Jiangling Motors Corporation, Ltd.2008 Half-year Report

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Jiangling Motors Corporation, Ltd.2008 Half-year Report

  1. 1. Jiangling Motors Corporation, Ltd. 2008 Half-year Report Contents Section I JMC’s Basic Information 2 Section II Share Capital Changes & Main Shareholders 4 Section III Directors, Supervisors, Senior Management 6 Section IV Management Discussions and Analysis 7 Section V Major Events 11 Section VI Financial Statements 20 Section VII Catalog on Documents for Reference 67 Important Note: The Board of Directors and its members, the Supervisory Board and its members, and the senior executives are jointly and severally liable for the truthfulness, accuracy and completeness of the information disclosed in the report and undertake that the information disclosed herein does not contain false statements, misrepresentations or major omissions. Chairman Wang Xigao, President Yuan-Ching Chen, CFO Joseph Verga and Chief of Finance Department, Wu Jiehong, ensure that the Financial Statements in this Half-year Report are truthful and complete. The Half-year Financial Statements have not been audited. All financial data in this report are prepared under International Financial Reporting Standards („IFRS‟) unless otherwise specified. The Half-year Report is prepared in Chinese and English. In the event of any discrepancy, the Chinese version will prevail. Abbreviations: EVP Executive Vice President CFO Chief Financial Officer VP Vice President 1
  2. 2. Section I JMC’s Basic Information I. Brief Introduction Company name in Chinese: 江铃汽车股份有限公司 Company name in English: Jiangling Motors Corporation, Ltd. Abbreviation: JMC Place of listing: Shenzhen Stock Exchange Share’s name: Jiangling Motors Jiangling B Share’s code: 000550 200550 JMC’s registered address and head office’s address: 509, Northern Yingbin Avenue, Nanchang City, Jiangxi Province, P.R.C. Postcode: 330001 Internet web site: http://www.jmc.com.cn Legal representative of JMC: Mr. Wang Xigao Board Secretary: Mr. Wan Hong Board securities affair representative: Mr. Quan Shi Contact address: Jiangling Motors Corporation, Ltd., 509, Northern Yingbin Avenue, Nanchang City, Jiangxi Province, P.R.C. Telephone: 0791-5266178 Fax: 0791-5232839 E-mail: relations@jmc.com.cn Persons for financial information disclosure: Mr. Joseph Verga (Tel: 0791-5266503) Newspapers for information disclosure: China Securities, Securities Times, Hong Kong Commercial Daily Website designated by CSRC for publication of JMC’s Half-year Report: http://www.cninfo.com.cn Place for placing Half-year Report: Securities Department, Jiangling Motors Corporation, Ltd. Other Information: 1. JMC was registered with Nanchang Municipal Bureau of Industrial & Commercial Administration on November 28, 1993. The company registration was changed with Jiangxi Provincial Bureau of Industrial & Commercial Administration on January 8, 1997, on October 25, 2003, on September 23, 2004, on January 11, 2006 and on June 21, 2007. 2. Business License Registration Number: 002473. 3. Taxation Registration Number: (State Administration of Taxation) 360108612446943 (Nanchang Local Taxation) 360104612446943 2
  3. 3. II. Operating Highlights Unit: RMB ‟000 At the end of At the end of the Change (%) reporting period* previous year Total assets 6,681,937 6,125,140 9.09 Shareholder‟s equity Attributable to the Equity Holders of the 3,746,101 3,496,128 7.15 Company Net Assets Per Share Attributable to the Equity Holders of the 4.34 4.05 7.15 Company (RMB) Reporting period Same period Change (%) (2008 first half)* last year* Operating Profit 598,617 462,794 29.35 Profit Before Income Tax 626,633 482,946 29.75 Profit Attributable to the Equity 508,937 401,405 26.79 Holders of the Company Basic Earnings Per Share (RMB) 0.59 0.47 26.79 Diluted Earnings Per Share (RMB) 0.59 0.47 26.79 Return on Net Asset Ratio (%) Up 0.82 13.59 12.77 percentage points Net Cash Generated From 319,607 519,106 -38.43 Operating Activities Net Cash Flow Per Share from 0.37 0.60 -38.43 Operating Activities (RMB) *Unaudited financial indexes. Impact of IFRS adjustments on the profit for the period: Unit: RMB ‟000 Net assets Profit for the period June 30, 2008 2008 first half As Prepared under the China GAAP** 3,893,463 537,138 Adjustment per IFRS: Deferred income -53,281 -21,490 Staff bonus and welfare fund appropriated from net profit of a subsidiary -1,157 -1,157 As Restated in Conformity with IFRS 3,839,025 514,491 ** Based on the financial statements prepared by JMC under the China GAAP. 3
  4. 4. Section II Share Capital Changes and Main Shareholders I. Table of the changes of shareholding structure Before the change Change (+, -) After the change Proportion Reserve- Proportion New Bonus Shares of total converted Others Subtotal Shares of total shares Shares shares (%) shares shares (%) I. Limited tradable 316,692,845 36.69% -45,320,700 -45,320,700 271,372,145 31.44% A shares 1.State-owned - - - - shares 2. State-owned legal person 311,015,300 36.03% -43,160,700 -43,160,700 267,854,600 31.03% shares 3. Other domestic 5,677,545 0.66% -2,160,000 -2,160,000 3,517,545 0.41% shares Including: Domestic legal 5,673,000 0.66% -2,160,000 -2,160,000 3,513,000 0.41% person shares Domestic natural 4,545 - 4,545 person shares II. Unlimited 546,521,155 63.31% 45,320,700 45,320,700 591,841,855 68.56% tradable shares 1. A shares 202,521,155 23.46% 45,320,700 45,320,700 247,841,855 28.71% 2. B shares 344,000,000 39.85% 344,000,000 39.85% III. Total 863,214,000 100% 863,214,000 100% Note: As of April 7, 2008, the trading restriction on parts of the limited tradable A shares was relieved thereby causing the changes in shareholding structure. 4
  5. 5. II. Total shareholders, top ten shareholders, and top ten shareholders holding unlimited tradable shares Total JMC had 31,319 shareholders, including 20,778 A-share holders and shareholders 10,541 B-share holders, as of June 30, 2008. Top ten shareholders Shareholding Shares Shares with Shareholder Shareholder Percentage Due to Shares Trading Name Type (%) Restriction Mortgage or Frozen Jiangling State-owned 41.03 354,176,000 267,854,600 - Holdings legal person Limited („JHC‟) Ford Motor Foreign 30 258,964,200 - - Company legal person („Ford‟) Shanghai State-owned 2.05 17,692,500 - - Automotive legal person Co., Ltd. Everbright & Domestic non 1.00 8,672,213 - - Pramerica Stock -state-owned Investment legal person Fund Bosera Domestic non 0.89 7,695,823 - - Thematic Sector -state-owned Equity legal person Securities Investment Fund Everbright & Domestic non 0.81 6,993,273 - - Pramerica -state-owned Quantification legal person Investment Fund Lion Wealth Domestic non 0.73 6,273,547 - - Increase Stock -state-owned Investment legal person Fund INVESCO Domestic non 0.69 5,952,538 - - Great Wall -state-owned Dynamic legal person Balanced Fund UBS SDIC Domestic non 0.68 5,900,359 - - Dynamic -state-owned Innovation Fund legal person China Life State-owned 0.66 5,720,348 - - Insurance legal person (Group) Company Top ten shareholders holding unlimited tradable shares Shareholder Name Shares without Trading Restriction Share Type 5
  6. 6. Ford Motor Company 258,964,200 B share JHC 86,321,400 A share Shanghai Automotive Co., 17,692,500 A share Ltd. Everbright & Pramerica 8,672,213 A share Stock Investment Fund Bosera Thematic Sector 7,695,823 A share Equity Securities Investment Fund Everbright & Pramerica 6,993,273 A share Quantification Investment Fund Lion Wealth Increase 6,273,547 A share Stock Investment Fund INVESCO Great Wall 5,952,538 A share Dynamic Balanced Fund UBS SDIC Dynamic 5,900,359 A share Innovation Fund China Life Insurance 5,720,348 A share (Group) Company Notes on association Everbright & Pramerica Stock Investment Fund and among above-mentioned Everbright & Pramerica Quantification Investment Fund are shareholders related funds. Section III Directors, Supervisors and Senior Management I. There was no change in the status of JMC directors, supervisors and senior management holding JMC shares in the reporting period. II. Changes of Directors, Supervisors and Senior Management During the Reporting Period Directors Changes: Due to expiration of the three-year term for the fifth Board, the Board was re-elected in accordance with the regulations of the Articles of Association of JMC. Per approval of the JMC 2007 Annual Shareholders‟ Meeting, Mr. Wang Xigao, Mr. Mei Wei Cheng, Mr. Robert J. Graziano, Mr. Cui Yunjiang, Mr. Howard D. Welsh and Mr. Tu Hongfeng were elected as directors of JMC, and Mr. Zhang Zongyi, Mr. Shi Jiansan and Mr. Vincent Pun Fong Kwan were appointed as independent directors on June 26, 2008. Supervisors Changes: Due to expiration of the three-year term for the fifth Supervisory Board, the Supervisory Board was re-elected in accordance with the regulations of the Articles of Association of JMC. Per approval of the JMC 2007 Annual Shareholders‟ Meeting, Mr. Wu Yong, Mr. 6
