粤高速Ａ(000429)粤高速Ｂ2001年年度报告（英文版）

Guangdong Provincial Expressway Development Co., Ltd. Annual Report for the Year 2001 The Board of Directors of the Company guarantees that there are no significant omissions, fictitious or misleading statements in the Report and we will accept individual and joint responsibilities for the truthfulness, accuracy and completeness of the Report. Contents: I. Company Profile II. Summary of Financial Statements and Financial Indicators III. Changes in Share Capital and Structure of Shareholding IV. Directors, Supervisors, Senior Management and Staff V. Administrative Structure of Company VI. Shareholders’General Meeting VII. Report of the Board of Directors VIII. Report of the Supervisory Board IX. Significant Events X. Report of the Auditors XI. Document for Reference This Report is written in Chinese and English. If the two versions vary in translation, the Chinese version shall prevail. February 2001 1 I. Company Profile (i) Legal Name of the Company Name in Chinese (registered name): 广东省高速公路发展股份有限公司 Name in English: Guangdong Provincial Expressway Development Co., Ltd. Abbreviation in English: GPED (ii) Legal Person Representative: Mr. Guojing You (iii) Personnel for inquiries: Secretary of the Board of Directors: Mr. Yanbin Huo Telephone: (020) 83731365 (020)-83731388-230 E- mail: ybhuou@163.net Authorized Representative: Ms. Xiaofang Peng Telephone: (020) 83731394 Fax: (020)-83731384 Address for Contact: 85 BaiYun Road, Guangzhou, Guangdong Province. (iv) Address of GPED: Registered address: 85 Baiyun Road, Guangzhou, Guangdong Province Office address: 85 Baiyun Road , Guangzhou, Guangdong Province Postal code: 510100 Web Address: www.gpedcl.com.cn E-mail: GPEDCL @mx2.gd.cei.gov.cn (v) For information disclosure: Newpapers: l Securities Times l China Securities l Shanghai Securities News l Ta Kong Pao (H.K.) l Hongkong Commercial Daily Web address for Publication of Annual Report (appointed by the China Securities Regulatory Commission): www.gpedcl.com.cn Address for Reference of Annual Reports: Security Department of GPED, 85 Baiyun Road, Guangzhou, Guangdong Province. (vi) Listing Stock Exchange: Shenzhen Stock Exchange Abbreviations and codes for the shares: Yue Gaosu A-000429 Yue Gaosu B-200429 2 (vii) Relevant information: First Registration Date of the Company: February 9th, 1993 Company's First Registered Address: 4/F, 503 Dong Feng Zhong Lu, Guangzhou, Guangdong Province Company's Business Registration Number: 企股粤总副字第 002875 Company's Tax Registration Number: 440102190352102 Company's Auditors: Yangcheng Certified Public Accountants Address: 9th Floor, 187 Da De Road, Guangzhou Ernst & Young Address: Rm.1110-1111, Main Office Tower, Guangdong Int'l Hotel, 339 Huanshi Dong Lu, Guangzhou, China 3 II. Summary of Financial Statements and Financial Indicators 1.Gross Profit of GPED (hereafter “the Company”) for Year 2001 and the Components: Unit: RMB yuan Financial highlights and indicators Year 2001 Gross profit 239,532,613.11 Net profit 158,930,022.26 Net profit less nonrecurring gain or loss* 152,253,153.54 Profit from main business 376,432,942.65 Profit from other businesses 2,980,773.27 Profit from operating activities 241,025,096.10 Income from investing activities -6,431,181.12 Income from grant 0.00 Net revenue and expenditure from 4,938,698.13 non-operating activities Net cash flow from operating activities 478,144,530.20 Net increment in cash and cash -367,811,052.01 equivalent Note1: Except for the financial statements audited under PRC Accounting Standards, the Company also prepared financial statements in accordance with International Accounting Standards ("IAS") for the reference of overseas investors. Net profit for the year 2001 is RMB 158,930,022.26 under PRC Accounting Standards audited by domestic Accountant and RMB 149,811,000.00 under IAS audited by International Accountants respectively. Difference of RMB 9,119,022.26 is mainly due to depreciation adjustments, amortization return of balance of long-term share equity investment, goodwill adjustments and etc. Note 2: Deducted nonrecurring gain or loss items and related amount of money: (unit: yuan) Nonrecurring gain or loss items Amount of money I. Includes: i) Gain or loss from related party transactions with fair transaction price ii) Gain or loss by handling share equity of -15,794,117.95 subsidiaries