Edgar Filing: SEMICONDUCTOR MANUFACTURING INTERNATIONAL CORP

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of May, 2016

Commission File Number: 001-31994

Semiconductor Manufacturing International
Corporation

(Translation of registrant’s name into English)

18 Zhangjiang Road

Pudong New Area, Shanghai 201203

People’s Republic of China

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

x Form 20-F o Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:

o Yes x No

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): n/a

CONTENTS

2	Additional Information
3	Corporate Information
4	Financial Highlights
5	Letter to Shareholders
7	Business Review
10	Management’s Discussion and Analysis of Financial Condition and Results of Operation
20	Directors and Senior Management
28	Report of the Directors
75	Corporate Governance
91	Report Social Responsibility
94	Independent Auditor’s Report
96	Consolidated Statement of Profit or Loss and Other Comprehensive Income
97	Consolidated Statement of Financial Position
99	Consolidated Statement of Changes in Equity
100	Consolidated Statement of Cash Flows
102	Notes to the Consolidated Financial Statements

CAUTIONARY STATEMENT FOR PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This annual report may contain, in addition to historical information, “forward-looking statements” within the meaning of the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on SMIC’s current assumptions, expectations and projections about future events. SMIC uses words like “believe”, “anticipate”, “intend”, “estimate”, “expect”, “project” and similar expressions to identify forward- looking statements, although not all forward-looking statements contain these words. These forward-looking statements are necessarily estimates reflecting judgment of SMIC’s senior management and involve significant risks, both known and unknown, uncertainties and other factors that may cause SMIC’s actual performance, financial condition or results of operations to be materially different from those suggested by the forward-looking statements including, among others, risks associated with cyclicality and market conditions in the semiconductor industry, intense competition, timely wafer acceptance by SMIC’s customers, bad debt risk, timely introduction of new technologies, SMIC’s ability to ramp new products into volume, supply and demand for semiconductor foundry services, industry overcapacity, shortages in equipment, components and raw materials, availability of manufacturing capacity and financial stability in end markets.

Except as required by law, SMIC undertakes no obligation and does not intend to update any forward-looking statement, whether as a result of new information, future events or otherwise.

SMIC 2015 Annual Report

ADDITIONAL INFORMATION

References in this annual report to:

•

“2016 AGM” are to the Company’s annual general meeting scheduled to be held on or around June 24, 2016;

•

“Board” are to the board of Directors;

•

“China” or the “PRC” are to the People’s Republic of China, excluding for the purpose of this annual report, Hong Kong, Macau and Taiwan;

•

“Company” or “SMIC” are to Semiconductor Manufacturing International Corporation;

•

“Director(s)” are to the director(s) of the Company;

•

“EUR” are to Euros;

•

“Group” are to the Company and its subsidiaries;

•

“HK$” are to Hong Kong dollars;

•

“Hong Kong Stock Exchange Listing Rules” are to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, as amended from time to time;

•

“IFRS” are to International Financial Reporting Standards as issued by the International Accounting Standards Board;

•

“JPY” are to Japanese Yen;

•

“NYSE” or “New York Stock Exchange” are to the New York Stock Exchange, Inc.;

•

“Ordinary Share(s)” are to the ordinary share(s) of US$0.0004 each in the share capital of the Company;

•

“RMB” are to Renminbi;

•

“SEC” are to the U.S. Securities and Exchange Commission;

•

“SEHK”, “HKSE” or “Hong Kong Stock Exchange” are to the Stock Exchange of Hong Kong Limited;

•

“US$” or “USD” are to U.S. dollars; and

•

“U.S. GAAP” are to the generally accepted accounting principles in the United States.

All references in this annual report to silicon wafer quantities are to 8-inch wafer equivalents, unless otherwise specified. Conversion of quantities of 12-inch wafers to 8-inch wafer equivalents is achieved by multiplying the number of 12-inch wafers by 2.25. When we refer to the capacity of wafer fabrication facilities, we are referring to the installed capacity based on specifications established by the manufacturers of the equipment used in those facilities. References to key process technology nodes, such as 0.35 micron, 0.25 micron, 0.18 micron, 0.15 micron, 0.13 micron, 90 nanometer, 65 nanometer, 45 nanometer and 28 nanometer include the stated resolution of the process technology, as well as intermediate resolutions down to but not including the next key process technology node of finer resolution. For example, when we state “0.25 micron process technology,” that also includes 0.22 micron, 0.21 micron, 0.20 micron and 0.19 micron technologies and “0.18 micron process technology” also includes 0.17 micron and 0.16 micron technologies. The financial information presented in this annual report has been prepared in accordance with IFRS.

SMIC 2015 Annual Report

CORPORATE INFORMATION

Registered name	Semiconductor Manufacturing International Corporation

Chinese name (for identification purposes only)	中芯國際集成電路製造有限公司

Registered office	PO Box 309
	Ugland House
	Grand Cayman
	KY1-1104
	Cayman Islands

Head office and place of business in PRC	18 Zhangjiang Road Pudong New Area
	Shanghai 201203
	PRC

Place of business in Hong Kong	Suite 3003
	30th Floor
	9 Queen’s Road Central
	Hong Kong

Website address	http://www.smics.com

Company Secretary	Gareth Kung

Authorized representatives	Zhou Zixue
	Gareth Kung

Places of listing	The Stock Exchange of Hong Kong Limited (“HKSE”)
	New York Stock Exchange (“NYSE”)

Stock code	981 (HKSE)
	SMI (NYSE)

Financial Calendar
Announcement of 2015 annual results	March 30, 2016
2016 Annual General Meeting	June 24, 2016
Book closure period for 2016 Annual General Meeting	June 22, 2016 to June 24, 2016, both days inclusive
Financial year end	December 31

SMIC 2015 Annual Report

FINANCIAL HIGHLIGHTS

Total Revenue

Revenue (US$ million)

SMIC 2015 Annual Report

LETTER TO SHAREHOLDERS

Dear Shareholders,

We are pleased to announce that SMIC recorded historical highs in all key profitability indices including gross profit margin, operating profit and net profit for 2015. Notwithstanding the uncertainty in the industry and a slowdown of demand growth in the smartphone market last year, we achieved great results including profit growth for four consecutive quarters and an overall utilization rate of over 100% for three consecutive quarters. It is expected that revenues for the first quarter of this year will also continue to grow. In 2015, we recorded a historical high in annual revenues of US$2.24 billion, representing an increase of 13.5% YOY, and continued to achieve full year profitability. Net profit attributable to owners of the Company exceeded US$250 million, an increase of 65.7% YOY. As of the end of the fourth quarter of last year, we achieved our fifteenth consecutive profitable quarter. We recorded an annual gross profit margin of 30.5% and an EBITDA margin around 35%. As of the end of last year, our total debt to total equity ratio was 33.8% and our net debt to total equity ratio was 3.0%. The Company has maintained a healthy capital structure. SMIC has secured investment grade credit ratings from both Standard & Poor’s and Moody’s and an AAA rating, the highest credit rating in China, from CCX, reflecting the Company’s strong business fundamentals for the past two years and the increasing support and recognition from domestic and international credit rating agencies and investors. Looking forward, sustainable profitability continues to be our primary objective.

In 2015, contrary to the industry trend, SMIC’s substantial growth reflected the success of our positioning in China and the successful execution of our differentiation strategy to diversify products and customers. In 2015, revenues from PRC-based customers achieved an annual growth of over 25%. Annual revenues from our Eurasia region also recorded a growth of over 50%. Last year, revenues from 0.11µm to 0.35µm technology increased by 4.7% YOY, of which the annual growth rate for sensor-related technology was over 30%. With the launch of new technology and the expansion of capacity, it is expected that our differentiated processes will generate increasing revenues. In addition, customers’ orders for advanced node processes have been robust. The capacity utilization in our 12-inch fab recovered rapidly. Despite the inventory correction in the industry, we maintained significant growth in our revenues from 40/45nm process last year, recording 63% year-on-year growth. We commenced mass production of our 28nm process and began to generate revenues during the third quarter of last year. During the second half of last year, our 8-inch fab in Shenzhen and our new 12-inch fab in Beijing commenced production and have installed 13,000 and 6,000 wafers per month capacity, respectively. In order to capture the market opportunities and strengthen our competitive edge in differentiated technology, we plan to continue to expand the capacity of these two fabs in order to meet the growing customer demand this year.

Last year, we incorporated SMIC Holdings Corporation (“SMIC Holdings”), which will assume the role of regional headquarters, overseeing management functions in the China region. SMIC Holdings was established as part of SMIC’s integrated strategy to lay the foundation for its long term development. SMIC Holdings will use the regional headquarters to improve the sharing of company resources and workflow, which will enhance efficiency in the company’s decision making, increase management capabilities, and reduce operational costs.

In November last year, we donated a total of RMB300,000 to the Tianjin Charity Association for setting up the Rehabilitation Fund for Firemen, which will provide rehabilitation services to the firemen injured in the explosion in Tianjin on 12 August. This is the first fund that SMIC has set up for special rescue service personnel. We hope to make a contribution to the rehabilitation of those injured firemen through this fund; as SMIC has an 8-inch fab in Tianjin, this is in line with SMIC’s unwavering objectives of corporate social responsibility to “care for people, care for the environment, and care for society”.

SMIC 2015 Annual Report

LETTER TO SHAREHOLDERS

We are pleased to welcome Mr. Lu Jun to join the Board as Non-executive Director. We believe that his extensive experience in the investment industry and deep understanding of industry policies will make contributions to the long-term development of the Company.

2015 was an incredibly successful year, thanks to our comprehensive preparations made in the prior years by improving our technology and relationships with customers. As we have reached full utilizations and our 28nm technology has entered into mass production, we will increase capital investment in 2016 to address the capacity constraints and expand our market share. With the availability of new additional capacity, we target to achieve above-industry-average revenue growth in 2016. We shall continue to benefit from opportunities brought by the China market, mobile products, smart consumer products, and internet of things (“IoT”). We are committed to diligently and carefully execute our business plan for the best interests of our shareholders. We would like to again express our sincere gratitude to all of our shareholders, customers, suppliers, and employees for their continued care and support of SMIC’s development.

Zhou Zixue	TY Chiu
Chairman of the Board and Executive Director	Chief Executive Officer and Executive Director

Shanghai, China

March 30, 2016

SMIC 2015 Annual Report

BUSINESS REVIEW

In 2015, the Group continued to execute its long-term strategy with sustained profitability. The Group continued to advance its technology capabilities on leading edge and value-added differentiated processes. The Group’s technology portfolio and proximity to the China market, coupled with the management team’s global experience in operations, technology development and customer service, has positioned the Group well for long term growth. In addition, 2015 was a milestone year for SMIC in many aspects. Among other things, the Group generated record revenue at US$2.24 billion, the highest in the Company’s 15 years history, partnered with leading industry players on 14nm FinFET process technology development, achieved significant business engagements on 28nm technology with leading mobile baseband and digital consumer IC design companies, and expanded its 300mm fab operation in Beijing and 200mm fab operation in Shenzhen, China. We believe the Group was the first pure-play foundry in China to enter into mass production with 28nm wafer process technology for mobile computing applications, the first pure-play foundry worldwide to offer 55nm embedded Flash (“eFlash”) wafer solutions for SIM Card applications, and the first pure-play foundry worldwide to offer 38nm NAND Flash memory wafer process technology. The Group also continued to drive its value-added wafer manufacturing process technologies for specialty applications, such as Power Management IC, CMOS Image Sensors (“CIS”), eEEPROM, eFlash, embedded Microprocessor (“MCU”), Ultra- low-power Technologies (“ULP”), radio frequencies IC (“RF”) and wireless connectivity, Touch Controller IC (“TCIC”), fingerprint sensors and MEMS sensors. These applications are the essential building blocks for both mobile computing market and the growing Internet-of-Things (“IoT”) market in the near future. The Group is well positioned in China to serve both domestic and worldwide customers.

Financial Overview

Despite a challenging environment in 2015, the Group’s sales totaled US$2,236.4 million, compared to US$1,970.0 million in 2014. The Group recorded a profit of US$222.3 million in 2015, compared to US$126.3 million in 2014. During the year, we generated US$669.2 million in cash from operating activities, compared to US$608.1 million in 2014. Capital expenditures in 2015 totaled US$1,572.7 million, compared to US$1,014.4 million in 2014. Looking ahead, our objective is to achieve sustained profitability over the long term. To achieve these goals, we will continue to focus on precision execution, efficiency improvement, customer service excellence while fostering innovation.

Customers and Markets

The Group continues to serve a broad global customer base comprised of leading IDMs, fabless semiconductor companies and system companies. Geographically, customers from the United States of America contributed 34.7% of the overall revenue in 2015, compared to 43.4% in 2014. Leveraging on the Group’s strategic position in China, our China revenue contributed 47.7% of the overall revenue in 2015, compared to 43.3% in 2014. In particular, 54.8% of the Group’s advanced nodes (90nm and below) wafer revenue in 2015 was contributed by customers in China. Eurasia contributed 17.6% of the overall revenue in 2015, compared to 13.3% in 2014.

In terms of applications, revenue contribution from communication applications increased from 43.2% in 2014 to 51.5% in 2015. Consumer applications contributed 36.1% to the Group’s overall revenue in 2015 as compared to 46.0% in 2014. The Group has minimal exposure to the relatively weak PC market.

In terms of the revenue by technology, wafer revenue attributable to advanced technology at 90nm and below increased from 39.2% of total revenue in 2014 to 44.4% of total revenue in 2015 and, in particular, the revenue contribution percentage from 40/45nm technology increased from 11.1% in 2014 to 15.8% in 2015. In addition, the Group’s latest 28nm technology started to contribute revenue in 2015.

SMIC 2015 Annual Report

BUSINESS REVIEW

The Group is well positioned geographically with its continuous business growth in China. According to IHS iSuppli, China continues to be the number one region of the world in terms of semiconductor IC consumption, mainly due to its high volume electronics manufacturing and mass consumer market. In 2015, China consumed US$147 billion of semiconductors from international and China domestic suppliers. This represented 42% of the semiconductor worldwide total market. In addition, we believe the IC design market in China is growing rapidly. Local Analyst, ICwise, estimated that the China’s IC design market reached US$13.9 billion in 2015, a 10% year to year increase from 2014 and is projected to experience a compounded annual growth rate of 20.4% over the next 5 years, which will bring the worth of the China IC design market to US$35.3 billion by 2020.

Notably, our business objective in China is not just revenue growth, but also growth in the number of new designs using advanced technology, in particular on 55/65nm, 40/45nm and 28nm process technologies. The Group has, in each of its geographical regions, customers utilizing its most advanced nodes of technology. We believe China is rapidly closing the gap with the rest of the world in terms of its innovation and design capabilities. To fully leverage the market growth potential in China, the Group plans to continue to deepen its collaboration with Chinese customers while broadening relationships with its global customers.

Long-Term Business Model and Strategy for Generating and Preserving Value

SMIC’s long-term goal is to focus on generating value for the benefit of all stakeholders. SMIC’s strategy to generate sustainable profitability is three-fold. First, we aim for optimal efficiency by fully utilizing existing assets through enhanced customer relationships, quality, and service. Second, through taking advantage of our position in China, we plan to differentiate our technology offering by providing customers with added value and innovation that not only enables us to seize China market opportunities, but also gives global customers a foothold in that fast-growing market. Third, with long-term profitability as our priority, we plan to carefully invest capital in advanced technology and capacity to address suitable market growth opportunities into the future. We constantly evaluate the potential value addition of all opportunities in our decision-making processes. Our management team is committed to building value in the long-term for the benefit of our employees and shareholders.

SMIC 2015 Annual Report

Research and Development

In 2015, the research and development (R&D) expenses were US$237.2 million, which is equivalent to 10.6% of our sales.

The R&D efforts were focused primarily on advanced logic and value-added specialty technologies. SMIC achieved many significant milestones in 2015. In the area of advanced logic technologies, the PolySiON R&D programs on the 28nm successfully entered into mass production in the second half of 2015. On our 14nm technology development, the basic CMOS process-flow was set up; subsequently, the full process characterization and SRAM yield learning vehicle was taped out at the end of 2015.

In the area of non-volatile memory (NVM) technologies, we believe that SMIC was the world’s first pure foundry to produce 55nm eflash and we successfully ramped products which were adopted by domestic and overseas telecom carriers. A number of new technologies also entered production in 2015 including Back-Side Illumination CMOS image sensor (BSI-CIS) products with scaled pixel size (1.4µm and 1.1µm), CMOS integrated MEMS devices and TSV- based wafer level packaging technologies. SMIC also launched 95nm ultra-low power SPOCULL (SMIC Poly Contact Ultra Low Leakage) technology, which can pack 2 times the logic density and three times the SRAM density compared to the 0.13µm node, and which can be used for various applications including RF, power management, and internet-of-things (IoT).

The building and strengthening of SMIC’s technology R&D organization continued in 2015 through further optimizations on organization structure and resource distribution to improve operational efficiency and to address the growing demands on advanced technologies as well as specialty technology enhancements. During 2015, SMIC achieved over 1,200 patent filings as a result of its technology R&D activities.

Outlook for 2016

Looking forward, we are full of anticipation in regards to the upcoming business opportunities. With the growing demand from our customers and our investment in R&D accelerating, we estimate 2016 sales revenue will exceed global foundry industry average growth. Our capacity target by 2016 year-end is to install 341,000 8-inch equivalent wafers per month capacity, an increase of 20% compared to 2015 year-end. Shanghai 12- inch fab capacity is targeted to expand to 20,000 12-inch wafers per month compared to 14,000 wafers per month at the end of 2015; in addition, the majority owned Beijing 12-inch joint venture fab capacity is targeted to expand to 15,000 12-inch wafers per month capacity, from 6,000 as of 2015 year-end; Shenzhen 8-inch fab capacity is targeted to reach 30,000 8-inch wafers per month from 13,000 wafers per month as of 2015 year-end. We believe 28nm is a long-lived node and is strategic for the long-term growth and development of SMIC. Our 28nm and 40nm flexible capacity allows us to best utilize our capacity according to our customers’ needs. With the opportunities presented to us being in China, we strive to capture the attractive prospects with profitability as our underlying objective. In order to capture the many opportunities at hand, SMIC plans to grow through both organic and inorganic means.

SMIC 2015 Annual Report

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATION

Consolidated Financial Data

The summary consolidated financial data presented below as of and for the years ended December 31, 2011, 2012, 2013, 2014 and 2015 are derived from, and should be read in conjunction with, the audited consolidated financial statements, including the related notes, included elsewhere in this annual report. The summary consolidated financial data presented below as of and for the years ended December 31, 2011, 2012, 2013, 2014 and 2015 have been prepared in accordance with IFRS.

	Year Ended			Year Ended			Year Ended			Year Ended			Year Ended
	12/31/15			12/31/14			12/31/13			12/31/12			12/31/11
	(in US$ thousands, except for earnings (loss) per share)
Continuing operations
Revenue		2,236,415			1,969,966			2,068,964			1,701,598			1,319,466
Cost of sales		(1,553,795	)		(1,486,514	)		(1,630,528	)		(1,352,835	)		(1,217,525	)
Gross profit		682,620			483,452			438,436			348,763			101,941
Research and development expenses, net		(237,157	)		(189,733	)		(145,314	)		(193,569	)		(191,473	)
Sales and marketing expenses		(41,876	)		(38,252	)		(35,738	)		(31,485	)		(32,559	)
General and administration expenses		(213,177	)		(139,428	)		(138,167	)		(107,313	)		(57,435	)
Other operating income (expense), net		31,594			14,206			67,870			19,117			(11,190	)
Profit (loss) from operations		222,004			130,245			187,087			35,513			(190,716	)
Interest income		5,199			14,230			5,888			5,390			4,724
Finance costs		(12,218	)		(20,715	)		(34,392	)		(39,460	)		(21,903	)
Foreign exchange gains or losses		(26,349	)		(5,993	)		13,726			3,895			17,589
Other gains or losses, net		55,611			18,210			4,010			6,398			6,709
Share of (loss) profit of investment using equity method		(13,383	)		2,073			2,278			1,703			4,479
Profit (loss) before tax		230,864			138,050			178,597			13,439			(179,118	)
Income tax (expense) benefit		(8,541	)		(11,789	)		(4,130	)		9,102			(82,503	)
Profit (loss) for the year from continuing operations		222,323			126,261			174,467			22,541			(261,621	)
Discontinued operations
Profit for the year from discontinued operations		—			—			—			—			14,741
Profit (loss) for the year		222,323			126,261			174,467			22,541			(246,880	)
Other comprehensive income
Item that may be reclassified subsequently to profit or loss
Exchange differences on translating foreign operations		(8,185	)		(324	)		731			70			4,938
Change in value of available-for-sale financial assets		452			—			—			—			—
Others		130			—			—			—			—
Total comprehensive income (loss) for the year		214,720			125,937			175,198			22,611			(241,942	)

SMIC 2015 Annual Report

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATION

	Year Ended			Year Ended			Year Ended		Year Ended			Year Ended
	12/31/15			12/31/14			12/31/13		12/31/12			12/31/11
	(in US$ thousands, except for earnings (loss) per share)
Profit (loss) for the year attributable to:
Owners of the Company		253,411			152,969			173,177		22,771			(246,817	)
Non-controlling interest		(31,088	)		(26,708	)		1,290		(230	)		(63	)
		222,323			126,261			174,467		22,541			(246,880	)
Total comprehensive income (loss) for the year attributable to:
Owners of the Company		245,803			152,645			173,908		22,841			(241,879	)
Non-controlling interest		(31,083	)		(26,708	)		1,290		(230	)		(63	)
		214,720			125,937			175,198		22,611			(241,942	)
Earnings (loss) per share
From continuing and discontinued operations
Basic	$	0.01		$	0.00		$	0.01	$	0.00		$	(0.01	)
Diluted	$	0.01		$	0.00		$	0.01	$	0.00		$	(0.01	)
From continuing operations
Basic	$	0.01		$	0.00		$	0.01	$	0.00		$	(0.01	)
Diluted	$	0.01		$	0.00		$	0.01	$	0.00		$	(0.01	)

	As of December 31,
	2015		2014		2013		2012		2011
	(in US$ thousands)
Statements of Financial Position Data:
Property, plant and equipment		3,903,818		2,995,086		2,528,834		2,385,435		2,516,578
Land use right		91,030		135,331		136,725		73,962		77,231
Total non-current assets		4,525,297		3,471,120		2,960,151		2,803,173		2,866,416
Inventories		387,326		316,041		286,251		295,728		207,308
Prepayment and Prepaid operating expenses		40,184		40,628		43,945		46,986		52,805
Trade and other receivables		499,846		456,388		379,361		328,211		200,905
Other financial assets		282,880		644,071		240,311		18,730		1,973
Restricted cash		302,416		238,051		147,625		217,603		136,907
Cash and cash equivalent		1,005,201		603,036		462,483		358,490		261,615
Assets classified as held-for-sale		72,197		44		3,265		4,239		—
Total current assets		2,590,050		2,298,259		1,563,241		1,269,987		861,513
Total assets		7,115,347		5,769,379		4,523,392		4,073,160		3,727,929
Total non-current liabilities		1,157,901		1,311,416		991,673		688,622		230,607
Total current liabilities		1,767,191		1,150,241		938,537		1,108,086		1,251,324
Total liabilities		2,925,092		2,461,657		1,930,210		1,796,708		1,481,931
Non-controlling interest		460,399		359,307		109,410		952		1,182
Total equity		4,190,255		3,307,722		2,593,182		2,276,452		2,245,998

SMIC 2015 Annual Report

	For the year ended December 31,
	2015			2014			2013			2012			2011
	(in US$ thousands except percentages and operating data)
Cash Flow Data:
Profit (loss) for the year		222,323			126,261			174,467			22,541			(246,880	)
Non-cash adjustment to reconcile profit (loss) to net operating cash flow:
Depreciation and amortization		523,549			549,468			546,910			566,899			551,857
Net cash from operating activities		669,197			608,102			738,016			435,166			379,368
Payments for property, plant and equipment		(1,230,812	)		(653,134	)		(650,160	)		(400,291	)		(931,574	)
Net cash used in investing activities		(789,556	)		(1,144,123	)		(807,467	)		(522,277	)		(903,641	)
Net cash from financing activities		537,078			676,683			173,458			184,101			268,855
Net increase (decrease) in cash and bank balances		416,719			140,662			104,007			96,990			(255,418	)
Other Financial Data:
Gross margin		30.5	%		24.5	%		21.2	%		20.5	%		7.7	%
Net margin		9.9	%		6.4	%		8.4	%		1.3	%		–18.7	%
Operating Data:
Wafers shipped (in units):
Total⁽¹⁾		3,015,966			2,559,245			2,574,119			2,217,287			1,703,615

⁽¹⁾

Including logic, DRAM, copper interconnects and all other wafers.

SMIC 2015 Annual Report

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATION

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

Revenue

Revenue increased by 13.5% from US$1,970.0 million for 2014 to US$2,236.4 million for 2015, primarily due to an increase in wafer shipments in 2015 including a significant increase in China sales. For 2015, the overall wafer shipments were 3,015,966 units of 8-inch equivalent wafers, up 17.8% year-over-year.

The average selling price¹ of the wafers the Group shipped decreased from US$770 per wafer in 2014 to US$742 in 2015. The percentage of wafer revenues from advanced 40/45nm technologies increased from 11.1% in 2014 to 15.8% in 2015 and the Group entered into mass production of the advanced 28nm technologies in the second half of 2015.

Cost of sales and gross profit

Cost of sales increased by 4.5% from US$1,486.5 million for 2014 to US$1,553.8 million for 2015, primarily due to an increase in wafer shipments but partially offset by an improved fab efficiency and cost saving. Out of the total cost of sales, US$436.1 million and US$424.9 million were attributable to depreciation and amortization for the year ended December 31, 2014 and 2015, respectively.

The Group’s gross profit was US$682.6 million for 2015 compared to US$483.5 million for 2014, representing an increase of 41.2%. Gross margin was 30.5% in 2015 compared to 24.5% in 2014. The increase in gross margin was primarily due to a higher utilization rate in 2015.

Profit for the year from operations

Profit from operations increased from US$130.2 million for the year ended December 31, 2014 to US$222.0 million for the year ended December 31, 2015 primarily due to the combined effect of 1) an increase of wafer shipments in 2015 and 2) higher utilization in 2015.

Research and development expenses increased by 25.0% from US$189.7 million for the year ended December 31, 2014 to US$237.2 million for the year ended December 31, 2015. The increase was mainly due to higher number of R&D activities.

General and administrative expenses increased by 52.9% from US$139.4 million for the year ended December 31, 2014 to US$213.2 million for the year ended December 31, 2015. The increase was primarily due to 1) the start-up expenses relating to the two new fab projects — the 12-inch fab in Beijing and the 8-inch fab in Shenzhen and 2) an increase in accrued employee bonus in 2015.

Sales and marketing expenses increased by 9.5% from US$38.3 million for the year ended December 31, 2014 to US$41.9 million for the year ended December 31, 2015.

Other operating income, net increased by 122.4% from US$14.2 million for the year ended December 31, 2014 to US$31.6 million for the year ended December 31, 2015. The increase was due to the higher gain realized from the partial disposal of our living quarters in 2015.

As a result, the Group’s profit from operations increased to US$222.0 million for the year ended December 31, 2015 from US$130.2 million for the year ended December 31, 2014.

Based on simplified average selling price which is calculated as total revenue divided by total shipments.

SMIC 2015 Annual Report

Profit for the Year

Due to the factors described above, the Group recorded a profit of US$222.3 million in 2015 compared to US$126.3 million in 2014.

Funding Sources for Material Capital Expenditure in the Coming Year

The Group’s planned 2016 capital expenditures for foundry operations are approximately US$2.1 billion, which are mainly for 1) the expansion of capacity in 12-inch fab in Semiconductor Manufacturing North China (Beijing) Corporation, a majority-owned subsidiary of the Company (“SMNC”), 8-inch fab in Semiconductor Manufacturing International (Shenzhen) Corporation (“SMIC Shenzhen”), 12-inch fab in Semiconductor Manufacturing International (Shanghai) Corporation (“SMIS” or “SMIC Shanghai”) and a new 12-inch majority-owned joint venture with bumping services in SJ Semiconductor (Jiangyin) Corporation (”SJ Jiangyin”), 2) a new majority-owned joint venture company, which will focus on research and development on 14nm logic technology, and 3) research and development equipment, mask shops and intellectual property acquisition.

The Group’s planned 2016 capital expenditures for non-foundry operations are approximately US$60 million, mainly for the construction of living quarters.

The Group’s actual expenditures may differ from its planned expenditures for a variety of reasons, including changes in its business plan, process technology, market conditions, equipment prices, or customer requirements. The Group will monitor the global economy, the semiconductor industry, the demands of its customers, and its cash flow from operations and will adjust its capital expenditures plans as necessary.

The primary sources of capital resources and liquidity include cash generated from operations, bank borrowings and debt or equity issuances and other forms of financing. Future acquisitions, mergers, strategic investments, or other developments also may require additional financing. The amount of capital required to meet the Group’s growth and development targets is difficult to predict in the highly cyclical and rapidly changing semiconductor industry.

Bad Debt Provision

The Group determines its bad debt provision based on the Group’s historical experience and the relative aging of receivables as well as individual assessment of certain debtors. A fixed percentage is applied to receivables in each past due age category, ranging from 1% for the shortest past due age category to 100% for the longest past due age category. The Group’s bad debt provision excludes receivables from a limited number of customers due to their high creditworthiness. Any receivables which have been fully provided for and are subsequently deemed non-collectible will be written off against the relevant amount of provision. The Group’s recognized bad debt provision in 2014 and 2015 amounted to US$1.6 million and US$0.5 million, respectively. The Group reviews, analyzes and adjusts bad debt provisions on a monthly basis.

SMIC 2015 Annual Report

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATION

Debt Arrangements

Set forth in the table below are the aggregate amounts, as of December 31, 2015, of the Group’s future cash payment obligations under the Group’s existing contractual arrangements on a consolidated basis:

	Payments due by period Less than
Contractual obligations	Total		1 year		1-2 years		2-5 years		Over 5 years
	(consolidated, in US$ thousands)

Short-term borrowings		62,872		62,872		—		—		—
Long-term loans		466,232		50,196		15,830		172,916		227,290
Convertible bonds⁽¹⁾		392,632		392,632		—		—		—
Bonds payable		493,207		—		—		493,207		—
Purchase obligations⁽²⁾		1,340,941		1,340,941		—		—		—
Total contractual obligations		2,755,884		1,846,641		15,830		666,123		227,290

⁽¹⁾

The holders of each convertible bond will have the right to require the Company to redeem all or some only of the convertible bonds at their principal amount on November 7, 2016.

⁽²⁾

Represents commitments for construction or purchase of semiconductor equipment, and other property or services.

As of December 31, 2015, the Group’s outstanding long-term loans primarily consisted of US$63.6 million in secured bank loans and US$402.6 million in unsecured bank loans, which are repayable in installments starting in June 2016, with the last payment due in December 2030.

2013 USD Loan (SMIC Shanghai)

In August 2013, Semiconductor Manufacturing International (Shanghai) Corporation (“SMIS”) entered into a loan facility in the aggregate principal amount of US$470 million with a syndicate of financial institutions based in the PRC. This seven-year bank facility was used to finance the planned expansion for SMIS’ 12-inch fab. The facility is secured by the manufacturing equipment located in the SMIS’ 12-inch fab. As of December 31, 2015 SMIS had drawn down US$260 million and repaid US$249.2 million on this loan facility. The outstanding balance of US$10.8 million is repayable from February 2018 to August 2018. The interest rate on this loan facility ranged from 4.33% to 4.89% in 2015. SMIS was in compliance with the related financial covenants as of December 31, 2015.

2015 USD Loan (SMIC Shanghai)

In April 2015, SMIS entered into a loan facility in the aggregate principal amount of US$66.1 million with US Export-Import Bank. This five-year bank facility was used to finance the planned expansion for SMIS’ 12-inch fab. The facility is secured by the manufacturing equipment located in the SMIS’ 12-inch fab. As of December 31, 2015, SMIS had drawn down US$66.1 million and repaid US$13.2 million on this loan facility. The outstanding balance of US$52.9 million is repayable from June 2016 to December 2019. The interest rate on this loan facility ranged from 1.21% to 1.75% in 2015. SMIS was in compliance with the related financial covenants as of December 31, 2015.

2015 RMB Loan I (SMIC Shanghai)

In December 2015, SMIS entered into a loan facility in the aggregate principal amount of RMB1,000 million with China Development Bank, which is guaranteed by SMIC. This fifteen-year bank facility was used for new SMIS’ 12-inch fab. As of December 31, 2015, SMIS had drawn down RMB1,000 million (approximately US$154.1 million) on this loan facility. The outstanding balance is repayable from November 2021 to November 2030. The interest rate on this loan facility was 1.20% in 2015.

SMIC 2015 Annual Report

2015 RMB Loan II (SMIC Shanghai)

In December 2015, SMIS entered into a loan facility in the aggregate principal amount of RMB475 million with China Development Bank, which is guaranteed by SMIC. This ten-year bank facility was used to expand the capacity of SMIS’ 12-inch fab. As of December 31, 2015, SMIS had drawn down RMB475 million (approximately US$73.2 million) on this loan facility. The outstanding balance is repayable from December 2018 to December 2025. The interest rate on this loan facility was 1.20% in 2015.

2015 EXIM RMB Loan (SMIC Shanghai)

In December 2015, SMIS entered into a loan facility in the aggregate principal amount of RMB480 million with The Export-Import Bank of China, which is unsecured. This three-year bank facility was used for working capital purposes. As of December 31, 2015, SMIS had drawn down RMB480 million (approximately US$74.0 million) on this loan facility. The outstanding balance is repayable in December 2018. The interest rate on

this loan facility was 2.65% in 2015.

2014 EXIM RMB Loan (SMIC Beijing)

In December 2014, Semiconductor Manufacturing International (Beijing) Corporation (“SMIB”) entered into a RMB Loan, a two-year working capital loan facility in the principal amount of RMB240 million with The Export-Import Bank of China, which is unsecured. This two-year bank facility was used for working capital purposes. As of December 31, 2015, SMIB had drawn down RMB240 million (approximately US$37.0 million) on this loan facility. The principal amount is repayable in December 2016. The interest rate on this loan facility ranged from 3.65% to 3.90% in 2015.

2015 CDB RMB Loan (SMIC Beijing)

In December 2015, SMIB entered into the new RMB Loan, a fifteen-year working capital loan facility in the principal amount of RMB195 million with China Development Bank, which is unsecured. As of December 31, 2015, SMIB had drawn down RMB195 million (approximately US$30.0 million) on this loan facility. The principal amount is repayable from December 2017 to December 2030. The interest rate on this loan facility was 1.20% in 2015.

2015 RMB Entrust Loan (SJ Jiangyin)

In July 2015, SJ Jiangyin entered into the new RMB Loan of zero-interest rate, a five-year working capital loan facility in the principal amount of RMB93 million with Jiangyin Science and Technology New City Investment Management Company Ltd, which is unsecured. As of December 31, 2015, SJ Jiangyin had drawn down RMB93 million (approximately US$14.3 million) on this loan facility. The principal amount is repayable in July 2020.

2015 CDB USD Loan (SJ Jiangyin)

In September 2015, SJ Jiangyin entered into the new USD Loan, a seven-year working capital loan facility in the principal amount of US$44.5 million with China Development Bank. This bank facility was used to expand the capacity of SJ Jiangyin’ 12-inch bumping fab. The facility is guaranteed by SMIB. As of December 31, 2015, SJ Jiangyin had drawn down US$20 million on this loan facility. The principal amount is repayable from September 2017 to September 2022. The interest rate on this loan facility ranged from 4.20% to 4.23% in 2015.

SMIC 2015 Annual Report

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATION

As of December 31, 2015, the Group had 29 short-term credit agreements that provided total credit facilities of up to US$1,414.6 million on a revolving basis. As of December 31, 2015, the Group had drawn down US$62.9 million under these credit agreements and US$1,351.7 million was available for future trading and borrowings. The outstanding borrowings under the credit agreements are unsecured. The interest rate ranged from 0.98% to 4.20% in 2015.

In May 2012, SMIS entered into a four-year strategic framework credit facility in the aggregate amount of RMB5 billion with China Development Bank. The 2013 USD Loan (SMIC Shanghai) constituted part of this strategic framework credit facility.

Capitalized Interest

Interest, after netting off government funding received, incurred on borrowed funds used to construct plant and equipment during the active construction period is capitalized. The interest capitalized is determined by applying the borrowing interest rate to the average amount of accumulated capital expenditures for the assets under construction during the period. Capitalized interest is added to the cost of the underlying assets and is amortized over the useful life of the assets. Capitalized interests of US$30.3 million and US$13.7 million in 2015 and 2014, respectively, have been added to the cost of the underlying assets during the year and are amortized over the respective useful life of the assets. In 2015 and 2014, the Group recorded amortization expenses relating to the capitalized interest of US$15.5 million and US$12.5 million, respectively.

Commitments

As of December 31, 2015, the Group had commitments of US$165.3 million for facilities construction obligations in connection with the Group’s Shanghai, Beijing, Tianjin, Shenzhen and Jiangyin facilities.

As of December 31, 2015, the Group had commitments of US$1,146.3 million to purchase machinery and equipment for its Shanghai, Beijing, Tianjin, Shenzhen and Jiangyin fabs.

As of December 31, 2015 the Group had commitments of US$29.4 million to purchase intellectual property.

Debt to Equity Ratio

As of December 31, 2015, the Group’s net debt to equity ratio was approximately 3.0%. Please refer to Note 39 to our financial statements for calculation.

Foreign Exchange Rate Fluctuation Risk

The Group’s revenue, expense, and capital expenditures are primarily transacted in U.S. dollars. The Group also enters into transactions in other currencies. The Group is primarily exposed to changes in exchange rates for the Euro, Japanese Yen, and RMB.

To minimize these risks, the Group purchases foreign-currency forward exchange contracts with contract terms normally lasting less than twelve months to protect against the adverse effect that exchange rate fluctuations may have on foreign-currency denominated activities. These forward exchange contracts are principally denominated in RMB, Japanese Yen or Euros and do not qualify for hedge accounting in accordance with IFRS.

Cross Currency Swap Fluctuation Risk

In December 2015, the Company entered into a long-term loan facility agreement in the aggregate principal amount of RMB480 million. The Company was primarily exposed to changes in the exchange rate for the RMB.

SMIC 2015 Annual Report

To minimize the currency risk, the Company entered into cross currency swap contracts with a contract term fully matching the repayment schedule of the whole part of this RMB long-term loan to protect against the adverse effect of exchange rate fluctuations arising from foreign-currency denominated loans. The cross currency swap contracts did not qualify for hedge accounting in accordance with IFRS.

Outstanding Foreign Exchange Contracts

As of December 31, 2015, the Group had outstanding foreign currency forward exchange contract with notional amounts of US$42.9 million, which will mature in 2016. As of December 31, 2015, the fair value of foreign currency forward exchange contracts was approximately US$0.2 million, which was recorded in other financial assets.

As of December 31, 2014 and 2013, the Group had no outstanding foreign currency forward exchange contracts.

The Group does not enter into foreign currency exchange contracts for speculative purposes.

As of

December 31, 2015

December 31, 2014

December 31, 2013

(in US$ thousands)

Notional

Value

Fair Value

Value

Fair Value

Value

Fair Value

Forward Foreign Exchange Agreement

(Receive Eur/Pay US$)

Contract Amount

42,872

172

—

Total Contract Amount

42,872

172

—

Outstanding Cross Currency Swap Contracts

As of December 31, 2015, the Company had outstanding cross currency swap contracts with notional amounts of US$74.0 million. Notional amounts are stated in the U.S. dollar equivalents at spot exchange rates as of the respective dates. As of December 31, 2015, the fair value of cross currency swap contracts was approximately US$(1.5) million and was recorded in other financial liabilities. The cross currency swap contracts will mature in 2018.

As of December 31, 2014 and 2013, the Group had no outstanding cross currency swap contracts.

As of

December 31, 2015

December 31, 2014

December 31, 2013

(in US$ thousands)

Notional

Value

Fair Value

Value

Fair Value

Value

Fair Value

Cross Currency Swap Contracts

(Receive RMB/Pay US$)

Contract Amount

73,966

(1,459

)

—

Total Contract Amount

73,966

(1,459

)

—

SMIC 2015 Annual Report

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATION

Interest Rate Risk

The Group’s exposure to interest rate risks relates primarily to the Group’s long-term loans, which the Group generally assumes to fund capital expenditures and working capital requirements. The table below presents annual principal amounts due and related weighted average implied forward interest rates by year of maturity for the Group’s debt obligations outstanding as of December 31, 2015. The Group’s long-term loans are all subject to variable interest rates. The interest rates on the Group’s U.S. dollar-denominated loans are linked to the LIBOR. As a result, the interest rates on the Group’s loans are subject to fluctuations in the underlying interest rates to which they are linked.

	As of December 31,
													2020 and
	2016			2017			2018			2019			thereafter
							(Forecast)
	(in US$ thousands, except percentages)
US$ denominated
Average balance		910,807			561,418			465,203			444,044			2,455
Average interest rate		2.78	%		2.40	%		2.37	%		2.33	%		5.22	%
RMB denominated
Average balance		381,640			345,630			340,924			261,762			123,970
Average interest rate		1.66	%		1.46	%		1.45	%		1.13	%		1.19	%
Weighted average forward interest rate		2.45	%		2.04	%		1.98	%		1.89	%		1.27	%

SMIC 2015 Annual Report

DIRECTORS AND SENIOR MANAGEMENT

Board of Directors

The composition of the Board during the year ended December 31, 2015 and up to the date of this report is set forth as follows:

Name of Director	Age	Position
Zhou Zixue	59	Chairman, Executive Director
Tzu-Yin Chiu	59	Chief Executive Officer, Executive Director
Gao Yonggang	51	Chief Financial Officer, Executive Vice President, Strategic Planning and Executive Director
Chen Shanzhi	47	Non-executive Director
Zhou Jie	48	Non-executive Director
Ren Kai	43	Non-executive Director
Lu Jun	47	Non-executive Director
William Tudor Brown	57	Independent Non-executive Director
Sean Maloney	59	Independent Non-executive Director
Lip-Bu Tan	56	Independent Non-executive Director
Carmen I-Hua Chang	68	Independent Non-executive Director
Li Yonghua	41	Alternate Director of Chen Shanzhi
Resigned
Zhang Wenyi	69	Chairman, Executive Director
Frank Meng	55	Independent Non-executive Director

Senior Management

The Company’s senior management is appointed by, and serves at the discretion of, the Board. The following table sets forth the names, ages and positions of the senior management as of the date of this annual report:

Name	Age	Position
Tzu-Yin Chiu	59	Chief Executive Officer and Executive Director
Yonggang Gao	51	Chief Financial Officer, Executive Vice President, Strategic Planning and Executive Director
Haijun Zhao	52	Chief Operating Officer and Executive Vice President
Jyishyang Liu	63	Executive Vice President, Engineering & Services
Li Zhi	52	Executive Vice President, Legal/Human Resources/Public Affairs/General Administration
Mike Rekuc	67	Executive Vice President, Worldwide Sales & Marketing
Gareth Kung	51	Executive Vice President, Investment and Strategic Business Development and Finance, and Company Secretary

SMIC 2015 Annual Report

DIRECTORS AND SENIOR MANAGEMENT

Brief Biographical Details

Board of Directors

Zhou Zixue

Chairman of the Board, Executive Director

Dr. Zhou Zixue joined SMIC in 2015 and is currently the Chairman of the Board. Dr. Zhou received a master degree in management engineering from The University of Electronic Science and Technology of China and a Ph.D in Economic History from Central China Normal University. Prior to joining the Company, Dr. Zhou had served as Chief Economist in the Ministry of Industry and Information Technology of China (“MIIT”) since April 2009. He was the Director-General in the Department of Finance of MIIT from 2008 to 2009. Dr. Zhou had worked as Director-General and Deputy Director-General in the Ministry of Information Industry of China and Deputy Director-General of the Ministry of Electronics Industry (“MEI”) and had served in other different divisions of the MEI and the Ministry of Machinery and Electronics Industry. Dr. Zhou had previously worked in Beijing State-Owned Dongguangdian Factory, one of the then largest semiconductor enterprises in China, responsible for accounting and marketing. Dr. Zhou is also the secretary general of the China Information Technology Industry Federation, chairman of the board of directors of the China Semiconductor Industry Association, the executive deputy director of the Standing Committee of Electronic Science and Technology Commission of China, a member of the National Informatization Expert Advisory Committee, a director of Chinese Accounting Association, the executive director and vice chairman of the board of directors of the China Institute of Electronics, the vice president of China Electronic Chamber of Commerce, the executive director of China Association of Chief Financial Officers and the president of its electronic branch and an Adjunct Professor of each of Beihang University, Beijing Institute of Technology, Renmin University of China, Nanjing University of Science and Technology, Zhejiang University, University of Electronic Science and Technology. Dr Zhou is also the director of Hisense Electric Company Limited listed on the Shanghai Stock Exchange, the chairman of the board of directors of SMIC Holdings Corporation and SJ Semiconductor (Jiangyin) Corporation.

Tzu-Yin Chiu

Chief Executive Officer & Executive Director

Dr. Tzu-Yin Chiu has over 30 years’ experience in the semiconductor industry and a track record of managing successful semiconductor manufacturing companies at the executive level. Dr. Chiu’s expertise spans technology research, business development, operations and corporate management. He began his career in the United States as a research scientist at AT&T Bell Laboratories in Murray Hill, New Jersey, rising to become the department head of its High Speed Electronics Research Department and Silicon Research Operations Department. He then joined Taiwan Semiconductor Manufacturing Corporation (TSMC), where he served as Senior Director of Fab Operations. Subsequently, Dr. Chiu became Senior Vice President of Shanghai Operations for Semiconductor Manufacturing International Corporation (SMIC). He then served as Senior Vice President and Chief Operating Officer of Hua Hong International Management and President of Hua Hong Semiconductor International in Shanghai, China. He was then appointed President and COO of Silterra Malaysia, before joining Hua Hong NEC as President and CEO in February 2009. Dr. Chiu also served as the Vice President and Chief Operating Officer of Shanghai Huali Microelectronics Corporation from 2010 to 2011. From 2005 to 2009, he was an Independent Director of Actions Semiconductor Co., Ltd. Dr. Chiu returned to SMIC in August 2011 as CEO and Executive Director. He is also Vice Council Chairman of China Semiconductor Industry Association (CSIA), a board member of Global Semiconductor Alliance (GSA), the chairman of the board of directors of each of Semiconductor Manufacturing North China (Beijing) Corporation, Brite Semiconductor Corporation, SilTech Semiconductor (Shanghai) Corporation Limited, Semiconductor Manufacturing International (Shanghai) Corporation, Semiconductor Manufacturing International (Shenzhen) Corporation, Semiconductor Manufacturing International (Beijing) Corporation, Semiconductor Manufacturing International (Tianjin) Corporation and SMIC Semiconductor Advanced Technology Research (Shanghai) Corporation. Dr. Chiu is also the director of SJ Semiconductor (Jiangyin) Corporation and Toppan SMIC Electronics (Shanghai) Co., Ltd.

SMIC 2015 Annual Report

Dr. Chiu earned his bachelor’s degree in electrical and systems engineering at Rensselaer Polytechnic Institute in New York, and his doctorate in electrical engineering and computer science at the University of California, Berkeley. He has also earned an executive MBA degree from Columbia University in New York. Dr. Chiu was honored as the 2014 Distinguished Alumni Award by the Department of EECS at the University of California, Berkeley on February 13, 2014. Dr. Chiu received the Outstanding EHS Achievement Award from SEMI on March 18, 2014. Dr. Chiu holds 67 semiconductor technology patents with 33 additional patents application still pending. He is a senior member of the IEEE and has published over 30 technical articles.

Gao Yonggang

Chief Financial Officer, Executive Vice President, Strategic Planning & Executive Director

Dr. Gao Yonggang, a non-executive Director since 2009, has been appointed as Executive Vice President, Strategic Planning of the Company and has been re-designated as an executive Director since June 17, 2013. He has been appointed as the Chief Financial Officer of the Company since February 17, 2014. Dr. Gao is a director of six subsidiaries of the Company, namely Semiconductor Manufacturing International (Shanghai) Corporation, Semiconductor Manufacturing International (Beijing) Corporation, Semiconductor Manufacturing International (Tianjin) Corporation, Semiconductor Manufacturing North China (Beijing) Corporation, Semiconductor Manufacturing International (Shenzhen) Corporation and SMIC Holdings Corporation. He is also chairman of the board of China Fortune-Tech Capital Co., Ltd, the Company’s joint venture with independent third parties. Dr. Gao has more than 30 years of experience in the area of financial management and has worked as Chief Financial Officer or person in charge of finance in various industries, including commercial, industrial, and municipal utilities, and in various types of organizations, including state-owned enterprises, private companies, joint ventures, and government agencies. Dr. Gao was the Chief Financial Officer of the China Academy of Telecommunications Technology (Datang Telecom Technology & Industry Group), the chairman of Datang Capital (Beijing) Co., Ltd. and Datang Telecom Group Finance Co., Ltd., and an executive director of Datang Hi-Tech Venture Capital Investment Co., Ltd. He was also a director and the Senior Vice President of Datang Telecom Technology & Industry Holdings Co., Ltd.. Dr. Gao is a standing committee member of Accounting Society of China, standing director of Enterprise Financial Management Association of China, independent director of GRINM Semiconductor Materials Co.,Ltd. Dr. Gao graduated from Nankai University with a Ph.D. in management. He has conducted studies in the field of financial investment, and has been involved in a number of key research projects and publications in this area. Dr. Gao is also a Fellow of the Institute of Chartered Accountants in Australia. Founding Member, director of The Hong Kong Independent Non-Executive Director Association.

