CHINA AUTO ELECTRONICS GROUP LIMITED

CHINA AUTO ELECTRONICS GROUP LIMITED

China215 East Part of Qibin RoadQibin District, Hebi, Henan, PRC 458030Tel: (86) 39 2331 4522Fax: (86) 39 2336 2298

Singapore16 Gemmill LaneSingapore 069254Tel: (65) 6382 2595Fax: (65) 6382 2595

www .thb.com.cn

HARNESSING GREATER VALUE

China Auto Electronics Group LimitedAnnual Report 2011

CONTENTS

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OUR MANUFACTURING FACILITIESOUR PRODUCTSCHAIRMAN’S STATEMENTOPERATIONS REVIEW

0408

BOARD OF DIRECTORSSENIOR MANAGEMENTCORPORATE INFORMATION

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CORPORATE PROFILE

ABOUT CHINA AUTO ELECTRONICS GROUP LIMTED (“CAEG”)

We are one of the leading automobile electrical and electronics distribution system manufacturers in thePRC and is the largest PRC domestic manufacturer of automobile wire harnesses and connectors.

We supply to automakers in both PRC and overseas markets, namely US, Europe, Australia and Indonesia. We have 8 production facilities across the PRC with our headquarters based in Hebi City, Henan Province, PRC, and have a subsidiary in Michigan, USA, serving the North American market.

We place significant emphasis on research and development (“R&D”), and have established 4 R&D institutes, with one focusing on wire harnesses, the second focusing on connectors, fuse boxes, fuses and central junction boxes, the third on automobile electronic products and engine management system. We have an R&D centre focusing on automotive electrical and electronics distribution system, new products, new technology and providing technological services and consultation in Shanghai, PRC.

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We are the largest PRC domestic manufacturer of automobile wire harnesses and connectors in the PRC, with 8 manufacturing facilities in Hebi, Wuhu, Jiangxi, Harbin, Shenyang, Fujian, Shanghai and Chongqing.

Our manufacturing facilities are fully integrated. We use CAD/CAE and application softwares, such as Pro-Engineering and Unigraphics, for the conceptualisation and design of moulds, CAM, wire-cutting machines, CNC machines and EDMs for the fabrication of the tools and dies, plastic kneading and blending machines and plastic injection moulds for the production of plastic housings, and precision metal stamping machines for the precision metal stamping process to form the desired parts for the terminals. We also design and build our own assembly stations for the assembly of wire harnesses.

We have been qualified as OEM supplier by major automakers, including Dongfeng Motor Corporation, Shanghai Volkswagen Automotive Co., Ltd, FAW-Volkswagen Automobile Co., Ltd, General Motors Corporation, Chery Automobile Co., Ltd, and Changan Automobile Group Ltd. We were awarded the QS 9000 Quality Management System Certificate in 1998, the ISO/TS 16949 Quality Management System Certificate in 2002 and the VDA 6.1 Quality Management System Certificate by TUV Rheinland. We were also awarded the ISO 14004 Environment Management System Certificate in 2004.

We place significant emphasis on R&D, which we believe is one of our key competitive strengths. Our main R&D Centre is located at Hebi City, Henan Province, PRC, namely Provincial Enterprise Technical Centre, accredited by the Henan Province Economic and Trade Committee, Henan Province Financial Department, Henan Province Local Tax Bureau and Zhengzhou Customs. Such accreditation gives the technical centre access to certain funding grants and tax incentives. In addition, we also established a R&D Centre in Shanghai, PRC, which focuses mainly on automotive electrical and electronics distribution system, new products, new technology and provides technological services and consultation.

We have also established 3 research institutes focusing on different areas: • The Wire Harness Research Institute focuses on the R&D of wire harnesses. This Institute is capable of designing

a variety of vehicle harnesses. Over 100 types of new harnesses are developed every year.• The Connector Research Institute focuses mainly on R&D of connectors, fuse boxes, fuses and central junction

boxes for the automobile industry. This Institute also focuses on the R&D of high precision, quality and efficient injection moulds which are used in the manufacture of connectors.

• The Electrical and Electronics Research Institute focuses on the R&D of automotive electrical and electronicsproducts and engine management system. With strong development capability and wide range of advanced test equipment, this Institute provides a solid foundation for new product development.

OUR MANUFACTURING FACILITIES

OUR R&D FOCUS

ANNUAL REPORT 2011

WIRE HARNESSA wire harness is an assembly of wires with connectors attached to their ends that are bundled together and transmits electricity between two or more points.

Wire harnesses link the power and signal distribution systems within an automobile and are critical to the function and performance of an automobile. An average automobile will typically have lengths of wire harnesses. Wire harnesses used by different automakers may differ.

We manufacture hundreds of varieties of wire harnesses, which are used in different parts of an automobile and supplied primarily to automakers.

CONNECTORSConnectors are devices that connect one or more wires together or link the wire harness with other components within the automobile. Connectors are designed to protect the connection points from the external environment of the automobile, which can be harsh and varies depending on where in the automobile they are located.

The main components of a connector are the housing and the terminal. The housing is the connector’s casing and is usually made of moulded plastic. Its main functions are to hold the terminals and protect them from shorting, dust, dirt, moisture and electrical interference.

The terminal is the metal component in a connector that conducts electric current and is inserted into the connector housing.

Connectors installed in different parts of an automobile differ from one another in various respects, including the design and size of both the housings and the terminals.

In addition, the connectors used by different automakers may also differ. We manufacture more than 10,000 varieties of housings and terminals, which are used in different parts of an automobile.

We also manufacture fuse boxes and central junction boxes. Fuse boxes are devices that serve to hold a number of fuses. Central junction boxes are deviceswhich connect different wire harnesses to distribute the flow of electricity between different compartments in an automobile, through connection and protection devices integrated into such central junction boxes.

OTHER PRODUCTSOur other products include crimping machines and moulds. Crimping machines are machines used to create a crimp connection, which is a permanent electrical and mechanical connection between a wire or wires and a conductor.

Crimping involves the application of an external force, which deforms the individual strands of a wire by stressing them to beyond the yield point of the material to produce a reliable connection.

Moulds are the foundation for the commercial production of plastic injection moulding and metal stamped products such as the plastic housings and metal terminals in connectors. The mould is essentially a steel tool made up of many operating mechanisms and parts assembled together.

We also have a whole host of electronic products, including tire pressure monitoring system, GPS vehicle tracking device, BCM (Body Control Module) and ECU. With our emphasis on R&D, we have also developed the automobile headlight adjusting device, which allows the driver to adjust the direction of the headlights manually from inside the automobile so as to provide better illumination.

OUR PRODUCTS


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We continue to strengthen our presence overseas, with sales to non-domestic markets such as the US increasing by 20%. We continue to make new inroads to supplying customers in this relatively new market and foresee greater prospects for the upcoming financial year.

GROWING OUR FOOTHOLD

USAEUROPE

CHINA

Sales Office Manufacturing Office

ANNUAL REPORT 2011

Dear Shareholders,

Over the course of the year in review 2011, we at China Auto Electronics Group Limited (“CAEG”) , similar to other companies, had to wrestle with the many challenges posed by the prolonged effects of the global financial crisis. Despite the challenges, 2011 was a relatively stable year for CAEG. Our revenue and profitability were to a certain extent impacted by regulatory changes in China where China’s credit policy was tightened throughout 2011 in an effort to reign in escalating property and retail prices. Further challenges included the increase in copper prices to a high of RMB70, 000 per tonne from a low of RMB40, 000 per tonne. Notwithstanding these adverse conditions, our North American market made a comeback and grew significantly in these initial months of FY2012. We foresee greater developments from this sector over this year.

For FY2011, group revenue remained relatively unchanged at approximately RMB1.54 billion with a gross profit of RMB275.60 million. For the year under review, we continued to expand our business overseas with a significant boost in revenue from North America where sales grew 20% to RMB248 million. This bodes well for our continued focus on growing our presence in North America and Europe.

This year, we received 14 distinguished Awards from reputable customers including Chrysler and Behr. To uphold and grow our standing in the industry, we will continue our efforts to deliver better service, quality and innovation to our customers. We believe that the recognition we received enabled us to strengthen our relationships with our customers on all levels and enhanced our marketability. We have also built a R&D Center which is certified as a “National R&D Center” in Chongqing in 2011. Our state-of-the-art testing laboratory was awarded and certified as equivalent in

“The business environment was very challenging in 2011, but we are well prepared and positioned to grow our business and profitability from here.”

CHAIRMAN’S STATEMENT

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Wang LaishengExecutive Chairman and President

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capability to that of a “National Test Facility”. With all these advancements and growth in our research capability, we are confident in being able to support and fulfil our high-end customers’ exacting needs which include emphasis on Electronics & Engineering (“E&E”) solutions in design, new launches, and the validation test for every component to full vehicle level. Our International Organization continues to grow and has opened a branch facility in Europe that will be expanded in the early part of 2012.

We are confident that our continuous investment in research on Vehicle Electronics will generate strong returns and will show significant growth over the next few years.

At China Auto, we firmly believe in contributing to a clean and sustainable living environment. As such we have been investing RMB5 million every year on developing products that are more environmental

ANNUAL REPORT 2011

friendly. Our new range of generators and their control systems will not only be “Green” in product concept but provide also a systematic solution for a new generation of energy vehicles.

Moving forward, we expect 2012 to be another challenging year due to factors such as uncertainty over the political resolution of the US budget deficit and poor employment rates. However, global automobile sales have been forecast to remain at healthy levels. The annual growth rate of automobile sales in China for 2012 is anticipated to be around 10%, according to an industry outlook released by the China Association of Automobile Manufacturers (“CAAM”). As such, our Group is well positioned to benefit from the anticipated growth in 2012 and the anticipated revival of the US economy. We will continue to work aggressively to expand our profitability by increasing our market share among high-end automobile brand manufacturers both local and overseas.

“2011 Chrysler Excellent Supplier Award”

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CHAIRMAN’S STATEMENT


In early 2012, Shenzhen Derun Electrical Company Ltd (a listed company on the Shenzhen Stock Exchange) had made an offer to China Auto Electronics Group Ltd to acquire all the assets of its fully -owned subsidiary, Henan Tianhai Electronics Group Ltd at 1.3 times its Net Book Value as at 31 December 2011. The Company viewed this as an opportunity to unlock its value in the business to her shareholders and a positive development for the Company and Tianhai Electronics Group as a whole as Derun will inject much needed funds and expertise for the growth of the wire harness and connector business, both locally and overseas.

Regardless of potential divestment of Henan Tianhai Electronics Group, the fundamentals of our business remain viable and we continue to be committed in 2012 to improve our reach so as to grow our long-term shareholders’ value.

Wang LaishengExecutive Chairman and President

The continued improvement of our wide range of products is our keystone strategy to staying competitive and we uphold our commitment to research and development.

ENHANCING OUR CAPABILITIES

ANNUAL REPORT 2011

OverallGroup revenue for the financial year ended 31 December 2011 (“FY2011”) decreased by 5% to approximately RMB1.54 billion while group gross profit decreased by 12.1% to approximately RMB275.6 million for FY2011.

As a result, the Group recorded a net loss after tax of approximately RMB4.97 million For FY2011.

Group gross profit margin was also affected and decreased by 1 percentage points to 18% due to the increase in material prices and the increase in interest costs.

China OperationsRevenue from our China Operations decreased by 9% to approximately RMB1.29 billion for FY2011. The decrease was attributable to the termination of the PRC government’s economic stimulus package which directly benefits our Group.

Furthermore, the gross profit margin of our China Operations decreased from 22% to 20% for FY2011. The decline was mainly due to the increase in material costs and change in product mix, where there was an increase in sales contribution from wire harness products, which are of lower profit margin than connector products.

As a result, gross profit from our China Operations dipped by 15.1% to RMB259.7 million in FY2011 as compared to RMB305.8 million in FY2010

OPERATIONS REVIEW

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Overseas OperationsThe Group’s Overseas Operations recorded an increase in revenue by 20% to approximately RMB 248million for FY2011, which was mainly attributable to the higher sales to our customers in USA and Europe.

Overseas Operations were profitable, recording a gross profit of approximately RMB 15.9 million for FY2011. That was an increase of 105% over that in FY2010. The increase was mainly attributable to the improvement in sales.

The gross profit margin of Overseas Operations for FY2011 was 6.4%, as compared to 3.8% in FY2010. The Group’s America Operations continued to be awarded new businesses as customers re-tooled their vehicles to meet new market demands. To facilitate the manufacturing of these new products, most are being produced at our plants in China at a lower cost.

OutlookAccording to the industry outlook released by the China Association of Automobile Manufacturers (“CAAM”), the annual growth rate of automobile sales in China for 2012 is anticipated to range between 10% to 15%. As such, our Group is well placed to benefit from the anticipated growth in 2012. Our goal for CAEG is to sustain profitability and growth and to remain competitive in this global business.

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ANNUAL REPORT 2011

WANG LAISHENG Executive Chairman and President

Mr Wang Laisheng is the Executive Chairman and President of our Company. As the Executive Chairman and President, he is responsible for the direction and strategic expansion of our Group. His responsibilities include the charting and reviewing of corporate directions and strategies, covering areas of marketing and strategic alliances.

Mr Wang joined Hebi Automotive Electric Appliances Factory (“Hebi Factory”), which was the predecessor of Henan Tianhai Electric Co., Ltd (“Tianhai CL”), in 1979 and was made Deputy Factory Manager in 1984. In 1986, Mr Wang spent about half a year in Japan for training on advanced engineering technology relating to the manufacture of connectors. In 1995, Mr Wang was appointed the Deputy General Manager of Hebi Packard Electric Company, a joint venture established by the Hebi Factory and Delphi Packard. In 1999, the Hebi Factory acquired the equity interest of Delphi Packard in the joint venture and Mr Wang remained as its Deputy General Manager. In 2001, Mr Wang returned to Henan Tianhai Electric (Group) Corporation (“Tianhai CE”) as its Deputy General Manager, in charge of technology and product development, Chief Engineer, and subsequently made General Manager in 2005. Pursuant to the conversion of Tianhai CE into Tianhai CL under a restructuring exercise, Mr Wang became the Executive Chairman of Tianhai CL and is responsible for the overall strategic direction and the management of the business operations and management of Tianhai Electric (Group) Corporation and its subsidiaries.In 1988, Mr Wang graduated from the Party School of the Hebi Municipal Party Committee. Mr Wang was certified

BOARD OF DIRECTORS

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as a Senior Qualified Engineer by the Henan Provincial Government in 1989. In 1991, the PRC State Council conferred him an Honorary Certificate for his outstanding contribution to the development of China’s automobile engineering technologies. In 1993, he was appointed as Deputy Chairman of the China Automobile Electronics and Electric Development Centre. In 1995, Mr Wang was named as an Outstanding Expert by the Henan Provincial Government. Since 1990, Mr Wang has been a Committee Member of the National Automobile Standardisation Technical Committee established by the National Bureau of Quality and Technical Supervision.

LI DELINDeputy Executive Chairman

Mr Li Delin is the Deputy Executive Chairman of our Company. He assumes overall responsibility for the operations of our Company.

In 1978, Mr Li was the Deputy Factory Manager of the Hebi Steel Window and Furniture Factory. In 1984, he was the Factory Manager of Hebi No. 1 Plastic Factory. Mr. Li joined our Hebi Factory in 1988 as Head of the Operations Department and his areas of responsibilities included sales and procurement. From 1994, he held the position of Deputy General Manager of Tianhai CE, in charge of domestic sales and business development. He also held other positions such as the Director of the Investment Management Committee, being responsible for the investment activities of Tianhai CL.


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ANNUAL REPORT 2011

In 1988, Mr Li graduated from the Party School of Hebi Municipal Party Committee. In 1992, Mr Li obtained the Professional and Technical Qualification of Economist conferred by the Hebi Municipal Government. In 2004, he was named as a Pioneer Model Worker by the Henan Provincial Government.

SHEN ZHIFUExecutive Director

Mr Shen Zhifu is the Executive Director of our Company and Vice President of the Electronics Division of our Group. He assumes overall responsibility for the development, production, sales and marketing of our Group’s electronics products.

Mr Shen joined our Hebi Factory in 1976 and has since held positions of increasing responsibility such as Workshop Director and Deputy Factory Manager of our Hebi Factory. In 1994, he was appointed as the Deputy General Manager, in charge of international sales and business development. He was also the General Economist of Tianhai CE. In 2009, Mr Shen was also appointed as the General Manager of Hebi Tianhai Huanqiu Electric Co., Ltd, a wholly-owned subsidiary of our Group, and is responsible for the business operations of this subsidiary.

Mr Shen graduated from the Party School of Henan Provincial Party Committee where he majored in Economics in 1992. In 1999, he was named as a Pioneer Model Worker by the Henan Provincial Government. In 2004, he was appointed as Deputy Director of Automobile Electronics Technology

Branch of the Society of Automotive Engineers of China. In 2006, he was appointed as a Member of the Petrol Machine and Kerosene Oil Engine Committee of the Chinese Society of Internal Combustion Engines.

ZHANG JINGTANG Executive Director

Mr Zhang Jingtang is the Executive Director of our Company and Chairman of our Group’s major operating subsidiary, Henan Tianhai Electric Co., Ltd. Mr Zhang is responsible for overseeing the customer relationships, manufacturing and operation activities of our Group.

Mr Zhang was an Engineer with the Hebi Machine Tool Factory from 1983 to 1985, and was the Director of Enterprise Administration Department at the Hebi Industry Bureau from 1986 to 1988. In 1988, he joined Tianhai CE as Deputy Factory Manager. He was appointed as Deputy General Manager in charge of production in 1994 and remained in that position until 2006. Subsequently, he was appointed as Director and General Manager of Tianhai Electric Co., Ltd. In 2008, Mr Zhang was appointed as Director and Chairman of Tianhai Electric Co., Ltd.

Mr Zhang obtained a Bachelor of Physics from Henan Normal University in 1982. In 1988, he obtained the Professional and Technical Qualification of Economist conferred by the Hebi Municipal Government. He was awarded the Senior Professional Manager Qualification in 2006 by the PRC Ministry of Manpower National Centre of Human Resource Mobility and PRC Research Centre for Professional Managers.

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BOARD OF DIRECTORS


SIM HONG BOONLead Independent Director

Mr Sim Hong Boon is the Lead Independent Director and Chairman of the Nomination Committee of our Company. He is a Fellow (Life) of the Singapore Institute Architects, Fellow of the Royal Australian Institute of Architects, Fellow of the Society of Project Management Singapore, Member of the British Institute of Architects, Member of the Singapore Institute of Planners and Member of the Malaysian Institute of Architects.

Mr Sim served on various local and international professional organisations. He was the President of the Singapore Institute of Architects (1974-1978), Member of the Board of Architects (1973-1980) and Professional Engineers’ Board (1977-1980), Member of the Commonwealth Board of Architectural Education (1975-1987), Honorary Secretary of the Architects’ Regional Council Asia (“Arcasia”) and Chairman, Arcasia Board of Architectural Education (1976-1987).

Mr Sim held several directorships in private and listed companies in Singapore, China and Holland. He was the Chairman of the Supervisory Board, Aabe Fabrieken B.V. and Aabe Holland (1983-1993). He held several foreign government appointments, as Advisor

to the Commanding Office for the Development of the Jinan Yao Qiang Airport (1989), Advisor for Trade & Economic Development to the Municipal Government of City of Jinan (1993), Advisor to the Committee for the Development of Jinan High Technology Industrial Park (1993), Senior Economic Advisor to the Municipal Government of Zao Zhuang City, Shandong Province and Representative of the Indian Tourism Development Corporation for East and South East Asia (2005). He was a Member of the Singapore Shandong Business Council (1993-1999) and (2004-2006) and an Executive Committee Member of the Shandong Business Club (1995-1999).

Mr Sim received the Public Service Medal National Day Award in 1981 and the Public Service Star (BBM) in 2003. In 2005, he was appointed a Justice of Peace by the President of Singapore.

Mr Sim graduated with Associateship in Architecture from Perth Technical College Western Australia in 1965 and a Master of Arts (Urban Planning) degree in 1974 from the National University of Singapore.

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ANNUAL REPORT 2011

ZHANG SHULIN Independent Director

Mr Zhang Shulin is the Independent Director of our Company. He is currently the Chief Consultant of China Automotive Technology and Research Centre.

Mr Zhang was an engineer with Hebei Xingtai Hongxing Automobile Factory from 1970 to 1983, and was an Engineer with Jingjinji Automobile Industry Venture Corporation from 1983 to 1985. In 1985, Mr Zhang joined China National Automotive Industry Corporation, a government authority on enterprise administrations for the automobile industry, as Deputy Director of the Planning Department and was responsible for the automotive manufacture project planning. He was appointed as Associate Director of the Automobile Industry Department of Ministry of Mechanics Industry in 1993 and was later appointed as Associate Director and Secretary-General of China Association of Automotive Manufacturers by the National Mechanics Industry Bureau in 1998.

Mr Zhang obtained a Bachelor of Automatic Control from Tsing Hua University in 1965. He was certified as a Senior Qualified Engineer (Professor Level) by the Ministry of Mechanics Industry, PRC in 1996.

HO KER CHERN Independent Director

Mr Ho Ker Chern was appointed as our Independent Director since 6 May 2010. Mr Ho has more than 18 years of financial control and audit experience. He began his career with an international accounting firm for five years, and subsequently went on to hold appointments as group accountant and financial controller in various companies, which included Singapore public listed companies. Currently he is the Chief Financial Officer of Eratat Lifestyle Limited, which is a public listed company on SGX.