and investment units iii) Gain or loss by assets displacement iv) Tax return, reduction without formal approval 13,950,000.00 within a three-year availability period and other government grant in-aid 4 v) Retroactive adjustment of net profit compared with the former period with change of account policies vi) Other nonrecurring gain or loss items confirmed by Chinese Securities Regulatory Commission Total -1,844,117.95 II. Besides: i) Gain of loss from inventory shortage and overage of current assets ii) Payable or receivable capital occupancy expense iii) Gain on investments in trust iv) Revenue and expenditure from other 4,938,698.13 non-operating activities Total 4,938,698.13 Influence of above items on income tax 3,582,288.54 Amount involved of above items 6,676,868.72 2. Financial statement summary and financial indicators for the profit and loss occurred ended December 31 of Year 2001: Financial 2000 1999 Highlights and 2001 Before After Before After Indicators adjustment adjustment adjustment adjustment Operating 625,400,744.00 251,100,909.99 251,100,909.99 258,208,665.50 258,208,665.50 Income (yuan) Net Profit 158,930,022.26 127,015,164.94 133,026,565.84 293,027,003.56 299,635,073.63 (yuan ) Total Assets 5,775,201,426.79 3,791,087,549.15 6,177,940,889.87 3,056,506,789.09 3,049,771,294.19 (yuan) Stockholders’ 3,331,314,404.76 3,276,688,685.57 3,298,096,157.30 2,452,184,508.92 2,451,787,362.07 Equity (yuan) Fully Diluted Earnings Per 0.13 0.15 0.16 0.38 0.39 Share (yuan ) Weighted Earnings Per 0.13 0.16 0.17 0.38 0.39 Share (yuan) Earnings Per Share less Nonrecurring 0.12 0.16 0.16 0.24 0.24 Profit or Loss (yuan) 5 Net Assets Per 2.65 3.91 3.94 3.21 3.21 Share (yuan) Adjusted Net Assets Per Share 2.63 3.89 3.91 3.17 3.17 (yuan) Net Cash Flow Per Share from 0.38 0.19 0.19 0.25 0.25 Operating Activities Fully Diluted Rate of Return 4.77% 3.88% 4.03% 11.95% 12.22% on Net Assets Weighted Rate of Return on Net 4.71% 4.71% 4.90% 12.11% 12.40% Assets Weighted Rate of Return on Net Assets less 4.51 % 4.90% 4.85% 7.49% 7.66% Nonrecurring Gain or Loss 3. Changes in Shareholders' Equity during the Year Total Revenue Public Undistributed Description Capital Stock Capital Surplus Reserves Welfare Fund Profit Shareholders’ Equity RMB RMB RMB RMB RMB RMB At Beginning 838,078,499 1,953,799,219.60 277,759,763.12 45,429,019.73 228,458,675.58 3,298,096,157.30 of Year Increase 419,039,249 23,839,503.34 9,378,744.12 33,218,247.46 during Year Decrease 419,039,249 7,946,483.11 during Year At End of 1,257,117,748.00 1,534,759,970.60 301,599,266.46 53,375,502.84 237,837,419.70 3,331,314,404.76 Year Share capital Share capital Draw of Draw of Causes of transferred Earning in Earning in transferred from Revenue Public Change from capital Reserves 2001 2001 capital surplus Welfare Fund surplus 4. Supplemental Information on Account (1) Reason for difference of net assets and net profits in 2001 audited by domestic and foreign auditors: Unit: RMB one thousand yuan Net Profit Net Assets Under International Accounting 149,811 3,377,864 Standards ("IAS") 6 i) Depreciation Adjustment -4,752 28,945 ii) Interest from frozen capital 1,911 -1,911 iii) Amortization adjustment of -1,699 43,470 transfer of Jiujiang Bridge to Fokai Company iv) Deferred tax assets written-off 822 -4,035 adjustment v) Goodwill amortization by 12,031 32,048 purchasing share equity of cooperation companies and subsidiaries vi) Conformation and amortization 2,859 -18,870 of other long-term assets vii) Market value of short-term -7,726 -7,726 investment at the end of period viii) Devaluation preparation of 1,950 1,950 construction in progress ix) Others 3,723 -120,421 Under Enterprise Account System 158,930 3,331,314 (2) According to the Regulation on Information Disclosure for List Company No. 9 signed by Chinese Securities Regulatory Committee, Fully Diluted Rate of Return on Net Assets and Weighted Rate of Return on Net Assets of the Company in 2001 are as follows: 2001 Rate of Return on Net Earnings Per Share Profit in 2001 Assets Fully Diluted Weighted Fully Diluted Weighted Main Business Profit １１．３０％ １１．１５％ ０．３０ ０．３０ Operating Profit ７．２４％ ７．１４％ ０．１９ ０．１９ Net Profit ４．７７％ ４．７１％ ０．１３ ０．１３ Net Profit less Nonrecurring Gain or ４．５７％ ４．５１％ ０．１２ ０．１２ Loss (3) Detailed Statement of Assets Devaluation Preparation Unit: RMB yuan Indicator Ｏｐｅｎｉｎｇ Ｉｎｃｒｅｍｅｎｔ ｉｎ Ｒｅｔｕｒｎ ｉｎ Closing Balance Ｂａｌａｎｃｅ ２００１ ２００１ I. Total of Bad debt provision １，３２３，０００．