(Stock Code : 00085) INTERIM REPORT 2013

Transcription

1 (Stock Code : 00085) INTERIM REPORT 2013

2 CONTENTS Pages Corporate Information 2 Consolidated Income Statement 4 Consolidated Statement of Comprehensive Income 5 Consolidated Balance Sheet 6 Consolidated Statement of Changes in Equity 7 Condensed Consolidated Cash Flow Statement 9 Notes to the Condensed Consolidated Interim Financial Information 10 Report on Review of Condensed Consolidated Interim Financial Information 21 Management Discussion and Analysis 23 Other Information 29 Interim Report

3 CORPORATE INFORMATION Board of Directors Non-executive Directors Rui Xiaowu (Chairman) Zhao Guiwu (Vice Chairman) Executive Directors Xie Qinghua (Managing Director) Liu Jinping Independent Non-executive Directors Chan Kay Cheung Qiu Hongsheng Yin Yongli Audit Committee Chan Kay Cheung (Chairman) Qiu Hongsheng Yin Yongli Remuneration and Nomination Committee Qiu Hongsheng (Chairman) Chan Kay Cheung Yin Yongli Xie Qinghua Company Secretary Ng Kui Kwan Registered Office Clarendon House 2 Church Street Hamilton HM 11 Bermuda Principal Office in Hong Kong Room 3403, 34th Floor China Resources Building 26 Harbour Road Wanchai Hong Kong Clarendon House 2 Church Street Hamilton HM 11 Bermuda Interim Report 2013

4 CORPORATE INFORMATION Investor Relations Telephone: (852) Facsimile: (852) Website: Stock Code Principal Bankers Bank of China (Hong Kong) Limited The Hongkong and Shanghai Banking Corporation Limited Bank of Beijing Co., Ltd Principal Share Registrar Butterfield Fulcrum Group (Bermuda) Limited 26 Burnaby Street Hamilton HM 11 Bermuda Hong Kong Branch Share Registrar and Transfer Office Tricor Abacus Limited 26th Floor, Tesbury Centre 28 Queen s Road East Wanchai Hong Kong Independent Auditor PricewaterhouseCoopers Legal Advisors King & Wood Mallesons Conyers Dill & Pearman (852) (852) investor@cecholdings.com.hk Butterfield Fulcrum Group (Bermuda) Limited 26 Burnaby Street Hamilton HM 11 Bermuda Conyers Dill & Pearman Interim Report

5 The board of directors (the Board ) of China Electronics Corporation Holdings Company Limited (the Company ) hereby presents the unaudited condensed consolidated interim financial information of the Company and its subsidiaries (the Group ) for the six months ended 30 June 2013 as follows: CONSOLIDATED INCOME STATEMENT Unaudited Six months ended 30 June Note HK$ 000 HK$ 000 Revenue 4 728, ,317 Cost of sales (398,618) (378,643) Gross profit 329, ,674 Other gains net 5 13,485 21,981 Selling and marketing costs (25,690) (25,422) Administrative expenses (160,314) (94,492) Operating profit 157, ,741 Finance income net 6 3, Profit before taxation 7 160, ,554 Taxation 8 (24,184) (21,691) Profit for the period 136, ,863 Attributable to owners of the Company 136, ,863 Dividends 9 50,747 HK cents HK cents Earnings per share 10 Basic Diluted Interim Report 2013

6 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Unaudited Six months ended 30 June HK$ 000 HK$ 000 Profit for the period 136, ,863 Other comprehensive income for the period: Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of foreign operations 14,536 (3,229) Total comprehensive income for the period Attributable to owners of the Company 151, , , ,634 Interim Report

7 CONSOLIDATED BALANCE SHEET 30 June 31 December (Unaudited) (Audited) Note HK$ 000 HK$ 000 ASSETS Non-current assets Property, plant and equipment 11 19,080 21,210 Intangible assets 11 8,761 3,671 Deferred tax assets 55,921 41,950 Available-for-sale financial assets 2,511 2,467 86,273 69,298 Current assets Inventories 276, ,185 Trade and other receivables , ,604 Cash and cash equivalents 521, ,619 1,452,906 1,279,408 Total assets 1,539,179 1,348,706 EQUITY AND LIABILITIES Equity attributable to owners of the Company Share capital and premium 289, ,171 Other reserves 28,656 (320,599) Retained earnings 588, ,230 Total equity 906, ,802 Liabilities Non-current liabilities Deferred tax liabilities 4,816 Current liabilities Trade and other payables , ,671 Short term bank loans 1,255 1, , ,904 Total liabilities 633, ,904 Total equity and liabilities 1,539,179 1,348,706 Net current assets 824, ,504 Total assets less current liabilities 910, ,802 6 Interim Report 2013

