FIYTA Precision Technology Co., Ltd. — Annual Report 2004

Apr 8, 2004

SHENZHEN FIYTA HOLDINGS LIMITED (Joint stock limited company incorporated in the People’s Republic of China)

CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003

SHENZHEN FIYTA HOLDINGS LIMITED

(Joint stock limited company incorporated in the People’s Republic of China)

CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003

Contents	Pages
Report of the auditors	1
Consolidated income statement	2
Consolidated balance sheet	3
Consolidated statement of changes in shareholders’ equity	4
Consolidated cash flow statement	5
Notes to the consolidated financial statements	6 – 28

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

REPORT OF THE AUDITORS

TO THE SHAREHOLDERS OF SHENZHEN FIYTA HOLDINGS LIMITED (Joint stock limited company incorporated in the People’s Republic of China)

We have audited the accompanying consolidated balance sheet of Shenzhen Fiyta Holdings Limited (the “Company”) and its subsidiaries (the “Group”) as of 31 December 2003 and the related consolidated income and consolidated cash flow statements for the year then ended. These consolidated financial statements set out on page 2 to 28 are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

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

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

PricewaterhouseCoopers

6 April 2004

SHENZHEN FIYTA HOLDINGS LIMITED

(Joint stock limited company incorporated in the People’s Republic of China)

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2003

Notes Turnover 4 Cost of sales Gross profit Other operating income 7 Selling expenses Administrative expenses Gain on disposal of an associate Gain on sale of discontinuing operation 33 Loss on disposal of a subsidiary 34 Profit / (loss) from operations 5 Finance income /(costs) - net 8 Group profit / (loss) before tax Share of results of a joint venture before tax 15 Profit / (loss) before taxation Taxation (charge) / credit 9 Profit / (loss) after taxation Minority interests Net profit / (loss) for the year Dividends 28 Earnings / (loss) per share 10	2003 RMB’000 228,133 (139,435) 88,698 16,272 (57,173) (42,578) - 777 (403) 5,593 553 6,146 - 6,146 (859) 5,287 845 6,132 - RMB0.02	2002 RMB’000 219,493 (134,183)
		85,310 7,985 (56,046) (112,461) 650 - -
		(74,562) (456)
		(75,018) 319
		(74,699) 5,315
		(69,384) 382
		(69,002)
		12,466
		RMB(0.28)

The accompanying notes form an integral part of these consolidated financial statements.

• 2 -

SHENZHEN FIYTA HOLDINGS LIMITED

(Joint stock limited company incorporated in the People’s Republic of China)

CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2003

Notes ASSETS NON-CURRENT ASSETS Fixed assets 11 Investment properties 12 Construction in progress 13 Leasehold land payments 14 Investment in joint venture 15 Available-for-sale investments 16 Deferred tax assets 17 Other non-current assets Total non-current assets CURRENT ASSETS Inventories 18 Trade receivables 19 Due from related companies 20 Prepayments and other receivables 21 Trading investments 22 Designated deposits 23 Cash and cash equivalents Total current assets TOTAL ASSETS EQUITY AND LIABILITIES CAPITAL AND RESERVES Share capital 24 Reserves 25 Accumulated losses Total shareholders’ equity MINORITY INTERESTS NON-CURRENT LIABILITIES Deferred income 26 CURRENT LIABILITIES Trade payables Staff welfare payable Tax payable Accruals and other current liabilities Short-term loans 27 Total current liabilities TOTAL EQUITY AND LIABILITIES	2003 RMB’000 40,142 16,492 125,227 16,464 - 4,885 16,731 2,507 222,448 152,649 19,549 1,500 33,984 4,314 51,004 117,527 380,527 602,975 249,318 305,627 (36,975) 517,970 7,273 3,000 34,505 18,677 311 21,139 100 74,732 602,975	2002 RMB’000 45,725 17,534 61,318 16,925 2,799 4,885 16,125 2,904
		168,215
		118,230 28,286 4,049 32,212 6,121 125,000 111,302
		425,200
		593,415
		249,318 305,627 (43,107)
		511,838
		6,718
		-
		28,603 18,839 (359) 23,776 4,000
		74,859
		593,415

On 6 April 2004, Shenzhen Fiyta Holdings Limited’s Board of Directors approved these financial statements for issue.

The accompanying notes form an integral part of these consolidated financial statements.

• 3 -

SHENZHEN FIYTA HOLDINGS LIMITED

(Joint stock limited company incorporated in the People’s Republic of China)

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

At 1 January 2002 Dividends relating to 2001 Net loss for the year At 1 January 2003 Net profit for the year At 31 December 2003	Note 28	Share capital RMB’000 249,318 - - 249,318 - 249,318		Reserves	Sub-total RMB’000 305,627 - - 305,627 - 305,627	Retained earnings/ (accumulated losses) RMB’000 38,361 (12,466) (69,002) (43,107) 6,132 (36,975)	Total
			Capital reserve RMB’000 191,108 - - 191,108 - 191,108	Statutory reserves RMB’000 114,519 - - 114,519 - 114,519
							RMB’000 593,306 (12,466) (69,002)
							511,838 6,132
							517,970

The accompanying notes form an integral part of these consolidated financial statements.