００ １４７，０００．００ ０．００ １，４７０，０００．００ Among which：Receivables 7 Other receivables １，３２３，０００．００ １４７，０００．００ １，４７０，０００．００ II. Total of devaluation preparation for ６８９，４３０．９７ １，０８１，２０４．５０ ４８８，２３２．４３ １，２８２，４０３．０４ short-term investments Among which：Stock investment ２０１，１９８．５４ １，０８１，２０４．５０ １，２８２，４０３．０４ Bond investment ４８８，２３２．４３ ４８８，２３２．４３ III. Total of devaluation preparation for ０．００ ０．００ ０．００ ０．００ inventories Among which：Goods in stock ０．００ Raw material ０．００ IV. Total of devaluation preparation for １４，０４２，６５４．９７ １，８５６，４４７．２０ ０．００ １５，８９９，１０２．１７ long-term investment Among which：Long-term share equity ０．００ investments Long-term bond ０．００ investments Long-term real estate １４，０４２，６５４．９７ １，８５６，４４７．２０ １５，８９９，１０２．１７ investments V. Total of devaluation preparation for ０．００ ０．００ ０．００ ０．００ fixed assets Among which：Building and structure ０．００ Machinery ０．００ Office Equipment ０．００ VI. Total of devaluation preparation for ０．００ ０．００ ０．００ ０．００ immaterial assets Among which：Patent ０．００ Ownership of trade ０．００ mark VII. Total of devaluation preparation for ０．００ construction in progress VIII. Total of devaluation preparation ０．００ for loan in trust (4) Accounts with big change and causes of the change 1) Balance of Cash and cash equivalents at the end of 2001 are RMB 460 million, which is less than the last year by RMB 370 million. Main reasons for the change are: i) The Company paid GPFC RMB 360 million, 49% of the transaction price, for purchasing 16% share equity and relevant shareholders’loan of Fokai Company. ii) The Company invested RMB 120 million in Guanghui Expressway Co., Ltd. iii) The Company received RMB 110 million (50% of the transaction price) from Guangdong Maozhan Expressway Co., Ltd. for the transaction. 2) Balance of other payables at the end of 2001is RMB 130 million, which is less than the last year by RMB 320 million. The decrease is because the Company paid the rest of RMB 360 million for purchasing 16% share equity and relevant shareholders’loan of Fokai Company in 2001, and the reception of RMB 110 million for the sale 8 of share equity in Maozhan Company. 3) Change of balance of share capital and capital surplus is due to the implementation of transferring capital surplus to share capital at the rate of 10:5. 4) Increment in income from main business, cost of main business and main business tax is due to the consolidation of financial statements of Fokai Company in 2001. 5) Increase of management expense is due to the consolidation of financial statements of Fokai Company and Science and Technology Company. 6) Increment of finance expense RMB 88.38 million is due to the consolidation of financial statements of Fokai Company and Science and Technology Company. Finance expense of Fokai Company in 2001 is RMB 154.51 million. Internal credit interest RMB 68.09 million is written off between the Company and Fokai Company. 7) Decrease of gain or loss of investments is RMB 68.03 million. Main reasons are: i) consolidation of financial statements of Fokai Company, the Company bore loss of RMB 7.89 million in 2000 and write off internal return in 2001. After written off the internal return, interest of shareholders loan decreases RMB 49.56 million. The above-mentioned two factors cause the decrease of investment return by RMB 41.67 million. ii) Since loss of Maozhan Company increased, investment return of the Company decreased by RMB 13.98 million. iii) Amortization for balance of share equity investment increase by RMB 8.43 million. iv) Return from treasury investment decrease by RMB 6.58 million. 9 III. Changes in Share Capital and Structure of Shareholding 1. Changes in Share Capital (i) Structures of Shareholding (unit: share) Increase/Decrease(+、-) Right Share Capital Opening Stock Increas Closing s Converted from Others Total Balance Dividends e Issue Balance Issue Capital Surplus A.Non-cir culating Share (1)Issue 341,428,630 +170,714,315 +170,714,315 512,142,945 Person Share Including: State-own 316,520,350 +158,260,175 +158,260,175 474,780,525 ed Shares Domestic 24,908,280 +12,454,140 +12,454,140 37,362,420 Legal Persons Shares Foreign Legal Persons Shares Others (2)Legal 111,129,369 +55,564,684 +55,564,684 166,694,053 Person Shares Domestic 81,129,369 +40,564,684 +40,564,684 121,694,053 Legal Person Shares Foreign 30,000,000 +15,000,000 +15,000,000 45,000,000 Legal Person Shares (3)Interna 53,020,500 -53,020,500 -53,020,500 0 l Staff Shares (4)Prefere ntial Shares or Others Total of 505,578,499 +226,278,999 -53,020,500 +173,258,499 678,836,998 Non-Circ ulating Shares B.Circulat ing Shares (1)A 130,000,000 +91,510,250 +53,020,500 +144,530,750 274,530,750 Shares for Domestic Investors (2)B 202,500,000 +101,250,000 +101,250,000 303,750,000 Shares for Foreign 10 Investors (3) Shares Listed abroad for Foreign Investors (4) Others Total of 332,500,000 +192,760,250 +53,020,500 +245,780,750 578,280,750 Circulatin g Shares C. Total 838,078,499 +419,039,249 +419,039,249 1,257,117,748 Note: 1. “others” refers to internal staff shares of the Company, 53,020,500 shares, started to circulate in the Shenzhen Stock Exchange on February 5th, 2001. Among which, shares held by senior management are still frozen. That is the cause of decrease of “non-circulating shares” and increase of “circulating shares”. 2. Since circulating of the internal staff shares (on February 2001) is before share capital transferred from capital surplus (on May 2001), base of “Share Capital Converted from Capital Surplus”in column “A Shares for Domestic Investors”is 183,020,500 (130,000,000+53,020,500), and “Share Capital Converted from Capital Surplus”is 91,510,250. (ii) Issuance of Shares and Listing a) The 1999 annual shareholders’ meeting has discussed and approved the resolution of offering 3 Rights for every 10 shares of 764.2562 million shares ended August 15, 2000 at a price of RMB11 per Right for additional fund, and the China Securities Regulatory Committee has verified and approved the resolution in the Document No. ZJGSZ [2000] 98. The Rights Issue was finished on August 30, 2000. Actual increment of Rights is 73.82225 million shares. (For the details, please refer to “The Rights Issue Prospectus” and “Announcement on Changes in Capital Stock and Listing Time for the Circulating Rights” published in Securities Times, China Securities, Shanghai Securities News, Ta Kung Pao (H.K.) and Hongkong Commercial Daily on August 1, 2000 and September 15, 2000 respectively.) b) In the reporting period, internal staff shares of the Company, 53,020,500 shares, started to circulate in the Shenzhen Stock Exchange on February 5th, 2001. c) In the reporting period, in accordance with the resolution passed 11 at the annual shareholders’general meeting, 2000 the Company carried out the share transfer proposal on May 22, 2001. Capital surplus is transferred to share capital at a rate of 10: 5. After increment of capital stock transferring, share capital of the Company changed from 838,078,499 shares to 1,257,117,748 shares. 2. General Information about the Shareholders (i) There are 113,757 shareholders by the year 2001 ended December 31. (ii)Principal Shareholders Name of shareholders Shareholding Increase or Percentage Nature of Share (shares) decrease of share to total amount Share Capital (%) Guangdong Communication Group 474,780,525 +158,260,175 37.77% State-owned Co., Ltd. (“Communication issue person Group”) shares IJM Overseas Ventures Sdn. Bhd. 65,055,917 -50,355,833 5.18% Non-circulating ("IJM") foreign legal person shares Guangdong Provincial Freeway 19,377,187 +6,459,062 1.54% Issue legal Company ("GPFC") person shares Guangdong Financial Trust and 14,062,500 +4,687,500 1.12% Issue legal Investment Corporation person shares Shanghai Haitong Securities 9,091,698 +2,981,066 0.72% A shares Business Center in Shenzhen Xinhui Siqian Economic Society 5,176,890 +1,725,630 0.41% Legal person shares Shunde Foreign Economic Industry 4,218,750 +1,406,250 0.34% Legal person Development Company shares Nanhai Huaying Group Comp any 3,741,328 +1,247,109 0.30% Legal person shares Shunde Communication 3,515,625 +1,171,875 0.28% Legal person Development Company shares Labor Union of Jiangmen Highway 3,353,905 +1,117,968 0.27% Legal person Bureau shares (a) In 2001, no shares held by the shareholders own more than 5% (including 5%) shares of GPED were pledged or frozen. (b) Among the top ten shareholders, Communication Group holds 474,780,525 State-owned shares on behalf of the government, while IJM OVERSEAS VENTURES SDN.BHD. holds 45,000,000 legal persons shares and 20,055,917 B shares. 