Chen Shanzhi

Non-Executive Director

Dr. Chen Shanzhi has been a non-executive Director since 2009. Dr. Chen is currently the SVP and CIO of the China Academy of Telecommunications Technology (Datang Telecom Technology & Industry Group). He is also the SVP of Datang Telecom Technology & Industry Holdings Co., Ltd., where he is responsible for strategy development, technology and standards development, corporate IT, strategic alliances and cooperation, investment budget management, and external Industrial Investment. Dr. Chen received his bachelor’s degree from Xidian University, his master’s degree from the China Academy of Posts and Telecommunications of the Ministry of Posts and Telecommunications, and his Ph.D. from Beijing University of Posts and Telecommunications. Dr. Chen has 20 years of experience in the field of information and communication technology, during which he has been involved in research and development, technology and strategy management. Dr. Chen has made important contributions to the industrialization of TD-SCDMA 3G and the development of TD-LTE-Advanced 4G international standards.

SMIC 2015 Annual Report

DIRECTORS AND SENIOR MANAGEMENT

Dr. Chen is currently an Expert Advisory Group member of National Science and Technology Platform, the chairman of Chinese high-tech Industrialization Association for Information Technology Committee, a director of The Chinese Institute of Electronics, an executive director of China Institute of Communications, a director of China Communications Standards Association (CCSA) and a senior member of IEEE. Dr. Chen was a member of the IT Experts Panel of the National 863 Program and a member of the Programming Group of the major project of “The New-generation Broadband Wireless Mobile Communications Network”.

Dr. Chen has published 3 monographs and more than 150 papers in domestic and foreign academic conferences and publications, of which more than 70 were published by SCI and EI. Many of his papers have received awards. At present, he has applied for more than 10 national invention patents.

Dr. Chen received the second prize for the State Award for Technological Invention China in 2015, the first prize for the 2012 National Science and Technology Progress Award, the second prize for the 2001 National Science and Technology Progress Award, the Ninth Guanghua Engineering Science and Technology Award, the first prize for the 2012 China Institute of Communications Science and Technology Award and the first prize for the 2009 National Enterprise Management Modernization Innovation Achievement Award and other honors.

Zhou Jie

Non-Executive Director

Mr. Zhou Jie has been a Director since 2009. Mr. Zhou is an executive director and the president of Shanghai Industrial Investment (Holdings) Company Limited (“SIIC”) and an executive director, the vice chairman and chief executive officer of Shanghai Industrial Holdings Limited (“SIHL”). He is a non-executive director of Shanghai Pharmaceuticals Holding Co., Ltd.. He is also a director of certain subsidiaries of SIIC and SIHL. Mr. Zhou graduated from Shanghai Jiaotong University with a master’s degree in management science and engineering. He was the deputy general manager of the investment banking head office of Shanghai Wanguo Holdings Ltd. (now Shenyin&Wanguo Securities Co., Ltd.) and held the positions of the chairman and general manager of Shanghai S.I. Capital Co., Ltd. He has over 20 years’ experience in corporate management, investment banking and capital markets operation.

Ren Kai

Non-Executive Director

Mr. Ren Kai, received a bachelor degree in industry and international trade from Harbin Engineering University. Since September 2014, Mr. Ren has been serving as the Vice President of Sino IC Capital. From October 2007 to August 2014, he had served as the Director of the Review Board 4 of the Review Bureau 2 of China Development Bank. From October 2004 to December 2007, Mr. Ren served as a Deputy Director of each of the Review Board 3 and the Review Board 4 of the Review Bureau 2 of China Development Bank. From July 1995 to October 2004, Mr. Ren had worked in the Electromechanical Textile Credit Bureau, Chengdu representative office, the Review Bureau 4, the Review Bureau 3 and the Review Bureau 2 of China Development Bank. Mr. Ren has been engaged in loan review programs and investment operations in the fields of equipment and electronics; he is familiar with industrial policies and has in-depth understanding in integrated circuit and related industries. Mr. Ren had gained extensive experience in investment management while he was working in the Review Board 2 of China Development Bank as he led the team to complete the review of hundreds of major projects with annual review commitments of over RMB100 billion and accumulative review commitments of over RMB30 billion in the field of integrated circuit. Mr. Ren is also the director of SJ Semiconductor (Jiangyin) Corporation.

SMIC 2015 Annual Report

Lu Jun

Non-Executive Director

Mr. Lu Jun received the Master of Business Administration from Nanjing University and holding a bachelor degree in Shipping and Marine engineering from Hohai University. Since August 2014, in addition to serve as President of Sino IC-Capital Co., Ltd, he is also the Chairman of Sino IC-Leasing Co., Ltd. And since May 2010, Mr. Lu has been serving as Executive Vice President of China Development Bank Capital Co., Ltd (China Development Bank Capital Co., Ltd, a wholly-owned subsidiary of China Development Bank Co., Ltd, has been so far the only large-scale agency in China’s banking industry for RMB equity investment, and has formed an integrated platform for strategic investments domestically and internationally). Previously, Mr. Lu has been worked for China Development Bank for more than 20 years and accumulated wealth of experience in credit, industry investment and fund investment. As Mr. Lu has been engaged in loan review programs and investment operations in the fields of equipment and electronics, he is familiar with industrial policies and has in-depth understanding in integrated circuit and related industries.

From July 2007 to May 2010, Mr. Lu had served as the Deputy Director of China Development Bank Shanghai Branch. From April 2006 to July 2007, Mr. Lu served as the Director of industrial integration innovation of Investment business bureau of China Development Bank. From April 2003 to April 2006, Mr. Lu served as the Director of each of the Review Board of China Development Bank Jiangsu Branch and Nanjing Branch. From September 2002 to April 2003, Mr. Lu served as the Director of the Review Board of China Development Bank Nanjing Branch. From March 1994 to September 2002, Mr. Lu had worked in Traffic credit bureau, East China credit bureau, finance department of Nanjing Branch, and the Review Bureau 2 of Nanjing Branch of China Development Bank.

Lip-Bu Tan

Independent Non-Executive Director

Mr. Lip-Bu Tan has been a Director since 2001 and is also a director of a subsidiary of the Company. Mr. Tan is the Founder and Chairman of Walden International, a leading venture capital firm managing over US$2.0 billion in committed capital. He concurrently serves as President and Chief Executive Officer of Cadence Design Systems, Inc., and has been a member of the Cadence Board of Directors since 2004. He also serves on the boards of Ambarella Corp., Hewlett Packard Enterprise, the Global Semiconductor Alliance and several other private companies. Mr. Tan received his B.S. from Nanyang University in Singapore, his MBA from the University of San Francisco, and his M.S. in Nuclear Engineering from the Massachusetts Institute of Technology.

Sean Maloney

Independent Non-Executive Director

Mr. Sean Maloney has been a Director since 2013. Mr. Maloney spent over 30 years at Intel Corporation. He is known within the high tech industry as a visionary whose hard work and strategic planning contributed to the unprecedented global growth of the company. From August 2011 to January 2013, Mr. Maloney served as Chairman of Intel China where he was responsible for overseeing and developing the company’s strategy. Prior to this appointment, Mr. Maloney was an Executive Vice President at Intel and Co-General Manager of the corporation’s Intel Architecture Group (IAG). He was responsible for architecting, developing, and marketing Intel’s platform solutions for all computing segments including: data centers, desktops, laptops, netbooks/net-tops, handhelds, embedded devices, and consumer electronics. In this capacity, Mr. Maloney focused on business and operations with over one half of the company reporting to him. He also previously ran the company’s Communications Group. Over the years, Mr. Maloney has been recognized for his keen understanding and abilities globally in sales and marketing as well as strategic planning. He served as the Chief of Sales and Marketing Worldwide for the company. Mr. Maloney is currently on the board of directors of Netronome, Acumulus9 and the American Heart Association, and advises Cephasonics and Silk Road Medical.

SMIC 2015 Annual Report

DIRECTORS AND SENIOR MANAGEMENT

William Tudor Brown

Independent Non-Executive Director

Mr. William Tudor Brown has been a Director since 2013. He is a Chartered Engineer, a Fellow of the Institution of Engineering and Technology and a Fellow of the Royal Academy of Engineering. He holds a MA (Cantab) Degree in Electrical Sciences from Cambridge University. Mr. Brown was one of the founders of ARM Holdings plc, a British multinational semiconductor and software design company listed on London Stock Exchange and NASDAQ. In ARM Holdings plc, he served as President during the period from July 2008 to May 2012. His previous roles include Engineering Director and Chief Technology Officer, EVP Global Development and Chief Operating Officer. He had responsibility for developing high-level relationships with industry partners and governmental agencies and for regional development. Before joining ARM Holdings plc, Mr. Brown was Principal Engineer at Acorn Computers and worked exclusively on the ARM R&D programme since 1984. Mr. Brown served as a director at ARM Holdings plc from October 2001 to May 2012. He was also a director of ARM Ltd. From May 2005 to February 2013, he was a director of ANT Software PLC (a company listed on AIM of London Stock Exchange). Mr. Brown served on the UK Government Asia Task Force until May 2012. He sat on the advisory board of Annapurna Labs until the sale of the company in 2015. Currently Mr. Brown is an independent non-executive director and a member of the Compensation Committee and chair of the Nominations and Governance committee of Tessera Technologies, Inc. (a company listed on NASDAQ), an independent non-executive director and a member of each of the Audit Committee and the Compensation Committee of Lenovo Group Limited (a company listed on Main Board of The Stock Exchange of Hong Kong Limited) and an independent non-executive director of P2i Limited, a world leader in liquid repellent nano-coating technology.

Carmen I-Hua Chang

Independent Non-Executive Director

Ms. Carmen I-Hua Chang has been an independent non-executive Director since September 2014. Ms. Chang has been involved in seminal cross border transactions between China and the US including the earliest investments by Goldman Sachs in China Netcom and the key transactions of companies such as Lenovo, Foxconn, Google, Tencent, Netease, CEC, China Mobile, Spreadtrum and SMIC. In 2012, Ms. Chang joined New Enterprise Associates (NEA), a venture fund with over US$14 billion dollars under management, where she serves as Partner and Managing Director, Asia (Ex-India). Prior to joining NEA, she was a partner at a SiliconValley law firm, where she headed up its China practice. She is an affiliate of the Center for International Security and Cooperation at Stanford University — Stanford University’s main research organization on international issues — as well as a fellow at the Stanford Business School and Stanford Law School’s Rock Center for Corporate Governance. Ms. Chang also serves as an Independent Non-Executive Director of AAC Technologies Holdings Inc. (SEHK: 2018). Ms. Chang is also on the board of directors for Ruizhang Technologies, Airtake and Availink. Ms. Chang received a graduate degree in modern Chinese history from Stanford University and a Juris Doctor degree from Stanford Law School.

Li Yonghua

Alternate Director to Dr. Chen Shanzhi

Mr. Li Yonghua has been an alternate Director to Dr. Chen Shanzhi, a non-executive Director of the Company, since October 2013. Mr. Li is currently General Legal Consultant of the China Academy of Telecommunications Technology. Since August 2010 till now, Mr. Li has been a director of Datang Telecom Technology Co., Ltd. (a company listed on Shanghai Stock Exchange). Respectively from June 2011 and December 2011 till now, Mr. Li is also General Legal Consultant and Vice President and General Manager of Operation Management of Datang Telecom Technology & Industry Holdings Co., Ltd.. Mr. Li has been the chairman of the board of directors of Datang Mobile Communications Equipment Co., Ltd. and an executive director of DatangLiancheng Information System Technology Co., Ltd. since September 2014. Mr. Li served in Dongming County People’s Procuratorate of Shandong Province as a civil servant from 1996 to 2005. He was Chief Law Officer of Hanwang Technology Co., Ltd. He was also Vice Legal General Manager, General Manager and Supervisor of Datang Telecom Technology & Industry Holdings Co., Ltd. from 2008 to 2010. Mr. Li holds a Bachelor of Law degree from Shandong Normal University and a Master of Law degree from Peking University.

SMIC 2015 Annual Report

Senior Management

Dr. Tzu-Yin Chiu

Biographical details are set out on page 29 of this annual report.

Dr. Yonggang Gao

Biographical details are set out on page 30 of this annual report.

Dr. Haijun Zhao joined SMIC in 2010, and was named Vice President of North Operations in September 2011. In June 2012 he was promoted to Senior Vice President, and on April 25, 2013, he took on the role as Executive Vice President, Chief Operating Officer. He has 26 years of experience in semiconductor operations and technology development, most recently as a vice president of technology development, product engineering and Greater China business at ProMOS Technologies in Taiwan. He also previously held management positions at TECH Semiconductor Singapore. Dr. Zhao received his B.S. and Ph.D. from Tsinghua University, and his MBA from the University of Chicago. He holds two US semiconductor technology patents, with two pending, and has nine published technical papers.

Dr. Jyishyang Liu joined SMIC in 2001. He became Vice President of Central Engineering & Services in 2010, and has been Acting Vice President of Central Operations since September 2011. In June 2012 he was promoted to Senior Vice President, and on April 25, 2013, he took on the role as Executive Vice President. He has over 30 years of experience in the international semiconductor industry, beginning with research & development work at Motorola and Bell Laboratories, as well as operations management at UMC. Dr. Liu received his BS and MS degrees from National Tsing Hua University and completed his Ph.D. in Materials Science and Engineering at the Massachusetts Institute of Technology. He has seven published technical papers and holds two patents.

Mr. Li Zhi joined SMIC in March 2013 as Vice President and was promoted to Executive Vice President in November 2014. He is currently responsible for overseeing legal, human resources, public affairs and general administration. He has over 30 years of engineering, management and operations experience in the electronics and semiconductor industry. In his previous roles, he was the Deputy-Director Secretary of the President’s office of the China Electronic Information Industry Group, Deputy-Director Secretary of the Ministry of Electronics Industry, head of General Management Department at Beijing Hua Hong NEC IC Design Co. Ltd., President’s Assistant and head of administrative legal department of Beijing Hua Hong IC Design Co. Ltd., Board Secretary of Hua Hong Semiconductor Company (Shanghai Hua Hong NEC Electronics Co. Ltd.), Director of the Board Office (Board Secretary) of Shanghai Hua Hong (Group) Co. Ltd., Executive Vice President, Board Member and CEO of Shanghai Belling Co. Ltd., Vice President of Shanghai Integrated Circuit Industry Association. Mr. Li holds a Bachelor’s degree in Engineering from Beijing University of Aeronautics and Astronautics, and an EMBA from the University of Texas at Arlington. He also serves as the Vice President of the China Electronic Information Association.

SMIC 2015 Annual Report

DIRECTORS AND SENIOR MANAGEMENT

Mr. Mike Rekuc joined SMIC in 2011 as President of SMIC Americas. In November 2012, he was promoted to Senior Vice President, initially overseeing Worldwide Sales. As of March 2013, he oversees Worldwide Sales and Marketing, and on April 25, 2013, he took on the role as Executive Vice President. Mr. Rekuc is a distinguished industry veteran with four decades of semiconductor experience in both the United States and Asia. Before joining SMIC, he was President of Grace Semiconductor USA for Shanghai-based foundry Grace Semiconductor. Before Grace, he was Senior Vice President of Sales and Marketing and President of the Americas Region for Singapore-based Chartered Semiconductor (now part of GlobalFoundries) from 1999 to 2010. Prior to joining Chartered, Mr. Rekuc spent 23 years at Motorola, rising from a district sales engineer in Motorola’s semiconductor sector to become Vice President and Global Sales Director of its World Wide Wireless Subscribers Group. Mr. Rekuc began his career working for the United States Navy as a civilian semiconductor specialist. He holds a Bachelor of Science degree in Electrical Engineering from Lawrence Technological University.

Mr. Gareth Kung joined SMIC in July 2012. He works as Executive Vice President, Investment and Strategic Business Development and Finance and Company Secretary. Mr. Kung has over 25 years’ work experience working as a chief financial officer in publicly listed companies, private equity investment manager, banker and auditor. Between 2003 and 2009, Mr. Kung worked at SMIC as the Group Treasurer and Group Controller and from July 2012 to February 2014 as the Company’s Chief Financial Officer. Mr. Kung holds a MBA from the University of Western Ontario and a bachelor’s degree in accounting from the National University of Singapore. Mr. Kung is a Certified Public Accountant in Hong Kong, Australia and Singapore and a fellow member of the Association of Chartered Certified Accountants. In addition, he is a Chartered Financial Analyst.

Company Secretary

Mr. Gareth Kung

Biographical details are set out above.

SMIC 2015 Annual Report

REPORT OF THE DIRECTORS

Business Review

Despite a challenging environment in 2015, the Group’s sales totalled US$2,236.4 million, compared to US$1,970.0 million in 2014. The Group recorded a profit of US$222.3 million in 2015, compared to US$126.3 million in 2014. During 2015, the Group also expanded its operations in Beijing and Shenzhen, China, as well as entered into key business partnerships and engagements. Internal controls and other risk management measures are in place to mitigate the principal risks which the Group faces in its financial condition and operations, including but not limited to the followings:

Cyclicality of the semiconductor manufacturing industry;

Inability to secure of our key materials or equipments in a timely manner;

Inability to raise sufficient funding in light of the capital intensiveness of the semiconductor manufacturing industry;

Inability to keep up with technology migration, and

Difficulty of attraction and retention of technical and managerial talents.

The Group continues to serve a broad global customer base comprised of leading IDMs, fabless semiconductor companies and system companies. Looking ahead, our long-term goal is to achieve sustained profitability through optimal efficiency and utilization of existing assets, harnessing of our strong market position in China and investing further in advanced technology and capacity. For further details, please see pages 13 to 15 of the Annual Report.

We are committed to protecting the environment and have in place various environmental protection, safety and health (“ESH”) policies, as well as international standards certifications. We have complied with all relevant laws and regulations, such as the European Union’s Restriction of Hazardous Substances (RoHS) Directive. For further details, please see pages 99 to 101 of the Annual Report.

Board of Directors

Members of the Board are elected or re-elected by the shareholders of the Company. The Directors shall have power at any time and from time to time to appoint any person to be a Director, either to fill a casual vacancy or as an addition to the existing Directors, to hold office until the next annual general meeting of the Company after such appointment and shall then be eligible for re-election at that meeting.

SMIC 2015 Annual Report

REPORT OF THE DIRECTORS

The composition of the Board during the year ended December 31, 2015 and up to the date of this report is set forth as follows:

				Appointment
Name of Director	Age	Position	Class	Commencement Date
Zhou Zixue	59	Chairman, Executive Director	I	2015/3/6
Tzu-Yin Chiu	59	Chief Executive Officer, Executive	I	2011/8/5
		Director
Gao Yonggang	51	Chief Financial Officer, Executive	I	2009/6/23
		Vice President, Strategic Planning
		and Executive Director
William Tudor Brown	57	Independent Non-executive Director	I	2013/8/8
Chen Shanzhi	47	Non-executive Director	II	2009/6/23
Lip-Bu Tan	56	Independent Non-executive Director	II	2001/11/3
Carmen I-Hua Chang	68	Independent Non-executive Director	II	2014/9/1
Lu Jun	47	Non-executive Director	II	2016/2/18
Sean Maloney	59	Independent Non-executive Director	III	2013/6/15
Zhou Jie	48	Non-executive Director	III	2009/1/23
Ren Kai	43	Non-executive Director	III	2015/8/11
Li Yonghua	41	Alternate Director of Chen Shanzhi	—	2013/10/22
Resigned
Zhang Wenyi	69	Chairman, Executive Director	I	2011/6/30
				Resigned on March 6, 2015
Frank Meng	55	Independent Non-executive	II	2011/8/23
		Director		Resigned on June 26, 2015

SMIC 2015 Annual Report

Subsidiaries

As of December 31, 2015, the Company’s subsidiaries are as follows:

中芯國際控股有限公司

SMIC Holdings Corporation*

Principal place of operation: Shanghai, PRC

Place of incorporation: Shanghai, PRC

Legal entity: Wholly foreign-owned enterprise

Total investment: N/A

Registered capital: US$50,000,000

Equity holder: the Company (100%)

中芯國際集成電路製造 (上海) 有限公司

Semiconductor Manufacturing International (Shanghai) Corporation*

Principal place of operation: Shanghai, PRC

Place of incorporation: Shanghai, PRC

Legal entity: Wholly foreign-owned enterprise

Total investment: US$5,200,000,000

Registered capital: US$1,740,000,000

Equity holder: the Company (100%)

中芯國際集成電路製造 (北京) 有限公司

Semiconductor Manufacturing International (Beijing) Corporation*

Principal place of operation: Beijing, PRC

Place of incorporation: Beijing, PRC

Legal entity: Wholly foreign-owned enterprise

Total investment: US$3,000,000,000

Registered capital: US$1,000,000,000

Equity holder: the Company (100%)

中芯國際集成電路製造 (天津) 有限公司

Semiconductor Manufacturing International (Tianjin) Corporation*

Principal place of operation: Tianjin, PRC

Place of incorporation: Tianjin, PRC

Legal entity: Wholly foreign-owned enterprise

Total investment: US$1,100,000,000

Registered capital: US$690,000,000

Equity holder: the Company (100%)

For identification purposes only

SMIC 2015 Annual Report

REPORT OF THE DIRECTORS

中芯北方集成電路製造(北京)有限公司

Semiconductor Manufacturing North China (Beijing) Corp

Principal place of operation: Beijing, PRC

Place of incorporation: Beijing, PRC

Legal entity: Majority-owned subsidiary

Total investment: US$3,590,000,000

Registered capital: US$1,200,000,000

Equity holder: the Company (13.75% directly and 41.25% indirectly through Semiconductor

Manufacturing International (Beijing) Corporation))

SMIC Japan Corporation*

Principal country of operation: Japan

Place of incorporation: Japan

Authorized capital: JPY10,000,000 divided into 200 shares of a par value of JPY50,000

Equity holder: the Company (100%)

SMIC, Americas

Principal country of operation: U.S.A.

Place of incorporation: California, U.S.A

Authorized capital: US$500,000 divided into 50,000,000 shares of common stock of a par value of US$0.01

Equity holder: the Company (100%)

Better Way Enterprises Limited

Principal country of operation: Samoa

Place of incorporation: Samoa

Authorized capital: US$1,000,000 divided into 1,000,000 shares of a par value of US$1.00

Issued share capital: US$1.00

Equity holder: the Company (100%)

SMIC Europe S.R.L.

Principal place of operation: Agrate Brianza (Monza and Brianza), Italy

Place of incorporation: Agrate Brianza (Monza and Brianza), Italy

Registered capital: Euros 100,000

Equity holder: the Company (100%)

10.

Semiconductor Manufacturing International (Solar Cell) Corporation

Principal country of operation: Cayman Islands

Place of incorporation: Cayman Islands

Authorized capital: US$11,000 divided into 11,000,000 ordinary shares of US$0.001

Equity holder: the Company (100%)

For identification purposes only

SMIC 2015 Annual Report

11.

中芯能源科技(上海)有限公司

SMIC Energy Technology (Shanghai) Corporation*

Principal place of operation: Shanghai, PRC

Place of incorporation: Shanghai, PRC

Legal entity: Wholly foreign-owned enterprise

Total investment: US$26,000,000

Registered capital: US$10,400,000

Equity holder: the Company (100%, indirectly through SMIC Solar Cell (HK) Company Limited)

12.

中芯貿易(上海)有限公司

SMIC Commercial Shanghai Limited Company*

Principal place of operation: Shanghai, PRC

Place of incorporation: Shanghai, PRC

Legal entity: Wholly foreign-owned enterprise

Total investment: US$1,100,000

Registered capital: US$800,000

Equity holder: the Company (100%)

13.

中芯國際開發管理(成都)有限公司

SMIC Development (Chengdu) Corporation*

Principal place of operation: Chengdu, PRC

Place of incorporation: Chengdu, PRC

Legal entity: Wholly foreign-owned enterprise

Total Investment: US$12,500,000

Registered capital: US$5,000,000

Equity holder: the Company (100%)

14.

Magnificent Tower Limited

Principal country of operation: British Virgin Islands

Place of incorporation: British Virgin Islands

Authorized capital: US$50,000

Issued share capital: US$1.00

Equity holder: the Company (100%, indirectly through Better Way Enterprises Limited)

15.

SMIC Shanghai (Cayman) Corporation

Principal country of operation: Cayman Islands

Place of incorporation: Cayman Islands

Authorized capital: US$50,000

Issued share capital: US$0.0004

Equity holder: the Company (100%)

For identification purposes only

SMIC 2015 Annual Report

REPORT OF THE DIRECTORS

16.

SMIC Beijing (Cayman) Corporation

Principal country of operation: Cayman Islands

Place of incorporation: Cayman Islands

Authorized capital: US$50,000

Issued share capital: US$0.0004

Equity holder: the Company (100%)

17.

SMIC Tianjin (Cayman) Corporation

Principal country of operation: Cayman Islands

Place of incorporation: Cayman Islands

Authorized capital: US$50,000

Issued share capital: US$0.0004

Equity holder: the Company (100%)

18.

SMIC Shanghai (HK) Company Limited

Principal place of operation: Hong Kong

Place of incorporation: Hong Kong

Issued share capital: HK$1.00

Equity holder: the Company (100%, indirectly through SMIC Shanghai (Cayman) Corporation)

19.

SMIC Beijing (HK) Company Limited

Principal place of operation: Hong Kong

Place of incorporation: Hong Kong

Issued share capital: HK$1.00

Equity holder: the Company (100%, indirectly through SMIC Beijing (Cayman) Corporation)

20.

SMIC Tianjin (HK) Company Limited

Principal place of operation: Hong Kong

Place of incorporation: Hong Kong

Issued share capital: HK$1.00

Equity holder: the Company (100%, indirectly through SMIC Tianjin (Cayman) Corporation)

21.

SMIC Solar Cell (HK) Company Limited

Principal place of operation: Hong Kong

Place of incorporation: Hong Kong

Issued share capital: HK$1.00

Equity holder: the Company (100%, indirectly through Semiconductor Manufacturing International

(Solar Cell) Corporation)

22.

Semiconductor Manufacturing International (BVI) Corporation

Principal country of operation: British Virgin Islands

Place of incorporation: British Virgin Islands

Authorized capital: US$10.00

Issued share capital: US$10.00

Equity holder: the Company (100%)

SMIC 2015 Annual Report

23.

Admiral Investment Holdings Limited

Principal country of operation: British Virgin Islands

Place of incorporation: British Virgin Islands

Authorized capital: US$10.00

Issued share capital: US$10.00

Equity holder: the Company (100%)

24.

SMIC Shenzhen (Cayman) Corporation

Principal country of operation: Cayman Islands

Place of incorporation: Cayman Islands

Authorized capital: US$50,000

Issued share capital: US$0.0004

Equity holder: the Company (100%)

25.

中芯國際集成電路新技術研發(上海)有限公司

SMIC Advanced Technology Research & Development (Shanghai) Corporation*

Principal place of operation: Shanghai, PRC

Place of incorporation: Shanghai, PRC

Legal entity: Majority-owned subsidiary

Total investment: US$297,000,000

Registered capital: US$99,000,000

Equity holder: the Company (89.697%)

26.

SMIC Shenzhen (HK) Company Limited

Principal place of operation: Hong Kong

Place of incorporation: Hong Kong

Issued share capital: HK$1.00

Equity holder: the Company (100% indirectly through SMIC Shenzhen (Cayman) Corporation)

27.

SilTech Semiconductor Corporation

Principal country of operation: Cayman Islands

Place of incorporation: Cayman Islands

Authorized capital: US$10,000

Issued share capital: US$10,000

Equity holder: the Company (100%)

28.

SilTech Semiconductor (Hong Kong) Corporation Limited

Principal place of operation: Hong Kong

Place of incorporation: Hong Kong

Issued share capital: HK$1,000

Equity holder: the Company (100% indirectly through SilTech Semiconductor Corporation)

For identification purposes only

SMIC 2015 Annual Report

REPORT OF THE DIRECTORS

29.

中芯國際集成電路製造(深圳)有限公司

Semiconductor Manufacturing International (Shenzhen) Corporation*

Principal place of operation: Shenzhen, PRC

Place of incorporation: Shenzhen, PRC

Legal entity: Wholly foreign-owned enterprise

Total Investment: US$380,000,000

Registered capital: US$127,000,000

Equity holder: the Company (100% indirectly through SMIC Shenzhen (HK) Company Limited)

30.

芯電半導體(上海)有限公司

SilTech Semiconductor (Shanghai) Corporation Limited*

Principal place of operation: Shanghai, PRC

Place of incorporation: Shanghai, PRC

Legal entity: Wholly foreign-owned enterprise

Total investment: US$35,000,000

Registered capital: US$12,000,000

Equity holder: the Company (100% indirectly through SilTech Semiconductor (Hong Kong)

Corporation Limited)

31.

中芯晶圓股權投資(上海)有限公司

China IC Capital Co., Ltd*

Principal place of operation: Shanghai, PRC

Place of incorporation: Shanghai, PRC

Legal entity: One-person Company with Limited Liability (wholly owned by a foreign invested company)

Registered capital: RMB500,000,000

Equity holder: the Company (100% indirectly through Semiconductor Manufacturing International (Shanghai) Corporation)

32.

上海合芯投資管理合夥企業(有限合夥)

Shanghai Hexin Investment Management Limited Partnership*

Principal place of operation: Shanghai, PRC

Place of incorporation: Shanghai, PRC

Legal entity: Majority-owned subsidiary

Registered capital: RMB50,000,000

Equity holder: the Company (99% indirectly through China IC Capital Co., Ltd)

33.

上海榮芯投資管理合夥企業(有限合夥)

Shanghai Rongxin Investment Management Limited Partnership

Principal place of operation: Shanghai, PRC

Place of incorporation: Shanghai, PRC

Legal entity: Majority-owned subsidiary

Registered capital: RMB50,000,000

Equity holder: the Company (99% indirectly through China IC Capital Co., Ltd)

For identification purposes only

SMIC 2015 Annual Report

34.

SJ Semiconductor Corporation

Principal place of operation: Cayman Islands

Place of incorporation: Cayman Islands

Authorized capital: US$15,000

Issued share capital: US$3,334.71^#

Equity holder: the Company (55.277%)

35.

SJ Semiconductor (HK) Limited

Principal place of operation: Hong Kong

Place of incorporation: Hong Kong

Issued share capital: HK$1,000

Equity holder: the Company (55.277% indirectly through SJ Semiconductor Corporation)

36.

中芯長電半導體(江陰)有限公司

SJ Semiconductor (Jiangyin) Corporation*

Principal place of operation: Jiangyin City, Jiangsu Province, PRC

Place of incorporation: Jiangyin City, Jiangsu Province, PRC

Legal entity: Majority-owned subsidiary

Total investment: US$1,144,000,000

Registered capital: US$399,500,000

Equity holder: the Company (55.277% indirectly through SJ Semiconductor (HK) Limited)

For identification purposes only

Included ordinary shares and preferred shares

SMIC 2015 Annual Report

REPORT OF THE DIRECTORS

Share Capital

During the year ended December 31, 2015, the Company issued 126,900,443 Ordinary Shares to certain of the eligible participants including employees, directors, officers, and service providers of the Company (“eligible participants”) pursuant to the Company’s 2004 Stock Option Plan (“2004 Stock Option Plan”), 75,546,693 Ordinary Shares to certain of the eligible participants pursuant to the Company’s amended and restated 2004 Equity Incentive Plan (“2004 Equity Incentive Plan”). During the year, there were 2,407,402 and 27,429,599 Ordinary Shares issued as a result of the exercise of equity awards granted pursuant to the Company’s 2014 stock option plan (the “2014 Stock Option Plan”) and the Company’s 2014 equity incentive plan (the “2014 Equity Incentive Plan”) which have replaced the 2004 Stock Option Plan and the 2004 Equity Incentive Plan, respectively, upon their termination.

	Number of
	Share
Outstanding Share Capital as at December 31, 2015:	Outstanding
Ordinary Shares		42,073,748,961

Under the terms of the 2014 Equity Incentive Plan, the Compensation Committee may grant restricted share units (“RSU(s)”) to eligible participants. Each RSU represents the right to receive one Ordinary Share. RSUs granted to new employees and existing employees generally vest at a rate of 25% upon the first, second, third, and fourth anniversaries of the vesting commencement date. Upon vesting of the RSUs and subject to the terms of the Insider Trading Policy and the payment by the participants of applicable taxes, the Company will issue the relevant participants the number of Ordinary Shares underlying the awards of RSU. For the year ended December 31, 2015, the Compensation Committee of the Company granted a total of 146,852,985 RSUs.

SMIC 2015 Annual Report

As at December 31, 2015, a total of 304,512,677 RSUs granted pursuant to the terms of the 2004 Equity Incentive Plan and the 2014 Equity Incentive Plan, whether or not such RSUs were vested, remained outstanding. The vesting schedule of these outstanding Restricted Share Units is set forth below:

Vesting Dates	No. of Restricted Share Units Outstanding
2015
1-Mar		127,345
17-Jun		600,364
5-Nov		561,114
2016
1-Mar		91,345,911
6-Mar		2,701,246
15-Apr		80,000
1-May		13,230,000
4-May		80,000
1-Jun		100,000
15-Jun		130,000
17-Jun		600,364
7-Jul		100,000
9-Jul		625,000
8-Oct		100,000
5-Nov		561,114
2017
1-Mar		91,345,903
6-Mar		2,701,246
15-Apr		80,000
4-May		80,000
1-Jun		100,000
15-Jun		130,000
17-Jun		600,364
7-Jul		100,000
8-Oct		100,000
5-Nov		561,114
2018
1-Mar		58,229,735
6-Mar		2,701,246
15-Apr		80,000
4-May		80,000
1-Jun		100,000
15-Jun		130,000
7-Jul		100,000
8-Oct		100,000
5-Nov		561,114
2019
1-Mar		32,398,250
6-Mar		2,701,247
15-Apr		80,000
4-May		80,000
1-Jun		100,000
15-Jun		130,000
7-Jul		100,000
8-Oct		100,000
Total		304,512,677

SMIC 2015 Annual Report

REPORT OF THE DIRECTORS

Repurchase, Sale or Redemption of the Company’s Listed Securities

Neither the Company nor any of its subsidiaries has repurchased, sold or redeemed any of the Ordinary Shares during the year ended December 31, 2015.

Public Float

Based on publicly available information and the Directors’ knowledge, more than 25% of the Company’s issued share capital was held by the public as at the date of this annual report.

Dividends and Dividend Policy

As of December 31, 2015, the Company’s accumulated deficit decreased to US$1,287.5 million from US$1,540.9 million as of December 31, 2014. The Company has not declared or paid any cash dividends on the Ordinary Shares. We intend to retain any earnings for use in the Company’s business and do not currently intend to pay cash dividends on the Ordinary Shares. Dividends, if any, on the outstanding Ordinary Shares will be declared by and subject to the discretion of the Board and must be approved by the shareholders at the annual general meeting of the Company. The timing, amount and form of future dividends, if any, will also depend, among other things, on:

•

the Company’s results of operations and cash flow;

•

the Company’s future prospects;

•

the Company’s capital requirements and surplus;

•

the Company’s financial condition;

•

general business conditions;

•

contractual restrictions on the payment of dividends by the Company to its shareholders or by the Company’s subsidiaries to the Company; and

•

other factors deemed relevant by the Board.

The Company’s ability to pay cash dividends will also depend upon the amount of distributions, if any, received by the Company from its wholly-owned Chinese operating subsidiaries. Under the applicable requirements of China’s Company Law, the Company’s subsidiaries in China may only distribute dividends after they have made allowances for:

•

recovery of losses, if any;

•

allocation to the statutory common reserve funds;

•

allocation to staff and workers’ bonus and welfare funds; and

•

allocation to a discretionary common reserve fund if approved by the Company’s shareholders.

More specifically, these operating subsidiaries may only pay dividends after 10% of their net profit has been set aside as statutory common reserves and a discretionary percentage of their net profit has been set aside for the staff and workers’ bonus and welfare funds. These operating subsidiaries are not required to set aside any of their net profit as statutory common reserves if the accumulation of such reserves has reached at least 50% of their respective registered capital. Furthermore, if they record no net income for a year, they generally may not distribute dividends for that year.

SMIC 2015 Annual Report

Directors’ Interests in Contracts of Significance

Save for those disclosed in the section headed “Connected Transactions”, there were no contracts of significance during the year ended December 31, 2015 to which the Company or any of its subsidiaries was a party and in which any of the Directors was materially interested.

Major Suppliers and Customers

In 2015, the Company’s largest and five largest raw materials suppliers, as a group, accounted for approximately 10.4% and 39.0%, respectively, of the Company’s overall raw materials purchases. To the best of the Company’s knowledge, none of the Directors or the shareholders (which to the knowledge of the Directors own 5% or more of the Company’s issued share capital) or their respective associates had interests in any of the Company’s five largest suppliers. Almost all of the Company’s materials are imported free of value-added tax and import duties due to concessions granted to the semiconductor industry in China.

In 2015, the Company’s largest and five largest customers, as a group, accounted for approximately 16.4% and 52.8%, respectively, of the Company’s total overall sales. Mr. Lip-Bu Tan, an independent non-executive Director of the Company, holds through his trust an equity interest of less than 1% in two of the Company’s five largest customers in 2015 and is also a director of the general partner of a shareholder of one of the remaining three of the Company’s five largest customers. Save as disclosed above and to the best of the Company’s knowledge, none of the other Directors or shareholders (which to the knowledge of the Directors own 5% or more of the Company’s issued share capital) or their respective associates had interests in any of the Company’s five largest customers.

Pre-emptive Rights

The Company confirms there are no statutory pre-emptive rights under the law of the Cayman Islands.

SMIC 2015 Annual Report

REPORT OF THE DIRECTORS

Director’s Interests in Securities of the Company

As of December 31, 2015, the interests or short positions of the Directors in the Ordinary Shares, underlying shares and debentures of the Company (within the meaning of Part XV of the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (“SFO”)), which were notified to the Company and the SEHK pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they are taken or deemed to have under such provisions of the SFO), and as recorded in the register required to be kept under section 352 of the SFO or as otherwise notified to the Company and the SEHK pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers were as follows:

											Percentage
											of Aggregate
											Interests to
			Number of		Derivatives						Total Issued
	Long/Short	Nature of	Ordinary		Share				Aggregate		Share Capital
Board member	Position	Interests	Shares Held		Options		Other		Interest		(Note 1)

Executive Director
Zhou Zixue	Long Position	Beneficial		—		25,211,633		10,804,985		36,016,618		0.086	%
		Owner				(Note 2)		(Note 3)
Tzu-Yin Chiu	Long Position	Beneficial		40,860,038		86,987,535		—		127,847,573		0.304	%
		Owner				(Note 4)		(Note 5)
Gao Yonggang	Long Position	Beneficial		—		19,640,054		2,310,472		21,950,526		0.052	%
		Owner				(Note 6)		(Note 7)
Non-executive Director
Chen Shanzhi	Long Position	Beneficial		—		3,145,319		—		3,145,319		0.007	%
		Owner				(Note 8)
Zhou Jie	—	—		—		—		—		—		—
Ren Kai	Long Position	Beneficial		—		5,705,608		—		5,705,608		0.014	%
		Owner				(Note 9)
Independent Non-executive Director
William Tudor Brown	Long Position	Beneficial		—		4,492,297		—		4,492,297		0.011	%
		Owner				(Note 10)
Sean Maloney	Long Position	Beneficial		—		4,490,377		—		4,490,377		0.011	%
		Owner				(Note 11)
Lip-Bu Tan	Long Position	Beneficial		—		4,634,877		—		4,634,877		0.011	%
		Owner				(Note 12)
Carmen I-Hua Chang	Long Position	Beneficial		—		4,887,303		—		4,887,303		0.012	%
		Owner				(Note 13)
Alternate Director
Li Yonghua	—	—		—		—		—		—		—

SMIC 2015 Annual Report

Notes:

(1)

Based on 42,073,748,961 Ordinary Shares in issue as at December 31, 2015.

(2)

On May 20, 2015, Dr. Zhou was granted options to purchase 25,211,633 Ordinary Shares at a price of HK$0.830 per Ordinary Share pursuant to the 2014 Stock Option Plan. These options will expire on the earlier of May 19, 2025 or 120 days after termination of his service as a Director to the Board. As of December 31, 2015, none of these options has been exercised.

(3)

On May 20, 2015, Dr. Zhou was granted an award of 10,804,985 Restricted Share Units (each representing the right to receive one Ordinary Share) pursuant to the 2014 Equity Incentive Plan. These RSUs, 25% of which will vest on each anniversary of March 6, 2015, shall fully vest on March 6, 2019. As of December 31, 2015, none of Dr. Zhou’s RSUs has been vested.

(4)

On September 8, 2011, Dr. Chiu was granted options to purchase 86,987,535 Ordinary Shares at a price of HK$0.455 per Ordinary Share pursuant to the 2004 Stock Option Plan. These options will expire on the earlier of September 7, 2021 or 120 days after termination of his service as a Director to the Board. As of December 31, 2015, none of these options were exercised.

(5)

On September 8, 2011, Dr. Chiu was granted an award of 37,280,372 Restricted Share Units (each representing the right to receive one Ordinary Share) pursuant to the 2004 Equity Incentive Plan. These Restricted Share Units, 25% of which vest on each anniversary of August 5, 2011, were fully vested on August 5, 2015. As of December 31, 2015, 100% of Dr. Chiu’s Restricted Share Units were vested and thus 37,280,372 Ordinary Shares were issued to Dr. Chiu.

(6)

These options comprise: (a) options which were granted to Dr. Gao on May 24, 2010 to purchase 3,145,319 Ordinary Shares at a price of HK$0.64 per Ordinary Share pursuant to the 2004 Stock Option Plan and will expire on the earlier of May 23, 2020 or 120 days after termination of his service as a Director to the Board, (b) options which were granted to Dr. Gao on June 17, 2013 to purchase 13,608,249 Ordinary Shares at a price of HK$0.624 per Ordinary Share pursuant to the 2004 Stock Option Plan and will expire on the earlier of June 16, 2023 or 120 days after termination of his service as a Director to the Board, (c) options which were granted to Dr. Gao on June 12, 2014 to purchase 2,886,486 Ordinary Shares at a price of HK$0.64 per Ordinary Share pursuant to the 2014 Stock Option Plan and will expire on the earlier of June 11, 2024 or 120 days after termination of his service as a Director to the Board. As of December 31, 2015, none of these options were exercised.

(7)

On November 17, 2014, Dr. Gao was granted an award of 2,910,836 Restricted Share Units (each representing the right to receive one Ordinary Share) pursuant to the 2014 Equity Incentive Plan, consisting of (a) 2,401,456 Restricted Share Units, 25% of which vest on each anniversary of June 17, 2013 and which shall fully vest on June 17, 2017, and (b) 509,380 Restricted Share Units, 25% of which vest on each anniversary of March 1, 2014 and which shall fully vest on March 1, 2018. As of December 31, 2015, 1,328,073 Restricted Shares Units were vested, among which 600,364 were settled in cash.

(8)

On May 24, 2010, Dr. Chen was granted options to purchase 3,145,319 Ordinary Shares at a price of HK$0.64 per Ordinary Share pursuant to the 2004 Stock Option Plan. These options will expire on the earlier of May 23, 2020 or 120 days after termination of his service as a Director to the Board. As of December 31, 2015, none of these options were exercised.

(9)

On September 11, 2015, Mr. Ren was granted options to purchase 5,705,608 Ordinary Shares at a price of HK$0.694 per Ordinary Share pursuant to the 2014 Stock Option Plan. These options will expire on the 10 September 2025 or 120 days after termination of his service as a Director to the Board. As of December 31, 2015, none of these options were accepted and exercised by Mr. Ren. On February 18, 2016, the Board approved the cancellation of all options previously granted to Mr. Ren at the request of Mr. Ren.

(10)

On September 6, 2013, Mr. Brown was granted options to purchase 4,492,297 Ordinary Shares at a price of HK$0.562 per Ordinary Share pursuant to the 2004 Stock Option Plan. These options will expire on the earlier of September 5, 2023 or 120 days after termination of his service as a Director to the Board. As of December 31, 2015, none of these options were exercised.

(11)

On June 17, 2013, Mr. Maloney was granted options to purchase 4,490,377 Ordinary Shares at a price of HK$0.624 per Ordinary Share pursuant to the 2004 Stock Option Plan. These options will expire on the earlier of June 16, 2023 or 120 days after termination of his service as a Director to the Board. As of December 31, 2015, none of these options were exercised.

SMIC 2015 Annual Report

REPORT OF THE DIRECTORS

(12)

These options comprise (a) options granted to Mr. Tan on September 29, 2006 to purchase 500,000 Ordinary Shares at a price per share of US$0.132 pursuant to the 2004 Stock Option Plan which fully vested on May 30, 2008 and will expire on the earlier of September 28, 2016 or 120 days after termination of Mr. Tan’s service as a Director to the Board, (b) options granted to Mr. Tan on February 17, 2009 to purchase 1,000,000 Ordinary Shares at a price of HK$0.27 per Ordinary Share pursuant to the 2004 Stock Option Plan, which will expire on the earlier of February 16, 2019 or 120 days after termination of Mr. Tan’ service as a Director to the Board, and (c) options granted to Mr. Tan on February 23, 2010 to purchase 3,134,877 Ordinary Shares at a price of HK$0.77 per Ordinary Share pursuant to the 2004 Stock Option Plan, which will expire on the earlier of February 22, 2020 or 120 days after termination of Mr. Tan’s service as a Director to the Board. As of December 31, 2015, none of these options were exercised.

(13)

On November 17, 2014, Ms. Chang was granted options to purchase 4,887,303 Ordinary Shares at a price of HK$0.85 per Ordinary Share pursuant to the 2014 Stock Option Plan. These options will expire on the earlier of November 16, 2024 or 120 days after termination of her service as a Director to the Board. As of December 31, 2015, none of these options were exercised.

Director’s Service Contracts

No Director proposed for re-election at the 2016 AGM has or proposes to have a service contract which is not terminable by the Company or any of its subsidiaries within one year without payment of compensation, other than statutory compensation.

Substantial Shareholders

Set out below are the names of the parties (not being a Director or chief executive of the Company) which were interested in 5% or more of the nominal value of the share capital of the Company and the respective numbers of Ordinary Shares in which they were interested as at December 31, 2015 as recorded in the register kept by the Company under section 336 of the SFO.

Percentage of

Percentage

Ordinary

of Total

Shares Held to

Interests to

Total Issued

Share Capital

Number of

of the

Ordinary

Company

Name of Shareholder

Long/Short Position

Shares Held

(Note 1)

Derivatives

Total Interest

(Note 1)

Datang Telecom Technology

Long Position

7,699,961,231

18.30

—

7,699,961,231

18.30

& Industry Holdings

(Note 2)

Co., Ltd.

China Integrated Circuit

Long Position

7,400,000,000

17.59

—

7,400,000,000

17.59

Industry Investment Fund

(Note 3)

Co., Ltd.

Notes:

(1)

Based on 42,073,748,961 Ordinary Shares issued and outstanding as at December 31, 2015.

(2)

All such Ordinary Shares are held by Datang Holdings (Hongkong) Investment Company Limited which is a wholly-owned subsidiary of Datang Telecom Technology & Industry Holdings Co., Ltd.

(3)

All such Ordinary Shares are held by Xinxin (Hongkong) Capital Co., Ltd, a wholly-owned subsidiary of China Integrated Circuit Industry Investment Fund Co., Ltd.

SMIC 2015 Annual Report

Emoluments to the Directors

Details regarding the emoluments to each of the Directors in 2015, 2014 and 2013 are set out in Note 12 to the consolidated financial statements.

During the year ended December 31, 2015, the Board granted 10,804,985 Restricted Share Units to Directors as compensation for their service on the Board.