8 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Unaudited Attributable to owners of the Company Share capital Share premium Other reserves Retained earnings Total equity Note HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 At 1 January , ,255 (321,238) 39, ,579 Total comprehensive income for the period (3,229) 113, ,634 At 30 June , ,255 (324,467) 153, ,213 At 1 January , ,255 (320,599) 237, ,802 Total comprehensive income for the period 14, , ,000 Transfer of share premium (i) & (ii) to contributed surplus (600,000) 600,000 Elimination of accumulated (iii) losses of the Company (214,534) 214,534 Special dividend (iv) (50,747) (50,747) At 30 June , ,255 28, , ,055 At a special general meeting of the Company held on 20 June 2013, resolutions were passed by the shareholders to approve the followings: i) the share premium account of the Company be reduced from HK$872,255,000 to HK$272,255,000 by the amount of HK$600,000,000; i) 872,255, , 0 0 0, ,255,000 ; ii) transfer of the credit arising from the reduction of the share premium account to the contributed surplus account (included in other reserves ) of the Company; ii) ; Interim Report

9 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY iii) using the amount then standing to the credit of the contributed surplus account of the Company to eliminate the accumulated losses of the Company as at 31 December 2012 totaling HK$214,534,000; and iii) ,534,000 iv) payment of a special dividend of an aggregate amount in cash of HK$50,746,800 (representing HK$0.03 per share) out of the contributed surplus account of the Company to the shareholders of the Company whose names appear on the register of members of the Company on 2 October iv) ,746, Interim Report 2013

10 CONDENSED CONSOLIDATED CASH FLOW STATEMENT Net cash generated from operating activities Net cash used in investing activities Unaudited Six months ended 30 June HK$ 000 HK$ ,926 97,331 (7,448) (16,469) Net cash generated from/(used in) financing activities 10,000 (23,430) Effect of exchange rate changes (2,197) 209 Net increase in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 30 June 45,281 57, , , , ,094 Analysis of balances of cash and cash equivalents: Cash and bank balances 521, ,094 Interim Report

11 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION 1 Basis of preparation The condensed consolidated interim financial information have been prepared in accordance with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and with Hong Kong Accounting Standard ( HKAS ) 34 Interim Financial Reporting issued by the Hong Kong Institute of Certified Public Accountants. The condensed consolidated interim financial information should be read in conjunction with the annual financial statements of the Group for the year ended 31 December 2012, which have been prepared in accordance with Hong Kong Financial Reporting Standards ( HKFRS ). 2 Principal accounting policies Except as described below, the accounting policies used in the preparation of the condensed consolidated interim financial information are consistent with those used in the annual financial statements of the Group for the year ended 31 December (a) New and amended standards, and interpretations mandatory for the first time for the financial year beginning 1 January 2013 have no material impact on the Group or are not currently relevant to the Group (a) Interim Report 2013

12 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION 2 Principal accounting policies (Continued) (b) The following new standards and amendments to standards that are relevant to the Group have been issued but are not effective for the financial year beginning 1 January 2013 and have not been early adopted: 2 (b) HKAS 32 (amendments) HKFRS 10, HKFRS 12 and HKAS 27 (amendments) HKFRS 9 HKFRS 7 and HKFRS 9 (amendments) Financial instruments: Presentation on assets and liabilities offsetting (effective from 1 January 2014) Investment entities (effective from 1 January 2014) Financial instruments (effective from 1 January 2015) Mandatory effective date and transition disclosures (effective from 1 January 2015) Management is currently assessing the financial impact of the above new standards and amendments to standards to the Group s financial position and performance. Tax charges for the interim periods are accrued using the tax rate that would be applicable to the expected total annual earnings. Interim Report