• 4 -

SHENZHEN FIYTA HOLDINGS LIMITED

(Joint stock limited company incorporated in the People’s Republic of China)

CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003

Notes Cash flows from operating activities Cash (used in ) / generated from operations 29 Interest paid Tax paid Net cash flows (used in) / from operating activities Cash flows from investing activities Purchases of fixed assets Additions to construction in progress Sales proceeds from disposals of fixed assets Proceeds from disposal of leasehold land payments Proceeds from sale of discontinuing operation 33 Disposal of subsidiaries, net of cash disposed 34 Disposal of an associate Dividends received from non-current investments Proceeds from sale of trading investments Purchase of trading investments Purchase of available-for-sale investments Investment income form designated deposit Decrease / (increase) in designated deposits Subsidiary in voluntary liquidation and not consolidated Interest received Government grants received Net cash flows from / (used in) investing activities Cash flows from financing activities Proceeds from borrowings Repayments of borrowings Dividends paid to group shareholders Net cash flows used in financing activities Increase / (decrease) in cash and cash equivalents At start of year At end of year	2003 RMB’000 (11,010) - (795) (11,805) (8,048) (63,955) 1,327 - 2,800 22 - 138 2,690 - - 10,000 73,996 (842) 802 3,000 21,930 100 (4,000) - (3,900) 6,225 111,302 117,527	2002 RMB’000 33,069 (3,218) (3,643)
		26,208
		(4,768) (46,754) 1,807 6,402 - - 4,000 138 6,337 (7,677) (1,500) - (125,000) - 2,882 -
		(164,133)
		100,000 (170,000) (12,466)
		(82,466)
		(220,391) 331,693
		111,302

The accompanying notes form an integral part of these consolidated financial statements.

• 5 -

SHENZHEN FIYTA HOLDINGS LIMITED

(Joint stock limited company incorporated in the People’s Republic of China)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. CORPORATE INFORMATION

Shenzhen Fiyta Holdings Limited (the “Company”) was established in the People’s Republic of China (the “PRC”) as a joint stock limited company following a reorganisation of its predecessor company, Shenzhen Fiyta Timing Industry Company, in December 1992. The Company’s Renminbi Ordinary Shares (“A Shares”) and Domestically Listed Foreign Shares (“B Shares”) were listed on the Shenzhen Stock Exchange in March 1993.

The Company’s holding company is CATIC Shenzhen Holdings Limited (“CATIC”) which holds 52.24% of its equity interest. CATIC’s H Shares were listed on the Stock Exchange of Hong Kong in September 1997.

The Company and its subsidiaries (the “Group”) are principally engaged in the design, manufacture, assembly and sale of quartz analog watches, clocks, watch straps and watch casings, catering and entertainment businesses and property management.

At 31 December 2003, the Company had the following major subsidiaries (all incorporated in the PRC):

Name ofthe subsidiaries Shenzhen Fiyta Precision Timing Manufacture Co., Ltd. Shenzhen Feijing Precision Optical Device Manufacture Co., Ltd. Shenzhen Feiyu Art Clock Co., Ltd. Shenzhen Feitu New Technology Development Company Shenzhen Harmony World Watch Centre Co., Ltd. Xian Haomen Food & Recreation City Co., Ltd. (a) Shenzhen World Famous Watch Centre Co., Ltd. (b)	Registered capital RMB10,000,000 RMB7,000,000 HKD3,000,000 RMB3,080,000 RMB15,000,000 HKD16,000,000 RMB2,800,000	Attributable equity interest Direct Indirect 90% 9% 90% 9% 75% - 60% - 90% - 62% - 50% -	Principalactivities
		Direct 90% 90% 75% 60% 90% 62% 50%	Design, manufacture and assembly of quartz watches and watch components Manufacture of precision optical device and watch surfaces Design, manufacture and distribution of clocks Electroplating of watch straps, casing and jewellery Distribution of watches and watch components and provision for repair services Catering and entertainment Retailing of advanced watch, glasses and jewellery

• 6 -

SHENZHEN FIYTA HOLDINGS LIMITED

(Joint stock limited company incorporated in the People’s Republic of China)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. CORPORATE INFORMATION (Cont’d)

2. (a) This subsidiary has sold out all assets related to catering and entertainment business during the year and ceased the operations before year end.

3. (b) Effective 1 January 2003, the Company has obtained substantial control over the joint venture’s operation (Note15). As a result, its results and assets have been consolidated in the Group’s financial statement since 2003.

4. (c) Three subsidiaries, Shanghai Tian Lin Xianmen Restaurant Co., Ltd., Shenzhen Pengmen Restaurant Co., Ltd. and Shenzhen Tianfu Electronics Co., Ltd., were sold during the year (Notes 33 and 34).

5. BASIS OF PREPARATION

The consolidated financial statements are prepared in conformity with International Financial Reporting Standards (“IFRS”) and under the historical cost convention as modified by the revaluation of certain fixed assets, non-current investments and trading investments. This basis of accounting differs from that used in the statutory accounts of the PRC Group companies which are prepared in accordance with the accounting principles and the relevant financial regulations applicable to enterprises in the PRC. The differences arising from the restatement of the results of operations for compliance with IFRS are reflected in these consolidated financial statements.

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

3. PRINCIPAL ACCOUNTING POLICIES

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

(a) Consolidation

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

Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated. Minority interests represent the interests of outside members in the operating results and net assets of subsidiaries.

• 7 -

SHENZHEN FIYTA HOLDINGS LIMITED

(Joint stock limited company incorporated in the People’s Republic of China)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

3. PRINCIPAL ACCOUNTING POLICIES (Cont’d)

(b) Investments in joint ventures

Joint ventures are entities over which the Group has joint control. Investments in jointly controlled entities are accounted for by the equity method of accounting. Under this method, the Group’s share of the post-acquisition profits or losses of joint ventures is recognised in the income statement and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the cost of the investment. Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group’s interest in the joint ventures; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The Group’s investment in joint ventures includes goodwill (net of accumulated amortisation) on acquisition. When the Group’s share of losses in a joint venture equals or exceeds its interest in the joint venture, the Group does not recognise further losses, unless the Group has incurred obligations or made payments on behalf of the joint ventures.

Particulars of the Group’s joint venture are detailed in Note 15.