Mr Ho graduated with a Bachelor of Commerce Degree in Accountancy from Murdoch University, Australia, in 1992 and is a Fellow of the Institute of Certified Public Accountants of Singapore.

SENIOR MANAGEMENT

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ZHANG YINGChief Executive Officer

Mr Zhang Ying joined our Group in February 2011 and is our Group’s Chief Executive Officer. He is responsible for overall management, business operations and strategic planning of our Group. He, together with the Executive Chairman and President, Mr Wang Laisheng, is responsible for providing our Company with strong leadership and vision.

Prior to joining our Group, he was, amongst others, the Vice President of Operation with Four Dimension Johnson Security Co., Ltd from November 2009 to January 2011, Delphi Group China from November 1995 to October 2009 and Assistant to Chief Inspector of Quality for In Aircraft Maintenance & Engineering Co., Ltd. from July 1986 to November 1995.

Details of his employment with Delphi Group in China were General Manager of Customer Business Unit (CBU) for Cherry, Geely, Ford Asia Pacific and Shanghai Volkswagen with Delphi Packard Electric System Co., Ltd (Shanghai Branch) from April 2008 to October 2009, General Manager of Customer Business Unit (CBU) for Cherry, Ford Asia Pacific, Export, PSA China, Shanghai Volkswagen with

Delphi Packard Electric System Co., Ltd. (Shanghai Branch) from September 2007 to April 2008, General Manager of Customer Business Unit (CBU) for Export and DPCA General Manager with Delphi Packard Electric System Co., Ltd. (Guangzhou Branch) from May 2006 to August 2007, General Manager of Delphi Packard Electric System Co., Ltd. (Guangzhou Branch) from June 2004 to April 2006 and Operation Manager with Delphi Packard Guangzhou from October 2002 to May 2004, Quality Manager with Delphi Packard China from November 1995 to October 2002.

Mr Zhang was posted by Delphi Group China to Germany for 5-month management training in 1993. From 1995 to 2005, Mr Zhang has attended several managerial training courses including Balance Score Card, Simulation Leadership Workshop, Situational Leadership, 7 Habits, Quality System: ISO/TS16949, Lean Manufacturing, Six Sigma (certified as Black Belt) and Shainin (certified as Red X Technician).

Academically, Mr Zhang holds a Bachelor Degree in Automatic Control from Beijing University of Aeronautics and Astronautics in 1986.

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ANNUAL REPORT 2011

CHEONG HOW ONN, PETERChief Financial Officer

Cheong How Onn joined our Group in June 2011 and is our Group’s Chief Financial Officer. He is responsible for the overall financial management, group reporting, company secretarial and taxation advisory matters.

Mr Cheong started his career with KPMG Peat Marvick as an audit assistant in 1987. At the time he left KPMG, he was a Audit Senior specialising in corporate re-structuring and due diligence work for companies intending to go Initial Public Offerings (IPO) services on the Singapore Exchange (SGX). Subsequently Mr Cheong has been contributing his service to various commercial entities including Oiltools Pte Ltd, JTC International and Hong Leong Corporation. Mr Cheong has successfully led several assignments as Financial Controller of the respective companies in Corporate Re-structuring, Merger & Acquisitions, Project Financing, Investment review, Risk Control review and Internal control review with the objective of developing action plans to enhance efficiency and effectiveness of their business. Mr Cheong has wide experience in Financial Management, Treasury and Accounting for businesses ranging from manufacturing, property development and trading & distribution businesses located in Singapore, United Kingdom, Thailand and China.

Currently, Mr Cheong is a Certified Public Accountant of the Institute of Certified Public Accountants of Singapore (ICPAS).

Academically, Mr Cheong holds a Bachelor in Accountancy degree from the University of Singapore in 1986.

ZHOU PINGChief Operating Officer

Ms Zhou Ping has been with our Group since 1990 and is our Company’s Chief Operating Officer and Director and Management Representative of Quality Management System of our Group’s major operating subsidiary, Henan Tianhai Electric Co., Ltd. Ms Zhou started her employment with our Group after she graduated.

Ms Zhou is responsible to oversee the operation activities of our Group. Prior to her appointment as our Company’s Chief Operating Officer, Ms Zhou held various senior positions in our Group including the Department Heads of Quality and Logistic Department and Purchasing and Information Centre Department.

Ms Zhou is currently an Engineer conferred by the Hebi Municipal Government, an Internal Auditor for QS9000, TS16949 and ISO14000 of TUV Rheinland China Academy and a QC Group Activity Diagnostic Professional conferred by the Henan Province Machinery Industry Quality Management Association.

Academically, Ms Zhou holds a Master Degree in EMBA from Zhongnan University of Economics and Law and College Degree in Mechanical Design Manufacturing from Henan University of Science and Technology, which she obtained in 2000 and 1994 respectively.

Board of DIrectorsWang Laisheng (Executive Chairman andPresident)Li Delin (Deputy Executive Chairman)Shen Zhifu (Executive Director)Zhang Jingtang (Executive Director)Sim Hong Boon (Lead Independent Director)Zhang Shulin (Independent Director)Ho Ker Chern (Independent Director)

Audit CommitteeHo Ker Chern (Chairman)Sim Hong BoonZhang Shulin

Nominating CommitteeSim Hong Boon (Chairman)Zhang ShulinHo Ker Chern

Remuneration CommitteeZhang Shulin (Chairman) Sim Hong Boon Ho Ker Chern

Company Secretary Cheong How Onn (Appointed on 01 June 2011)

Management TeamWang Laisheng (Executive Chairman and President)Li Delin (Deputy Executive Chairman)Zhang Ying (Chief Executive Officer)Zhang Jingtang (Vice Chief Executive Officer)Cheong How Onn (Chief Financial Officer)Zhou Ping (Chief Operating Officer)Qin Hong (Vice President, Connectors)Chang Guoting (Vice President, Wire Harness)Shen Zhifu(Vice President, Electronics) Lan Jun (Vice President, International Business)Li Zhongsheng (General Manager, Finance)Ding Yuanqi (General Manager, Administration and Human Resources)Guo Liquan (General Manager, Purchasing)

Bermuda Resident RepresentativeAppleby Services (Bermuda) LtdCanon’s Court22 Victoria StreetHamilton HM12Bermuda

Registered OfficeCanon’s Court22 Victoria StreetHamilton HM12Bermuda

Singapore Share Registrar and Share Transfer AgentB.A.C.S. Private Limited63 Cantonment RoadSingapore 089758

Bermuda Share RegistrarAppleby Management (Bermuda) Limited41a Cedar AvenueArgyle HouseHamilton HM12Bermuda

AuditorsPricewaterhousecoopers LLPCertified Public Accountants 8 Cross Street, #17-00PWC Building Singapore 048424Partner-in-charge: Tham Tuck Seng (Appointed on 29 April 2011)

Company Registration Number34300

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CORPORATE INFORMATION


CORPORATE GOVERNANCE

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The Board of Directors acknowledges the importance of good corporate governance and continues to affi rm their commitment by maintaining a high standard of corporate governance within the Company. Good corporate governance provides the framework for an ethical and accountable corporate environment, which will safeguard the interests of shareholders, enhance shareholders’ value and encourage investors’ confi dence.

This report outlines the Company’s corporate governance processes and activities that were in place during the fi nancial year ended 31 December 2011 (“FY2011”), with specifi c reference made to each of the principles and guidelines of the Code of Corporate Governance 2005 (the “Code”). Deviations from the Code are explained below. The Company has generally adhered to the principles and guidelines as set out in the Code.

BOARD MATTERS

Principle 1: Every company should be headed by an effective Board to lead and control the Company. The Board is collectively responsible for the success of the Company. The Board works with the Management to achieve this and the Management remains accountable to the Board.

The Board is entrusted with the responsibility for the corporate governance of the Company. It designates the overall strategy for the Company. It also supervises the executive management and monitors their performance periodically.

Apart from their statutory responsibilities, the Board is responsible for: (i) Reviewing the financial performance and condition of the Group;

(ii) Approving the Group’s strategic plans, key operational initiatives, major investment and funding decisions; and

(iii) Identifying principal risks of the Group’s businesses and ensuring the implementation of appropriate systems to manage risks.

The Board will hold a minimum of four formal meetings each year, and convene additional meetings pertaining to particular matters when necessary.

Board Committees

Board Audit Nominating Remuneration

Number of meetings held 4 4 1 1

Number of meetings attended

Mr Wang Laisheng 4 – – –

Mr Li Delin 4 – – –

Mr Shen Zhifu 4 – – –

Mr Zhang Jingtang¹ 4 – – –

Mr Sim Hong Boon² 2 2 1 1

Mr Zhang Shulin 3 3 1 1

Mr Ho Ker Chern³ 4 4 1 1


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Matters which specifi cally require the Board’s decision or approval include those involving corporate strategies and business plans, investment and divestment proposals, funding decisions of the Group, nomination of Board of Directors and appointment of key personnel, quarterly and full-year results announcement, the annual report and accounts, material acquisitions and disposal of assets, and all matters of strategic importance.

All other matters are delegated to committees of the Board whose actions are monitored and endorsed by the Board. These committees include the Audit Committee, the Nominating Committee and the Remuneration Committee, all of which operate within clearly defi ned and written terms of reference and functional procedures, which are reviewed on a regular basis. Each of these committees reports its activities regularly to the Board.

The Board ensures that incoming newly appointed Directors will be given an orientation on the Group’s business strategies and operations and governance practices to facilitate the effective discharge of their duties. Newly appointed Directors will also be provided a formal letter setting out their duties and obligations.

Board members have been and will be encouraged to attend seminars and receive training to improve themselves in the discharge of their duties as Directors. The Company will work closely with professionals to provide its Directors with updates on changes to relevant laws, regulations and accounting standards.

Directors are also provided with an insight into the Group’s operational facilities and periodically meet with the Management to gain a better understanding of the Group’s business operations. The Board as a whole is updated on risks management and the key changes in the relevant regulatory which have an important bearing on the Company and the Directors’ obligations to the Company.

Principle 2: There should be a strong and independent element on the Board, which is able to exercise objective judgment on corporate affairs independently, in particular, from Management. No individual or small group of individuals should be allowed to dominate the Board’s decision making.

The Board comprises seven members: Mr Wang Laisheng Executive Chairman and PresidentMr Li Delin Deputy Executive ChairmanMr Shen Zhifu Executive DirectorMr Zhang Jingtang Executive DirectorMr Sim Hong Boon Lead Independent DirectorMr Zhang Shulin Independent DirectorMr Ho Ker Chern Independent Director

Each individual director has been appointed on the basis of the strength of his knowledge, experience and potential to contribute to the proper guidance of the Company and its business.

The Company strives to maintain a resolute and independent element on the Board as provided in the Code. As there are three Independent Directors on the Board, the requirement of the Code that at least one-third of the Board comprise Independent Directors is satisfi ed. The Board considers an Independent Director as one who has no relationship with the Company, its related companies or its offi cers that could interfere, or be reasonably perceived to interfere, with the exercise of the Directors’ independent judgment of the Group’s affairs.


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The Independent Directors have confi rmed that they do not have any relationship with the Company or its related companies or its offi cers that could interfere, or be reasonably perceived to interfere, with the exercise of the Directors’ independent business judgment with a view to the best interests of the Company. The Nominating Committee has reviewed and determined that the said Directors are independent. The independence of each Director has been and will be reviewed annually by the Nominating Committee based on the guidelines set forth in the Code.

The Board has examined its size and is satisfi ed that it is an appropriate size for effective decision-making, taking into account the scope and nature of the operations of the Company. The Nominating Committee is of the view that no individual or small group of individuals shall dominate the Board’s decision-making process.

The Nominating Committee is of the view that the current Board comprises persons who as a group provide capabilities required for the Board to be effective. Details of the Board members’ qualifi cations and experience are presented in this Annual Report under the heading “Board of Directors”.

Principle 3: There should be a clear division of responsibilities at the top of the Company – the working of the Board and the executive responsibility of the Company’s business – which will ensure a balance of power and authority, such that no one individual represents a considerable concentration of power.

The Executive Chairman and President of the Company is Mr Wang Laisheng. The Chief Executive Offi cer of the Company is Mr Zhang Ying. There is a clear division of responsibilities between the Executive Chairman and the Chief Executive Offi cer to ensure that there is an appropriate balance of power, increased accountability and suffi cient capacity of the Board for independent decision-making.

As the Executive Chairman and President of the Company, Mr Wang Laisheng, is responsible for the workings of the Board, ensuring the integrity and effectiveness of the governance process. He ensures smooth and effi cient communication between the Company and the shareholders as well as fostering positive and constructive relations between the Board and Management. He ensures that board meetings are held when necessary and takes an active role in facilitating board proceedings (such as preparing meeting agenda in consultation with the Chief Executive Offi cer) as well as assisting in compliance with the Company’s guidelines on corporate governance.

The Chief Executive Offi cer of the Company, Mr Zhang Ying, who is not a member of the Board, manages the business of the Company and implements the Board’s decisions. He is also in charge of the marketing department and instrumental in planning strategic alliances which are benefi cial to the Company.

Principle 4: There should be a formal and transparent process for the appointment of new directors to the Board.

The Nominating Committee comprises three Independent Directors, namely, Mr Sim Hong Boon (Committee Chairman), Mr Zhang Shulin and Mr Ho Ker Chern. The Nominating Committee meets at least once a year or as and when necessary. Its focus is guided by the terms of reference adopted from the Corporate Governance Code.

The principal role and functions of the Nominating Committee are, as follows:

- to make recommendations to the Board on all board appointments and re-nominations having regard to the director’s contribution and performance;


20

- to ensure that all directors submit themselves for re-nomination and re-election at regular intervals and at least once every three years;

- to determine annually whether a director is independent, taking into account the defi nition of an Independent Director in the Code;

- to decide whether a director is able to and has adequately carried out his duties as a director of the Company, in particular, where the director concerned has multiple board representations;

- to assess the effectiveness of the Board as a whole and the contribution by each director to the effectiveness of the Board; and

- to carry out such other duties as may be agreed to by the Nominating Committee and the Board.

The Nominating Committee will ensure that there is a formal and transparent process for all appointments to the Board. It has adopted written terms of reference defi ning its membership, administration and duties. A meeting has been held to review the independent status of each member of the new Board and to nominate each of them for re-appointment at the forthcoming annual general meeting (“AGM”).

Bye-Law 104 of the Company’s Bye-Laws requires one-third of the Directors to retire from offi ce at least once every three years at an AGM and the retiring Directors are eligible to offer themselves for re-election. The Nominating Committee recommended to the Board that Mr Sim Hong Boon, Mr Li Delin and Mr Zhang Shulin be nominated for re-election at the forthcoming AGM.

Bye-Law 107B provides that any new director appointed shall hold offi ce only until the next following AGM and shall then be eligible for re-election at the meeting. There were no new Directors appointed in 2011.

The date of initial appointment and last re-election of each director, together with their directorships in other listed Companies are set out below:

Name Appointment Date of initial appointment

Date of last re-election

Directorship in other listed companies

WANG LAISHENG

Executive Chairman and President

21 September 2007

29 April 2011 None

LI DELIN Deputy ExecutiveChairman

21 September 2007

28 April 2008 None

SHEN ZHIFU Executive Director 21 September 2007

29 April 2011 None

ZHANG JINGTANG

Executive Director 1 July 2010 29 April 2011 None

SIM HONG BOON

Lead IndependentDirector

21 September 2007

28 April 2008 China SportsInternational Limited

ZHANG SHULIN IndependentDirector

21 September 2007

28 April 2008 None

HO KER CHERN IndependentDirector

6 May 2010 29 April 2011 None


21

Principle 5: There should be a formal assessment of the effectiveness of the Board as a whole and the contribution of each director to the effectiveness of the Board.

The Company believes that the Board’s performance is ultimately refl ected in the performance of the Company. The Board is charged with two key responsibilities: setting strategic directions and ensuring the effectiveness of the Company.

The Nominating Committee continued to use existing internal guidelines to evaluate the Board’s performance and effectiveness as a whole and the performance of individual Directors, based on performance criteria set by the Board. For the evaluation of the Board performance, the criteria include return on assets, return on equity and the Company’s share price performance which allow the Company to make comparisons with its industry peers and are linked to long-term shareholders’ value.

The assessment process involves and includes obtaining input from Board members, applying the performance criteria of the Nominating Committee which have been approved by the Board. Such input is collated and reviewed by the Chairman of the Nominating Committee, who presents a summary of the overall assessment to the Nominating Committee for review. Areas where the Board’s performance and effectiveness could be enhanced and recommendations for improvements are then submitted to the Board for discussion and, where appropriate, approval for implementation.

The individual performance criteria include qualitative and quantitative factors such as performance of principal functions and fi duciary duties, level of participation at meetings and attendance record.

Principle 6: In order to fulfi ll their responsibilities, Board members should be provided with complete, adequate and timely information prior to board meetings and on an on-going basis.

Each member of the Board has full access to such information regarding the Company as may be required for the execution of his duties and responsibilities. Prior to each Board meeting, the members of the Board are each provided with the relevant documents and information necessary, including background and explanatory statements, fi nancial statements, budgets, forecasts and progress reports of the Company’s business operations, for them to familiarise themselves and comprehend the issues to be contemplated and make well and informed decisions thereon.

As a general rule, notices are sent to the Directors one week in advance of Board meetings, followed by the Board papers in order for the Directors to be adequately prepared for the meetings. Senior management personnel, if required, will attend board meetings to address queries from the Directors. The Directors also have unrestricted access to the Company’s senior management.

The Directors have separate and independent access to the Company Secretary. The Company Secretary attends all Board meetings and ensures that Board procedures and the provisions of applicable laws, the Bye-Laws and the Listing Manual of the SGX-ST are followed. The Company Secretary also assists with the circulation of Board papers and updates the Directors on changes in laws and regulations relevant to the Group. The appointment and removal of the Company Secretary is a matter for the Board as a whole.

REMUNERATION MATTERS

Principle 7: There should be a formal and transparent procedure for fi xing the remuneration packages of individual directors. No director should be involved in deciding his own remuneration.

The members of the Company’s Remuneration Committee are three Independent Directors, Mr Zhang Shulin (Committee Chairman), Mr Sim Hong Boon and Mr Ho Ker Chern. The Remuneration Committee meets at least once a year with all members of the committee in attendance.


22

The principal role and functions of the Remuneration Committee are, as follows:

- to recommend to the Board a framework of remuneration for the directors and senior management;

- to determine specifi c remuneration packages for each executive director;

- in the case of service contracts of directors, to review and to recommend to the Board the terms of renewal of the service contracts;

- to consider the various disclosure requirements for directors’ and key executives’ remuneration, particularly those required by regulatory bodies such as the Singapore Exchange Securities Trading Limited, and ensure that there is adequate disclosure in the fi nancial statements to ensure and enhance transparency between the Company and relevant interested parties;

- to administer any share option or share incentive scheme of the Company; and

- to carry out such other duties as may be agreed to by the Remuneration Committee and the Board.

The Remuneration Committee had been established for the purpose of ensuring that there is a formal and transparent procedure for fi xing the remuneration packages of individual Directors. All aspects of the remuneration, including but not limited to Directors’ fees, salaries, allowances, bonuses, options and benefi ts in kind will be reviewed by the Remuneration Committee. The ultimate principle is that no Director should be involved in determining his own remuneration. It has adopted written terms of reference defi ning its membership, functions and administration.

In its review and approval of the recommendations on remuneration policies and packages for the Directors, the Remuneration Committee covers all aspects of remuneration including but not limited to Directors’ fees, salaries, allowances, bonuses, share options and benefi ts-in-kind. The Remuneration Committee’s recommendations are made in consultation with the management and submitted for endorsement by the entire Board.

Remuneration of senior management staff is reviewed by the Company’s Human Resources Department in consultation with the senior management. The review takes into consideration the value-added and the extent of contribution of the staff towards the fi nancial health and business needs of the Company. The Company will offer competitive remuneration packages to recruit, motivate and retain valuable staff. The Remuneration Committee also administers the employee share option scheme of the Company.

The Remuneration Committee members will abstain from deliberations in respect of their own remuneration and the Remuneration Committee is empowered to review human resource management policies of the Group.

In addition, the remuneration of employees who are related to the Directors and substantial shareholders of the Company will be reviewed annually by the Remuneration Committee to ensure that their remuneration packages are in line with our staff remuneration guidelines and commensurate with their respective job scopes and level of responsibilities. Any bonuses, pay increase and/or promotions for these related employees will also be subject to the review and approval of the Remuneration Committee. In the event that a member of the Remuneration Committee is related to the employee under review, he will abstain from the review.


23

Principle 8: The level of remuneration should be appropriate to attract, retain and motivate the directors needed to run the Company successfully but companies should avoid paying more than is necessary for this purpose. A signifi cant proportion of executive directors remuneration should be structured so as to link rewards to corporate and individual performance.

In determining remuneration packages, the Remuneration Committee will ensure that the Directors are adequately but not excessively remunerated as compared to the industry standards.

The remuneration policy of the Company seeks, amongst other things, to align the interests of employees with the Company, to reward and encourage performance based on its core values and to ensure that remuneration is commercially competitive to attract and retain talent. The typical remuneration package consists of fi xed and variable components, with the base salary making up the fi xed component. The variable component can be in the form of a performance bonus, share options, performance shares and/or other long-term incentives.