  7. 7. Alvin Qing Liu and Mr. Zhu Yi were elected as supervisors of JMC on June 26, 2008. Mr. Jin Wenhui and Ms. Xu Lanfeng were elected in the meeting of employee representatives as members of the new Supervisory Board of JMC in June 2008. Senior Management changes: Due to re-election of the Board of Directors, the first session of the new Board was held on June 26, 2008 and it approved the following resolutions: appointed Mr. Yuan-Ching Chen as the President of the Company; based on the Chairman‟s nomination, appointed Mr. Wan Hong as the Board Secretary; based on the President‟s nomination, appointed Mr. Tu Hongfeng, Ms. Xiong Chunying and Ms. Liu Nianfeng as EVPs, Mr. Joseph Verga as CFO, and Mr. Wan Hong, Mr. Zhong Wanli, Mr. Zhou Yazhuo, Mr. Mustafa Menkü and Mr. Li Qing as VPs. Section IV Management Discussion and Analysis I. Operating Results JMC‟s core business is production and sales of light vehicles and related components. Its major products include JMC series light truck and pickup, and Transit series commercial vehicles. The Company also produces engines, castings and other components. In First Half of 2008, JMC sales volume attained a record of 52,000 units including 20,734 JMC series light trucks, 301 Yunba microbuses, 14,409 pickups, 1,823 Baowei SUV and 14,733 Ford Transit series commercial vehicles. Total sales volume was up 14% from same period last year. Total production volume was 51,722 units, including 20,000 light trucks, 292 Yunba microbuses, 14,611 pickups, 1,774 Baowei SUV, and 15,045 Transits. The Company‟s sales increase is primarily explained by industry increases and competitive pricing actions. Transit sales volume increased by 17% compared with same period last year, Light Truck sales were higher by 11%. Pickup sales were higher by 22% In First Half of 2008, the Company achieved a share of about 1.0% of the Chinese automotive market, maintaining the same level compared with same period last year. (In First Half of 2008, the Company achieved a share of about 2.4% of the Chinese commercial automotive market, decreasing by 0.1 percentage points from same period last year.) JMC light trucks (including pickup) accounted for 5.1% of the light truck market, down about 0.3 percentage points from the 2007 level. Transit, along with the JMC brand Yunba microbus, achieved about 12.2% of the light bus market, about 0.5 percentage points higher than same period last year. (Data source for above analysis: China Association of Automobile Manufacturers and the Company sales records) II. Financial Results The Table below summarizes revenue & cost of goods sold from core business: 7
  8. 8. Unit: RMB ‟000 Product Turnover Cost in core Gross margin business I. Vehicles 4,158,431 3,136,258 24.6% II. Components 314,965 242,858 22.9% Total 4,473,396 3,379,116 24.5% Including: related party transactions 489,746 391,124 20.1% Pricing principle of related party transactions Market price Regional classification of JMC‟s core business are: Unit: RMB ‟000 Changes of turnover in the Region Turnover reporting period from the same period last year (%) North-east China 223,240 24.85 North China 473,708 28.01 East China 2,378,586 10.93 South China 633,830 5.89 Central China 331,541 48.45 North-west China 180,044 26.64 South-west China 252,447 15.16 Revenue in First Half of 2008 was RMB 4,585 million, up 13.4% from same period last year. This increase primarily reflected higher vehicle sales volume, partially offset by price reduction. Under International Financial Reporting Standards, net profit was RMB 509 million, up 26.8% from same period last year‟s level. Higher profit derived from one-time government grants, volume increases and cost reductions was offset by vehicle price reduction, cost increases driven by regulatory actions, raw material pricing increases and period expense increases. Distribution costs increased by RMB 97 million, up 36% from same period last year, primarily reflecting volume-related changes including vehicle delivery costs and warranty, and promotion expenses and advertisement expenditure. Administrative expenses increased by RMB 41 million, up 19% from same period last year, primarily reflecting higher program spending and technical development fees associated with higher Transit sales volume. Cash flow from operations was positive RMB 320 million, reflecting profitability and operating-related changes. Cash flow from investing activities was negative RMB 371 million, primarily reflecting spending for capital goods such as facilities, equipment and tooling. Financing cash flow was negative RMB 0.6 million, primarily reflecting dividend payment, bank loan reduction and interest expenses. At the end of June 2008, Company cash and cash equivalents totaled RMB 2,055 8
  9. 9. million, down RMB 52 million from the end of 2007. The balance of bank borrowing was RMB 47 million, down RMB 1.7 million from the end of 2007 Total assets were RMB 6,682 million, up 9% from RMB 6,125 million at year-end 2007, primarily reflecting higher Fixed Assets, Intangible Assets, inventory and prepayment to Suppliers. The assets structure remains unchanged from 2007. Total liabilities were RMB 2,843 million, up 12% from RMB 2,542 million at year-end 2007, primarily reflecting higher accounts payable due to higher production volumes and investment. Lower bank borrowing and customer advances partially offset the above increases. Shareholder equity, including minority interest, was RMB 3,839 million at June 30, 2008, up RMB 256 million from year-end 2007. This increase is explained by net profit earned in the reporting period. 7. Operational Challenges and Resolutions In First Half of 2008, the Company continued to face competitive challenges with new product entries and intensifying cost pressures. Concurrently, the Company focused on initiating new product development and expanding production capacity. Regarding competition, the Company continued to experience market share pressure from lower-priced competitors in all of its segments. In response, the Company lowered prices for Transit logistic and JMC Pickup Export models in January 2008. Additionally, we launched the new Transit product introduction and promotion in the first half of 2008. The Company also accelerated launch of separate Ford and JMC brand-specific stores to provide sales focus and enhance customer purchase experience. As a result, Transit sales grew by 17%, Light Truck sales were higher by 11%, and Pickup sales were higher by 22% compared with same period last year. In the area of cost management, the Company continues to deal with higher raw material price and cost associated with increased regulatory requirements. To maintain acceptable profit margin, the Company placed high priority on cost management and continued to push dedicated teams to lead vigorous cost reduction and waste elimination activities throughout the entire enterprise. We also moved upstream in the product development process to reduce costs during the design stage, in addition to tightening cost control on models currently in production and daily operating expenses. The company anticipates continued market pressures including raw material price pressure and competitive price reduction, government policy revisions including more stringent regulatory requirements, and new competitive vehicle entries in selected market segments. The Company‟s management remains focused on (1) leveraging existing product platforms to generate new revenue streams, (2) introducing new products, and (3) capacity expansion actions. The Company successfully launched the V348 project. The N900 project (the next generation truck product which is self-developed), and the JX4D24 engine manufacturing project to improve localization and to achieve future regulatory requirements will launch in the second half of 2008. Additionally, the Board approved the N800 project long lead funding for a next generation 9