(c) Related party

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party, or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence.

• (d) Foreign currency translation

(1) Measurement currency

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

• (2) Transactions and balances

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

Translation differences on debt securities and other monetary financial assets measured at fair value are included in foreign exchange gains and losses. Translation differences on non-monetary items are reported as part of the fair value gain or loss.

• (e) Financial assets and financial liabilities

Financial assets and financial liabilities carried on the balance sheet include cash and bank balances, investments, trade receivables, prepayments and other receivables, amounts due from related companies, trade payables, accruals and other current liabilities and borrowings. Investments and trade receivables are stated at carrying amounts determined in accordance with note 3(f) and note 3(n) respectively. Other financial assets and financial liabilities are stated at cost.

Disclosures about financial assets and financial liabilities of the Group are provided in Note 30.

• 8 -

SHENZHEN FIYTA HOLDINGS LIMITED

(Joint stock limited company incorporated in the People’s Republic of China)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. PRINCIPAL ACCOUNTING POLICIES (Cont’d)

(f) Investments

The Group classified its investments into the following categories: trading, held-to-maturity and available-for sale. The classification is dependent on the purpose for which the investment were acquired. Management determines the classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis.

Investments that are acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as trading investments and included in current assets; for the purpose of these financial statements, short-term is defined as three months. Investments with a fixed maturity that management has the intent and ability to hold to maturity are classified as held-to-maturity and are included in non-current assets, except for maturities within 12 months from the balance sheet date which are classified as current assets.

Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are regarded as available-for-sale and are classified as non-current investments unless management has the express intention of holding the investment for less than twelve months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in current assets.

Purchases and sales of investments are recognised on the trade date, which is the date that the Group commits to purchase or sell the asset. Cost of purchase includes transaction costs. Trading and non-current investments are subsequently carried at fair value. Held-to-maturity investments are carried at amortised cost using the effective yield method. Realised and unrealised gains and losses arising from changes in the fair value of trading investments are included in the income statement in the period in which they arise. For the held-to-maturity investments, the gain or loss shall be amortised to income statement over the remaining life of the held-to-maturity investment using the effective interest method. Unrealised gains and losses arising from changes in the fair value of available for sale are recognized in equity.

The fair value of investments is based on quoted market prices or amounts derived from cash flow models. Fair values for unlisted equity securities are estimated using applicable price/earnings or price/cash flow ratios refined to reflect the specific circumstances of the issuer. Equity securities for which fair values cannot be measured reliably are recognised at cost less impairment.

(g) Investment properties

Investment properties, principally comprising office buildings, are held for long-term rental yields and are not occupied by the Group. Investment properties are treated as long-term investments and are carried at cost less accumulated depreciation and accumulated impairment losses, if any.

Depreciation is provided using the straight-line method to write off the cost of the investment properties over their estimated useful lives which are between 20 and 35 years, after deducting the estimated residual value. Where the carrying amount of an investment property is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount.

The cost of maintenance, repairs and minor equipment is charged to the income statement as incurred; the cost of major renovations and improvements is capitalised. The gain or loss on disposal of an investment property is recognised with reference to its carrying value.

• 9 -

SHENZHEN FIYTA HOLDINGS LIMITED

(Joint stock limited company incorporated in the People’s Republic of China)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. PRINCIPAL ACCOUNTING POLICIES (Cont’d)

2. (h) Fixed assets and depreciation

Fixed assets are stated at cost or valuation less accumulated depreciation and accumulated impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use.

Independent valuations are performed periodically. The latest valuation was conducted on buildings on an open market value basis and equipment and machinery on a replacement cost basis at 31 December 2002. In the intervening period, the directors review the carrying value of the fixed assets and adjustment is made where in the director’s opinion there has been a material change in value. Increases in valuation are credited to revaluation reserve. Decreases in valuation are first offset against increases on earlier valuations in respect of the same fixed asset and are thereafter debited to operating profit. Any subsequent increases are credited to operating profit up to the amount previously debited.

Depreciation is calculated using the straight-line method to write off the cost of each asset, or its revalued amount, to its estimated residual value over its estimated useful life as follows:

Buildings	20	-	35	years
Equipment and machinery	5	-	10	years

Leasehold improvements are depreciated over the remaining period of the lease or beneficial period.

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

Gains or losses on disposals are determined by comparing proceeds and the carrying amount and are included in the income statement.

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

• (i) Leasehold land payments

Leasehold land payments are up-front payments to acquire a long term interest in land. These payments are stated at cost and amortised over the period of lease on a straight-line basis.

• (j) Construction in progress

Construction in progress represents properties under construction and plant and equipment under installation or testing, is stated at cost, which includes the costs of construction, the costs of buildings, machinery and equipment and interest charges arising from borrowings used to finance these assets during the period of construction or installation and testing. When the assets concerned are brought into use, the costs are transferred to fixed assets and depreciated in accordance with the policy as stated above.

• 10 -

SHENZHEN FIYTA HOLDINGS LIMITED

(Joint stock limited company incorporated in the People’s Republic of China)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. PRINCIPAL ACCOUNTING POLICIES (Cont’d)

2. (k) Impairment of long lived assets

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

(l) Operating leases

Leases where substantially all of the risks and rewards of ownership of the assets remain with the lessors are accounted for as operating leases.

• (1) Where the Group is the lessee

Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

• (2) Where the Group is the lessor

Assets leased out under operating bases are included in fixed assets or investment properties in the balance sheet. They are depreciated over their expected useful lives on a basis consistent with similar fixed assets or investment properties. Rental income (net of any incentives given to lessees) is recognised on a straight-line basis over the lease term.

The Group has no finance leases.