Emoluments to the Senior Management

The emoluments of senior management personnel for the year ended December 31, 2015, 2014 and 2013 are as follows:

	year ended		year ended		year ended
	12/31/15		12/31/14		12/31/13
	USD’000		USD’000		USD’000

Short-term benefits		3,641		3,658		3,667
Share-based payments		1,399		2,070		2,526
		5,040		5,728		6,193

The number of senior management whose remuneration fell within the following bands for the year ended December 31, 2015, 2014 and 2013 are as follows:

	Number of individuals
	2015		2014		2013
HK$1,500,001 (US$193,545) to HK$2,500,000 (US$322,575)		—		—		2
HK$2,500,001 (US$322,576) to HK$3,000,000 (US$387,090)		—		1		—
HK$3,500,001 (US$451,605) to HK$4,000,000 (US$516,119)		2		—		—
HK$4,000,001 (US$516,120) to HK$4,500,000 (US$580,635)		3		1		2
HK$4,500,001 (US$580,635) to HK$5,000,000 (US$645,150)		1		1		1
HK$5,000,001 (US$645,151) to HK$5,500,000 (US$709,665)		—		3		2
HK$5,500,001 (US$709,666) to HK$6,000,000 (US$774,180)		1		1		1
HK$8,000,001 (US$1,032,240) to HK$8,500,000 (US$1,096,755)		1		—		—
HK$10,000,001 (US$1,290,300) to HK$11,000,000 (US$1,419,330)		—		1		—
HK$14,000,001 (US$1,806,420) to HK$14,500,000 (US$1,870,935)		—		—		1
		8		8		9

SMIC 2015 Annual Report

REPORT OF THE DIRECTORS

Five Highest Paid Individuals

The five individuals whose emoluments were the highest in the Group for the year ended December 31, 2015, included Zhou Zixue, Chairman and Executive Director of the Company, Tzu-Yin Chiu, Chief Executive Officer and Executive Director of the Company and Zhang Wenyi, who has resigned as chairman of the board and an executive director of the Company.

The five individuals whose emoluments were the highest in the Group for the year ended December 31, 2014, included Zhang Wenyi, Chairman and Executive Director of the Company, Tzu-Yin Chiu, Chief Executive Officer and Executive Director of the Company and Gao Yonggang, Chief Financial Officer, Executive Vice President, Strategic Planning and Executive Director of the Company.

The five individuals whose emoluments were the highest in the Group for the year ended December 31, 2013, included Zhang Wenyi, Chairman and Executive Director of the Company and Tzu-Yin Chiu, Chief Executive Officer and Executive Director of the Company.

The five highest paid individuals information are set out in Note 13 to the consolidated financial statements.

Remuneration Policy

The Group’s employees are compensated by cash and a variety of additional incentives. As a supplement to their salaries, the Group’s employees have the opportunity to earn performance bonus based on the Group’s profitability, business achievement, and individual performance. Additional benefits include participation in the Group’s global equity incentive compensation program, paid leave, social welfare benefits for qualified employees, a global medical insurance plan for overseas employees and optional housing benefits and educational programs for employees with families.

The Directors are compensated for their services as Directors, primarily by salaries and grants of options to purchase Ordinary Shares under the Stock Option Plan (as defined below) and Restricted Share Units. The compensation committee of the Company (the “Compensation Committee”) proposes, and the Board, other than interested Directors, approves, for the Directors, a remuneration package, which is comparable with the compensation received by directors in other similarly situated publicly-traded companies.

The Group’s local Chinese employees are entitled to a retirement benefit based on their salary and their length of service in accordance with a state-managed pension plan. The PRC government is responsible for the pension liability to these retired staff. We are required to make contributions to the state-managed retirement plan at a main rate equal to 20.0% to 21.0% (the standard in Shenzhen site ranges from 13% to 14% according to Shenzhen government regulation) of the monthly basic salary of current employees. Employees are required to make contributions at a rate equal to 8% of their monthly basic salary. The Group’s contribution to such pension plan is approximately US$34.8 million, US$28.5 million, US$27 million, and US$22 million for the years ended December 31, 2015, 2014, 2013, and 2012, respectively. The retirement benefits apply to expatriate employees according to the requirements of local government.

Auditors

The financial statements have been audited by PricewaterhouseCoopers and PricewaterhouseCoopers ZhongTian LLP who retire and, being eligible, offer themselves for re-appointment.

SMIC 2015 Annual Report

Connected Transactions

Connected Transactions

Datang Pre-emptive Share Purchase Agreement and Country Hill Pre-emptive Share Purchase Agreement

On June 11, 2015, the Company entered into a share purchase agreement (“Datang Pre-emptive Share Purchase Agreement”) with Datang Holdings (Hongkong) Investment Company Limited (“Datang”), a substantial shareholder of the Company, pursuant to which the Company conditionally agreed to issue, and Datang conditionally agreed to subscribe for, 961,849,809 Ordinary Shares (“Datang Pre-emptive Shares”) for a total cash consideration of HK$634,147,579.07 at the price of HK$0.6593 per Ordinary Share.

On June 11, 2015, the Company entered into a share purchase agreement (“Country Hill Pre-emptive Share Purchase Agreement”) with Country Hill Limited (“Country Hill”), a substantial shareholder of the Company, pursuant to which the Company conditionally agreed to issue, and Country Hill conditionally agreed to subscribe for, 323,518,848 Ordinary Shares (“Country Hill Pre-emptive Shares”) for a total cash consideration of HK$213,295,976.49 at the price of HK$0.6593 per Ordinary Share.

The execution of the Datang Pre-emptive Share Purchase Agreement and the Country Hill Pre-emptive Share Purchase Agreement, the issue of the Datang Pre-emptive Shares to Datang and the issue of the Country Hill Pre-emptive Shares to Country Hill were approved by the independent shareholders of the Company at the extraordinary general meeting of the Company held on August 11, 2015 as required under Chapter 14A of the Hong Kong Stock Exchange Listing Rules. The completion of the issue of the Datang Pre-emptive Shares and the Country Hill Pre-emptive Shares took place on October 9, 2015 and September 25, 2015 respectively.

Other than Dr. Gao Yonggang (“Dr. Gao”), an executive Director, and Dr. Chen Shanzhi (“Dr. Chen”), a non-executive Director, both of whom were nominated as Directors by Datang, none of the Directors has a material interest in the Datang Pre-emptive Share Purchase Agreement and the Country Hill Pre-emptive Share Purchase Agreement or the transactions contemplated thereunder.

Formation of Joint Venture, Sino IC Leasing Co., Ltd., with China IC Fund

On August 27, 2015, the Company entered into a joint venture agreement with China Integrated Circuit Industry Investment Fund Co., Ltd. (“China IC Fund”), a substantial shareholder of the Company, and its sole manager, Sino IC Capital Co., Ltd., and seven other independent third parties to establish a joint venture company, Sino IC Leasing Co., Ltd. (“Sina IC Leasing”), in accordance with PRC laws and regulations. China IC Fund holds approximately 11.18% equity interest in the Company on the date of transaction through its wholly-owned subsidiary, Xinxin (Hongkong) Capital Co., Limited.

The registered capital of Sino IC Leasing is RMB5.68 billion. The capital commitment of China IC Fund and the Company in Sino IC Leasing is RMB2.00 billion and RMB0.60 billion, representing 35.21% and 10.56% interest, respectively.

SMIC 2015 Annual Report

REPORT OF THE DIRECTORS

The business scope of Sino IC Leasing includes financial leasing, leasing of equipments, purchase of leased properties in the PRC or overseas, maintaining and processing of the residual value of the leased properties, consulting and guarantee services in relation to leasing and related business factoring services. The term of its operation is 30 years from the date of the establishment the company.

Mr. Ren Kai, a non-executive director, is deemed to have a material interest in the joint venture agreement as he holds the position of Vice President in Sino IC Capital Co., Ltd.. Mr. Ren Kai has abstained from voting on the relevant board resolution in respect of the joint venture agreement.

Issue of Series B Preference Shares by SJ Semiconductor Corporation

On December 8, 2015, a share purchase agreement was entered into by:

•

SJ Cayman Corporation (“SJ Cayman”) and its wholly-owned subsidiaries, SJ Semiconductor (HK) Limited and SJ Semiconductor (Jiangyin) Corporation; and

•

the Company, Xun Xin (Shanghai) Investment Co., Ltd. (“Xun Xin”) and Qualcomm Global Trading Pte. Ltd (Qualcomm). (each an “Investor” and together as the “Investors”),

pursuant to which SJ Cayman agreed to issue and the Investors agreed to subscribe for 466,666,664 Series B Preference Shares for an aggregate cash consideration of US$280,000,000 at a cash purchase price of US$0.60 per share. The transaction helps to expand SJ Semiconductor (Jiangyin) Corporation’s production capacity and accelerate the construction progress.

Xun Xin is a wholly-owned subsidiary of China IC Fund, which holds approximately 11.17% equity interest on the date of transaction in the Company through its other wholly-owned subsidiary, Xinxin (Hongkong) Capital Co., Limited (“Xinxin”). Xun Xin is an associate of Xinxin and thus a connected person of the Company under the Hong Kong Listing Rules.

The Company, Xun Xin and Qualcomm each contributes US$160,000,000, US$100,000,000 and US$20,000,000 for their respective subscription of 266,666,666, 166,666,666 and 33,333,332 Series B Preference Shares, representing respectively 56.06%, 29.41% and 5.88% of the total issued share capital of SJ Cayman. Each Series B Preference Share may be converted at the option of the holder, at any time after the date of issuance thereof, into such number of fully paid SJ Cayman Ordinary Share(s) determined by dividing the original issue price of US$0.60 per share by the then effective conversion price. The initial conversion price will be equal to the original issue price, resulting in an initial conversion ratio of 1:1, that is, one Series B Preference Share is convertible into one SJ Cayman Ordinary Share.

Mr Ren Kai, a non-executive Director, is deemed to have a material interest in the share purchase agreement as he holds the position of Vice President in China IC Fund’s sole manager Sino IC Capital Company Limited and the position of legal representative in Xun Xin. However, Mr Ren Kai did not participate in the voting on the relevant board resolutions in respect of the share purchase agreement and the transaction contemplated thereunder.

SMIC 2015 Annual Report

Non-exempt Continuing Connected Transactions

Framework Agreement with Datang — 2014 to 2015

On February 18, 2014, the Company entered into a framework agreement (the “Framework Agreement”) with Datang Telecom Technology & Industry Holding Co., Ltd. (Datang Holdings), a substantial shareholder of the Company, pursuant to which the Group and Datang Holdings (including its associates) would engage in business collaboration including but not limited to foundry service. The term of the Framework Agreement was two years commencing from February 18, 2014. The pricing for the transactions contemplated under the Framework Agreement was determined by reference to reasonable market price available from or to independent third parties in the ordinary and usual course of business based on normal commercial terms and on an arm’s length negotiation, or the price based on the actual production cost incurred plus a reasonable profit margin with reference to the general range of profit margins in the industry, and will be determined on terms not less favorable than those sold by independent third parties to the Company or its subsidiaries or sold by the Company or its subsidiaries to independent third parties (if any).

The expected caps, being the maximum revenue on an aggregated basis expected to be generated by the Group from the transactions contemplated under the Framework Agreement, were:

•

US$60 million for the year ended December 31, 2014; and

•

US$75 million for the year ending December 31, 2015.

In arriving at the expected caps, the Company considered the potential level of transactions the Group may potentially provide in light of current market conditions of the semiconductor industry and the technological capability of the Group, having regard to the historical transaction volume of Datang Holdings and its associates with the Group and the historical revenues generated by the Group from the transactions under the framework agreement dated 14 December 2011 entered into between the Company and Datang Holdings, which were US$4.8 million, US$9.7 million and US$16.7 million for each of the three years ended 31 December 2013.

The aggregate revenues generated by the Group from the transactions entered into pursuant to the Framework Agreement were US$14.5 million and US$22.6 million for the year ended December 31, 2014 and 2015 respectively.

Other than Dr. Gao and Dr. Chen, both of whom were nominated as Directors by Datang Holdings, none of the Directors has a material interest in the Framework Agreement or the transactions contemplated thereunder.

Pursuant to Rule 14A.55 of the Hong Kong Stock Exchange Listing Rules, the independent non-executive Directors have reviewed the non-exempt continuing connected transactions and confirmed that the transactions under the Framework Agreement that took place between Datang Holdings (or any of its associates) and the Company (or any of its subsidiaries) for the year ended December 31, 2015 had been entered into:

(1)

in the ordinary and usual course of business of the Group;

(2)

on normal commercial terms or better; and

(3)

in accordance with the Framework Agreement on terms that were fair and reasonable and in the interests of the shareholders of the Company as a whole.

SMIC 2015 Annual Report

REPORT OF THE DIRECTORS

Pursuant to Rule 14A.56 of the Hong Kong Stock Exchange Listing Rules, the Company’s external auditor performed certain agreed upon procedures in respect of the continuing connected transactions of the Company under the Framework Agreement and had provided to the Board an unqualified letter containing findings and conclusions in respect of the aforesaid continuing connected transactions.

Framework Agreement with Datang — 2016 to 2018

On December 28, 2015, the Company entered into a new framework agreement (the “Renewed Framework Agreement”) with Datang Holdings, pursuant to which the Group and Datang Holdings (including its associates) would engage in business collaboration including but not limited to foundry service. The term of the Renewed Framework Agreement is three years commencing from January 1, 2016. The pricing for the transactions contemplated under the Renewed Framework Agreement is determined based on the same as the Framework Agreement.

The expected caps, being the maximum revenue on an aggregated basis expected to be generated by the Group from the transactions contemplated under the Renewed Framework Agreement, are:

•

US$50 million for the year ended December 31, 2016;

•

US$66 million for the year ended December 31, 2017; and

•

US$82 million for the year ending December 31, 2018

Financial Services Agreement with Datang Finance

On December 18, 2015, the Company and Datang Telecom Group Finance Co., Ltd. (“Datang Finance”) entered into the Financial Services Agreement with a three year term commencing on 1 January 2016 and ending on 31 December 2018, pursuant to which Datang Finance has agreed to provide the Company and its subsidiaries, including its associated companies and companies under its management (“Group”) with a range of financial services (including deposit services, loan services, foreign exchange services and other financial services) subject to the terms and conditions provided therein.

Each of Datang Finance and Datang Telecom Technology & Industry Holdings Co., Ltd. (“Datang Holdings”) is a wholly-owned subsidiary of China Academy of Telecommunications Technology and Datang Holdings in turn wholly owns Datang Holdings (Hongkong) Investment Company Limited (“Datang Hongkong”), a substantial shareholder of the Company holding approximately 18.30% of the total issued share capital of the Company as at the date of this report. Datang Finance is a fellow subsidiary of Datang Holdings and an associate of Datang Hongkong, and thus a connected person of the Company under Chapter 14A of the Listing Rules.

Datang Finance provides to the Group a range of financial services as the Group may request from time to time. Such financial services include deposit services, loan services, foreign exchange services and other financial services.

The financial services of Datang Finance are provided based on the following pricing principles:

Deposit services

The terms (including interest rates) in respect of deposit services offered to the Group by Datang Finance shall be no less favourable than those offered to the Group by third parties in respect of comparable services, subject to the relevant provisions of Chinese laws and regulations.

SMIC 2015 Annual Report

Loan services

The terms (including interest rates) in respect of loans services offered to the Group by Datang Finance shall be no less favourable than those offered to the Group by third parties in respect of comparable services, subject to the relevant provisions of Chinese laws and regulations.

Foreign exchange services

The terms (including exchange rates) in respect of foreign exchange services offered to the Group by Datang Finance shall be no less favourable than those offered to the Group by third parties in respect of comparable services, subject to the relevant provisions of Chinese laws and regulations.

Other financial services

The terms (including fees charged by Datang Finance) for the provision of financial services other than deposits services, loan services and foreign exchange services shall be no less favourable than the terms (including fees charged to the Group) applicable to third parties in respect of comparable services, subject to the relevant provisions of Chinese laws and regulations.

The Annual Caps under the Financial Services Agreement are set out below:

Annual Caps	For the year ended 31 December
	2016		2017		2018
	US$ million		US$ million		US$ million
Deposit Cap (the maximum daily outstanding balances including accrued interests which is not cumulative in nature and inclusive of foreign currency and RMB deposits)		100		100		100
Spot FX Trading Cap (the maximum daily transaction amount for foreign exchange settlement and sales)		50		50		50
Other Financial Services Cap (the maximum annual fee for other financial services)		5		5		5

There are no historical caps for the deposit services, the foreign exchange services and other financial services with Datang Finance. The Annual Caps are determined based on the Group’s actual financial needs and reasonable forecast.

Other than Dr. Gao and Dr. Chen, both of whom are nominated as Directors by Datang Hongkong and its associates, none of the Directors has a material interest in the Financial Services Agreement or the transactions contemplated thereunder.

Pursuant to Rule 14A.55 of the Hong Kong Stock Exchange Listing Rules, the independent non-executive Directors have reviewed the non-exempt continuing connected transactions and confirmed that the transactions under the Financial Services Agreement that took place between Datang Finance and the Group during the period ended December 31, 2015 had been entered into:

(1)

in the ordinary and usual course of business of the Group;

(2)

on normal commercial terms or better; and

(3)

in accordance with the Financial Services Agreement on terms that were fair and reasonable and in the interests of the shareholders of the Company as a whole.

SMIC 2015 Annual Report

REPORT OF THE DIRECTORS

Pursuant to Rule 14A.56 of the Hong Kong Stock Exchange Listing Rules, the Company’s external auditor performed certain agreed upon procedures in respect of the continuing connected transactions of the Company under the Financial Services Agreement and had provided to the Board an unqualified letter containing findings and conclusions in respect of the aforesaid continuing connected transactions.

Related Party Transactions

In addition to the above, the Group entered into certain transactions with parties regarded as “related parties” under the applicable accounting standards which are not regarded as connected transactions as defined under the Hong Kong Stock Exchange Listing Rules. Details of these related party transactions are disclosed in note 40 to the consolidated financial statements.

Employees

The following table sets forth, as of the dates indicated, the number of the Group’s employees serving in the capacities indicated:

	As of December 31,
Function	Y2012		Y2013		Y2014		Y2015
Managers		922		951		930		962
Professionals⁽¹⁾		4,164		4,440		4,988		6,112
Technicians		4,650		4,751		5,116		6,170
Clerical staff		238		304		351		229
Tota^l(2)		9,974		10,446		11,385		13,473

Notes:

(1)

Professionals include engineers, lawyers, accountants and other personnel with specialized qualifications, excluding managers.

(2)

Includes 3, 3, 14 and 13 temporary and part-time employees in 2012, 2013, 2014 and 2015 respectively.

The following table sets forth, as of the dates indicated, a breakdown of the number of the Group’s employees by geographic location:

	As of December 31,
Function	Y2012		Y2013		Y2014		Y2015
Shanghai		6,037		6,626		6,896		7,533
Beijing		2,491		2,272		2,518		3,242
Tianjin		1,354		1,454		1,511		1,630
Chengdu		11		11		10		10
Shenzhen		23		43		405		843
Wuhan		17		—		—		—
Jiangyin		—		—		—		174
United States		18		20		25		20
Europe		8		6		6		7
Japan		—		1		2		2
Taiwan Office		11		10		9		9
Hong Kong		4		3		3		3
Total⁽²⁾		9,974		10,446		11,385		13,473

SMIC 2015 Annual Report

The Group’s success depends to a significant extent upon, among other factors, the Group’s ability to attract, retain and motivate qualified personnel.

As of December 31, 2015, 2,229 and 201 of the Group’s employees held master’s degrees and doctorate degrees, respectively. As of the same date, 4,047 of the Group’s employees possessed a bachelor’s degree.

The Group’s Employees received an average of 28 hours of internal and external training per person in 2015.

To support the Group’s business growth and develop more talents, SMIC partners with Peking University, Fudan University, Tianjin University, Shanghai University, Beihang University, Beijing Institute of Petrochemical Technology University to offer junior college, undergraduate and graduate programs to technical employees. Employees who are eligible will also receive tuition subsidies. SMIC provides a good learning environment to employees.

As a supplement to their salaries, the Group’s employees have the opportunity to earn performance bonuses based on the Group’s profitability, business achievements, and individual performance. Additional benefits include participation in the Group’s global equity incentive compensation program, paid leave, social welfare benefits for qualified employees, a global medical insurance plan for overseas employees and optional housing benefits and educational programs for employees with families.

The Group provides occupational health and hygiene management for the welfare of the Group’s employees. This includes occupational physical examination, the monitoring of air quality, illumination, radiation, noise and drinking water. Parts of the Group’s employees are covered by collective bargaining agreements.

Equity-linked agreements

The Company currently has four convertible bonds in issue, namely:

—

an issue of US$200 million zero coupon convertible bonds due 2018;

—

an issue of US$86.8 million zero coupon convertible bonds due 2018;

—

an issue of US95 million zero coupon convertible bonds due 2018;

—

an issue of US$22.2 million zero coupon convertible bonds due 2018.

In addition, the Company has also made various share-based payments during the year ended December 31, 2015, such as pursuant to the Subsidiary Plan.

For further details regarding the convertible bonds of the Company and its share-based payments, please see note 32 and note 38 to the consolidated financial statements on pages 170 to 175 and 178 to 182 of the Annual Report.

Co-Investment in Relation to Proposed Acquisition of STATS ChipPAC

On December 22, 2014, (i) SilTech Shanghai, an indirectly wholly-owned subsidiary of the Company; (ii) Jiangsu Changjiang Electronics Technology Co., Ltd. (”JCET“); and (iii) China Integrated Circuit Industry Investment Fund Co., Ltd., (“China IC Fund”) entered into a co-investment agreement to form an investment consortium in connection with the proposed acquisition of STATS ChipPAC Ltd. (“STATS ChipPAC”), a leading provider of advanced semiconductor packaging and test services in the world and a company incorporated in the Republic of Singapore, shares of which are listed on the Singapore Exchange Securities Trading Limited.

SMIC 2015 Annual Report

REPORT OF THE DIRECTORS

On June 18, 2015, according to the co-investment agreement, the Group invested US$102 million as a capital contribution for 19.6% equity interest in Suzhou Changjiang Electric Xinke Investment Co., Ltd. (“Changjiang Xinke”), a company incorporated in Jiangsu province, China. The transaction was recorded as an investment in associate of the Group.

On June 26, 2015, JCET-SC (Singapore) Pte. Ltd. (“JCET-SC”), a company incorporated in the Republic of Singapore, the subsidiary of Changjiang Xinke, announced a voluntary conditional cash offer (the “Offer”) for all the shares in STATS ChipPAC at SGD0.46577 per share. On August 5, JCET-SC’s financial advisers announced, for and on behalf of JCET-SC, that all conditions to the Offer had been fulfilled and the Offer had become and was declared unconditional in all respects. The unconditional acceptance announcement offer was closed on August 27, 2015 and the acquisition was finished soon afterwards.

Furthermore, JCET granted the Company an option to sell the shares of Changjiang Xinke to JCET at an exercise price equivalent to the Company’s initial investment plus an annual return rate at any time after Stats ChipPAC was acquired.

Joint Venture Agreement in Relation to SMIC Advanced Technology Research & Development (Shanghai) Corporation

On June 23, 2015, the Company, Huawei, Qualcomm Global Trading Pte. Ltd. (“Qualcomm”), and IMEC International (“imec”) jointly issued a press release in relation to the formation of SMIC Advanced Technology Research & Development (Shanghai) Corporation, an equity joint venture company. The joint venture company will focus on R&D towards next generation CMOS logic technology and is designed to build China’s most advanced integrated circuit (IC) development R&D platform. SMIC Advanced Technology R&D (Shanghai) Corporation is majority owned by SMIC, while Huawei, imec, and Qualcomm are minority shareholders. The current focus of the joint venture company will be on developing 14nm logic technology.

Issue of Equity Securities under General Mandate

Issue of 4,700,000,000 New Ordinary Shares

On February 12, 2015, the Company entered into a share purchase agreement (the “Share Purchase Agreement”) with the China Integrated Circuit Industry Investment Fund Co., Ltd., a company established under the laws of the PRC (the “China IC Fund”) whereby (i) the Company has conditionally agreed to allot and issue to the China IC Fund, and the China IC Fund has conditionally agreed to subscribe, through its wholly-owned subsidiary incorporated in Hong Kong, for 4,700,000,000 new Ordinary Shares of par value of US$0.0004 each (the “New Share(s)”) at the subscription price of HK$0.6593 per New Share (the “Subscription Price”). The aggregate nominal value of the New Shares was US$1,880,000. The Subscription Price represented a discount of approximately 7.14% to the closing price of HK$0.710 per Ordinary Share as quoted on The Stock Exchange of Hong Kong Limited (“SEHK”) on February 12, 2015, being the last full trading day immediately before the execution of the Share Purchase Agreement.

On June 8, 2015, the New Shares, representing approximately 11.54% of the issued share capital of the Company as enlarged by the issue of the New Shares, were issued to Xinxin (Hongkong) Capital Co. Ltd. (a wholly-owned subsidiary of the China IC Fund), Limited pursuant to the general mandate granted to the Directors by the shareholders at the annual general meeting of the Company held on June 27, 2014 and ranked pari passu in all respect with the existing Ordinary Shares in issue. The net proceeds were approximately US$399.5 million and were used for capital expenditure, debt repayment and general corporate purposes.

SMIC 2015 Annual Report

The Company considered that the China IC Fund would bring strategic value to the Company and the funds raised in this transaction would improve the working capital position of the Group and enhance its overall liquidity; the transaction therefore would enhance shareholders’ value and is in the interests of the Company and its shareholders as a whole.

Stock Incentive Schemes

2004 Stock Incentive Plans

2004 Stock Option Plan

The Company’s shareholders adopted on February 16, 2004 a 2004 Stock Option Plan which then became effective on March 18, 2004 and further amended it on June 23, 2009. The number of the Ordinary Shares that may be issued pursuant to the Company’s 2004 Stock Option Plan and The Company’s 2004 Employee Stock Purchase Plan shall not, in the aggregate, exceed 2,434,668,733 Ordinary Shares.

In no event may the number of Ordinary Shares that may be issued pursuant to any outstanding stock option granted under this 2004 Stock Option Plan or any of the Company’s other stock option plans or any outstanding purchase right granted under the Company’s 2004 Employee Stock Purchase Plan or any other of the Company’s employee stock purchase plans exceed, in the aggregate, thirty percent (30%) of the issued and outstanding Ordinary Shares in issuance from time to time. Stock options issued under the 2004 Stock Option Plan may be issued in the form of Ordinary Shares or American depositary shares. For purposes of determining the number of the Ordinary Shares available under the 2004 Stock Option Plan, the issuance of an American depositary share is deemed to equal fifty underlying Ordinary Shares. In addition, Ordinary Shares or American depositary shares subject to stock options under the Company’s 2004 Stock Option Plan are again available for grant and issuance under the Company’s 2004 Stock Option Plan to the extent such stock options have lapsed without Ordinary Shares or American depositary shares being issued.

The Company’s 2004 Stock Option Plan authorizes the award of incentive stock options (ISOs) within the meaning of Section 422 of the United States Internal Revenue Code of 1986, as amended (the “Code”), non-qualified stock options and Director options.

Director options are non-qualified options granted to non-employee members of the Board, or non-employee Directors. The terms of Director options may vary among non-employee Directors and the 2004 Stock Option Plan does not impose any requirement to grant Director options subject to uniform terms.

The Company’s 2004 Stock Option Plan is administered by the Company’s compensation committee or by the Board acting in place of the Company’s compensation committee. The compensation committee has the authority to construe and interpret the Company’s 2004 Stock Option Plan, grant stock options and make all other determinations necessary or advisable for the administration of the plan.

The Company’s 2004 Stock Option Plan provides for the grant of options to the Company’s employees, officers or other service providers located in China, the United States or elsewhere, or to a trust established in connection with any employee benefit plan of the Company (including the 2004 Stock Option Plan) for the benefit of those individuals eligible to participate in the 2004 Stock Option Plan; provided that, ISOs may be granted only to the Company’s employees. The total number of Ordinary Shares underlying stock granted pursuant to the 2004 Stock Option Plan or any of The Company’s other stock option plans to, and the total number of Ordinary Shares that may be purchased under one or more purchase rights granted under the Company’s 2004 Employee Stock Purchase Plan or any of the Company’s other employee stock purchase plans by, a participant (including both exercised and outstanding stock options) in any twelve-month period may not exceed at any time one percent (1%) (or 0.1% in the case of an “independent non-executive Director” (as that term is used in the Hong Kong Stock Exchange Listing Rules) of the then issued and outstanding Ordinary Shares subject to such changes from time to time to applicable Hong Kong Stock Exchange Listing Rules.

SMIC 2015 Annual Report

REPORT OF THE DIRECTORS

The exercise price of stock options must be at least equal to the fair market value of the Ordinary Shares on the date of grant.

In general, options granted under the 2004 Stock Option Plan vest over a four-year period. Options may vest based on time or achievement of performance conditions. The Company’s compensation committee may provide for options to be exercised only as they vest or to be immediately exercisable with any Ordinary Shares or American depositary shares issued on exercise being subject to the Company’s right of repurchase that lapses as the shares vest. The maximum term of options granted under the Company’s 2004 Stock Option Plan is ten years, subject to changes under the Hong Kong Stock Exchange Listing Rules, as determined by the compensation committee of the Company. Unless otherwise permitted by the Company’s compensation committee, stock options may be exercised during the lifetime of the optionee only by the optionee or the optionee’s family members or to a trust or partnership established for the benefit of such family members. Options granted under the Company’s 2004 Stock Option Plan may not be transferred in any manner other than by will or by the laws of descent and distribution, or pursuant to a domestic relations order or as determined by the Company’s compensation committee. Options granted under the Company’s 2004 Stock Option Plan generally may be exercised for a period of ninety days after the termination of the optionee’s service to us, except that Director options may be exercised for a period of one hundred and twenty days after the termination of the non-employee Director’s service to us. Options whether or not vested generally terminate immediately upon termination of employment for cause.

The number and kind of the Ordinary Shares or American depositary shares authorized for issuance under the various limits set forth in the 2004 Stock Option Plan, the number of outstanding stock options and the number and kind of shares subject to any outstanding stock options and the exercise price per share, if any, under any outstanding stock option are equitably adjusted (including by payment of cash to a participant) by the compensation committee of the Company in the event of a capitalization issue, rights issue, sub- division or consolidation of shares or reduction of capital in order to preserve, but not increase, the benefits or potential benefits intended to be made available under the 2004 Stock Option Plan.

The Company’s 2004 Stock Option Plan provides that in the event of a change in control, including without limitation a person or entity acquiring beneficial ownership of 35% of the Company’s then-outstanding shares entitled to vote in the election of the Board, the complete dissolution of the Company, consolidation, merger, or similar transaction involving the Company, the sale of all or substantially all of the assets of the Company or the consolidated assets of the Company and its subsidiaries, a substantial change in the composition of the Board or any change in control as defined in the Hong Kong Code on Takeovers and Mergers, the compensation committee of the Company determines how to treat each outstanding stock award. The compensation committee of the Company may:

•

shorten the period during which the stock options are exercisable;

•

accelerate the vesting of the stock options or waive, in whole or in part, any performance conditions to such vesting;

•

arrange for the assumption or replacement of stock options by a successor corporation;

SMIC 2015 Annual Report

•

adjust stock options or their replacements so that such stock options are in respect of the shares of stock, securities or other property (including cash) as may be issuable or payable as a result of such transaction;

•

cancel the stock option prior to the transaction in exchange for a cash payment, which may be reduced by the exercise price payable in connection with the stock option.

In the event of a change in control that results in a complete liquidation or dissolution of the Company, all outstanding stock options immediately terminate.

The Company’s 2004 Stock Option Plan was terminated on November 15, 2013. The stock options granted before such termination remains outstanding and continue to vest and become exercisable in accordance with, and subject to, the terms of the 2004 Stock Option Plan.

Amended and Restated 2004 Equity Incentive Plan

The Company’s shareholders adopted an Amended and Restated 2004 Equity Incentive Plan that became effective on June 3, 2010. The aggregate number of the Ordinary Shares that may be issued pursuant to the Amended and Restated 2004 Equity Incentive Plan may not exceed 1,015,931,725 Ordinary Shares. Awards issued under the Amended and Restated 2004 Equity Incentive Plan may be issued in the form of Ordinary Shares or American depositary shares. For purposes of determining the number of the Ordinary Shares available under the Amended and Restated 2004 Equity Incentive Plan, the issuance of an American depositary share is deemed to equal fifty underlying Ordinary Shares. In addition, the following Ordinary Shares or American depositary shares shall again be available for grant and issuance under the Company’s Amended and Restated 2004 Equity Incentive Plan:

•

Ordinary Shares or American depositary shares tendered or withheld from issuance to settle an award;

•

Ordinary Shares or American depositary shares withheld to satisfy the tax withholding obligations related to any award; and

•

Ordinary Shares or American depositary shares subject to awards granted under our Amended and Restated 2004 Equity Incentive Plan that otherwise terminate or lapse without ordinary shares or American depositary shares being issued.

The Company’s Amended and Restated 2004 Equity Incentive Plan authorizes the award of restricted share awards (RSAs), stock appreciation rights (SARs), restricted share units (RSUs), and other equity-based or equity-related awards based on the value of the Ordinary Shares. Cash payments based on criteria determined by the compensation committee may also be awarded under the Amended and Restated 2004 Equity Incentive Plan.

The Company’s Amended and Restated 2004 Equity Incentive Plan is administered by the Company’s compensation committee or by the Board acting in place of the Company’s compensation committee. The compensation committee of the Company has the authority to construe and interpret the Company’s Amended and Restated 2004 Equity Incentive Plan, grant awards and make all other determinations necessary or advisable for the administration of the plan.

SMIC 2015 Annual Report

REPORT OF THE DIRECTORS

The Company’s Amended and Restated 2004 Equity Incentive Plan provides for the grant of awards to the Company’s employees, officers or other service providers located in China, the United States or elsewhere, or to a trust established in connection with any employee benefit plan of the Company (including the Amended and Restated 2004 Equity Incentive Plan) for the benefit of those individuals eligible to participate in the Amended and Restated 2004 Equity Incentive Plan.

An RSA is an award of the Ordinary Shares or American depositary shares that are granted for no consideration other than the provision of services (or such minimum payment as may be required under applicable law). The price (if any) of an RSA is determined by the compensation committee. Unless otherwise determined by the compensation committee at the time of award, vesting ceases on the date the participant no longer provides services to us and unvested shares are forfeited to or repurchased by us. Performance-based RSAs that vest based on the attainment of one or more performance goals over a period of time that the compensation committee determines may also be awarded under the Amended and Restated 2004 Equity Incentive Plan.

Stock appreciation rights provide for a payment, or payments, in cash, Ordinary Shares or American depositary shares, to the holder based upon the difference between the fair market value of the Ordinary Shares or American depositary shares on the date of exercise and the stated exercise price up to a maximum amount of cash or number of Ordinary Shares or American depositary shares. SARs may vest based on time or achievement of performance conditions. The compensation committee may determine whether SARs may be granted alone or in tandem with a stock option granted under the Company’s 2004 Stock Option Plan or another award.

Restricted share units represent the right to receive the Ordinary Shares or American depositary shares at a specified date in the future, subject to forfeiture of that right because of termination of employment or failure to achieve certain performance conditions. If an RSU has not been forfeited, then on the date specified in the RSU agreement, we deliver to the holder of the restricted share unit the Ordinary Shares (which may be subject to additional restrictions) or American depositary shares, cash or a combination of the Ordinary Shares and cash or the Company’s American depositary shares and cash.

The number and kind of the Ordinary Shares or American depositary shares under the various limits set forth in the Amended and Restated 2004 Equity Incentive Plan, the number of outstanding awards and the number and kind of shares subject to any outstanding award and the purchase price per share, if any, under any outstanding award shall be equitably adjusted (including by payment of cash to a participant) by the compensation committee in the event of a capitalization issue, rights issue, sub-division or consolidation of shares or reduction of capital in order to preserve, but not increase, the benefits or potential benefits intended to be made available under the Amended and Restated 2004 Equity Incentive Plan.

Awards granted under the Company’s Amended and Restated 2004 Equity Incentive Plan may not be transferred in any manner other than by will or by the laws of descent and distribution, or pursuant to a domestic relations order or as determined by the Company’s compensation committee.

The Company’s Amended and Restated 2004 Equity Incentive Plan provides that in the event of a change in control, including without limitation a person or entity acquiring beneficial ownership of 35% of the Company’s then-outstanding shares entitled to vote in the election of the Board, the complete dissolution of the Company, consolidation, merger, or similar transaction involving the Company, the sale of all or substantially all of the assets of the Company or the consolidated assets of the Company and its subsidiaries, a substantial change in the composition of the Board or any change in control as defined in the Hong Kong Code on Takeovers and Mergers, the compensation committee of the Company determines how to treat each outstanding award. The compensation committee may:

SMIC 2015 Annual Report

•

shorten the period during which the awards may be settled;

•

accelerate the vesting of the award or waive, in whole or in part, any performance conditions to such vesting;

•

arrange for the assumption or replacement of an award by a successor corporation;

•

adjust awards or their replacements so that such awards are in respect of the shares of stock, securities or other property (including cash) as may be issuable or payable as a result of such transaction; or

•

cancel the award prior to the transaction in exchange for a cash payment, which may be reduced by the exercise price payable in connection with the award.

In the event of a change in control that results in a complete liquidation or dissolution of the Company, all outstanding awards immediately terminate.

The Company’s Amended and Restated 2004 Equity Incentive Plan was terminated on November 15, 2013. The awards granted before such termination remain outstanding and continue to vest in accordance with, and subject to, the terms of the Amended and Restated 2004 Equity Incentive Plan.

2014 Stock Incentive Plans

2014 Stock Option Plan

The Company adopted a 2014 Stock Option Plan that became effective on November 15, 2013 when the 2014 Stock Option Plan was registered with the PRC State Administration of Foreign Exchange. The number of Ordinary Shares that may be issued pursuant to the 2014 Stock Option Plan and the 2014 Employee Stock Purchase Plan (if adopted) shall not, in the aggregate, exceed 3,207,377,124 Ordinary Shares. In no event may the number of Ordinary Shares that may be issued pursuant to any outstanding stock option granted under this 2014 Stock Option Plan or any of the Company’s other stock option plans or any outstanding purchase right granted under the 2014 Employee Stock Purchase Plan (if adopted) or any other of the Company’s employee stock purchase plans exceed, in the aggregate, thirty percent (30%) of the issued and outstanding Ordinary Shares in issuance from time to time, subject to such changes with respect to such thirty percent (30%) limit that may apply from time to time under the Listing Rules. Stock options issued under the 2014 Stock Option Plan may be issued in the form of Ordinary Shares or American depositary shares. For purposes of determining the number of the Ordinary Shares available under the 2014 Stock Option Plan, the issuance of an American depositary share is deemed to equal fifty underlying Ordinary Shares. In addition, Ordinary Shares or American depositary shares subject to stock options under the 2014 Stock Option Plan will again be available for grant and issuance under the 2014 Stock Option Plan to the extent such stock options have lapsed without Ordinary Shares or American depositary shares being issued.

The 2014 Stock Option Plan authorizes the award of incentive stock options (ISOs) within the meaning of Section 422 of the Code, non-qualified stock options and Director options.

Director options are non-qualified options granted to non-employee members of the Board, or non-employee Directors. The terms of Director options may vary among non-employee Directors and the 2014 Stock Option Plan does not impose any requirement to grant Director options subject to uniform terms.

SMIC 2015 Annual Report

REPORT OF THE DIRECTORS

The 2014 Stock Option Plan is administered by the Company’s compensation committee or by the Board acting in place of the Company’s compensation committee. The compensation committee will have the authority to construe and interpret the 2014 Stock Option Plan, grant stock options and make all other determinations necessary or advisable for the administration of the plan.

The 2014 Stock Option Plan provides for the grant of options to the Company’s employees, officers or other service providers located in China, the United States or elsewhere, or to a trust established in connection with any employee benefit plan of the Company (including the 2014 Stock Option Plan) for the benefit of those individuals eligible to participate in the 2014 Stock Option Plan; provided, that, ISOs may be granted only to the Company’s employees. The total number of Ordinary Shares underlying stock granted pursuant to the 2014 Stock Option Plan or any of the Company’s other stock option plans to, and the total number of Ordinary Shares that may be purchased under one or more purchase rights granted under the 2014 Employee Stock Purchase Plan or any of the Company’s other employee stock purchase plans by, a participant (including both exercised and outstanding stock options) in any twelve-month period may not exceed at any time one percent (1%) (or 0.1% in the case of an “independent non-executive Director” (as that term is used in the Hong Kong Stock Exchange Listing Rules) of the then issued and outstanding Ordinary Shares subject to such changes from time to time to applicable Hong Kong Stock Exchange Listing Rules.

The exercise price of stock options must be at least equal to the fair market value of the Ordinary Shares on the date of grant.

In general, options will vest over a four-year period. Options may vest based on time or achievement of performance conditions. The Company’s compensation committee may provide for options to be exercised only as they vest or to be immediately exercisable with any Ordinary Shares or American depositary shares issued on exercise being subject to the Company’s right of repurchase that lapses as the shares vest. The maximum term of options granted under the 2014 Stock Option Plan is ten years, subject to changes under the Hong Kong Stock Exchange Listing Rules, as determined by the compensation committee. Unless otherwise permitted by the Company’s compensation committee, stock options may be exercised during the lifetime of the optionee only by the optionee or the optionee’s guardian or legal representative. Options granted under the 2014 Stock Option Plan may not be transferred in any manner other than by will or by the laws of descent and distribution, or pursuant to a domestic relations order or as determined by the Company’s compensation committee. Options granted under the 2014 Stock Option Plan generally may be exercised for a period of ninety days after the termination of the optionee’s service to the Company, except that Director options may be exercised for a period of one hundred and twenty days after the termination of the non-employee Director’s service to the Company. Options generally terminate immediately upon termination of employment for cause.

The number and kind of the Ordinary Shares or American depositary shares authorized for issuance under the various limits set forth in the 2014 Stock Option Plan, the number of outstanding stock options and the number and kind of shares subject to any outstanding stock options and the exercise price per share, if any, under any outstanding stock option will be equitably adjusted (including by payment of cash to a participant) by the compensation committee in the event of a capitalization issue, rights issue, sub-division or consolidation of shares or reduction of capital in order to preserve, but not increase, the benefits or potential benefits intended to be made available under the 2014 Stock Option Plan.

The 2014 Stock Option Plan provides that in the event of a change in control, including without limitation a person or entity acquiring beneficial ownership of 35% of the Company’s then-outstanding shares entitled to vote in the election of the Board, the complete dissolution of the company, consolidation, merger, or similar transaction involving the Company, the sale of all or substantially all of the assets of the Company or the consolidated assets of the Company and its subsidiaries, a substantial change in the composition of the Board or any change in control as defined in the Hong Kong Code on Takeovers and Mergers, the compensation committee of the Company will determine how to treat each outstanding stock award. The compensation committee of the Company may:

SMIC 2015 Annual Report

•

shorten the period during which the stock options are exercisable;

•

accelerate the vesting of the stock options or waive, in whole or in part, any performance conditions to such vesting;

•

arrange for the assumption or replacement of stock options by a successor corporation;

•

cancel the stock option prior to the transaction in exchange for a cash payment, which may be reduced by the exercise price payable in connection with the stock option.

In the event of a change in control that results in a complete liquidation or dissolution of the Company, all outstanding stock options will immediately terminate.

The 2014 Stock Option Plan will terminate ten years from the date of registration of the Plan with the PRC State Administration of Foreign Exchange, unless it is terminated earlier by the Board. The Board may amend or terminate the 2014 Stock Option Plan at any time. If the Board amends the 2014 Stock Option Plan, it does not need to ask for shareholders approval of the amendment unless required by applicable law.

2014 Employee Stock Purchase Plan

The Company’s shareholders adopted a 2014 Employee Stock Purchase Plan on June 13, 2013. Purchases are accomplished through participation in discrete offering periods. The Company’s 2014 Employee Stock Purchase Plan is intended to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended. The number of the Company’s Ordinary Shares that may be issued pursuant to the 2014 Employee Stock Purchase Plan and the Company’s 2014 Stock Option Plan shall not, in the aggregate, exceed 3,207,377,124 Ordinary Shares. In no event may the number of Ordinary Shares that may be issued pursuant to any outstanding purchase right granted under this 2014 Employee Stock Purchase Plan or any of the Company’s other employee stock purchase plans or any outstanding stock option granted under the 2014 Stock Option Plan or any of the Company’s other stock option plans exceed, in the aggregate, thirty percent (30%) of the issued and outstanding Ordinary Shares in issuance from time to time, subject to such changes with respect to such thirty percent (30%) limit that may apply from time to time under the Hong Kong Stock Exchange Listing Rules. All shares purchased under the 2014 Employee Stock Purchase Plan shall be issued in the form of American depositary shares. For purposes of determining the number of the Company’s Ordinary Shares available under the 2014 Employee Stock Purchase Plan, the issuance of an American depositary share is deemed to equal fifty underlying Ordinary Shares.

The Company’s compensation committee administers the 2014 Employee Stock Purchase Plan. The Company’s employees generally are eligible to participate in the 2014 Employee Stock Purchase Plan; the Company’s compensation committee may impose additional eligibility conditions upon the employees of one of the Company’s subsidiaries or exclude employees of a subsidiary from participation. Employees who are 5% stockholders, or would become 5% stockholders as a result of their participation in the Company’s 2014 Employee Stock Purchase Plan, are ineligible to participate in the Company’s 2014 Employee Stock Purchase Plan. In addition, to comply with the Hong Kong Stock Exchange Listing Rules, unless otherwise allowed under such rules, no employee can be granted a right to purchase American depositary shares, or a purchase right under the 2014 Employee Stock Purchase Plan if such purchase right would permit the employee to purchase Ordinary Shares or American depositary shares under all employee stock purchase plans or other option plans of the Company granted to the employee in any twelve-month period to exceed one percent (1%) of the then issued and outstanding Ordinary Shares.

SMIC 2015 Annual Report

REPORT OF THE DIRECTORS

Under the 2014 Employee Stock Purchase Plan, eligible employees are able to acquire the Company’s American depositary shares by accumulating funds through payroll deductions. The Company’s compensation committee determines the maximum amount that any employee may contribute to his or her account under the 2014 Employee Stock Purchase Plan during any calendar year. The Company also has the right to amend or terminate the Company’s 2014 Employee Stock Purchase Plan at any time.

New participants are required to enroll in a timely manner as specified by the Company’s compensation committee. Once an employee is enrolled, participation is automatic in subsequent offering periods. The length of each offering period shall be no shorter than six months and no longer than twenty-seven months. The Company’s compensation committee determines the starting and ending dates of each offering period. An employee’s participation automatically ends upon termination of employment for any reason.

No participant has the right to purchase the Company’s American depositary shares in an amount, when aggregated with purchase rights under all the Company’s employee stock purchase plans that are also in effect in the same calendar year(s), that has a fair market value of more than $25,000, determined as of the first day of the applicable purchase period, for each calendar year in which that right is outstanding. On the first business day of each offering period, a participant shall be granted a purchase right, determined by: (i) dividing (A) the product of $25,000 and the number of calendar years during all or part of which the purchase right shall be outstanding by (B) the fair market value of the American depositary shares on the first business day of the offering period, and (ii) subtracting from the quotient (A) the number of American depositary shares the participant purchased during the calendar year in which the first business day of the applicable offering period occurs under the 2014 Employee Stock Purchase Plan or under any of the Company’s other employee stock purchase plans which is intended to qualify under Section 423 of the Code, plus (B) the number of American depositary shares subject on the first business day of the applicable offering period to any outstanding purchase rights granted to the participant under any of the Company’s other employee stock purchase plans which is intended to qualify under Section 423 of the Code. If application of this formula would result in the grant of purchase rights covering, in the aggregate, more than the number of American depositary shares that the compensation committee has made available for the relevant offering period, then the compensation committee shall adjust the number of American depositary shares subject to the purchase right in order that, following such adjustment, the aggregate number of American depositary shares subject to the purchase right shall remain within the applicable limit.

The purchase price for shares of the Company’s American depositary shares purchased under the Company’s 2014 Employee Stock Purchase Plan shall be 85% of the lesser of the fair market value of the Company’s American depositary shares on (i) the first business day of the applicable offering period and (ii) the last day of the applicable offering period.

We have never granted any purchase right under the 2014 Employee Stock Purchase Plan so far.

SMIC 2015 Annual Report

2014 Equity Incentive Plan

The Company adopted a 2014 Equity Incentive Plan that became effective on November 15, 2013 when the 2014 Equity Incentive Plan was registered with the PRC State Administration of Foreign Exchange. The aggregate number of the Ordinary Shares that may be issued pursuant to the 2014 Equity Incentive Plan may not exceed 801,844,281 Ordinary Shares. Awards issued under the 2014 Equity Incentive Plan may be issued in the form of Ordinary Shares or American depositary shares. For purposes of determining the number of the Ordinary Shares available under the 2014 Equity Incentive Plan, the issuance of an American depositary share is deemed to equal fifty underlying Ordinary Shares. In addition, the following Ordinary Shares or American depositary shares will again be available for grant and issuance under the 2014 Equity Incentive Plan:

•

Ordinary Shares or American depositary shares subject to stock appreciation rights granted under the 2014 Equity Incentive Plan that cease to be subject to the stock appreciation right for any reason other than exercise of the stock appreciation right;

•

Ordinary Shares or American depositary shares subject to awards granted under the Company’s 2014 Equity Incentive Plan that are subsequently forfeited at the original issue price; including without limitation Ordinary Shares or American depositary shares withheld from issuance to settle an award and Ordinary Shares or American depositary shares withheld to satisfy the tax withholding obligations related to any award; and

•

Ordinary Shares or American depositary shares subject to awards granted under the 2014 Equity Incentive Plan that otherwise terminate or lapse without Ordinary Shares or American depositary shares being issued.