13 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION 3 Estimates The preparation of the condensed consolidated interim financial information requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing this condensed consolidated interim financial information, the significant judgments made by management in applying the Group s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2012 except for the following: During the current period, the directors of the Company reassessed the dividend policy of its major subsidiary established in the People s Republic of China ( PRC ), CEC Huada Electronic Design Co., Ltd ( Huada Electronics ), based on the Group s current business plan and financial position, certain retained earnings generated by Huada Electronics would be distributed to its non-prc registered intermediate holding company and as such, deferred tax liabilities in this respect was provided in the current period to the extent that such earnings are estimated by the directors of the Company to be distributed in the foreseeable future : 12 Interim Report 2013

14 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION 4 Revenue and segment information (a) Revenue 4 (a) Unaudited Six months ended 30 June HK$ 000 HK$ 000 Integrated circuits products 728, ,317 (b) Operating segments Management has determined the operating segments based on the reports reviewed by the directors (the chief operating decision maker) that are used to assess performance and allocate resources. The directors consider that the Group s operations are operated and managed as a single segment, accordingly no operating segment information is presented. In terms of geographical location, nearly 100% of the Group s revenue is attributable to the market in the PRC and over 90% of the Group s noncurrent assets are located in the PRC. 5 Other gains net (b) 100% 90% 5 Unaudited Six months ended 30 June HK$ 000 HK$ 000 Government grants 13,000 24,229 Exchange losses (539) (319) Others 1,024 (1,929) 13,485 21,981 Interim Report

15 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION 6 Finance income net 6 Unaudited Six months ended 30 June HK$ 000 HK$ 000 Interest income on short term deposits 3,480 1,323 Interest on loans (36) (510) 3, Profit before taxation The Group s profit before taxation has been arrived at after charging/(crediting) the following: 7 Depreciation of property, plant and equipment Amortisation of intangible assets Research and development costs Written-down of inventories to net realisable value Impairment/(Reversal of impairment) provision for trade receivables Operating lease expenses on property Unaudited Six months ended 30 June HK$ 000 HK$ 000 3,228 3,376 5,093 4,862 82,966 86, ,235 52,664 (9,423) 7,538 5, Interim Report 2013

16 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION 8 Taxation 8 Unaudited Six months ended 30 June HK$ 000 HK$ 000 Current taxation PRC corporate income tax 32,471 29,827 Deferred taxation PRC corporate income tax (13,103) (8,136) Withholding tax on undistributed profits (c) (Note (c)) 4,816 (8,287) (8,136) 24,184 21,691 (a) No provision for Hong Kong profits tax had been made as the Group did not generate any assessable profit in Hong Kong for the six months ended 30 June 2013 (2012: nil). (b) In accordance with the corporate income tax laws of the PRC, the applicable statutory tax rate of Huada Electronics is 25% from 1 January However, Huada Electronics qualified as a High/New Technology Enterprise and thus was granted a 15% preferential tax rate from 1 January 2008 to 31 December (c) According to the relevant regulations of the corporate income tax laws of the PRC, when a foreign investment enterprise distributed dividends out of the profits earned from 1 January 2008 onwards to its overseas investors, such dividends are subject to withholding tax at a rate of 10%. (a) (b) % % (c) % Interim Report

17 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION 9 Dividends The Board does not recommend the payment of interim dividend for the six months ended 30 June 2013 (2012: nil). As approved by the shareholders of the Company on 20 June 2013, the Company will pay a special dividend of an aggregate amount in cash of HK$50,746,800 (representing HK$0.03 per share) out of the contributed surplus account of the Company to the shareholders of the Company whose names appear on the register of members of the Company on 2 October Earnings per share The calculation of the basic and diluted earnings per share is based on the following data: ,746, Profit for the period attributable to owners of the Company (HK$ 000) Weighted average number of ordinary shares for the purposes of basic and diluted earnings per share Earnings per share (HK cents) Unaudited Six months ended 30 June , ,863 1,691,560,000 1,691,560,000 Basic Diluted (Note (a)) (a) (a) The Company did not have any potential ordinary shares outstanding for the six months ended 30 June 2013 (2012: nil). Diluted earnings per share is therefore equal to basic earnings per share. (a) Interim Report 2013