(m) Inventories

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

(n) Trade receivables

Trade receivables are carried at original invoiced amount less provision made for impairment of these receivables.

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

• 11 -

SHENZHEN FIYTA HOLDINGS LIMITED

(Joint stock limited company incorporated in the People’s Republic of China)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

3. PRINCIPAL ACCOUNTING POLICIES (Cont’d)

• (o) Cash and cash equivalents

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

(p) Borrowings

Borrowings are recognised initially at the proceeds received, net of transaction costs incurred.

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

(q) Revenue recognition

Revenue comprises substantially sales of goods which are recognised when the significant risks and rewards of ownership of the goods have been transferred to customers. Sales amounts are shown at invoiced amounts net of discounts and value-added tax.

Service revenue is recognised when the service has been rendered and the entitlement to the service consideration has been established.

Interest income is recognised on a time proportion basis, taking into account the principal amounts outstanding and the interest rates applicable.

Dividend income is recognised when the Group’s right to receive payment is established.

Rental income is recognised on an accrual basis.

(r) Employee social insurance schemes

The Group participates in certain employee social insurance schemes in respect of pension, and medical and other insurance managed by governmental organisations. According to the relevant provisions, the Group and its employees are required to make contributions to Social Security Administration Bureau at specified amounts. The proportion of insurance expenses borne by the Group is included in the consolidated operating results when incurred.

The Group has no further liabilities other than the above defined contribution. The Group’s contributions to the defined contribution schemes are charged to income statement as when incurred.

• (s) Government grants relating to purchase of property, plant and equipment

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

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

• 12 -

SHENZHEN FIYTA HOLDINGS LIMITED

(Joint stock limited company incorporated in the People’s Republic of China)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

3. PRINCIPAL ACCOUNTING POLICIES (Cont’d)

(t) Taxation

PRC income taxes are provided for based on the estimated assessable profit and tax rates applicable to the Company and its subsidiaries. Deferred income tax is provided, using the liability method, for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Currently enacted tax rates are used to determine deferred income tax.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which temporary differences can be utilised.

(u) Dividends

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

(v) Segment reporting

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

(w) Comparatives

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

• 13 -

SHENZHEN FIYTA HOLDINGS LIMITED

(Joint stock limited company incorporated in the People’s Republic of China)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

4. BUSINESS SEGMENT INFORMATION OF THE GROUP

For the year ended 31 December 2003 Turnover Segment results Other revenue Gain on sale of discontinuing operation Loss on disposal of a subsidiary Profit from operations Finance income - net Profit before taxation Taxation Profit after taxation Minority interests Net profit Segment assets Unallocated assets Segment liabilities Unallocated liabilities Capital expenditure Depreciation and amortisation - fixed assets - investment properties Amortisation of leasehold land payments Provision for doubtful debts (Reversal) of / provision for inventory obsolescence	Clocks and watches RMB’000 208,302 (7,905) 497,471 77,051 72,047 6,478 - 151 7,910 (423)	Catering, entertainment and others RMB’000 5,063 (684) - - - 2,469 - - - -	Property rental RMB’000 14,768 12,925 28,570 270 - - 1,042 310 - -	Total RMB’000 228,133
				4,336 883 777 (403)
				5,593 553
				6,146 (859)
				5,287 845
				6,132
				526,041 76,934
				602,975
				77,321 411
				77,732
				72,047
				8,947
				1,042
				461
				7,910
				(423)

• 14 -

SHENZHEN FIYTA HOLDINGS LIMITED

(Joint stock limited company incorporated in the People’s Republic of China)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS SEGMENT INFORMATION OF THE GROUP (Cont’d)

For the year ended 31 December 2002 Turnover Segment results Other revenue Loss from operations Finance costs - net Share of results of a joint venture Loss before taxation Taxation Loss after taxation Minority interests Net loss Segment assets Unallocated assets Segment liabilities Unallocated liabilities Capital expenditure Depreciation and amortisation - fixed assets - investment properties Amortisation of leasehold land payments Provision for doubtful debts Provision for inventory obsolescence Impairment charge for fixed assets	Clocks and watches RMB’000 151,524 (81,794) 381,063 53,337 48,752 6,010 - 184 27,303 47,195 3,749	Catering, entertainment and others RMB’000 54,717 (5,325) 27,500 17,718 2,770 7,599 - - - - -	Property rental RMB’000 13,251 11,547 29,922 163 - - 1,041 310 - - -	Total RMB’000 219,492
				(75,572) 1,010
				(74,562) (456) 319
				(74,699) 5,315
				(69,384) 382
				(69,002)
				438,485 154,930
				593,415
				71,218 3,641
				74,859
				51,522
				13,609
				1,041
				494
				27,303
				47,195
				3,749

There were no sales or other transactions between the business segments. Segment assets comprise operating assets and mainly exclude deferred tax assets, designated deposits and investments. Segment liabilities comprise operating liabilities and mainly exclude minority interests, certain borrowings and tax payable. All assets and operations of the Group are located in the PRC.