  10. 10. independently developed high end Light Truck product in April 2008. These actions will introduce competitive and profitable products into the light commercial vehicle market as soon as possible. A frame plant press line capacity expansion project and a C3 stamping press line capacity project will be completed in the second half of 2008. Additionally, the Board approved to increase investment for A4 line in April 2008, and the Board also approved a JX4D24 engine capacity expansion project in July 2008. These manufacturing actions are aimed at supporting the Company‟s present volume growth and increased volume associated with new products. Finally, the Company is continuing efforts to ensure sustainable growth, including studying project opportunities for adding incremental products and expanding profitable exports and OEM sales. 7. Investment in the Reporting Period 1. In First Half year of 2008, JMC did not raise equity funding, nor did it use equity funding raised in previous years. 2. Self funded major projects: Total Future Investment Spending To Planned Investment Forecast Date Completion Project Name Estimate (RMB Mils) (RMB Mils) Date (RMB Mils) V348 909 782 78 Second Half, 2008 N350 598 149 449 Second Half, 2010 JX4D24 Engine 350 244 106 Second Half, 2008 N900 250 129 71 First Half, 2009 A4 Press Line 384 1 383 Second Half, 2009 C3 Press Line 64 40 9 Second Half, 2008 Frame Press Machine 53 34 17 Second Half, 2008 V348 Stage IV Gas 35.3 27 8 Second Half, Engine 2008 JX4D24 Engine Match 30 5 25 Second Half, N350 2009 5 Axis High Speed 11.7 0 11.7 Second Half, CNC Milling Machine 2009 Four Poster Testing 11 6 5 Second Half, Machine 2008 Transit Stage IV Gas 8 6 - Finished Engine N800 Program Long 118 6 69 Still Being Lead Funding Planned 10
  11. 11. Vehicle Storage and 35 - 35 First Half, Delivery Facility Phase 2009 I JX4D24 Engine Phase 315 - 315 Second Half, II 2010 PDM Program 10.5 2.7 7.8 Second Half, 2009 V348 China Heavy 22 - 22 Still Being Duty Stage IV Long Planned Lead Funding Total 3,204.5 1,431.7 1,533.5 The Spending will be funded from cash reserves. V. 2008 Second Half Year Plan The Company is projecting revenue in the range of RMB 5,000 to 6,000 million for the Second Half. Intensified competition resulting from new market entries and the launch of news models will require increased levels of marketing expense to support expanded market share. Additionally, R&D and capital expenditures are projected to be higher as we progress with new product programs and capacity expansion actions. In the Second Half, the Company continues to focus on generating cash and profits, enhancing the formulation of new product development strategies, and executing plans for future growth. Specific actions include: i. Accelerated efforts to strengthen our brand image by enhancing the Company's distribution network, including brand-specific dealer expansion and improving customer sales service. ii. Robust governance of existing and new programs to ensure that programs launch when planed within approved program according level, and that they deliver functional and quality targets. iii. Increased cost reduction efforts by focusing on customer value and eliminating waste. iv. Development product plans to add new products for introduction in the Chinese market, with capability to export. v. Expanded export and OEM component sales business. Section V Major Events I. Status of the Corporate Governance in JMC In accordance with the requirements of the relevant regulations promulgated by China Securities Regulatory Commission (“CSRC”), such as the Guidance for the Articles of Association of Listed Companies (2006 Revision), the Guidance on the Working Rules for the Audit Committee of the Board of Directors and the Notice on Preparing 2007 Annual Report and Related Items for Listed Companies, and considering the corporate governance issues indicated by the CSRC Jiangxi Branch during an on-site review at the Company, the Company amended the Articles of Association of JMC, 11
  12. 12. the Working Rules for JMC Audit Committee and the Working Rules for JMC Strategy Committee to reflect consistency with the actual operation of the Company and to comply with the legal and regulatory requirements. Please refer to the Statement on Improvement Results of JMC Corporate Governance Review Special Program disclosed on the website www.cninfo.com.cn on July 10, 2008, which details the improved results for the issues addressed to JMC on 2007 Governance Review Special Program for listed companies. II. Execution of Profit Distribution Plan The 2007 Annual Shareholders‟ Meeting of the Company approved the 2007 calendar year profit distribution plan on June 26, 2008. Announcement of 2007 calendar year dividend distribution was published in China Securities, Securities Times and Hong Kong Commercial Daily on July 12, 2008, and it has been executed accordingly. The 2007 calendar year dividend distribution plan was as follows: Based on the total share capital of 863,214,000 shares, a cash dividend of RMB 3 (before tax) per 10 shares was distributed to shareholders. Individual shareholders and investment funds holding the Company‟s A shares received an after-tax cash dividend of RMB 2.7 per 10 shares, and the cash dividend for B-share holders was exempt from tax. The B-share dividend was paid in Hong Kong Dollars based on the median of the buy-and-sell exchange rates between the HK dollar and RMB quoted by the People‟s Bank of China on the first business day (June 27, 2008) after the resolution of the Shareholders‟ Meeting. The exchange rate was HKD 1.00 / RMB 0.8794. Equity record date and ex-dividend date for A shares were July 18 and July 21, 2008 respectively; Last transaction date, ex-dividend date and equity record date for B shares were July 18, July 21, and July 23, 2008 respectively. JMC did not convert capital reserves into share capital in the reporting period. III. JMC had no major litigation or arbitration issues in the reporting period. IV. Purchase or sale of assets The Board of Directors approved the transfer of the Company‟s land use right for 218 Mu land, located in Majiashan, Nanchang city, as well as affixtures thereto for RMB 33 million, and acquisition of the land use right for a 2000 Mu Greenfield, located in Xiaolan Economic Development Zone, Nanchang city, P.R.C. (hereinafter referred to as “Xiaolan Zone”), for RMB 33 million on July 10, 2006. Due to the changes of state regulations for land transactions, the Board of Directors re-approved acquisition of the land use right for the 2000 Mu Greenfield, located in Xiaolan Zone, for no more than RMB 160 million on April 10, 2008. The Administrative Committee of Xiaolan Zone and the Company signed an Investment Agreement for acquiring above-mentioned land use right on April 10, 2008, and the 12