Independent Directors are paid a fee which also takes into consideration market practices and norms. Independent Directors’ fees are to be approved by shareholders at Annual General Meeting.

Principle 9: Each company should provide clear disclosure of its remuneration policy, level and mix of remuneration, and the procedure for setting remuneration in the Company’s annual report. It should provide disclosure in relation to its remuneration policies to enable investors to understand the link between remuneration paid to directors and key executives, and performance.

The Remuneration Committee recommends to the Board a framework of remuneration for the Board and senior management personnel to ensure that the structure is competitive and suffi cient to attract, retain and motivate senior management to run the Company successfully in order to maximize shareholders’ value. The recommendations of the Remuneration Committee on the remuneration of Directors and senior management will be submitted for endorsement by the Board. The members of the Remuneration Committee do not participate in any decisions concerning their own remuneration.

The breakdown, showing the level and mix of each individual Director’s remuneration in the fi nancial period under review by percentage (%) is, as follows:

Remuneration Bandand Name of Director Salary Directors fees*

Performancebonus Other benefi ts

Below $250,000

Mr Wang Laisheng 89% – 1% 10%

Mr Shen Zhifu 99% – 1% –

Mr Li Delin 89% – 1% 10%

Mr Zhang Jingtang 89% – 1% 10%

Mr Sim Hong Boon – 100% – –

Mr Zhang Shulin – 100% – –

Mr Ho Ker Chern – 100% – –

* these fees are subject to approval of the shareholders at the forthcoming AGM.


24

The top fi ve executives (who were not Directors) of the Group during the fi nancial year under review fell within the remuneration band of below $250,000:

Remuneration Bandand Name of Key Executive Salary Performance bonus Other benefi ts

Mr Zhang Ying 88% 8% 4%

Mr Cheong How Onn 87% 7% 5%

Ms Zhou Ping 89% 1% 10%

Mr Qin Hong 89% 1% 10%

Mr Li Zhongsheng 86% 1% 13%

Mr Ding Yuanqi 85% 1% 14%

No employee who was an immediate family member of a Director was paid more than S$150,000 during FY2011. “Immediate family member” means the spouse, child, adopted child, step-child, brother, sister, and parent of such person.

ACCOUNTABILITY AND AUDIT

Principle 10: The Board is accountable to the shareholders while the Management is accountable to the Board. The Board should present a balanced and understandable assessment of the Company’s performance, position and prospects.

In line with the continuing disclosure obligations of the Company under the SGX-ST Listing Manual, the Board’s policy is that shareholders shall be informed of the Company’s major developments. Information is presented to shareholders on a timely basis through SGXNET and/or the press. In presenting the annual fi nancial statements and half-year and full-year result announcements to its shareholders, the Board’s objective is to present a reasonable understanding of the Group’s fi nancial position, performance and prospects to its shareholders.

The Management currently provides the Board with management accounts of the Group’s performance, position and prospects on a quarterly basis.

Principle 11: The Board should establish an Audit Committee with written terms of reference which clearly set out its authority and duties.

The members of the Company’s Audit Committee are Mr Ho Ker Chern, Mr Sim Hong Boon and Mr ZhangShulin. The Chairman of the Audit Committee is Mr Ho Ker Chern, an Independent Director. The principal role and functions of the Audit Committee are, as follows:

- reviewing with the external auditors the audit plan, their evaluation of the system of internal accounting controls, their audit report, their management letter and the management’s response;

- reviewing the quarterly and full-year results and annual fi nancial statements before submission to the Board for approval, focusing in particular, on signifi cant fi nancial reporting issues, changes in accounting policies and practices, major risk areas, signifi cant adjustments resulting from the audit, the going concern statement, compliance with accounting standards and compliance with applicable accounting standards and stock exchange and statutory/regulatory requirements;


25

- reviewing the internal control (including the review of interested person transactions) and procedures and ensuring the co-ordination between the external auditors and the Management, reviewing the co-operation and assistance given by the Management to the external auditors, and discussing problems and concerns, if any, arising from the interim and fi nal audits and any matters which the auditors may wish to discuss (in the absence of the Management where necessary);

- ensuring that the internal audit function is adequate and that a clear reporting structure is in place between the Audit Committee and the internal auditors, and reviewing the scope and results of the internal audit procedures including the effectiveness of the internal audit function;

- ensuring that a review of the effectiveness of the Company’s material internal controls, including fi nancial, operational and compliance controls, and risk management, is conducted at least annually by the internal and/or external auditors;

- reviewing and discussing with the external auditors, and commissioning and reviewing the fi ndings of internal investigations into, any suspected fraud or irregularity, or suspected failure of internal controls, or suspected infringement of any relevant laws, rules or regulations, which has or is likely to have a material impact on the Group’s operating results and/or fi nancial position, and the management’s response;

- reviewing the risk profi le of the Company, its internal controls and risk management procedures and the appropriate steps to be taken to mitigate and manage risks at acceptable levels as determined by the Board;

- reviewing the scope and results of the audit and its cost effectiveness and the independence and objectivity of the external auditors, and where the external auditors also supply a substantial volume of non-audit services to the Company, keeping the nature and extent of such services under review, so as to balance the maintenance of objectivity and value for money;

- reviewing the independence of the external auditors annually, and considering for recommending to the Board the appointment, remuneration, terms of engagement or re-appointment of the external and internal auditors and matters relating to the resignation or dismissal of the auditors;

- reviewing and approving any interested person transactions falling within the scope of Chapter 9 of the Listing Manual;

- reviewing any potential confl icts of interests that may arise in respect of any Director of the Company for the time being;

- reviewing arrangements by which staff of the Company may, in confi dence, raise concerns about possible impropriety in matters of fi nancial reporting and other matters and the adequacy of procedures for independent investigation and appropriate follow-up actions in response to such complaints;

- reviewing and approving future hedging policy, instruments used for hedging and foreign exchange policy and practices of the Group (if the same becomes applicable to the Group in the future);

- undertaking such other reviews and projects as may be requested by the Board and reporting to the Board its fi ndings from time to time on matters arising and requiring the attention of the Audit Committee; and

- generally undertaking such other functions and duties as may be required by law or the Listing Manual, or by such amendments made thereto from time to time.

The amount of fees paid to auditors for audit services for the fi nancial year ended 31 December 2011 is S$416,000. No non-audit services are rendered by the auditors for the fi nancial year ended 31 December 2011.


26

The Audit committee wishes to report that there were no interested person transactions to be reported for the fi nancial year ended 31 December 2011.

The Audit Committee has adopted written terms of reference defi ning its membership, administration and duties.

The members of the Audit Committee have suffi cient fi nancial and/or management expertise, as assessed by the Board in its business judgment, to discharge the Audit Committee’s functions.

The Audit Committee will meet with the external auditors without the presence of the Management at least once in every fi nancial year.

The Audit Committee from time to time reviews the arrangements by which the staff of the Company may, in confi dence, raise concerns about possible improprieties in matters of fi nancial reporting or other matters, with the objective of ensuring that arrangements are in place for the independent investigation of such matters for appropriate follow-up action.

The Audit Committee has reasonable resources to enable it to discharge its functions properly.

The Company complies with Rules 712 and 715 of the listing manual of the Singapore Exchange Securities Trading Limited in relation to auditing fi rms.

Principle 12: The Board should ensure that the Management maintains a sound system of internal controls to safeguard the shareholders’ investments and the Company’s assets.

The Board acknowledges that it is responsible for the overall internal control framework, but recognises that no cost effective internal control system will preclude all errors and irregularities, as such a system is designed to manage (rather than eliminate the risk of failure) and achieve its business objectives. Such a system can only provide reasonable and not absolute assurance against material misstatement or loss. The Board, in concurrence with the Audit Committee, believes that in the absence of any evidence to the contrary and from due enquiries, the system of internal controls, addressing fi nancial, operational, compliance and risk management system that has been maintained by the Company’s Management throughout FY2011 and up to the date of this Report is adequate to meet the needs of the Company in its current business environment.

Principle 13: The Company should establish an internal audit function that is independent of the activities it audits.

The objective of the internal audit function is to provide an independent review of the effectiveness of the Group’s internal controls and provide reasonable assurance to the Audit Committee and the management that the Group’s risk management, controls and governance processes are adequate and effective.

The Company has engaged Baker Tilly Consultancy (Singapore) Pte Ltd, Certifi ed Public Accountants, Singapore, to conduct a full review on the adequacy and effectiveness of the internal control system of the Group. The internal auditors plan their internal audit schedules in consultation with, but independent of, the Management. The internal audit plan is submitted to the Audit Committee for approval prior to the commencement of the internal audit. The Audit Committee will review the activities of the internal auditors, including overseeing and monitoring of the implementation of improvements required on internal control weaknesses identifi ed.

The Audit Committee had reviewed the annual internal audit plan for FY2011. The Audit Committee is satisfi ed that the internal audit functions have been adequately carried out and has appropriate standing within the Group.


27

In year 2011, the internal auditors had carried out their internal audit review on Tianhai Snowity (Chongqing) Auto Electric Co Ltd and Tianhai Changhe Auto Electric Co Ltd for the following cycles:

Tianhai Snowcity (Chongqing) Auto Electric Co Ltd Revenue Collections; Credit Management; and Inventory Management.

Tianhai Changhe Auto Electric Co Ltd Procurement to payables; and Inventory Management

The Audit Committee reviewed the fi ndings raised by the internal auditors in 2011 and noted no signifi cant internal control weakness. The internal auditors had been requested to follow up with the Management on the implementation of the recommendation and report to the Audit Committee accordingly.

Principle 14: Companies should engage in regular, effective and fair communication with shareholders.

The Company believes in regular and timely communication with investors. The Company welcomes all meetings with investors and analysts.

The Company also encourages shareholders to attend the Company’s general meetings. Board members and key management personnel, as well as the external auditors, will be present to address any queries from shareholders.

Principle 15: Companies should encourage greater shareholder participation at AGMs, and allow shareholders the opportunity to communicate their views on various matters affecting the Company.

The Company is committed to regular and proactive communication with its shareholders in line with continuous disclosure obligations of the Company under the SGX-ST Listing Manual. Pertinent information will be disclosed to shareholders in a timely, fair and equitable manner. The Company does not practise selective disclosure. Price sensitive information is fi rst publicly released before the Company meets with any group of investors or analysts.

Pertinent information is communicated to shareholders through:

1) quarterly and full-year results announcements which are published on the SGXNET and in news releases;

2) the Company’s annual reports that are prepared and issued to all shareholders; and

3) notices of and explanatory memoranda, for AGMs and extraordinary general meetings.

AGMs are the main forum for communication with shareholders. Annual reports and notices of the AGMs are sent to all shareholders. The members of the Audit Committee, Nominating Committee and Remuneration Committee will be present at AGMs to answer questions relating to the work of these committees. The external auditors will also be present to assist the Directors in addressing any relevant queries by shareholders. The Board welcomes the views of shareholders on matters affecting the Company, whether at shareholders’ meetings or on an ad hoc basis.


28

DEALINGS IN SECURITIES

The Group has adopted and implemented policies in line with the SGX-ST’s best practices in relation to the dealing of shares of the Company. The policies have been made known to directors, executive offi cers and any other persons as determined by the Management who may possess unpublished material price- sensitive information of the Group.

The Group has reminded its Directors and offi cers that it is an offence under the Securities and Futures Act, Chapter 289, for a listed issuer or its offi cers to deal in the listed issuer’s securities as well as securities of other listed issuers when the offi cers are in possession of unpublished material price-sensitive information in relation to those securities. Dealings in the Company’s securities during the period commencing one month before any announcement of the Company’s fi nancial statements and ending on the date of the announcements of the results is prohibited. Directors and executives are expected and reminded to observe insider-trading laws at all times even when dealing in securities within permitted trading periods. The Group has further reminded its Directors and offi cers not to deal in the Company’s securities on short- term considerations.

OTHER INFORMATION REQUIRED BY THE SINGAPORE EXCHANGE SECURITIES TRADING LIMITED

Save for the service agreements with our Executive Chairman and Executive Directors, no material contracts to which the Company or its subsidiaries is a party and which involve interests of the Chief Executive Offi cer, Directors or controlling shareholders subsisted at the end of the fi nancial year or have been entered into since the end of the previous fi nancial year.

Non-Audit Fees

There are no Non-Audit Fees payable to the Auditors for the fi nancial year ended 31 December 2011.

Material Contracts

There are no material contracts entered into by the Company and its subsidiaries during the FY2011 or still subsisting as at 31 December 2011 which involved the interests of any of the Directors or controlling shareholders of the Company.

INTERESTED PERSON TRANSACTIONS

There are no interested person transactions (“IPTs”) entered into during the FY2011 under review.

DIRECTORS’ REPORT

29

The directors present their report to the members together with the audited fi nancial statements of the Group and the balance sheet and statement of changes in equity of the Company for the fi nancial year ended 31 December 2011.

1. DIRECTORS

The directors of the Company in offi ce at the date of this report are as follows:

Executive Directors Wang Laisheng (Executive Chairman and President) Li Delin (Deputy Executive Chairman) Shen Zhifu Zhang Jingtang

Independent Directors Sim Hong Boon Zhang Shulin Ho Ker Chern

2. ARRANGEMENTS TO ENABLE DIRECTORS TO ACQUIRE SHARES AND DEBENTURES

Neither at the end of nor at any time during the fi nancial year was the Company a party to any arrangement whose object was to enable the directors of the Company to acquire benefi ts by means of the acquisition of shares in, or debentures of, the Company or any other body corporate.

3. DIRECTORS’ INTERESTS IN SHARES AND DEBENTURES

According to the register of directors’ shareholdings, none of the directors holding offi ce at the end of the fi nancial year had any interests in the shares or debentures of the Company or its related corporations except as follows:

Shareholdings registered in the name of a director

Shareholdings in which a director is deemed to have an interest

At beginning of the year

At end of the year

At beginning of the year

At end of the year

The Company (No. ofordinary shares)

Wang Laisheng (1) – – 193,114,000 193,114,000

Li Delin (2) – – 143,886,000 143,886,000

(1) Wang Laisheng is deemed to have an interest in the 193,114,000 shares held by Zoro Express International Ltd. (“Zoro”), by virtue of his approximately 35.22% benefi cial interest in Zoro. He holds the remaining benefi cial interests in Zoro for and on behalf of certain senior managers of the former Henan Tianhai Electric (Group) Corporation, a collective enterprise which has been restructured as a limited liability company and was indirectly acquired by the Company pursuant to the reverse takeover which was completed in September 2007.

(2) Li Delin is deemed to have an interest in the 143,886,000 shares held by Shine Sound Investments Ltd. (“Shine Sound”), by virtue of his voting control over the shares in Shine Sound. He holds the entire issued share capital in Shine Sound as bare trustee for and on behalf of certain representatives of the employees of the former Henan Tianhai Electric (Group) Corporation, a collective enterprise which has been restructured as a limited liability company and was indirectly acquired by the Company pursuant to the reverse takeover which was completed in September 2007.

There was no change in any of the above-mentioned interests between the end of fi nancial year till the date of this report.

DIRECTORS’ REPORT

30

4. DIRECTORS’ CONTRACTUAL BENEFITS

Since the end of the previous fi nancial year, no director has received or become entitled to receive any benefi ts by reason of a contract made by the Company or a related corporation with the director or with a fi rm of which the director is a member, or with a company in which the director has a substantial fi nancial interest, except for directors’ remuneration as disclosed in the fi nancial statements.

5. AUDIT COMMITTEE

The members of the audit committee at the date of this report are as follows:

Ho Ker Chern – Chairman Sim Hong Boon Zhang Shulin

All members of the Audit Committee are non-executive and independent directors. The Audit Committee carried out its functions in accordance with the Code of Corporate

Governance. In performing those functions, the Committee reviewed:

the audit plan of Company’s independent auditor and any recommendation on internal accounting controls arising from the statutory audit;

the cooperation given by the Group’s management to the independent auditors; and

the balance sheet and statement of changes in equity of the Company and the consolidated fi nancial statements of the Group for the fi nancial year ended 31 December 2011 before their submission to the Board of Directors, as well as the independent auditor’s report on the balance sheet and statement of changes in equity of the Company and the consolidated fi nancial statements of the Group.

The Audit Committee has recommended to the Board that the independent auditor, PricewaterhouseCoopers LLP, be nominated for re-appointment at the forthcoming Annual General Meeting of the Company.

6. Independent Auditor

The independent auditor, PricewaterhouseCoopers LLP, has expressed its willingness to accept re-appointment.

On behalf of the Board

Wang Laisheng Director

Li Delin Director

SINGAPORE5 April 2012

STATEMENT BY DIRECTORS

31

In the opinion of the directors,

(i) the consolidated fi nancial statements of the Group and the balance sheet and the statement of changes in equity of the Company as set out on pages 33 to 94 are drawn up so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2011 and of the results of the business, changes in equity and cash fl ows of the Group and the changes in equity of the Company for the fi nancial year then ended; and

(ii) at the date of this statement there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due.

On behalf of the Board

Wang Laisheng Director

Li Delin Director

SINGAPORE5 April 2012

INDEPENDENT AUDITOR’S REPORTto the Members of China Auto Electronics Group Limited (Incorporated in Bermuda)

32

Report on the Financial Statements

We have audited the accompanying fi nancial statements of China Auto Electronics Group Limited (the “Company”) and its subsidiaries (the “Group”) set out on pages 33 to 94, which comprise the consolidated balance sheet of the Group and balance sheet of the Company as at 31 December 2011, the consolidated statement of changes in equity of the Group and the statement of changes in equity of the Company, the consolidated statement of comprehensive income and the consolidated statement of cash fl ows for the Group for the fi nancial year then ended, and a summary of signifi cant accounting policies and other explanatory information.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation of fi nancial statements that give a true and fair view in accordance with Singapore Financial Reporting Standards, and for devising and maintaining a system of internal accounting controls suffi cient to provide a reasonable assurance that assets are safeguarded against loss from unauthorised use or disposition; and transactions are properly authorised and that they are recorded as necessary to permit the preparation of true and fair profi t and loss accounts and balance sheets and to maintain accountability of assets.

Auditor’s Responsibility

Our responsibility is to express an opinion on these fi nancial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the fi nancial statements are free from material misstatement.

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

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

OpinionIn our opinion, the consolidated fi nancial statements of the Group, the balance sheet and the statement of changes in equity of the Company are properly drawn up in accordance with Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2011, and the results, changes in equity and cash fl ows of the Group and changes in equity of the Company for the fi nancial year ended on that date.

Other Matter

The fi nancial statements for the preceding fi nancial year were reported on by an audit fi rm other than PricewaterhouseCoopers LLP. The auditor’s report dated 18 March 2011 issued by the predecessor audit fi rm on the fi nancial statements for the fi nancial year ended 31 December 2010 was unqualifi ed.

PricewaterhouseCoopers LLPPublic Accountants and Certifi ed Public AccountantsSingapore, 5 April 2012

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFor the fi nancial year ended 31 December 2011

33

Note 2011 2010

RMB’000 RMB’000

Revenue 5 1,536,901 1,624,277

Cost of sales (1,261,325) (1,310,699)

Gross profi t 275,576 313,578

Other items of income

Interest income 3,578 1,942

Other income 6 13,034 3,187

Other items of expense

Other expenses 7 (8,153) (8,314)

Selling and distribution expenses (22,681) (23,248)

Research and development expenses (55,650) (46,136)

General and administrative expenses (133,293) (121,925)

Finance costs 8 (69,146) (33,573)

Share of results of associated company 17 – 109

Profi t before tax 3,265 85,620

Income tax expense 10 (8,233) (10,712)

(Loss)/profi t after tax (4,968) 74,908

Other comprehensive income, net of tax

Currency translation difference 24 2,873 1,166

Total comprehensive (loss)/income for the year (2,095) 76,074

(Loss)/profi t attributable to:

Owners of the Company (6,742) 65,167

Non-controlling interests 1,774 9,741

(4,968) 74,908

Total comprehensive (loss)/income attributable to:

Owners of the Company (3,869) 66,333

Non-controlling interests 1,774 9,741

(2,095) 76,074

(Loss)/earnings per share (RMB cents)

Basic 13 (0.99) 9.56

Diluted 13 (0.99) 9.56

The accompanying notes form an integral part of these fi nancial statements.

BALANCE SHEETAs at 31 December 2011

34

The Group The CompanyNote 2011 2010 2009 2011 2010

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000(Restated) (Restated)

ASSETS

Non-current assets

Property, plant and equipment 14 271,816 231,254 214,037 – –

Intangible assets 15 73,338 68,312 67,195 – –

Interest in subsidiaries 16 – – – 198,512 198,512

Interest in associated companies 17 – 2,063 1,954 – –

Trade and other receivables- noncurrent 20 1,554 7,670 2,114 – –

Deferred tax assets 18 5,956 1,779 1,680 – –

Total non current assets 352,664 311,078 286,980 198,512 198,512

Current assets

Inventories 19 372,516 420,922 343,897 – –

Trade and other receivables 20 708,199 731,485 543,015 326,369 338,483

Financial assets, available-for- sale 21 1,830 2,249 445 – –

Bank deposits pledged 22 334,701 208,598 89,890 – –

Cash and cash equivalents 22 42,905 72,221 45,074 445 554

Total current assets 1,460,151 1,435,475 1,022,321 326,814 339,037

TOTAL ASSETS 1,812,815 1,746,553 1,309,301 525,326 537,549

LIABILITIES

Non-current liability

Deferred income 27 19,174 11,860 11,200 – –

Total non-current liability 19,174 11,860 11,200 – –

Current liabilities

Trade and other payables 25 780,731 643,233 502,316 45,204 41,354

Short-term borrowings 26 489,187 560,018 325,831 6,455 15,056

Provision for income tax 1,415 6,529 15,233 – –

Total current liabilities 1,271,333 1,209,780 843,380 51,659 56,410

NET CURRENT ASSETS 188,818 225,695 178,941 275,155 282,627

TOTAL LIABILITIES 1,290,507 1,221,640 854,580 51,659 56,410

NET ASSETS 522,308 524,913 454,721 473,667 481,139

EQUITY

Share capital 23 490,115 490,115 490,115 623,026 623,026

Other reserves 24 225,445 218,220 209,028 71,753 71,753

Accumulated losses (234,777) (223,683) (280,824) (221,112) (213,640)

Equity attributable to owners of the Company 480,783 484,652 418,319 473,667 481,139

Non-controlling interests 41,525 40,261 36,402 – –

TOTAL EQUITY 522,308 524,913 454,721 473,667 481,139

TOTAL EQUITY AND LIABILITIE 1,812,815 1,746,553 1,309,301 525,326 537,549


STATEMENT OF CHANGES IN EQUITYFor the fi nancial year ended 31 December 2011

35

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.