• 15 -

SHENZHEN FIYTA HOLDINGS LIMITED

(Joint stock limited company incorporated in the People’s Republic of China)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

5. PROFIT / (LOSS) FROM OPERATIONS

The following items have been included in arriving at operating profit / (loss):

2003 RMB’000 Depreciation on fixed assets 8,947 Depreciation on investment property 1,042 Impairment charge for fixed assets - Amortisation of leasehold land payments 461 Amortisation of other non-current assets 397 Loss on disposals of fixed assets 536 Gain on disposal of leasehold land payments - Loss / (gain) on disposal of trading investments 206 Fair value (gain) / losses on trading investments (1,089) Provision for doubtful debts 7,910 (Reversal) of / provision for inventory obsolescence (423) Gain on disposal of an associate - Gain on sale of discontinuing operation (777) Loss on disposal of a subsidiary 403 Operating lease rental expense 5,147 Cost of inventories recognised as an expense 138,210 Repairs and maintenance expenditure on fixed assets 193 Staff costs (Note 6) 33,887 Advertising expenses 13,522 Directors’ emoluments 352 6. STAFF COSTS 2003 RMB’000 Staff salaries 28,519 Staff welfare 2,605 Social insurance expenses 2,763 33,887 The number of employees at 31 December 2003 was 1,068 (2002: 1,555). 7. OTHER OPERATING INCOME	2002 RMB’000 13,609 1,041 3,749 494 730 1,337 (757) (1,150) 140 27,303 47,195 (650) - - 7,929 133,277 390 25,396 3,589 342
	2002 RMB’000 19,982 2,561 2,853
	25,396

Investment income from designated deposits Government subsidies (a) Repair and maintenance income Gain from trading investments - (loss) / profit on sales - fair value gain / (losses) Value added tax special income (b) Others	2003 RMB’000 10,000 3,800 513 (206) 1,089 - 1,076 16,272	2002 RMB’000 - - 1,748 1,150 (140) 4,947 280
		7,985

• 16 -

SHENZHEN FIYTA HOLDINGS LIMITED

(Joint stock limited company incorporated in the People’s Republic of China)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OTHER OPERATING INCOME (Cont’d)

2. (a) This government subsidies were rewarded by local government, as the brand of “Fiyta” was qualified as “China Famous Product ” in 2003.

3. (b) Pursuant to the relevant tax laws and regulations, the Group was entitled to retain value added tax (“VAT”) collected from sales made to entities established in Shenzhen Special Economic Zone. VAT Special income represents the retained output VAT after netting off the corresponding noncreditable input VAT. This tax incentive has been ceased effective 1 January 2003.

4. FINANCE INCOME / (COSTS) - NET

Interest income - bank deposits - related parties (Note 32) Interest expenses - bank loans Net exchange gain / (losses) Others	2003 RMB’000 802 - - 32 (281) 553	2002 RMB’000 564 2,318 (3,218) (53) (67)
		(456)

1. TAXATION CHARGE / (CREDIT)

Taxation charge / (credit) for the year are as follows:

Current taxation Deferred taxation (Note 17) Share of tax of a joint venture	2003 RMB’000 1,465 (606) - 859	2002 RMB’000 2,391 (7,781) 75
		(5,315)

The tax on the Group’s profit /(loss) before tax differs from the theoretical amount that could arise using the basic tax rates applicable to the Company and its subsidiaries as follows:

Profit / (loss) before taxation Tax calculated at the tax rates applicable to the Company and its subsidiaries ranging from 15% to 33% Tax effect of a subsidiary which was exempted from income tax Tax effect in tax losses of subsidiaries Expenses not deductible for tax purpose Income not subject to tax Tax charge / (credit)	2003 RMB’000 6,146 1,046 (1,445) 866 478 (86) 859	2002 RMB’000 (74,699)
		(13,186) (1,589) 6,032 3,485 (57)
		(5,315)

Pursuant to the relevant income tax laws of the PRC, group companies established in the Shenzhen Special Economic Zone are subject to income tax at a rate of 15% while those established in other areas are subject to income tax at a rate of 33%. In addition, as approved by the local Tax Bureau, a subsidiary is entitled to full exemption from PRC income tax for two years starting from the first profit making year and a 50% reduction in the next three years.

• 17 -

SHENZHEN FIYTA HOLDINGS LIMITED

(Joint stock limited company incorporated in the People’s Republic of China)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

10. EARNINGS / (LOSS) PER SHARE

The calculation of earnings / (loss) per share is based on the consolidated profit/(loss) for the year of RMB6,942,000(2002: loss of RMB69,002,000) and 249,318,000 shares (2002: 249,318,000 shares) in issue.

11. FIXED ASSETS

Cost / valuation At beginning of year Additions Disposals Disposals of subsidiaries Voluntary liquidation of a subsidiary At end of year Representing At cost At valuation Accumulated depreciation and impairment At beginning of year Charge for the year Disposals Impairment charge Disposals of subsidiaries Voluntary liquidation of a subsidiary At end of year Net book value At end of year At beginning of year		2003	2003	Total	2002
	Buildings	Equipment and machinery	Leasehold improvements		Total
	RMB’000 34,968 - (332) (36) - 34,600 - 34,600 34,600 11,327 1,054 (111) - (20) - 12,250 22,350 23,641	RMB’000 49,081 4,408 (10,757) (6,548) (3,510) 32,674 4,408 28,266 32,674 33,251 3,546 (9,230) - (4,485) (2,974) 20,108 12,566 15,830	RMB’000 23,759 3,640 (289) (3,388) (41) 23,681 23,681 - 23,681 17,505 4,347 (174) - (3,213) (10) 18,455 5,226 6,254	RMB’000 107,808 8,048 (11,378) (9,972) (3,551) 90,955 28,089 62,866 90,955 62,083 8,947 (9,515) - (7,718) (2,984) 50,813 40,142 45,725	RMB’000 106,592 7,336 (6,120) - -
					107,808
					23,759 84,049
					107,808
					47,701 13,609 (2,976) 3,749 - -
					62,083
					45,725
					58,891

• 18 -

SHENZHEN FIYTA HOLDINGS LIMITED

(Joint stock limited company incorporated in the People’s Republic of China)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

11. FIXED ASSETS (Cont’d)

Had the fixed assets been carried at cost less accumulated depreciation, the carrying amounts of each category of fixed assets would have been as follows:

Cost Accumulated depreciation		2003	2003	Total RMB’000 84,920 (48,931) 35,989	2002
	Buildings RMB’000 28,565 (10,368) 18,197	Equipment andmachinery RMB’000 32,674 (20,108) 12,566	Leasehold improvements RMB’000 23,681 (18,455) 5,226		Total
					RMB’000 102,123 (59,259)
					42,864

The Group is in the process of applying for property certificates in respect of buildings with a net book value amounting to RMB9,227,209 at 31 December 2003.

