOURCES AND REMUNERATION POLICIES

APPRECIATION

Corporate Governance Report

BOARD OF DIRECTORS

Corporate Governance Report (continued)

Corporate Governance Report (continued)

CORPORATE GOVERNANCE POLICY

BOARD COMMITTEES

Audit Committee

Corporate Governance Report (continued)

Remuneration Committee

Corporate Governance Report (continued)

Nomination Committee

DIRECTORS’ TRAINING

LIABILITY INSURANCE

COMPANY SECRETARY

RISK MANAGEMENT AND INTERNAL CONTROL SYSTEM

Corporate Governance Report (continued)

ACCOUNTABILITY AND AUDIT

INVESTORS’ RELATION

SHAREHOLDERS’ RIGHTS

Corporate Governance Report (continued)

SUFFICIENCY OF PUBLIC FLOAT

CORPORATE SOCIAL RESPONSIBILITY

Working Environment

Corporate Governance Report (continued)

Environmental Protection

Operating Practices

Corporate Governance Report (continued)

Environmental, Social and Governance Report

CORE BUSINESSES

Computer And Technologies Holdings Limited Annual Report 2016