STATEMENT OF CHANGES IN EQUITYFor the fi nancial year ended 31 December 2011

36

Share capital

RMB’000

Other reservesRMB’000

Accumulated losses

RMB’000

Total equity

RMB’000

Note 23 Note 24

Company

At 1 January 2011 623,026 71,753 (213,640) 481,139

Loss net of tax, representing total comprehensive income for the year – – (7,472) (7,472)

At 31 December 2011 623,026 71,753 (221,112) 473,667

Company

At 1 January 2010 623,026 71,753 (198,900) 495,879

Loss net of tax, representing total comprehensive income for the year – – (14,740) (14,740)

At 31 December 2010 623,026 71,753 (213,640) 481,139


CONSOLIDATED STATEMENT OF CASH FLOWSFor the fi nancial year ended 31 December 2011

37

Note 2011 2010

RMB’000 RMB’000

(Restated)

CASH FLOWS FROM OPERATING ACTIVITIES

Profi t before Tax 3,265 85,620

Adjustments for:

Amortisation of intangible assets 15 2,616 2,134

Depreciation of property, plant and equipment 14 29,430 23,944

Allowance for slow-moving inventories 7 – 9,743

Fair value changes 21 – (4)

(Reversal)/provision of impairment loss on property, plant and equipment 14 (7,803) 7,803

Reversal of allowance for doubtful trade and other receivables 9 (1,312) (20,346)

Write-off of obsolete inventories 9 – 7,817

Loss from disposal of property, plant and equipment 7 1,530 1,687

Write-off of trade and other receivables – 293

Waiver of trade payables 6 (3,086) (206)

Gain on disposal of property, plant and equipment 6 (354) (611)

Interest income (3,578) (1,942)

Interest expense 69,349 33,631

Gain on disposal of investment in associated company 17 (200) –

Amortised government grant 27 (1,186) –

Foreign currency translation loss/(gain) 502 (1,780)

Share of results of an associated company 17 – (109)

Operating profi t before working capital changes 89,173 147,674

Changes in working capital

Inventories 19 48,406 (86,768)

Trade and other receivables 20 24,598 (168,124)

Trade and other payables (55,690) 88,611

Cash generated from operations 106,487 (18,607)

Interest received 3,578 1,942

Income tax paid (17,524) (19,547)

Net cash generated from operating activities 92,541 (36,212)


CONSOLIDATED STATEMENT OF CASH FLOWSFor the fi nancial year ended 31 December 2011

38

Note 2011 2010

RMB’000 RMB’000

(Restated)

CASH FLOWS USED IN INVESTING ACTIVITIES

Purchases of property, plant and equipment (47,730) (53,767)

Purchases of intangible assets (4,514) (828)

Cash received from disposal of an associated company 17 2,263 –

Proceeds from disposal of property, plant and equipment 2,456 6,737

Cash received from assets-related government grants 27 8,500 660

Net cash infl ow from acquisition of subsidiary 22 1,682 –

Cash received from disposal of investment in equity funds 21 419 –

Net cash used in investing activities (36,924) (47,198)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from short-term borrowings 26 653,629 779,987

Repayment of short-term borrowings 26 (724,257) (545,742)

Changes in bills payable 181,971 36,459

Increase in pledged bank deposits 22 (126,103) (118,708)

Interest paid (69,349) (33,631)

Dividends paid to non-controlling interest 25 (119) (11,000)

Capital injections by non-controlling interests – 1,470

Net cash (used in)/generated from fi nancing activities (84,228) 108,835

Net (decrease)/increase in cash and cash equivalents (28,611) 25,425

Exchange gains/losses on cash and cash equivalents (705) 1,722

Cash and cash equivalents at beginning of year 72,221 45,074

Cash and cash equivalents at end of year 22 42,905 72,221


NOTES TO THE FINANCIAL STATEMENTSFor the fi nancial year ended 31 December 2011

39

1. GENERAL

China Auto Electronics Group Limited (the “Company”), is a limited company domiciled and incorporated in Bermuda and listed on the Mainboard of the Singapore Exchange Securities Trading Limited since 9 July 2004.

The registered offi ce of the Company is located at Canon’s Court, 22 Victoria Street, Hamilton HM12, Bermuda. The principal place of business is at 215 East Part of Qibin Road, Qibin District, Hebi, Henan, People’s Republic of China (“PRC”) 458030.

The principal activity of the Company is that of investment holding. The principal activities of its subsidiaries and associated companies are disclosed in Notes 16 and 17 respectively.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(1) Basis of Preparation

These fi nancial statements have been prepared in accordance with Singapore Financial Reporting Standards (“FRS”). The fi nancial statements have been prepared under the historical cost convention, except as disclosed in the accounting policies below.

The preparation of fi nancial statements in conformity with FRS requires management to exercise its judgement in the process of applying the Group’s accounting policies. It also requires the use of certain critical accounting estimates and assumptions. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are signifi cant to the fi nancial statements, are disclosed in Note 4.

Interpretations and amendments to published standards effective in 2011

On 1 January 2011, the Group adopted the new or amended FRS and Interpretations to FRS (“INT FRS”) that are mandatory for application from that date. Changes to the Group’s accounting policies have been made as required, in accordance with the transitional provisions in the respective FRS and INT FRS.

The adoption of these new or amended FRS and INT FRS did not result in substantial changes to the Group’s and Company’s accounting policies and had no material effect on the amounts reported for the current or prior fi nancial years.

(2) Revenue Recognition

Sales comprise the fair value of the consideration received or receivable for the sale of goods in the ordinary course of the Group’s activities. Sales are presented, net of value-added tax, rebates and discounts, and after eliminating sales within the Group.

The Group recognises revenue when the amount of revenue and related cost can be reliably measured, it is probable that the collectability of the related receivables is reasonably assured and when the specifi c criteria for each of the Group’s activities are met.

(a) Sale of goods

Revenue from sale of goods is recognised when the Group has delivered the products to the customers and signifi cant risks and rewards of ownership are transferred to the buyer, there is neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold, the amount of revenue and the costs incurred or to be incurred in respect of the transaction can be measured reliably.


40

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(2) Revenue Recognition (cont’d)

(b) Interest income

Interest income is recognised on a time-proportion basis using the effective interest rate that takes into account the effective yield on the asset.

(c) Dividend income

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

(d) Rental income

Rental income from operating leases (net of any incentives given to the lessees) is recognised on a straight-line basis over the lease term.

(3) Government Grants

Grants from the government are recognised as a receivable at their fair value when there is reasonable assurance that the grant will be received and the Group will comply with all the attached conditions. Receipt of the grant will not of itself provide conclusive evidence that the conditions attaching to the grant have been or will be fulfi lled.

Government grants relating to costs are deferred and recognised as income over the period necessary to match them with the costs that they are intended to compensate. Government grants relating to property, plant and equipment are recognised as deferred income and are credited to the profi t or loss on a straight-line basis over the expected lives of the related assets.

(4) Group accounting

(a) Subsidiaries

(i) Consolidation

Subsidiaries are entities over which the Group has power to govern the fi nancial and operating policies so as to obtain benefi ts from its activities, generally accompanied by a shareholding giving rise to a majority of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date on which control ceases.

In preparing the consolidated financial statements, transactions, balances and unrealised gains on transactions between group entities are eliminated. Unrealised losses are also eliminated but are considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

Non-controlling interests are that part of the net results of operations and of net assets of a subsidiary attributable to the interests which are not owned directly or indirectly by the equity holders of the Company. They are shown separately in the consolidated statement of comprehensive income, statement of changes in equity and balance sheet. Total comprehensive income is attributed to the non-controlling interests based on their respective interests in a subsidiary, even if this results in the non-controlling interests having a defi cit balance.


41


(4) Group accounting (cont’d)

(a) Subsidiaries (cont’d)

(ii) Acquisitions

The acquisition method of accounting is used to account for business combinations by the Group.

The consideration transferred for the acquisition of a subsidiary or business comprises the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary.

Acquisition-related costs are expensed as incurred.

Identifi able assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date.

On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree at the date of acquisition either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net identifi able assets.

The excess of (i) the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the (ii) fair value of the net identifi able assets acquired is recorded as goodwill. Please refer to the paragraph “Intangible assets - Goodwill” for the subsequent accounting policy on goodwill.

(iii) Disposals

When a change in the Group’s ownership interest in a subsidiary results in a loss of control over the subsidiary, the assets and liabilities of the subsidiary including any goodwill are derecognised. Amounts previously recognised in other comprehensive income in respect of that entity are also reclassifi ed to profi t or loss or transferred directly to retained earnings if required by a specifi c Standard.

Any retained equity interest in the entity is remeasured at fair value. The difference between the carrying amount of the retained interest at the date when control is lost and its fair value is recognised in profi t or loss.

Please refer to the paragraph “Investments in subsidiaries and associated companies” for the accounting policy on investments in subsidiaries in the separate fi nancial statements of the Company.


42



(b) Transactions with non-controlling interests

Changes in the Group’s ownership interest in a subsidiary that do not result in a loss of control over the subsidiary are accounted for as transactions with equity owners of the Group. Any difference between the change in the carrying amounts of the non-controlling interest and the fair value of the consideration paid or received is recognised within equity attributable to the equity holders of the Company.

(c) Associated companies

Associated companies are entities over which the Group has signifi cant infl uence, but not control, generally accompanied by a shareholding giving rise to voting rights of 20% and above but not exceeding 50%. Investments in associated companies are accounted for in the consolidated fi nancial statements using the equity method of accounting less impairment losses, if any.

(i) Acquisitions

Investments in associated companies are initially recognised at cost. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued or liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Goodwill on associated companies represents the excess of the cost of acquisition of the associate over the Group’s share of the fair value of the identifi able net assets of the associate and is included in the carrying amount of the investments.

(ii) Equity method of accounting

In applying the equity method of accounting, the Group’s share of its associated companies’ post-acquisition profi ts or losses are recognised in profi t or loss and its share of post-acquisition other comprehensive income is recognised in other comprehensive income. These post-acquisition movements and distributions received from the associated companies are adjusted against the carrying amount of the investments. When the Group’s share of losses in an associated company equals or exceeds its interest in the associated company, including any other unsecured non-current receivables, the Group does not recognise further losses, unless it has obligations to make or has made payments on behalf of the associated company.

Unrealised gains on transactions between the Group and its associated companies are eliminated to the extent of the Group’s interest in the associated companies. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The accounting policies of associated companies have been changed where necessary to ensure consistency with the accounting policies adopted by the Group.


43



(c) Associated companies (cont’d)

(iii) Disposals

Investments in associated companies are derecognised when the Group loses signifi cant infl uence. Any retained equity interest in the entity is remeasured at its fair value. The difference between the carrying amount of the retained interest at the date when signifi cant infl uence is lost and its fair value is recognised in profi t or loss.

Gains and losses arising from partial disposals or dilutions in investments in associated companies in which signifi cant infl uence is retained are recognised in profi t or loss.

Please refer to the paragraph “Investments in subsidiaries and associated companies” for the accounting policy on investments in associated companies in the separate fi nancial statements of the Company.

(5) Property, Plant and Equipment and Depreciation

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. The cost of an item of property, plant and equipment initially recognised includes its purchase price and any cost that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Cost also includes borrowing costs (refer to Note 2-(7) on borrowing costs) and any fair value gains or losses on qualifying cash fl ow hedges of property, plant and equipment that are transferred from the hedging reserve.

Construction-in-progress is not depreciated. Depreciation on other items of property, plant and equipment is calculated using the straight-line method to allocate their depreciable amounts over their estimated useful lives as follows:

Estimated useful livesEstimated residual value as a percentage of cost

Buildings 35 years 5%

Machinery and equipments 5 to 10 years 5%

Furniture, fi ttings and equipment 5 years 5%

Motor vehicles 5 to 10 years 5%

The residual values, estimated useful lives and depreciation method of property, plant and equipment are reviewed, and adjusted as appropriate, at each balance sheet date. The effects of any revision are recognised in profi t or loss when the changes arise.

Subsequent expenditure relating to property, plant and equipment that has already been recognised is added to the carrying amount of the asset only when it is probable that future economic benefi ts associated with the item will fl ow to the Group and the cost of the item can be measured reliably. All other repair and maintenance expenses are recognised in profi t or loss when incurred.

On disposal of an item of property, plant and equipment, the difference between the disposal proceeds and its carrying amount is recognised in profi t or loss. Any amount in revaluation reserve relating to that asset is transferred to retained profi ts directly.


44


(6) Intangible Assets

Intangible assets are accounted for using the cost model. Capitalised costs are amortised on a straight-line basis over their estimated useful lives as they are considered fi nite. After initial recognition, they are carried at cost less accumulated amortisation and accumulated impairment losses, if any. In addition, they are subject to impairment testing.

Intangible assets are written off where, in the opinion of the directors, no further future economic benefi ts are expected to arise.

(i) Land use rights

Land use rights are initially measured at cost. Following initial recognition, land use rights are measured at cost less accumulated amortisation and accumulated impairment losses.

The land use rights are amortised on a straight-line basis over 50 years, which is the lease term of the land.

(ii) Goodwill

Goodwill on acquisitions of subsidiaries and businesses on or after 1 January 2010 represents the excess of (i) the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over (ii) the fair value of the net identifi able assets acquired.

Goodwill on acquisition of subsidiaries and businesses prior to 1 January 2010 and on acquisition of joint ventures and associated companies represents the excess of the cost of the acquisition over the fair value of the Group’s share of the net identifi able assets acquired.

Goodwill on subsidiaries is recognised separately as intangible assets and carried at cost less accumulated impairment losses.

Goodwill on associated companies is included in the carrying amount of the investments.

Gains and losses on the disposal of subsidiaries and associated companies include the carrying amount of goodwill relating to the entity sold, except for goodwill arising from acquisitions prior to 1 January 2001. Such goodwill was adjusted against retained profi ts in the year of acquisition and is not recognised in profi t or loss on disposal.

(iii) Computer software and technology know-how

Computer software and technology know-how are initially capitalised at cost which includes the purchase price and other directly attributable cost of preparing the asset for its intended use.

Computer software and technology know-how are subsequently carried at cost less accumulated amortisation and accumulated impairment losses. These costs are amortised to profi t or loss using the straight-line method over their estimated useful lives in ten years.

The amortisation period and amortisation method of intangible assets other than goodwill are reviewed at least at each balance sheet date. The effects of any revision are recognised in profi t or loss when the changes arise.


45

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (7) Borrowing costs

Borrowing costs are recognised in profi t or loss using the effective interest method except for those costs that are directly attributable to the construction or development of properties and assets under construction. This includes those costs on borrowings acquired specifi cally for the construction or development of properties and assets under construction, as well as those in relation to general borrowings used to fi nance the construction or development of properties and assets under constructions.

The actual borrowing costs incurred during the period up to the issuance of the temporary occupation permit less any investment income on temporary investment of these borrowings, are capitalised in the cost of the property under development. Borrowing costs on general borrowings are capitalised by applying a capitalisation rate to construction or development expenditures that are fi nanced by general borrowings.

(8) Investments in subsidiaries and associated companies

Investments in subsidiaries and associated companies are carried at cost less accumulated impairment losses in the Company’s balance sheet. On disposal of investments in subsidiaries and associated companies, the difference between disposal proceeds and the carrying amounts of the investments are recognised in profi t or loss.

(9) Impairment of non-fi nancial assets

(a) Goodwill

Goodwill recognised separately as an intangible asset is tested for impairment annually and whenever there is indication that the goodwill may be impaired.

For the purpose of impairment testing of goodwill, goodwill is allocated to each of the Group’s cash-generating-units (“CGU”) expected to benefi t from synergies arising from the business combination.

An impairment loss is recognised when the carrying amount of a CGU, including the goodwill, exceeds the recoverable amount of the CGU. The recoverable amount of a CGU is the higher of the CGU’s fair value less cost to sell and value-in-use.

An impairment loss on goodwill is recognised as an expense and is not reversed in a subsequent period.

The total impairment loss of a CGU is allocated fi rst to reduce the carrying amount of goodwill allocated to the CGU and then to the other assets of the CGU pro-rata on the basis of the carrying amount of each asset in the CGU.


46


(9) Impairment of non-fi nancial assets (cont’d)

(b) (1) Intangible assets, (2) Property, plant and equipment, (3) Investments in subsidiaries and associated companies (cont’d)

Intangible assets, property, plant and equipment and investments in subsidiaries, associated companies and joint ventures are tested for impairment whenever there is any objective evidence or indication that these assets may be impaired.

For the purpose of impairment testing, the recoverable amount (i.e. the higher of the fair value less cost to sell and the value-in-use) is determined on an individual asset basis unless the asset does not generate cash infl ows that are largely independent of those from other assets. If this is the case, the recoverable amount is determined for the CGU to which the asset belongs.

If the recoverable amount of the asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount.

The difference between the carrying amount and recoverable amount is recognised as an impairment loss in profi t or loss, unless the asset is carried at revalued amount, in which case, such impairment loss is treated as a revaluation decrease. Please refer to the paragraph “Property, plant and equipment” for the treatment of a revaluation decrease.

An impairment loss for an asset other than goodwill is reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. The carrying amount of this asset is increased to its revised recoverable amount, provided that this amount does not exceed the carrying amount that would have been determined (net of any accumulated amortisation or depreciation) had no impairment loss been recognised for the asset in prior years.

A reversal of impairment loss for an asset other than goodwill is recognised in profi t or loss, unless the asset is carried at revalued amount, in which case, such reversal is treated as a revaluation increase. However, to the extent that an impairment loss on the same revalued asset was previously recognised as an expense, a reversal of that impairment is also credited to profi t or loss.

(10) Financial assets

(a) Classifi cation

The Group classifi es its fi nancial assets in the following categories: at fair value through profi t or loss, loans and receivables, held-to-maturity, and available-for-sale. The classifi cation depends on the nature of the asset and the purpose for which the assets were acquired. Management determines the classifi cation of its fi nancial assets at initial recognition and in the case of assets classifi ed as held-to-maturity, re-evaluates this designation at each balance sheet date.


47

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (10) Financial assets (cont’d)

(a) Classifi cation (cont’d)

(i) Financial assets at fair value through profi t or loss

This category has two sub-categories: fi nancial assets held for trading, and those designated at fair value through profi t or loss at inception. A fi nancial asset is classifi ed as held for trading if it is acquired principally for the purpose of selling in the short term. Financial assets designated as at fair value through profi t or loss at inception are those that are managed and their performances are evaluated on a fair value basis, in accordance with a documented Group investment strategy. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are presented as current assets if they are either held for trading or are expected to be realised within 12 months after the balance sheet date.

(ii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are presented as current assets, except for those expected to be realised later than 12 months after the balance sheet date which are presented as non-current assets. Loans and receivables are presented as “trade and other receivables” (Note 20), “bank deposits pledged” and “cash and cash equivalents” (Note 22) on the balance sheet.

(iii) Held-to-maturity fi nancial assets

Held-to-maturity fi nancial assets are non-derivative fi nancial assets with fi xed or determinable payments and fi xed maturities that the Group’s management has the positive intention and ability to hold to maturity. If the Group were to sell other than an insignifi cant amount of held-to-maturity fi nancial assets, the whole category would be tainted and reclassifi ed as available-for-sale. They are presented as non-current assets, except for those maturing within 12 months after the balance sheet date which are presented as current assets.

(iv) Available-for-sale fi nancial assets

Available-for-sale fi nancial assets are non-derivatives that are either designated in this category or not classifi ed in any of the other categories. They are presented as non-current assets unless the investment matures or management intends to dispose of the assets within 12 months after the balance sheet date.


48


(b) Recognition and derecognition

Regular way purchases and sales of fi nancial assets are recognised on trade date - the date on which the Group commits to purchase or sell the asset.

Financial assets are derecognised when the rights to receive cash fl ows from the fi nancial assets have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. On disposal of a fi nancial asset, the difference between the carrying amount and the sale proceeds is recognised in profi t or loss. Any amount in other comprehensive income relating to that asset is reclassifi ed to profi t or loss.

Trade receivables that are factored out to banks and other fi nancial institutions with recourse to the Group are not derecognised until the recourse period has expired and the risks and rewards of the receivables have been fully transferred. The corresponding cash received from the fi nancial institutions is recorded as borrowings.