  13. 13. Company has obtained the land use right certificate of the 2000 Mu Greenfield on June 23, 2008. As of the date of the issuance of this Half-year Report, the transaction for the land located in Majiashan is still progressing towards governmental approval. V. Major related party transactions 1. Related party transactions for purchase of commodities and services in the reporting period (1) JMC purchased certain raw materials, auxiliary materials and components from related parties. Transactions with half-year value over RMB 15 million are listed bellow: Transaction Parties Pricing Settlement Amount % of Total Principle Method (RMB ‟000) Purchases Ford Contracted Letter of credit 177,319 5.39 price Jiangxi Jiangling Chassis Contracted 60 days after 152,451 4.64 Company price delivery Nanchang Bao-jiang Steel Contracted Prepayment 126,929 3.86 Processing Distribution Co., price Ltd. JMCG Interior Trim Factory Contracted 60 days after 123,894 3.77 price delivery GETRAG (Jiangxi) Contracted 60 days after 117,422 3.57 Transmission Company price delivery Jiangling-Lear Interior Trim Contracted 60 days after 85,000 2.58 Factory price delivery JMCG Contracted 60 days after 75,972 2.31 price delivery Jiangxi JMCG Industrial Contracted 60 days after 62,173 1.89 Company price delivery Visteon Climate Control Contracted 60 days after 59,623 1.81 (Nanchang) Co., Ltd. price delivery Ford Trading Company Contracted Telegraphic 46,950 1.43 price Transfer 30 days after shipping date Jiangxi Specialty Vehicles Contracted Monthly Netting 39,891 1.21 Jiangling Motors Group Co., price off payment of Ltd. purchased goods Nanchang Jiangling Contracted 60 days after 37,452 1.14 Huaxiang Auto Components price delivery Co. Nanchang JMCG Liancheng Contracted 60 days after 30,969 0.94 Auto Component Co. price delivery Jiangling Material Co. Contracted After delivery 18,764 0.57 price (2) The sales of products by JMC to related parties with half-year value over RMB 15 million are listed bellow: 13
  14. 14. Transaction Parties Pricing Settlement Amount % of Total Sales Principle Method (RMB‟000) Revenue JMCG Import and Export Co., Contracted 30 days after 372,815 8.13 Ltd. price delivery Jiangxi Specialty Vehicles Contracted Monthly Jiangling Motors Group Co., price Netting off Ltd. payment of 61,317 1.34 purchased goods Jiangxi JMCG Industrial Contracted Monthly Company price Netting off payment of 40,084 0.87 purchased goods JHC Contracted 30 days after 31,474 0.69 price invoicing Jiangxi Jiangling Material Market Monthly 22,409 0.49 Utilization Company price Settlement JMCG Interior Trim Factory Contracted Consignment price after receiving payment of 18,399 0.40 purchased goods GETRAG (Jiangxi) Contracted Monthly Transmission Company price Netting off payment of 18,267 0.40 purchased goods In the above mentioned pricing principle, market price means that it is based on the market price of similar products, and contracted price means that for unique products or services for which comparable market data is difficult to obtain, prices are determined through the process of supplier quotation, cost assessment and negotiations. (3) Secondee Compensations Pursuant to an agreement between the Company and Ford on March 24 2005, some employees of Ford were assigned to the Company as management staff. In the first half of 2008, the Company should pay approximately USD 1,893 thousand and RMB583 thousand to Ford as a service fee for these employees. Pursuant to an agreement between the Company, Ford and Ford Otosan Company on December 8 2006, some employees of Ford Otosan Company were assigned to the Company as management staff. In the first half of 2008, the Company should pay approximately USD 507 thousand to Ford Otosan Company as a service fee for these employees. Pursuant to an agreement between the Company and JHC on January 1 2008, some employees of JHC were assigned to the Company as management staff. In the first half of 2008, the Company should pay approximately RMB 314 thousand to JHC as a service fee for these employees. 14
  15. 15. (4) General Service JMCG bears the middle school and primary school educational fees of existing employees and certain retired employees' expenses of the Group, and provides services such as cable television. The related costs were borne by the Group according to agreed percentages as determined by headcount ratio of the Group and JMCG. In the reporting period, RMB 1.10 million of the above-mentioned costs was shared by JMC and its subsidiaries. (5) Purchasing Agency JMCG Import and Export Co., Ltd. was the import agent of JMC for acquiring import materials, equipment and technology services. In the reporting period, JMC paid JMCG Import and Export Co., Ltd. commission totaling RMB 1.07 million. 2. The Company had no related party transaction concerning transfer of assets or equity in the reporting period. 3. Creditor‟s rights, liabilities and guarantees between JMC and related parties (1) Balance of accounts due to or due from main related parties with value over RMB 30 million: Unit: RMB ‟000 Item Related Parties Amount % of Each (RMB thousands) Account Balance Receivables Jiangxi Specialty 30,461 11.67 Vehicles Jiangling Motors Group Co., Ltd. Prepayment Nanchang Bao-jiang 148,407 51.12 Steel Processing Distribution Co., Ltd. Prepayment JMCG Import and Export 101,175 34.85 Co., Ltd. Accounts and Jiangxi Jiangling Chasis 81,420 5.08 bills payable Company Accounts and Jiangling-Lear Interior 63,301 3.95 bills payable Trim Factory Accounts and JMCG Interior Trim 60,976 3.80 bills payable Factory Accounts and GETRAG (Jiangxi) 59,500 3.71 bills payable Transmission Company Accounts and Visteon Climate Control 47,086 2.94 bills payable (Nanchang) Co., Ltd. Accounts and Jiangxi Specialty 34,179 2.13 bills payable Vehicles Jiangling Motors Group Co., Ltd. Accounts and JMCG 33,515 2.09 bills payable Other payable Ford 89,887 14.82 15
  16. 16. (2) Deposit On June 30, 2008, JMC had a deposit of RMB 79.30 million in JMCG Finance Co., Ltd. JMC received a total of RMB 0.97 million in interest from JMCG Finance Co., Ltd. during the first half of 2008. (3) Guarantees to JMC As of June 30, 2008, JMCG Finance Co, Ltd provided a guarantee for JMC‟s bank loans of US$ 1.28 million. 4. Other major related party transactions during the first half of 2008 According to the Joint Development Agreement and the 2nd Amendment Contract to the Joint Development Agreement signed by JMC and Ford, JMC is to pay technology development fee totaling US$ 40 million to Ford. JMC bore a technology development fee of US$ 3.61 million (equal to RMB 25.05 million) in first half of 2008 reflecting 1.8% of Transit sales revenue. According to the V348 Transit Vehicles Series Technology Licensing Contract signed by JMC and Ford, JMC will pay technology development fee to Ford until sales termination of V348 Transit. JMC bore a technology development fee of US$ 1.09 million (equal to RMB 7.52 million) in first half of 2008 reflecting 2.6% of V348 Transit sales revenue. VI. There were neither entrustment, contracts or leases assets from other companies, nor entrustment, contracts or leases of JMC‟s assets to other companies from which profit was generated in excess of 10% of the reporting period total profit. JMC did not entrust other people with cash asset management in the reporting period. VII. Commitments of the shareholder holding 5% or more of JMC‟s shares JHC, holding 41.03% of JMC total shares, declared its special commitment for the Full Tradable Share Reform as follows: Name Special Commitments Implementation JHC JHC promised specifically to pay the Has been consideration on behalf of the unlisted-share implemented per holders who opposed the Share Reform or did the special not express their opinions. The commitments above-mentioned unlisted-share holders should repay the consideration paid by JHC and the interest thereof, or obtain written consent from JHC, if they want to list their shares. VIII. Neither the Company nor its directors or senior management were punished by regulatory authorities in the reporting period. IX. JMC guarantees to outside companies The Company Board of Directors approved on December 13, 2007 to provide guarantee to Ford Automotive Finance (China) Ltd. (“FAFC”) with vehicle pledge for Suzhou Hejun Auto Trading Limited, Shanghai Jiuha Auto Industrial Limited, Wuxi Jiangling Auto Sales Limited and Shenzhen Shuncheng Jiangling Auto Trading 16