18 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION 11 Property, plant and equipment and intangible assets During the six months ended 30 June 2013, the Group had additions to property, plant and equipment of HK$991,000 (2012: HK$8,886,000). During the six months ended 30 June 2013, the Group had additions to intangible assets of HK$10,074,000 (2012: HK$8,906,000). 12 Trade and other receivables The majority of the Group s sales are with credit terms of 30 days to 135 days. The remaining amounts are due immediately after the delivery of goods. Included in trade and other receivables are trade receivables (net of provision for impairment) of HK$646,032,000 (31 December 2012: HK$483,969,000) and their ageing analysis is as follows: , ,886, ,074, ,906, ,032, ,969, June 31 December (Unaudited) (Audited) HK$ 000 HK$ 000 Current to 30 days , , days ,100 81,632 Over 60 days and within 1 year , ,580 Over 1 year 1 3,103 2, , ,969 Interim Report

19 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION 13 Trade and other payables Included in trade and other payables are trade payables of HK$229,309,000 (31 December 2012: HK$243,889,000) and their ageing analysis is as follows: ,309, ,889, June 31 December (Unaudited) (Audited) HK$ 000 HK$ 000 Current to 30 days 30 60,315 78, days ,194 76,376 Over 60 days 60 96,800 88, , , Operating lease commitments The Group s future aggregate minimum lease payments under non-cancellable operating leases for factories and office premises are as follows: June 31 December (Unaudited) (Audited) HK$ 000 HK$ 000 Not later than one year 1 12,803 13,649 In the second to fifth year 25 12,376 18,352 25,179 32, Interim Report 2013

20 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION 15 Contingent liabilities The Group did not have any material contingent liability at 30 June 2013 (31 December 2012: nil). 16 Related party transactions and balances The Group entered into the following material transactions in the ordinary course of business with related parties during the period: (a) Significant transactions with companies under common control of China Electronics Corporation Limited ( CEC ) (a) Unaudited Six months ended 30 June HK$ 000 HK$ 000 Sales of products 65,369 35,957 Purchase of goods and services 239, ,236 Interest received 1, Rental paid Loan from CEC (BVI)* CEC (BVI) * 10,000 * In April 2013, the Company obtained a HK$10,000,000 loan from China Electronics Corporation (BVI) Holdings Company Limited ( CEC (BVI) ), the immediate holding company of the Company. The loan bears an interest rate of 2.2% per annum and is repayable on demand. * China Electronics C o r p o r a t i o n ( B V I ) H o l d i n g s Company Limited CEC (BVI) 10,000, % Interim Report

21 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION 16 Related party transactions and balances (Continued) (b) Significant balances with companies under common control of CEC 16 (b) 30 June 31 December (Unaudited) (Audited) HK$ 000 HK$ 000 Trade receivables 65,708 16,744 Other receivables 265 Deposits 99,228 98,661 Trade payables 133, ,568 Loan from CEC (BVI) CEC (BVI) 10,000 Other payables 41,429 3,701 Except for deposits and loan from CEC (BVI), the above balances with related parties were unsecured, interest-free and settled according to the contract terms. (c) Key management compensation CEC (BVI) (c) Salaries, allowances and benefits in kind Contributions to retirement schemes 17 Subsequent events 17 Unaudited Six months ended 30 June HK$ 000 HK$ 000 2,544 1, ,679 1,967 On 5 July 2013, the Company and CEC entered into an equity transfer agreement pursuant to which the Company has conditionally agreed to acquire and CEC has conditionally agreed to sell 100% equity interest in China Electronics Technology Development Co., Ltd, a wholly-owned subsidiary of CEC, at a consideration of RMB600 million % 6 20 Interim Report 2013