(c) Initial measurement

Financial assets are initially recognised at fair value plus transaction costs except for fi nancial assets at fair value through profi t or loss, which are recognised at fair value. Transaction costs for fi nancial assets at fair value through profi t or loss are recognised immediately as expenses.

(d) Subsequent measurement

Available-for-sale fi nancial assets and fi nancial assets at fair value through profi t or loss, are subsequently carried at fair value. Loans and receivables and held-to-maturity fi nancial assets are subsequently carried at amortised cost using the effective interest method.

Changes in the fair values of fi nancial assets at fair value through profi t or loss including the effects of currency translation, interest and dividends, are recognised in profi t or loss when the changes arise.

Interest and dividend income on available-for-sale fi nancial assets are recognised separately in income. Changes in the fair values of available-for-sale debt securities (i.e. monetary items) denominated in foreign currencies are analysed into currency translation differences on the amortised cost of the securities and other changes; the currency translation differences are recognised in profi t or loss and the other changes are recognised in other comprehensive income and accumulated in the fair value reserve. Changes in fair values of available-for-sale equity securities (i.e. non-monetary items) are recognised in other comprehensive income and accumulated in the fair value reserve, together with the related currency translation differences.


49


(e) Impairment

The Group assesses at each balance sheet date whether there is objective evidence that a fi nancial asset or a group of fi nancial assets is impaired and recognises an allowance for impairment when such evidence exists.

(i) Loans and receivables / Held-to-maturity fi nancial assets

Signifi cant fi nancial diffi culties of the debtor, probability that the debtor will enter bankruptcy, and default or signifi cant delay in payments are objective evidence that these fi nancial assets are impaired.

The carrying amount of these assets is reduced through the use of an impairment allowance account which is calculated as the difference between the carrying amount and the present value of estimated future cash fl ows, discounted at the original effective interest rate. When the asset becomes uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are recognised against the same line item in profi t or loss.

The impairment allowance is reduced through profi t or loss in a subsequent period when the amount of impairment loss decreases and the related decrease can be objectively measured. The carrying amount of the asset previously impaired is increased to the extent that the new carrying amount does not exceed the amortised cost had no impairment been recognised in prior periods.

(ii) Available-for-sale fi nancial assets

In addition to the objective evidence of impairment described in Note 2-(10)(e)(i), a signifi cant or prolonged decline in the fair value of an equity security below its cost is considered as an indicator that the available-for-sale fi nancial asset is impaired.

If any evidence of impairment exists, the cumulative loss that was previously recognised in other comprehensive income is reclassifi ed to profi t or loss. The cumulative loss is measured as the difference between the acquisition cost (net of any principal repayments and amortisation) and the current fair value, less any impairment loss previously recognised as an expense. The impairment losses recognised as an expense on equity securities are not reversed through profi t or loss.

(f) Offsetting fi nancial instruments

Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.


50

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (11) Finance guarantee

Financial guarantees are initially recognised at their fair values plus transaction costs in the Company’s balance sheet.

Financial guarantees are subsequently amortised to profi t or loss over the period of the Group’s borrowings, unless it is probable that the Group will reimburse the bank for an amount higher than the unamortised amount. In this case, the fi nancial guarantees shall be carried at the expected amount payable to the bank in the Group’s balance sheet.

Intra-group transactions are eliminated on consolidation.

(12) Bank Borrowings

Borrowings are presented as current liabilities unless the Group has an unconditional right to defer settlement for at least 12 months after the balance sheet date, in which case they are presented as non-current liabilities.

Borrowings are initially recognised at fair value (net of transaction costs) and subsequently carried at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profi t or loss over the period of the borrowings using the effective interest method.

(13) Trade and other payables

Trade and other payables represent liabilities for goods and services provided to the Group prior to the end of fi nancial year which are unpaid. They are classifi ed as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.

Trade and other payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method.

(14) Operating Lease

Leases where substantially all risks and rewards incidental to ownership are retained by the lessors are classifi ed as operating leases. Rentals on operating leases are charged to profi t or loss on a straight-line basis over the lease term. Lease incentives, if any, are recognised as an integral part of the net consideration agreed for the use of the leased asset. Penalty payments on early termination, if any, are recognised in profi t or loss when incurred.

(15) Inventories

Inventories are carried at the lower of cost and net realisable value. Cost is determined using the weighted average method. The cost of fi nished 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. Cost also includes any gains or losses on qualifying cash fl ow hedges of foreign currency purchases of inventories. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and applicable variable selling expenses.


51

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (16) Income Tax

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

The tax currently payable is based on taxable profi t for the year. Taxable profi t differs from profi t as reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are not taxable or tax deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted in countries where the Company and subsidiaries operate by the end of reporting period.

Deferred income tax is recognised on differences between the carrying amounts of assets and liabilities in the fi nancial statements and the corresponding tax bases used in the computation of taxable profi t, and are accounted for using the liability method. Deferred income tax liabilities are generally recognised for all taxable temporary differences and deferred income tax assets are recognised to the extent that it is probable that taxable profi ts will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profi t nor the accounting profi t.

Deferred income tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associated companies, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

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

Deferred income tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised based on the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off current income tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current income tax assets and liabilities on a net basis.

Current and deferred income tax are recognised as an expense or income in profi t or loss, except when they relate to items credited or debited outside profi t or loss (either in other comprehensive income or directly in equity), in which case the tax is also recognised outside profi t or loss (either in other comprehensive income or directly in equity), or where they arise from the initial accounting for a business combination. In the case of a business combination, the tax effect is taken into account in calculating goodwill or determining the excess of the acquirer’s interest in the net fair value of the acquiree’s identifi able assets, liabilities and contingent liabilities over cost.


52

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (17) Provisions

Provisions for legal claim are recognised when the Group has a present legal or constructive obligation as a result of past events, it is more likely than not that an outfl ow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses.

Other provisions are measured at the present value of the expenditure expected to be required to settle the obligation using a pre-tax discount rate that refl ects the current market assessment of the time value of money and the risks specifi c to the obligation. The increase in the provision due to the passage of time is recognised in the statement of comprehensive income as fi nance expense.

Changes in the estimated timing or amount of the expenditure or discount rate are recognised in profi t or loss when the changes arise.

(18) Employee compensation

Employee benefi ts are recognised as an expense, unless the cost qualifi es to be capitalised as an asset.

(a) Defi ned contribution plans - Retirement benefi ts

The Group participates in the national pension schemes as defi ned by the laws of the countries in which it has operations. The Company makes contributions for the employee in Singapore to the Central Provident Fund scheme in Singapore, a defi ned contribution pension scheme. Payments to defi ned contribution plans - retirement benefi ts are charged as an expense as they fall due.

Pursuant to the relevant regulations of the People’s Republic of China (“PRC”) government, the PRC subsidiaries of the Group (“PRC Subsidiaries”) have participated in central pension schemes (“the Schemes”) operated by local municipal government whereby the PRC subsidiaries are required to contribute a certain percentage of the basic salaries of their employees to the Schemes to fund their retirement benefi ts. The local municipal governments undertake to assume the retirement benefi t obligations of all existing and future retired employees of the PRC subsidiaries. The only obligation of the PRC subsidiaries with respect to the Schemes is to pay the ongoing required contributions under the Schemes mentioned above. Contributions under the Schemes are charged to the consolidated statement of comprehensive income as incurred.

(b) Share-Based Compensation

For the equity-settled share-based compensation transactions, the fair value of the employee services received in exchange for the grant of the options is recognised as an expense with a corresponding increase in the share option reserve over the vesting period. The total amount to be expensed on a straight-line basis over the vesting period is determined by reference to the fair value of the options granted excluding the effect of non-market conditions such as profi tability and sales growth targets. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable.


53

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (18) Employee compensation (cont’d)

(b) Share-Based Compensation (cont’d)

Fair value is measured using the Black-Scholes pricing model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. At the end of each reporting period, the entity revises its estimates of the number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates, if any, in profi t or loss, with a corresponding adjustment to equity over the remaining vesting period. The proceeds received net of any directly attributable transaction costs are credited to share capital when the options are exercised.

(19) Currency translation

(a) Functional and presentation currency

Items included in the fi nancial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates (“functional currency”). The fi nancial statements are presented in Renminbi (“RMB”), which is the functional currency of the Company.

(b) Transactions and balances

Transactions in a currency other than the functional currency (“foreign currency”) are translated into the functional currency using the exchange rates at the dates of the transactions. Currency translation differences resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at the closing rates at the balance sheet date are recognised in profi t or loss. However, in the consolidated fi nancial statements, currency translation differences arising from borrowings in foreign currencies and other currency instruments designated and qualifying as net investment hedges and net investment in foreign operations, are recognised in other comprehensive income and accumulated in the currency translation reserve.

When a foreign operation is disposed of or any borrowings forming part of the net investment of the foreign operation are repaid, a proportionate share of the accumulated translation differences is reclassifi ed to profi t or loss, as part of the gain or loss on disposal.

Foreign exchange gains and losses that relate to borrowings are presented in the income statement within ”fi nance cost”. All other foreign exchange gains and losses impacting profi t or loss are presented in the income statement within “other losses – net”.

Non-monetary items measured at fair values in foreign currencies are translated using the exchange rates at the date when the fair values are determined.


54


(19) Currency translation (cont’d)

(c) Translation of Group entities’ fi nancial statements

The results and fi nancial position of all the Group entities (none of which has the currency of a hyperinfl ationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

(i) Assets and liabilities are translated at the closing exchange rates at the reporting date;

(ii) Income and expenses are translated at average exchange rates (unless the average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated using the exchange rates at the dates of the transactions); and

(iii) All resulting currency translation differences are recognised in other comprehensive income and accumulated in the currency translation reserve.

Goodwill and fair value adjustments arising on the acquisition of foreign operations are treated as assets and liabilities of the foreign operations and translated at the closing rates at the reporting date.

(20) Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the executive committee whose members are responsible for allocating resources and assessing performance of the operating segments.

(21) Cash and cash equivalents For the purpose of presentation in the consolidated statement of cash fl ows, cash and cash

equivalents include cash on hand, deposits with fi nancial institutions which are subject to an insignifi cant risk of change in value. Bank deposits pledged are excluded from cash and cash equivalents.

(22) Share capital and treasury shares

Ordinary shares are classifi ed as equity. Incremental costs directly attributable to the issuance of new ordinary shares are deducted against the share capital account.

When any entity within the Group purchases the Company’s ordinary shares (“treasury shares”), the consideration paid including any directly attributable incremental cost is presented as a component within equity attributable to the Company’s equity holders, until they are cancelled, sold or reissued.

When treasury shares are subsequently cancelled, the cost of treasury shares are deducted against the share capital account if the shares are purchased out of capital of the Company, or against the retained profi ts of the Company if the shares are purchased out of earnings of the Company.

When treasury shares are subsequently sold or reissued pursuant to an employee share option scheme, the cost of treasury shares is reversed from the treasury share account and the realised gain or loss on sale or reissue, net of any directly attributable incremental transaction costs and related income tax, is recognised in the capital reserve.


55


(23) Dividends to shareholders

Dividends to the shareholders are recognised when the dividends are approved for payment.

(24) Research and development expenses

Research and development expenses relating to costs incurred on feasibility studies in and testing of new technologies are expensed off when incurred.

(25) Related parties

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or to exercise signifi cant infl uence over the other party in making fi nancial and operating decisions. Parties are also considered to be related if they are subject to common control. Related parties may be individuals or corporate entities.

3. CORRECTIONS OF PRIOR YEAR SIGNIFICANT ACCOUNTING ERRORS AND RECLASSIFICATION OF COMPARATIVE FIGURES

(i) Financial guarantees

In 2010, the Group had granted corporate guarantees to unrelated third parties as disclosed in Note 29(c) and unrelated third parties had also provided corporate guarantees to the Group to secure the short term borrowings as disclosed in Note 26. As at 31 December 2010, based on management’s assessment on unrelated third parties’ fi nancial position, past experience and other factors, management concluded that there was no indicator that third parties could not repay the loan which would trigger any loss to the Group arising from guarantee provided. As a result, no liability should be recorded by the Group as at 31 December 2010 in the balance sheet. This error has been corrected in the current year and the comparative fi gures have been retrospectively adjusted. Due to correction of this accounting error, net profi t for the year ended 31 December 2010 has been increased by RMB 5,976,000, while accumulated loss and fi nancial liabilities as at 31 December 2010 have been decreased by RMB 5,976,000 respectively.


56

3. CORRECTIONS OF PRIOR YEAR SIGNIFICANT ACCOUNTING ERRORS AND RECLASSIFICATION OF COMPARATIVE FIGURES (cont’d)

(ii) Government grant

In the fi nancial years ended 31 December 2009, 31 December 2010, the Group received government grants of RMB 11,200,000 and RMB 660,000 respectively for purpose of construction of Proprety, plant and equipment. The government grants shall be recognised as deferred income and are credited to the profi t or loss on a straight-line basis over the expected useful lives of the related assets. However, in the previous fi nancial years, the Group recognised income in the year when they received the grants. This error has been corrected in the current year and the comparative fi gures have been retrospectively adjusted. Due to correction of this accounting error, several fi nancial statement line items were affected as follows:

31 December 2010 31 December 2009RMB’000 RMB’000

Increase/(Decrease) Increase/(Decrease)

Non-current assets

– Deferred tax assets 1,779 1,680

Non-current liabilities

– Deferred income 11,860 11,200

Equity

– Retained earnings (9,520) –

2010 2009 RMB’000 RMB’000


Profi t before tax (660) (11,200)

Income tax expense (99) (1,680)

(iii) De-consolidation of subsidiaries

In year 2009, a subsidiary of the Group named THB America, LLC has been offi cially liquidated but it was still consolidated in the Group consolidated fi nancial statements for year ended 31 December 2009 and 2010. This error has been corrected in the current year and the comparative fi gures have been retrospectively adjusted. Due to correction of this accounting error, several fi nancial statement line items were affected as follows:

31 December 2010 31 December 2009RMB’000 RMB’000


Current assets

– Trade and other receivables(-third party trade receivables) 114 (313)

Current liabilities

– Trade and other payables(-third party trade payables) (14,970) (14,970)

Equity

– Retained Earnings 10,202 –

– Non-controlling interests 4,455 4,455


57

3. CORRECTIONS OF PRIOR YEAR SIGNIFICANT ACCOUNTING ERRORS AND RECLASSIFICATION OF COMPARATIVE FIGURES (cont’d)

(iii) De-consolidation of subsidiaries (cont’d)

2010 2009RMB’000 RMB’000


Profi t before tax 427 10,202

(iv) Reclassifi cation of comparative fi gures

Certain comparative figures have been reclassified to conform to the current year presentation.

The charges with the nature of “allowance for slow-moving inventories”, “write-off of obsolete inventories” and “provision of impairment loss on property, plant and equipment” were reclassifi ed from account of “other expenses” to “cost of sales” by RMB9,473,000, RMB7,817,000 and RMB7,803,000 respectively in 2010 consolidated statement of comprehensive income.

The charge with nature of “allowance for doubtful trade and other receivables” of RMB 181,000 was reclassifi ed from account of “other expenses” to “general and administrative expenses” in 2010 consolidated statement of comprehensive income.

Bank charge of RMB 2,284,000 was reclassifi ed from “fi nance cost” to “general and administrative expenses” in 2010 consolidated statement of comprehensive income.

Research and development expenses of RMB46,136,000 was included in “general and administrative expenses” in 2010 consolidated statement of comprehensive income but it has been reclassifi ed and separately disclosed as “research and development expenses’ on the consolidated statement of comprehensive income.

As at 31 December 2010 and 2009, advances for plant and equipment of RMB7,670,000 and RMB2,114,000 were reclassifi ed from trade and other receivables current portion to noncurrent portion respectively.


58

4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

The critical judgements made in the process of applying the entity’s accounting policies that have the most signifi cant effect on the amounts recognised in the fi nancial statements and the key assumptions concerning the future, and other key sources of estimation uncertainty at end of the reporting period, that have a signifi cant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next fi nancial year, are discussed below:

(a) Critical judgements in applying the accounting policies

(i) Allowances for doubtful receivables

Management reviews its receivables for objective evidence of impairment at least quarterly. Signifi cant fi nancial diffi culties of the debtor, the probability that the debtor will enter bankruptcy, and default or signifi cant delay in payments are considered objective evidence that a receivable is impaired. In determining this, management makes judgement as to whether there is observable data indicating that there has been a signifi cant change in the payment ability of the debtor, or whether there have been signifi cant changes with adverse effect in the technological, market, economic or legal environment in which the debtor operates in.

Where there is objective evidence of impairment, management makes judgements as to whether an impairment loss should be recorded as an expense. In determining this, management uses estimates based on historical loss experience for assets with similar credit risk characteristics. The methodology and assumptions used for estimating both the amount and timing of future cash fl ows are reviewed regularly to reduce any differences between the estimated loss and actual loss experience.

The carrying amounts of the Group’s trade and other receivables are disclosed in Note 20. Management is of the view that the allowance for doubtful receivables recorded is adequate and no further allowance is required.

(ii) Income tax

The Group operates in various countries. Significant judgement is involved in determining the group-wide provision for income tax. There are certain transactions and computations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for expected tax issues based on estimates of whether additional tax will be due. Where the fi nal tax outcome of these matters is different from the amounts that were initially recognised, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

(iii) Claims and litigations

The Group entered into various contracts with third parties in its ordinary course of business and is exposed to other risk of claims and litigations from the contractual parties. These can arise for various reasons, including change in scope of work, delay and disputes, defective specifi cations or routine checks etc. The scope, enforceability and validity of any claim or litigation may be highly uncertain. In making its judgement as to whether it is probable that any such claim or litigation will result in a liability and whether any such liability can be measure reliably, management relies on past experience and the opinion of legal and technical expertise. Please refer to Note 29 for details.


59

4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (cont’d)

(b) Key sources of estimation uncertainty

(i) Estimated impairment of non-fi nancial assets

The Group assesses annually whether the non-fi nancial assets including property, plant and equipment, intangible assets and goodwill are suffered any impairment, in accordance with the accounting policy stated in Note 2-(9) to the fi nancial statements. The calculation requires the use of estimates and assumptions as disclosed in Note 15(a) to the fi nancial statements.

(ii) Useful lives of property, plant and equipment

The estimates for the useful lives and related depreciation charges for property, plant and equipment are based on commercial and production factors which could change signifi cantly as a result of technical innovations and competitor actions in response to severe market conditions. The carrying amount of property, plant and equipment at 31 December 2011 is RMB271, 816,000 (2010: RMB231, 254,000). The estimated useful lives of property, plant and equipment have been assessed as appropriate by management.

(iii) Allowance for slow-moving inventories

Management reviews the inventory aging listing on a quarterly basis. The review involves comparison of the carrying amount of the aged inventory items with the respective net realisable value. The purpose is to ascertain whether the allowance is required to be made in the financial statements for slow-moving items. The carrying amount of inventories at 31 December 2011 is RMB372,516,000 (2010: RMB420,922,000). Management is of the view that the allowance for inventories recorded is adequate and no further allowance is required.

Management is of the view that the allowance for inventories recorded is adequate and no further allowance is required.

(iv) Deferred income tax assets

The Group recognises deferred income tax assets on deductible temporary differences to the extent there are suffi cient future taxable profi ts against which the temporary differences can be utilised. At the balance sheet date, deferred tax assets are measured at the tax rates that are expected to apply to the period when the asset is realised. When the estimates changed due to the future economic and operating conditions, the Company will re-evaluate and estimate. The Company performs review and adjustment on profi t forecast and estimates at each year end.

If no suffi cient future taxable profi t will be available against which the temporary differences can be utilised as at 31 December 2011, the Group will write off deferred tax asset to extent of RMB5,956,000 as income tax expenses.


60

5. REVENUE

Group2011 2010

RMB’000 RMB’000

Sale of fi nished goods 1,407,715 1,520,577

Sale of raw materials 129,186 103,700

1,536,901 1,624,277

6. OTHER INCOME

Group2011 2010

RMB’000 RMB’000

Gain on disposal of property, plant and equipment 354 611

Subsidy income 7,064 –

Waiver of trade payables 3,086 206

Rental income – 511

Others 2,530 1,859

13,034 3,187

7. OTHER EXPENSES

Group2011 2010

RMB’000 RMB’000

Loss from disposal of property, plant and equipment 1,530 1,687

Foreign exchange loss 1,991 3,111

Bank charges 4,030 2,284

Fair value changes (Note 21) – (4)

Others 602 1,236

8,153 8,314

8. FINANCE COSTS

Group2011 2010

RMB’000 RMB’000

Interest expense on-Bank borrowings 37,301 29,740

-Discounted bills receivable 32,048 3,891

Foreign exchange gain on borrowings (203) (58)

69,146 33,573


61

9. PROFIT BEFORE TAX

In addition to the charges and credits as disclosed elsewhere in the notes to the fi nancial statements, these items include the following:

Group2011 2010

RMB’000 RMB’000

Charging/(crediting):

Cost of inventories recognised as an expense 952,063 1,011,920

Depreciation of property, plant and equipment (Note 14) 29,430 23,944

Rental expense on operating lease 8,853 6,771

Amortisation of intangible assets (Note 15) 2,616 2,134

(Reversal) / provision of impairment loss on property, plant and equipment (7,803) 7,803

Reversal of allowance for doubtful trade and other receivables (1,312) (20,346)

Write-off of bad debts – 293

Share of results of associated company – (109)

Allowance for slow-moving inventories – 9,743

Write-off of obsolete inventories – 7,817

10. INCOME TAX EXPENSE

(a) Major components of income tax expense

The major components of income tax expense for the fi nancial years ended 31 December 2011 and 2010 are as below:

Group2011 2010

RMB’000 RMB’000

Income tax expense for the year – current year 12,410 18,059

Over provision in prior year – (7,248)

Recognition of deferred tax assets (Note 18) (4,177) (99)

Income tax expense recognized in profi t or loss 8,233 10,712


62

10. INCOME TAX EXPENSE (cont’d)

(a) Major components of income tax expense (cont’d)

The tax on the Group’s profi t before tax differs from the theoretical amount that would arise using the PRC Statutory rate of income tax as follows:

Group2011 2010

RMB’000 RMB’000

Profi t before tax 3,265 85,620

Tax calculated at tax rate of 25% (2010: 25%) 816 21,405

Tax effects of:

Expense not deductible for tax purposes 2,710 1,578

Income not subject to taxation (81) (2,128)

Tax exemption and reduced income tax rates (984) (7,841)

Utilisation of previously unrecognised

- tax losses (789) –

Temporary differences (2,148) –

Current year unrecognised tax losses 8,709 4,946

Over provision in prior year – (7,248)

Income tax expense 8,233 10,712

The Company has no taxable income for the fi nancial year ended 31 December 2011.