The 2014 Equity Incentive Plan authorizes the award of restricted share awards (RSAs), stock appreciation rights (SARs), restricted share units (RSUs) and other equity-based or equity-related awards based on the value of the Ordinary Shares. Cash payments based on criteria determined by the compensation committee may also be awarded under the 2014 Equity Incentive Plan.

The 2014 Equity Incentive Plan is administered by the Company’s compensation committee or by the Board acting in place of the Company’s compensation committee. The compensation committee of the Company will have the authority to construe and interpret the 2014 Equity Incentive Plan, grant awards and make all other determinations necessary or advisable for the administration of the plan.

The 2014 Equity Incentive Plan provides for the grant of awards to the Company’s employees, officers or other service providers located in China, the United States or elsewhere, or to a trust established in connection with any employee benefit plan of the Company (including the 2014 Equity Incentive Plan) for the benefit of those individuals eligible to participate in the 2014 Equity Incentive Plan.

An RSA is an award of the Ordinary Shares or American depositary shares that are granted for no consideration other than the provision of services (or such minimum payment as may be required under applicable law). The price (if any) of an RSA will be determined by the compensation committee of the Company. Unless otherwise determined by the compensation committee of the Company at the time of award, vesting will cease on the date the participant no longer provides services to the Company and unvested shares will be forfeited to or repurchased by the Company. Performance-based RSAs that vest based on the attainment of one or more performance goals over a period of time that the compensation committee determines may also be awarded under the 2014 Equity Incentive Plan.

SMIC 2015 Annual Report

REPORT OF THE DIRECTORS

Restricted share units represent the right to receive the Ordinary Shares or American depositary shares at a specified date in the future, subject to forfeiture of that right because of termination of employment or failure to achieve certain performance conditions. If an RSU has not been forfeited, then on the date specified in the RSU agreement, the Company will deliver to the holder of the restricted share unit the Ordinary Shares (which may be subject to additional restrictions) or American depositary shares, cash or a combination of the Ordinary Shares and cash or the American depositary shares and cash.

The number and kind of the Ordinary Shares or American depositary shares under the various limits set forth in the 2014 Equity Incentive Plan, the number of outstanding awards and the number and kind of shares subject to any outstanding award and the purchase price per share, if any, under any outstanding award will be equitably adjusted (including by payment of cash to a participant) by the compensation committee of the Company in the event of a capitalization issue, rights issue, sub-division or consolidation of shares or reduction of capital in order to preserve, but not increase, the benefits or potential benefits intended to be made available under the 2014 Equity Incentive Plan.

Awards granted under the 2014 Equity Incentive Plan may not be transferred in any manner other than by will or by the laws of descent and distribution, or pursuant to a domestic relations order or as determined by the compensation committee.

The 2014 Equity Incentive Plan provides that in the event of a change in control, including without limitation a person or entity acquiring beneficial ownership of 35% of the Company’s then-outstanding shares entitled to vote in the election of the Board, the complete dissolution of the Company, consolidation, merger, or similar transaction involving the Company, the sale of all or substantially all of the assets of the Company or the consolidated assets of the Company and its subsidiaries, a substantial change in the composition of the Board or any change in control as defined in the Hong Kong Code on Takeovers and Mergers, the compensation committee will determine how to treat each outstanding award. The compensation committee of the Company may:

•

shorten the period during which the awards may be settled;

•

accelerate the vesting of the award or waive, in whole or in part, any performance conditions to such vesting;

•

arrange for the assumption or replacement of an award by a successor corporation;

•

cancel the award prior to the transaction in exchange for a cash payment, which may be reduced by the exercise price payable in connection with the award.

In the event of a change in control that results in a complete liquidation or dissolution of the Company, all outstanding awards will immediately terminate.

The Board may amend or terminate the 2014 Equity Incentive Plan at any time. If the Board amends the 2014 Equity Incentive Plan, it does not need to ask for the Company’s shareholders’ approval of the amendment unless required by applicable law.

SMIC 2015 Annual Report

Standard Form of Share Option Plan for Subsidiaries

The following is a summary of the principal terms of a standard form of share option plan involving the grant of options over shares in subsidiaries of the Company which adopt such plan to eligible participants such as employees, directors and service providers of the Group (the “Subsidiary Plan”) that was approved by the shareholders at the annual general meeting of the Company held on May 30, 2006.

(a)

Purpose of the Subsidiary Plan

The purposes of the Subsidiary Plan are to attract, retain and motivate employees and directors of and other service providers to the Group, to provide a means of compensating them through the grant of stock options for their contributions to the growth and profits of the Group, and to allow such employees, directors and service providers to participate in such growth and profitability.

(b)

Who may join

The compensation committee of the board of directors of the relevant subsidiary (the “Subsidiary Committee”) may, at its discretion, invite any employee, officer or other service provider of (including, but not limited to, any professional or other adviser of, or consultant or contractor to) the Group whether located in China, the United States or elsewhere to take up options to subscribe for shares (“Subsidiary Shares”) in the relevant subsidiary(ies) which has or have adopted the Subsidiary Plan at a price calculated in accordance with sub-paragraph (e) below. The Subsidiary Committee may also grant stock options to a director who is not an employee of the Company or the relevant subsidiary (“Non- Employee Subsidiary Director”).

(c)

Stock Options

Stock options granted under the Subsidiary Plan (“Subsidiary Stock Options”) shall entitle a participant (“Subsidiary Participant”) of the Subsidiary Plan to purchase a specified number of Subsidiary Shares during a specified period at a price calculated in accordance with sub-paragraph (e) below. Three types of Subsidiary Stock Options may be granted under a Subsidiary Plan, an Incentive Stock Option, a Non- Qualified Stock Option or a Subsidiary Director Option. An Incentive Stock Option is a stock option that falls within the meaning of Section 422 of the Code and may only be granted to employees of the Company and its subsidiaries from time to time. A Non- Qualified Stock Option is a stock option that is not an Incentive Stock Option. A Subsidiary Director Option is a Non-Qualified Stock Option granted to a Non-Employee Subsidiary Director.

The relevant subsidiary shall issue an award document to each Subsidiary Participant of the Subsidiary Plan who is granted a Subsidiary Stock Option. The award document shall set out the terms and provisions of the grant of a Subsidiary Stock Option to a Participant including applicable vesting dates or the attainment of specified performance goals (as determined by the Subsidiary Committee or the Subsidiary Administrator (as defined below), as the case may be) by the Subsidiary Participant. The relevant subsidiary may allow a Subsidiary Participant to exercise his or her Subsidiary Stock Options prior to vesting, provided the Subsidiary Participant agrees to enter into a repurchase agreement in respect of the Subsidiary Stock Option with the relevant subsidiary. The Subsidiary Committee may also (i) accelerate the vesting of a Subsidiary Stock Option, (ii) set the date on which any Subsidiary Stock Option may first become exercisable, or (iii) extend the period during which a Subsidiary Stock Option remains exercisable, except that no Subsidiary Stock Options may be exercised after the tenth anniversary of the date of grant.

The Subsidiary Plan does not provide for any payment upon application or acceptance of an option.

SMIC 2015 Annual Report

REPORT OF THE DIRECTORS

(d)

Administration of the Subsidiary Plan

The Subsidiary Committee shall be responsible for the administration of the Subsidiary Plan. Its responsibilities include granting Subsidiary Stock Options to eligible individuals, determining the number of Subsidiary Shares subject to each Subsidiary Stock Option, and determining the terms and conditions of each Subsidiary Stock Option. The Subsidiary Committee is not obliged to grant Subsidiary Stock Options to Subsidiary Participants in uniform terms.

Accordingly, the terms and conditions which may be imposed may vary between Subsidiary Participants. Any determination by the Subsidiary Committee in relation to the carrying out and administering of the Subsidiary Plan in accordance with its terms shall be final and binding. No member of the Subsidiary Committee shall be liable for any action or determination made in good faith, and the members of the Subsidiary Committee shall be entitled to indemnification and reimbursement in the manner provided in the articles of association, by-laws or other equivalent constitutional document of the relevant subsidiary.

The Subsidiary Committee may delegate some or all of its authority under the Subsidiary Plan to an individual or individuals (each a “Subsidiary Administrator”) who may either be one or more of the members of the Subsidiary Committee or one or more of the officers of the Company or relevant subsidiaries. An individual’s status as a Subsidiary Administrator shall not affect his or her eligibility to participate in the Subsidiary Plan. The Subsidiary Committee shall not delegate its authority to grant Subsidiary Stock Options to executive officers of the Company or its subsidiaries.

(e)

Exercise Price

The exercise price per Subsidiary Share purchasable under a Subsidiary Stock Option shall be fixed by the Subsidiary Committee at the time of grant or by a method specified by the Subsidiary Committee at the time of grant, but, subject always to and in accordance with applicable requirements of the Hong Kong Stock Exchange Listing Rules or permission of the Hong Kong Stock Exchange:

(i)

in the case of an Incentive Stock Option:

(1)

granted to a Ten Percent Holder, the exercise price shall be no less than 110% of the Fair Market Value per Subsidiary Share on the date of grant; and

(2)

granted to any other Subsidiary Participant, the exercise price shall be no less than 100% of the Fair Market Value per Subsidiary Share on the date of grant; and

(ii)

in the case of any Subsidiary Stock Option:

(1)

granted to a Ten Percent Holder who is a resident of the State of California, the exercise price shall be no less than 110% of the Fair Market Value per Subsidiary Share on the date of grant; and

(2)

granted to any other Subsidiary Participant who is a resident of the State of California, the exercise price shall be no less than 85% of the Fair Market Value per Subsidiary Share on the date of grant.

A Ten Percent Holder is any Participant who owns more than 10% of the total combined voting power of all classes of outstanding securities of the relevant subsidiary or any parent or subsidiary (as such terms are defined in and determined in accordance with the Code) of the relevant subsidiary.

SMIC 2015 Annual Report

Fair Market Value shall be determined as follows:

(i)

If the Subsidiary Shares are listed on any established stock exchange or a national market system, including without limitation the NYSE, The Nasdaq Global Market or The Nasdaq Capital Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such Subsidiary Shares (or the closing bid, if no sales were reported) as quoted on such exchange or system on the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(ii)

If the Subsidiary Shares are regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Subsidiary Shares on the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or

(iii)

In the absence of an established market for the Subsidiary Shares, the Fair Market Value thereof shall be determined in good faith by the Subsidiary Committee in accordance with any applicable law, rule or regulation.

(f)

Limit of the Subsidiary Plan

The number of Subsidiary Shares that may be issued under the Subsidiary Plan and all other schemes of the relevant subsidiary involving the grant by such subsidiary of options over or other similar rights to acquire new shares or other new securities of such subsidiary (“Other Schemes”) shall not exceed ten percent of the issued and outstanding Subsidiary Shares of such subsidiary on the date of approval of the Subsidiary Plan by the board of directors of the relevant subsidiary (the “Subsidiary Board”).

The number of Subsidiary Shares which may be issued pursuant to any outstanding Subsidiary Stock Options granted and yet to be exercised under the Subsidiary Plan and all Other Schemes of the relevant subsidiary must not exceed in aggregate 30 percent of the issued and outstanding Subsidiary Shares of the relevant subsidiary in issuance from time to time.

(g)

Individual Limit

The total number of Subsidiary Shares underlying Subsidiary Stock Options or other options granted by the relevant subsidiary to a Subsidiary Participant (including both exercised and outstanding Subsidiary Stock Options) in any twelve-month period may not exceed at any time one percent (1%) (or 0.1 percent in the case of an independent non-executive Director of the Company) of the then issued and outstanding Subsidiary Shares unless otherwise allowed under the Hong Kong Stock Exchange Listing Rules.

(h)

Exercise of Option

A Subsidiary Stock Option shall vest, and be exercised, in accordance with the terms of the Subsidiary Plan, the relevant award document and any rules and procedures established by the Subsidiary Committee for this purpose. However, the term of each Subsidiary Stock Option shall not exceed ten years from the date of grant, provided that any Incentive Stock Option granted to a Ten Percent Holder shall not by its terms be exercisable after the expiration of five (5) years from the date of grant.

SMIC 2015 Annual Report

REPORT OF THE DIRECTORS

(i)

Director Options

Each Non-Employee Subsidiary Director may be granted Subsidiary Stock Options to purchase Subsidiary Shares on the terms set out in the relevant award document.

The directors shall exercise all authority and responsibility with respect to Subsidiary Stock Options granted to directors subject to the requirements of the Hong Kong Stock Exchange Listing Rules.

All Non-Employee Subsidiary Directors’ Subsidiary Stock Options shall only vest provided that the director has remained in service as a director through such vesting date. The unvested portion of a Subsidiary Stock Option granted to a director shall be forfeited in full if the director’s service with the Company or the relevant subsidiary ends for any reason prior to the applicable vesting date.

Following termination of a Non-Employee Subsidiary Director’s service on the Subsidiary Board, such Non-Employee Subsidiary Director (or his or her estate, personal representative or beneficiary, as the case may be) shall be entitled to exercise those of his or her Subsidiary Stock Options which have vested as of the date of such termination within 120 days following such termination.

(j)

Termination or Lapse of Option

A Subsidiary Stock Option shall terminate or lapse automatically upon:

(i)

the expiry of ten years from the date of grant;

(ii)

the termination of a Subsidiary Participant’s employment or service with the relevant subsidiary for a reason set out in sub-paragraph (l) below;

(iii)

the liquidation or dissolution of the relevant subsidiary, in which case all Subsidiary Stock Options outstanding at the time of the liquidation or dissolution shall terminate without further action by any person save as to any contrary directions of the Subsidiary Committee with the prior approval of the Board of Directors of the Company;

(iv)

the sale or other divestiture of a subsidiary, division or operating unit of the Company (where the Subsidiary Participant is employed by such subsidiary, division or operating unit); and

(v)

termination of the service relationship with a service provider (where the Subsidiary Participant is a service provider of the relevant subsidiary).

(k)

Rights are Personal to Subsidiary Participant

A Subsidiary Stock Option is personal to the Subsidiary Participant and shall be exercisable by such Subsidiary Participant or his Permitted Transferee (as defined below) only. A Subsidiary Option shall not be transferred other than by will, by the laws of descent and distribution or pursuant to a domestic relations order. The Subsidiary Committee may also, at its discretion and subject to such terms and conditions as it shall specify, permit the transfer of a Subsidiary Stock Option for no consideration to a Subsidiary Participant’s family members or to a trust or partnership established for the benefit of such family members (collectively “Permitted Transferees”). Any Subsidiary Stock Option transferred to a Permitted Transferee shall be further transferable only by will or the laws of descent and distribution or, for no consideration, to another Permitted Transferee of the Subsidiary Participant.

SMIC 2015 Annual Report

(l)

Termination of Employment or Service

If a Subsidiary Participant’s employment or service with the relevant member(s) of the Group is terminated for the following reasons:

(i)

the failure or refusal of the Subsidiary Participant to substantially perform the duties required of him or her as an employee or officer of, or service provider to, the relevant member(s) of the Group;

(ii)

any material violation by the Subsidiary Participant of any law or regulation applicable to any business of any relevant member(s) of the Group, or the Subsidiary Participant’s conviction of, or a plea of nolo contendere to, a felony, or any perpetration by the Subsidiary Participant of a common law fraud against any relevant member(s) of the Group; or

(iii)

any other misconduct by the Subsidiary Participant that is materially injurious to the financial condition, business or reputation of the Group, then all Subsidiary Stock Options granted to the Subsidiary Participant, whether or not then vested, shall immediately lapse.

The Subsidiary Committee may permit any Incentive Stock Option to convert into a Non-Qualified Stock Option as of a Subsidiary Participant’s termination of employment for purposes of providing such Subsidiary Participant with the benefit of any extended exercise period applicable to Non-Qualified Stock Options when the contract of employment of the holder of Incentive Stock Option terminates.

(m)

Change in Control of the Subsidiary

The Subsidiary Committee must seek the prior approval of the Board of Directors of the Company and may, subject to such prior approval by the Board of Directors of the Company, specify at or after the date of grant of a Subsidiary Stock Option the effect that a Change in Control (as defined in the Subsidiary Plan) will have on such Subsidiary Stock Option. The Subsidiary Committee may also, subject to such prior approval by the Board of Directors of the Company, in contemplation of a Change in Control, accelerate the vesting, exercisability or payment of Subsidiary Stock Options to a date prior to the Change in Control, if the Subsidiary Committee determines that such action is necessary or advisable to allow the participants to realise fully the value of their share options in connection with such Change in Control.

(n)

Change in the Capital Structure of the Subsidiary

In the event of an alteration in the capital structure of the relevant subsidiary (which includes a capitalisation issue, reduction of capital, consolidation, sub-division of Subsidiary Shares, or rights issue to purchase Subsidiary Shares at a price substantially below market value), the Subsidiary Committee may equitably adjust the number and kind of Subsidiary Shares authorised for issuance in order to preserve, the benefits or potential benefits intended to be made available under the Subsidiary Plan. In addition, upon the occurrence of any of the foregoing events, the number of outstanding Subsidiary Stock Options and the number and kind of shares subject to any outstanding Subsidiary Stock Option and the purchase price per share under any outstanding Subsidiary Stock Option shall be equitably adjusted so as to preserve the benefits or potential benefits intended to be made available to Subsidiary Participants.

SMIC 2015 Annual Report

REPORT OF THE DIRECTORS

(o)

Period of the Subsidiary Plan

The form of the Subsidiary Plan shall be approved by the shareholders of the Company and of the relevant subsidiary respectively, and shall become effective upon its approval by the Subsidiary Board in accordance with the terms thereof. Each Subsidiary Plan shall remain in force for a period of ten years commencing on the date of Subsidiary Board approval of the relevant Subsidiary Plan.

(p)

Amendments and Termination

The Subsidiary Plan may be changed, altered, amended in whole or in part, suspended and terminated by the Subsidiary Board, subject to such prior approval by the Board of Directors of the Company, at any time provided alterations or amendments of a material nature or any change to the terms of the Subsidiary Stock Options granted, or any change to the authority of the Subsidiary Board or the Subsidiary Committee in relation to any alteration to the terms of the Subsidiary Plan, must be approved by the shareholders of the Company, unless such change, alteration or amendment takes effect automatically under the terms of the Subsidiary Plan. For the avoidance of doubt, any change, alteration or amendment pursuant to the exercise of any authority granted under a Subsidiary Plan shall be deemed to take effect automatically under the terms of the relevant Subsidiary Plan. Any change, alteration or amendment must be in accordance with the requirements of the Hong Kong Stock Exchange Listing Rules or permitted by the Hong Kong Stock Exchange.

The Subsidiary Board may, subject to prior approval by the Board of Directors of the Company, at any time and from time to time make such changes, alterations or amendments to the Subsidiary Plan as may be necessary or desirable, including (without limitation) changes, alterations or amendments:

(i)

relating to local legal, regulatory and/or taxation requirements and/or implications applicable to the relevant subsidiary and/or Eligible Participants; and/or

(ii)

for the purposes of clarification, improvement or facilitation of the interpretation, and/or application of the terms of the Subsidiary Plan and/or for the purposes of improving or facilitating the administration of the Subsidiary Plan, and other changes, alterations or amendments of a similar nature.

If the Subsidiary Plan is terminated early by the Subsidiary Board, subject to prior approval by the Board of Directors of the Company, no further Subsidiary Stock Options may be offered but unless otherwise stated in the Subsidiary Plan. Subsidiary Stock Options granted before such termination shall continue to be valid and exercisable in accordance with the Subsidiary Plan.

SMIC 2015 Annual Report

(q)

Voting and Dividend Rights

No voting rights shall be exercisable and no dividends shall be payable in relation to Subsidiary Stock Options that have not been exercised.

(r)

Cancellation of Subsidiary Stock Options

If the relevant subsidiary is or becomes a public company (within the meaning of the Hong Kong Code on Takeovers and Mergers), then in the case of a Change in Control of the relevant subsidiary, Subsidiary Stock Options granted but not exercised may not be cancelled unless an offer or proposal in respect of the Subsidiary Stock Options has, where applicable, been made pursuant to Rule 13 of The Hong Kong Code on Takeovers and Mergers and the Hong Kong Securities and Futures Commission has consented to such cancellation.

(s)

Ranking of Subsidiary Shares

The Subsidiary Shares to be allotted upon the exercise of a Subsidiary Stock Option will be subject to the then effective articles of association (or equivalent constitutional document) of the relevant subsidiary and will rank pari passu with the Subsidiary Shares in issue on the date of such allotment.

The Subsidiary Plans will be administered by the relevant Subsidiary Committees and no other trustee is expected to be appointed in respect of any Subsidiary Plan.

As of December 31, 2015, SJ Semiconductor Corporation, which is a majority-owned subsidiary of the Company, has adopted the Subsidiary Plan.

SMIC 2015 Annual Report

REPORT OF THE DIRECTORS

Outstanding Share Options

Details of the movements in the Company’s share options during the year ended December 31, 2015 are as follows:

2004 Stock Option Plan

Name/Eligible Employees	Date Granted	Period during which Rights Exercisable	No. of Options Granted		Exercise Price Per Share		Options Outstanding as of 12/31/14		Additional Options Granted During Period		Options Lapsed During Period		Options Lapsed Due to Repurchase of Ordinary Shares During Period*		Options Exercised During Period		Options Cancelled During Period		Options Outstanding as of 12/31/15		Weighted Average Closing Price of Shares immediately before Dates on which Options were Exercised		Weighted Average Closing Price of Shares immediately before Dates on which Options were Granted
					(USD)																(USD)		(USD)
Employees	05/11/2005	5/11/2005–5/10/2015		94,581,300	$	0.20		22,004,216		—		22,004,216		—		—		—		—	$	—	$	0.20
Employees	08/11/2005	8/11/2005–8/10/2015		32,279,500	$	0.22		5,214,500		—		5,214,500		—		—		—		—	$	—	$	0.22
Employees	11/11/2005	11/11/2005–11/10/2015		149,642,000	$	0.15		18,090,000		—		18,090,000		—		—		—		—	$	—	$	0.15
Employees	02/20/2006	2/20/2006–2/19/2016		62,756,470	$	0.15		16,717,078		—		586,432		—		—		—		16,130,646	$	—	$	0.15
Employees	05/12/2006	5/12/2006–5/11/2016		22,216,090	$	0.15		1,683,000		—		118,000		—		—		—		1,565,000	$	—	$	0.15
Employees	09/29/2006	9/29/2006–9/28/2016		40,394,000	$	0.13		10,352,000		—		316,000		—		—		—		10,036,000	$	—	$	0.13
Lip-Bu Tan	09/29/2006	9/29/2006–9/28/2016		500,000	$	0.13		500,000		—		—		—		—		—		500,000	$	—	$	0.13
Others	11/10/2006	11/10/2006–11/09/2016		2,450,000	$	0.13		150,000		—		—		—		—		—		150,000	$	—	$	0.13
Employees	11/10/2006	11/10/2006–11/09/2016		33,271,000	$	0.11		6,343,000		—		210,000		—		48,000		—		6,085,000	$	0.12	$	0.11
Employees	05/16/2007	5/16/2007–5/15/2017		122,828,000	$	0.15		34,694,000		—		3,217,000		—		—		—		31,477,000	$	—	$	0.15
Others	05/16/2007	5/16/2007–5/15/2017		5,421,000	$	0.15		300,000		—		—		—		—		—		300,000	$	—	$	0.15
Employees	12/28/2007	12/28/2007–12/27/2017		89,839,000	$	0.10		17,554,800		—		2,350,000		—		3,462,800		—		11,742,000	$	0.11	$	0.10
Employees	02/12/2008	2/12/2008–2/11/2018		126,941,000	$	0.08		26,324,300		—		532,000		—		4,426,500		—		21,365,800	$	0.11	$	0.08
Others	02/12/2008	2/12/2008–2/11/2018		600,000	$	0.08		300,000		—		—		—		—		—		300,000	$	—	$	0.08
Employees	11/18/2008	11/18/2008–11/17/2018		117,224,090	$	0.02		14,323,830		—		136,000		—		2,099,000		—		12,088,830	$	0.11	$	0.02
Employees	02/17/2009	2/17/2009–2/16/2019		131,943,000	$	0.03		21,727,000		—		350,000		—		4,696,000		—		16,681,000	$	0.11	$	0.03
Lip-Bu Tan	02/17/2009	2/17/2009–2/16/2019		1,000,000	$	0.03		1,000,000		—		—		—		—		—		1,000,000	$	—	$	0.03
Others	02/17/2009	2/17/2009–2/16/2019		400,000	$	0.03		50,000		—		—		—		—		—		50,000	$	—	$	0.03
Employees	05/11/2009	5/11/2009–5/10/2019		24,102,002	$	0.04		3,559,000		—		—		—		597,000		—		2,962,000	$	0.12	$	0.04
Lip Bu Tan	02/23/2010	2/23/2010–2/22/2020		3,134,877	$	0.10		3,134,877		—		—		—		—		—		3,134,877	$	—	$	0.10
Employees	02/23/2010	2/23/2010–2/22/2020		337,089,466	$	0.10		130,730,587		—		2,584,684		—		14,787,277		—		113,358,626	$	0.11	$	0.10
Yonggang Gao	05/24/2010	5/24/2010–5/23/2020		3,145,319	$	0.08		3,145,319		—		—		—		—		—		3,145,319	$	—	$	0.08
Shanzhi Chen	05/24/2010	5/24/2010–5/23/2020		3,145,319	$	0.08		3,145,319		—		—		—		—		—		3,145,319	$	—	$	0.08
Employees	05/24/2010	5/24/2010–5/23/2020		18,251,614	$	0.08		1,770,000		—		—		—		40,000		—		1,730,000	$	0.12	$	0.08
Employees	09/08/2010	9/8/2010–9/7/2020		46,217,577	$	0.07		8,409,359		—		66,000		—		1,149,000		—		7,194,359	$	0.11	$	0.07
Employees	11/12/2010	11/12/2010–11/11/2020		39,724,569	$	0.08		18,289,176		—		68,500		—		1,762,500		—		16,458,176	$	0.11	$	0.08
Employees	05/31/2011	5/31/2011–5/30/2021		148,313,801	$	0.08		81,207,419		—		516,236		—		16,592,794		—		64,098,389	$	0.11	$	0.08
Wen Yi Zhang	09/08/2011	9/8/2011–9/7/2021		21,746,883	$	0.06		21,746,883		—		—		—		15,000,000		—		6,746,883	$	0.11	$	0.06
Tzu Yin Chiu	09/08/2011	9/8/2011–9/7/2021		86,987,535	$	0.06		86,987,535		—		—		—		—		—		86,987,535	$	—	$	0.06
Employees	09/08/2011	9/8/2011–9/7/2021		42,809,083	$	0.06		16,189,063		—		337,748		—		5,616,087		—		10,235,228	$	0.11	$	0.06
Frank Meng	11/17/2011	11/17/2011–11/16/2021		4,471,244	$	0.05		4,471,244		—		1,117,811		—		3,353,433		—		—	$	0.10	$	0.05
Employees	11/17/2011	11/17/2011–11/16/2021		16,143,147	$	0.05		9,414,126		—		644,294		—		3,530,813		—		5,239,019	$	0.10	$	0.05
Employees	05/22/2012	5/22/2012–5/21/2022		252,572,706	$	0.04		162,488,180		—		2,219,756		—		27,251,939		—		133,016,485	$	0.11	$	0.04
Senior Management	05/22/2012	5/22/2012–5/21/2022		5,480,000	$	0.04		5,480,000		—		216,667		—		433,333		—		4,830,000	$	0.10	$	0.04
Employees	09/12/2012	9/12/2012–9/11/2022		12,071,250	$	0.04		5,875,533		—		459,792		—		1,650,874		—		3,764,867	$	0.11	$	0.04
Senior Management	09/12/2012	9/12/2012–9/11/2022		3,500,000	$	0.04		3,500,000		—		—		—		—		—		3,500,000	$	—	$	0.04
Employees	11/15/2012	11/15/2012–11/14/2022		18,461,000	$	0.05		10,879,752		—		1,819,042		—		2,278,666		—		6,782,044	$	0.11	$	0.05
Employees	05/07/2013	5/7/2013–5/6/2023		24,367,201	$	0.08		17,717,662		—		890,221		—		1,415,591		—		15,411,850	$	0.11	$	0.08
Employees	06/11/2013	6/11/2013–6/10/2023		102,810,000	$	0.08		90,491,040		—		5,922,180		—		8,964,623		—		75,604,237	$	0.11	$	0.08
Senior Management	06/11/2013	6/11/2013–6/10/2023		74,755,756	$	0.08		74,755,756		—		2,549,587		—		5,011,069		—		67,195,100	$	0.10	$	0.08
Yonggang Gao	06/17/2013	6/17/2013–6/16/2023		13,608,249	$	0.08		13,608,249		—		—		—		—		—		13,608,249	$	—	$	0.08
Sean Maloney	06/17/2013	6/17/2013–6/16/2023		4,490,377	$	0.08		4,490,377		—		—		—		—		—		4,490,377	$	—	$	0.08
William Tudor Brown	09/06/2013	9/6/2013–9/5/2023		4,492,297	$	0.07		4,492,297		—		—		—		—		—		4,492,297	$	—	$	0.07
Employees	09/06/2013	9/6/2013–9/5/2023		22,179,070	$	0.07		13,511,558		—		405,125		—		1,665,270		—		11,441,163	$	0.12	$	0.07
Employees	11/04/2013	11/4/2013–11/3/2023		19,500,000	$	0.07		16,210,416		—		2,332,584		—		1,067,874		—		12,809,958	$	0.11	$	0.07
								1,013,028,451		—		75,274,375		—		126,900,443		—		810,853,633

Options to purchase Ordinary Shares issued to new employees and then-existing employees generally vest at a rate pursuant to which 25% of the shares shall vest on the first anniversary of the vesting commencement date, an additional 1/36 of the remaining shares shall vest monthly thereafter over 3 years of the vesting commencement date, respectively.

SMIC 2015 Annual Report

2004 Equity Incentive Plan

Name/Eligible Employees	Date Granted	Period during which Rights Exercisable	No. of RSUs Granted		Exercise Price Per Share		RSUs Outstanding as of 12/31/14		Additional RSUs Granted During Period		RSUs Lapsed During Period		RSUs Lapsed Due to Repurchase of Ordinary Shares During Period*		RSUs Exercised During Period		RSUs Cancelled During Period		RSUs Outstanding as of 12/31/15		Weighted Average Closing Price of Shares immediately before Dates on which Restricted Share Units were Vested		Weighted Average Closing Price of Shares immediately before Dates on which Restricted Share Units were Granted
					(USD)																(USD)		(USD)
Employees	02/23/2010	2/23/2010–2/22/2020		139,933,819	$	0.00		161,828		—		—		—		161,828		—		—	$	0.08	$	0.10
Employees	05/31/2011	5/31/2011–5/30/2021		21,212,530	$	0.00		3,430,545		—		—		—		3,430,545		—		—	$	0.09	$	0.08
Wen Yi Zhang	09/08/2011	9/8/2011–9/7/2021		9,320,093	$	0.00		4,320,093		—		—		—		4,320,093		—		—	$	0.10	$	0.06
Tzu Yin Chiu	09/08/2011	9/8/2011–9/7/2021		37,280,372	$	0.00		18,640,186		—		—		—		18,640,186		—		—	$	0.09	$	0.06
Employees	05/22/2012	5/22/2012–5/21/2022		60,750,000	$	0.00		26,445,000		—		652,500		—		12,967,500		—		12,825,000	$	0.11	$	0.04
Senior Management	05/22/2012	5/22/2012–5/21/2022		1,920,000	$	0.00		960,000		—		75,000		—		480,000		—		405,000	$	0.11	$	0.04
Senior Management	09/12/2012	9/12/2012–9/11/2022		2,500,000	$	0.00		1,250,000		—		—		—		625,000		—		625,000	$	0.09	$	0.04
Employees	06/11/2013	6/11/2013–6/10/2023		133,510,000	$	0.00		92,392,500		—		3,432,500		—		30,465,000		—		58,495,000	$	0.09	$	0.08
Senior Management	06/11/2013	6/11/2013–6/10/2023		17,826,161	$	0.00		13,369,623		—		1,175,728		—		4,456,541		—		7,737,354	$	0.09	$	0.08
								160,969,775		—		5,335,728		—		75,546,693		—		80,087,354

Awards of the RSUs issued to new employees and existing employees generally vest at a rate of 25% upon the first, second, third, and fourth anniversaries of the vesting commencement date, respectively.

2014 Stock Option Plan

Name/Eligible Employees	Date Granted	Period during which Rights Exercisable	No. of Options Granted		Exercise Price Per Share		Options Outstanding as of 12/31/14		Additional Options Granted During Period		Options Lapsed During Period		Options Lapsed Due to Repurchase of Ordinary Shares During Period*		Options Exercised During Period		Options Cancelled During Period		Options Outstanding as of 12/31/15		Weighted Average Closing Price of Shares immediately before Dates on which Options were Exercised		Weighted Average Closing Price of Shares immediately before Dates on which Options were Granted
					(USD)																(USD)		(USD)
Yonggang Gao	06/12/2014	6/12/2014–6/11/2024		2,886,486	$	0.08		2,886,486		—		—		—		—		—		2,886,486		—	$	0.08
Employees	06/12/2014	6/12/2014–6/11/2024		26,584,250	$	0.08		25,129,917		—		2,042,708		—		1,727,083		—		21,360,126	$	0.11	$	0.08
Carmen I-Hua Chang	11/17/2014	11/17/2014–11/16/2024		4,887,303	$	0.11		4,887,303		—		—		—		—		—		4,887,303		—	$	0.11
Senior Management	11/17/2014	11/17/2014–11/16/2024		11,758,249	$	0.11		11,758,249		—		—		—		—		—		11,758,249		—	$	0.11
Employees	11/17/2014	11/17/2014–11/16/2024		107,881,763	$	0.11		105,936,863		—		9,971,820		—		520,319		—		95,444,724	$	0.12	$	0.11
Employees	02/24/2015	2/24/2015–2/23/2025		12,293,017	$	0.09		—		12,293,017		—		—		160,000		—		12,133,017	$	0.11	$	0.09
Employees	05/20/2015	5/20/2015–5/19/2025		12,235,000	$	0.11		—		12,235,000		640,000		—		—		—		11,595,000		—	$	0.11
Zi Xue Zhou	05/20/2015	5/20/2015–5/19/2025		25,211,633	$	0.11		—		25,211,633		—		—		—		—		25,211,633		—	$	0.11
Employees	09/11/2015	9/11/2015–9/10/2025		1,120,000	$	0.09		—		1,120,000		—		—		—		—		1,120,000		—	$	0.09
Kai Ren	09/11/2015	9/11/2015–9/10/2025		5,705,608	$	0.09		—		5,705,608		—		—		—		—		5,705,608		—	$	0.09
								150,598,818		56,565,258		12,654,528		—		2,407,402		—		192,102,146

SMIC 2015 Annual Report

REPORT OF THE DIRECTORS

2014 Equity Incentive Plan

Name/Eligible Employees	Date Granted	Period during which Rights Exercisable	No. of RSUs Granted		Exercise Price Per Share		RSUs Outstanding as of 12/31/14		Additional RSUs Granted During Period		RSUs Lapsed During Period		RSUs Lapsed Due to Repurchase of Ordinary Shares During Period*		RSUs Exercised During Period		RSUs Cancelled During Period		RSUs Outstanding as of 12/31/15		Weighted Average Closing Price of Shares immediately before Dates on which Restricted Share Units were Vested		Weighted Average Closing Price of Shares immediately before Dates on which Restricted Share Units were Granted
					(USD)																(USD)		(USD)
Yonggang Gao	11/17/2014	11/17/2014–11/16/2024		2,910,836	$	0.00		2,910,836		—		—		—		600,364		—		2,310,472	$	0.08	$	0.11
Senior Management	11/17/2014	11/17/2014–11/16/2024		2,476,456	$	0.00		2,476,456		—		—		—		58,000		—		2,418,456	$	0.09	$	0.11
Employees	11/17/2014	11/17/2014–11/16/2024		109,339,600	$	0.00		107,700,600		—		3,990,955		—		26,771,235		—		76,938,410	$	0.09	$	0.11
Employees	05/20/2015	5/20/2015–5/19/2025		134,008,000	$	0.00		—		134,008,000		4,095,000		—		—		—		129,913,000		—	$	0.11
Zi Xue Zhou	05/20/2015	5/20/2015–5/19/2025		10,804,985	$	0.00		—		10,804,985		—		—		—		—		10,804,985		—	$	0.11
Employees	09/11/2015	9/11/2015–9/10/2025		1,640,000	$	0.00		—		1,640,000		—		—		—		—		1,640,000		—	$	0.09
Employees	11/23/2015	11/23/2015–11/22/2025		400,000	$	0.00		—		400,000		—		—		—		—		400,000		—	$	0.09
								113,087,892		146,852,985		8,085,955		—		27,429,599		—		224,425,323

Share Option Plan for Subsidiaries

Date Granted	Options of the Subsidiary Outstanding as of 12/31/14		No of Options of the Subsidiary Granted		Exercise Price per Share		Options of the Subsidiary Exercised During Period		Options of the Subsidiary Lapsed		Options of the Subsidiary Outstanding as of 12/31/15
					(USD)
1/4/2015		—		4,560,000		0.05		137,500		592,500		3,830,000
5/4/2015		—		1,380,000		0.06		—		50,000		1,330,000
9/15/2015		—		2,390,000		0.08		—		550,000		1,840,000
Total		—		8,330,000				137,500		1,192,500		7,000,000

Options to purchase ordinary shares of subsidiaries issued to new employees and then-existing employees of subsidiaries generally vest at a rate pursuant to which 25% of the shares shall vest on the first anniversary of the vesting commencement date, an additional 1/36 of the remaining shares shall vest monthly thereafter over 3 years of the vesting commencement date, respectively.

SMIC 2015 Annual Report

CORPORATE GOVERNANCE REPORT

The Company is committed to remaining an exemplary corporate citizen and maintaining a high level of corporate governance in order to protect the interests of its shareholders.

Corporate Governance Practices

The HKSE’s Corporate Governance Code (the “CG Code”) as set out in Appendix 14 to the Hong Kong Stock Exchange Listing Rules contains code provisions (the “Code Provisions”) to which an issuer, such as the Company, is expected to comply or advise as to reasons for deviations and recommends best practices which an issuer is encouraged to implement (the “Recommended Practices”). The Company has adopted a set of Corporate Governance Policy (the “CG Policy”) since January 25, 2005 as its own code of corporate governance, which was amended from time to time to comply with the CG Code. The CG Policy, a copy of which can be obtained on the Company’s website at www.smics.com under “Investor Relations > Corporate Governance > Policy and Procedures”, incorporates all of the Code Provisions of the CG Code except for Code Provision E.1.3, which relates to the notice period of general meetings of the Company, and some of the Recommended Practices. In addition, the Company has adopted or put in place various policies, procedures, and practices in compliance with the provisions of the CG Policy.

During the year ended December 31, 2015, the Company was in compliance with all the Code Provisions set out in the CG Code except as explained below:

Code Provision A.6.7 of the CG Code requires that independent non-executive directors and other non- executive directors should attend general meetings and develop a balanced understanding of the views of shareholders. Mr. Sean Maloney, an independent non-executive Director, was not able to attend the AGM held on June 26, 2015 due to his overseas engagements during the meeting time. Mr. Tudor Brown, an independent non-executive Director, was not able to attend the extraordinary general meeting of the Company held on August 11, 2015 due to his other engagements during the meeting time.

Save as the aforesaid and in the opinion of the Directors, the Company had complied with all Code Provisions set out in the CG Code during the year ended December 31, 2015.

Model Code for Securities Transactions by Directors of Listed Issuers

The Company has adopted an Insider Trading Compliance Program (the “Insider Trading Policy”) which encompasses the requirements of the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 to the Hong Kong Stock Exchange Listing Rules (the “Model Code”). The Company, having made specific enquiry of all Directors, confirms that all Directors have complied with the Insider Trading Policy and the Model Code throughout the year ended December 31, 2015. The senior management of the Company as well as all officers, Directors, and employees of the Company and its subsidiaries are also required to comply with the provisions of the Insider Trading Policy.

The Board

The Board has a duty to the Company’s shareholders to direct and oversee the affairs of the Company in order to maximize shareholder value. The Board, acting by itself and through the various committees of the Board, actively participates in and is responsible for the determination of the overall strategy of the Company, the establishment and monitoring of the achievement of corporate goals and objectives, the oversight of the Company’s financial performance and the preparation of the accounts, the establishment of corporate governance practices and policies, and the review of the Company’s system of internal controls. The management of the Company is responsible for the implementation of the overall strategy of the Company and its daily operations and administration. The Board has access to the senior management of the Company to discuss enquiries on management information.

SMIC 2015 Annual Report

CORPORATE GOVERNANCE REPORT

The Board consists of eleven Directors and one alternate Director as of the date of this annual report. Directors may be elected to hold office until the expiration of their respective term upon a resolution passed at a duly convened shareholders’ meeting by holders of a majority of the Company’s issued shares being entitled to vote in person or by proxy at such meeting. The Board is divided into three classes with one class of Directors eligible for re-election at each annual general meeting of the Company. Each class of Directors (including all non-executive Directors) will serve a term of three years.

The following table sets forth the names, classes and categories of the Directors as at the date of this annual report:

Name of Director	Category of Director	Class of Director	Year of Re-election
Zhou Zixue	Chairman, Executive Director	Class I	2017
Tzu-Yin Chiu	Chief Executive Officer, Executive Director	Class I	2017
Gao Yonggang	Chief Financial Officer & Executive Director	Class I	2017
William Tudor Brown	Independent Non-executive Director	Class I	2017
Chen Shanzhi (Alternative Director: Li Yonghua)	Non-executive Director	Class II	2018
Lip-Bu Tan	Independent Non-executive Director	Class II	2018
Carmen I-Hua Chang	Independent Non-executive Director	Class II	2018
Lu Jun*	Non-executive Director	Class II	2016
Zhou Jie	Non-executive Director	Class III	2016
Sean Maloney	Independent Non-executive Director	Class III	2016
Ren Kai	Non-executive Director	Class III	2016

Mr. Lu Jun, whose initial appointment as Director took effect from February 18, 2016, shall retire from office at the 2016 AGM pursuant to Article 126 of the Company’s Articles of Association. Mr. Lu Jun will, being eligible, offer himself for re-election as a Class II Director at the 2016 AGM to hold office until the 2018 AGM.

The Company confirms that each independent non-executive Director (“INED”) has given an annual confirmation of his independence to the Company, and the Company considers each of them independent under Rule 3.13 of the Hong Kong Stock Exchange Listing Rules. There are no relationships among members of the Board, including between the Chairman of the Board and the Chief Executive Officer.

During the year ended December 31, 2015, the roles of the Chairman and the Chief Executive Officer are segregated and such roles are exercised by Dr. Zhou Zixue as the Chairman and Dr. Tzu-Yin Chiu as the Chief Executive Officer, respectively.

SMIC 2015 Annual Report

The Board meets in person at least on a quarterly basis and on such other occasions as may be required to discuss and vote upon significant issues affecting the Company. The Board meeting schedule for the year is planned in the preceding year. The Company Secretary assists the Chairman in preparing the agenda for meetings and the Board in complying with relevant rules and regulations. The relevant papers for the Board meetings are dispatched to Board members in accordance with the CG Code. Directors may include matters for discussion in the agenda if the need arises. Upon the conclusion of the Board meeting, minutes are circulated to all Directors for their comment and review prior to their approval of the minutes at the following or subsequent Board meeting. The minutes record the matters considered by the Board, the decisions reached, and any concerns raised or dissenting views expressed. Transactions in which Directors are considered to have a conflict of interest or material interests are dealt with by a physical board meeting rather than by written resolutions and the interested Directors are not counted in the quorum and abstain from voting on the relevant matters.

The Chairman of the Board holds meetings with the non-executive Directors (including INEDs) without the other executive Directors present at least once a year.

Every Board member is entitled to have access to documents provided at the Board meeting or filed into the Company’s minute-book. Furthermore, the Board has established the procedures pursuant to which a Director, upon reasonable request, may seek independent professional advice at the Company’s expense in order for such Director to exercise such Director’s duties.

During the year ended December 31, 2015, the Board held a total of six (6) meetings. The attendance record is set out below:

	Attendance		Note
Executive Director
Zhang Wenyi (Chairman) (Resigned, effective from March 6, 2015)		2/2		1
Zhou Zixue (Chairman)		4/4		2
Tzu-Yin Chiu		6/6		—
Gao Yonggang		6/6		—
Non-executive Director
Chen Shanzhi		6/6		—
Zhou Jie		6/6		—
Ren Kai		1/2		3
Independent Non-executive Director
William Tudor Brown		6/6		4
Sean Maloney		4/6		5
Frank Meng (Resigned, effective from June 26, 2015)		3/3		6
Lip-Bu Tan		6/6		—
Carmen I-Hua Chang		6/6		—

Notes

(1)

During the year ended December 31, 2015, there were two Board meetings held before the cessation of Mr. Zhang Wenyi as an Executive Director and Chairman of the Board on March 6, 2015.

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CORPORATE GOVERNANCE REPORT

(2)

During the year ended December 31, 2015, there were four Board meetings held after the appointment of Dr. Zhou as an Executive Director and Chairman of the Board on March 6, 2015.

(3)

During the year ended December 31, 2015, there were two Board meetings held after the appointment of Mr. Ren as a Non- executive Director on August 11, 2015.

(4)

Two of these six meetings were attended by proxy.

(5)

Three of these four meetings were attended by proxy.

(6)

During the year ended December 31, 2015, there were three Board meetings held before the cessation of Mr. Frank Meng as an Independent Non-executive Director of the Board on June 26, 2015.

Directors’ Training and Professional Development

All Directors should keep abreast of the responsibilities as a director, and of the conduct and business activities of the Company. The Company is responsible for arranging and funding suitable training for its Directors. Each new Director is provided with training with respect to such Director’s responsibilities under the Hong Kong Stock Exchange Listing Rules and other regulatory requirements and the Company’s corporate governance policies and practices. From time to time, the Company updates the Directors on the latest changes and development of the Hong Kong Stock Exchange Listing Rules, the corporate governance practices and other law and regulations applicable to the Company, organizes in-house seminars on the latest development of regulatory requirements related to director’s duties and responsibilities, and arranges fab visit to provide directors a better understanding of the operation and latest technology and products developments of the Group.

During the year, all Directors have participated in continuous professional development. According to the records provided by the Directors, a summary of training they received for the year ended December 31, 2015 is as follows:

	Attending briefing sessions and/or seminars
Executive Director
Zhou Zixue	√
Tzu-Yin Chiu	√
Gao Yonggang	√
Non-executive Director
Chen Shanzhi	√
Zhou Jie	√
Ren Kai	√
Independent Non-executive Director
William Tudor Brown	√
Sean Maloney	√
Lip-BuTan	√
Carmen I-Hua Chang	√
Alternate Director
Li Yonghua	√

SMIC 2015 Annual Report

Board Diversity Policy

The Board has adopted a Board Diversity Policy since August 8, 2013 to comply with a new Code Provision A.5.6 of the CG Code on board diversity which has become effective from September 1, 2013. The Nomination Committee of the Board will give consideration to that policy when identifying suitably qualified candidates to become members of the Board. Nonetheless, Board appointments will always be made on merit against objective criteria, taking into account factors based on the Company’s business model and specific needs from time to time, as well as the benefits of diversity on the Board, and the Board will review the Board Diversity Policy on a regular basis to ensure its effectiveness.

Procedure regarding the Appointment of Directors

The standard procedure regarding the appointment of Directors, which was adopted by the Board on September 22, 2005, sets forth the process by which individuals are appointed as members of the Board. Under the policy, the Board will consider, among other factors, (i) the skills, qualifications and experience of the nominee, including other directorships held in listed public companies in the last three years and other major appointments; (ii) the nominee’s shareholding in the Company; (iii) the independence of the nominee under United States and/or Hong Kong listing rules; and (iv) the impact with respect to the Company’s status as a “foreign private issuer” under the United States securities laws. The Board will then decide whether to appoint such nominee to fill a casual vacancy on the Board or to add the nominee to the existing Directors and to appoint such nominee into one of the three classes of Directors as stipulated in the Articles of Association of the Company.

Board Committees

The Board has established the following principal committees to assist it in exercising its obligations. These committees consist of a majority of independent non-executive Directors who have been invited to serve as members. The committees are governed by their respective charters setting out clear terms of reference. The updated terms of reference of the committees are available on the websites of the Company and the Hong Kong Stock Exchange.

SMIC 2015 Annual Report

CORPORATE GOVERNANCE REPORT

Compensation Committee

As of December 31, 2015, the members of the Company’s Compensation Committee (“Compensation Committee”) were Mr. Lip-Bu Tan (Chairman of Compensation Committee), Mr. Sean Maloney and Mr. Zhou Jie. None of these members has been an executive officer or employee of the Company or any of its subsidiaries.