22 REPORT ON REVIEW OF CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION TO THE BOARD OF DIRECTORS OF C H I N A E L E C T R O N I C S C O R P O R AT I O N HOLDINGS COMPANY LIMITED (incorporated in the Cayman Islands and continued in Bermuda with limited liability) Introduction We have reviewed the condensed consolidated interim financial information set out on pages 4 to 20, which comprises the consolidated balance sheet of China Electronics Corporation Holdings Company Limited (the Company ) and its subsidiaries (together, the Group ) as at 30 June 2013 and the related consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and condensed consolidated cash flow statement for the six-month period then ended, and a summary of significant accounting policies and other explanatory notes. The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited require the preparation of a report on interim financial information to be in compliance with the relevant provisions thereof and Hong Kong Accounting Standard 34 Interim Financial Reporting issued by the Hong Kong Institute of Certified Public Accountants. The directors of the Company are responsible for the preparation and presentation of this condensed consolidated interim financial information in accordance with Hong Kong Accounting Standard 34 Interim Financial Reporting. Our responsibility is to express a conclusion on this condensed consolidated interim financial information based on our review and to report our conclusion solely to you, as a body, in accordance with our agreed terms of engagement and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report Interim Report

23 Scope of Review We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Hong Kong Institute of Certified Public Accountants. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated interim financial information is not prepared, in all material respects, in accordance with Hong Kong Accounting Standard 34 Interim Financial Reporting PricewaterhouseCoopers Certified Public Accountants Hong Kong, 29 August Interim Report 2013

24 MANAGEMENT DISCUSSION AND ANALYSIS Business Review The Group s integrated circuits design business comprises the design of integrated circuits chips and the development of application system. Currently, our products are mainly used in smart cards such as identity cards, social security cards, telecommunication cards and electric cards. Our products are also applied in wireless local area networks. For the six months ended 30 June 2013, the Group has obtained 25 new patents. Due to the further intensification of market price competition in 2013, the average selling prices of integrated circuits chip products were generally lower when comparing with those of the The Group on one hand adjusted its product mix in its smart card chips business and concentrated on products which have a better gross profit margin, also stepped up its effort in cost control and expanded the market share of its products. Through successfully boosting the sales of a number of our main products, the overall sales volume recorded a moderate increase during the six months ended 30 June 2013, which compensated the impact of the decrease in the average selling prices of integrated circuits chip products on the revenue for the period. Revenue for the six months ended 30 June 2013 amounted to HK$728.3 million, representing an increase of 19.1% when comparing with the corresponding period of last year. As the combined effects of the improvement on the product mix of the Group and effective cost control had out-weighed the impact of the decrease in the average selling prices of integrated circuits chip products on the gross profit, the gross profit increased by 41.7% to HK$329.7 million for the six months ended 30 June During the period, the overall gross profit margin has increased 7.2 percentage points % % Interim Report

25 MANAGEMENT DISCUSSION AND ANALYSIS Business Review (Continued) Selling and marketing costs for the six months ended 30 June 2013 amounted to HK$25.7 million (2012: HK$25.4 million). As a percentage to revenue, selling and marketing costs decreased to 3.5% for the six months ended 30 June 2013 from 4.2% of the corresponding period of last year. The decrease was due to stringent cost control measures implemented during the period. Administrative expenses increased by 69.7% to HK$160.3 million for the six months ended 30 June The increase was mainly attributable to the provision for impairment of trade receivables. Research and development costs were HK$83.0 million in 2013 (2012: HK$86.2 million), which represented 11.4% of the revenue for the six months ended 30 June 2013 (2012: 14.1%). Research and development during the period primarily focused on the EMV card, mobile payment card and RFID ( radio frequency identification ) chip products. Gover nment grants recognised as income decreased by 46.3% to HK$13.0 million for the six months ended 30 June 2013 resulted from less government subsidies for research and development costs incurred in the period. For the six months ended 30 June 2013, the profit attributable to owners of the Company was HK$136.5 million (2012: HK$113.9 million), and the basic earnings per share was HK8.07 cents (2012: HK6.73 cents). The Board does not recommend the payment of interim dividend for the six months ended 30 June 2013 (2012: nil). As approved by the shareholders of the Company on 20 June 2013, the Company will pay a special dividend of an aggregate amount in cash of HK$50,746,800 (representing HK$0.03 per share) out of the contributed surplus account of the Company to the shareholders of the Company whose names appear on the register of members of the Company on 2 October % % % % % IC RFID % ,746, Interim Report 2013