The PRC subsidiaries

The statutory income tax rate for the PRC subsidiaries is at 25%, lower tax rate will be given for specifi c provinces by local authority. Tax incentives given are as below.

Four of the PRC subsidiaries are entitled to income tax exemption for the two years commencing from the fi rst profi table year of operation (after deducting losses carried forward) and a 50% reduction for the succeeding three years (二免三减半). The current year applicable tax rates are at 12% and 12.5%. Such tax benefi t will expire in 2012 and 2013 respectively.

Three of the PRC subsidiaries are granted the tax status of “High-Tech Enterprise” (高新技术企业) by the PRC Tax authority. The applicable income tax rates are 15% in 2011. The tax benefi t for two subsidiaries will be expired in 2012 and the tax benefi t for another one will expire in 2013.

One of the PRC subsidiaries regards as small meagre-profi t enterprise, enjoying an applicable tax rate of 20%.

The US subsidiary

The Group’s subsidiary in the United States (“US”) are subject to a system of granted marginal tax rates, ranging from 15% to 35%, applied to all taxable income. The US subsidiary have no taxable income for the fi nancial year ended 31 December 2011.


63

10. INCOME TAX EXPENSE (cont’d)

(a) Major components of income tax expense (cont’d)

The tax credit relating to each component of other comprehensive income is as follows:

2011 2010Before Tax After Before Tax After

Tax credit Tax Tax credit TaxRMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Group

Currency translation differences arising from consolidation of subsidiary 2,873 – 2,873 1,166 – 1,166

Other comprehensive income 2,873 – 2,873 1,166 – 1,166

11. STAFF COSTS

Group2011 2010

RMB’000 RMB’000

Wages and salaries 182,314 194,420

Employees expenses relating to defi ned contribution plans 19,642 18,892

Other staff benefi t related expenses 20,655 18,209

Directors’ remuneration included in staff costs 860 874

Directors’ fees 750 909

224,221 233,304

12. RELATED PARTY TRANSACTIONS

Related parties in these fi nancial statements refer to non-controlling shareholders of the subsidiaries, associated companies and the key management personnel.

In addition to the information disclosed elsewhere in the fi nancial statements, the following transactions took place between the Group and related parties of at terms agreed between the parties:

(a) Sales and purchases of goods

Group2011 2010

RMB’000 RMB’000

Purchases from related parties 6,598 10,906

Sales to related parties – 1,073


64

12. RELATED PARTY TRANSACTIONS (cont’d)

(b) Compensation of key management personnel (including directors)

Key management personnel compensation is analysed as follows:

Group2011 2010

RMB’000 RMB’000

Salaries and other short-term employee benefi ts 2,706 2,230

Defi ned contribution plans 207 240

2,913 2,470

Comprises amounts paid to:

- Directors of the Company 859 874

- Other key management personnel 2,054 1,596

2,913 2,470 Key management personnel are directors and those persons having authority and

responsibility for planning, directing and controlling the activities of the Company, directly or indirectly. The above amount is for all the directors and other key management personnel.

The remuneration of key management personnel is determined by the board of directors having regards to the performance of individuals and market trends.

13. (LOSS)/EARNING PER SHARE

The calculation of the basic and diluted earnings/(loss) per share attributable to the owners of the Company is based on the following data:

Group

2011 2010

Basic (loss)/earnings per share

(loss)/Profi t after tax attributable to owners of the Company (in RMB’000) (6,742) 65,167

Weighted average number of ordinary shares for the purpose of basic (loss)/earnings per share (in ’000) 681,600 681,600

(loss)/Profi t per share (in RMB cents) (0.99) 9.56

Diluted (loss)/earnings per share

(loss)/Profi t after tax attributable to the owners of the Company (in RMB’000) (6,742) 65,167

Weighted average number of ordinary shares for the purpose of diluted (loss)/earnings per share (in ’000) 681,600 681,600

Diluted (loss)/earnings per share (in RMB cents) (0.99) 9.56


65

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2010

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2011

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2010

12,6

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112,4

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66

14. PROPERTY, PLANT AND EQUIPMENT (cont’d)

As 31 December 2011, no property, plant and equipment were pledged to secure short-term borrowings. As at 31 December 2010, buildings of the Group with a total carrying value of RMB9,943,000 were pledged to secure short-term borrowings.

As at 31 December 2010, the Group made full provision of Rmb 7,803,000 for equipment owned by a subsidiary which was liquidated because there was no suffi cient information to assess whether these equipments were in the situation that could be used by the Group in operation of its normal business or be sold to any parties. During the year ended 31 December 2011, the Group completed inspection of these equipments and started to put the equipments into use. For these equipments that have not been in use as of 31 December 2011, there was a confi rmed plan of how and when these equipments are to be utilised. Accordingly, the provision of Rmb 7,803,000 was written back against cost of sales as of 31 December 2011.

In 2011, the amount of depreciation expense charged to cost of sales, selling and distribution expenses, general and administrative expenses were RMB18,384,000 (2010 cost of sales: RMB16,169,000), RMB53,000 (2010 selling and distribution expenses: RMB17,000) and RMB10,993,000 (2010 general and administrative expenses: RMB7,758,000) respectively.

CompanyOffi ce

equipment Total RMB’000 RMB’000

Cost

At 1 January 2010 and 2011 and 31 December 2010 and 2011 20 20

Accumulated Depreciation

At 1 January 2010 and 2011 and 31 December 2010 and 2011 20 20

Carrying Amount

At 31 December 2010 and 2011 – –

15. INTANGIBLE ASSETS

Group2011 2010

Note RMB’000 RMB’000

Goodwill arising on acquisition (a) 9,713 6,585

Other intangible assets (b) 63,625 61,727

73,338 68,312


67

15. INTANGIBLE ASSETS (cont’d)

(a) Goodwill arising on acquisition

Group2011 2010

RMB’000 RMB’000

Balance at beginning of year 6,585 6,416

Reclassifi cation – 169

Addition 3,128 –

Balance at end of year 9,713 6,585

The addition of goodwill of Rmb 3,128,000 in year 2011 was due to the acquisition of Liu Zhou Tianhai Mengli on 22 December 2011 which is disclosed in Note 16 and 22.

Goodwill acquired through business combination has been allocated to the Group’s cash-generating units (“CGUs”), identifi ed according to the operating segments of (i) Wire harness (China operations), (ii) Connectors (China operations), (iii) Model and machinery (China operations) and (iv) Wire harness (America operations).

An operating segment-level summary of the goodwill allocation is presented as below:

2011 2010RMB’000 RMB’000

Connectors (China operations) 9,622 6,494

Wire harness (China operations) 91 91

The recoverable amount of all CGUs has been determined based on value-in use calculations. These calculations use pre-tax cash fl ow projections based on fi nancial budgets approved by management covering a fi ve-year period. Cash fl ows beyond the fi ve-year period are extrapolated using the estimated growth rates started below. The growth rate does not exceed the long-term average growth rate for the business in which the CGU operates.

The key assumptions used in the value-in-use calculations in 2011 are as follows:

Connectors Wire harness

China operations China operations

Gross margin 36% 11%

Growth rate 10% 10%

Pre-tax discount rate 15.3% 15.3%

The key assumptions used in the value-in-use calculations in 2010 are as follows:

Connectors Wire harness

China operations China operations

Gross margin 36% 11%

Growth rate 21% 21%

Pre-tax discount rate 5.5% 5.5%


68

15. INTANGIBLE ASSETS (cont’d)

(a) Goodwill arising on acquisition (cont’d)

These assumptions have been used for the analysis of each CGU within the operating segment.

Management determined budgeted gross margin based on the past performance and its expectations of market development. The weighted average growth rates used are consistent with the forecasts included in industry reports. The discount rates used are pre-tax and refl ect specifi c risks relating to the relevant operating segments.

In Connectors (China operations), the recoverable amount calculated based on value in use exceeded carrying value by RMB4,970,000 for asset group, including property, plant and equipment, goodwill and other intangible assets. A reduction in gross margin of 0.7%, a fall in growth rate to 1%, or a rise in discount rate to 17.3% would remove the remaining headroom.

In Wire harness (China operations), the recoverable amount calculated based on value in use exceeded carrying value by RMB6,130,000 for asset group including property, plant and equipment, goodwill and other intangible assets. A reduction in gross margin of 0.6%, a fall in growth rate to 7%, or a rise in discount rate to 16.1% would remove the remaining headroom.

(b) Other intangible assets

Land use rights

Computer software

Technologyknow-how Total

Group RMB’000 RMB’000 RMB’000 RMB’000

At 1 January 2010 59,454 6,844 7,886 74,184

Additions 2,497 181 579 3,257

Foreign exchange adjustment – – (6) (6)

At 31 December 2010 61,951 7,025 8,459 77,435

Additions 4,795 858 10 5,663

Disposals – (1,400) (5,715) (7,115)

Foreign exchange adjustment – (12) – (12)

At 31 December 2011 66,746 6,471 2,754 75,971

Accumulated amortisation and accumulated impairment

At 1 January 2010 2,480 3,678 7,247 13,405

Amortisation for the year 1,482 438 214 2,134

Reclassifi cation – – 169 169

At 31 December 2010 3,962 4,116 7,630 15,708

Amortisation for the year 1,818 598 200 2,616

Disposals – (263) (5,715) (5,978)

At 31 December 2011 5,780 4,451 2,115 12,346

Carrying amount

At 31 December 2010 57,989 2,909 829 61,727

At 31 December 2011 60,966 2,020 639 63,625

Land use rights of the Group with a total carrying amount of RMB12,104,000 as at 31 December 2011 (2010: RMB32,941,000) were pledged to secure short-term borrowings as disclosed in Note 26.

In 2011, all amortisation of RMB 2,616,000 (2010: RMB2,134,000) is included in “general and administrative expenses” in the consolidated statement of comprehensive income.


69

16. INTEREST IN SUBSIDIARIES

Company2011 2010

RMB’000 RMB’000

Unquoted equity shares at cost 198,512 198,512

The Company has the following subsidiaries as at 31 December 2011:

Name of subsidiaries Principal activities

Place ofincorporation and business

Proportion ofownership interest/voting power held 2011 2010

% %

Held by the Company

Tianhai Electric (Group)Corporation

Investment holding BVI 100 100

Held by subsidiaries

Tianhai Technologies Co., Ltd (#)

Investment holding, research and development, manufacturing and trading of automobile electronics products

PRC 100 100

Hebi Si Kaer InvestmentCo., Ltd

Investment holding PRC 100 100

Hebi Sai Er InvestmentCo., Ltd

Investment holding PRC 100 100

Henan Tianhai Electric Co., Ltd (#)

Manufacturing and trading of connectors, wire harnesses and moulds

PRC 100 100

Tianhai Snowcity Auto- Electric R&D(Shanghai) Co., Ltd

Research and development of automobile electronics products, automobile wire harnesses

PRC 100 100

Zhengzhou Tianhai XinkeAuto Electronic Co., Ltd

Research and development of automobile electronics products, automobile wire harnesses

PRC 65 65

Shanghai Zhong’anElectrical & Plastic Co., Ltd

(#)

Manufacturing and trading of automobile plastic parts

PRC 60 60


70

16. INTEREST IN SUBSIDIARIES (cont’d)

The Company has the following subsidiaries as at 31 December 2011: (cont’d)




% %

Held by subsidiaries (cont’d)

Hebi Haichang SpecialEquipment Co., Ltd (#)

Manufacturing and trading of special equipment for producing automobile wire harnesses

PRC 100 100

Jiangxi Changhe TianhaiElectric Parts Co., Ltd

Manufacturing and trading of automobile wire harnesses

PRC 60 60

Wuhu Tianxin ElectricParts Co., Ltd (#)


PRC 100 100

Shenyang Tianhai ElectricParts Co., Ltd


PRC 100 100

Hebi TianzhongConnectors Co., Ltd

Manufacturing and trading of connectors

PRC 80 80

Harbin Shengbang HafeiAuto-Wiring Harness Co., Ltd

Manufacturing of automobile wire harnesses

PRC 100 100

China Auto Electronic(Hebi) Ltd. (#)

Manufacturing and trading of automobile wires

PRC 100 100

Hebi Tianhai HuanqiuElectric Co., Ltd (#)

R&D, manufacturing and trading of automobile electronics products, automobile wire harnesses

PRC 100 100

Tianhai Snowcity(Chongqing) Auto ElectricCo., Ltd (#)


PRC 100 100

Fujian Juan KuangWireharness Electric Co., Ltd


PRC 56 56


71

16. INTEREST IN SUBSIDIARIES (cont’d)

The Company has the following subsidiaries as at 31 December 2011: (cont’d)




% %

THB de Honduras S. deR.L. (*)

Manufacturing and distributing of wire harnesses and battery cable assemblies

HON – 80

Tianhai Electric NorthAmerica, Inc. (#)


USA 100 100

Liaoning Tianhai ElectricCo., Ltd (#)


PRC 100 100

Kunshan Tianhai JiexingMould Co., Ltd

Manufacturing and trading of automobie moulds

PRC 51 51

THB Europe GMBH Manufacturing and trading of automobile wire harnesses

GER 100 100

LiuZhou Tianhai Mengli Manufacturing and trading of automobile wire harnesses

PRC 51 -

(#) The subsidiaries listed above are audited by PricewaterhouseCoopers LLP, Singapore, for the purposes of preparation of consolidated fi nancial statements.

During the fi nancial year ended 31 December 2010, two new subsidiaries of the Group, Kunshan Tianhai Jiexing Mould Co., Ltd and THB Europe GMBH, have been incorporated with the paid-up share capital of RMB3,000,000 and EUR25,000 respectively.

On 22 December 2011, Henan Tianhai Electric Co., Ltd, a wholly-owned subsidiary of the Company, entered into an agreement to acquire 51% equity interest in Liuzhou Tianhai Mengli Electric Co., Ltd for a cash consideration of RMB5,100,000. Details are set out in Note 22. As at 31 December 2011, the Company has not paid out its cash consideration.

(*) THB de Honduras S. de R.L. was deregistered on 27 July 2011.


72

17. INVESTMENT IN ASSOCIATED COMPANIES

Group2011 2010

RMB’000 RMB’000

Cost of investment in associated companies – 562

Share of post acquisition profi ts – 1,501

– 2,063

The Group had the following associated companies as at 31 December 2011 and 2010:

Name of associatedcompanies Principal activities

Place of incorporation and business

Proportion of ownership

interest/voting power held

2011 2010% %

Shanghai Phillips IndustriesVehicleComponents Manufacturing Ltd

R&D, manufacturing and sale of circuit system for trailers and accessory products

PRC – 30

Sakoma, LLC * Selling and distributing of wire harnesses and battery cable assemblies

USA 45 45

During the fi nancial year ended 31 December 2009, the Group ceased to have signifi cant infl uence over the associated company, Sakoma LLC, and the investment has been classifi ed to fi nancial assets, available-for-sale as disclosed in Note 21. The Group provided full impairment provision of RMB823,000 on its investment to Sakoma LLC as it had emerged from bankruptcy protection in 2009.

On 18 May 2011, the Group has divested its entire 30% stake in Shanghai Phillips Industries Vehicle Components Manufacturing Ltd for a consideration of USD345,845 (RMB2,263,000) to an unrelated third party, R.A.PHILIPS INDUSTRIES,Inc. The Group recognised a gain of RMB 200,000 from disposal of interest in the associated company.

Summarised fi nancial information in respect of the Group’s associated company is set out below:

Group2011 2010

RMB’000 RMB’000

Total assets – 14,574

Total liabilities – (7,726)

Net assets – 6,848

Revenue – 21,161

Profi t for the year – 363

Share of results of associated company – 109


73

18. DEFERRED INCOME TAX

The analysis of deferred income tax assets is as follows:

Group2011 2010

(RMB’000) (RMB’000)

Deferred income tax assets (to be recovered within one year) 2,496 178

Deferred income tax assets (to be recovered after more than one year) 3,460 1,601

Deferred income tax assets total 5,956 1,779

The movement on the deferred income tax assets of the Group during the year is as follows and there’s no deferred income tax liabilities in 2011 and 2010 respectively:

GroupGovernment

grant Provision Others Total

(RMB’000) (RMB’000) (RMB’000) (RMB’000)

Deferred income tax assetsAt 1 January 2010 1,680 – – 1,680

Tax credited to profi t and loss (Note10) 99 – – 99

At 31 December 2010 1,779 – – 1,779

Tax credited to profi t and loss (Note10) 1,262 2,033 882 4,177

At 31 December 2011 3,041 2,033 882 5,956

Deferred income tax assets are recognised for tax loss carried forward to the extent that the realisation of the related tax benefi t through future taxable profi t is probable. The group did not recognise deferred tax assets of RMB26,288,000 (2010: RMB14,843,000) in respect of losses amounting to RMB105,151,000 (2010: RMB61,585,000) that can be carried forward against future taxable income. Losses amounting to RMB15,485,000 (2010: RMB15,485,000), RMB76,703,000 (2010: RMB29,981,000) and RMB12,963,000 (2010: RMB16,119,000) will expire in 2016, 2017 and 2018 respectively.

Deferred income tax liabilities of RMB28,290,000 (2010: RMB27,485,000) have not been recognised for the withholding tax that would be payable on the unremitted earnings of certain subsidiaries. Such amounts are permanently reinvested. Unremitted earnings totalled RMB282,897,000 at 31 December 2011 (2010: RMB274,854,000).


74

19. INVENTORIES

Group2011 2010

RMB’000 RMB’000

Raw material 183,517 204,051

Work-in-progress 37,997 46,706

Finished goods 161,568 180,859

Inventories total-gross 383,082 431,616

Provision (10,566) (10,694)

Inventories total-net 372,516 420,922

Group2011 2010

RMB’000 RMB’000

The movement in allowance is as follows:

At 1 January 10,694 1,238

Additions – 10,588

Reversal – (845)

Write-off (128) (287)

At 31 December 10,566 10,694

The cost of inventories recognised as an expense and included in “cost of sales” amounted to RMB952,063,000 (2010: RMB1,011,920,000).

Inventories of RMB13,849,000 as at 31 December 2011 (2010: RMB14,180,000) was pledged to secure short-term borrowings as disclosed in Note 26.

20. TRADE AND OTHER RECEIVABLES

(i) Trade and other receivables-non current

Group Company2011 2010 2011 2010

RMB’000 RMB’000 RMB’000 RMB’000

Advances payments for purchase of plant and equipment 1,554 7,670 – –

As at 31 December 2011 and 2010, the carrying amount of non-current trade and other receivables approximately their fair value.


75

20. TRADE AND OTHER RECEIVABLES (cont’d)

(ii) Trade and other receivables-current

Group Company2011 2010 2011 2010

RMB’000 RMB’000 RMB’000 RMB’000

Bills receivable 94,192 67,502 – –

Trade receivables-third parties 575,798 607,749 – –

Less: Allowance for impairment (11,846) (14,033) – –

Other receivables-third parties 201,569 200,937 176,589 176,587

Less: Allowance for impairment (178,404) (177,959) (176,589) (176,587)

Amount due from subsidiaries (non-trade) – – 326,158 338,238

Advance payment to suppliers 23,968 42,456 – –

Deposits 578 768 120 –

Prepayments 1,604 1,438 91 245

Receivables from related parties

Trade 740 2,738 – –

Non-trade – 70,601 – –

Less: Allowance for impairment – (70,712) – –

708,199 731,485 326,369 338,483

Movement of allowance for impairment on trade receivables:

At 1 January 14,033 14,573 – –

Allowance during the year 1,243 4,924 – –

Reversal of allowance for doubtful receivables (3,036) (4,963) – –

Write-off of doubtful receivables (394) (501) – –

At 31 December 11,846 14,033 – –

Movement of allowance for impairment on other receivables:

Group Company2011 2010 2011 2010

RMB’000 RMB’000 RMB’000 RMB’000

At 1 January 177,959 199,706 176,587 197,114

Allowance during the year 625 – 2 –

Reversal of allowance for doubtful receivables (Note A) (144) (20,657) – (20,527)

Write-off of doubtful receivables (36) (1,090) – –

At 31 December 178,404 177,959 176,589 176,587 Movement of allowance for impairment on receivables from related parties:

At 1 January 70,712 70,362 – –

Allowance during the year – 350 – –

Write-off (70,712) –

At 31 December – 70,712 – –


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20. TRADE AND OTHER RECEIVABLES (cont’d)

Allowance for impairment is done based on estimated irrecoverable amounts from sale of goods, determined by reference to past default experience.