  17. 17. Limited with a total credit line of no more than RMB 55.5 million. The table below summarizes JMC outside guarantees in first half of 2008. Outside Guarantees (excluding the guarantees to the subsidiaries of the Company) Name Date Amount Type of Term of Whether Whether For (Signature (RMB) Guarantee Guarantee Has Been A Related Date of the Executed Entity (Y/N) Agreement) Completely (Y/N) Suzhou Hejun Auto December 24, 10,440,700 Pledge 12 N N Trading Limited 2007 months Shanghai Jiuha December 24, 0 Pledge 12 N N Auto Industrial 2007 months Limited Wuxi Jiangling December 24, 5,478,100 Pledge 12 N N Auto Sales 2007 months Limited Shenzhen December 24, 11,813,585 Pledge 12 N N Shuncheng 2007 months Jiangling Auto Trading Limited Total amount of the guarantees in the reporting 213,999,727 period Balance of the guarantees as of the end of the 27,732,385 reporting period Guarantees to the subsidiaries of the Company Total amount of the guarantees to the 0 subsidiaries of the Company in the reporting period Balance of the guarantees to the subsidiaries of 0 the Company as of the end of the reporting period Total Guarantees (including the guarantees to the subsidiaries of the Company) Total Amount 27,732,385 As % of the Company‟s net assets 0.7% Including: Guarantees offered to shareholders, actual 0 controlling parties and its related parties Guarantees directly or indirectly offered to 0 guaranteed parties whose ratio of liabilities to assets exceed 70% Amount of the guarantees exceeding 50% of the 0 Company‟s net assets Subtotal of the aforesaid three items 0 X. Independent directors‟ explanation and independent opinions on the Company‟s account receivables by related parties and outside guarantees Independent Director Zhang Zongyi, Shi Jiansan and Vincent Pun Fong Kwan 17
  18. 18. expressed their opinions on the Company‟s account receivables by related parties and outside guarantees as follows: We are aware of the cash flow occurring between the Company and its controlling shareholders and other related parties and the Company‟s outside guarantees, and believe that: 1. Cash flow occurring between the Company and its controlling shareholders and other related parties resulted from normal business transactions. There was no illegal embezzlement of company funds. 2. The risk derived from the vehicle pledge provided for such credit facilities is offset because the Company has received the cash payment of the vehicles from FAFC on behalf of the dealers. The Company has no other outside guarantees except the aforesaid guarantees provided for the dealers in the reporting period. XI. External research and media interviews of the Company Date Place Communication Object Information Discussed Method and Materials Offered January 3, In the Oral An analyst from China JMC Operating 2008 Company Communication Asset Management Co., highlights and Ltd. development strategy January In the Oral An analyst from Great JMC Operating 13, 2008 Company Communication Wall Fund Management highlights and Co., Ltd. development strategy January In the Oral Five analysts from Great JMC Operating 17, 2008 Company Communication Wall Securities Co., highlights and Ltd., Lord Abbett China development strategy Asset Management Co., Ltd., China Southern Fund Management Co., Ltd., China Merchants Securities Co., Ltd. January In the Oral An analyst from Nikko JMC Operating 23, 2008 Company Communication Asset Management Co., highlights and Ltd. development strategy March 4, In the Oral Two analysts from JMC Operating 2008 Company Communication China International highlights and Capital Corporation development strategy Limited. April 2, In the Oral Two analysts from BOC JMC Operating 2008 Company Communication International (China) highlights and Limited, China Galaxy development strategy Securities Company Limited April 11, In the Oral Ten analysts from JMC Operating 2008 Company Communication CITIC Securities Co., highlights and Ltd., AXA SPDB development strategy Investment Managers Co., Ltd., Fortis Haitong Investment Management Co., Ltd., Waijia Asset Management Co., Ltd., HSBC Jintrust Fund 18
  19. 19. Management Company Limited, Fortune SGAM Fund Management Co., LTD., Lombarda China Fund Management Co., Ltd., Tianhong Asset Management Co., Ltd., Chang Xin Asset Management Co., Ltd., Golden Eagle Asset Management Co., Ltd. April 16, In the Oral Two analysts from JMC Operating 2008 Company Communication Sinolink Securities Co., highlights and Ltd. development strategy April 19, In the Oral Four analysts from JMC Operating 2008 Company Communication Golden Sun Securities highlights and Co., Ltd., Changjiang development strategy Securities Co., Ltd, Zhonghai Fund Management Co., Ltd. April 26, Wuhan Oral Ten analysts from AXA JMC Operating 2008 Communication SPDB Investment highlights and Managers Co., Ltd., development strategy Huaan Fund Management Co., Ltd. Lord Abbett China Asset Management Co., Ltd., Soochow Asset Management Co., Ltd., Fortis Haitong Investment Management Co., Ltd., Aegon-Industrial Fund Management Co., Ltd., Changjiang Securities Co., Ltd, Guoyuan Securities Co., Ltd., Everbright & Pramerica Fund Management Co., Ltd., Bank Of China Investment Management Co., Ltd. May 13, In the Oral An analyst from Midea JMC Operating 2008 Company Communication Investment Management highlights and Co., Ltd. development strategy June 6, In the Oral Two analysts form JMC Operating 2008 Company Communication Harvest Fund highlights and Management Co., Ltd., development strategy JPMorgan Chase & Co. XII. Establishment & Implementation of Internal Control System The Company conducted a review on the implementation of Internal Control Systems in compliance with the requirements of Internal Control Guidance for Listed Companies promulgated by Shenzhen Stock Exchange and other related regulations in the reporting period. The results indicate that the Company‟s operation has been executed strictly in compliance with its Internal Control System and there is no major management vulnerability or fraudulent behavior. Additionally, the Company 19
  20. 20. improves its corporate governance level by participating in a Listed Company Governance Review Special Program. Key internal control activities in the first half of 2008 are as follows: 1. Revised parts of statements in the Articles of Association of the Company which did not comply with the Guidance for the Articles of Association of Listed Companies (2006 Revision); 2. Amended the Working Rules for JMC Strategy Committee for consistency with the actual operation of the Company, and 3. Amended the Working Rules for JMC Audit Committee in accordance with the requirements of the Guidance on the Working Rules for the Audit Committee of the Board of Directors, and the Notice on Preparing 2007 Annual Report and Related Items for Listed Companies, which were promulgated by CSRC. XIII JMC did not participate in securities investments nor did it increase equity in other listed companies, non-listed finance companies, or companies applying to be listed, during the reporting period. XIV Indexes for publication of information disclosure All announcements of the Company are published in China Securities, Securities Time and Hong Kong Commercial Daily. The website for information disclosure is http: //www.cninfo.com.cn. The listing of information disclosed in the first half of 2008 is as follows: 1. Year 2007 Performance Flash Report was published on January 22, 2008. 2. Extracts from the 2007 Annual Report and announcements on the relevant resolutions of the Board of Directors and relevant resolutions of the Supervisory Board were published on March 15, 2008. 3. Production and sales volume information in March 2008 and the prompt announcement on relieving the trading restriction on the limited tradable shares in Full Tradable Share Reform were published on April 3, 2008. 4. Announcement on the resolutions of the Twelfth Session of the Fifth Board of Directors was published on April 15, 2008. 5. 2008 First Quarter Report was published on April 24, 2008. 6. Production and sales volume information in April 2008 was published on May 6, 2008. 7. Announcement on changing the Sponsor‟s representative was published on May 25, 2008. 8. Announcements on the resolutions of the Board of Directors and Supervisory Board, the Notice on Holding 2007 Annual Shareholders‟ Meeting and production and sales volume information in May 2008 were published on June 3, 2008. 9. Announcement of the Supervisory Board was published on June 25, 2008. 10. Announcements on the resolutions of the First Session of the Sixth Board of Directors, of the Supervisory Board and of the 2007 Annual Shareholders‟ Meeting as well as the announcement on receiving government grants were published on June 27, 2008. Section VI Financial Statements The Half-year Financial Statements have not been audited. 20