26 MANAGEMENT DISCUSSION AND ANALYSIS Outlook At present, the application of smart cards in the PRC market are mainly in telecommunications, social security, identity identification, financial services, electricity, transportation, petrol payment, etc., among which the massive issuance of social security cards, identity cards, electric cards, petrol payment cards and other smart cards have been the driving force behind the growth of the domestic smart card market. After many years of development, the Group has emerged as a market leader in the above mentioned smart card market. Moreover, the Group has also been actively exploring and developing new industry and corporate customers and providing tailor-made products to meet customer s needs. Meanwhile, we also notice that the slow down in growth in the domestic and foreign telecommunication card market, and the competition of domestic social security card market are increasingly intense, all of which will bring new challenges to the sales volume and revenue of the Group s products. Looking forward, on one hand, the Group will continue to persist in independent technology innovation, actively explore financial services and other new application businesses for smart cards as well as other aspects of chips design, capture the development opportunities in the integrated circuits design segment, and strive to maintain its leading position in the integrated circuits chips design sector. Interim Report

27 MANAGEMENT DISCUSSION AND ANALYSIS Outlook (Continued) On the other hand, the Group will strive to diversify its business. In July 2013, the Company entered into an equity transfer agreement with CEC to acquire the 100% equity interest in China Electronics Technology Development Co., Ltd. The acquisition is in the process of obtaining all necessary approvals, including but not limited to approval by the independent shareholders of the Company. Upon successful completion of the acquisition, the Group will leverage on this opportunity through adopting effective measures to meet local needs, to focus on establishing a software and hardware environment that is favourable for the development of electronic information technology industrial parks, gradually develop a series of comprehensive services, including industrial guidance, funding support, consultation services, technical support, lifelihood services, etc., and expand and strengthen the electronic information technology industrial park service business in providing a better industrial development platform and environment for those domestic and foreign enterprises that are engaged in high-tech research and development, production and services businesses. In addition, in June 2013, the Company has entered into a strategic cooperation framework agreement with Beihai City People s Government of the PRC and CCB International (Holdings) Limited, for the construction of Beibu Gulf Eco-Wisdom Electronics City in Beihai City, Guangxi Province of the PRC as a modern production and service agglomeration complex. At present, the project is still under evaluation by the government authority, and in the event that the Group were able to participate in this project, the Group will also leverage on this opportunity to achieve its business diversification objective % Interim Report 2013

28 MANAGEMENT DISCUSSION AND ANALYSIS Financial Review The Group finances its operations primarily by internal resources and short term loans. At 30 June 2013, the Group had cash and cash equivalents amounted to HK$521.9 million, 78.8% of which was denominated in Renminbi, 20.4% in United States dollars and 0.8% in Hong Kong dollars (31 December 2012: HK$476.6 million, 77.5% of which was denominated in Renminbi, 22.0% in United States dollars and 0.5% in Hong Kong dollars). At 30 June 2013, the Group had unsecured short term bank loans of HK$1.3 million, which were denominated in Renminbi (31 December 2012: HK$1.2 million, which were denominated in Renminbi). The bank loans were borrowed at contracted fixed interest rate. At 30 June 2013, committed borrowing facilities available to the Group but not drawn amounted to HK$425.6 million. At 30 June 2013, the Group did not have any pledged asset or guarantee (31 December 2012: nil). The Group s revenue are mainly denominated in Renminbi and payments are denominated in Renminbi and Hong Kong dollars. The Group will make use of hedging contracts, when appropriate, to hedge the risk of foreign exchange fluctuation arising from its operations % 20.4%0.8% % 22.0% 0.5% Interim Report

29 MANAGEMENT DISCUSSION AND ANALYSIS Financial Review (Continued) At 30 June 2013, the Group had net current assets of HK$824.6 million (31 December 2012: HK$736.5 million). The overall gearing ratio, which is calculated as the total liabilities over total assets of the Group, was 41.1% (31 December 2012: 40.3%). At 30 June 2013, the Group did not have any material capital commitment (31 December 2012: nil) for the acquisition of fixed assets and intangible assets. The Group did not have any material contingent liability at 30 June 2013 (31 December 2012: nil) % % Employee and Remuneration Policies At 30 June 2013, the Group had approximately 350 employees, the majority of whom were based in the PRC. Employee benefit expenses during the period were HK$66.7 million. The Group recognises the importance of high calibre and competent staff and has a strict recruitment policy and performance appraisal scheme. Remuneration policies are largely in line with industry practices, and are formulated on the basis of performance and experience and will be reviewed regularly. Bonuses and other merit payments are linked with the performance of the Group and of the individuals as incentive to optimise performance Interim Report 2013