As at 31 December 2011, trade receivables of RMB89,960,000 (2010: RMB111,250,000) was pledged to secure short-term borrowings as disclosed in Note 26.

Included in other receivables is an allowance on impairment amounting to RMB176,587,000 (2010: RMB176,587,000) for the sales of a discontinued group in 2008 as there has been no payment received from the third party since the completion date of the above mentioned transaction. Notwithstanding, the Company’s subsidiary has initiated legal proceedings against this debtor. Due to the uncertainty of the outcome, full allowance has been made. As at 31 December 2011, this case is still under trial.

The reversal of allowance for doubtful receivables with amount of RMB20,657,000 was due to the collection of other receivables from third parties in 2010.

Included in other receivables, RMB3,000,000 was deposits paid to third parties as at 31 December 2011 (2010: RMB5,000,000) for the guarantees provided for the Group’s short-term borrowings as disclosed in Note 26.

The Group’s non-trade receivables due from related parties and the Company’s non-trade receivables due from subsidiaries are unsecured, interest free and repayable on demand.

21. FINANCIAL ASSETS, AVAILABLE-FOR-SALE

Group2011 2010

RMB’000 RMB’000

Quoted investments, at fair value

At 1 January 449 445

Fair value changes – 4

Disposal during the fi nancial year (419) –

At 31 December 30 449

Unquoted investments, at cost

At 1 January 4,273 2,473

Additions during the fi nancial year – 1,800

4,273 4,273

Less: Allowance for impairment (2,473) (2,473)

At 31 December 1,800 1,800

-Current portion 1,830 2,249

The quoted investment represents investment in an equity fund which was measured at the quoted closing market prices on the last trading day of the fi nancial year.

The unquoted investment stated at cost has no market prices and the fair value cannot be reliably measured using the valuation techniques. Management is of the view that no impairment loss is required as at 31 December 2011.


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22. CASH AND CASH EQUIVALENTS

Cash and cash equivalents included in the statement of cash fl ows comprise the following:

Group2011 2010

RMB’000 RMB’000

Cash and bank balances 377,606 280,819

Less: Bank deposits pledged (334,701) (208,598)

Cash and cash equivalents 42,905 72,221

The cash and bank balances comprise the following:

Group Company2011 2010 2011 2010

RMB’000 RMB’000 RMB’000 RMB’000

Cash in hand 124 529 – 2

Cash at bank 377,482 280,290 445 552

377,606 280,819 445 554

Bank deposits pledged represent bank balances held by banks to cover bills payable as disclosed in Note 25 and to secure the bank facilities as disclosed in Notes 26.

Acquisition of subsidiaries

On 22 December 2011, Henan Tianhai Electric Co., Ltd (“Henan Tianhai”), a wholly-owned subsidiary of the Company, entered into an agreement to acquire 51% equity interest in Liuzhou Tianhai Mengli Electric Co., Ltd for a cash consideration of RMB5,100,000.


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22. CASH AND CASH EQUIVALENTS (cont’d)

The aggregate effect of the acquisition is as follows:

Group2011

RMB’000

Cash and cash equivalents 1,682

Trade and other receivables 5,064

Inventories 7,860

Property, plant and equipment 4,685

Intangible assets-other 29

Total assets 19,320

Trade and other payables 14,978

Short-term borrowings 1,500

Provision on income tax (1,025)

Total liabilities 15,453

Net identifi able assets 3,867

Less: Non-controlling interests (1,895)

Net indentifi ed assets purchased 1,972

Goodwill (Note 15) 3,128

Total purchase price-in-cash 5,100

Cash and cash equivalents in subsidiary acquired 1,682

Net cash infl ow from acquisition of subsidiary 1,682

As at 31 December 2011, the Company has not paid the cash purchase price.

23. SHARE CAPITAL

Group CompanyNo of

ordinaryshares ’000 RMB’000

No of ordinary

shares ’000 RMB’000

Authorised, issued and fully paid

As at 1 January 2010 and 2011, and 31 December 2010 an 2011 (par value: Singapore dollar 0.10 per share) 681,600 490,115 681,600 623,026


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24. OTHER RESERVE

Group Company2011 2010 2011 2010

RMB’000 RMB’000 RMB’000 RMB’000

Capital reserves 150,160 145,808 – –

Capital contribution surplus 536 536 – –

Contributed surplus 70,077 70,077 70,077 70,077

Share option reserve 1,676 1,676 1,676 1,676

Translation reserve 2,996 123 – –

225,445 218,220 71,753 71,753

Capital reserves

The above capital reserves include PRC statutory reserves and other capital reserves created upon the conversion of a subsidiary to a limited liability company.

PRC Statutory reserves

The PRC statutory reserves are set up as required under the relevant PRC regulations.

With the exception of 4 PRC joint ventures (“JV”), the Group’s subsidiaries including 15 domestic companies and 2 wholly owned foreign enterprises incorporated in the PRC are required on an annual basis to allocate at least 10% of their after-tax profi t, after the recovery of accumulated defi cit to the statutory common reserve. The amount of allocation is calculated based on a company’s after-tax profi t showed in its statutory fi nancial statement which is prepared in accordance with PRC accounting standards. Once the total statutory common reserve fund reaches 50% of the registered capital of the respective companies, further appropriation are discretionary. The statutory common reserve fund is not distributable to shareholders except in the event of liquidation. As at December 31, 2010 and 2011, the total statutory common reserve fund in each PRC subsidiary had not reached 50% of the registered capital of its respective registered capital. During the years ended December 31, 2010 and 2011, the Group made total appropriations to their statutory common reserve fund in the amount of RMB 8,026,000 and 4,352,000 respectively, which wholly came from domestic companies.

These 4 PRC JV of the Group incorporated in the PRC are required on an annual basis to make appropriations of retained earnings, calculated in accordance with PRC accounting standards and regulations, to non-distributable statutory reserves, comprising of enterprise statutory reserve, employees’ bonus and welfare fund and enterprise expansion fund. The percentages of the appropriation are determined by the boards of directors of each PRC JV. During the years ended December 31, 2010 and 2011, these 4 PRC JVs did not make any appropriations to these statutory reserves.


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24. OTHER RESERVE (CONT’D)

Contributed surplus

The contributed surplus represents the excess of the combined net assets value of the subsidiaries acquired over the nominal value of the paid-up capital of the Company issued in exchange thereof.

The Bermuda Companies Act provides that a company shall not declare or pay a dividend or make a distribution out of contributed surplus, if there are reasonable grounds for believing that (a) the company is, or would after the payment be, unable to pay its liabilities as they become due; or (b) the realisable value of the company’s assets would thereby be less than the aggregate of its liabilities and its issued share capital and share premium accounts.

Translation reserve

The translation reserve represents exchange differences arising from the translation of the fi nancial statements of foreign operations whose functional currencies are different from that of the Group’s presentation currency.

Group2011 2010

RMB’000 RMB’000

At 1 January 123 (1,043)

Net effect of exchange differences arising from translation of fi nancial statements of foreign operations 2,873 1,166

At 31 December 2,996 123

25. TRADE AND OTHER PAYABLES

Group Company2011 2010 2011 2010

RMB’000 RMB’000 RMB’000 RMB’000

Trade payables 363,342 399,827 – –

Bills payable 309,430 127,459 – –

Other payables 50,065 52,676 – 10,581

Amounts due to subsidiaries (non-trade) – – 40,304 26,724

Amounts due to related parties:

- Trade 46 5,770 – –

- Non-trade – 1,942 – –

Dividends payable to non-controlling interests 180 299

Accruals 13,708 8,140 4,900 4,049

Provision of guarantee obligation Note29(a) 40,000 40,000 – –

Advances – 27 – –

Advance receipts from customers 3,499 6,738 – –

Deposits 461 355 – –

780,731 643,233 45,204 41,354

Bills payable are secured by certain bank deposits held by the banks as disclosed in Note 22.

The non-trade amount due to subsidiaries and related parties are unsecured, interest free and repayable on demand.


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26. SHORT-TERM BORROWINGS

Group Company 2011 2010 2011 2010

RMB’000 RMB’000 RMB’000 RMB’000

Bank borrowings

- Repayable within 1 year 489,187 560,018 6,455 15,056 The Group’s borrowings bear interest rate at ranging from 2.40% to 8.53% (2010: 1.75% to 8.47%)

per annum and are secured on the Group’s land use rights as disclosed in Note 15(b), inventories as disclosed in Note 19, trade and other receivables as disclosed in Note 20, letters of credit, the corporate guarantees by subsidiary and guarantees by third parties as disclosed in Note 29. These borrowings have maturity ranging period ranging from 1 to 11 months (2010: 1 to 11 months) from end of the fi nancial year end. The Group also has bank letters of credit facilities which are secured by bank deposits as disclosed in Note 22.

27. DEFERRED INCOME

Group2011 2010

RMB’000 RMB’000

Government grants 19,174 11,860

In 2011, the Group received government grant of RMB8,500,000 which will be monitored by government for approved usage of construction of property, plant and equipment. In accordance with the accounting policy described in Note 2-(3), the government grants relating to purchase/or construction of property, plant and equipment are recognised as deferred income and be credited to the profi t or loss on a straight-line basis over the expected lives of the related property, plant and equipment. There was RMB1,186,000 credited to the profi t or loss in 2011.

28. COMMITMENTS

(a) Capital commitments

Capital expenditures contracted for at end of the reporting period but not recognised in the fi nancial statements are analysed as follows:

Group2011 2010

RMB’000 RMB’000

Capital commitments in respect of:

– Payment for computer software – 245

– Payment for additions of property, plant and equipment 1,225 7,346

– Payment for outstanding capital investment in subsidiaries – 28,964

1,225 36,555


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28. COMMITMENTS (cont’d)

(b) Operating lease commitments

The Group leases various factories and warehouses under non-cancellable operating lease agreements. The leases have varying terms, escalation clauses and renewal rights.

The future aggregate minimum lease payable under non-cancellable operating lease contracted for at end of the reporting period but not recognised as liabilities, are analysed as follows:

Group2011 2010

RMB’000 RMB’000

Within one year 4,281 9,909

Within two to fi ve years 7,073 7,029

After fi ve years 359 –

11,713 16,938

29. CONTINGENT LIABILITIES

(a) During the fi nancial year ended 31 December 2008, a fully owned subsidiary of the Group, Henan Tianhai Electronics Co., Ltd. (“Henan Tianhai”), issued a corporate guarantee for a loan of RMB40,000,000 granted by a PRC bank, namely Agricultural & Development Bank of China (ADBC), to Henan Snowcity Science and Technology Limited (“Henan Snowcity”), a former subsidiary of the Group which was disposed in 2008. Henan Snowcity has defaulted on the loan and ADBC fi led a law suit against Snowcity and Henan Tianhai. On 10 November 2009, the Intermediate People’s Court of Zhenzhou City made a judgment against Henan Tianhai. As such, provision for the guarantee amounted to RMB40,000,000 was provided for in the Group’s consolidated fi nancial statements during the year ended 31 December 2009. Henan Tianhai has fi led an appeal against the court judgment and the case was returned to the Intermediate People’s Court of Zhengzhou City for re-trial. On 20 February 2012, the Intermediate People’s Court of Zhengzhou made a judgment, in favour of ADBC, for RMB40,600,000 and interest amount of approximately RMB 5,200,000 for the period from 31 May 2009 to 13 October 2010 which is calculated based on the terms of the original loan between ADBC and Henan Snowcity. On 7 March 2012, Henan Tianhai submitted its appeal to High People’s Court of Henan Province. Henan Tianhai is now waiting for the appeal court proceeding to begin.

Management is of the view that the existing provision of RMB40,000,000 in the Group’s consolidated balance sheet as at 31 December 2011 is suffi cient to cover the loss that Henan Tianhai will probably incur as a result of this legal case. Therefore, no additional provision was made in the Group’s consolidated fi nancial statements as at and for the year ended 31 December 2011 for the contingent liability associated with the aforementioned interests of approximately RMB5,200,000.


83

29. CONTINGENT LIABILITIES (cont’d)

(b) The Group’s subsidiary, Tianhai Electric North America, Inc. (“TENA”), and its other affi liated entities which are also the Group’s subsidiaries, are involved in a lawsuit whereby the plaintiff seeks claims for amounts in excess of US$11.5 million. TENA has fi led a claim suit against the plaintiff. The lawsuit is currently under the court’s proceeding and therefore the potential outcome of these proceedings or the potential loss for TENA and its affi liated entities cannot be reasonably estimated as at the date of these consolidated fi nancial statements. Management is of the view that the lawsuit is currently in the preliminary phase and the probability of loss arising from the claim is remote. Accordingly, no provision for this litigation had been made as of 31 December 2011.

(c) The Group’s subsidiary, Henan Tianhai Electronics Co., Ltd. (“Henan Tianhai”), has provided corporate guarantees in favour of unrelated third parties in return for counter guarantees by the unrelated third parties in favour of the Group’s short-term borrowings as disclosed in Note 26. The balance of third party short-term borrowings under guarantee by Henan Tianhai was RMB340,000,000 as at 31 December 2011 (2010: RMB488,000,000). Management is of the view that no liability will arise from the corporate guarantee provided to the third parties as at 31 December 2011.

30. SEGMENT INFORMATION

(a) Business segments

For management purposes, the Group is organised into business units based on their products and services, and has four reportable operating segments, (i) Wire harness (China operations), (ii) Connectors (China operations),(iii) Mould and machinery(China operations) (iv) Wire harness (America operations).

No operating segments have been aggregated to/from the above reportable operating segments.

Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment.

Segment performance is evaluated based on operating profi t or loss which in certain respects, as explained in the table below, is measured differently from the recognition in the consolidated fi nancial statements. Group fi nancing (including fi nance costs) are managed on a group basis and are not allocated to operating segments.

Segment assets and liabilities cannot be directly attributable to individual business segments and it is not practicable to allocate them to the business segments. Accordingly, it is not meaningful to disclose assets and liabilities by business segments.


84

30. SEGMENT INFORMATION

(b) Geographical segments

In presenting information on the basis of geographical segments, the group segment revenue is based on the location of the customers regardless of where the goods are produced.

Business segments

China operations

Wire harness Connectors

Mould and

machinery

America operation

Wire harness Others Elimination Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Year ended 31 December 2011

Revenue

External customers 999,144 247,113 49,669 193,488 47,487 – 1,536,901

Inter-segment 295,310 176,809 20,717 54,507 22,063 (569,406) –

Total revenue 1,294,454 423,922 70,386 247,995 69,550 (569,406) 1,536,901

Segment results

Segment gross profi t 75,201 148,042 28,192 15,899 14,867 (6,625) 275,576

Unallocated expenses, net (206,743)

Interest income 3,578

Finance costs (69,146)

Share of results of associated company –

Profi t before tax 3,265

Income tax (8,233)

Profi t after tax (4,968)

Year ended 31 December 2010

Revenue

External customers 1,179,451 265,525 40,737 128,568 9,996 – 1,624,277

Inter-segment 167,516 187,011 23,053 77,924 10,426 (465,930) –

Total revenue 1,346,967 452,536 63,790 206,492 20,422 (465,930) 1,624,277

Segment results

Segment gross profi t 119,021 165,007 26,603 7,754 (716) (4,091) 313,578

Unallocated expenses, net (196,436)

Interest income 1,942

Finance costs (33,573)

Share of results of associated company 109

Profi t before tax 85,620

Income tax (10,712)

Profi t after tax 74,908


85

30. SEGMENT INFORMATION (cont’d)

Geographical segments

Revenues by location 2011

RMB’0002010

RMB’000

China 1,321,704 1,495,709

Overseas 215,197 128,568

1,536,901 1,624,277

31. CAPITAL MANAGEMENT

The Group’s capital management objectives are: (a) To ensure the Group’s ability to continue as a going concern,

(b) To provide an adequate return to shareholders,

(c) To support the Group’s sustainable growth, and

(d) To provide capital for the purpose of potential mergers and acquisitions.

The Group sets the amount of equity capital in proportion to its overall fi nancing structure. The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, issue new shares, or sell assets to reduce debt.

The capital-to-overall fi nancing ratios as at end of the reporting period are as follows:

Group2011 2010

RMB’000 RMB’000

Capital

Total equity 522,308 524,913

Overall fi nancing

Borrowings 489,187 560,018

Capital-to-overall fi nancing ratio 1.07 0.94


86

32. FINANCIAL RISK MANAGEMENT

Risk Management Policies For Financial Instruments

General Risk Management Principles

The entity’s fi nancial instruments comprise borrowings, some cash and liquid resources, and various items, such as trade and other receivables, trade and other payables, which arise directly from its operations. The main purpose of these fi nancial instruments is to raise fi nance for the entity’s operations. The main risks arising from the entity’s fi nancial instruments are credit risk, interest rate risk, liquidity risk, foreign currency risk and price risk. The management reviews and agrees policies for managing each of these risks and they are summarised below:

Credit risk

Credit risk is the risk of loss that may arise on outstanding financial instruments should a counterparty default on its obligations. The Group’s and the Company’s exposure to credit risk arises primarily from trade and other receivables. For other fi nancial assets (including investment securities, cash and cash equivalents), the Group and the Company minimise credit risk by dealing exclusively with high credit rating counterparties.

Cash and cash equivalents are placed with reputable fi nancial institutions. Therefore, credit risk arises mainly from the inability of its customers to make payments when due. The amounts presented in the balance sheet are net of allowance for impairment of receivables, estimated by management based on past experience and the current economic environment.

The Group trades only with recognised and creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subjected to credit verifi cation procedures. In addition, receivable balances are monitored on an on-going basis with the result that the Group’s exposure to bad debts is not signifi cant.

Concentration of credit risk exists when changes in economic, industry or geographical factors similarly affect group of counterparties whose aggregate credit exposure is signifi cant in relation to the Group’s total credit exposure.

Financial guarantees provided to third parties (Note 29(c)) expose the Group to the credit risk associated with the loss that would be recognised upon a default by the parties to which the guarantees were provided. To mitigate these risks, the management limits these contracts period to a certain acceptable level and continually monitors and reviews the credit risks and has established processes including performing credit evaluation of the parties to which it is providing the guarantee.

Financial assets that are neither past due nor impaired

Trade and other receivables that are neither past due nor impaired are creditworthy debtors with good payment record with the Group. Cash and cash equivalents, investment securities that are neither past due nor impaired are placed with or entered into with reputable fi nancial institutions or companies with high credit ratings and no history of default.


87

32. FINANCIAL RISK MANAGEMENT (cont’d)

Financial assets that are past due but not impaired

The age analysis of trade receivables past due but not impaired is as follows: They are related to a number of independent customers for whom there is no recent history of default.

Group2011 2010

RMB’000 RMB’000

Less than 30 days 70,371 41,402

31 to 60 days 16,781 18,140

61 to 90 days 2,896 8,610

More than 90 days 41,012 13,607

131,060 81,759

As of 31 December 2011, trade receivables of RMB11,846,000 (2010: RMB14,033,000) was past due and impaired.

Liquidity risk

Liquidity risk is the risk that the Group and the Company will not be able to meet its fi nancial obligation as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have suffi cient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

The Group monitors its liquidity risk and maintains a level of cash and cash equivalents deemed adequate by management to fi nance the Group’s operations and to mitigate the effects of fl uctuations in cash fl ows.

The following table detail the remaining contractual maturity for non-derivative fi nancial liabilities based on the undiscounted cash fl ows of fi nancial liabilities, on the earliest date on which the Group and Company can be required to pay.

Group Company2011 2010 2011 2010

RMB’000 RMB’000 RMB’000 RMB’000

Within one year

Non-interest bearing payables 777,232 636,468 45,204 41,354

Short-term borrowings and future interest to be paid 500,333 573,251 6,455 15,056

Market risk Market risk is the risk that changes in market prices, such as interest rates, foreign exchange rates

and equity prices will affect the Group’s income or the value of its holdings of fi nancial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk.


88


Interest rate risk

Interest rate risk is the risk that the fair value or future cash fl ows of the Group and the Company’s fi nancial instruments will fl uctuate because of changes in market interest rate.

The Group’s exposure to interest rate relates primarily to interest-earning fi nancial assets and interest-bearing fi nancial liabilities. Interest rate risk is managed by the Group on an on going basis with the primary objective of limiting the extent to which net interest expense could be affected by an adverse movement in interest rates.

The Group obtains additional fi nancing through bank borrowings. The Group’s policy is to obtain the most favourable interest rates available without increasing its foreign currency exposure.

The following table sets out the carrying amounts as at 31 December, by maturity or re-pricing, whichever is earlier, of the fi nancial instruments of the Group that are exposed to interest rate risk:

Group Company2011 2010 2011 2010

RMB’000 RMB’000 RMB’000 RMB’000

Within one year

Fixed rate:

Cash and cash equivalents 377,606 280,819 445 554

Borrowings 489,187 205,457 6,455 15,056

Floating rate:

Borrowings – 354,561 – –

Sensitivity analysis

Fair value sensitivity analysis for fi xed rate instruments

The Group does not account for fi xed rate fi nancial assets and liabilities at fair value through profi t or loss. Therefore a change in interest rate at end of the reporting period would not affect the Group’s consolidated statement of comprehensive income.