The buildings and equipment and machinery were valued on an open market value and a replacement basis respectively at 31 December 2002 by Shenzhen Peng Xing Real Estate Valuation Co., Ltd, an independent valuer registered in the PRC. The revalued amounts are not materially different from the carrying values of buildings and equipment and machinery.

12. INVESTMENT PROPERTIES

Net book value at beginning of year Depreciation for the year Net book value at end of year Independent valuer’s valuation - Including leasehold land payments - Excluding leasehold land payments Directors’ valuation - Including leasehold land payments	2003 RMB’000 17,534 (1,042) 16,492 - - 100,000	2002 RMB’000 18,575 (1,041)
		17,534
		73,302
		33,939
		-

Investment properties were valued on an open market basis at 31 December 2003 by directors (2002: valued by Shenzhen Peng Xing Real Estate Valuation Co., Ltd, an independent valuer registered in the PRC).

• 19 -

SHENZHEN FIYTA HOLDINGS LIMITED

(Joint stock limited company incorporated in the People’s Republic of China)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

13. CONSTRUCTION IN PROGRESS

At beginning of year Additions Effect of subsidiary in voluntary liquidation and not consolidated Transfer to fixed assets At end of year 14. LEASEHOLD LAND PAYMENTS Cost Balance at beginning of year Disposal Balance at end of year Accumulated amortisation Balance at beginning of year Amortisation for the year Disposal Balance at end of year Net book value Balance at end of year Balance at beginning of year	2003 RMB’000 61,318 63,955 (46) - 125,227 2003 RMB’000 20,037 - 20,037 3,112 461 - 3,573 16,464 16,925		2002 RMB’000 17,132 45,058 - (872)
			61,318
			2002 RMB’000 26,439 (6,402) 20,037 3,375 494 (757) 3,112 16,925 23,064

All the Group’s leasehold land payments were granted by Town Planning and Land Administration Bureau of Shenzhen for a period of 50 years.

By nature - Investment properties - Other properties	2003 RMB’000 12,078 4,386 16,464	2002 RMB’000 12,388 4,537
		16,925

• 20 -

SHENZHEN FIYTA HOLDINGS LIMITED

(Joint stock limited company incorporated in the People’s Republic of China)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

15. INVESTMENT IN JOINT VENTURE

Balance at beginning of year Reclassification (a) Share of results before tax Share of tax Balance at end of year	2003 RMB’000 2,799 (2,799) - - -	2002 RMB’000 2,555 - 319 (75)
		2,799

(a) Particulars of the jointly controlled entity, which is unlisted, are as follows:

Name	Country of incorporation	% interest held
Shenzhen World Famous Watch Centre Co.,	People’s Republic of China	50%
Ltd. (“Famous Watch Centre”)

Pursuant to a resolution of Famous Watch Centre’s board of directors on 23 January 2003, the Company has obtained the power to govern the financial and operating policies in Famous Watch Centre. Management concluded that Famous Watch Centre was deemed as a subsidiary and its results have been consolidated since the date of acquisition of substantial control.

16. AVAILABLE-FOR-SALES INVESTMENT

Investment in promoters’ shares of a listed company, at cost Investment in shares of unlisted companies, at cost	2003 RMB’000 3,000 1,885 4,885	2002 RMB’000 3,000 1,885
		4,885

Promoters’ shares of a listed company are transferable subject to approvals from relevant local authorities. There are no quoted market prices for shares in unlisted companies. Both types of shares have neither an active market nor a fixed maturity and are therefore carried at cost less accumulated impairment losses, if any. The directors of the Company are of the opinion that the carrying value of the long-term investments approximated their recoverable amount as of year end.

17. DEFERRED TAXATION

Balance at beginning of year Transfer from income statement (Note 9) Balance at end of year Deferred taxation assets arose from temporary differences in respect of the following: Provision for doubtful debts, provision for inventory obsolescence and other expenses	2003 RMB’000 16,125 606 16,731 2003 RMB’000 16,731	2002 RMB’000 8,344 7,781
		16,125
		2002 RMB’000 16,125

• 21 -

SHENZHEN FIYTA HOLDINGS LIMITED

(Joint stock limited company incorporated in the People’s Republic of China)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

18. INVENTORIES

Raw materials (at cost) Raw materials (at net realisable value) Work-in-progress (at cost) Finished goods (at cost) Finished goods (at net realisable value) 19. TRADE RECEIVABLES Trade receivables Less: provision for doubtful debts	2003 RMB’000 17,270 4,000 4,162 111,616 15,601 152,649 2003 RMB’000 62,314 (42,765) 19,549	2002 RMB’000 19,090 4,608 1,844 74,895 17,793
		118,230
		2002 RMB’000 70,182 (41,896)
		28,286

20. DUE FROM RELATED COMPANIES

All the balances with related parties were non-interest bearing and had no fixed terms of repayment at the year end.

21. PREPAYMENTS AND OTHER RECEIVABLES

Prepayments Other receivables Less: provision for doubtful debts 22. TRADING INVESTMENTS Market value of listed investments - Equity shares	2003 RMB’000 1,023 46,355 (13,394) 33,984 2003 RMB’000 4,314	2002 RMB’000 2,472 43,898 (14,158)
		32,212
		2002 RMB’000 6,121

The trading investments are traded in active markets and are valued at market prices at the close of business on 31 December by reference to Stock Exchange quoted prices.