The responsibilities of the Compensation Committee include, among other things:

•

approving and overseeing the total compensation package for the Company’s executive officers and any other officer, evaluating the performance of and determining and approving the compensation to be paid to the Company’s Chief Executive Officer and reviewing the results of the Chief Executive Officer’s evaluation of the performance of the Company’s other executive officers;

•

determining the compensation packages of executive Directors and making recommendations to the Board with respect to non-executive Director compensation, including equity-based compensation;

•

administering and periodically reviewing and making recommendations to the Board regarding the long- term incentive compensation or equity plans made available to the Directors, employees and consultants;

•

reviewing and making recommendations to the Board regarding executive compensation philosophy, strategy and principles and reviewing new and existing employment, consulting, retirement and severance agreements proposed for the Company’s executive officers; and

•

ensuring appropriate oversight of the Company’s human resources policies and reviewing strategies established to fulfill the Company’s ethical, legal, and human resources responsibilities.

The Compensation Committee shall have the delegated authority to determine the remuneration packages of individual executive Directors and the Company’s executive officers/senior management, and make recommendations to the Board on the remuneration of non-executive Directors. During the year ended December 31, 2015, in addition to reviewing the remuneration of executive Directors and the members of the Company’s management, the Compensation Committee reviewed:

•

the remuneration policy for employees for the year 2015;

•

the profit-sharing and bonus policies and basis of calculation;

•

the long term compensation strategy, including the granting of stock options and Restricted Share Units pursuant to the terms of the Option Plans;

•

the attrition rate;

•

the proposed compensation packages of Dr. Zhou Zixue, a newly-appointed executive Director and Chairman of the Board, and Mr. Ren Kai, a newly-appointed non-executive Director during the year;

•

the competiveness of compensation packages of all non-executive Directors.

The Compensation Committee reports its work, findings and recommendations to the Board during each quarterly Board meeting.

SMIC 2015 Annual Report

The Compensation Committee meets in person at least on a quarterly basis and on such other occasions as may be required to discuss and vote upon significant issues affecting the compensation policy of the Company. The meeting schedule for a given year is planned in the preceding year. The Company Secretary assists the chairman of the Compensation Committee in preparing the agenda for meetings and assists the Compensation Committee in complying with the relevant rules and regulations. The relevant papers for the Compensation Committee meetings were dispatched to Committee members in accordance with the CG Code. Members of the Compensation Committee may include matters for discussion in the agenda if the need arises. Upon the conclusion of the Compensation Committee meeting, minutes are circulated to the Committee members for their comment and review prior to their approval of the minutes at the following or a subsequent Compensation Committee meeting.

During the year ended December 31, 2015, the Compensation Committee held a total of five (5) meetings. Details of Directors’ attendance at the Compensation Committee meetings are set forth below:

Compensation Committee	Attendance		Note
Independent Non-executive Director
Lip-Bu Tan (Chairman)		5/5	—
Sean Maloney		3/5	1
Non-executive Director
Zhou Jie		5/5	—

Notes:

(1)

Two of these five meetings were attended by proxy.

Nomination Committee

As of December 31, 2015, the members of the Company’s Nomination Committee (“Nomination Committee”) were Dr. Zhou Zixue (Chairman of Nomination Committee), Mr. Lip-Bu Tan and Ms. Carmen I-Hua Chang.

According to the Nomination Committee Charter as amended and adopted by the Board on August 8, 2013, the responsibilities of the Nomination Committee include:

•

reviewing the structure, size and composition (including the skills, knowledge and experience) of the Board at least annually and making recommendations on any proposed changes to the Board to complement the Company’s corporate strategy;

•

monitor the implementation of Board Diversity Policy (including any measurable objectives and the progress in achieving those objectives), and ensure that appropriate disclosures are made regarding board diversity in the Corporate Governance Report set out in the Company’s annual report;

•

identifying individuals suitably qualified to become Board members and making recommendations to the Board on the selection of individuals nominated for directorships;

•

assessing the independence of independent non-executive directors; and

•

making recommendations to the Board on the appointment or re-appointment of Directors and succession planning for Directors, in particular the Chairman of the Board and the Chief Executive Officer.

SMIC 2015 Annual Report

CORPORATE GOVERNANCE REPORT

The Nomination Committee meets at least once a year and on such other occasions as may be required to discuss and vote upon significant issues relating to Board composition. The Company Secretary assists the chairman of the Nomination Committee in preparing the agenda for meetings and assists the Committee in complying with the relevant rules and regulations. The relevant papers for the Nomination Committee meetings were dispatched to Committee members in accordance with the CG Code. Members of the Nomination Committee may include matters for discussion in the agenda if the need arises. Upon the conclusion of the Nomination Committee meeting, minutes are circulated to the Nomination Committee members for their comment and review prior to their approval of the minutes at the following or a subsequent Committee meeting. During the year ended December 31, 2015, the Nomination Committee:

•

reviewed the structure, size and composition (including the skills, knowledge and experience) of the Board;

•

make recommendations to the Board on succession planning for Chairman, independent non-executive director;

•

evaluated the independence of the independent non-executive director; and

•

reviewed the re-election of Directors.

During the year ended December 31, 2015, the Nomination Committee held two (2) meetings. Details of Directors’ attendance at the Nomination Committee meetings are set forth below:

Nomination Committee	Attendance		Note
Executive Director
Zhang Wenyi (Chairman, resigned effective from March 6, 2015)		1/1		1
Zhou Zixue (Chairman, appointed effective from March 6, 2015)		1/1		2
Independent Non-executive Director
Lip-Bu Tan		2/2		—
Carmen I-Hua Chang (Appointed effective from August 7, 2015)		1/1		3

Notes:

(1)

During the year ended December 31, 2015, there was one Nomination Committee meeting held before the cessation of Mr. Zhang Wenyi as the Chairman and a member of the Nomination Committee on March 6, 2015.

(2)

During the year ended December 31, 2015, there was one Nomination Committee meeting held after the appointment of Dr. Zhou Zixue as the Chairman and a member of the Nomination Committee on March 6, 2015.

(3)

During the year ended December 31, 2015, there was one Nomination Committee meeting held after the appointment of Ms. Carmen I-Hua Chang as a member of the Nomination Committee on August 7, 2015.

Audit Committee

As of December 31, 2015, the members of the Company’s Audit Committee (“Audit Committee”) were Mr. Lip-Bu Tan (Chairman of Audit Committee), Mr. Zhou Jie and Mr. William Tudor Brown. None of these members has been an executive officer or employee of the Company or any of its subsidiaries. In addition to acting as the Chairman of the Company’s Audit Committee. Mr. Tan currently also serves on the audit committee of another publicly traded company. In general and in accordance with Section 303A.07(a) of the Listed Company Manual of the New York Stock Exchange, the Board considered and determined that such simultaneous service would not impair the ability of Mr. Tan to effectively serve on the Company’s Audit Committee.

SMIC 2015 Annual Report

The responsibilities of the Audit Committee include, among other things:

•

making recommendations to the Board concerning the appointment, reappointment, retention, evaluation, oversight and termination of the work of the Company’s independent auditor;

•

reviewing the experience, qualifications and performance of the senior members of the independent auditor team;

•

pre-approving all non-audit services to be provided by the Company’s independent auditor;

•

approving the remuneration and terms of engagement of the Company’s independent auditor;

•

reviewing reports from the Company’s independent auditor regarding the independent auditor’s internal quality-control procedures; and any material issues raised in the most recent internal or peer review of such procedures, or in any inquiry, review or investigation by governmental, professional or other regulatory authority, respecting independent audits conducted by the independent auditor, and any steps taken to deal with these issues; and (to assess the independent auditor’s independence) all relationships between the Company and the independent auditor;

•

pre-approving the hiring of any employee or former employee of the Company’s independent auditor who was a member of the audit team during the preceding three years and the hiring of any employee or former employee of the independent auditor for senior positions regardless of whether that person was a member of the Company’s audit team;

•

reviewing the Company’s annual, interim and quarterly financial statements, earnings releases, critical accounting policies and practices used to prepare financial statements, alternative treatments of financial information, the effectiveness of the Company’s disclosure controls and procedures and important trends and developments in financial reporting practices and requirements;

•

reviewing the scope, planning and staffing of internal audits, the organization, responsibilities, plans, results, budget and staffing of the Company’s Internal Audit Department (as defined and discussed below), the quality, adequacy and effectiveness of the Company’s internal controls (including financial, operational and compliance controls) and any significant deficiencies or material weaknesses in the design or operation of internal controls;

•

considering the adequacy of resources, staff qualifications and experience, training programmes and budget of the Company’s accounting and financial reporting function;

•

reviewing the Company’s risk assessment and management policies;

•

reviewing any legal matters that may have a material impact and the adequacy and effectiveness of the Company’s legal and regulatory compliance procedures;

•

establishing procedures for the treatment of complaints received by the Company regarding financial reporting, internal control or possible improprieties in other matters; and

•

obtaining and reviewing reports from management, the Company’s internal auditor and the Company’s independent auditor regarding compliance with applicable legal and regulatory requirements.

SMIC 2015 Annual Report

CORPORATE GOVERNANCE REPORT

During the year ended December 31, 2015, the Audit Committee reviewed:

•

the Company’s budget for 2015;

•

the financial reports for the year ended and as of December 31, 2014 and the six months ended and as of June 30, 2015;

•

the quarterly financial statements, earnings releases and any updates thereto;

•

the report and management letter submitted by the Company’s outside auditors summarizing the findings of and recommendations from their audit of the Company’s financial reports;

•

the findings and recommendations of the Company’s outside auditors regarding the Company’s compliance with the requirements of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”);

•

the effectiveness of the Company’s internal control structure in operations, financial reporting integrity and compliance with applicable laws and regulations;

•

the findings of the Company’s compliance office, which ensures compliance with the CG Code and Insider Trading Policy;

•

the reports of the Company’s ethics hotline;

•

the report on share price performance and shareholders composition;

•

the audit fees for the Company’s independent auditors;

•

the Company’s independent auditors’ engagement letters; and

•

the information security and customer data protection measures implemented by the Company.

The Audit Committee reports its work, findings and recommendations to the Board regularly. In addition, the Audit Committee meets in person with the Company’s external auditor four times a year.

The Audit Committee meets in person at least four times a year on a quarterly basis and on such other occasions as may be required to discuss and vote upon significant issues. The meeting schedule for the year is planned in the preceding year. The Company Secretary assists the chairman of the Audit Committee in preparing the agenda for meetings and assists the Audit Committee in complying with the relevant rules and regulations. The relevant papers for the Audit Committee meetings were dispatched to the Audit Committee in accordance with the CG Code. Members of the Audit Committee may include matters for discussion in the agenda if the need arises. Within a reasonable time after an Audit Committee meeting is held, minutes are circulated to the members of the Audit Committee for their comment and review prior to their approval of the minutes at the following or a subsequent Audit Committee meeting.

SMIC 2015 Annual Report

During the year ended December 31, 2015, the Audit Committee held a total of four (4) meetings. Details of individual members’ attendance at the Audit Committee meetings are set forth below:

Audit Committee	Attendance		Note
Independent Non-executive Director
Lip-Bu Tan (Chairman)		4/4		—
Frank Meng (Resigned, effective from June 26, 2015)		2/2		1
William Tudor Brown (Appointed effective from August 7, 2015)		2/2		2
Non-executive Director
Zhou Jie		4/4		—

Notes:

(1)

During the year ended December 31, 2015, there were two Audit Committee meetings held before the cessation of Mr. Frank Meng as a member of the Audit Committee on June 26, 2015.

(2)

During the year ended December 31, 2015, there were two Audit Committee meetings held after the appointment of Mr. Tudor Brown as a member of the Audit Committee on August 7, 2015.

At each quarterly Audit Committee meeting, the Audit Committee reviews with the Chief Financial Officer and the Company’s independent auditors the financial statements for the financial period and the financial and accounting principles, policies and controls of the Company and its subsidiaries. In particular, the Committee discusses (i) the changes in accounting policies and practices, if any; (ii) the going concern assumptions; (iii) compliance with accounting standards and applicable rules and other legal requirements in relation to financial reporting and (iv) the internal controls of the Company and the accounting and financial reporting systems. Upon the recommendation of the Audit Committee, the Board approves the financial statements.

Corporate Governance Functions

Pursuant to the Board Delegation Policy of the Company which came into effect on September 22, 2005 after approval by the Board and was subsequently updated by the Board on July 28, 2009, September 23, 2011 and March 23, 2012, respectively, the Board (or any of its committees) is responsible for performing the following corporate governance duties:

(a)

to develop and review the Company’s policies and practices on corporate governance;

(b)

to review and monitor the training and continuous professional development of Directors and senior management;

(c)

to review and monitor the Company’s policies and practices on compliance with legal and regulatory requirements;

(d)

to develop, review and monitor the code of conduct and compliance manual (if any) applicable to employees and Directors; and

(e)

to review the Company’s compliance with the code and disclosure in the Corporate Governance Report.

During the year ended December 31, 2015, the aforesaid corporate governance functions had been carried out by the Board pursuant to the Board Delegation Policy.

SMIC 2015 Annual Report

CORPORATE GOVERNANCE REPORT

Auditors’ Remuneration

The following table sets forth the aggregate audit fees, Sarbanes-Oxley compliance testing fee, audit-related fees, tax fees and all other fees we paid or incurred for audit services, audit-related services, tax services and other services rendered by our principal accountants during the fiscal year ended December 31, 2015.

	2015
	US$’000
Audit Fees		1,322
Audit-Related Fees		—
Tax Fees		65
All Other Fees		—
Total		1,387

Internal Controls

In June 2004, the Public Company Accounting Oversight Board, or PCAOB, adopted rules for purposes of implementing Section 404 of the Sarbanes-Oxley Act. Pursuant to the Sarbanes-Oxley Act and the various rules and regulations adopted pursuant thereto or in conjunction therewith, the Company is required to perform, on an annual basis, an evaluation of the Company’s internal control over financial reporting and, beginning in fiscal year 2006, to include management’s assessment of the effectiveness of the Company’s internal control over financial reporting in the Company’s annual report on Form 20-F to be filed with the United States Securities and Exchange Commission.

The Board, through the Audit Committee which receives reports on at least a quarterly basis from the Company’s Internal Audit Department, is responsible to ensure that the Company maintains sound and effective internal controls. The Company’s system of internal control is designed to ensure the achievement of business objectives in operations, financial reporting integrity and compliance with applicable laws and regulations. The system of internal control is designed to manage, rather than completely eliminate, risks impacting the Company’s ability to achieve its business objectives. Accordingly, the system can only provide reasonable but not absolute assurance that the financial statements do not contain a material misstatement or loss.

With the assistance of the Company’s management team, the Board identifies, evaluates, and manages the significant risks faced by the Company. The Company implements the Board’s policies and procedures to mitigate such risks by (i) identifying and assessing the risks the Company faces and (ii) designing, operating and monitoring a system of internal controls to mitigate and control such risks. The Company has established an Internal Audit Department and the Risk Management Committee and other policies and procedures, for such purposes.

The Board, through the Audit Committee, has reviewed the effectiveness of the system of internal control of the Company and its subsidiaries and believes that the system of internal controls in place at December 31, 2015 and at the date of this annual report, was effective. The effectiveness of internal control over financial reporting as of December 31, 2015 has been audited by the independent accounting firm as stated in its report.

SMIC 2015 Annual Report

Internal Audit Department

Internal Audit Department works with and supports the Company’s management team and the Audit Committee to evaluate and contribute to the improvement of risk management, control, and governance systems. On an annual basis, the risk-based audit plan is approved by the Audit Committee. Audit results are reported to the Chairman of the Board, the Chief Executive Officer and the Audit Committee every quarter and throughout the year.

Based on this annual audit plan, the Internal Audit Department audits the practices, procedures, expenditure and internal controls of the various departments in the Company. The scope of the audit includes:

•

reviewing management’s control to ensure the reliability and integrity of financial and operating information and the means used to identify, measure, classify, and report such information;

•

reviewing the systems established or to be established to ensure compliance with policies, plans, procedures, laws, and regulations that could have a significant impact on operations and reports, and determining whether the Company is in compliance;

•

reviewing the means of safeguarding assets and, when appropriate, verifying the existence of assets;

•

appraising the economy and efficiency with which resources are employed;

•

identifying significant risks, including fraud risks, to the ability of the Company to meet its business objectives, communicating them to management and ensuring that management has taken appropriate action to guard against those risks; and

•

evaluating the effectiveness of controls supporting the operations of the Company and providing recommendations as to how those controls could be improved.

In addition, the Internal Audit Department audits areas of concern identified by senior management or conducts reviews and investigations on an ad hoc basis. In conducting these audits, the Internal Audit Department has free and full access to all necessary functions, records, properties and personnel.

After completing an audit, the Internal Audit Department furnishes the Company’s management team with analysis, appraisals, recommendations, counsel, and information concerning the activities reviewed. Appropriate managers of the Company are notified of any deficiencies cited by the Internal Audit Department, which will follow up with the implementation of audit recommendations. In addition, the Internal Audit Department reports their findings directly to the Audit Committee on at least a quarterly basis.

The Internal Audit Department has direct access to the Board through the chairman of the Audit Committee. The Internal Audit Department may upon request meet privately with the Audit Committee without the presence of members of the Company’s management or the independent accounting firm.

Company Secretary

Mr. Gareth Kung was appointed as the Company Secretary of the Company on August 23, 2012. The biographical details of Mr. Kung are set out on page 34 of this annual report.

The Company Secretary reports to the chairman of the Board and/or the chief executive of the Company. All Directors have access to the Company Secretary, who is responsible for assisting the Board in complying with applicable procedures regarding compliance matters. The Company Secretary continuously updates all Directors on the latest development of the Hong Kong Stock Exchange Listing Rules and other applicable regulatory requirements to assist the Company’s compliance with and maintenance of good corporate governance practices.

SMIC 2015 Annual Report

CORPORATE GOVERNANCE REPORT

Pursuant to Rule 3.29 of the Hong Kong Stock Exchange Listing Rules, Mr. Kung had taken no less than 15 hours of relevant professional training for the year ended December 31, 2015.

Shareholder Rights

The Company’s shareholders may put forth proposals at an annual general meeting of the Company’s shareholders by written notice of those proposals being submitted by shareholders, addressed to the Company Secretary at the principal executive offices of the Company. In order for a shareholder to put a proposal before the Company’s shareholders, such shareholder must (a) be a member of record on both the date of giving of the notice by such shareholder and the record date for the determination of members entitled to vote at such meeting and (b) comply with the notice requirements, in each case, as specified in the Articles of Association. The notice requirements include requirements regarding the timing of delivery of the notice as well as the contents of such notice. The detailed procedures for the notice requirements vary depending on whether the proposal constitutes an ordinary resolution or a special resolution or whether the proposal relates to a nomination for election of a Director. The procedures for shareholders to propose a person for election as a Director is available on the Company’s website. The procedures for shareholders to put forward proposals at an annual general meeting are also available upon request from the Company Secretary at the Company’s Hong Kong office as stated below:

Semiconductor Manufacturing International Corporation

Suite 3003, 30th Floor, 9 Queen’s Road Central

Hong Kong

Enquiries may be submitted to the Board by contacting either the Company Secretary at the above address, or directly by questions at an annual general meeting or an extraordinary general meeting. Questions on the procedures for putting forward proposals at an annual general meeting may also be raised to the Company Secretary by the same means.

According to Article 61 of the Company’s Articles of Association, only the Board or the Chairman of the Board may, whenever they or he think fit to proceed, convene a general meeting of the Company. The ability of shareholders to call any general meeting of the Company is specifically denied.

Shareholder Communications

The Company and the Board recognizes the importance of maintaining open and frequent communications with its shareholders. At the annual general meeting of the Company, which was held on June 26, 2015 at the Company’s headquarters in Shanghai, China (“2015 AGM”), Directors, members of the management team, as well as the Company’s outside auditors, were present to answer questions from the shareholders. The 2016 AGM circular will be distributed to all shareholders within the prescribed time period required by the Hong Kong Stock Exchange Listing Rules. The circular and the accompanying materials set forth information relevant to the proposed resolutions. Separate resolutions are proposed at these annual general meetings on each substantially separate issue, including the re-election of individual Directors. The chairman of the meeting reveals how many proxies for and against have been filed in respect to each resolution. The poll results will be published in accordance with the requirements of the Hong Kong Stock Exchange Listing Rules.

SMIC 2015 Annual Report

During the 2015 AGM, the Company’s shareholders:

•

received and considered the audited consolidated financial statements and the reports of the Directors and Auditors of the Company for the year ended December 31, 2014;

•

re-elected Dr. Chen Shanzhi, Mr. Lipbu Tan and Ms Carmen I-Hua Chang as Class II Directors to hold office until 2018 AGM, re-elected Dr. Zhou Zixue as Class I Director to hold office until 2017 AGM and authorized the Board to fix their remuneration;

•

appointed PricewaterhouseCoopers and PricewaterhouseCoopers Zhong Tian LLP as the auditors of the Company for Hong Kong financial reporting and U.S. financial reporting purposes, respectively and authorized the Audit Committee of the Board to fix their remuneration;

•

approved the general mandate to the Board to allot, issue, grant, distribute and otherwise deal with additional shares in the Company, not exceeding 20% of the issued share capital of the Company as at the date of 2015 AGM;

•

approved the general mandate to the Board to repurchase shares of the Company, not exceeding 10% of the issued share capital of the Company as at the date of 2015 AGM; and

•

authorized the Board to exercise the powers to allot, issue, grant, distribute and otherwise deal with the additional authorized but unissued shares repurchased by the Company.

During the year ended December 31, 2015, two (2) general meetings of the Company were held on June 26, 2015 and August 11, 2015. The details of attendance of each Director are as follows:

	Attendance		Note
Executive Director
Zhou Zixue (Chairman)		2/2		—
Tzu-Yin Chiu		2/2		—
Gao Yonggang		2/2		—
Non-executive Director
Chen Shanzhi		2/2		—
Zhou Jie		2/2		—
Ren Kai		0/0		1
Independent Non-executive Director
William Tudor Brown		1/2		—
Sean Maloney		1/2		—
Frank Meng (Resigned, effective from June 26, 2015)		1/2		2
Lip-Bu Tan		2/2		—
Carmen I-Hua Chang		2/2		—

Notes:

(1)

During the year ended December 31, 2015, there was no general meeting held after the appointment of Mr. Ren Kai as Non- executive Director on August 11, 2015.

(2)

During the year ended December 31, 2015, there was one general meeting held before the cessation of Mr. Frank Meng as an Independent Non-executive Director on June 26, 2015.

SMIC 2015 Annual Report

CORPORATE GOVERNANCE REPORT

A key element of effective communication with shareholders and investors is the timely dissemination of information relating to the Company. In addition to announcing annual and interim reports, the Company announces its quarterly financial results approximately one month after the end of each quarter. In connection with such announcements, the Company holds conference calls which are open and available to the Company’s shareholders. During these conference calls, the Chief Executive Officer and senior management report about the latest developments in the Company and answer questions from participants. The members of the Company’s Investor Relations Department and senior members of the Company’s management also hold regular meetings with equity research analysts and other institutional shareholders and investors.

A table setting forth information regarding the beneficial owners as of December 31, 2015 of the Ordinary Shares, who is known by the Company to beneficially own 5% or more of the Company’s outstanding shares, is contained on page 51.

The market capitalization of the Company as of December 31, 2015 was approximately HK$33,238,261,679 (issued share capital of 42,073,748,961 Ordinary Shares at the closing market price of HK$0.79 per Ordinary Share). The public float as of such date was approximately 64.01%.

The 2016 AGM is scheduled to be held at the Company’s headquarters at 18 Zhangjiang Road, PuDong New Area, Shanghai 201203, China on or around June 24, 2016. All shareholders of the Company are invited to attend.

Code of Business Conduct and Ethics

The Board has adopted a code of business conduct and ethics (the “Code of Conduct”) which provides guidance about doing business with integrity and professionalism. The Code of Conduct addresses issues including among others, fraud, conflicts of interest, corporate opportunities, protection of intellectual property, transactions in the Company’s securities, use of the Company’s assets, and relationships with customers and third parties. Any violation of the Code of Conduct is reported to the Company’s Compliance Office, which will subsequently report such violation to the Audit Committee.

US Corporate Governance Practices

Companies listed on the New York Stock Exchange must comply with certain corporate governance standards under Section 303A of the New York Stock Exchange Listed Company Manual. Because the Company’s American Depositary Shares are registered with the United States Securities and Exchange Commission and are listed on the New York Stock Exchange, the Company is also subject to certain U.S. corporate governance requirements, including many of the provisions of the Sarbanes-Oxley Act of 2002. However, because the Company is a “foreign private issuer”, many of the corporate governance rules in the NYSE Listed Company Manual, or the NYSE Standards, do not apply to the Company. The Company is permitted to follow corporate governance practices in accordance with Cayman Islands law and the Hong Kong Stock Exchange Listing Rules in lieu of certain of the corporate governance standards contained in the NYSE Standards.

Set forth below is a brief summary of the significant differences between our corporate governance practices and the corporate governance standards applicable to U.S. domestic companies listed on the NYSE, or U.S. domestic issuers:

SMIC 2015 Annual Report

The NYSE Standards require U.S. domestic issuers to have a nominating/corporate governance committee composed entirely of independent directors. We are not subject to this requirement, and we have not established a nominating/corporate governance committee. Instead, our Board has established a nomination committee to review the structure, size and composition (including the skills, knowledge and experience) of the Board at least annually, make recommendations on any proposed changes to the Board to complement our corporate strategy, identify individuals suitably qualified to become Board members consistent with criteria approved by the Board, assess the independence of independent non-executive Directors, make recommendations to the Board on the selection of individuals nominated for directorships, and make recommendations to the Board on the appointment or re-appointment of Directors and succession planning for Directors, in particular the chairman of the Board and the Chief Executive Officer. However, such nomination committee is not responsible for developing and recommending to the Board a set of corporate governance guidelines applicable to the Company and overseeing the evaluation of the Board and management.

The NYSE Standards provide detailed tests that U.S. domestic issuers must use for determining independence of directors. While we may not specifically apply the NYSE tests, our Board assesses independence in accordance with Hong Kong Stock Exchange Listing Rules, and in the case of audit committee members in accordance with Rule 10A-3 under the Exchange Act, and considers whether there are any relationships or circumstances which are likely to affect such director’s independence from management.

We believe that the composition of our Board and its committees and their respective duties and responsibilities are otherwise generally responsive to the relevant NYSE Standards applicable to U.S. domestic issuers. However, the charters for our audit and compensation committees may not address all aspects of the NYSE Standards. For example, NYSE Standards require compensation committees of U.S. domestic issuers to produce a compensation committee report annually and include such report in their annual proxy statements or annual reports on Form 10-K. We are not subject to this requirement, and we have not addressed this in our compensation committee charter. We disclose the amounts of compensation of our directors on a named basis, remuneration payable to members of the senior management by band, and the five highest individuals on an aggregate basis in our annual report in accordance with the requirements of the Hong Kong Stock Exchange Listing Rules.

The NYSE Standards require that shareholders must be given the opportunity to vote on all equity compensation plans and material revisions to those plans. We comply with the requirements of Cayman Islands law and the Hong Kong Stock Exchange Listing Rules in determining whether shareholder approval is required, and we do not take into consideration the NYSE’s detailed definition of what are considered “material revisions”.

SMIC 2015 Annual Report

SOCIAL RESPONSIBILITY

At SMIC, we truly live our corporate social responsibility (CSR). Near our production sites, we maintain residential campuses with comfortable housing for our employees and their families, first-rate schools for their children, and many convenient amenities. By living near our production sites and company schools, we all have powerful incentives to meet the highest standards for health, safety, environmental protection, business conduct, and regulatory compliance. See our latest CSR Report at www.smics.com/eng/about/csr.php.

Our CSR practices comply with all the laws where we operate and align with the leading international standards for our industry. These practices help us to reduce costs and risks, increase efficiency and integration, and improve employee morale and retention, all while benefiting our local communities and contributing to a cleaner and greener electronics industry supply chain. Visit our CSR Web page at www.smics.com/eng/ about/csr.php. To help us preserve and develop our socially responsible culture, key managers serve on our CSR Committee to oversee our CSR program and reporting.

Our CSR practices have led to our ongoing inclusion in the Hang Seng Corporate Sustainability Index Series for maintaining a “high standard of performance in environmental, social, and corporate governance” areas. See www.hsi.com.hk. In 2015, we received the “Outstanding Corporate Social Responsibility Award” in the 4th Corporate Social Responsibility Award hosted by Mirror Post for its excellence in corporate social responsibility. The selection process involved a number of strict criteria in “shareholder commitment, employee care, environmental protection, customer commitment, community ties and leadership skills” for the companies selected.

SMIC IN THE COMMUNITY

As the Group grows and prospers, so do the communities where we operate. We also serve them as neighbors through the scores of programs and activities held on our own campuses, and through charitable outreach to the larger community. For example, in 2014, the Company together with its employees donated an additional RMB2 million to our “SMIC Liver Transplant Program for Children” to fund liver transplants for impoverished children. To date, the Company together with its employees donated a grand total of RMB6 million towards the program. We also encourage individual efforts by our employees, who support local charities and churches, lecture at local universities, finance rural schools, provide disaster relief, and volunteer for projects throughout the region, focusing on community development and environmental preservation.

Support for Education

Our award-winning company schools provide a highly-affordable education for SMIC and non-SMIC children who live in the communities where we operate. Together with our employees, we also support education in many other ways. For example, we have helped to finance dozens of schools in rural China and contributed accommodations, classrooms, volunteer teachers and staff, and other facilities to empower rural educators with modern teaching skills, methodologies, and know-how. On a continuous basis, we also provide school supplies to children of rural and migrant workers, and volunteer in a number of education programs throughout China.

Support for the Environment

SMIC is a conscientious steward of natural resources. This commitment to the environment is reflected in our environmental protection, safety, and health (“ESH”) policies and international standards certifications. See our ESH Web page at www.smics.com/eng/about/esh.php.

SMIC first earned ISO 14001 certification in 2002. To retain this certification, we must maintain a world-class environmental management system that abides by a rigorous set of international standards. This management system helps us ensure responsible use of energy and materials through recycling, waste reduction, and pollution prevention.

SMIC 2015 Annual Report

For many years, SMIC has held QC 080000 certification, demonstrating our products and processes are free of environmentally hazardous substances, fulfilling customer requirements, the European Union’s Restriction of Hazardous Substances (RoHS) Directive and regulation concerning the Registration, Evaluation,Authorization and Restriction of Chemicals (REACH).

SMIC also established ISO 14064 carbon verification certification at all sites in 2010. We maintain systems to reduce our carbon footprint, including greenhouse gas emissions, and are prepared for increasingly stringent carbon emission controls and regulations.

We achieve environmental protection largely through:

•

Expanding environmental protection projects, such as energy saving, and waste reduction;

•

Promoting green products and supply chains while sorting and recycling waste products;

•

Managing the transfer and safe handling of hazardous waste by qualified vendors;

•

Controlling hazardous substances in our products and processes; and

•

Monitoring environmental impact, including carbon verification, and publicizing the results.

Our ISO and other international standards certificates are available on our Web pages for ESH (link above) and for Quality and Reliability (www.smics.com/eng/about/quality_reliability.php).

EMPLOYEE WELL-BEING

At SMIC, we focus on quality control and product innovation while also preventing environmental pollution, conserving energy and natural resources, protecting our human resources, and preventing property loss. We strive to improve employee well-being, protect the environment, and raise ESH standards for our employees and our surrounding communities. Through continuous improvement, we aim to strengthen our environmental responsibility and operational risk management.

To achieve these goals, SMIC is committed to:

•

Following ESH laws and international standards while fulfilling customer requirements;

•

Making ESH goals a primary responsibility for every SMIC manager;

•

Implementing site ESH management through employee ownership and teamwork;

•

Pursuing a green supply chain and greener manufacturing processes; and

•

Strengthening accident prevention as well as emergency response and recovery capabilities.

For more information, see our latest CSR report at the link above.

Employee Health & Safety

SMIC attained OHSAS 18001 (Occupational Health and Safety Assessment Series) certification in 2003. The OHSAS 18001 standard is a key component of our comprehensive health and safety management system and is based on international safety and health standards. With this certification, we have demonstrated our commitment to safety, risk management, and a healthier environment for our employees. Our safety management philosophy embraces accident prevention, frequent safety audits, safety education, engineering control, personal accountability, and enforcement. This safety management philosophy is implemented through:

SMIC 2015 Annual Report

SOCIAL RESPONSIBILITY

•

Mandatory, recurrent safety training for employees and vendors;

•

Equipment and facilities compliance with domestic and international safety standards, such as those of Semiconductor Equipment and Materials International (SEMI), the National Fire Protection Association (NFPA), and Factory Mutual Research Corporation (FMRC);

•

Maintenance of process standards;

•

An Emergency Response Center to centralize response at each site, staffed 24 hours a day;

•

Continuous monitoring of work area conditions via gas monitoring system and closed-circuit TV;

•

Constant monitoring of airborne chemicals, air quality, radiation, noise, and drinking water;

•

Regular occupational hazards examination by third-party professionals;

•

Regular occupational health examinations;

•

Regular emergency drills and routine emergency training and drills;

•

Training in ergonomics; and

•

An ESH rewards and discipline committee to reward or discipline employees and their managers for major ESH achievements or violations.

SMIC provides occupational health and hygiene management for the welfare of employees. In addition, SMIC provides on-site health monitoring and primary care services such as:

•

A 24-hour, professionally staffed health clinic at each manufacturing site;

•

Medical emergency response and disaster planning;

•

Occupational physical examinations and record keeping;

•

General physical examinations and record keeping; and

•

Injury and illness case management.

For more information, visit our ESH Web page and our latest CSR report at the links above.

Employee Care

At SMIC, we enable better living and continuous self-improvement for our employees. In addition to the housing and schooling described above, our employees and their families enjoy good health insurance as well as access to the professionally staffed health clinics located at our manufacturing sites, residential campuses, and schools. We also care for our employees through on-the-job training, subsidized university education, counseling services, social clubs and activities, and athletic and recreational facilities.

SMIC 2015 Annual Report

INDEPENDENT AUDITOR’S REPORT

To the shareholders of

Semiconductor Manufacturing International Corporation

(incorporated in Cayman Islands with limited liability)

We have audited the consolidated financial statements of Semiconductor Manufacturing International Corporation (the “Company”) and its subsidiaries set out on pages 103 to 196, which comprise the consolidated statement of financial position as at December 31, 2015, and the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Directors’ Responsibility for the Consolidated Financial Statements

The directors of the Company are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards and the disclosure requirements of the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit and to report our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of consolidated financial 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 the directors, as well as evaluating the overall presentation of the consolidated financial statements.

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

SMIC 2015 Annual Report

INDEPENDENT AUDITOR’S REPORT

Opinion

In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Company and its subsidiaries as at December 31, 2015, and of their financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance.

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong, March 30, 2016

SMIC 2015 Annual Report

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

AND OTHER COMPREHENSIVE INCOME

For the year ended December 31, 2015

(In USD’000,except share and per share data)

		Year ended			Year ended			Year ended
	Notes	12/31/15			12/31/14			12/31/13
		USD’000			USD’000			USD’000
Revenue	5		2,236,415			1,969,966			2,068,964
Cost of sales			(1,553,795	)		(1,486,514	)		(1,630,528	)
Gross profit			682,620			483,452			438,436
Research and development expenses, net			(237,157	)		(189,733	)		(145,314	)
Sales and marketing expenses			(41,876	)		(38,252	)		(35,738	)
General and administration expenses			(213,177	)		(139,428	)		(138,167	)
Other operating income (expense), net	7		31,594			14,206			67,870
Profit from operations			222,004			130,245			187,087
Interest income			5,199			14,230			5,888
Finance costs	8		(12,218	)		(20,715	)		(34,392	)
Foreign exchange gains or losses			(26,349	)		(5,993	)		13,726
Other gains or losses, net	9		55,611			18,210			4,010
Share of (loss) profit of investment using equity method			(13,383	)		2,073			2,278
Profit before tax			230,864			138,050			178,597
Income tax expense	10		(8,541	)		(11,789	)		(4,130	)
Profit for the year	11		222,323			126,261			174,467
Other comprehensive income (loss)
Items that may be reclassified subsequently to profit or loss
Exchange differences on translating foreign operations			(8,185	)		(324	)		731
Change in value of available-for-sale financial assets			452			—			—
Others			130			—			—
Total comprehensive income for the year			214,720			125,937			175,198
Profit (loss) for the year attributable to:
Owners of the Company			253,411			152,969			173,177
Non-controlling interests			(31,088	)		(26,708	)		1,290
			222,323			126,261			174,467
Total comprehensive income (loss) for the year attributable to:
Owners of the Company			245,803			152,645			173,908
Non-controlling interests			(31,083	)		(26,708	)		1,290
			214,720			125,937			175,198
Earnings per share
Basic	14		0.01			0.00			0.01
Diluted	14		0.01			0.00			0.01

SMIC 2015 Annual Report

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As of December 31, 2015

(In USD’000,except share and per share data)

	Notes	12/31/15		12/31/14		12/31/13
		USD’000		USD’000		USD’000
Assets
Non-current assets
Property, plant and equipment	17		3,903,818		2,995,086		2,528,834
Land use right			91,030		135,331		136,725
Intangible assets	18		224,279		207,822		215,265
Investments in associates	20		181,331		57,631		29,200
Investments in joint ventures	21		17,646		—		—
Deferred tax assets	10		44,942		44,383		43,890
Derivative financial instrument	22		30,173		—		—
Other assets	23		32,078		30,867		6,237
Total non-current assets			4,525,297		3,471,120		2,960,151
Current assets
Inventories	25		387,326		316,041		286,251
Prepayment and prepaid operating expenses			40,184		40,628		43,945
Trade and other receivables	26		499,846		456,388		379,361
Other financial assets	24		282,880		644,071		240,311
Restricted cash	27		302,416		238,051		147,625
Cash and cash equivalent			1,005,201		603,036		462,483
			2,517,853		2,298,215		1,559,976
Assets classified as held-for-sale	16		72,197		44		3,265
Total current assets			2,590,050		2,298,259		1,563,241
Total assets			7,115,347		5,769,379		4,523,392

SMIC 2015 Annual Report

(In USD’000, except share and per share data)

	Notes	12/31/15			12/31/14			12/31/13
		USD’000			USD’000			USD’000
Equity and liabilities
Capital and reserves
Ordinary shares $0.0004 par value, 50,000,000,000 shares authorized, 42,073,748,961, 35,856,096,167 and 32,112,307,101 shares issued and outstanding at December 31, 2015, 2014 and 2013, respectively	28		16,830			14,342			12,845
Share premium	28		4,903,861			4,376,630			4,089,846
Reserves	29		96,644			98,333			74,940
Accumulated deficit	30		(1,287,479	)		(1,540,890	)		(1,693,859	)
Equity attributable to owners of the Company			3,729,856			2,948,415			2,483,772
Non-controlling interests			460,399			359,307			109,410
Total equity			4,190,255			3,307,722			2,593,182
Non-current liabilities
Borrowings	31		416,036			256,200			600,975
Convertible bonds	32		—			379,394			180,563
Bonds payable	33		493,207			491,579			—
Deferred tax liabilities	10		7,293			69			167
Deferred government funding			175,604			184,174			209,968
Other liabilities	34		65,761			—			—
Total non-current liabilities			1,157,901			1,311,416			991,673
Current liabilities
Trade and other payables	35		1,047,766			794,361			393,890
Borrowings	31		113,068			162,054			390,547
Convertible bonds	32		392,632			—			—
Deferred government funding			79,459			62,609			26,349
Accrued liabilities	36		132,452			131,114			127,593
Other financial liabilities	37		1,459			—			—
Current tax liabilities	10		355			103			158
Total current liabilities			1,767,191			1,150,241			938,537
Total liabilities			2,925,092			2,461,657			1,930,210
Total equity and liabilities			7,115,347			5,769,379			4,523,392

SMIC 2015 Annual Report

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended December 31, 2015

(In USD’000)

												Change in
						Equity-						value of
						settle			Foreign			available-		Convertible							Attributable
						employee			currency			for-sale		bonds							to owner			Non-
	Ordinary		Share			benefits			translation			financial		equity				Accumulated			of the			controlling			Total
	shares		premium			reserve			reserve			assets		reserve		Others		deficit			Company			interest			Equity
	USD’000		USD’000			USD’000			USD’000			USD’000		USD’000		USD’000		USD’000			USD’000			USD’000			USD’000
	(Note 28)		(Note 28)			(Note 29)			(Note 29)			(Note 29)		(Note 29)				(Note 30)
Balance at December 31, 2012		12,800		4,083,588			42,232			3,916			—		—		—		(1,867,036	)		2,275,500			952			2,276,452
Profit for the year		—		—			—			—			—		—		—		173,177			173,177			1,290			174,467
Other comprehensive income for the year		—		—			—			731			—		—		—		—			731			—			731
Total comprehensive income for the year		—		—			—			731			—		—		—		173,177			173,908			1,290			175,198
Exercise of stock options		45		6,641			(3,457	)		—			—		—		—		—			3,229			—			3,229
Share-based compensation		—		—			16,402			—			—		—		—		—			16,402			—			16,402
Capital contribution from non-controlling interest		—		—			—			—			—		—		—		—			—			108,000			108,000
Purchased additional shares of subsidiaries		—		(383	)		—			—			—		—		—		—			(383	)		(178	)		(561	)
Deconsolidation of subsidiaries due to loss of control		—		—			—			(94	)		—		—		—		—			(94	)		(654	)		(748	)
Recognition of equity component of convertible bonds		—		—			—			—			—		15,210		—		—			15,210			—			15,210
Subtotal		45		6,258			12,945			(94	)		—		15,210		—		—			34,364			107,168			141,532
Balance at December 31, 2013		12,845		4,089,846			55,177			4,553			—		15,210		—		(1,693,859	)		2,483,772			109,410			2,593,182
Profit for the year		—		—			—			—			—		—		—		152,969			152,969			(26,708	)		126,261
Other comprehensive income for the year		—		—			—			(324	)		—		—		—		—			(324	)		—			(324	)
Total comprehensive income for the year		—		—			—			(324	)		—		—		—		152,969			152,645			(26,708	)		125,937
Issuance of ordinary shares		1,411		268,362			—			—			—		—		—		—			269,773			—			269,773
Exercise of stock options		86		18,422			(9,025	)		—			—		—		—		—			9,483			—			9,483
Share-based compensation		—		—			18,388			—			—		—		—		—			18,388			—			18,388
Capital contribution from non-controlling interest		—		—			—			—			—		—		—		—			—			276,605			276,605
Recognition of equity component of convertible bonds		—		—			—			—			—		14,354		—		—			14,354			—			14,354
Subtotal		1,497		286,784			9,363			—			—		14,354		—		—			311,998			276,605			588,603
Balance at December 31, 2014		14,342		4,376,630			64,540			4,229			—		29,564		—		(1,540,890	)		2,948,415			359,307			3,307,722
Profit for the year		—		—			—			—			—		—		—		253,411			253,411			(31,088	)		222,323
Other comprehensive income for the year		—		—			—			(8,185	)		447		—		130		—			(7,608	)		5			(7,603	)
Total comprehensive income for the year		—		—			—			(8,185	)		447		—		130		253,411			245,803			(31,083	)		214,720
Issuance of ordinary shares		2,395		506,412			—			—			—		—		—		—			508,807			—			508,807
Exercise of stock options		93		20,819			(12,169	)		—			—		—		—		—			8,743			—			8,743
Share-based compensation		—		—			18,088			—			—		—		—		—			18,088			241			18,329
Capital contribution from non-controlling
interest		—		—			—			—			—		—		—		—			—			132,082			132,082
Deconsolidation of subsidiaries due to loss of control		—		—			—			—			—		—		—		—			—			(148	)		(148	)
Subtotal		2,488		527,231			5,919			—			—		—		—		—			535,638			132,175			667,813
Balance at December 31, 2015		16,830		4,903,861			70,459			(3,956	)		447		29,564		130		(1,287,479	)		3,729,856			460,399			4,190,255

SMIC 2015 Annual Report

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended December 31, 2015

(In USD’000)

	Year ended			Year ended			Year ended
	12/31/15			12/31/14			12/31/13
	USD’000			USD’000			USD’000
Profit for the year		222,323			126,261			174,467
Adjustments for:
Income tax expense		8,541			11,789			4,130
Amortization of intangible assets and land use right		50,541			43,102			44,987
Depreciation of property, plant and equipment		473,008			506,366			501,923
Impairment loss of available-for-sale equipment		—			—			279
Expense recognized in respect of equity-settled share-based payments		18,329			18,388			16,402
Finance costs		12,218			20,715			34,392
Gain on disposal of available-for-sale investment		(387	)		—			—
Gain on disposal of property, plant and equipment		(28,949	)		(13,904	)		(33,996	)
Gain on disposal of subsidiaries		—			—			(28,304	)
Loss (gain) on deconsolidation of subsidiaries		57			208			(5,419	)
Interest income recognized in profit or loss		(5,199	)		(14,230	)		(5,888	)
Bad debt allowance on trade receivables		528			1,616			617
Impairment (reversal) loss recognized on inventories		(13,338	)		29,577			(141	)
Net (gain) loss arising on financial assets at fair value through profit or loss		(52,834	)		(8,649	)		76
Net loss (gain) arising on financial liabilities at fair value through profit or loss		1,459			—			(25	)
Net loss on foreign exchange		15,608			—			—
Reversal of bad debt allowance on trade receivables		(541	)		(59	)		(1,213	)
Share of loss (profit) of investment using equity method		13,383			(2,073	)		(2,278	)
Other non-cash expense		—			(769	)		(413	)
		714,747			718,338			699,596
Operating cash flows before movements in working capital:
Increase in trade and other receivables		(39,902	)		(89,232	)		(33,375	)
(Increase) decrease in inventories		(57,947	)		(59,367	)		8,595
Increase in restricted cash relating to operating activities		(16,675	)		(41,637	)		(5,944	)
(Increase) decrease in prepaid operating expenses		(856	)		1,129			2,129
(Increase) decrease in other assets		(6,476	)		(1,731	)		619
Increase (decrease) in trade and other payables		39,096			79,340			(24,311	)
Increase in deferred government funding		8,280			8,268			85,972
Increase (decrease) in accrued liabilities and other liabilities		49,928			(3,768	)		42,264
Cash generated from operations		690,195			611,340			775,545
Interest paid		(26,174	)		(16,087	)		(43,239	)
Interest received		4,894			14,239			6,770
Income taxes received (paid)		282			(1,390	)		(1,060	)
Net cash generated from operating activities		669,197			608,102			738,016

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CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended December 31, 2015

(In USD’000)

	Year ended			Year ended			Year ended
	12/31/15			12/31/14			12/31/13
	USD’000			USD’000			USD’000
Investing activities
Payments to acquire financial assets		(2,412,259	)		(1,997,624	)		(258,102	)
Proceeds on sale of financial assets		2,782,181			1,602,513			39,245
Payments for property, plant and equipment		(1,230,812	)		(653,134	)		(650,160	)
Net proceeds after netting off land appreciation tax from disposal of property, plant and equipment and assets classified as held for sale		87,890			52,911			61,099
Proceeds from disposal of available-for-sale investment		1,204			—			—
Payments for intangible assets		(29,384	)		(49,285	)		(45,425	)
Payments for land use rights		(9,265	)		(1,123	)		(76,032	)
Payments to acquire long-term investment		(160,777	)		(49,034	)		(562	)
Change in restricted cash relating to investing activities		181,963			(48,411	)		71,933
Net cash inflow from disposition of disposal subsidiaries		—			—			57,743
Net cash outflow from deconsolidation of subsidiaries		(297	)		(936	)		(6,799	)
Others		—			—			(407	)
Net cash used in investing activities		(789,556	)		(1,144,123	)		(807,467	)
Financing activities
Proceeds from borrowings		341,176			376,554			905,127
Repayment of borrowings		(453,730	)		(952,383	)		(1,008,698	)
Proceeds from issuance of new shares		508,807			270,180			—
Proceeds from issuance of convertible bonds		—			203,763			195,800
Proceeds from issuance of corporate bonds		—			492,315			—
Proceeds from exercise of employee stock options		8,743			9,483			3,229
Repayment of promissory notes		—			—			(30,000	)
Proceeds from non-controlling interest-capital contribution		132,082			276,771			108,000
Net cash from financing activities		537,078			676,683			173,458
Net increase in cash and cash equivalent		416,719			140,662			104,007
Cash and cash equivalent at the beginning of the year		603,036			462,483			358,490
Effects of exchange rate changes on the balance of cash held in foreign currencies		(14,554	)		(109	)		(14	)
Cash and cash equivalent at the end of the year		1,005,201			603,036			462,483

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

General information

Semiconductor Manufacturing International Corporation (the “Company” or “SMIC”) was established as an exempt company incorporated under the laws of the Cayman Islands on April 3, 2000. The address of the principal place of business is 18 Zhangjiang Road, Pudong New Area, Shanghai, China, 201203. The registered address is at PO Box 309, Ugland House, Grand Cayman, KY1-1104 Cayman Islands. Semiconductor Manufacturing International Corporation is an investment holding company.