Cash fl ow sensitivity analysis for variable rate instruments

For the variable rate fi nancial assets and liabilities, a change of 100 basis points in interest rate at end of the reporting period would increase (decrease) profi t or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant.

Profi t or (loss)100 bp

increase100 bp

decreaseRMB’000 RMB’000

Group

31 December 2011

Floating rate instruments – –

31 December 2010

Floating rate instruments (3,546) 3,546


89


Foreign currency risk

The Group incurs foreign currency risk in sales, purchases and capital fl ows that are denominated in currencies other than Renminbi (“RMB”). The currencies giving rise to this risk are primarily United States dollars, Singapore dollars, Euro and Hong Kong dollars.

There is no formal hedging policy with respect to foreign currency exposure. Exposure to foreign currency risk is monitored on an ongoing basis and the Group endeavours to keep the net exposure at an acceptable level.

Currently, the PRC government imposes control over foreign currencies. RMB, the offi cial currency of PRC is not freely convertible. Enterprises operating in the PRC can enter into exchange transactions through the People’s Bank of China or other authorised fi nancial institutions.

At end of the reporting period, the carrying amounts of monetary assets and monetary liabilities denominated in currencies other than the respective Group entities’ functional currencies are as follows:

Assets Liabilities2011 2010 2011 2010

RMB’000 RMB’000 RMB’000 RMB’000

Group

US dollar 94,849 44,278 103,655 116,163

Singapore dollar – 794 7,527 4,396

Euro 13,030 1,161 2,602 393

Company

US dollar 445 245 6,455 14,728

Singapore dollar 326,369 344,215 45,204 36,522

The Company has a number of investments in foreign subsidiaries, whose net assets are exposed to currency translation risk. The Group does not currently designate its foreign currency denominated debts as a hedging instrument for the purpose of hedging the translation of its foreign operations.


90


Foreign currency risk (cont’d)

The following table details the sensitivity to a 2% (2010: 2%) increase and decrease in the relevant foreign currencies against the functional currency of each group entity. 2% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period and for a 2% change in foreign currency rates. The sensitivity analysis includes external loans as well as to foreign operations within the Group where they gave rise to an impact on the Group’s consolidated statement of comprehensive income.

Group2011 2010

RMB’000 RMB’000Profi t or (loss) Profi t or (loss)

USD/RMB – strengthened 2% (2010: 2%) (176) (1,438)

– weakened 2% (2010: 2%) 176 1,438

SGD/RMB – strengthened 2% (2010: 2%) (151) (72)

– weakened 2% (2010: 2%) 151 72

EUR/RMB – strengthened 2% (2010: 2%) 209 15

– weakened 2% (2010: 2%) (209) (15)

Company2011 2010

RMB’000 RMB’000Profi t or (loss) Profi t or (loss)

USD/RMB – strengthened 2% (2010: 2%) (120) (289)

– weakened 2% (20010: 2%) 120 289

SGD/RMB – strengthened 2% (2010: 2%) 5,623 6,154

– weakened 2% (2010: 2%) (5,623) (6,154)

Price risk Price risk is the risk that the value of a fi nancial instrument will fl uctuate due to changes in market

prices whether those changes are caused by factors specifi c to the individual security or its issuer or factors affecting all securities traded in the market.

The Group is exposed to equity price risk arising from its investments is quoted equity instruments, being classifi ed as fi nancial assets, available-for-sale. Available-for-sale equity investments are held for strategic rather than trading purposes. The Group does not actively trade available-for-sale investments. The equity price risk is not considered to be signifi cant to the Group.

Further details of these equity investments as disclosed in Note 21 to the fi nancial statements.


91


Other Business Risks and Uncertainties

The Group is subject to a number of risks including the assistance to development of customers unproven products, the need to maintain adequate fi nancing, better capitalised competitors and dependence on essential personnel. The industry is characterised by technological developments, dependency on copper and changes in customer requirements. Signifi cant technological changes, copper shortage or severe copper price hikes could adversely affect the business plan and operating results of the Group.

To illustrate, a 10% increase in the price of copper for the fi nancial years ended 31 December 2011 and 2010 would have the effect of decreasing the net profi t by the amount shown below. This analysis assumes that all other variables, in particular interest rates, remain constant.

31 December 31 December2011 2010

RMB’000 RMB’000

Copper 1,834 1,636

A 10% decrease in the price of copper for the fi nancial years ended 31 December 2011 and 2010 would have had the equal opposite effect on the amount shown above, on the basis that all other variables remain constant.

Fair value of fi nancial instruments

Where possible, fair values have been estimated using market prices for the fi nancial instruments. Where market prices are not available, values have been estimated using quoted prices for fi nancial instruments with similar characteristics, or otherwise using a suitable valuation technique where it is practicable to do so. The fair value information presented represents the Group’s and the Company’s best estimate of those values, subject to certain assumptions and limitations.

Methodologies

The methodologies and assumptions used in estimating fair values depend on the terms and risk characteristics of the various instruments and include the following:

Interest-bearing bank loans

The carrying value of interest-bearing bank loans with a maturity of less than one year is assumed to approximate their fair value.

Other fi nancial assets and liabilities

The carrying amounts of fi nancial assets and liabilities with a maturity of less than one year (including trade and other receivables, cash and cash equivalents, bills payable to banks and trade and other payables) are assumed to approximate their fair values because of the short period to maturity. All other fi nancial assets and liabilities are discounted to determine their fair values.


92


Financial guarantees

As at 31 December 2011, the Group recognised a provision of RMB40,000,000 for a guarantee provided for a third party’s bank borrowing (Note 29(c)) which represented the amount that the Group will probably reimburse the bank under the guarantee arrangement.

Other than the above, there are no terms attached to the guarantee contracts that would have a material effect on the amount, timing and uncertainty of the Company’s future cash fl ows.

There are no terms and conditions attached to the guarantee contracts that would have a material effect on the amount, timing and uncertainty of the Company’s future cash fl ows.

Financial instruments by category

Loans and receivables

Available-for-sale Total

RMB’000 RMB’000 RMB’000

31 December 2011Assets as per balance sheetAvailable-for-sale fi nancial assets – 1,830 1,830

Trade and other receivables excluding pre-payments 682,627 – 682,627

Bank deposits pledges 334,701 – 334,701

Cash and cash equivalents 42,905 – 42,905

Total 1,060,233 1,830 1,062,063

Other fi nancial

liabilities at amortised

cost TotalRMB’000 RMB’000

31 December 2011

Liabilities as per balance sheet

Borrowings 489,187 489,187

Trade and other payables excluding statutory liabilities 768,165 768,165

Total 1,257,352 1,257,352


93


Financial instruments by category (cont’d)

Loans and receivables

Available-for-sale Total

RMB’000 RMB’000 RMB’000

31 December 2010Assets as per balance sheetAvailable-for-sale fi nancial assets – 2,249 2,249

Trade and other receivables excluding pre-payments 687,591 – 687,591

Bank deposits pledges 208,598 – 208,598

Cash and cash equivalents 72,221 – 72,221

Total 968,410 2,249 970,659

Other fi nancial

liabilities at amortised

cost TotalRMB’000 RMB’000

31 December 2010Liabilities as per balance sheetBorrowings 560,018 560,018

Trade and other payables excluding statutory liabilities 625,309 625,309

Total 1,185,327 1,185,327

33. AUTHORISATION OF FINANCIAL STATEMENTS FOR ISSUE

The fi nancial statements for the year ended 31 December 2011 were authorised for issue in accordance with a resolution of the directors on 5 April 2012.


94

34. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET EFFECTIVE

Below are the mandatory standards, amendments and interpretations to existing standards that have been published, and are relevant for the Group’s accounting periods beginning on or after 1 January 2012 or later periods and which the Group has not early adopted.

At the date of authorisation of these fi nancial statements, the Group has not adopted the following standards and interpretations that have been issued but not yet effective:

Amendments to FRS 107 Disclosures - Transfers of Financial Assets (effective for annual periods beginning on or after 1 July 2011)

Amendments to FRS 1 Presentation of Financial Statements (effective for annual periods beginning on or after 1 July 2011)

FRS 19 (revised 2011) Employee Benefi ts (effective for annual periods beginning on or after 1 July 2013)

FRS 27 (revised 2011) Separate Financial Statements (effective for annual periods beginning on or after 1 July 2013)

FRS 113 Fair Value Measurement (effective for annual periods beginning on or after 1 July 2013)

The management anticipates that the adoption of the above FRSs, INT FRSs and amendments to FRS in the future periods will not have a material impact on the fi nancial statements of the Group and of the Company in the period of their initial adoption.

35. SUBSEQUENT EVENT

On 9 February 2012, the Company entered into a sale and purchase framework agreement (the “Agreement”) with Shenzhen City Deren Electronic Co., Ltd. (the “Purchaser”) to divest the Group’s entire automotive connector and wiring harness business, including but not limited to 100% of the equity interest of Henan Tianhai Electronics Co., Ltd. (“Henan Tianhai”) and 100% of the equity interest of all companies controlled by Henan Tianhai. As at 31 December 2011, the net book value of the companies to be disposed is approximately RMB482,858,000. This sale and purchase transaction is subject to the terms and conditions of the Agreement and the approvals by the shareholders of the Company and the Purchaser. The sale and purchase price is yet to be determined by the parties.

MAJOR PROPERTIESAs at 31 December 2011

95

Location Expiry Date of Tenure Approx

Area (SQM) Use of Property

South to Hongqi Street Hebi City, Henan Province, PRC

22 December 2024 14,321 General building and workshop

South to Hongqi Street Hebi City, Henan Province, PRC

22 December 2024 5,168 Workshop

North to Qihe Road East to Hengshan Road Hebi City, Henan Province, PRC

1 February 2047 37,665 Light steel factory building

East Qibin Avenue Hebi City, Henan Province, PRC

19 August 2048 33,820 Technology development building and workshop

Taishan Road West, Oibin Avenue North Hebi City, Henan Province, PRC

12 September 2058 20,000 Factory

Taishan Road South, Qihe Road, Hebi City, Henan Province, PRC

16 June 2058 35,330 Factory

South Qibin Avenue Hebi City, Henan Province, PRC

16 August 2054 20,000 Factory

No.15, Huanghai Road, Central Haping Road Economic and Technology Development Zone Harbin, PRC

6 June 2053 16,458 Factory

No.8, Lane 24 Hejing Road, Anting Town, Jiading District, Shanghai, PRC

1 March 2053 13,590 Factory and workshop

Yijiang New High-Tech Development Zone Wei Jiu Road, Wuhu, PRC

25 May 2059 53,294 Factory

Xintai Road Gaoxin District, Tieling City, Liaoning Province, PRC

13 August 2060 46,316 Factory

Changhe Automobile Parts Industrial Park Jingdezhen City, PRC

1 January 2010 to 31 December 2011

4,960 Factory

Level 2, Workshop, No.52A, Konggang Yu North District, Chongqing, PRC

1 March 2008 to 1 March 2013

6,000 Workshop

Levels G, 1 and 3, Workshop, No.52A, Konggang Yu North District, Chongqing, PRC

1 April 2010 to 31 March 2013

8,327 Workshop

Level 2, No. 1 and 2 Dongqing Street 10 Yinfa High-Tech Development Zone Zhengzhou, PRC

1 January 2011 to 31 December 2012

3,562 Factory and offi ce

MAJOR PROPERTIESAs at 31 December 2011

96

Our Group also leases the following properties:

Location Expiry Date of Tenure Approx

Area (SQM) Use of Property

Level 1, No.1 Dongqing Street 10 Yinfa High-Tech Development Zone Zhengzhou, PRC

1 November 2010 to 31 December 2012

877 Factory and offi ce

Block 5 Level 4 No 3Zhengzhou Daxue Xinxiaoyuan, Zhengzhou, PRC

16 April 2011 to16 April 2012

137 Staff hostel

Mingzhu City, Qingkou TownChuanweicai Village,Fuzhou PRC

18 May 2011 to18 May 2017

7,326 Factory and offi ce

No.48 Canghai Road Shenyang City Economic Development Zone Liaoning Province, PRC

20 September 2010 to 19 September 2011

1,109 Factory and workshops

Levels 2 to 6, West to Xintai Road Gaoxin District, Tieling City, Liaoning Province, PRC

13 January 2011 to 1 November 2012

3,728 Staff hostel

Blk E1, Unit 6,Level 8, No. 1,Dongyi Lane,Da dong Road, Dadong District, Shenyang City,Liaoning Province, PRC

16 Nov 2011 to 15 Juy 2013

75.6 Staff hostel

Huigong Home, Xintaizi Town, Tieling City Liaoning Province, PRC

7 April 2011 to 6 April 2012

76.8 Staff hostel

Fujian City, Min Hou Xian, Qingkou Town, Shang CunWu Xiu Ling, Si Zhai

20 May 2011 to19 May 2012

570 Staff Hostel

Fujian City, Min Hou Xian, Qingkou Town, Yi Cun Cun Wei Bian, (2nd, 3rd & 4th Storey)

17 May 2011 to16 May 2012

540 Staff Hostel

Fujian City, Min Hou Xian, Qingkou Town, Er Cun No 19,

17 May 2011 to16 May 2012

130 Staff Hostel

Fuzhou City, Cang Shan District HuiLai Ying Cheng, Block 2 No 601

1 July 2011 to30 June 2012

108 Staff Hostel

Fujian City, Min Hou Xian, Qingkou Town, Opposite Er Cun Cun Wei

20 May 2011 to19 May 2012

230 Staff Hostel

37735 Enterprise Court, Suite 400 Farmington Hills, Michigan 48331 United States of America

24 September 2010 to 31 August 2011

580 Offi ce

24 Concord, Suite A El Paso, Texas 79906 United States of America

1 July 2009 to 31 August 2012

19,200 Warehouse

STATISTICS OF SHAREHOLDINGSAs at 15 March 2012

97

Issued and Fully Paid Up Capital : 681,600,000 SharesClass of shares : Ordinary shares of US$0.02 eachVoting rights : One vote per ordinary share

DISTRIBUTION OF SHAREHOLDINGS

SIZE OF SHAREHOLDINGS

NO. OF SHAREHOLDERS % NO. OF SHARES %

1 - 999 0 0.00 0 0.00

1,000 - 10,000 801 39.81 5,264,000 0.77

10,001 - 1,000,000 1,178 58.55 86,881,000 12.75

1,000,001 & ABOVE 33 1.64 589,455,000 86.48

TOTAL 2,012 100.00 681,600,000 100.00

SUBSTANTIAL SHAREHOLDERS(As recorded in the Register of Substantial Shareholders as at 15 March 2012)

Direct Interest Deemed Interest

Number of Shares %

Number of Shares %

ZORO EXPRESS INTERNATIONAL LTD 193,114,000 28.33 – –

SHINE SOUND INVESTMENTS LTD 143,886,000 21.11 – –

WANG LAISHENG (1) – – 193,114,000 28.33

LI DELIN (2) – – 143,886,000 21.11

Note:

(1) Wang Laisheng is deemed to have an interest in the 193,114,000 shares held by Zoro Express International Ltd. (“Zoro”), by virtue of his approximately 35.22% benefi cial interest in Zoro.

(2) Li Delin is deemed to have an interest in the 143,886,000 shares held by Shine Sound Investments Ltd. (“Shine Sound”), by virtue of his voting control (100%) over the shares in Shine Sound.

STATISTICS OF SHAREHOLDINGSAs at 15 March 2012

98

TWENTY LARGEST SHAREHOLDERS As at 15 March 2012

TOP TWENTY SHAREHOLDERS AS AT 15 MARCH 2012Number of

Shares %

1 ZORO EXPRESS INTERNATIONAL LTD 193,114,000 28.33

2 SHINE SOUND INVESTMENTS LTD 143,886,000 21.11

3 OCBC SECURITIES PRIVATE LTD 39,682,000 5.82

4 DBS VICKERS SECURITIES (S) PTE LTD 31,455,000 4.62

5 HSBC (SINGAPORE) NOMINEES PTE LTD 26,379,000 3.87

6 PHILLIP SECURITIES PTE LTD 20,011,000 2.94

7 UOB KAY HIAN PTE LTD 17,518,000 2.57

8 RAFFLES NOMINEES (PTE) LTD 15,213,000 2.23

9 CITIBANK NOMINEES SINGAPORE PTE LTD 13,715,000 2.01

10 GOLD CONCEPT TECHNOLOGIES LTD 12,715,000 1.87

11 GREAT WORLD VENTURES INC 10,000,000 1.47

12 MAXCOMM GROUP CORPORATION 10,000,000 1.47

13 CHINA CORE LIMITED 8,103,000 1.19

14 MAYBANK KIM ENG SECURITIES PTE LTD 7,009,000 1.03

15 MERRILL LYNCH (SINGAPORE) PTE LTD 5,605,000 0.82

16 CIBC INVESTMENT INC 5,200,000 0.76

17 GREAT WORLD VENTURES INC 3,357,000 0.49

18 ONG TIONG SENG 3,218,000 0.47

19 HILLSTAR DEVELOPMENT LIMITED 2,889,000 0.42

20 GRAND GUANG HOLDING LIMITED 2,502,000 0.37

TOTAL 571,571,000 83.86

FREE FLOAT

Based on the information provided to the Company as at 15 March 2012, approximately 50.56% of the issued ordinary shares of the Company was held by the public. Accordingly, Rule 723 of the Listing Manual of the Singapore Exchange Securities Trading Limited has been complied with.

NOTICE OF ANNUAL GENERAL MEETING

99

NOTICE IS HEREBY GIVEN that the Annual General Meeting of the Company will be held at Siloso Ballroom 4, Shangri-La’s Rasa Sentosa Resort, 101 Siloso Road, Sentosa, Singapore 098970 on 20 April 2012 at 9.30 a.m. to transact the following businesses:

ORDINARY BUSINESS:

1. To receive and adopt the Audited Accounts for the fi nancial year ended 31 December 2011 together with the reports of the Directors and the Auditors thereon. (Resolution 1)

2. To re-elect the following Directors who retire in accordance with Bye-Law 104 and 107B of the Company’s Bye-Laws, and who, being eligible, offer themselves for re-election:

(a) Mr Sim Hong Boon (retiring under Bye-Law 104) (Resolution 2) (b) Mr Li Delin (retiring under Bye-Laws 104) (Resolution 3) (c) Mr Zhang Shulin (retiring under Bye-Laws 104) (Resolution 4)

3. To approve the payment of S$150,000 as directors’ fees to Independent Directors for the fi nancial year ending 31 December 2012 and to pay the directors’ fees in arrears on a quarterly basis over the fi nancial year 2012. (Resolution 5)

4. To re-appoint Messrs PricewaterhouseCoopers LLP as the Auditors of the Company for Financial Year 2012. (Resolution 6)

SPECIAL BUSINESS:

To consider and, if thought fi t, to pass with or without modifi cation, the following resolutions as Ordinary Resolutions:

5. “That pursuant to the listing rules of the Singapore Exchange Securities Trading Limited, authority be and is hereby given to the Directors of the Company to allot and issue shares and convertible securities in the Company (whether by way of rights, bonus or otherwise) at any time and from time to time thereafter to such persons and upon such terms and conditions and for such purposes as the Directors may in their absolute discretion deem fi t, provided always that the aggregate number of shares and convertible securities to be issued pursuant to this resolution does not exceed 50% of the issued share capital of the Company as at the date of the passing of this resolution, of which the aggregate number of shares and convertible securities to be issued other than on a pro rata basis to shareholders of the Company does not exceed 20% of the issued share capital of the Company as at the date of the passing of this resolution, and for the purpose of this resolution, the issued share capital shall be the Company’s issued share capital at the time this resolution is passed (after adjusting for new shares arising from the conversion or exercise of convertible securities or share options or vesting of share awards which are outstanding or subsisting at the time this resolution is passed and any subsequent consolidation or subdivision of the Company’s shares), and unless revoked or varied by the Company in general meeting, such authority shall continue in force until the conclusion of the next annual general meeting of the Company or the date by which the next annual general meeting of the Company is required by law to be held, whichever is the earlier.” (See Explanatory Note (i)) (Resolution 7)

NOTICE OF ANNUAL GENERAL MEETING

100

6. To transact any other business that may be transacted at an Annual General Meeting. (Resolution 8)

By Order of the Board

Cheong How OnnCompany Secretary

31 March 2012

Notes:

1. If a member being a depositor whose name appears in the Depository Register (as defi ned in the Bye-Laws of the Company) wishes to attend and vote at the Annual General Meeting, then he/it should complete the Proxy Form and deposit the duly completed Proxy Form at the offi ce of the Company’s Singapore Share Transfer Agent, B.A.C.S. Private Limited at 63 Cantonment Road, Singapore 089758 not less than 48 hours before the time appointed for the Annual General Meeting.

2. If a depositor wishes to appoint a proxy/proxies, then the Proxy Form must be deposited at the offi ce of the Company’s Singapore Share Transfer Agent, B.A.C.S. Private Limited at 63 Cantonment Road, Singapore 089758 not less than 48 hours before the time appointed for the Annual General Meeting.

Explanatory Notes:

(i) The proposed Ordinary Resolution 8, if passed, will empower the Directors from the date of the above Meeting until the date of the next Annual General Meeting, to allot and issue shares and convertible securities in the Company up to an amount not exceeding, in total, 50% of the issued share capital of the Company at the time of passing this resolution, of which up to 20% may be issued other than on a pro rata basis to shareholders.

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CHINA AUTO ELECTRONICS GROUP LIMITED

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