• 22 -

SHENZHEN FIYTA HOLDINGS LIMITED

(Joint stock limited company incorporated in the People’s Republic of China)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

23. DESIGNATED DEPOSITS

Deposits - in a bank (a) - in a trust investment company (b)	2003 RMB’000 51,004 - 51,004	2002 RMB’000 - 125,000
		125,000

• (a) The deposit was placed with Bank of China with maturity within 3 months in connection with trading in government bonds.

• (b) The deposits were placed with the Xinhua Trust Investment Company Ltd., of which the major authorised scope of business is conducting general investment and related activities. The deposits placed have been fully uplifted in 2003.

24. SHARE CAPITAL

Registered capital (Par value of RMB1 each) Shares in issue (Par value of RMB1 each) Promoters’ shares A Shares B Shares	2003 Thousand RMB’000 shares 249,318 249,318 130,248 130,248 60,750 60,750 58,320 58,320 249,318 249,318	2002	2002
	Thousand shares 249,318 130,248 60,750 58,320 249,318	Thousand shares 249,318 130,248 60,750 58,320 249,318	RMB’000 249,318
			130,248 60,750 58,320
			249,318

25. RESERVES

According to the Company Laws of the PRC and the Company’s Articles of Association, the Company is required to provide certain statutory reserves, which are appropriated from the net profit as reported in the statutory accounts. The Company shall set aside 10% of its net profit for statutory common reserve fund (until it has reached 50% of the Company’s registered capital) and 5% to 10% for the statutory public welfare fund. Further appropriations from the net profit may be made to the discretionary common reserve fund upon approval by shareholders. The common reserve funds cannot be used for purposes other than those for which they are created without the prior approval by shareholders under certain conditions and are not distributed as cash dividends. The statutory public welfare fund is designated for collective welfare of the employees.

The statutory common reserve fund, discretionary common reserve fund and capital reserve fund as approved by shareholders can be converted into share capital provided that the balance of the statutory common reserve fund does not fall below 25% of the registered share capital after conversion.

No appropriations to the statutory common reserve fund and statutory public welfare fund were proposed for the year ended 31 December 2003 as the statutory accounts of the Company has no distributable profit at year end.

• 23 -

SHENZHEN FIYTA HOLDINGS LIMITED (Joint stock limited company incorporated in the People’s Republic of China)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

26. DEFERRED INCOME

Balance at beginning of year Government grants received Balance at end of year	2003 RMB’000 - 3,000
	3,000

During the year ended 31 December 2003, the Company obtained government grants amounting to Rmb3,000,000 from the local municipal government in relation to the purchase of machine and equipment.

The grants were recorded as deferred income in the balance sheet and to be credited to the income statement on a straight-line basis over the expected useful lives of the related assets from the date when the related assets are purchased. Because these grants will be recorded in the capital reserve in the statutory financial statements under PRC accounting regulations, the amount equivalent to amortisation of deferred income would be transferred from retained earnings to capital reserve in the same year in which the deferred income is recognised. As at 31 December 2003, the grants have not yet been used by the Company.

27. SHORT-TERM LOANS

Bank loan – unsecured Other loans	2003 RMB’000 100 - 100	2002 RMB’000 - 4,000
		4,000

The bank loan was guaranteed by the holding company, CATIC.

28 DIVIDENDS

Pursuant to a resolution of the Board of Directors, the Company did not declare any cash dividend for 2002 in 2003 (2002: RMB0.05 per share for 2001, total of RMB 12,466,000)

• 24 -

SHENZHEN FIYTA HOLDINGS LIMITED

(Joint stock limited company incorporated in the People’s Republic of China)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

29. CASH GENERATED FROM OPERATIONS

Reconciliation of profit / (loss) before taxation to cash generated from operations

Profit / (loss) before taxation Adjustments for: Depreciation - fixed assets - investment properties Amortisation of leasehold land payments Amortisation of non-current assets Loss on disposals of fixed assets Gain on disposal of leasehold land payments Losses / (gains) on disposal of trading investments Fair value (gains) / losses on trading investments Provision for doubtful debts (Reversal of) / provioson for inventory obsolescence Impairment charge for fixed assets Gain of sale of discontinuing operation Gain on disposal of a subsidiary Gain on disposal of an associate Investment income from designated deposits Share of profits of a joint venture Interest expense Interest income Others Increase in accounts receivable Decrease in amounts due from related companies Increase in inventories (Increase) / decrease in prepayments and other receivables Increase in accounts payable (Increase) / decrease in staff welfare payable Decrease in accruals and other current liabilities Cash (used in ) / generated from operations	2003 RMB’000 6,146 8,947 1,042 461 397 536 - 206 (1,089) 7,910 (423) - (777) 403 - (10,000) - - (802) (138) (4,137) 2,549 (27,939) (282) 6,864 145 (1,029) (11,010)	2002 RMB’000 (74,699) 13,609 1,041 494 730 1,337 (757) (1,150) 140 27,303 47,195 3,749 - - (650) - (319) 3,218 (2,882) (138) (1,823) 3,793 (1,339) 8,452 10,556 212 (5,003)
		33,069

30. FINANCIAL RISK MANAGEMENT

(a) Interest rate risk

In the opinion of the directors, other financial assets and financial liabilities do not have material interest rate risk.

(b) Credit risk

The carrying amount of cash and cash equivalents and receivables represented the Group’s maximum exposure to credit risk in relation to financial assets. Cash is deposited with reputable banks in the PRC. Majority of the Group’s receivables relate to sales of goods to third parties in the PRC. The Group performs ongoing credit evaluations of its customers’ financial condition and generally does not require collateral on receivables. The Group maintains a provision for doubtful debts.