12 (c) Among the top ten shareholders, Communication Group is the parent company of GPFC. (iii). Controlling Shareholders Guangdong Communication Group Co., Ltd is the biggest shareholder of GPED with Mr. Yo u Guojing as the Legal Person Representative, which was founded on August 23rd, 2000. Communication Group is a state-owned company with registered capital of RMB 6.8 billion. The principal businesses of Communication Group are share equity management, assets reorganization, configuration optimizing; raising fund by means of mortgage, transfer of property rights, transformation in stock system; project investment, operation and management; communication infrastructure construction; highway and railway operation and technical development, application, consultation, service in related industries; highways and railways passenger transport, as well as freight; shipping industry and related business overseas. 13 IV. Directors, Supervisors, Senior Management and the Staff 1. Directors, Supervisors and Senior Management (1) Shareholdings of Directors, Supervisors and Senior Management are as follows: Name Job Title Sex Ag Term of Opening Closing Increase / e office Sharehol Sharehol decrease ding ding (share) (share) You Guojing Chairman of male 58 2000-2002 0 23,000 +23,000 Board of Director Zhu Xiaoling Vice Chairman of male 48 2000-2002 0 23,000 +23,000 Board of Director Zeng Zhaogeng Director male 44 2000-2002 18535 46,202 +27,667 CaoXiaofeng Director & male 36 1999-2002 0 18,400 +18,400 General Manager Director/ male 37 1999-2002 0 15,300 +15,300 Xiao Laijiu Deputy General Manager/ Chief accountant Director/ male 35 1999-2002 0 15,300 +15,300 Deputy General Huo Yanbin Manager/ Secretary of Board of Director Su Yongdong Director male 50 2001-2002 0 15,300 +15,300 Liang Tang Director male 43 2000-2002 0 15,300 +15,300 Loy Boon Chen Director male 50 1999-2002 0 23,400 +23,400 How See Hock Director male 46 1999-2002 0 23,400 +23,400 Chairman of male 55 2000-2002 0 18,400 +18,400 Lu Yongzheng Board of Supervisor Ling Jian Supervisor male 40 2000-2002 4687 22,330 +17,643 Xu Yan Supervisor female 47 1999-2002 19,5000 44,550 +25,050 Li Mei Supervisor female 32 2000-2002 52,500 94,050 +41,550 Tu Huiling Supervisor female 41 2000-2002 18,750 43,425 +24,675 Dong Guofeng Deputy General male 32 2000-2003 18,750 43,425 +24,675 Manager Yun Wujun Chief Economist male 46 2000-2003 0 45,300 +15,300 Wang Jiachen Chief Engineer male 36 2000-2003 12,187 33,580 +21,393 Note: Increment of shares held by the senior management is due to the implementation of share capital transfer from capital surplus, and the purchase by the senior management with annual bonus of 2001 in the stock market as well. (2) Term of office of directors and supervisors in the shareholder units: Mr. You Guojing, chairman of board of directors, holds the post of chairman of board of directors as well as secretary of the party committee of Communication Group, the controlling shareholder. 14 Mr. Zhu Xiaoling, vice chairman of board of directors, holds the post of director as well as general manager of Communication Group, the controlling shareholder. Mr. Zeng Zhaofeng, director of the Company, holds the post of director as well as deputy general manager of Communication Group, the controlling shareholder. Mr. Su Yongdong, director of the Company, holds the post of secretary of the party committee of GPFC, the issue person shareholder. Mr. Liang Tang, director of the Company, holds the post of vice general manager of Guangdong Financial Trust and Investment Corporation, the issue person shareholder. Mr. Loy Boon Chen, director of the Company, holds the post of director in IJM. Mr. How See Hook, director of the Company, holds the post of director in IJM. Mr. Lu Yongzheng, chairman of supervisory board, holds the post of director as well as secretary of the discipline committee of Communication Group, the controlling shareholder. Mr. Ling Jian, supervisor of the Company, holds the post of manager of the investment and operation department of Communication Group, the controlling shareholder. Ms. Xu Yan, supervisor of the Company, holds the post of deputy secretary of the party committee of GPFC, the issue person shareholder. (3) Annual payment Payment of directors and supervisors had been discussed and decided at the provincial shareholders’general meeting, 1999. Total annual payment of the directors, supervisors and senior management made by the Company is