The Company and its subsidiaries (hereinafter collectively referred to as the “Group”) are mainly engaged in the computer-aided design, manufacturing, testing, packaging, and trading of integrated circuits and other semiconductor services, as well as designing and manufacturing semiconductor masks. The principal subsidiaries and their activities are set out in Note 19.

These financial statements are presented in US dollars, unless otherwise stated.

Application of new and revised International Financial Reporting Standards (“IFRSs”)

(a)

New and revised IFRSs that are mandatorily effective for the year ended December 31, 2015

In the current year, the Group has adopted the following amendments to IFRSs that are mandatorily effective for an accounting period that begins on or after January 1, 2015. Such adoption did not have a material effect on the Group’s consolidated financial statements.

102

SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

Application of new and revised International Financial Reporting Standards (“IFRSs”) (continued)

(a)

New and revised IFRSs that are mandatorily effective for the year ended December 31, 2015 (continued)

Annual Improvements to IFRSs 2010–2012 Cycle

The amendments to IAS 24 clarify that the reporting entity is not required to disclose the compensation paid by the management entity (as a related party) to the management entity’s employee or directors, but it is required to disclose the amounts charged to the reporting entity by the management entity for services provided. The amendments are effective for annual periods beginning on or after July 1, 2014.

Annual Improvements to IFRSs 2011–2013 Cycle

The amendments to IFRS 3 clarify that IFRS 3 does not apply to the accounting for the formation of any joint arrangement under IFRS 11 in the financial statements of the joint arrangement. The amendments are prospectively effective for annual periods beginning on or after July 1, 2014 with early adoption permitted.

(b)

New or revised IFRSs in issue but not yet effective

The Group has not applied the following new and revised IFRSs that have been issued but are not yet effective:

New or revised IFRSs		Effective date
IFRS 9 — Financial Instruments		On or after July 1, 2018
IFRS 15 — Revenue from contracts with customers		On or after January 1, 2017
IFRS 16 — Leases		On or after January 1, 2019
Amendments to IFRS 11 — Accounting for acquisitions of interests in joint operations		On or after January 1, 2016
Amendments to IFRS 10, 12 and IAS 28 — Investment entities: applying the consolidation exception		On or after January 1, 2016
Amendments to IAS 1 — Disclosure initiative		On or after January 1, 2016
Amendments to IAS 16 and IAS 38 — Clarification of acceptable methods of depreciation and amortization		On or after January 1, 2016
Amendments to IFRS 10 and IAS 28 — Sale or contribution of assets between an investor and its associate or joint venture		On or after January 1, 2016
Amendments to IAS 27 — Equity method in separate financial statements		On or after January 1, 2016
Amendments to IFRSs — Annual Improvements to IFRSs 2012–2014 Cycle		On or after January 1, 2016

The Group is in the process of evaluating the impact of the new standards or amendments on its consolidated financial statements.

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Application of new and revised International Financial Reporting Standards (“IFRSs”) (continued)

(c)

New Hong Kong Companies Ordinance (Cap. 622)

The requirements of Part 9 “Accounts and Audit” of the new Hong Kong Companies Ordinance (Cap. 622) come into operation during the financial year, as a result, there are changes to presentation and disclosures of certain information in the consolidated financial statements. Major changes include: (i) Parent company balance sheet is no longer required to be presented as a primary statement. It is presented in the notes to the financial statements; (ii) More extensive disclosures are required for the benefits and interests of directors.

Significant accounting policies

Statement of compliance

The consolidated financial statements have been prepared in accordance with all applicable IFRS issued by the IASB. In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited.

Basis of preparation

The consolidated financial statements have been prepared on a historical cost basis, except for certain financial instruments that are measured at fair value as explained in the accounting policies set out below. The consolidated financial statements are presented in US dollars and all values are rounded to the nearest thousand, except when otherwise indicated.

Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of IFRS 2, and measurements that have some similarities to fair value but are not fair value, such as net realizable value in IAS 2 or value in use in IAS 36.

In addition, for financial reporting purposes, fair value measurements are categorized into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

•

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

Significant accounting policies (continued)

Basis of preparation (continued)

•

Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and

•

Level 3 inputs are unobservable inputs for the asset or liability

The principal accounting policies are set out below.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Group and entities (including structured entities) controlled by the Group. Control is achieved when the Group:

•

has power over the investee;

•

is exposed, or has rights, to variable returns from its involvement with the investee; and

•

has the ability to use its power to affect its returns.

The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

When the Group has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Group considers all relevant facts and circumstances in assessing whether or not the Group’s voting rights in an investee are sufficient to give it power, including:

•

the size of the Group’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders;

•

potential voting rights held by the Group, other vote holders or other parties;

•

rights arising from other contractual arrangements; and

•

any additional facts and circumstances that indicate that the Group has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings.

Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Group gains control until the date when the Group ceases to control the subsidiary.

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105

Significant accounting policies (continued)

Basis of consolidation (continued)

Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies.

All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

Changes in the Group’s ownership interests in existing subsidiaries

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

When the Group loses control of a subsidiary, a gain or loss is recognized in profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. All amounts previously recognized in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to another category of equity as specified/permitted by applicable IFRSs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39, when applicable, the cost on initial recognition of an investment in an associate or a joint venture.

Investments in associates

An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

The results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting. Under the equity method, investments in associates are initially recognized in the consolidated statement of financial position at cost and adjusted thereafter to recognize the Group’s share of the profit or loss and other comprehensive income of the associates. When the Group’s share of losses of an associate exceeds the Group’s interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognizing its share of further losses. Additional losses are recognized only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of that associate.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

Significant accounting policies (continued)

Investments in associates (continued)

An investment in an associate is accounted for using the equity method from the date on which the investee becomes an associate. On acquisition of the investment in an associate, any excess of the cost of the investment over the Group’s share of the net fair value of the identifiable assets and liabilities of the investee is recognized as goodwill, which is included within the carrying amount of the investment. Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is recognized immediately in profit or loss in the period in which the investment is acquired.

The requirements of IAS 39 are applied to determine whether it is necessary to recognize any impairment loss with respect to the Group’s investment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. The difference between the recoverable amount and the carrying amount is recognized as impairment loss in the profit or loss. Any reversal of that impairment loss is recognized in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases.

The Group discontinues the use of the equity method from the date when the investment ceases to be an associate, or when the investment is classified as held for sale. When the Group retains an interest in the former associate and the retained interest is a financial asset, the Group measures the retained interest at fair value at that date and the fair value is regarded as its fair value on initial recognition in accordance with IAS 39. The difference between the carrying amount of the associate at the date the equity method was discontinued, and the fair value of any retained interest and any proceeds from disposing of a part interest in the associate is included in the determination of the gain or loss on disposal of the associate. In addition, the Group accounts for all amounts previously recognized in other comprehensive income in relation to that associate on the same basis as would be required if that associate had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognized in other comprehensive income by that associate would be reclassified to profit or loss on the disposal of the related assets or liabilities, the Group reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when the equity method is discontinued.

When the Group reduces its ownership interest in an associate but the Group continues to use the equity method, the Group reclassifies to profit or loss the proportion of the gain or loss that had previously been recognized in other comprehensive income relating to that reduction in ownership interest if that gain or loss would be reclassified to profit or loss on the disposal of the related assets or liabilities.

When a group entity transacts with an associate of the Group, profits and losses resulting from the transactions with the associate are recognized in the Group’s consolidated financial statements only to the extent of interests in the associate that are not related to the Group. Unrealized losses are 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.

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Significant accounting policies (continued)

Investments in joint ventures

The Group has applied IFRS 11 to all joint arrangements. Under IFRS 11 investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations each investor. The Group has assessed the nature of its joint arrangements and determined them to be joint ventures. Joint ventures are accounted for using the equity method.

Under the equity method of accounting, interests in joint ventures are initially recognized at cost and adjusted thereafter to recognize the Group’s share of the post-acquisition profits or losses and movements in other comprehensive income. The Group’s investments in joint ventures include goodwill identified on acquisition. Upon the acquisition of the ownership interest in a joint venture, any difference between the cost of the joint venture and the Group’s share of the net fair value of the joint venture’s identifiable assets and liabilities is accounted for as goodwill. When the Group’s share of losses in a joint venture equals or exceeds its interests in the joint ventures (which includes any long-term interests that, in substance, form part of the Group’s net investment in the joint ventures), the Group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the joint ventures.

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

Non-current assets held-for-sale

Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the non-current asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

Non-current assets (and disposal groups) classified as held-for-sale are measured at the lower of their previous carrying amount and fair value less costs of disposal.

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SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

Significant accounting policies (continued)

Revenue recognition

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

Sale of goods

The Group manufactures semiconductor wafers for its customers based on the customers’ designs and specifications pursuant to manufacturing agreements and/or purchase orders. The Group also sells certain semiconductor standard products to customers.

Revenue from the sale of goods is recognized when the goods are delivered and titles have passed, at which time all the following conditions are satisfied:

•

the Group has transferred to the buyer the significant risks and rewards of ownership of the goods;

•

the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

•

the amount of revenue can be measured reliably;

•

it is probable that the economic benefits associated with the transaction will flow to the Group; and

•

the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Customers have the right of return within one year pursuant to warranty provisions. The Group typically performs tests of its products prior to shipment to identify yield rate per wafer. Occasionally, product tests performed after shipment identify yields below the level agreed with the customer. In those circumstances, the customer arrangement may provide for a reduction to the price paid by the customer or for the costs to return products and to ship replacement products to the customer. The Group estimates the amount of sales returns and the cost of replacement products based on the historical trend of returns and warranty replacements relative to sales as well as a consideration of any current information regarding specific known product defects at customers that may exceed historical trends.

Gain on sale of real estate property

Gain from sales of real estate property is recognized when all the following conditions are satisfied: 1) sales contract executed, 2) full payment collected, or down payment collected and non-cancellable mortgage contract is executed with borrowing institution, 3) and the respective properties have been delivered to the buyers.

Interest income

Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

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Significant accounting policies (continued)

Foreign currencies

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 Untied States dollar (“US dollar”), which is the Company’s functional and the Group’s presentation currency.

In preparing the financial statements of each individual group entity transactions in currencies other than the entity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences on monetary items are recognized in profit or loss in the period in which they arise.

For the purposes of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into United States dollars using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in equity (attributed to non-controlling interests as appropriate).

On the disposal of a foreign operation (i.e. a disposal of the Group’s entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, or a disposal involving loss of significant influence over an associate that includes a foreign operation), all of the exchange differences accumulated in equity in respect of that operation attributable to the owners of the Company are reclassified to profit or loss.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.

All other borrowing costs are recognized in profit or loss in the period in which they are incurred.

110

SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

Significant accounting policies (continued)

Government funding

Government funding is not recognized in profit or loss until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the funding will be received. Government funding relating to costs are deferred and recognized in profit or loss over the period necessary to match them with the costs that they are intended to compensate.

Government funding relating to property, plant and equipment, whose primary condition is that the Group should purchase, construct or otherwise acquire non-current assets, are recognized as deferred income in the consolidated statements of financial position and transferred to profit or loss on a systematic and rational basis over the useful lives of the related assets.

Government funding that is receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future related cost are recognized in profit or loss in the period in which they become receivable.

Retirement benefits

The Group’s local Chinese employees are entitled to a retirement benefit based on their basic salary upon retirement and their length of service in accordance with a state-managed pension plan. The PRC government is responsible for the pension liability to these retired staff. The Group is required to make contributions to the state-managed retirement plan at a main rate equal to 20.0% to 21.0% (the standard in Shenzhen site ranges from 13% to 14% according to Shenzhen government regulation) of the monthly basic salary of current employees. The Group has no further payment obligations once the contributions have been paid. The costs are recognized in profit or loss when incurred.

Share-based payment arrangements

Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in Note 38.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest, with a corresponding increase in equity. At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity-settled employee benefits reserve. When share options are exercised, the amount previously recognized in the reserve will be transferred to share premium.

Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of the goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service.

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Significant accounting policies (continued)

Taxation

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

Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in the consolidated statements of profit or loss and other comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such deferred tax assets and liabilities are not recognized 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 profit nor the accounting profit.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

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

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

Significant accounting policies (continued)

Property, plant and equipment

Property, plant and equipment held for use in the production or supply of goods or services, or for administrative purposes, are stated in the consolidated statement of financial position at their costs, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Such cost includes the cost of replacing part of the property, plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met.

The Group constructs certain of its plant and equipment. In addition to costs under the construction contracts, external costs that are directly related to the construction and acquisition of such plant and equipment are capitalized. Depreciation is recorded at the time assets are ready for their intended use. Such properties are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Subsequent costs are included in the asset’s carrying amount or recognized 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 derecognized. All other repairs and maintenance are charged to the profit or loss during the financial period in which they are incurred.

An item at property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

Depreciation is recognized so as to write off the cost of items of property, plant and equipment other than properties under construction over their estimated useful lives, using the straight-line method. The estimated useful lives and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

The following useful lives are used in the calculation of depreciation.

Buildings	25 years
Plant and equipment	5–10 years
Office equipment	3–5 years

Land use right

Land use rights, which are all located in the PRC, are recorded at cost and are charged to profit or loss ratably over the term of the land use agreements which range from 50 to 70 years.

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113

Significant accounting policies (continued)

Intangible assets

Acquired intangible assets which consists primarily of technology, licenses and patents, are carried at cost less accumulated amortization and any accumulated impairment loss. Amortization is computed using the straight-line method over the expected useful lives of the assets of three to ten years. The estimated useful life and amortization method are reviewed at the end of each reporting period, with effect of any changes in estimate being accounted for on a prospective basis.

Impairment of tangible and intangible assets other than goodwill

At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss.

When an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized as income.

Cash and cash equivalents

Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and are subjected to an insignificant risk of changes in value, with original maturities of three months or less.

Restricted cash

Restricted cash consists of bank deposits pledged against letters of credit and short-term credit facilities and unused government funding for certain research and development projects. Changes of restricted cash pledged against letter of credit and short-term credit facilities and changes of restricted cash paid for property, plant and equipment are presented as investing activity in consolidated statements of cash flows. Changes of restricted cash of unused government funding for expensed research and development activities are presented as operating activity in consolidated statements of cash flows.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

Significant accounting policies (continued)

Inventories

Inventories are stated at the lower of cost and net realizable value. Costs of inventories are determined on a weighted average basis. Net realizable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.

Provisions

Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of the time value of money is material).

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

Financial instruments

Financial assets and financial liabilities are recognized when a group entity becomes a party to the contractual provisions of the instruments.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities other than financial assets and financial liabilities at fair value through profit or loss are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

Financial assets

Financial assets are classified into the following specified categories: financial assets ‘at fair value through profit or loss’ (“FVTPL”) and ‘availab-for-sale’ (“AFS”) financial assets and ‘loans and receivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

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Significant accounting policies (continued)

Financial assets (continued)

Effective interest method

The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Income is recognized on an effective interest basis for debt instruments other than those financial assets classified as at FVTPL.

Financial assets at FVTPL

Financial assets are classified as at FVTPL when the financial asset is held for trading.

A financial asset is classified as held for trading if:

•

it has been acquired principally for the purpose of selling in the near term; or

•

it is a part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or

•

it is a derivative that is not designated and effective as a hedging instrument.

Financial assets at FVTPL (including foreign currency forward contracts, cross currency swap contracts, put option and financial products sold by banks) are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any dividend or interest earned on the financial asset and is included in the ’other gains and losses’ line item.

Available-for-sale financial assets (AFS financial assets)

AFS financial assets are non-derivatives that are either designated as AFS or are not classified as (a) loans and receivables, (b) held-to-maturity investments or (c) financial assets at fair value through profit or loss.

AFS financial assets are initially recognized at fair value plus transaction costs and subsequently carried at fair value, with changes in fair value recognized in other comprehensive income.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

Significant accounting policies (continued)

Financial assets (continued)

Available-for-sale financial assets (AFS financial assets) (continued)

When securities classified as available for sale are sold or impaired, the accumulated fair value adjustments recognized in equity are included in the income statement as “other gains and losses”.

Interest on available-for-sale securities calculated using the effective interest method is recognized in the income statement as part of “other income”.

Dividends on AFS equity instruments are recognized in profit or loss when the Group’s right to receive the dividends is established.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables including trade and other receivables, and cash and bank balances and restricted cash are measured at amortized cost using the effective interest method, less any impairment loss.

Interest income is recognized by applying the effective interest rate, except for short-term receivables when the effect of discounting is immaterial.

Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.

For all other financial assets, objective evidence of impairment could include:

•

significant financial difficulty of the issuer or counterparty; or

•

breach of contract, such as a default or delinquency in interest or principal payments; or

•

it becoming probable that the borrower will enter bankruptcy or financial re-organization.

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Significant accounting policies (continued)

Financial assets (continued)

Impairment of financial assets (continued)

For certain categories of financial assets, such as trade receivables, assets are assessed for impairment on a collective basis even if they were assessed not to be impaired individually. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, as well as observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortized cost, the amount of the impairment loss recognized is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.

For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

For assets classified as available for sale, it is assessed at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired.

For debt securities, if any such evidence exists the cumulative loss — measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss — is removed from equity and recognized in profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through the consolidated statement of profit or loss.

For equity investments, a significant or prolonged decline in the fair value of the security below its cost is also evidence that the assets are impaired. If any such evidence exists the cumulative loss — measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss — is removed from equity and recognized in profit or loss. Impairment losses recognized in the consolidated statement of profit or loss on equity instruments are not reversed through the consolidated statement of profit or loss.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

Significant accounting policies (continued)

Financial assets (continued)

Derecognition of financial assets

The Group derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received.

On derecognition of a financial asset in its entirety the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in profit or loss.

Financial liabilities and equity instruments

Classification as debt or equity

Debt and equity instruments issued by a group entity are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities. Equity instruments issued by the Group are recognized at the proceeds received, net of direct issue costs.

Convertible Bonds

The component parts of the convertible bonds issued by the Group are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. Conversion option that will be settled by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Group’s own equity instruments is an equity instrument.

At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible instruments. This amount is recorded as a liability on an amortized cost basis using the effective interest method until extinguished upon conversion or at the instrument’s maturity date.

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Significant accounting policies (continued)

Financial liabilities and equity instruments (continued)

Convertible Bonds (continued)

The conversion option classified as equity is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognized and included in equity, net of income tax effects, and is not subsequently remeasured. In addition, the conversion option classified as equity will remain in equity until the conversion option is exercised, in which case, the balance recognized in equity will be transferred to share premium. Where the conversion option remains unexercised at the maturity date of the convertible note, the balance recognized in equity will be transferred to retained earnings. No gain or loss is recognized in profit or loss upon conversion or expiration of the conversion option.

The Group assesses if the embedded derivatives in respect of the early redemption features are deemed to be clearly and closely related to the host debt contract. Embedded derivatives need not be separated if they are regarded as closely related to its host contract. If they are not, they would be separately accounted for.

Transaction costs that relate to the issue of the convertible bonds are allocated to the liability and equity components in proportion to the allocation of the gross proceeds. Transaction costs relating to the equity component are charged directly to equity. Transaction costs relating to the liability component are included in the carrying amount of the liability portion and amortized over the period of the convertible bonds using the effective interest method.

Financial liabilities

Financial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial liabilities’.

Financial liabilities at FVTPL

Financial liabilities are classified as at FVTPL (including cross currency swap contracts) when the financial liability is held for trading.

Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any interest paid on the financial liability and is included in the ‘other gains and losses’ line item. Fair value is determined in the manner described in Note 39.

Other financial liabilities

Other financial liabilities (including borrowings, trade and other payables, promissory notes, long-term financial liabilities and bonds payable) are subsequently measured at amortized cost using the effective interest method.

The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability or (where appropriate) shorter period, to the net carrying amount on initial recognition.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

Significant accounting policies (continued)

Financial liabilities and equity instruments (continued)

Financial liabilities (continued)

Derecognition of financial liabilities

The Group derecognizes financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.

Derivative financial instruments

The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risks, including foreign exchange forward contracts, interest rate swaps and cross currency swaps. Further details of derivative financial instruments are disclosed in Note 39.

Derivatives are initially recognized at fair value at the date the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.

Critical accounting judgments and key sources of estimation uncertainty

In the application of the Group’s accounting policies, which are described in Note 3, the Group is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Key sources of estimation uncertainty

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Inventories

Inventories are stated at the lower of cost (weighted average) or net realizable value (NRV), with NRV being the “estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale”. The Group estimates the recoverability for such finished goods and work-in-progress based primarily upon the latest invoice prices and current market conditions. If the NRV of an inventory item is determined to be below its carrying value, the Group records a write-down to cost of sales for the difference between the carrying cost and NRV.

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Critical accounting judgments and key sources of estimation uncertainty (continued)

Key sources of estimation uncertainty (continued)

Long-lived assets

The Group assesses the impairment of long-lived assets when events or changes in circumstances indicate that the carrying value of asset or cash-generating unit (“CGU”) may not be recoverable. Factors that the Group considers in deciding when to perform an impairment review include, but are not limited to significant under-performance of a business or product line in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in the use of the assets.

An impairment analysis is performed at the lowest level of identifiable independent cash flows for an asset or CGU. An impairment exists when the carrying value of an asset or cash-generating unit exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell calculation is based on available data from binding sales transactions, conducted at arm’s length, for similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow model.

The Group makes subjective judgments in determining the independent cash flows that can be related to a specific CGU based on its asset usage model and manufacturing capabilities. The Group measures the recoverability of assets that will continue to be used in the Group’s operations by comparing the carrying value of CGU to the Group’s estimate of the related total future discounted cash flows. If a CGU’s carrying value is not recoverable through the related discounted cash flows, the impairment loss is measured by comparing the difference between the CGU’s carrying value and its recoverable amount, based on the best information available, including market prices or discounted cash flow analysis. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash-inflows and the growth rate and sales margin used for extrapolation purposes.

In order to remain technologically competitive in the semiconductor industry, the Group has entered into technology transfer and technology license arrangements with third parties in an attempt to advance the Group’s process technologies. The payments made for such technology licenses are recorded as an intangible asset or as a deferred cost and amortized on a straight-line basis over the estimated useful life of the asset. The Group routinely reviews the remaining estimated useful lives of these intangible assets and deferred costs. The Group also evaluates these intangible assets and deferred costs for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. When the carrying amounts of such assets are determined to exceed their recoverable amounts, the Group will impair such assets and write down their carrying amounts to recoverable amount in the year when such determination was made.

122

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

Critical accounting judgments and key sources of estimation uncertainty (continued)

Key sources of estimation uncertainty (continued)

Share-based Compensation Expense

The fair value of options and shares issued pursuant to the Group’s option plans at the grant date was estimated using the Black-Scholes option pricing model. This model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions, including the expected term of the options, the estimated forfeiture rates and the expected stock price volatility. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The Group estimated forfeiture rates using historical data to estimate option exercise and employee termination within the pricing formula. The Group uses projected volatility rates based upon the Group’s historical volatility rates. These assumptions are inherently uncertain. Different assumptions and judgments would affect the Group’s calculation of the fair value of the underlying ordinary shares for the options granted, and the valuation results and the amount of share-based compensation would also vary accordingly. Further details on share-based compensation are disclosed in note 38.

Taxes

Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and timing of future taxable income. Given the wide range of international business relationships and the long-term nature and complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded. The Group establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective counties in which it operates. The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences of interpretation may arise on a wide variety of issues depending on the conditions prevailing in the respective domicile of the Group companies.

Deferred tax assets are recognized for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits together with tax planning strategies.

As at December 31, 2015, a deferred tax asset of US$0.4 million (December 31, 2014: US$0.5 million and December 31, 2013: nil) in relation to unused tax losses recognized in the Group’s consolidated statement of financial position. The realizability of the deferred tax asset mainly depends on whether sufficient profits or taxable temporary differences will be available in the future. In cases where the actual future profits generated are less than expected, a material reversal of deferred tax assets may arise, which would be recognized in profit or loss for the period in which such a reversal takes place. Further details on taxes are disclosed in Note 10.

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Critical accounting judgments and key sources of estimation uncertainty (continued)

Key sources of estimation uncertainty (continued)

Fair value of financial instruments

Some of the Group’s assets and liabilities are measured at fair value for financial reporting purposes.

In estimating the fair value of an asset or a liability, the Group uses market-observable data to the extent it is available. Where Level 1 inputs are not available, the Group engages third party qualified valuers to perform the valuation.

The Group uses valuation techniques that include inputs that are not based on observable market data to estimate the fair value of certain types of financial instruments. Notes 39 provide detailed information about the valuation techniques, inputs and key assumptions used in the determination of the fair value of various assets and liabilities.

Impairment of trade and other receivable

The Group assesses at the end of each reporting period whether there is any objective evidence that trade and other receivable is impaired. To determine whether there is objective evidence of impairment, the Group considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments.

When there is objective evidence of impairment loss, the Group takes into consideration the estimation of future cash flows. The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (that is, the effective interest rate computed at initial recognition). Where the actual future cash flows are less than expected, a material impairment loss may arise. The carrying amount of the Group’s trade and other receivable at the end of the reporting period is disclosed in Note 26.

Segment information

The Group is engaged principally in the computer-aided design, manufacturing and trading of integrated circuits. The Group’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews consolidated results when making decisions about resources allocation and assessing performance of the Group. The Group operates in one segment. The measurement of segment profits is based on profit from operation as presented in the statements of profit or loss and other comprehensive income.

The Group operates in three principal geographical areas — United States, Europe, and Asia Pacific. The Group’s operating revenue from customers, based on the location of their headquarters, is detailed below.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

Segment information (continued)

	Revenue from external customers
	Year ended		Year ended		Year ended
	12/31/15		12/31/14		12/31/13
	USD’000		USD’000		USD’000
United States		776,223		855,792		1,002,699
Mainland China and Hong Kong		1,066,558		852,204		836,771
Eurasia*		393,634		261,970		229,494
		2,236,415		1,969,966		2,068,964

Not including Mainland China and Hong Kong

The Group’s operating revenue by product and service type is detailed below:

	Revenue by product and service type
	Year ended		Year ended		Year ended
	12/31/15		12/31/14		12/31/13
	USD’000		USD’000		USD’000
Sales of wafers		2,134,943		1,864,524		1,952,774
Mask making, testing and others		101,472		105,442		116,190
		2,236,415		1,969,966		2,068,964

The Group’s business is characterized by high fixed costs relating to advanced technology equipment purchases, which result in correspondingly high levels of depreciation expenses. The Group will continue to incur capital expenditures and depreciation expenses as it equips and ramps-up additional fabs and expand its capacity at the existing fabs. The following table summarizes property, plant and equipment of the Group by geographical location.

	Property, plant and equipment
	12/31/15		12/31/14		12/31/13
	USD’000		USD’000		USD’000
United States		95		124		33
Europe		5		4		4
Taiwan		122		9		14
Hong Kong		3,040		3,240		3,440
Mainland China		3,900,556		2,991,709		2,525,343
		3,903,818		2,995,086		2,528,834

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125

Significant customers

The following table summarizes net revenue or gross accounts receivable for customers which accounted for 10% or more of net revenue and gross accounts receivable:

	Net revenue									Gross accounts receivable
	Year ended December 31,									December 31,
	2015			2014			2013			2015			2014			2013
Customer A		366,696			483,430			473,699			75,643			107,475			109,778
Customer B		324,267			*			*			50,068			*			*
Customer C		215,527			*			270,230			25,548			*			19,619
Customer D		168,352			*			*			55,852			*			*

Customer A		16	%		25	%		23	%		19	%		25	%		31	%
Customer B		15	%		*			*			13	%		*			*
Customer C		10	%		*			13	%		6	%		*			6	%
Customer D		8	%		*			*			14	%		*			*

Less than 10% of net revenue and gross accounts receivable in the period.

Other operating income (expense), net

	Year ended			Year ended			Year ended
	12/31/15			12/31/14			12/31/13
	USD’000			USD’000			USD’000
Gain on disposal of property, plant and equipment and assets classified as held-for-sale		28,949			13,904			33,996
Gain on disposal of subsidiaries		—			—			28,304
(Loss) gain on deconsolidation of subsidiaries		(57	)		(208	)		5,419
Others		2,702			510			151
		31,594			14,206			67,870

The gain on disposal of property, plant and equipment and assets classified as held-for-sale for the year ended December 31, 2015, 2014 and 2013 was primarily from the sales of the staff living quarters in Shanghai and Beijing to employees.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

Finance costs

	Year ended			Year ended			Year ended
	12/31/15			12/31/14			12/31/13
	USD’000			USD’000			USD’000
Interest on:
Bank and other borrowings
— wholly repayable within five years		6,782			19,245			45,924
— not wholly repayable within five years		202			—			1,440
Interest on convertible bonds		13,238			9,614			1,173
Interest on corporate bonds		22,253			5,554			—
Accretion of interest to preferred shareholders of a subsidiary		—			—			1,683
Total interest expense for financial liabilities not classified as at FVTPL		42,475			34,413			50,220
Less: amounts capitalized		(30,257	)		(13,698	)		(15,828	)
		12,218			20,715			34,392

The weighted average effective interest rate on funds borrowed generally is 3.75% per annum (2014: 2.91% per annum and 2013: 4.42% per annum).

Other gains and losses, net

For the year ended December 31, 2015, other gains or losses, net were US$55.6 million (2014: US$18.2 million and 2013: US$4.0 million), within which the changes of fair value of the financial products were US$22.5 million (2014: US$14.5 million and 2013: US$0.4 million) and the changes of fair value of the derivative financial instruments were US$28.9 million (2014: nil and 2013: nil).

10.

Income taxes

Income tax recognized in profit or loss

	Year ended			Year ended			Year ended
	12/31/15			12/31/14			12/31/13
	USD’000			USD’000			USD’000
Current tax — Enterprise Income Tax		(47	)		1,226			957
Deferred tax		6,665			(591	)		(783	)
Current tax — Land Appreciation Tax		1,923			11,154			3,956
Total income tax expense raised in the current year		8,541			11,789			4,130

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127

10.

Income taxes (continued)

Income tax recognized in profit or loss (continued)

The income tax expense for the year can be reconciled to the accounting profit as follows:

	Year ended			Year ended			Year ended
	12/31/15			12/31/14			12/31/13
	USD’000			USD’000			USD’000
Profit before tax		230,864			138,050			178,597
Income tax expense calculated at 15% (2014: 15% and 2013:15%)		34,630			20,708			26,790
Effect of expenses not deductible for tax purpose		—			—			1,247
Effect of tax holiday and tax concession		(54,483	)		(12,032	)		(3,045	)
Tax losses for which no deferred tax assets were recognized		25,732			20,134			—
Utilization of previously unrecognized tax losses and temporary differences		(3,687	)		(32,818	)		(23,042	)
Effect of different tax rates of subsidiaries operating in other jurisdictions		4,226			6,387			(641	)
Others		488			(71	)		(578	)
Land Appreciation Tax (after tax)		1,635			9,481			3,399
Income tax expense		8,541			11,789			4,130

The tax rate used for the 2015, 2014 and 2013 reconciliation above is the corporate tax rate of 15% payable by most of the Group’s entities in Mainland China under tax law in that jurisdiction.

Current tax liabilities

	12/31/15		12/31/14		12/31/13
	USD’000		USD’000		USD’000
Current tax liabilities
Income tax payable — Land Appreciation Tax		—		—		73
Income tax payable — Others		355		103		85
		355		103		158

128

SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

10.

Income taxes (continued)

Deferred tax balances

The following is the analysis of deferred tax assets (liabilities) presented in the consolidated statement of financial position:

	12/31/15			12/31/14			12/31/13
	USD’000			USD’000			USD’000
Deferred tax assets		44,942			44,383			43,890
Deferred tax liabilities		(7,293	)		(69	)		(167	)
		37,649			44,314			43,723

	12/31/15			12/31/14			12/31/13
	USD’000			USD’000			USD’000
Deferred tax assets
Net operating loss carry forwards		419			524			—
Property plant and equipment		44,523			43,859			43,890
Deferred tax assets		44,942			44,383			43,890
Deferred tax liabilities
Capitalized interest		(3	)		(69	)		(167	)
Property plant and equipment		(7,290	)		—			—
Deferred tax liabilities		(7,293	)		(69	)		(167	)

2015.12.31

				Recognized
	Opening			in profit			Closing
	balance			or loss			balance
	USD’000			USD’000			USD’000
Deferred tax (liabilities)/assets in relation to:
Property plant and equipment		43,859			(6,626	)		37,233
Capitalized interest		(69	)		66			(3	)
Others		524			(105	)		419
		44,314			(6,665	)		37,649

2014.12.31

				Recognized
	Opening			in profit			Closing
	balance			or loss			balance
	USD’000			USD’000			USD’000
Deferred tax (liabilities)/assets in relation to:
Property plant and equipment		43,890			(31	)		43,859
Capitalized interest		(167	)		98			(69	)
Others		—			524			524
		43,723			591			44,314

SMIC 2015 Annual Report

129

10.

Income taxes (continued)

Deferred tax balances (continued)

2013.12.31

				Recognized
	Opening			in profit			Closing
	balance			or loss			balance
	USD’000			USD’000			USD’000
Deferred tax (liabilities)/assets in relation to:
Property plant and equipment		38,955			4,935			43,890
Allowances and reserves		3,829			(3,829	)		—
Accrued expenses		224			(224	)		—
Capitalized interest		(373	)		206			(167	)
Unrealized exchange gain		(64	)		64			—
Depreciation for asset held for sale		(3	)		3			—
Others		372			(372	)		—
		42,940			783			43,723

Under the Law of the People’s Republic of China (the “PRC”) on Enterprise Income Tax, or the EIT Law, the profits of a foreign invested enterprise arising in 2008 and beyond that distributed to its immediate holding company who is a non-PRC tax resident will be subject to a withholding tax rate of 10%. A lower withholding tax rate may be applied if there is a favorable tax treaty between mainland China and the jurisdiction of the foreign holding company. For example, holding companies in Hong Kong that are also tax residents in Hong Kong (which should have commercial substance and proceed the formal treaty benefit application with in-charge tax bureau) are eligible for a 5% withholding tax on dividends under the Tax Memorandum between China and the Hong Kong Special Administrative Region.

The Company is incorporated in the Cayman Islands, where it is not currently subject to taxation.

The EIT law (became effective on January 1, 2008) applies a uniform 25% enterprise income tax rate to both tax resident enterprise and non-tax resident enterprise, except where a special preferential rate applies.

Pursuant to Caishui Circular [2008] No. 1 (“Circular No. 1”) promulgated on February 22, 2008, integrated circuit production enterprises whose total investment exceeds RMB8,000 million (approximately US$1,095 million) or whose integrated circuits have a line width of less than 0.25 micron are entitled to a preferential tax rate of 15%. Enterprises with an operation period of more than 15 years are entitled to a full exemption from income tax for five years starting from the first profitable year after utilizing all prior years’ tax losses and 50% reduction of the tax for the following five years. Pursuant to Caishui Circular [2009] No. 69 (“Circular No. 69”), the 50% reduction should be based on the statutory tax rate of 25%.

On January 28, 2011, the State Council of China issued Guofa [2011] No. 4 (“Circular No. 4”), the Notice on Certain Policies to Further Encourage the Development of the Software and Integrated Circuit Industries which reinstates the EIT incentives stipulated by Circular No. 1 for the software and integrated circuit enterprises.

130

SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

10.

Income taxes (continued)

Deferred tax balances (continued)

On April 20, 2012, State Tax Bureau issued CaiShui [2012] No. 27 (“Circular No. 27”), stipulating the income tax policies for the development of integrated circuit industry. Circular No. 1 was partially abolished by Circular No. 27 and the preferential taxation policy in Circular No. 1 was replaced by Circular No. 27.

On July 25, 2013, State Tax Bureau issued [2013] No. 43 (“Circular No. 43”), clarifying that the accreditation and preferential tax policy of integrated circuit enterprise established before December 31, 2010, is applied pursuant to Circular No. 1.

The detailed tax status of SMIC’s principal PRC entities with tax holidays is elaborated as follows:

Semiconductor Manufacturing International (Shanghai) Corporation (“SMIS” or “SMIC Shanghai”)

Pursuant to the relevant tax regulations, SMIS is qualified as an integrated circuit enterprise and enjoyed a 10-year tax holiday (five year full exemption followed by five year half reduction) beginning from 2004 after utilizing all prior years’ tax losses. The income tax rate for SMIS was 15% in 2015 (2014: 15% and 2013: 12.5%).

Semiconductor Manufacturing International (Tianjin) Corporation (“SMIT” or “SMIC Tianjin”)

In accordance with Circular No. 43 and Circular No. 1, SMIT is qualified as an integrated circuit enterprise and enjoying a 10-year tax holiday (five year full exemption followed by five year half reduction) beginning from 2013 after utilizing all prior years’ tax losses. The income tax rate for SMIT was 0% from 2013 to 2017 and 12.5% from 2018 to 2022. After that, the income tax rate will be 15%.

Semiconductor Manufacturing International (Beijing) Corporation (“SMIB” or “SMIC Beijing”)

In accordance with Circular No. 43 and Circular No. 1, SMIB is qualified as an integrated circuit enterprise and enjoying a 10-year tax holiday (five year full exemption followed by five year half reduction) beginning from 2015 after utilizing all prior years’ tax losses. The income tax rate for SMIB was 0% from 2015 to 2019 and 12.5% from 2020 to 2024. After that, the income tax rate will be 15%.

Semiconductor Manufacturing International (Shenzhen) Corporation (“SMIC Shenzhen”), Semiconductor Manufacturing North China (Beijing) Corporation (“SMNC”) and SJ Semiconductor (Jiangyin) Corporation (“SJ Jiangyin”)

In accordance with Circular No. 43, Circular No. 1 and Circular No. 27, SMIC Shenzhen, SMNC and SJ Jiangyin are entitled to the preferential tax rate of 15% and 10-year tax holiday (five year full exemption followed by five year half reduction) subsequent to its first profit-making year after utilizing all prior tax losses on or before December 31, 2017. SMIC Shenzhen, SMNC and SJ Jiangyin were in accumulative loss positions as of December 31, 2015 and the tax holiday has not begun to take effect.

All the other PRC entities of SMIC were subject to income tax rate of 25%.

SMIC 2015 Annual Report

131

10.

Income taxes (continued)

Unused tax losses

At the end of the reporting period, no deferred tax asset was recognized in respect of tax losses of US$577.3 million (December 31, 2014: US$532.8 million and December 31, 2013: US$851.7 million) due to the unpredictability of future profit streams, of which US$228.0 million, US$156.2 million, US$8.9 million, US$81.3 million and US$102.9 million will expire in 2016, 2017, 2018, 2019 and 2020, respectively.

11.

Profit (loss) for the year

Profit (loss) for the year has been arrived at after charging (crediting)

11.1 Impairment losses (reversal of impairment losses) on trade receivables

	Year ended			Year ended			Year ended
	12/31/15			12/31/14			12/31/13
	USD’000			USD’000			USD’000
Allowance on trade receivables (see Note 26)		528			1,616			617
Reversal of allowance on doubtful trade receivables (see Note 26)		(541	)		(59	)		(1,213	)
		(13	)		1,557			(596	)

11.2 Depreciation and amortization expense

	Year ended		Year ended		Year ended
	12/31/15		12/31/14		12/31/13
	USD’000		USD’000		USD’000
Depreciation of property, plant and equipment		473,008		506,366		501,923
Amortization of intangible assets and land use right		50,541		43,102		44,987
Total depreciation and amortization expense		523,549		549,468		546,910

11.3 Employee benefits expense

	Year ended		Year ended		Year ended
	12/31/15		12/31/14		12/31/13
	USD’000		USD’000		USD’000
Wages, salaries and social security contributions		299,267		249,622		233,025
Bonus		107,859		50,157		68,618
Paid annual leave		66		796		541
Non-monetary benefits		21,414		17,231		17,937
Equity-settled share-based payments (Note 38)		18,329		18,388		16,402
Total employee benefits expense		446,935		336,194		336,523

132

SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

11.

Profit (loss) for the year (continued)

Profit (loss) for the year has been arrived at after charging (crediting) (continued)

11.4

Royalties expense

Year ended

12/31/15

12/31/14

12/31/13

USD’000

Royalties expense

36,262

26,344

32,546

11.5

Government funding

Government funding under specific R&D projects

The Group received government funding (including those with primary condition that the Group should purchase, construct or otherwise acquire non-current assets) of US$40.2 million, US$57.3 million and US$145.8 million and recognized US$34.3 million, US$37.4 million and US$26.9 million as reductions of certain R&D expenses in 2015, 2014 and 2013 for several specific R&D projects respectively. The government funding is recorded as a liability upon receipt and recognized as reduction of R&D expenses until the milestones specified in the terms of the funding have been reached.

Government funding for specific intended use

The Group received government funding of US$4.9 million, US$21.4 million and US$7.1 million and recognized US$4.9 million, US$21.4 million and US$7.1 million as reduction of interest expense in 2015, 2014 and 2013 respectively. The government funding is recorded as a liability upon receipt and recognized as reduction of interest expense until the requirements (if any) specified in the terms of the funding have been reached.

11.6

Auditors’ remuneration

Year ended

12/31/15

12/31/14

12/31/13

USD’000

Audit services

1,322

1,568

1,187

Non-audit services

—

SMIC 2015 Annual Report

133

12.

Directors’ remuneration

	Year ended		Year ended		Year ended
	12/31/15		12/31/14		12/31/13
	USD’000		USD’000		USD’000
Salaries		2,384		2,216		1,756
Equity-settled share-based payments		1,550		1,305		1,504
		3,934		3,521		3,260

The equity-settled share-based payments granted to directors include both stock options and restricted share units (“RSUs”).

The Group granted 30,917,241, 7,773,789 and 27,083,220 options to purchase ordinary shares of the Company to the directors in 2015, 2014 and 2013, respectively. During the year ended December 31, 2015, 18,353,433 stock options were exercised and 1,117,811 stock options were expired. During the year ended December 31, 2014, 1,123,074 stock options were exercised and 3,369,223 stock options were expired. And during the year ended December 31, 2013, 1,000,000 stock options were exercised and 4,634,877 stock options were expired.

The Group granted 10,804,985, 2,910,836 and nil RSUs to purchase ordinary shares of the Company to the directors in 2015, 2014 and 2013, respectively. During the year ended December 31, 2015, 12,377,826 RSUs automatically vested and no RSUs were forfeited. During the year ended December 31, 2014, 12,250,480 RSUs automatically vested and no RSUs were forfeited. And during the year ended December 31, 2013, 11,650,116 RSUs automatically vested and no RSUs were forfeited.

In 2015, 2014 and 2013, no emoluments were paid by the Group to any of the directors as an inducement to join or upon joining the Group or as compensation for loss of office. In 2015, 2014 and 2013, no directors waived any emoluments.

(a)

Independent non-executive directors

The fees paid or payable to independent non-executive directors of the Company during the year were as follows:

			Employee
	Salaries and		settle share-		Total
	wages		based payment		remuneration
	USD’000		USD’000		USD’000
2015
William Tudor Brown		47		47		94
Sean Maloney		50		46		96
Lip-Bu Tan		70		—		70
Frank Meng***		28		6		34
Carmen I-Hua Chang		42		149		191
		237		248		485

134

SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

12.

Directors’ remuneration (continued)

(a)

Independent non-executive directors (continued)

			Employee
	Salaries and		settle share-		Total
	wages		based payment		remuneration
	USD’000		USD’000		USD’000
2014
William Tudor Brown		57		90		147
Sean Maloney		62		87		149
Lip-Bu Tan		92		1		93
Frank Meng***		76		18		94
Carmen I-Hua Chang		13		59		72
		300		255		555

			Employee
	Salaries and		settle share-		Total
	wages		based payment		remuneration
	USD’000		USD’000		USD’000
2013
Tsuyoshi Kawanishi		20		5		25
William Tudor Brown		18		45		63
Sean Maloney		27		65		92
Lip-Bu Tan		65		5		70
Frank Meng***		54		36		90
		184		156		340

There were no other emoluments payable to the independent non-executive directors during the year (2014: Nil and 2013: Nil).

SMIC 2015 Annual Report

135

12.

Directors’ remuneration (continued)

(b)

Executive directors and non-executive director

			Employee
	Salaries		settle share-		Total
	and wages		based payment		remuneration
	USD’000		USD’000		USD’000
2015
Executive directors:
Zhou Zixue		225		873		1,098
Zhang Wenyi*		578		32		610
Tzu-Yin Chiu**		918		130		1,048
Gao Yonggang		376		201		577
		2,097		1,236		3,333
Non-executive director:
Chen Shangzhi		50		—		50
Zhou Jie		—		—		—
Li Yonghua (Alternate to Chen Shanzhi)		—		—		—
Ren Kai		—		66		66
		50		66		116

			Employee
	Salaries		settle share-		Total
	and wages		based payment		remuneration
	USD’000		USD’000		USD’000
2014
Executive directors:
Zhang Wenyi*		524		124		648
Tzu-Yin Chiu**		973		442		1,415
Gao Yonggang		307		399		706
		1,804		965		2,769
Non-executive director:
Chen Shangzhi		61		3		64
Lawrence Juen-Yee Lau		51		82		133
Zhou Jie		—		—		—
Li Yonghua (Alternate to Chen Shanzhi)		—		—		—
Chen Datong (Alternate to Lawrence Juen-Yee Lau)		—		—		—
		112		85		197

136

SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

12.

Directors’ remuneration (continued)

(b)

Executive directors and non-executive director (continued)

			Employee
	Salaries		settle share-		Total
	and wages		based payment		remuneration
	USD’000		USD’000		USD’000
2013
Executive directors:
Zhang Wenyi*		391		274		665
Tzu-Yin Chiu**		963		901		1,864
Gao Yonggang		142		101		243
		1,496		1,276		2,772
Non-executive director:
Chen Shangzhi		54		10		64
Lawrence Juen-Yee Lau		22		62		84
Zhou Jie		—		—		—
Li Yonghua (Alternate to Chen Shanzhi)		—		—		—
Chen Datong (Alternate to Lawrence Juen-Yee Lau)		—		—		—
		76		72		148

Zhang Wenyi resigned as chairman of the Board and an executive director with effect from March 6, 2015.

Tzu-Yin Chiu is also the Chief Executive Officer of the Company.

***

Frank Meng resigned as an independent non-executive director with effect from June 26, 2015.

There was no arrangement under which a director waived or agreed to waive any remuneration during the year.

13.

Five highest paid employees

The five highest paid individuals during the year included two (2014: three and 2013: two) directors, details of whose remuneration are set out in Note 12 above. Details of the remuneration of the remaining three (2014: two and 2013: three) non-directors, highest paid individuals (including one former director who resigned as an executive director in 2015) for the year are as follows:

	Year ended		Year ended		Year ended
	12/31/15		12/31/14		12/31/13
	USD’000		USD’000		USD’000
Salaries and other benefits		962		633		955
Bonus		636		328		386
Stock option benefits		552		473		566
		2,150		1,434		1,907

SMIC 2015 Annual Report

137

13.

Five highest paid employees (continued)

The bonus is determined on the basis of the basic salary and the performance of the Group and the individual.

In 2015, 2014 and 2013, no emoluments were paid by the Group to any of the five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office.

The number of non-director, highest paid individuals whose remuneration fell within the following bands is as follows:

	Number of employees
	2015		2014		2013
HK$3,500,001 (US$451,605) to HK$4,000,000 (US$516,119)		—		—		1
HK$4,500,001 (US$580,635) to HK$5,000,000 (US$645,150)		1		—		—
HK$5,000,001 (US$645,151) to HK$5,500,000 (US$709,665)		—		1		1
HK$5,500,001 (US$709,666) to HK$6,000,000 (US$774,180)		1		1		1
HK$6,000,001 (US$774,181) to HK$6,500,000 (US$838,695)		1		—		—
		3		2		3

14.

Earnings per share

Year ended

12/31/15

12/31/14

12/31/13

USD

Basic earnings per share

0.01

0.00

0.01

Diluted earnings per share

0.01

0.00

0.01

Basic earnings per share

The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows:

	Year ended		Year ended		Year ended
	12/31/15		12/31/14		12/31/13
	USD’000		USD’000		USD’000

Profit for the year attributable to owners of the Company		253,411		152,969		173,177
Earnings used in the calculation of basic earnings per share		253,411		152,969		173,177
Weighted average number of ordinary shares for the purposes of basic earnings per share		38,960,416,674		33,819,162,742		32,063,137,846

138

SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

14.

Earnings per share (continued)

Diluted earnings per share

The earnings used in the calculation of diluted earnings per share are as follows:

	Year ended		Year ended		Year ended
	12/31/15		12/31/14		12/31/13
	USD’000		USD’000		USD’000
Earnings used in the calculation of basic earnings per share		253,411		152,969		173,177
Interest expense from convertible bonds		13,238		9,614		1,173
Earnings used in the calculation of diluted earnings per share		266,649		162,583		174,350

The weighted average number of ordinary shares used in the calculation of basic earnings per share reconciles to the weighted average number of ordinary shares used in the calculation of diluted earnings per share as follows:

	Year ended		Year ended		Year ended
	12/31/15		12/31/14		12/31/13
	USD’000		USD’000		USD’000
Weighted average number of ordinary shares used in the calculation of basic earnings per share		38,960,416,674		33,819,162,742		32,063,137,846
Employee option and restricted share units		369,448,306		343,030,318		237,913,672
Convertible bonds		3,932,570,996		2,931,293,510		288,027,267
Weighted average number of ordinary shares used in the calculation of diluted earnings per share		43,262,435,976		37,093,486,570		32,589,078,785

During the year ended December 31, 2015, the Group had 403,670,171 weighted average outstanding employee stock options which were excluded from the computation of diluted earnings per share because the exercise price was greater than the average market price of the common shares.