No other financial assets carry a significant exposure to credit risk.

• 25 -

SHENZHEN FIYTA HOLDINGS LIMITED (Joint stock limited company incorporated in the People’s Republic of China)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. FINANCIAL RISK MANAGEMENT (Cont’d)

2. (c) Foreign currency risk

Most of the transactions of the Group were settled in Renminbi. In the opinion of the Directors, the Group would not have significant foreign currency risk exposure.

(d) Fair value

The carrying amounts of the following financial assets and the financial liabilities approximate their fair values: cash and bank balances, investments, trade receivables, amounts due from related parties, prepayments and other receivables, trade payables, other payables, accruals and other current liabilities and borrowings.

31. COMMITMENTS

• (a) Operating lease commitments

• where the Group is the lessee

The future minimum lease payments under non- cancellable operating leases are as follows: Not later than 1 year Later than 1 year and not later than 5 years Later than 5 years - where the Group is the lessor The future minimum lease receipts under non-cancellable operating leases are as follows: Not later than 1 year Later than 1 year and not later than 5 years Later than 5 years (b) Capital commitments Contracted but not provided for Buildings	2003 RMB’000 2,100 3,063 450 5,613 2003 RMB’000 15,261 28,389 - 43,650 2003 RMB’000 63,961	2002 RMB’000 8,642 26,372 3,911
		38,925
		2002 RMB’000 13,900 35,778 1,081
		50,759
		2002 RMB’000 89,905

• 26 -

SHENZHEN FIYTA HOLDINGS LIMITED

(Joint stock limited company incorporated in the People’s Republic of China)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

32. SIGNIFICANT RELATED PARTY TRANSACTIONS

(i) Interest income - CATIC Shenzhen Company (ii) Property management fee - Shenzhen CATIC Property Management Co., Ltd.	2003 RMB’000 - 662	2002 RMB’000 2,318
		-

1. DISCONTINUING OPERATION

On 15 March 2003, the Group publicly announced its intention to sell the catering and entertainment segment. The subsidiaries comprising this segment are Xian Haomen Food & Recreation City Co., Ltd., Shenzhen Pengmen Restaurant Co., Ltd. and Shanghai Tian Lin Xianmen Restaurant Co., Ltd.. Shenzhen Pengmen Restaurant Co., Ltd. and Shanghai Tian Lin Xianmen Restaurant Co., Ltd. were sold on 30 April 2003 and 26 August 2003, respectively. Xian Haomen Food & Recreation City Co., Ltd. has suspended its operation in 2003. The above two subsidiaries sold during the year are reported in the financial statements as a discontinuing operation. The sales, results, cash flows and net assets were as follows:

Sales Operating cost Loss from operations Finance cost Loss before tax Tax Loss after tax Net operating cash flows Net investing cash flows Total cash flows Fixed assets Current assets Total assets Total liabilities Net assets	2003 RMB’000 5,063 (5,747) (684) (1) (685) - (685) (1,848) - (1,848) At disposal dates RMB’000 2,023 - 2,023 - 2,023	2002 RMB’000 19,524 (23,947)
		(4,423) (2)
		(4,425) -
		(4,425)
		377 (11)
		366
		At 31 December 2002 RMB’000 2,607 2,746
		5,353 (877)
		4,476

• 27 -

SHENZHEN FIYTA HOLDINGS LIMITED

(Joint stock limited company incorporated in the People’s Republic of China)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

33. DISCONTINUING OPERATION (Cont’d)

The gain on disposal was determined as follows: Proceeds from sales Net assets sold Gain on disposal The net cash inflow on sale is determined as follows: Proceeds from sales Less: Cash and cash equivalents in subsidiaries sold Net cash inflow on sale	RMB’000 2,800 (2,023)
	777
	RMB’000 2,800 -
	2,800

34. DISPOSAL OF A SUBSIDIARY

The assets, liabilities and results of disposed subsidiary, Shenzhen Tianfu Electronics Co., Ltd. as at the date of disposal were as follows:

Fixed assets Current assets Total assets Total liabilities Net assets Share of net assets attributable to the Group Loss for the period The loss on disposal was determined as follows: Attributable share of net assets sold Proceeds from disposal Loss on disposal The net cash flow on disposal was determined as follows: Proceeds from sales Less: cash and bank in subsidiaries disposed Net cash inflow on disposal	RMB’000 231 1,569
	1,800 (1,347)
	453
	453
	(82)
	RMB’000 453 (50)
	403
	RMB’000 50 (28)
	22

• 35 ULTIMATE HOLDING COMPANY

The directors regard CATIC Shenzhen Company, a company established in the PRC, as the ultimate holding company.

• 28 -

SHENZHEN FIYTA HOLDINGS LIMITED

(Joint stock company incorporated in the People’s Republic of China)

SUPPLEMENTARY INFORMATION

IMPACT OF IFRS ADJUSTMENTS ON NET PROFIT / (LOSS) AND SHAREHOLDERS’ EQUITY

As reported in the statutory accounts Impact of major IFRS adjustments: - adjustment on deferred tax assets - reclassification of prior year profit appropriation to staff welfare payable - adjustment on fair value for trading investments - others As restated for IFRS	Net profit / (loss) for the year 2003 2002 RMB’000 RMB’000 5,088 (78,173) 606 7,781 - - 438 - - 1,390 6,132 (69,002)	Shareholders’ equity 2003 2002 RMB’000 RMB’000 515,456 510,368 16,731 16,125 (15,949) (15,949) 438 - 1,294 1,294 517,970 511,838	Shareholders’ equity 2003 2002 RMB’000 RMB’000 515,456 510,368 16,731 16,125 (15,949) (15,949) 438 - 1,294 1,294 517,970 511,838
			511,838

11084/VVE