30 OTHER INFORMATION Directors and Chief Executive s Interests and Short Positions in Shares, Underlying Shares and Debentures At 30 June 2013, none of the directors nor the chief executive of the Company and their respective associates had any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (the SFO )), which were recorded in the register maintained by the Company pursuant to Section 352 of the SFO 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 (the Model Code ) as set out in Appendix 10 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the Listing Rules ). Directors Rights to Acquire Shares or Debentures At no time during the six months ended 30 June 2013 was the Company, its holding company or any of its subsidiaries or fellow subsidiaries a party to any arrangements to enable the directors of the Company or their respective associates (as defined under the Listing Rules) to acquire benefits by means of acquisition of shares in, or debentures of, the Company or any other body corporate XV Interim Report

31 OTHER INFORMATION Shareholders with Notifiable Interests At 30 June 2013, the register maintained by the Company pursuant to Section 336 of the SFO showed that the following persons (other than the director or chief executive of the Company) had notified the Company that they had an interest of 5% or more in the issued share capital of the Company: % Name of interested party Number or attributable number of shares interested Percentage of shareholding China Electronics Corporation (BVI) Holdings Company Limited ( CEC (BVI) ) China Integrated Circuit Design Corp., Ltd ( China Huada ) China Electronics Corporation Limited ( CEC ) (Notes (1) and (2)) SDIC High-Tech Investment Co., Ltd (Note (1)) The State Development and Investment Corporation (Note (1)) Notes: China Electronics Corporation (BVI) Holdings Company Limited CEC (BVI) 812,500, % 393,680, % 1,206,180, % (1) (2) 393,680, % (1) (1) 393,680, % (1) The equity interest of China Huada is contributed as to 50% by CEC and as to 50% by SDIC High-Tech Investment Co., Ltd. SDIC High-Tech Investment Co., Ltd is a wholly-owned subsidiary of The State Development and Investment Corporation, which is a state-owned investment holding company established under the laws of the PRC. By virtue of the SFO, CEC, SDIC High-Tech Investment Co., Ltd and The State Development and Investment Corporation are deemed to be interested in the 393,680,000 shares of the Company held by China Huada. (2) CEC holds 100% interest in CEC (BVI) and is deemed to be interested in the shares of the Company held by CEC (BVI). (1) 50% 393,680,000 (2) CEC (BVI) 100% CEC (BVI) 30 Interim Report 2013

32 OTHER INFORMATION Shareholders with Notifiable Interests (Continued) All the interests disclosed above represent long position in the shares of the Company. Save as disclosed above, at 30 June 2013, the Company had not been notified of any other interest or short position in the shares or underlying shares of the Company which were required to be recorded in the register required to be kept under Section 336 of the SFO. Purchase, Sale or Redemption of Securities Neither the Company nor any of its subsidiaries had purchased or sold any of the Company s shares and the Company had not redeemed any of its shares during the six months ended 30 June Corporate Governance Code The Company has complied with all the applicable code provisions in the Corporate Governance Code as set out in Appendix 14 of the Listing Rules throughout the six months ended 30 June The Model Code for Securities Transactions by Directors The Company has adopted the Model Code to regulate the directors securities transactions. All directors have confirmed, following specific enquiry by the Company, that they have fully complied with the Model Code throughout the six months ended 30 June Interim Report

33 OTHER INFORMATION Audit Committee The audit committee has reviewed the unaudited condensed consolidated interim financial information of the Group for the six months ended 30 June Directors Particular Changes in particular of the directors of the Company is set out as follows: 1. Mr. Qiu Hongsheng was appointed as an independent director of AVIC Heavy Machinery Co., Ltd (a company listed on the Shanghai Stock Exchange) in May By Order of the Board Rui Xiaowu Chairman Hong Kong, 29 August Interim Report 2013

34 Room 3403, 34th Floor, China Resources Building, 26 Harbour Road, Wanchai, Hong Kong