During the year ended December 31, 2014, the Group had 528,860,129 weighted average outstanding employee stock options which were excluded from the computation of diluted earnings per share because the exercise price was greater than the average market price of the common shares.

During the year ended December 31, 2013, the Group had 785,159,938 weighted average outstanding employee stock options which were excluded from the computation of diluted earnings per share because the exercise price was greater than the average market price of the common shares.

15.

Dividend

The Board did not recommend the payment of any dividend for the year ended December 31, 2015 (December 31, 2014: Nil and December 31, 2013: Nil).

SMIC 2015 Annual Report

139

16.

Assets classified as held for sale

12/31/15

12/31/14

12/31/13

USD’000

Assets related to employee’s living quarters

72,197

3,265

Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the non-current asset is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. The Group is committing to sell these self-constructed living quarters to its employees in the following year.

17.

Property, plant and equipment

										Construction
				Plant and			Office			in progress
	Buildings			equipment			equipment			(CIP)			Total
	USD’000			USD’000			USD’000			USD’000			USD’000
Cost
Balance at December 31, 2012		335,542			7,577,375			103,954			410,067			8,426,938
Transfer from (out) CIP		7,238			553,162			9,610			(570,010	)		—
Addition		—			—			—			670,853			670,853
Disposals		(20,698	)		(1,163	)		(5,531	)		(10,000	)		(37,392	)
Reclassified as held for sale		(2,999	)		—			(2	)		—			(3,001	)
Balance at December 31, 2013		319,083			8,129,374			108,031			500,910			9,057,398
Transfer from (out) CIP		6,896			366,298			13,652			(386,846	)		—
Addition		—			—			—			977,487			977,487
Disposals		(635	)		(23,486	)		(1,611	)		(3,471	)		(29,203	)
Balance at December 31, 2014		325,344			8,472,186			120,072			1,088,080			10,005,682
Transfer from (out) CIP		263,476			985,820			14,966			(1,264,262	)		—
Addition		—			—			—			1,498,201			1,498,201
Disposals		—			(53,550	)		(180	)		(654	)		(54,384	)
Reclassified as held for sale		—			—			—			(114,534	)		(114,534	)
Balance at December 31, 2015		588,820			9,404,456			134,858			1,206,831			11,334,965

140

SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

17.

Property, plant and equipment (continued)

										Construction
				Plant and			Office			in progress
	Buildings			equipment			equipment			(CIP)			Total
	USD’000			USD’000			USD’000			USD’000			USD’000
Accumulated depreciation and impairment
Balance at December 31, 2012		99,205			5,827,519			82,091			32,688			6,041,503
Disposal		(3,030	)		(1,405	)		(5,073	)		(4,490	)		(13,998	)
Depreciation expense		13,160			477,600			11,163			—			501,923
Reclassified as held for sale		(862	)		—			(2	)		—			(864	)
Balance at December 31, 2013		108,473			6,303,714			88,179			28,198			6,528,564
Disposal		(170	)		(21,687	)		(1,610	)		(867	)		(24,334	)
Depreciation expense		13,377			476,044			16,945			—			506,366
Balance at December 31, 2014		121,680			6,758,071			103,514			27,331			7,010,596
Disposal		—			(51,840	)		(180	)		(437	)		(52,457	)
Depreciation expense		13,858			451,027			8,123			—			473,008
Balance at December 31, 2015		135,538			7,157,258			111,457			26,894			7,431,147

										Construction
				Plant and			Office			in progress
	Buildings			equipment			equipment			(CIP)			Total
	USD’000			USD’000			USD’000			USD’000			USD’000
Balance at December 31, 2013		210,610			1,825,660			19,852			472,712			2,528,834
Balance at December 31, 2014		203,664			1,714,115			16,558			1,060,749			2,995,086
Balance at December 31, 2015		453,282			2,247,198			23,401			1,179,937			3,903,818

Construction in progress

The construction in progress balance of approximately US$1,180 million as of December 31, 2015, primarily consisted of US$274 million and US$392 million of the manufacturing equipment acquired to further expand the production capacity at our two 12” fabs in Beijing and one 12” fab in Shanghai, respectively, and US$136 million of the manufacturing equipment acquired to further expand the production capacity at the 8” fab in Shenzhen. The amount of US$59 million was for acquiring the manufacturing equipment in relation to bumping services in Jiangyin. In addition, the amount of US$77 million was related to the headquarter building in Shanghai and other US$242 million was in relation to various ongoing capital expenditures projects of other SMIC subsidiaries, which are expected to be completed by the second half of 2016.

Impairment losses recognized in the year

In 2015, 2014 and 2013, the Group didn’t record any impairment loss of property, plant and equipment.

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141

17.

Property, plant and equipment (continued)

Assets pledged as security

Property, plant and equipment with carrying amount of approximately US$324 million (2014: approximately US$306 million and 2013: approximately US$1,000 million) have been pledged to secure borrowings of the Group (see Note 31). The plant and equipment have been pledged as security for bank loans under a mortgage. The Group is not allowed to pledge these assets as security for other borrowings or to sell them to other entities.

18.

Intangible assets

	Acquired
	intangible
	assets
	USD’000
Cost
Balance at December 31, 2012		341,909
Additions		23,139
Expired and disposal		(16,627	)
Balance at December 31, 2013		348,421
Additions		37,595
Expired and disposal		(15,295	)
Balance at December 31, 2014		370,721
Additions		65,269
Expired and disposal		(44,813	)
Balance at December 31, 2015		391,177
Accumulated amortization and impairment
Balance at December 31, 2012		106,531
Amortization expense for the year		40,796
Expired and disposal		(14,171	)
Balance at December 31, 2013		133,156
Amortization expense for the year		41,046
Expired and disposal		(11,303	)
Balance at December 31, 2014		162,899
Amortization expense for the year		48,812
Expired and disposal		(44,813	)
Balance at December 31, 2015		166,898
Balance at December 31, 2013		215,265
Balance at December 31, 2014		207,822
Balance at December 31, 2015		224,279

142

SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

19.

Subsidiaries

Details of the Company’s subsidiaries at the end of the reporting period are as follows:

								Proportion of
					Proportion of			voting power
	Place of establishment	Class of	Paid up		ownership interest			held by the
Name of company	and operation	shares held	registered capital		held by the Company			Company			Principal activities
Better Way Enterprises Limited (“Better Way”)^#	Samoa	Ordinary	US$	1,000,000	Directly	100	%		100	%	Provision of marketing related activities
Semiconductor Manufacturing International (Shanghai) Corporation (“SMIS” or “SMIC Shanghai”)^#	People’s Republic of China (the “PRC”)	Ordinary	US$	1,740,000,000	Directly	100	%		100	%	Manufacturing and trading of semiconductor products
SMIC, Americas	United States of America	Ordinary	US$	500,000	Directly	100	%		100	%	Provision of marketing related activities
Semiconductor Manufacturing International (Beijing) Corporation (“SMIB” or “SMIC Beijing”)^#	PRC	Ordinary	US$	1,000,000,000	Directly	100	%		100	%	Manufacturing and trading of semiconductor products
SMIC Japan	Japan	Ordinary	JPY	10,000,000	Directly	100	%		100	%	Provision of marketing related activities
SMIC Europe S.R.L	Italy	Ordinary	Euros	100,000	Directly	100	%		100	%	Provision of marketing related activities
Semiconductor Manufacturing International (Solar Cell) Corporation	Cayman Islands	Ordinary	US$	11,000	Directly	100	%		100	%	Investment holding
SMIC Commercial (Shanghai) Limited Company (formerly SMIC Consulting Corporation)	PRC	Ordinary	US$	800,000	Directly	100	%		100	%	Provision of marketing related activities
Semiconductor Manufacturing International (Tianjin) Corporation (“SMIT” or “SMIC Tianjin”)^#	PRC	Ordinary	US$	690,000,000	Directly	100	%		100	%	Manufacturing and trading of semiconductor products
SMIC Development (Chengdu) Corporation (“SMICD”)^#	PRC	Ordinary	US$	5,000,000	Directly	100	%		100	%	Construction, operation, and management of SMICD’s living quarters, schools, and supermarket
Semiconductor Manufacturing International (BVI) Corporation (“SMIC (BVI)”)^#	British Virgin Islands	Ordinary	US$	10	Directly	100	%		100	%	Provision of marketing related activities
Admiral Investment Holdings Limited	British Virgin Islands	Ordinary	US$	10	Directly	100	%		100	%	Investment holding
SMIC Shanghai (Cayman) Corporation	Cayman Islands	Ordinary	US$	50,000	Directly	100	%		100	%	Investment holding
SMIC Beijing (Cayman) Corporation	Cayman Islands	Ordinary	US$	50,000	Directly	100	%		100	%	Investment holding
SMIC Tianjin (Cayman) Corporation	Cayman Islands	Ordinary	US$	50,000	Directly	100	%		100	%	Investment holding
SilTech Semiconductor Corporation	Cayman Islands	Ordinary	US$	10,000	Directly	100	%		100	%	Investment holding
SMIC Shenzhen (Cayman) Corporation	Cayman Islands	Ordinary	US$	50,000	Directly	100	%		100	%	Investment holding
SMIC Advanced Technology Research & Development (Shanghai) Corporation	PRC	Ordinary	US$	99,000,000	Directly	89.697	%		89.697	%	Manufacturing and trading of semiconductor products
SMIC Holdings Corporation	PRC	Ordinary	US$	50,000,000	Directly	100	%		100	%	Investment holding
SJ Semiconductor Corporation	Cayman Islands	Ordinary and preferred	US$	3,335	Directly	55.277	%		55.277	%	Investment holding
SMIC Energy Technology (Shanghai) Corporation (“Energy Science”)^#	PRC	Ordinary	US$	10,400,000	Indirectly	100	%		100	%	Manufacturing and trading of solar cell related semiconductor products
Magnificent Tower Limited	British Virgin Islands	Ordinary	US$	50,000	Indirectly	100	%		100	%	Investment holding
SMIC Shanghai (HK) Company Limited	Hong Kong	Ordinary	HK$	1,000	Indirectly	100	%		100	%	Investment holding
SMIC Beijing (HK) Company Limited	Hong Kong	Ordinary	HK$	1,000	Indirectly	100	%		100	%	Investment holding
SMIC Tianjin (HK) Company Limited	Hong Kong	Ordinary	HK$	1,000	Indirectly	100	%		100	%	Investment holding
SMIC Solar Cell (HK) Company Limited	Hong Kong	Ordinary	HK$	10,000	Indirectly	100	%		100	%	Investment holding
SMIC Shenzhen (HK) Company Limited	Hong Kong	Ordinary	HK$	1,000	Indirectly	100	%		100	%	Investment holding
SilTech Semiconductor (Hong Kong) Corporation Limited	Hong Kong	Ordinary	HK$	1,000	Indirectly	100	%		100	%	Investment holding
Semiconductor Manufacturing International (Shenzhen) Corporation	PRC	Ordinary	US$	127,000,000	Indirectly	100	%		100	%	Manufacturing and trading of semiconductor products
SilTech Semiconductor (Shanghai) Corporation Limited	PRC	Ordinary	US$	12,000,000	Indirectly	100	%		100	%	Manufacturing and trading of semiconductor products
Semiconductor Manufacturing North China (Beijing) Corporation (“SMNC”)^#	PRC	Ordinary	US$	937,500,000	Directly and indirectly	55	%		55	%	Manufacturing and trading of semiconductor products
China IC Capital Co., Ltd	PRC	Ordinary	RMB	500,000,000	Indirectly	100	%		100	%	Investment holding
Shanghai Hexin Investment Management Limited Partnership	PRC	Ordinary	RMB	15,900,000	Indirectly	99	%		99	%	Investment holding
Shanghai Rongxin Investment Management Limited Partnership	PRC	Ordinary			Indirectly	99	%		99	%	Investment holding
SJ Semiconductor (HK) Limited	Hong Kong	Ordinary	HK$	1,000	Indirectly	55.277	%		55.277	%	Investment holding
SJ Semiconductor (Jiangyin) Corp. (“SJ Jiangyin”)^#	PRC	Ordinary	US$	179,500,000	Indirectly	55.277	%		55.277	%	Bumping and circuit probe testing activities

Abbreviation for identification purposes.

SMIC 2015 Annual Report

143

19.

Subsidiaries (continued)

During this year, the Company lost control of Shanghai Xinxin Investment Centre (Limited Partnership) (“Shanghai Xinxin”) and Shanghai Chengxin Investment Center (Limited Partnership) (“Shanghai Chengxin”), but still has significant influence over both of them. The Company recorded its ownership of Shanghai Xinxin and Shanghai Chengxin as investment in joint ventures. Please refer to Note 21 for details.

Details of non-wholly owned subsidiaries that have material non-controlling interests (“NCI”)

The table below shows details of a non-wholly owned subsidiary of the Company that have material non-controlling interests:

	Place of	Proportion of ownership interests
	establishment	and voting rights held by									Profit (loss) allocated to								Accumulated
Name of company	and operation	non-controlling interests									non-controlling interests								non-controlling interests
		12/31/15			12/31/14			12/31/13			12/31/15			12/31/14			12/31/13		12/31/15		12/31/14		12/31/13
											USD’000			USD’000			USD’000		USD’000		USD’000		USD’000
Semiconductor Manufacturing North China (Beijing) Corporation (“SMNC”)	Beijing, PRC		45.0	%		45.0	%		45.0	%		(25,596	)		(26,353	)		1,410		371,446		335,057		109,410
SJ Semiconductor Corporation	Cayman Islands		44.7	%		49.0	%		N/A			(5,077	)		(424	)		N/A		79,621		24,076		N/A
Total												(30,673	)		(26,777	)		1,410		451,067		359,133		109,410

Semiconductor Manufacturing North China (Beijing) Corporation (“SMNC”,the Company’s majority owned subsidiary in Beijing) shared part of Group’s advance-technology R&D expenses in 2014 and had the start-up cost in 2015, which also caused the change in loss of year attributable to non-controlling interests.

According to the joint venture agreements entered into by the Group and the NCI of SMNC, additional capital injection into SMNC was completed in 2015 and 2014. The additional capital injection from NCI amounted to US$61.9 million in 2015 and US$252 million in 2014 respectively.

According to the joint venture agreements entered into by the Company and the NCI of SJ Semiconductor Corporation, additional capital injection into SJ Semiconductor Corporation was completed in 2015 and 2014. The additional capital injection from NCI amounted to US$60.0 million in 2015 and US$24.5 million in 2014 respectively.

Summarized financial information in respect of the Company’s subsidiary that has material non-controlling interests is set out below. The summarized financial information below represents amounts before intragroup eliminations.

144

SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

19.

Subsidiaries (continued)

SMNC

	12/31/15			12/31/14			12/31/13
	USD’000			USD’000			USD’000
Current assets		381,640			659,596			243,719
Non-current assets		917,719			550,859			—
Current liabilities		(350,298	)		(347,217	)		(586	)
Non-current liabilities		(123,626	)		(118,667	)		—
Net assets		825,435			744,571			243,133
Equity attributable to owners of the Company		453,989			409,514			133,723
Non-controlling interests		371,446			335,057			109,410

	Year ended			Year ended			Year ended
	12/31/15			12/31/14			12/31/13
	USD’000			USD’000			USD’000
Revenue		4,721			—			—
Expense		(64,032	)		(65,058	)		(709	)
Other income		2,430			6,496			3,843
Profit (loss) for the year		(56,881	)		(58,562	)		3,134
Profit (loss) attributable to owners of the Company		(31,285	)		(32,209	)		1,724
Profit (loss) attributable to the non-controlling interests		(25,596	)		(26,353	)		1,410
Profit (loss) for the year		(56,881	)		(58,562	)		3,134
Other comprehensive income attributable to owners of the Company		—			—			—
Other comprehensive income attributable to the non-controlling interests		—			—			—
Other comprehensive income for the year		—			—			—
Total comprehensive income (loss) attributable to owners of the Company		(31,285	)		(32,209	)		1,724
Total comprehensive income (loss) attributable to the non-controlling interests		(25,596	)		(26,353	)		1,410
Total comprehensive income (loss) for the year		(56,881	)		(58,562	)		3,134
Dividends paid to non-controlling interests		—			—			—
Net cash (outflow) inflow from operating activities		(71,817	)		7,758			1,959
Net cash outflow from investing activities		(173,535	)		(436,449	)		(164,810	)
Net cash inflow from financing activities		137,500			560,000			240,000
Net cash (outflow) inflow		(107,852	)		131,309			77,149

SMIC 2015 Annual Report

145

19.

Subsidiaries (continued)

SJ Semiconductor Corporation and its subsidiaries

	12/31/15			12/31/14
	USD’000			USD’000
Current assets		164,495			49,901
Non-current assets		66,772			59
Current liabilities		(18,904	)		(825	)
Non-current liabilities		(34,331	)		—
Net assets		178,032			49,135
Equity attributable to owners of the Company		98,411			25,059
Non-controlling interests		79,621			24,076

	Year ended			Year ended
	12/31/15			12/31/14
	USD’000			USD’000
Revenue		1,543			—
Expense		(9,621	)		(175	)
Other expense		(3,274	)		(690	)
Loss for the year		(11,352	)		(865	)
Loss attributable to owners of the Company		(6,275	)		(441	)
Loss attributable to the non-controlling interests		(5,077	)		(424	)
Loss for the year		(11,352	)		(865	)
Other comprehensive income attributable to owners of the Company		—			—
Other comprehensive income attributable to the non-controlling interests		—			—
Other comprehensive income for the year		—			—
Total comprehensive loss attributable to owners of the Company		(6,275	)		(441	)
Total comprehensive loss attributable to the non-controlling interests		(5,077	)		(424	)
Total comprehensive loss for the year		(11,352	)		(865	)
Dividends paid to non-controlling interests		—			—
Net cash outflow from operating activities		(9,841	)		(38	)
Net cash outflow from investing activities		(60,336	)		(67	)
Net cash inflow from financing activities		175,211			50,000
Net cash inflow		105,034			49,895

146

SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

20.

Investments in associates

Details of the Group’s associates, which are all unlisted companies, at the end of the reporting period are as follows:

Class of

Proportion of ownership

Place of establishment

interest and voting power held

Name of company

and operation

held

by the Group

12/31/15

12/31/14

12/31/13

Toppan SMIC Electronic (Shanghai) Co., Ltd. (“Toppan”)

Shanghai, PRC

Ordinary

30.0

Zhongxin Xiecheng Investment (Beijing) Co., Ltd. (“Zhongxin Xiecheng”

Beijing, PRC

Ordinary

49.0

Brite Semiconductor Corporation

Cayman Island

Ordinary

47.8

48.7

Suzhou Changjiang Electric Xinke Investment Co., Ltd. (“Changjiang Xinke”)

Jiangsu, PRC

Ordinary

19.6

Sino IC Leasing Co., Ltd. (“SinoIC Leasing”)

Shanghai, PRC

Ordinary

8.8

China Fortune-Tech Capital Co., Ltd (“China Fortune-Tech”)

Shanghai, PRC

Ordinary

45.0

Beijing Wu Jin Venture Investment Center (Limited Partnership) (“WuJin”)**

Beijing, PRC

Ordinary

32.6

Shanghai Fortune-Tech Qitai Invest Center (Limited Partnership) (“Fortune-Tech Qitai”)**

Shanghai, PRC

Ordinary

33.0

Shanghai Fortune-Tech Zaixing Invest Center (Limited Partnership) (“Fortune-Tech Zaixing”)**

Shanghai, PRC

Ordinary

66.2

Suzhou Fortune-Tech Oriental Invest Fund Center (Limited Partnership) (“Fortune-Tech Oriental”)**

Jiangsu, PRC

Ordinary

44.8

In accordance with investment agreements, the Group has significant influence over Fortune-Tech Zaixing and Sino IC Leasing.

The Group invested in these associates indirectly though China IC Capital Co., Ltd (the “Fund”), a wholly-owned investment fund company of the Group, as set out in Note 19. The Fund is intended to invest primarily in integrated circuits related fund products and investment projects. The Group’s joint ventures and available-for-sale investments invested indirectly through the Fund are disclosed in Note 21 and Note 23, respectively.

All of these associates are accounted for using the equity method in these consolidated financial statements.

SMIC 2015 Annual Report

147

20.

Investments in associates (continued)

In December 2014, the Company entered into an investment agreement through SilTech Shanghai with Jiangsu Changjiang Electronics Technology Co., Ltd (“JCET”) and China Integrated Circuit Industry Investment Fund Co., Ltd., (“China IC Fund”) to set up Changjiang Xinke. The Group paid US$102 million to obtain 19.6% of total shares and 1 of 7 board seats. Changjiang Xinke and China IC Fund set up Suzhou Changdian Xinpeng Investment Ltd., Co. (“Changdian Xinpeng”) which acquired Stats ChipPAC Limited (“Stats ChipPAC”), a public company listed in Singapore capital market before acquired by Changdian Xinpeng. The investment was made in 2015 and the acquisition was completed in the same year.

Summarized financial information in respect of the Group’s material associates are set out below.

Toppan

	12/31/15			12/31/14			12/31/13
	USD’000			USD’000			USD’000
Current assets		51,661			44,538			47,554
Non-current assets		22,554			28,789			22,660
Current liabilities		(2,062	)		(311	)		(2,117	)
Non-current liabilities		—			—			—
Net assets		72,153			73,016			68,097

	Year ended			Year ended			Year ended
	12/31/15			12/31/14			12/31/13
	USD’000			USD’000			USD’000
Total revenue		20,782			23,498			23,796
Profit for the year		3,267			5,493			7,364
Other comprehensive income for the year		—			—			—
Total comprehensive income for the year		3,267			5,493			7,364
Dividends received from the associate during the year		—			—			—

Reconciliation of the above summarized financial information to the carrying amount of the interest in the associate recognized in the consolidated financial statements:

	12/31/15			12/31/14			12/31/13
	USD’000			USD’000			USD’000
Net assets of the associate		72,153			73,016			68,097
Proportion of the Group’s ownership interest in Toppan		30	%		30	%		30	%
Carrying amount of the Group’s interest in Toppan		21,646			21,905			20,429

148

SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

20.

Investments in associates (continued)

Changjiang Xinke

	12/31/15
	USD’000
Current assets		445,709
Non-current assets		1,837,445
Current liabilities		(581,838	)
Non-current liabilities		(1,093,368	)
Net assets		607,948
Equity attributable to owners of the associate		455,862
Non-controlling interests		152,086

	Year ended
	12/31/15
	USD’000
Total revenue		519,582
Loss for the year		(67,135	)
Loss attributable to owners of the associate		(65,589	)
Loss attributable to the non-controlling interests		(1,546	)
Loss for the year		(67,135	)
Other comprehensive income for the year		16,224
Total comprehensive loss for the year		(50,911	)
Total comprehensive loss attributable to owners of the associate		(51,473	)
Total comprehensive income attributable to the non-controlling interests		562
Total comprehensive loss for the year		(50,911	)
Dividends received from the associate during the year		—

Reconciliation of the above summarized financial information to the carrying amount of the interest in the associate recognized in the consolidated financial statements:

	12/31/15
	USD’000
Equity attributable to owners of the associate		455,862
Proportion of the Group’s ownership interest in Changjiang Xinke		19.6	%
Carrying amount of the Group’s interest in Changjiang Xinke		89,395

Fortune-Tech Zaixing

	12/31/15
	USD’000
Current assets		15,513
Non-current assets		7,581
Current liabilities		(3	)
Non-current liabilities		—
Net assets		23,091

SMIC 2015 Annual Report

149

20.

Investments in associates (continued)

Fortune-Tech Zaixing (continued)

	Year ended
	12/31/15
	USD’000
Total revenue		—
Loss for the year		(178	)
Other comprehensive income for the year		—
Total comprehensive loss for the year		(178	)
Dividends received from the associate during the year		—

Reconciliation of the above summarized financial information to the carrying amount of the interest in the associate recognized in the consolidated financial statements:

	12/31/15
	USD’000
Net assets of the associate		23,091
Proportion of the Group’s ownership interest in Fortune-Tech Zaixing		66.2	%
Carrying amount of the Group’s interest in Fortune-Tech Zaixing		15,292

Sino IC Leasing

	12/31/15
	USD’000
Current assets		502,454
Non-current assets		21,374
Current liabilities		(8,679	)
Non-current liabilities		(190,021	)
Net assets		325,128

	Year ended
	12/31/15
	USD’000
Total revenue		2,437
Profit for the year		3,761
Other comprehensive income for the year		—
Total comprehensive income for the year		3,761
Dividends received from the associate during the year		—

150

SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

20.

Investments in associates (continued)

Sino IC Leasing (continued)

Reconciliation of the above summarized financial information to the carrying amount of the interest in the associate recognized in the consolidated financial statements:

	12/31/15
	USD’000
Net assets of the associate		325,128
Proportion of the Group’s ownership interest in Sino IC Leasing		8.8	%
Carrying amount of the Group’s interest in Sino IC Leasing		28,736

21.

Investments in joint ventures

Details of the Group’s joint ventures, which are all unlisted companies invested indirectly through China IC Capital Co., Ltd, at the end of the reporting period are as follows:

Class of

Proportion of ownership

Place of establishment

interest and voting power held

Name of company

and operation

held

by the Group

12/31/15

12/31/14

12/31/13

Shanghai Xinxin Investment Centre (Limited Partnership) (“Shanghai Xinxin”)

Shanghai, PRC

Ordinary

49.0

Shanghai Chengxin Investment Center (Limited Partnership) (“Shanghai Chengxin”)

Shanghai, PRC

Ordinary

42.0

Summarized financial information in respect of the Group’s material joint venture is set out below.

Shanghai Xinxin

	12/31/15
	USD’000
Current assets		4,917
Non-current assets		28,631
Current liabilities		(3,287	)
Non-current liabilities		—
Net assets		30,261

	Year ended
	12/31/15
	USD’000
Total revenue		—
Loss for the year		(609	)
Other comprehensive income for the year		—
Total comprehensive loss for the year		(609	)
Dividends received from the joint venture during the year		—

SMIC 2015 Annual Report

151

21.

Investments in joint ventures (continued)

Shanghai Xinxin (continued)

Reconciliation of the above summarized financial information to the carrying amount of the interest in the joint venture recognized in the consolidated financial statements:

	12/31/15
	USD’000
Net assets of the joint venture		30,261
Proportion of the Group’s ownership interest in Shanghai Xinxin		49.0	%
Carrying amount of the Group’s interest in Shanghai Xinxin		14,829

22.

Derivative financial instrument

As of December 31, 2015, the amount of the derivative financial instrument was US$30.2 million (2014: nil and 2013: nil), which is a put option granted by JCET to sell the shares of Changjiang Xinke to JCET, pursuant to an investment exit agreement entered into by SilTech Shanghai (a subsidiary of the Company), JCET and Jiangsu Xinchao Technology Group Co., Ltd (a substantial shareholder of JCET). The fair value change of the derivative financial instrument was US$30.2 million for the year ended 2015 (2014: nil and 2013: nil). Please refer to note 20 for more details of the put option and refer to note 39 for valuation techniques of the put option.

23.

Other assets

	12/31/15		12/31/14		12/31/13
	USD’000		USD’000		USD’000
Available-for-sale investment		19,750		15,081		1,278
Others		12,328		15,786		4,959
Non-current		32,078		30,867		6,237

Available-for-sale investments are primarily fund companies and investment projects invested indirectly through China IC Capital Co., Ltd in the integrated circuits industry.

24.

Other financial assets

	12/31/15		12/31/14		12/31/13
	USD’000		USD’000		USD’000
Derivatives
Foreign currency forward contracts		172		—		—
Short-term investments
Financial products sold by banks		257,583		616,862		240,311
Bank deposits will mature over 3 months		25,125		27,209		—
		282,880		644,071		240,311

152

SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

25.

Inventories

	12/31/15		12/31/14		12/31/13
	USD’000		USD’000		USD’000
Raw materials		88,134		65,598		56,242
Work in progress		225,475		179,047		180,710
Finished goods		73,717		71,396		49,299
		387,326		316,041		286,251

The cost of inventories recognized as an expense (income) during the year in respect of inventory provision (reversal) was US$(13.3) million (2014: US$29.6 million and 2013: US$(0.1) million).

26.

Trade and other receivables

	12/31/15			12/31/14			12/31/13
	USD’000			USD’000			USD’000
Trade receivables		399,200			424,661			352,872
Allowance for doubtful debts		(41,976	)		(42,014	)		(44,643	)
		357,224			382,647			308,229
Other receivables and refundable deposits		142,622			73,741			71,132
		499,846			456,388			379,361

The Group determines credit terms mostly ranging from 30 to 60 days for each customer on a case-by-case basis, based on its assessment of such customer’s financial standing and business potential with the Group.

The Group determines its allowance for doubtful debts based on the Group’s historical experience and the relative aging of receivables as well as individual assessment of certain debtors. The Group provides allowance for doubtful debts based on recoverable amount by making reference to the age category of the remaining receivables and subsequent settlement. The Group’s allowance for doubtful debts excludes receivables from a limited number of customers due to their high credit worthiness. The Group recognized US$0.5 million, US$1.6 million and US$0.6 million of allowance for doubtful debts respectively during the year ended December 31, 2015, 2014 and 2013 respectively. The Group reviews, analyzes and adjusts allowance for doubtful debts on a monthly basis.

In evaluating the customers’ credit quality, the Group used an internal system based on each customer’s operation size, financial performance, listing status, payment history and other qualitative criteria. These criteria are reviewed and updated annually. Based on such evaluation, the Group believes the recoverability of those receivables that are not impaired is reasonably assured.

Trade receivables

Of the trade receivables balance at the end of the year of 2015, 2014 and 2013, US$125.7 million, US$131.3 million and US$129.4 million respectively are due from the Group’s two largest customers.

The following is an aged analysis of trade receivables presented based on the invoice date at the end of the reporting period.

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153

26.

Trade and other receivables (continued)

Trade receivables (continued)

Age of receivables

	12/31/15		12/31/14		12/31/13
	USD’000		USD’000		USD’000
Within 30 days		177,542		167,137		166,117
31–60 days		151,377		122,387		110,470
Over 60 days		70,281		135,137		76,285
Total		399,200		424,661		352,872

Trade receivables disclosed above include amounts (see below for aged analysis) that are past due at the end of the reporting for which the Group has not recognized an allowance for doubtful debts because there has not been a significant change in credit quality and the amounts are still considered recoverable.

	12/31/15		12/31/14		12/31/13
	USD’000		USD’000		USD’000
Current		312,479		270,220		269,740
Past due but not impaired
Within 30 days		39,737		55,412		24,480
31–60 days		3,534		20,915		10,068
Over 60 days		1,474		36,100		3,941
Total		357,224		382,647		308,229
Average overdue days		23		74		40

Movement in the allowance for doubtful debts

	12/31/15			12/31/14			12/31/13
	USD’000			USD’000			USD’000
Balance at beginning of the year		42,014			44,643			45,340
Addition in allowance for doubtful debts		528			1,616			617
Amounts written off during the year as uncollectible		(25	)		(4,186	)		(101	)
Reversal of allowance for doubtful debts		(541	)		(59	)		(1,213	)
Balance at end of the year		41,976			42,014			44,643

In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the end of the reporting period.

154

SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

26.

Trade and other receivables (continued)

Trade receivables (continued)

Age of impaired trade receivables

	12/31/15		12/31/14		12/31/13
	USD’000		USD’000		USD’000
Within 30 days		315		306		192
31–60 days		122		338		89
Over 60 days		41,539		41,370		44,362
Total		41,976		42,014		44,643

27.

Restricted cash

As of December 31, 2015, 2014 and 2013, restricted cash consisted of US$1.1 million, US$0.6 million and US$35.7 million, respectively of bank time deposits pledged against letters of credit and short-term borrowings, and US$74.0 million, US$135.4 million and US$111.9 million, respectively of government funding received mainly for the reimbursement of research and development expenses to be incurred.

As of December 31, 2015 the restricted cash of US$227.3 million was from a low interest cost entrusted loan granted by CDB Development Fund through China Development Bank, which is designated to be used for future capacity expansion. The Company expects to spend the restricted cash within the next 12 months.

As of December 31, 2014 the restricted cash of US$102 million was for the co-investment in the proposed acquisition of STATS ChipPAC through Changjiang Xinke. On June 18, 2015, the amount of US$102 million was applied as a capital contribution for 19.6% equity interest in Changjiang Xinke, which is accounted as an associate of the Group.

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155

28.

Shares and issued capital

Fully paid ordinary shares

	Number of		Share		Share
	shares		capital		premium
			USD’000		USD’000
Balance at December 31, 2012		32,000,139,623		12,800		4,083,588
Issuance of shares under the Company’s employee share option plan and RSU (see note 38)		112,167,478		45		6,641
The Company purchased shares of subsidiaries		—		—		(383	)
Balance at December 31, 2013		32,112,307,101		12,845		4,089,846
Issuance of shares under the Company’s employee share option plan and RSU (see note 38)		215,677,649		86		18,422
Ordinary shares issued at June 12, 2014		2,590,000,000		1,036		196,161
Ordinary shares issued at November 21, 2014		669,468,952		268		51,523
Ordinary shares issued at November 27, 2014		268,642,465		107		20,678
Balance at December 31, 2014		35,856,096,167		14,342		4,376,630
Issuance of shares under the Company’s employee share option plan and RSU (see note 38)		232,284,137		93		20,819
Ordinary shares issued at June 8, 2015		4,700,000,000		1,880		397,580
Ordinary shares issued at September 25, 2015		323,518,848		130		27,392
Ordinary shares issued at October 9, 2015		961,849,809		385		81,440
Balance at December 31, 2015		42,073,748,961		16,830		4,903,861

On February 12, 2015, the Company entered into a share purchase agreement with China IC Fund. Pursuant to the share purchase agreement, the Company proposed to issue 4,700,000,000 new ordinary shares (the “Placing of New Shares”) to the China IC Fund at a consideration of approximately HK$3,098.71 million. On June 8, 2015, the Placing of New Shares was completed and the Company issued 4,700,000,000 new ordinary shares to Xinxin (Hongkong) Capital Co., Limited, a wholly-owned subsidiary of the China IC Fund, at the issue price of HK$0.6593 per ordinary share. The net proceeds are recorded as share capital of approximately US$1.9 million and share premium of approximately US$397.6 million in the statements of financial position. Net proceeds of issue are measured after deducting directly attributable transaction costs of the share issue.

156

SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

28.

Shares and issued capital (continued)

Fully paid ordinary shares (continued)

On November 6, 2008 and April 18, 2011, respectively, the Company entered into share purchase agreements with Datang Telecom Technology & Industry Holdings Co., Ltd. (“Datang Holdings”) and Country Hill Limited (“Country Hill”) which granted each of Datang Holdings (Hongkong) Investment Company Limited (“Datang”) and Country Hill a pre-emptive right to subscribe for additional shares if the Company issues new shares to other investors. On March 2, 2015, the Company received irrevocable notices from both Datang and Country Hill about exercising their pre-emptive right as a result of the Placing of New Shares. On June 11, 2015, Datang and Country Hill entered into agreements with the Company (“2015 Datang Pre-emptive Share Purchase Agreement” and “2015 Country Hill Pre-emptive Share Purchase Agreement”, respectively) to subscribe for 961,849,809 ordinary shares and 323,518,848 ordinary shares of the Company, respectively, at a price of HK$0.6593 per share. On September 25, 2015, Country Hill subscribed 323,518,848 ordinary shares of the Company. On October 9, 2015, Datang subscribed 961,849,809 ordinary shares of the Company.

Fully paid ordinary shares, which have a par value of US$0.0004, carry one vote per share and carry a right to dividends.

Stock incentive plans

The Company has adopted the stock incentive plans under which options to subscribe for the Company’s shares have been granted to certain employees, officers and other service providers (Note 38).

29.

Reserves

Equity-settled employee benefits reserve

	12/31/15			12/31/14			12/31/13
	USD’000			USD’000			USD’000
Balance at beginning of year		64,540			55,177			42,232
Arising on share-based payments		18,088			18,388			16,402
Transfer to share premium		(12,169	)		(9,025	)		(3,457	)
Balance at end of year		70,459			64,540			55,177

The above equity-settled employee benefits reserve related to share options and RSUs granted by the Company to the Group’s employees and service providers under stock incentive plans. Items included in equity-settled employee benefits reserve will not be reclassified subsequently to profit or loss. Further information about share-based payments to employees and service providers is set out in Note 38.

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157

29.

Reserves (continued)

Foreign currency translation reserve

Items that may be reclassified subsequently to profit or loss

	12/31/15			12/31/14			12/31/13
	USD’000			USD’000			USD’000
Balance at beginning of year		4,229			4,553			3,916
Exchange differences arising on translating the foreign operations		(8,185	)		(324	)		731
Disposal of subsidiaries		—			—			(94	)
Balance at end of year		(3,956	)		4,229			4,553

Exchange differences relating to the translation of the results and net assets of the Group’s foreign operations from their functional currencies to the Group’s presentation currency (i.e. United States dollars) are recognized directly in other comprehensive income and accumulated in the foreign currency translation reserve. Exchange differences previously accumulated in the foreign currency translation reserve (in respect of translating both the net assets of foreign operations and hedges of foreign operations) are reclassified to profit or loss on the disposal/deconsolidation of the foreign operation.

Change in value of available-for-sale financial assets

	12/31/15
	USD’000
Balance at beginning of year		—
Change in value of available-for-sale financial assets during this year		447
Balance at end of year		447

The changes in the carrying amount of available-for-sale financial assets, which were initially recognized at fair value plus transaction costs and subsequently carried at fair value, recognized in other comprehensive income and accumulated under the heading of investments revaluation reserve. When the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss.

Convertible bonds equity reserve

	12/31/15		12/31/14		12/31/13
	USD’000		USD’000		USD’000
Balance at beginning of year		29,564		15,210		—
Recognition of the equity component of convertible bonds		—		14,354		15,210
Balance at end of year		29,564		29,564		15,210

158

SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

29.

Reserves (continued)

Convertible bonds equity reserve (continued)

The conversion option from the issuance of convertible bonds classified as equity is determined by deducting the amount of the liability component from the fair value of the compound instrument (i.e. convertible bond) as a whole. This is recognized and included in equity, net of income tax effects, and is not subsequently remeasured. In addition, the conversion option classified as equity will remain in equity until the conversion option is exercised, in which case, the balance recognized in equity will be transferred to share premium. Where the conversion option remains unexercised at the maturity date of the convertible bond, the balance recognized in equity will be transferred to retained earnings. No gain or loss is recognized in profit or loss upon conversion or expiration of the conversion option.

30.

Accumulated deficit

As stipulated by the relevant laws and regulations applicable to China’s foreign investment enterprise, the Company’s PRC subsidiaries are required or allowed to make appropriations to non-distributable reserves. The general reserve fund requires annual appropriation of 10% of after tax profit (as determined under accounting principles generally accepted in the PRC at each year-end), after offsetting accumulated losses from prior years, until the accumulative amount of such reserve fund reaches 50% of registered capital of the relevant subsidiaries. The general reserve fund can only be used to increase the registered capital and eliminate future losses of the relevant subsidiaries under PRC regulations. The staff welfare and bonus reserve is determined by the board of directors of the respective PRC subsidiaries and used for the collective welfare of the employee of the subsidiaries. The enterprise expansion reserve is for the expansion of the subsidiaries’ operations and can be converted to capital subject to approval by the relevant authorities. These reserves represent appropriations of the retained earnings determined in accordance with Chinese law. In 2015 the Group did not make any appropriation to non-distributable reserves. As of December 31, 2015, 2014 and 2013, the accumulated non-distributable reserve was US$30 million, US$30 million and US$30 million respectively.

In addition, due to restrictions on the distribution of paid-in capital from the Company’s PRC subsidiaries, the PRC subsidiaries’ paid-in capital of US$4,939 million at December 31, 2015 is considered restricted.

As a result of these PRC laws and regulations, as of December 31, 2015, reserve and capital of approximately US$4,969 million was not available for distribution to the Company by its PRC subsidiaries in the form of dividends, loans or advances.

In 2015, 2014 and 2013 the Company did not declare or pay any cash dividends on the ordinary shares.

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159

31.

Borrowings

	12/31/15		12/31/14		12/31/13
	USD’000		USD’000		USD’000
At amortized cost
Short-term commercial bank loans (i)		62,872		115,084		219,727
		62,872		115,084		219,727
Long-term debt by contracts
2012 USD Loan (SMIC Shanghai) (ii)		—		—		201,000
2013 USD Loan (SMIC Shanghai) (iii)		10,760		221,520		260,000
2015 USD Loan (SMIC Shanghai) (iv)		52,854		—		—
2015 RMB Loan I (SMIC Shanghai) (v)		154,095		—		—
2015 RMB Loan II (SMIC Shanghai) (vi)		73,195		—		—
2015 EXIM RMB Loan (SMIC Shanghai) (vii)		73,966		—		—
2012 USD Loan (SMIC Beijing) (viii)		—		—		260,000
2013 EXIM USD Loan (SMIC Beijing) (ix)		—		40,000		40,000
2013 CIDC RMB Entrust loan (SMIC Beijing) (x)		—		2,450		10,795
2014 EXIM RMB Loan (SMIC Beijing) (xi)		36,983		39,200		—
2015 CDB RMB Loan (SMIC Beijing) (xii)		30,048		—		—
2015 RMB Entrust Loan (SJ Jiangyin) (xiii)		14,331		—		—
2015 CDB USD Loan (SJ Jiangyin) (xiv)		20,000		—		—
		466,232		303,170		771,795
Less: current maturities of long-term debt		50,196		46,970		170,820
Non-current maturities of long-term debt		416,036		256,200		600,975
Borrowing by repayment schedule:
Within 1 year		113,068		162,054		390,547
Within 1–2 years		15,830		125,200		209,965
Within 2–5 years		172,916		131,000		367,990
Over 5 years		227,290		—		23,020
		529,104		418,254		991,522

Summary of borrowing arrangements

(i)

As of December 31, 2015, the Group had 29 short-term credit agreements that provided total credit facilities up to US$1,414.6 million on a revolving credit basis. As of December 31, 2015, the Group had drawn down US$62.9 million under these credit agreements. The outstanding borrowings under these credit agreements are unsecured. The interest rate on this loan facility ranged from 0.98% to 4.20% in 2015.

(ii)

In March 2012, SMIS entered into a loan facility in the aggregate principal amount of US$268 million from a consortium of international and Chinese banks. This three-year bank facility was used to finance the working capital for SMIS’s 8-inch fab. The facility was secured by the manufacturing equipment located in the SMIS 8-inch fabs, buildings and land use right of SMIS. SMIS had drawn down US$268 million and repaid the outstanding balance on this loan facility in advance by December 2014.

160

SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

31.

Borrowings (continued)

Summary of borrowing arrangements (continued)

(iii)

In August 2013, SMIS entered into a loan facility in the aggregate principal amount of US$470 million with a syndicate of financial institutions based in the PRC. This seven-year bank facility was used to finance the planned expansion for SMIS’ 12-inch fab. The facility is secured by the manufacturing equipment located in the SMIS’ 12-inch fab. As of December 31, 2015, SMIS had drawn down US$260 million and repaid US$249.2 million on this loan facility. The outstanding balance of US$10.8 million is repayable from February 2018 to August 2018. The interest rate on this loan facility ranged from 4.33% to 4.89% in 2015. SMIS was in compliance with the related financial covenants as of December 31, 2015.

(iv)

(v)

(vi)

(vii)

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161

31.

Borrowings (continued)

Summary of borrowing arrangements (continued)

(viii)

In March 2012, SMIB entered into the Beijing USD syndicate loan, a seven-year loan facility in the aggregate principal amount of US$600 million, with a syndicate of financial institutions based in the PRC. This seven-year bank facility was used to expand the capacity of SMIB’s 12-inch fabs. The facility was secured by the manufacturing equipment located in the SMIB and SMIT fabs, and 100% equity pledge of SMIB and SMIT. As of December 31, 2014, SMIB had drawn down US$260 million and repaid the outstanding balance on this loan facility in advance by September 2014.

(ix)

In June 2013, SMIB entered into a USD Loan, a twenty-six-month working capital loan facility in the principal amount of US$60 million with The Export-Import Bank of China, which was unsecured. This twenty-six-month bank facility was used for working capital purposes. As of December 31, 2015, SMIB had drawn down US$40 million on this loan facility. The principal amount was repaid in August 2015. The interest rate on this loan facility was 3.33% in 2015.

(x)

In June 2013, SMIB entered into a RMB Loan, a two-year working capital entrust loan facility in the principal amount of RMB70 million with China Investment Development Corporation through China CITIC Bank, which was unsecured. This two-year entrust loan facility was used for working capital purposes. SMIB drawn down RMB70 million (approximately US$10.8 million) and had repaid the outstanding balance on this loan facility in advance by May 2015. The interest rate on this loan facility was 12.0% in 2015.

(xi)

In December 2014, SMIB entered into the new RMB Loan, a two-year working capital loan facility in the principal amount of RMB240 million with The Export-Import Bank of China, which is unsecured. This two-year bank facility was used for working capital purposes. As of December 31, 2015, SMIB had drawn down RMB240 million (approximately US$37.0 million) on this loan facility. The principal amount is repayable in December 2016. The interest rate on this loan facility ranged from 3.65% to 3.90% in 2015.

(xii)

(xiii)

162

SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

31.

Borrowings (continued)

Summary of borrowing arrangements (continued)

(xiv)

In September 2015, SJ Jiangyin entered into the new USD Loan, a seven-year working capital loan facility in the principal amount of US$44.5 million with China Development Bank. This bank facility was used to expand the capacity of SJ Jiangyin’s 12-inch bumping fab. The facility is guaranteed by SMIB. As of December 31, 2015, SJ Jiangyin had drawn down US$20 million on this loan facility. The principal amount is repayable from September 2017 to September 2022. The interest rate on this loan facility ranged from 4.20% to 4.23% in 2015.

As of December 31, 2015, property, plant and equipment and land use right with carrying amount of approximately US$324 million (2014: US$308 million and 2013: US$1,007 million) have been pledged to secure borrowings of the Group.

32.

Convertible bonds

(i)

Issue of US$200 million zero coupon convertible bonds due 2018

The Company issued convertible bonds at a par value of US$200,000 each with an aggregate principal amount of US$200,000,000 on November 7, 2013 (the “Original Bonds”).

The principal terms of the Original Bonds are as follows:

(1)

Denomination of the Original Bonds — The Original Bonds are denominated in USD.

(2)

Maturity date — Five years from the date of issuance, which is November 7, 2018 (“Maturity Date”).

(3)

Interest — The Original Bonds do not bear any cash interest.

(4)

Conversion —

Conversion price — The price is HK$0.7965 per each new share to be issued upon conversion of the Original Bonds (“Conversion Share”), subject to anti-dilutive adjustment in accordance with the terms of the bonds, including subdivision, reclassification or consolidation of shares of the Company, capitalization of profits or reserves, capital distribution, issuance of options or rights, and certain other events.

Conversion period — The Bondholder has the right to convert the Original Bonds into shares at any time on or after December 18, 2013 up to the close of business on the date falling seven days prior to the Maturity Date or if such bonds shall have been called or put for redemption at any time before the Maturity Date, then up to the close of business on a date no later than seven days prior to the date fixed for redemption, which is discussed below.

Number of Conversion Shares issuable — 1,946,817,325 Conversion Shares will be issued upon full conversion of the Original Bonds based on the initial conversion price of HK$0.7965 (translated at the fixed exchange rate of HK$7.7532 = US$1.0 as pre-determined).

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163

32.

Convertible bonds (continued)

(i)

Issue of US$200 million zero coupon convertible bonds due 2018 (continued)

(1)

Redemption —

At the option of the Company:

(I)

Redemption at maturity — The Company will redeem the outstanding Original Bonds at principal amount on the Maturity Date.

(II)

Redemption for tax reasons — The Company will redeem all and not only some of the Original Bonds at their principal amount, at its option, at any time, on giving not less than 30 nor more than 60 days’ notice to the Bondholders on the date specified in the Tax Redemption Notice.

(III)

Redemption at the Option — The Company may redeem all and not only some of the Original Bonds on the date specified in the Option Redemption Notice at their principal amount at any time after November 7, 2015, provided that the Closing Price of a Share at least 120 percent of the Conversion Price then in effect immediately prior to the date upon which notice of such redemption is given. If at any time the aggregate principal amount of the outstanding Original Bonds is less than 10% of the aggregate principal amount originally issued, the Issuer may redeem all and not only some of such outstanding Original Bonds at their principal amount.