  21. 21. Jiangling Motors Corporation, Ltd. CONSOLIDATED BALANCE SHEET AS AT 30 JUNE 2008 (All amounts in RMB unless otherwise stated) As at Note 30 June 2008# 31 December 2007 RMB‟000 RMB‟000 ASSETS Non-current assets Property, plant and equipment 5 2,272,320 2,208,056 Lease prepayment 6 309,088 139,813 Intangible assets 7 34,903 35,987 Investments in associates 8 21,258 17,764 Other non-current assets 367 - Deferred income tax assets 9 105,516 107,902 2,743,452 2,509,522 Current assets Inventories 10 1,076,421 866,076 Trade and other receivables 11 807,534 642,630 Held-to-maturity investment 12 - - Cash and cash equivalents 13 2,054,530 2,106,912 3,938,485 3,615,618 Total assets 6,681,937 6,125,140 EQUITY Capital and reserves attributable the Company’s equity holders Share capital 14 863,214 863,214 Share premium 14 816,609 816,609 Other reserves 15 442,331 442,331 Retained earnings 1,623,947 1,373,974 3,746,101 3,496,128 Minority interests in equity 92,924 87,370 Total equity 3,839,025 3,583,498 LIABILITIES Non-current liabilities Borrowings 16 8,310 9,088 Retirement benefits obligations 17 61,769 69,701 Deferred income 53,281 31,791 Warranty provisions 18 109,743 106,910 233,103 217,490 Current liabilities Trade and other payables 19 2,543,363 2,268,798 Current income tax liabilities 12,289 276 Borrowings 16 39,167 40,088 Retirement benefits obligations 17 14,990 14,990 2,609,809 2,324,152 Total liabilities 2,842,912 2,541,642 Total equity and liabilities 6,681,937 6125140 #Unaudited financial indexes The notes on pages 7 to 49 are an integral part of these consolidated financial statements. 21
  22. 22. Jiangling Motors Corporation, Ltd. CONSOLIDATED INCOME STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2008 (All amounts in RMB unless otherwise stated) Six months ended 30 June Note 2008# 2007# RMB‟000 RMB‟000 Sales 20 4,584,730 4,043,188 Sales tax and surcharge (79,429) (68,211) Net sales 4,505,301 3,974,977 Cost of sales (3,455,347) (3,032,910) Gross profit 1,049,954 942,067 Distribution costs (365,660) (268,411) Administrative expenses (252,503) (212,039) Other gains-net 166,826 1,177 Operating profit 598,617 462,794 Finance income 23 25,942 19,974 Finance costs 23 (1,420) (2,977) Finance income-net 23 24,522 16,997 Share of profit of associates 3,494 3,155 Profit before income tax 626,633 482,946 Income tax expense 24 (112,142) (72,894) Profit for the period 514,491 410,052 Attributable to: Equity holders of the Company 508,937 401,405 Minority interests 5,554 8,647 514,491 410,052 Earnings per share for profit attributable to the equity holders of the Company (expressed in RMB per share) - Basic and diluted 25 0.59 0.47 Dividends 26 258,964 258,964 #Unaudited financial indexes The notes on pages 7 to 49 are an integral part of these consolidated financial statements. 22
  23. 23. Jiangling Motors Corporation, Ltd. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30 JUNE 2008 (All amounts in RMB unless otherwise stated) For the six months ended 30 June 2007# Attributable to equity holders of the Company Share Shares Other Retained Minority Total Note Capital Premium Reserves Earnings Interests Equity RMB‟000 RMB‟000 RMB‟000 RMB‟000 RMB‟000 RMB‟000 Balance at 1 January 2007 863,214 816,609 366,415 955,409 126,012 3,127,659 Profit for the six months - - - 401,405 8,647 410,052 Dividend relating to 2006 - - - (258,964) - (258,964) Balance at 30 June 2007 863,214 816,609 366,415 1,097,850 134,659 3,278,747 For the six months ended 30 June 2008# Attributable to equity holders of the Company Share Shares Other Retained Minority Total Note Capital Premium Reserves Earnings Interests Equity RMB‟000 RMB‟000 RMB‟000 RMB‟000 RMB‟000 RMB‟000 Balance at 1 January 2008 863,214 816,609 442,331 1,373,974 87,370 3,583,498 Profit for the six months - - - 508,937 5,554 514,491 Dividend relating to 2007 26 - - - (258,964) - (258,964) Balance at 30 June 2008 863,214 816,609 442,331 1,623,947 92,924 3,839,025 #Unaudited financial indexes The notes on pages 7 to 49 are an integral part of these consolidated financial statements. 23
  24. 24. Jiangling Motors Corporation, Ltd. CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2008 (All amounts in RMB unless otherwise stated) Note Six months ended 30 June 2008# 2007# RMB‟000 RMB‟000 Cash flows from operating activities Cash generated from operations 27 364,076 558,931 Interest paid (1,240) (2,903) Income tax paid (43,229) (36,922) Net cash generated from operating activities 319,607 519,106 Cash flows from investing activities Purchase of held-to-maturity investments (199,461) (179,265) Purchase of property, plant and equipment (“PPE”) (401,296) (242,946) Proceeds from disposal of PPE 27 1,164 629 Interest received 28,409 20,833 Proceed from disposal of held-to-maturity investments 200,000 190,024 Net cash used in investing activities (371,184) (210,725) Cash flows from financing activities Proceeds from borrowings 39,107 40,429 Repayments of borrowings (39,336) (90,299) Dividends paid to company‟s shareholders (181) (4,203) Other cash paid relating to financing activities (182) (378) Net cash used in financing activities (592) (54,451) Effects of exchange rate changes (213) (227) Net increase in cash and cash equivalents (52,382) 253,703 Cash and cash equivalents at beginning of period 2,106,912 2,168,225 Cash and cash equivalents at end of period 2,054,530 2,421,928 #Unaudited financial indexes The notes on pages 7 to 49 are an integral part of these consolidated financial statements. 24
  25. 25. JIANGLING MOTORS CORPORATION, LTD. FOR THE SIX MONTHS ENDED 30 JUNE 2008 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 1 General information Jiangling Motors Corporation, Ltd. (the “Company”) was established in the People‟s Republic of China (the “PRC”) under the Company Law of the PRC and under the approval of Hongban (1992) No. 005 of Nangchang Revolution and Authorization Group of Company‟s Joint Stock as a joint stock limited company to hold certain operational assets and liabilities of the automotive manufacturing business of Jiangxi Motors Manufacturing Factory, Which was owned by Jiangling Motors Corporation Group (“JMCG”). The legal representative‟s operating license of the Company is No.002473. The address of the Company‟s registered office is No.509, Northern Yingbin Avenue, Nanchang, Jiangxi Province, the PRC. In December 1993, the Company issued 494,000,000 domestic ordinary shares (“A share”). In addition, the Company issued 25,214,000 A shares as bonus shares to the existing shareholders in 1994. The bonus shares were issued by utilisation of the Company‟s retained earnings. In 1995, the Company issued 174,000,000 domestically listed foreign shares (“B share”) and the Company issued 170,000,000 B shares in 1998. As at 30 June 2008, the total issued shares of the Company are 863,214,000 shares, which are all listed on the Shenzhen Stock Exchange, the PRC. The Company and its subsidiaries (the “Group”) are principally engaged in the development, manufacturing and selling of automobiles, engines and automobile related parts, dies and tools. These consolidated financial statements have been approved for issue by the Board of Directors on 27 August 2008. 2 Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. A Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). The consolidated financial statements have been prepared under the historical cost convention except as disclosed in the accounting policies below. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group‟s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimations are significant to the consolidated financial statements are disclosed in Note 4. 25