At the option of the Bondholder:

(I)

Redemption on change of control — Upon the occurrence of a Change of Control, the Bondholder will have the right, at such holder’s option, to require the Company to redeem all or some only of such holder’s bonds on the Change of Control put date at their principal amount of the Original Bonds.

(II)

Redemption at the option — The holders of each Bond will have the right at such holder’s option, to require the Issuer to redeem all or some only of the Original Bonds of such holder on the Optional Put Date (on November 7, 2016) at their principal amount.

(2)

Purchase — The Issuer or any of their respective Subsidiaries may, subject to applicable laws and regulations, at any time and from time to time purchase the Original Bonds at any price in the open market or otherwise.

(3)

Cancellation — All the Original Bonds which are redeemed, converted or purchased by the Issuer or any of its Subsidiaries, will forthwith be cancelled. Certificates in respect of all the Original Bonds cancelled will be forwarded to or to the order of the Registrar and such Original Bonds may not be reissued or resold.

164

SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

32.

Convertible bonds (continued)

	(i)	Issue of US$200 million zero coupon convertible bonds due 2018 (continued)

The Original Bonds issued at November 7, 2013 is a compound instrument included a liability component and an equity component. There are embedded derivatives in respect of the early redemption features of the Original Bonds, which are deemed to be clearly and closely related to the host contract and therefore, do not need to be separately accounted for. The fair value of the liability component of the Original Bonds was approximately US$179.4 million and the equity component was approximately US$15.2 million, determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole.

	USD’000
Principal amount		200,000
Transaction cost		(5,400	)
Liability component at the date of issue		(179,390	)
Equity component		15,210

Subsequent to the initial recognition, the liability component of the Original Bonds was carried at amortized cost using the effective interest method. The effective interest rate of the liability component of the Original Bonds was 3.69% per annum. The movement of the liability component and equity component of the Original Bonds for the year ended December 31, 2015 is set out below:

	Liability		Equity
	Component		Component		Total
	USD’000		USD’000		USD’000
As at November 7, 2013		179,390		15,210		194,600
Interest charged during 2013		1,173		—		1,173
As at December 31, 2013		180,563		15,210		195,773
Interest charged during 2014		6,593		—		6,593
As at December 31, 2014		187,156		15,210		202,366
Interest charged during 2015		6,910		—		6,910
As at December 31, 2015		194,066		15,210		209,276

The equity component will remain in convertible bond equity reserve until the embedded conversion option is exercised or the Original Bonds mature.

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165

32.

Convertible bonds (continued)

	(ii)	Issue of US$86.8 million zero coupon convertible bonds due 2018

On May 29, 2014, the Company issued convertible bonds at a par value of US$200,000 each with an aggregate principal amount of US$54,600,000 to Datang and an aggregate principal amount of US$32,200,000 to Country Hill (collectively, the “Original Pre-emptive Bonds”). The issue price was 100% of the aggregate principal amount of the Original Pre-emptive Bonds and the terms and conditions of the Original Pre-emptive Bonds are the same in all respects as those for the Original Bonds except for the issue date (details have been set out in Note 32(i)). The Original Pre-emptive Bonds is a compound instrument that included a liability component and an equity component. There are embedded derivatives in respect of the early redemption features of the Original Pre-emptive Bonds, which are deemed to be clearly and closely related to the host contract and therefore, do not need to be separately accounted for. The fair value of the liability component of the Original Pre-emptive Bonds was approximately US$81.2 million and the equity component was approximately US$5.6 million, determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole.

	USD’000
Principal amount		86,800
Transaction cost		—
Liability component at the date of issue		(81,235	)
Equity component		5,565

Subsequent to the initial recognition, the liability component of the Original Pre-emptive Bonds was carried at amortized cost using the effective interest method. The effective interest rate of the liability component of the Original Pre-emptive Bonds was 2.78% per annum. The movement of the liability component and equity component of the Original Pre-emptive Bonds for the year ended December 31, 2015 is set out below:

	Liability		Equity
	Component		Component		Total
	USD’000		USD’000		USD’000
As at May 29, 2014		81,235		5,565		86,800
Interest charged during 2014		1,315		—		1,315
As at December 31, 2014		82,550		5,565		88,115
Interest charged during 2015		2,292		—		2,292
As at December 31, 2015		84,842		5,565		90,407

The equity component will remain in convertible bond equity reserve until the embedded conversion option is exercised or the Original Pre-emptive Bonds mature.

The Original Pre-emptive Bonds have been consolidated and have formed a single series with the Original Bonds from the date of their issue.

166

SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

32.

Convertible bonds (continued)

	(iii)	Issue of US$95 million zero coupon convertible bonds due 2018

On June 24, 2014, the Company issued convertible bonds at a par value of US$200,000 each with an aggregate principal amount of US$95,000,000 (the “Further Bonds”). The issue price was 101.5% of the aggregate principal amount of the Further Bonds and the terms and conditions of the Further Bonds are the same in all respects as those for the Original Bonds except for the issue date (details have been set out in Note 32(i)). The Further Bonds is a compound instrument that included a liability component and an equity component. There are embedded derivatives in respect of the early redemption features of the Further Bonds, which are deemed to be clearly and closely related to the host contract and therefore, do not need to be separately accounted for. The fair value of the liability component of the Further Bonds was approximately US$87.1 million and the equity component was approximately US$7.1 million, determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole.

	USD’000
Principal amount		95,000
Premium of convertible bonds		1,425
Transaction cost		(2,187	)
Liability component at the date of issue		(87,090	)
Equity component		7,148

Subsequent to the initial recognition, the liability component of the Further Bonds was carried at amortized cost using the effective interest method. The effective interest rate of the liability component of the Further Bonds was 3.79% per annum. The liability component and equity component of the Further Bonds for the year ended December 31, 2015 is set out below:

	Liability		Equity
	Component		Component		Total
	USD’000		USD’000		USD’000
As at June 24, 2014		87,090		7,148		94,238
Interest charged during 2014		1,650		—		1,650
As at December 31, 2014		88,740		7,148		95,888
Interest charged during 2015		3,362		—		3,362
As at December 31, 2015		92,102		7,148		99,250

The equity component will remain in convertible bond equity reserve until the embedded conversion option is exercised or the Further Bonds mature.

The Further Bonds have been consolidated and have formed a single series with the Original Bonds from the date of their issue.

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32.

Convertible bonds (continued)

	(iv)	Issue of US$22.2 million zero coupon convertible bonds due 2018

On December 4, 2014, the Company issued convertible bonds at a par value of US$200,000 each with an aggregate principal amount of US$22,200,000 to Datang (the “Further Pre-emptive Bonds”). The issue price was 101.5% of the aggregate principal amount of the Further Pre-emptive Bonds and the terms and conditions of the Further Pre-emptive Bonds are the same in all respects as those for the Original Bonds except for the issue date (details have been set out in Note 32(i)). The Further Pre-emptive Bonds is a compound instrument that included a liability component and an equity component. There are embedded derivatives in respect of the early redemption features of the Further Pre-emptive Bonds, which are deemed to be clearly and closely related to the host contract and therefore, do not need to be separately accounted for. The fair value of the liability component of the Further Pre-emptive Bonds was approximately US$20.9 million and the equity component was approximately US$1.6 million, determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole.

	USD’000
Principal amount		22,200
Premium of convertible bonds		333
Liability component at the date of issue		(20,892	)
Equity component		1,641

Subsequent to the initial recognition, the liability component of the Further Pre-emptive Bonds was carried at amortized cost using the effective interest method. The effective interest rate of the liability component of the Further Pre-emptive Bonds was 3.22% per annum. The liability component and equity component of the Further Pre-emptive Bonds for the year ended December 31, 2015 is set out below:

	Liability		Equity
	Component		Component		Total
	USD’000		USD’000		USD’000
As at December 4, 2014		20,892		1,641		22,533
Interest charged during 2014		56		—		56
As at December 31, 2014		20,948		1,641		22,589
Interest charged during 2015		674		—		674
As at December 31, 2015		21,622		1,641		23,263

The equity component will remain in convertible bond equity reserve until the embedded conversion option is exercised or the Further Pre-emptive Bonds mature.

The Further Pre-emptive Bonds have been consolidated and have formed a single series with the Original Bonds from the date of their issue.

The holders of each convertible bond may require the Company to redeem all or some only of the convertible bonds at their principal amount on November 7, 2016. Accordingly, all the convertible bonds disclosed above were classified as current liabilities at December 31, 2015.

168

SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

33.

Bonds payable

On October 7, 2014, the Company issued 5-year unsecured corporate bonds for a total amount of US$500 million. The corporate bonds carry a coupon interest rate of 4.125% with bond interest payable semi-annually on March 31 and September 30. As at the issue date, the net book value of the liabilities amounted to US$491.2 million after the deduction of (1) a discount of US$5.2 million and (2) issue expenses of US$3.6 million.

	USD’000
Principal amount		500,000
Discount of bonds payable		(5,185	)
Transaction cost		(3,634	)
Bonds payable		491,181

The movement of the corporate bonds for the year ended December 31, 2015 is set out below:

	USD’000
As at October 7, 2014		491,181
Interest charged during 2014		5,554
Interest payable recognized during 2014		(5,156	)
As at December 31, 2014		491,579
Interest charged during 2015		22,253
Interest payable recognized during 2015		(20,625	)
As at December 31, 2015		493,207

34.

Other liabilities

The amounts of other liabilities as of December 31, 2015 were US$65.8 million (2014: nil and 2013: nil), US$48.0 million (2014: nil and 2013: nil) of which were accrued bonus to be paid later than one year.

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35.

Trade and other payables

	12/31/15		12/31/14		12/31/13
	USD’000		USD’000		USD’000
Trade payables		885,438		645,414		285,967
Advance receipts from customers		72,865		54,724		41,164
Deposit received		47,468		77,296		48,976
Other payable		41,995		16,927		17,783
		1,047,766		794,361		393,890

Trade payables are non-interest bearing and are normally settled on 30-day to 60-day terms.

As of December 31, 2015, 2014 and 2013, trade payables were US$885.4 million, US$645.4 million and US$286.0 million, within which the payables for property, plant and equipment were US$660.7 million, US$425.1 million and US$117.6 million, respectively.

The following is an aged analysis of accounts payable presented based on the invoice date at the end of the reporting period.

	12/31/15		12/31/14		12/31/13
	USD’000		USD’000		USD’000
Within 30 days		788,936		555,556		214,219
Between 31 to 60 days		36,596		25,729		20,295
Over 60 days		59,906		64,129		51,453
		885,438		645,414		285,967

An aged analysis of the accounts payable is as follows:

	12/31/15		12/31/14		12/31/13
	USD’000		USD’000		USD’000
Current		814,553		599,584		237,337
Overdue:
Within 30 days		24,554		12,520		9,493
Between 31 to 60 days		10,458		4,954		12,299
Over 60 days		35,873		28,356		26,838
		885,438		645,414		285,967

36.

Accrued liabilities

The amounts of accrued liabilities as of December 31, 2015, 2014 and 2013 were US$132.5 million, US$131.1 million and US$127.6 million, within which the amounts of accrued payroll expenses were US$71.5 million, US$62.5 million and US$55.5 million, respectively.

170

SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

37.

Other financial liabilities

	12/31/15		12/31/14		12/31/13
	USD’000		USD’000		USD’000
Derivatives carried at fair value through profit or loss (FVTPL)
Cross currency swap contracts		1,459		—		—
		1,459		—		—

38.

Share-based payments

Stock incentive plans

The Company’s stock incentive plans allow the Company to offer a variety of incentive awards to employees, consultants or external service advisors of the Group.

Stock option plan

The options are granted at the fair market value of the Company’s ordinary shares and expire 10 years from the date of grant and vest over a requisite service period of four years.

The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model, taking into account the terms and conditions upon which the share options were granted.

Restricted share units (“RSUs”)

The Company adopted the Equity Incentive Plan (“EIP”) whereby the Company provides additional incentives to the Group’s employees, directors and external consultants through the issuance of restricted shares, RSUs and stock appreciation rights to the participants at the discretion of the Board of Directors. The RSUs vest over a requisite service period of 4 years and expire 10 years from the date of grant.

The fair value of each RSU granted is estimated on the date of grant using the Black-Scholes option pricing model, taking into account the terms and conditions upon which the instruments were granted.

Share option plan for subsidiaries (“Subsidiary Plan”)

The options granted under the Subsidiary Plan shall entitle a participant of the Subsidiary Plan to purchase a specified number of subsidiary shares during a specified period at the price fixed by the relevant subsidiary committee at the time of grant or by a method specified by the relevant subsidiary committee at the time of grant and expire 10 years from the date of grant. The options vest over a requisite service period of four years.

The expense recognized for employee services received during the year is shown in the following table:

Year ended

12/31/15

12/31/14

12/31/13

USD’000

Expense arising from equity-settled share-based payment transactions

18,329

18,388

16,402

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171

38.

Share-based payments (continued)

Movements during the year

(i)

The following table illustrates the number and weighted average exercise prices (“WAEP”) of, and movements in, share options during the year (excluding RSUs and Subsidiary Plan):

	2015			2015		2014			2014		2013			2013
	Number			WAEP		Number			WAEP		Number			WAEP
Outstanding at January 1		1,163,627,269		US$	0.08		1,320,383,853		US$	0.09		1,285,367,372		US$	0.09
Granted during the year		56,565,258		US$	0.10		153,998,051		US$	0.10		270,695,247		US$	0.08
Forfeited and expired during the year		(87,928,903	)	US$	0.14		(161,539,854	)	US$	0.15		(158,907,830	)	US$	0.11
Exercised during the year		(129,307,845	)	US$	0.07		(149,214,781	)	US$	0.06		(76,770,936	)	US$	0.04
Outstanding at December 31		1,002,955,779		US$	0.08		1,163,627,269		US$	0.08		1,320,383,853		US$	0.09
Exercisable at December 31		513,197,994		US$	0.08		489,477,234		US$	0.09		483,679,899		US$	0.11

The weighted average remaining contractual life for the share options outstanding as at December 31, 2015 was 6.04 years (2014: 6.59 years and 2013: 6.58 years).

The range of exercise prices for options outstanding at the end of the year was from US$0.02 to US$0.15 (2014: from US$0.02 to US$0.22 and 2013: from US$0.02 to US$0.35).

The weighted average closing price of the Company’s shares immediately before the dates on which the share options were exercised was US$0.11 (2014: US$0.10 and 2013: US$0.07).

During the year ended December 31, 2015, share options were granted on February 24, 2015 May 20, 2015 and September 11, 2015. The fair values of the options determined at the dates of grant using the Black-Scholes Option Pricing model were US$0.04, US$0.04 and US$0.05, respectively.

During the year ended December 31, 2014, share options were granted on June 12, 2014 and November 17, 2014. The fair values of the options determined at the dates of grant using the Black-Scholes Option Pricing model were US$0.04 and US$0.05, respectively.

During the year ended December 31, 2013, share options were granted on May 7, 2013, June 11, 2013, June 17, 2013, September 6, 2013 and November 4, 2013. The fair values of the options determined at the dates of grant using the Black-Scholes Option Pricing model were US$0.04, US$0.04, US$0.04, US$0.04 and US$0.03, respectively.

The following table list the inputs to the Black Scholes Pricing models used for the option granted during the years ended 31 December 2015, 2014 and 2013 respectively:

	2015			2014			2013
Dividend yield (%)		—			—			—
Expected volatility		46.13	%		50.93	%		62.18	%
Risk-free interest rate		1.61	%		1.67	%		1.23	%
Expected life of share options		6 years			5 years			5 years

172

SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

38.

Share-based payments (continued)

Movements during the year (continued)

(i)

The following table illustrates the number and weighted average exercise prices (“WAEP”) of, and movements in, share options during the year (excluding RSUs and Subsidiary Plan): (continued)

The risk-free rate for periods within the contractual life of the option is based on the yield of the US Treasury Bond. The expected term of options granted represents the period of time that options granted are expected to be outstanding. Expected volatilities are based on the average volatility of the Company’s stock prices with the time period commensurate with the expected term of the options. The dividend yield is based on the Company’s intended future dividend plan.

The valuation of the options are based on the best estimates from Company by taking into account a number of assumptions and is subject to limitation of the valuation model. Changes in variables and assumptions may affect the fair value of these options.

(ii)

The following table illustrates the number and weighted average fair value (“WAFV”) of, and movements in, RSUs during the year (excluding stock option plan and Subsidiary Plan):

	2015			2015		2014			2014		2013			2013
	Number			WAFV		Number			WAFV		Number			WAFV
Outstanding at January 1		274,057,667		US$	0.09		233,158,731		US$	0.07		125,358,288		US$	0.06
Granted during the year		146,852,985		US$	0.11		114,726,892		US$	0.11		151,336,161		US$	0.08
Forfeited during the year		(13,421,683	)	US$	0.10		(7,365,088	)	US$	0.09		(8,139,176	)	US$	0.07
Exercised during the year		(102,976,292	)	US$	0.08		(66,462,868	)	US$	0.07		(35,396,542	)	US$	0.06
Outstanding at December 31		304,512,677		US$	0.10		274,057,667		US$	0.09		233,158,731		US$	0.07

The weighted average remaining contractual life for the RSUs outstanding as at December 31, 2015 was 8.69 years (2014: 8.75 years and 2013: 8.88 years). The weighted average closing price of the Company’s shares immediately before the dates on

which the RSUs were exercised was US$0.09 (2014: US$0.08 and 2013: US$0.08).

During the year ended December 31, 2015, RSUs were granted on May 20, 2015, September 11, 2015 and November 23, 2015. The fair values of the RSUs determined at the dates of grant using the Black-Scholes Option Pricing model were US$0.11, US$0.09 and US$0.11.

During the year ended December 31, 2014, RSUs were granted on November 17, 2014. The fair values of the RSUs determined at the dates of grant using the Black-Scholes Option Pricing model were US$0.11.

During the year ended December 31, 2013, RSUs were granted on June 11, 2013. The fair values of the RSUs determined at the dates of grant using the Black-Scholes Option Pricing model were US$0.08.

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38.

Share-based payments (continued)

Movements during the year (continued)

(ii)

The following table illustrates the number and weighted average fair value (“WAFV”) of, and movements in, RSUs during the year (excluding stock option plan and Subsidiary Plan): (continued)

The following table list the inputs to the models used for the plans for the years ended December 31, 2015, 2014 and 2013, respectively:

	2015			2014			2013
Dividend yield (%)		—			—			—
Expected volatility		37.07	%		38.49	%		47.03	%
Risk-free interest rate		0.60	%		0.54	%		0.34	%
Expected life of RSUs		2 years			2 years			2 years

The risk-free rate for periods within the contractual life of the RSUs is based on the yield of the US Treasury Bond. The expected term of RSUs granted represents the period of time that RSUs granted are expected to be outstanding. Expected volatilities are based on the average volatility of the Company’s stock prices with the time period commensurate with the expected term of the RSUs. The dividend yield is based on the Company’s intended future dividend plan.

The valuation of the RSUs is based on the best estimates from Company by taking into account a number of assumptions and is subject to limitation of the valuation model. Changes in variables and assumptions may affect the fair value of these RSUs.

(iii)

The following table illustrates the number and weighted average exercise prices (“WAEP”) of, and movements in, share options of the Subsidiary Plan during the year (excluding stock option plan and RSUs):

	2015			2015
	Number			WAEP
Outstanding at January 1		—			—
Granted during the year		8,330,000		US$	0.06
Forfeited and expired during the year		(1,192,500	)	US$	0.06
Exercised during the year		(137,500	)	US$	0.05
Outstanding at December 31		7,000,000		US$	0.06
Exercisable at December 31		689,479		US$	0.05

The weighted average remaining contractual life for the share options outstanding as at December 31, 2015 was 9.1 years.

The range of exercise prices for options outstanding at the end of the year was from US$0.05 to US$0.08.

During the year ended December 31, 2015, share options of the Subsidiary Plan were granted on January 1, 2015, May 4, 2015 and September 15, 2015. The fair values of the options of the Subsidiary Plan determined at the dates of grant using the Black-Scholes Option Pricing model were US$0.069, US$0.069 and US$0.099, respectively.

174

SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

38.

Share-based payments (continued)

Movements during the year (continued)

(iii)

The following table list the inputs to the Black Scholes Pricing models used for the option of the Subsidiary Plan granted during the years ended 31 December 2015:

	2015
Dividend yield (%)		—
Expected volatility		36.0	%
Risk-free interest rate		1.01	%
Expected life of share options		3 years

The risk-free rate for periods within the contractual life of the option of the Subsidiary Plan is based on the yield of the US Treasury Bond. The expected term of options of the Subsidiary Plan granted represents the period of time that options of the Subsidiary Plan granted are expected to be outstanding. Expected volatilities are based on the average volatility of the relevant subsidiary’s set of public comparables with the time period commensurate with the expected term of the options. The dividend yield is based on the relevant subsidiary’s intended future dividend plan.

The valuation of the options of the Subsidiary Plan are based on the best estimates from the relevant subsidiary by taking into account a number of assumptions and is subject to limitation of the valuation model. Changes in variables and assumptions may affect the fair value of these options.

39.

Financial instruments

Capital management

The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximizing the return to stakeholders through the optimization of the capital structure.

The capital structure of the Group consists of net debt (debt as detailed in Note 31, Note 32 and Note 33 offset by cash and cash equivalent) and equity of the Group.

Where the entity manages its capital through issuing/repurchasing shares and raising/repayment of debts. The Group reviews the capital structure on a semi-annual basis. As part of this review, the Group considers the cost of capital and the risks associates with each class of capital. The Group will balance its overall capital structure through the payment of dividends, new share issues and share buy-backs as well as the issue of new debt or the redemption of existing debt.

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39.

Financial instruments (continued)

Gearing ratio

The gearing ratio at end of the reporting period was as follows.

	12/31/15			12/31/14			12/31/13
	USD’000			USD’000			USD’000
Debt (i)		1,414,943			1,289,227			1,172,085
Cash and cash equivalent		(1,005,201	)		(603,036	)		(462,483	)
Other financial assets		(282,880	)		(644,071	)		(240,311	)
Net debt		126,862			42,120			469,291
Equity		4,190,255			3,307,722			2,593,182
Net debt to equity ratio		3.0	%		1.3	%		18.1	%

(i)

Debt is defined as long-and short-term borrowings (excluding derivatives), convertible bonds, and bonds payables as described in Note 31, Note 32 and Note 33.

Financial risk management objectives

The Group’s corporate treasury function co-ordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Group through internal risk reports which analyze exposures by degree and magnitude of risks. These risks include market risk including currency risk, interest rate risk and other price risk, credit risk and liquidity risk.

The Group seeks to minimize the effects of these risks by using derivative financial instruments to hedge risk exposures. The use of financial derivatives is governed by the Group’s policies approved by the board of directors, which provide written principles on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment of excess liquidity. Compliance with policies and exposure limits is reviewed on continuous basis. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.

Market risk

The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The Group enters into a variety of derivative financial instruments to manage its exposure to foreign currency risk and interest rate risk, including:

forward foreign exchange contracts to hedge the exchange rate risk arising on the import from suppliers;

interest rate swaps to mitigate the risk of rising interest rates; and

cross-currency interest rate swap agreements to protect against volatility of future cash flows caused by the changes in both interest rates and exchange rates associated with outstanding long-term debt denominated in a currency other than the US dollar.

Market risk exposures are measured using the sensitivity analysis and the analysis in the following sections relate to the position as at December 31, 2015, 2014 and 2013.

176

SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

39.

Financial instruments (continued)

Market risk (continued)

There has been no change to the Group’s exposure to market risks or the manner in which these risks are managed and measured.

Foreign currency risk management

The Group undertakes transactions denominated in foreign currencies, consequently, exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters utilizing forward foreign exchange contracts.

The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at the end of the reporting period were as follows:

	Liabilities						Assets
	12/31/15		12/31/14		12/31/13		12/31/15		12/31/14		12/31/13
	USD’000		USD’000		USD’000		USD’000		USD’000		USD’000
EUR		76,462		2,488		3,037		33,968		480		2,595
JPY		5,553		7,560		7,925		2,986		606		1,499
RMB		586,931		221,336		133,177		909,497		1,148,146		766,960
Others		14,127		4,684		8,226		2,529		1,100		7,323

Foreign currency sensitivity analysis

The Group is mainly exposed to the currency of RMB, Japanese Yen (“JPY”) and Euros (“EUR”).

The following table details the Group’s sensitivity to a 5% increase in the foreign currencies against USD. 5% represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 5% change in foreign currency rates. For a 5% decrease of the foreign currency against USD, there would be an equal and opposite impact on the profit or equity below predicted.

	EUR									JPY									RMB						Others
	2015			2014			2013			2015			2014			2013			2015		2014		2013		2015			2014			2013
	USD’000			USD’000			USD’000			USD’000			USD’000			USD’000			USD’000		USD’000		USD’000		USD’000			USD’000			USD’000
Profit or loss		(2,125	)		(100	)		(22	)		(128	)		(366	)		(338	)		16,128		48,780		33,357		(580	)		(190	)		(1	)
Equity		(2,125	)		(100	)		(22	)		(128	)		(366	)		(338	)		16,128		48,780		33,357		(580	)		(190	)		(1	)

Forward foreign exchange contracts

It is the policy of the Group to enter into forward foreign exchange contracts to cover specific foreign currency payments and receipts within the exposure generated. The Group also enters into forward foreign exchange contracts to manage the foreign currency exposure from purchases/sales and financing activities.

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177

39.

Financial instruments (continued)

Foreign currency risk management (continued)

Forward foreign exchange contracts (continued)

The following table details the forward foreign currency (FC) contracts outstanding at the end of the reporting period:

Outstanding contracts

Average exchange rate

Foreign currency

Notional value

Fair value assets/(liabilities)

12/31/15

12/31/14

12/31/13

12/31/15

12/31/14

12/31/13

12/31/15

12/31/14

12/31/13

12/31/15

12/31/14

12/31/13

FC’000

USD’000

Buy EUR

Less than 3 months

1.0895

—

39,192

—

42,872

—

172

—

The Group does not enter into foreign currency exchange contracts for speculative purposes.

Cross currency swap contracts

It is the policy of the Group to enter into cross-currency swap agreements to protect against volatility of future cash flows caused by the changes in exchange rates associated with outstanding long-term debt denominated in a currency other than the US dollar.

The following table details the cross currency swap contracts outstanding at the end of the reporting period:

Outstanding contracts

Average exchange rate

Foreign currency

Notional value

Fair value assets/(liabilities)

12/31/15

12/31/14

12/31/13

12/31/15

12/31/14

12/31/13

12/31/15

12/31/14

12/31/13

12/31/15

12/31/14

12/31/13

FC’000

USD’000

Buy RMB

1 year to 5 years

6.4360

—

480,000

—

73,966

—

(1,459

)

—

The Group does not enter into cross currency swap contracts for speculative purposes.

Interest rate risk management

The Group is exposed to interest rate risk relates primarily to the Group’s long-term debt obligations, which the Group generally assumes to fund capital expenditures and working capital requirements. The risk is managed by the Group by maintaining an appropriate mix between fixed and floating rate borrowings, and by the use of interest rate swap contracts and cross currency swap contracts.

The Group’s exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note.

178

SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

39.

Financial instruments (continued)

Interest rate risk management (continued)

Interest rate sensitivity analysis

The sensitivity analyses below have been determined based on the exposure to interest rates for both derivatives and non-derivative instruments at the end of the reporting period. For floating rate liabilities, the analysis is prepared assuming the amount of the liability outstanding at the end of the reporting period was outstanding for the whole year.

A 10 basis point increase or decrease represents management’s assessment of the reasonably possible change in interest rates. If interest rates had been 10 basis points higher and all other variables were held constant, the Group’s profit for the year ended December 31, 2015 would decrease by US$0.4 million (2014: profit decrease by US$0.2 million and 2013: profit decrease by US$0.6 million). This is mainly attributable to the Group’s exposure to interest rates on its variable rate borrowings.

Credit risk management

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group is mainly exposed to credit risk from trade and other receivables and deposits with banks and financial institutions.

Customer credit risk is managed by each business unit subject to the Group’s established policy, procedures and control relating to customer credit risk management. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures and is offered credit terms only with the approval from Finance and Sales Division. Credit quality of a customer is assessed using publicly available financial information and its own trading records to rate its major customers. The Group’s exposure and credit ratings of its counterparties are continuously monitored. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant.

Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas.

Apart from Customers A, B, C and D, four largest customers of the Group, the Group does not have significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The Group defines counterparties as having similar characteristics if they are related entities. Concentration of credit risk related to Customers A, B, C and D did not exceed 5%, 4%, 3% and 3% respectively of gross monetary assets at the end of current year. Concentration of credit risk to any other counterparty did not exceed 3% of gross monetary assets at the end of current year.

Net revenue and accounts receivable for customers which accounted for 10% or more of the Group’s net sales and gross accounts receivable is disclosed in Note 6.

The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit-ratings.

SMIC 2015 Annual Report

179

39.

Financial instruments (continued)

Liquidity risk management

The Group manages liquidity risk by maintaining adequate cash reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.

Liquidity and interest risk tables

The following tables detail the Group’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The tables include both interest and principal cash flows. To the extent that interest flows are floating rate, the undiscounted amount is derived from interest rate curves at the end of the reporting period. The contractual maturity is based on the earliest date on which the Group may be required to pay.

		Weighted
		average
		effective			Less than		3 months
		interest rate			3 months		to 1 year		1–5 years		5+ years		Total
		%			USD’000		USD’000		USD’000		USD’000		USD’000
December 31, 2015
Interest-bearing bank and	Fixed		1.69	%		42,963		—		149,253		238,831		431,047
other borrowings	Floating		4.98	%		—		71,944		158,744		—		230,688
Convertible bonds			2.78%–3.79	%		—		404,000		—		—		404,000
Bonds payable			4.52	%		—		—		500,000		—		500,000
Trade and other payables						920,426		28,508		5,350		93,482		1,047,766
						963,389		504,452		813,347		332,313		2,613,501

		Weighted
		average
		effective			Less than		3 months
		interest rate			3 months		to 1 year		1–5 years		5+ years		Total
		%			USD’000		USD’000		USD’000		USD’000		USD’000
December 31, 2014
Interest-bearing bank and	Fixed		2.54	%		39,075		77,099		—		—		116,174
other borrowings	Floating		6.13	%		—		48,408		287,596		—		336,004
Convertible bonds			2.78%–3.79	%		—		—		404,000		—		404,000
Bonds payable			4.52	%		—		—		500,000		—		500,000
Trade and other payables						727,589		744		3,492		62,536		794,361
						766,664		126,251		1,195,088		62,536		2,150,539

		Weighted
		average
		effective			Less than		3 months
		interest rate			3 months		to 1 year		1–5 years		5+ years		Total
		%			USD’000		USD’000		USD’000		USD’000		USD’000
December 31, 2013
Interest-bearing bank and	Fixed		3.72	%		102,800		119,588		—		—		222,388
other borrowings	Floating		5.66	%		82,741		91,169		643,369		26,928		844,207
Convertible bonds			3.69	%		—		—		200,000		—		200,000
Trade and other payables						334,622		56,383		2,885		—		393,890
						520,163		267,140		846,254		26,928		1,660,485

180

SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

39.

Financial instruments (continued)

Liquidity risk management (continued)

Liquidity and interest risk tables (continued)

The following table details the Group’s expected maturity for its non-derivative financial assets. The table has been drawn up based on the undiscounted contractual maturities of the financial assets including interest that will be earned on those assets. The inclusion of information on non-derivative financial assets is necessary in order to understand the Group’s liquidity risk management as the liquidity is managed on a net asset and liability basis.

	Weighted
	average
	effective
	interest			Less than		3 months
	rate			3 months		to 1 year		1–5 years		5+ years		Total
	%			USD’000		USD’000		USD’000		USD’000		USD’000
December 31, 2015
Trade and other receivables					499,846		—		—		—		499,846
Cash and cash equivalent, restricted cash & short-term investments		2.12	%		1,549,692		45,038		—		—		1,594,730
Available for sale financial assets					—		—		—		19,750		19,750
					2,049,538		45,038		—		19,750		2,114,326

	Weighted
	average
	effective			Less than		3 months
	interest rate			3 months		to 1 year		1–5 years		5+ years		Total
	%			USD’000		USD’000		USD’000		USD’000		USD’000
December 31, 2014
Trade and other receivables					456,388		—		—		—		456,388
Cash and cash equivalent, restricted cash & short-term investments		2.60	%		1,309,979		45,484		—		—		1,355,463
Available for sale financial assets					—		—		—		15,081		15,081
					1,766,367		45,484		—		15,081		1,826,932

	Weighted
	average
	effective			Less than		3 months
	%			USD’000		USD’000		USD’000		USD’000		USD’000
December 31, 2013
Trade and other receivables					379,361		—		—		—		379,361
Cash and cash equivalent, restricted cash & short-term investments		1.34	%		680,525		59,437		—		—		739,962
Available for sale financial assets					—		—		—		1,278		1,278
					1,059,886		59,437		—		1,278		1,120,601

The amounts included above for variable interest rate instruments for both non-derivative financial assets and liabilities is subject to change if changes in variable interest rates differ to those estimates of interest rates determined at the end of the reporting period.

SMIC 2015 Annual Report

181

39.

Financial instruments (continued)

Liquidity risk management (continued)

Liquidity and interest risk tables (continued)

The Group has access to short-term financing facilities as described in below section, of which US$1,351.7 million were unused at the end of the reporting period (2014: US$767.4 million and 2013: US$927.5 million). The Group expects to meet its other obligations from operating cash flows and proceeds of maturing financial assets.

The following table details the Group’s liquidity analysis for its derivative financial instruments. The table has been drawn up based on the undiscounted contractual net cash inflows and outflows on derivative instruments that settle on a net basis, and the undiscounted gross inflows and outflows on those derivatives that require gross settlement. When the amount payable or receivable is not fixed, the amount disclosed has been determined by reference to the projected interest rates as illustrated by the yield curves at the end of the reporting period.

	Less than						3 months
	1 month		1 month		1–3 months		to 1 year		1–5 years		5+ years
	USD’000		USD’000		USD’000		USD’000		USD’000		USD’000
December 31, 2015
Net settled:
— foreign exchange forward contracts		—		42,872		—		—		—		—
— cross currency swap contracts		—		—		—		—		73,966		—
		—		42,872		—		—		73,966		—

Fair value of financial instruments

Fair value of financial instruments carried at amortized cost

The Group considers that the carrying amounts of financial assets and financial liabilities recognized in the consolidated financial statements approximate their fair values.

Valuation techniques and assumptions applied for the purposes of measuring fair value

The fair values of financial assets and financial liabilities are determined as follows:

•

the fair value of financial instruments based on quoted market prices in active markets, valuation techniques that use observable market-based inputs or unobservable inputs that are corroborated by market data. Pricing information that the Group obtains from third parties is internally validated for reasonableness prior to use in the consolidated financial statements. When observable market prices are not readily available, the Group generally estimates the fair value using valuation techniques that rely on alternate market data or inputs that are generally less readily observable from objective sources and are estimated based on pertinent information available at the time of the applicable reporting periods. In certain cases, fair values are not subject to precise quantification or verification and may fluctuate as economic and market factors vary and the Group’s evaluation of those factors changes.

182

SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

39.

Financial instruments (continued)

Fair value of financial instruments (continued)

Fair value measurements recognized in the consolidated statement of financial position

The following tables provide an analysis of financial instruments that are measured at fair value on a recurring basis subsequent to initial recognition, grouped into Levels 1 to 3 based on the degree to which the fair value is observable. There is no transfer within different levels of the fair value hierarchy in the year ended December 31, 2015, 2014 and 2013:

•

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active market for identical assets or liabilities;

•

Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices), and

•

Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

		12/31/15
	Valuation technique(s) and key input	Level 1		Level 2		Level 3		Total
		USD’000		USD’000		USD’000		USD’000
Financial assets at FVTPL
Short-term investment carried at fair value through profit or loss	Discounted cash flow. Future cash flows are estimated based on contracted interest rates and discounted.		—		257,583		—		257,583
Foreign currency forward contracts classified as other financial assets in the statement of financial position	Discounted cash flow. Future cash flows are estimated based on forward exchange rates (from observable forward exchange rates at the end of the reporting period) and contracted forward rates and discounted.		—		172		—		172
Available-for-sale investment	Quoted prices in active markets		3,300		—		—		3,300
Available-for-sale investment	Recent transaction price		—		—		15,173		15,173
Derivative financial instrument	Measured by Binational Model with key assumptions including exercise multiple (75%), risk free rate of interest (1.2%), expected volatility (46.8%) and rate of return (10%).		—		—		30,173		30,173
Total			3,300		257,755		45,346		306,401
Financial liabilities at FVTPL
Cross currency swap contracts classified as other financial liabilities in the statement of financial position	Discounted cash flow. Future cash flows are estimated based on forward exchange rates (from observable forward exchange rates at the end of the reporting period) and contracted forward rates and discounted.		—		1,459		—		1,459
Total			—		1,459		—		1,459

SMIC 2015 Annual Report

183

39.

Financial instruments (continued)

Fair value of financial instruments (continued)

Fair value measurements recognized in the consolidated statement of financial position (continued)

				12/31/14
	Valuation technique(s) and key input	Level 1		Level 2		Level 3		Total
		USD’000		USD’000		USD’000		USD’000
Financial assets at FVTPL
Short-term investment carried at fair value through profit or loss	Discounted cash flow. Future cash flows are estimated based on contracted interest rates and discounted.		—		616,862		—		616,862
Available-for-sale investment	Recent transaction price.		—		—		13,803		13,803
Total			—		616,862		13,803		630,665

12/31/13

Valuation technique(s) and key input

Level 1

Level 2

Level 3

Total

USD’000

Financial assets at FVTPL

Short-term investment carried at fair value through profit or loss

Discounted cash flow. Future cash flows are estimated based on contracted interest rates and discounted.

—

240,311

—

240,311

Total

—

240,311

—

240,311

	40.	Related party transactions

The names of the related parties which had transactions with the Group for the year ended December 31, 2015 and the relationships with the Group are disclosed below:

Related party name		Relationship with the Group
China Academy of Telecommunication Technology		A member of Datang Telecom Technology & Industry Group (“Datang Group”), which owns Datang Holdings
Datang Telecom Technology & Industry Holdings Co., Ltd. (“Datang Holdings”)		A substantial shareholder of the Company
Datang Microelectronics Technology Co., Ltd.		A member of Datang Group
Datang Semiconductor Co., Ltd.		A member of Datang Group
Leadcore Technology Co., Ltd and Leadcore Technology (Hong Kong) Co., Ltd (“Leadcore”)		A member of Datang Group
Datang Telecom Group Finance Co., Ltd. (“Datang Finance”)		A member of Datang Group
China IC Fund		A substantial shareholder of the Company
China Investment Corporation (“CIC”)		A substantial shareholder of the Company in the middle of 2015, which was interested in less than 5% of the share capital of the Company as at December 31, 2015
Country Hill		A wholly-owned subsidiary of Bridge Hill Investments Limited, which is a subsidiary controlled by CIC
Toppan		An associate of the Group
Brite Semiconductor Corporation and its subsidiaries (“Brite”)		An associate of the Group
China Fortune-Tech		An associate of the Group
Zhongxin Xiecheng		An associate of the Group

184

SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

40.

Related party transactions (continued)

Trading transactions

During the year, group entities entered into the following trading transactions with related parties that are not members of the Group:

	Sale of goods						Sale of services
	Year ended						Year ended
	12/31/15		12/31/14		12/31/13		12/31/15		12/31/14		12/31/13
	USD’000		USD’000		USD’000		USD’000		USD’000		USD’000
Datang Microelectronics Technology Co., Ltd		12,885		12,340		14,821		—		—		—
Datang Semiconductor Co., Ltd		865		—		—		—		—		—
Leadcore		8,881		2,173		1,905		—		—		—
Toppan		—		—		—		3,699		4,486		4,317
Brite		31,379		31,444		NA		—		—		NA
China Fortune-Tech		—		—		NA		60		41		NA

	Purchase of goods						Purchase of services
	Year ended						Year ended
	12/31/15		12/31/14		12/31/13		12/31/15		12/31/14		12/31/13
	USD’000		USD’000		USD’000		USD’000		USD’000		USD’000
China Academy of Telecommunication Technology		—		—		—		—		1,163		—
Toppan		7,996		1,345		7		3,516		22,726		22,854
Zhongxin Xiecheng		—		—		—		1,199		2,673		1,930
Brite		—		—		NA		2,582		3,201		NA
China Fortune-Tech		—		—		NA		938		116		NA

SMIC 2015 Annual Report

185

40.

Related party transactions (continued)

Trading transactions (continued)

The following balances were outstanding at the end of the reporting period:

	Amounts due from						Amounts due to
	related parties						related parties
	12/31/15		12/31/14		12/31/13		12/31/15		12/31/14		12/31/13
	USD’000		USD’000		USD’000		USD’000		USD’000		USD’000
China Academy of Telecommunication Technology		—		360		—		—		—		—
Datang Semiconductor Co., Ltd		61		—		—		—		—		—
Datang Microelectronics Technology Co., Ltd		5,338		5,642		6,124		—		—		—
Datang Finance		—		—		—		—		—		65,884
Leadcore		1,948		619		405		3,667		7		140
Toppan		317		387		370		1,148		2,739		2,397
Zhongxin Xiecheng		—		—		6		—		—		—
Brite		5,661		3,772		683		141		700		645
China Fortune-Tech		40		41		—		—		—		—

On February 18, 2014, the Company entered into a framework agreement with Datang Holdings (the “Framework Agreement”). Pursuant to the agreement, the Group and Datang Holdings (including its associates) will engage in business collaboration including but not limited to foundry service. The effective period of the Framework Agreement is two years. The pricing for the transactions contemplated under the agreement will be determined by reference to reasonable market price.

On June 8, 2015, the Company issued 4,700,000,000 new ordinary shares to Xinxin (Hongkong) Capital Co., Limited, a wholly-owned subsidiary of the China IC Fund. Please refer to Note 28 for details.

On September 25, 2015, Country Hill subscribed 323,518,848 ordinary shares of the Company. Please refer to Note 28 for details.

On October 9, 2015, Datang subscribed 961,849,809 ordinary shares of the Company. Please refer to Note 28 for details.

On December 18, 2015, the Company and Datang Finance entered into a financial services agreement with a three year term commencing on January 1, 2016 and ending on December 31, 2018, pursuant to which Datang Finance has agreed to provide the Company and its subsidiaries, including its associated companies and companies under its management with a range of financial services (including deposit services, loan services, foreign exchange services and other financial services).

186

SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

40.

Related party transactions (continued)

Compensation of key management personnel

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including directors of the Company.

The remuneration of key management personnel during the year are as follows:

	Year ended		Year ended		Year ended
	12/31/15		12/31/14		12/31/13
	USD’000		USD’000		USD’000
Short-term benefit		4,731		4,593		4,318
Share-based payments		2,618		2,535		3,028
		7,349		7,128		7,346

The remuneration of key management personnel is determined by the Compensation Committee having regard to the performance of individuals and market trends.

Arrangements/contracts for sale of self-developed living quarter unit

In 2015, the Group entered into arrangement/contracts with 4 of the Company’s directors and key management for sale of self-developed living quarter units and the amount of the considerations was approximately US$3.6 million. The transactions were not completed as of the date of this annual report.

In 2013, amount of sale of self-developed living quarter units to one of directors of the Company and one of the key management, which were approved by the Board, were US$1.1 million and US$0.8 million.

41.

Commitments for expenditure

Purchase commitments

As of December 31, 2015, 2014 and 2013, the Group had the following commitments to purchase machinery, equipment and construction obligations. The machinery and equipment is scheduled to be delivered to the Group’s facility by December 31, 2016.

	12/31/15		12/31/14		12/31/13
	USD’000		USD’000		USD’000
Commitments for the facility construction		165,274		211,696		114,878
Commitments for the acquisition of property, plant and equipment		1,146,275		292,867		178,382
Commitments for the acquisition of intangible assets		29,392		14,109		10,147
		1,340,941		518,672		303,407

SMIC 2015 Annual Report

187

42.

Financial information of parent company

(i)

Statement of financial position

	12/31/15			12/31/14			12/31/13
	USD’000			USD’000			USD’000
Assets
Non-current assets
Property, plant and equipment		30,123			10,244			7,301
Intangible assets		108,897			133,117			154,682
Investment in subsidiaries		3,153,887			2,888,658			2,689,158
Investments in associates		42,553			14,205			12,301
Other assets		118,989			166,500			1,000
Total non-current assets		3,454,449			3,212,724			2,864,442
Current assets
Prepayment and prepaid operating expenses		633			641			626
Trade and other receivables		450,224			312,760			201,352
Other financial assets		15,000			12,000			—
Restricted cash		—			—			29,130
Cash and cash equivalent		115,726			55,600			162,360
Total current assets		581,583			381,001			393,468
Total assets		4,036,032			3,593,725			3,257,910
Equity and liabilities
Capital and reserves
Ordinary shares $0.0004 par value, 50,000,000,000 shares authorized, 42,073,748,961, 35,856,096,167 and 32,112,307,101 shares issued and outstanding at December 31, 2015, 2014 and 2013, respectively		16,830			14,342			12,845
Share premium		4,904,244			4,377,013			4,090,229
Reserves		98,931			93,012			69,295
Accumulated deficit		(1,918,402	)		(1,850,292	)		(1,763,481	)
Total equity		3,101,603			2,634,075			2,408,888
Non-current liabilities
Convertible bonds		—			379,394			180,563
Bonds payable		493,207			491,579			—
Other long-term liabilities		2,080			—			—
Total non-current liabilities		495,287			870,973			180,563
Current liabilities
Trade and other payables		33,445			18,391			527,035
Borrowings		—			61,221			133,803
Convertible bonds		392,632			—			—
Accrued liabilities		11,606			9,065			7,615
Other financial liabilities		1,459			—			—
Current tax liabilities		—			—			6
Total current liabilities		439,142			88,677			668,459
Total liabilities		934,429			959,650			849,022
Total equity and liabilities		4,036,032			3,593,725			3,257,910

188

SMIC 2015 Annual Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2015

42.

Financial information of parent company (continued)

(ii)

Statement of changes in equity

					Equity-
					settle			Foreign			Convertible					Attributable
					employee			currency			bonds					to owners
	Ordinary		Share		benefits			translation			equity		Accumulated			of the			Total
	shares		premium		reserve			reserve			reserve		deficit			Company			Equity
	USD’000		USD’000		USD’000			USD’000			USD’000		USD’000			USD’000			USD’000
Balance at December 31, 2012		12,800		4,083,588		42,232			(1,092	)		—		(1,701,430	)		2,436,098			2,436,098
Loss for the year		—		—		—			—			—		(62,051	)		(62,051	)		(62,051	)
Total comprehensive loss for the year		—		—		—			—			—		(62,051	)		(62,051	)		(62,051	)
Exercise of stock options		45		6,641		(3,457	)		—			—		—			3,229			3,229
Share-based compensation		—		—		16,402			—			—		—			16,402			16,402
Recognition of equity component of convertible bonds		—		—		—			—			15,210		—			15,210			15,210
Subtotal		45		6,641		12,945			—			15,210		—			34,841			34,841
Balance at December 31, 2013		12,845		4,090,229		55,177			(1,092	)		15,210		(1,763,481	)		2,408,888			2,408,888
Loss for the year		—		—		—			—			—		(86,811	)		(86,811	)		(86,811	)
Total comprehensive loss for the year		—		—		—			—			—		(86,811	)		(86,811	)		(86,811	)
Issuance of ordinary shares		1,411		268,362		—			—			—		—			269,773			269,773
Exercise of stock options		86		18,422		(9,025	)		—			—		—			9,483			9,483
Share-based compensation		—		—		18,388			—			—		—			18,388			18,388
Recognition of equity component of convertible bonds		—		—		—			—			14,354		—			14,354			14,354
Subtotal		1,497		286,784		9,363			—			14,354		—			311,998			311,998
Balance at December 31, 2014		14,342		4,377,013		64,540			(1,092	)		29,564		(1,850,292	)		2,634,075			2,634,075
Loss for the year		—		—		—			—			—		(68,110	)		(68,110	)		(68,110	)
Total comprehensive loss for the year		—		—		—			—			—		(68,110	)		(68,110	)		(68,110	)
Issuance of ordinary shares		2,395		506,412		—			—			—		—			508,807			508,807
Exercise of stock options		93		20,819		(12,169	)		—			—		—			8,743			8,743
Share-based compensation		—		—		18,088			—			—		—			18,088			18,088
Subtotal		2,488		527,231		5,919			—			—		—			535,638			535,638
Balance at December 31, 2015		16,830		4,904,244		70,459			(1,092	)		29,564		(1,918,402	)		3,101,603			3,101,603

43.

Approval of financial statements

The financial statements were approved and authorized for issue by the board of directors of the Company on March 30, 2016.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Semiconductor Manufacturing International Corporation

Date: May 16, 2016	By:	/s/ Dr. Tzu-Yin Chiu
		Name:	Dr. Tzu-Yin Chiu
		Title:	Chief Executive Officer, Executive Director

SMIC 2015 Annual Report

190