  26. 26. JIANGLING MOTORS CORPORATION, LTD. FOR THE SIX MONTHS ENDED 30 JUNE 2008 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 2 Summary of significant accounting policies (continued) A Basis of preparation (continued) Standards, amendment and interpretations effective in 2008 IFRIC 14, 'IAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction' (effective from 1 January 2008). IFRIC 14 provides guidance on assessing the limit in IAS 19 on the amount of the surplus that can be recognised as an asset. It also explains how the pension asset or liability may be affected by a statutory or contractual minimum funding requirement. This standard does not have any impact on the Group‟s financial statements. Standards, amendments and interpretations effective in 2008 but not relevant for the Group’s operations The following standard, amendment and interpretation to published standards is mandatory for accounting periods beginning on or after 1 January 2008 but they is not relevant to the Group‟s operations: IFRIC 12, 'Service concession arrangements' (effective from 1 January 2008). IFRIC 12 applies to contractual arrangements whereby a private sector operator participates in the development, financing, operation and maintenance of infrastructure for public sector services. IFRIC 12 is not relevant to the Group‟s operations because none of the Group‟s companies provide for public sector services. Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group The following standards, amendments and interpretations to existing standards have been published and are mandatory for the Group‟s accounting periods beginning on or after 1 July 2008 or later periods, but the Group has not early adopted them: IAS 1 (Revised), “Presentation of Financial Statements” (effective from 1 January 2009). IAS 1 (Revised) requires all owner changes in equity to be presented in a statement of changes in equity. All comprehensive income is presented in one statement of comprehensive income or in two statements (a separate income statement and a statement of comprehensive income). It requires presenting a statement of financial position as at the beginning of the earliest comparative period in a complete set of financial statements when there are retrospective adjustments or reclassification adjustments. However, it does not change the recognition, measurement or disclosure of specific transactions and other events required by other IFRSs. The Group will apply IAS 1 (Revised) from 1 January 2009. IAS 23 (Amendment), 'Borrowing costs' (effective from 1 January 2009). The amendment to the standard is still subject to endorsement by the European Union. It requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. The option of immediately expensing those borrowing costs will be removed. The Group will apply IAS 23 (Amended) from 1 January 2009. 26
  27. 27. JIANGLING MOTORS CORPORATION, LTD. FOR THE SIX MONTHS ENDED 30 JUNE 2008 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 2 Summary of significant accounting policies (continued) A Basis of preparation (continued) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group (continued) IFRS 8, 'Operating segments ' (effective from 1 January 2009). IFRS 8 replaces IAS 14 and aligns segment reporting with the requirements of the US standard SFAS 131, „Disclosures about segments of an enterprise and related information‟. The new standard requires a 'management approach', under which segment information is presented on the same basis as that used for internal reporting purposes. The Group will apply IFRS 8 from 1 January 2009. The expected impact is still being assessed in detail by management, but it appears likely that it does not have any impact on the Group‟s accounts. IAS 32 and IAS 1 Amendments “Puttable Financial Instruments and Obligations Arising on Liquidation” (effective from 1 January 2009). The amendment requires some puttable financial instruments and some financial instruments that impose on the entity an obligation to deliver to another party a pro rata share of the net assets of the entity only on liquidation to be classified as equity. The Group will apply IAS 32 and IAS 1 Amendments from 1 January 2009, but it is not expected to have any impact on the Group‟s accounts. IAS 27 (Revised) “Consolidated and Separate Financial Statements” (effective from annual period beginning on or after 1 July 2009). The amendment requires non-controlling interests (i.e. minority interests) to be presented in the consolidated statement of financial position within equity, separately from the equity of the owners of the parent. Total comprehensive income must be attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. Changes in a parent‟s ownership interest in a subsidiary that do not result in the loss of control are accounted for within equity. When control of a subsidiary is lost, the assets and liabilities and related equity components of the former subsidiary are derecognised. Any gain or loss is recognised in profit or loss. Any investment retained in the former subsidiary is measured at its fair value at the date when control is lost. The Group will apply IAS 27 (Revised) from 1 January 2010. IFRS 3 (Revised) “Business Combination” (effective for business combinations with acquisition date on or after the beginning of the first annual reporting period beginning on or after 1 July 2009). The amendment may bring more transactions into acquisition accounting as combinations by contract alone and combinations of mutual entities are brought into the scope of the standard and the definition of a business has been amended slightly. It now states that the elements are „capable of being conducted‟ rather than „are conducted and managed‟. It requires considerations (including contingent consideration), each identifiable asset and liability to be measured at its acquisition-date fair value, except leases and insurance contracts, reacquired right, indemnification assets as well as some assets and liabilities required to be measured in accordance with other IFRSs. They are income taxes, employee benefits, share-based payment and non current assets held for sale and discontinued operations. Any non-controlling interest in an acquiree is measured either at fair value or at the non-controlling interest‟s proportionate share of the acquiree‟s net identifiable assets. The Group will apply IFRS 3 (Revised) from 1 January 2010. IFRS 2 Amendment “Share-based Payment Vesting Conditions and Cancellations” (effective from 1 January 2009). The amendment clarifies the definition of "vesting conditions" and specifies the accounting treatment of "cancellations" by the counterparty to a share-based payment arrangement. Vesting conditions are service conditions (which require a counterparty to complete a specified period of service) and performance conditions (which require a specified period of service and specified performance targets to be met) only. All "non-vesting conditions" and vesting conditions that are market conditions shall be taken into account when estimating the fair value of the equity instruments granted. All cancellations are accounted for as an acceleration of vesting and the amount that would otherwise have been recognised over the remainder of the vesting period is recognised immediately. The Group will apply IFRS 2 Amendment from 1 January 2009, but it is not expected to have any impact on the Group's accounts. 27
  28. 28. JIANGLING MOTORS CORPORATION, LTD. FOR THE SIX MONTHS ENDED 30 JUNE 2008 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 2 Summary of significant accounting policies (continued) A Basis of preparation (continued) Interpretations to existing standards that are not yet effective and not relevant for the Group’s operations The following interpretation to existing standards has been published and is mandatory for the Group‟s accounting periods beginning on or after 1 July 2008 or later periods but is not relevant for the Group‟s operations: IFRIC 13, 'Customer loyalty programmes' (effective from 1 July 2008). IFRIC 13 clarifies that where goods or services are sold together with a customer loyalty incentive (for example, loyalty points or free products), the arrangement is a multiple-element arrangement and the consideration receivable from the customer is allocated between the components of the arrangement using fair values. IFRIC 13 is not relevant to the Group‟s operations because none of the Group‟s companies operate any loyalty programmes. B Consolidation (1) Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half 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 fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group‟s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement. Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary in the consolidated financial statements,to ensure consistency with the policies adopted by the Group. (2) Transactions and minority interests The Group applies a policy of treating transactions with minority interests as transactions with equity owners of the Group. For purchases from minority interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is deducted from equity. Gains or losses on disposals to minority interests are also recorded in equity. For disposals to minority interests, differences between any proceeds received and the relevant share of minority interests are also recorded in equity. 28
  29. 29. JIANGLING MOTORS CORPORATION, LTD. FOR THE SIX MONTHS ENDED 30 JUNE 2008 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 2 Summary of significant accounting policies (continued) B Consolidation (continued) (3) Associates Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. The Group‟s investment in associates includes goodwill identified on acquisition, net of any accumulated impairment loss (see Note 2 H). The Group‟s share of its associates‟ post-acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group‟s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group‟s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group. Dilution gains and losses in associates are recognised in the income statement. C Segment Reporting The Group‟s turnover and profit for the six months ended 30 June 2008 were mainly derived from the manufacture and domestic sale of automobiles, related spare parts and components, and the principal assets employed by the Group are located in the PRC. Therefore, no additional business segment or geographical segment data is presented. D Foreign currency translation (1) Functional and presentation currency Items included in the financial statements of each of the Group‟s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in Renminbi (“RMB”), which is the Group‟s functional and presentation currency. (2) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing on the first day of the month in which the transactions take place. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. 29
  30. 30. JIANGLING MOTORS CORPORATION, LTD. FOR THE SIX MONTHS ENDED 30 JUNE 2008 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 2 Summary of significant accounting policies (continued) D Foreign currency translation (continued) (2) Transactions and balances (continued) Changes in the fair value of monetary securities denominated in foreign currency classified as available for sale are analysed between translation differences resulting from changes in the amortised cost of the security, and other changes in the carrying amount of the security. Translation differences related to changes in the amortised cost are recognised in profit or loss, and other changes in carrying amount are recognised in equity. Translation differences on non-monetary financial assets and liabilities are reported as part of the fair value gain or loss. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets such as equities classified as available for sale are included in the available-for-sale reserve in equity. E Property, plant and equipment Property, plant and equipment are stated at historical cost less accumulated depreciation and any impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition or construction of the items. Subsequent costs are included in the asset‟s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Depreciation is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows: Buildings 35-40 years Plant and machinery 10-15 years Motor vehicles 6-10 years Moulds 5 years Others 5-7 years The assets‟ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset‟s carrying amount is written down immediately to its recoverable amount if the asset‟s carrying amount is greater than its estimated recoverable amount (Note 2 H). Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in the income statement. Assets under construction represent buildings under construction and plant and equipment pending installation, and are stated at cost. Costs include construction and acquisition costs. No provision for depreciation is made on assets under construction until such time as the relevant assets are completed and ready for intended use. When the assets concerned are brought into use, the costs are transferred to property, plant and equipment and depreciated in accordance with the policy as stated above. 30
  31. 31. JIANGLING MOTORS CORPORATION, LTD. FOR THE SIX MONTHS ENDED 30 JUNE 2008 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 2 Summary of significant accounting policies (continued) F Lease prepayment Lease prepayments represent upfront prepayments made for the land use rights, and are expensed in the income statement on a straight line basis over the period of the lease or when there is impairment; the impairment is expensed in the income statement. G Intangible assets (1) Research and development Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when the following criteria are fulfilled: (a) it is technically feasible to complete the intangible asset so that it will be available for use or sale; (b) management intends to complete the intangible asset and use or sell it; (c) there is an ability to use or sell the intangible asset; (d) it can be demonstrated how the intangible asset will generate probable future economic benefits; (e) adequate technical, financial and other resources to complete the development and to use or sell the intangible asset are available; and (f) the expenditure attributable to the intangible asset during its development can be reliably measured. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for use on a straight-line basis over its useful life. No development costs were capitalised by the Group during the six months ended 30 June 2008. (2) Technical know-how Technical know-how referred to after-sale management model are initially recorded at costs incurred to acquire and are amortised over the estimated useful lives of 6 years. H Impairment of non-financial assets Assets that have an indefinite useful life or have not yet available for use are not subject to amortisation and are tested annually for impairment. Assets are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset‟s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset‟s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. 31
  32. 32. JIANGLING MOTORS CORPORATION, LTD. FOR THE SIX MONTHS ENDED 30 JUNE 2008 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 2 Summary of significant accounting policies (continued) I Financial assets The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, held-to-maturity financial assets and available for sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. (1) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are classified as held for trading unless they are designated as hedges. Assets in this category are classified as current assets. (2) 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 included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. Loans and receivables are classified as trade and other receivables in the balance sheet (Note 2 K). (3) Held-to-maturity financial assets Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and fixed 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 insignificant amount of held-to-maturity financial assets, the whole category would be tainted and reclassified as available for sale. Held-to-maturity financial assets are included in non-current assets, except for those with maturities less than 12 months from the balance sheet date; these are classified as current assets. 32

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