RMB 1.2098 million. The first three high payment of directors adds up to RMB 350000, and the first three high payment of senior management adds up to RMB 350000. The 18 Directors, Supervisors and Senior Management of the Company draw their remuneration and allowance from the Company, and the classification of annual payment is as follows: Payment (RMB yuan ) Number of persons 50,000-80,000 13 80,000-100,000 2 100,000-130,000 3 (4) Change of directorship, supervisor and senior management in the reporting period and the cause: 15 During the reporting period, the provisional shareholders’ general meeting for 2001 approved Mr. Lin Xingwang’s resignation from the directorship due to the work transfers. Resolution on the relief Mr. Li Yinghao of his directorship of the Company was passed at the second provisional shareholders’general meeting. There is no change of the senior management of the Company in the reporting period. 2. Staff Information By the end of 2001, the Company has 1061 full-time employees. Among which, 188 have different kinds of title of a technical or a professional post, accounting for 17.72% of the total. Among which, 13 have senior title, 50 have middle rank title and 74 have primary title. Among the staff, 9 are graduates, 62 are undergraduates and 398 have a polytechnic school degree. 16 V. Governance Structure of Company 1. Governance on of the Company The Company strictly satisfied the requirements set by Company Law, Securities Law as well as the requirements set by Chinese Securities Regulatory Commission, so as to upgrade legal person governance structure, form modern enterprise system and standardize operation of the Company. The Company drew up Articles of Association, Regulation on Examination of board of directors and Rules of Procedure for supervisory board. In compliance with the stipulation on administration of list companies noticed by Chinese Securities Regulatory Commission and National Economic Trade Committee on January 7, 2001, details of the Company are as follows: 1) Shareholders and shareholders’ general meeting: The Company ensures all of the shareholders, especially the medium and small shareholders, could exercise their rights equally. Convenes of shareholders’general meeting are fully in compliance with the rules of standardization and Articles of Association of the Company. The Company carefully chooses places to have meetings so as to let more shareholders could attend the meetings and exercise their rights to vote. Related party transactions of the Company are fair and reasonable, and basis for the price is completely disclosed. There is no related party transaction that hurt interests of the Company. There is no conversion of capital, assets or other resources of the Company to the related shareholders’own use. According to the regulations on governance of list companies, the Company is working on the draft of Rules of Procedure for shareholders’general meeting, and the standardization of Articles of Association of the Company. 2) Relationship between controlling shareholders and list company: Act of the controlling shareholder conforms to the rules. The controlling shareholder doesn’t intervene decision-making and operation of the Company. As for separation of personnel, assets, finance, organization and business between the Company and the controlling shareholder. Board of directors, supervisory board and the internal organization work independently. 3) Directors and board of directors: The Company carried out the procedures of selecting directors in accordance with Articles of Association of the Company, and would go on perfecting the selecting procedure and pursue accumulation vote system. Persons in 17 board of directors and personnel structure are in compliance with the law and regulations. Board of directors of the Company has formed Rules of Procedure for board of directors. Director of the Company attended the meeting of board of directors and the shareholders’ general meeting seriously, took active part in trainings and studied relevant law and regulations so as to fully understand their rights, obligation and responsibilities. The two foreign directors played an important role in standardizing operation of board of directors. The Company will go on improving Rules of Procedure for Board of Directors, which would be added in Articles of Association of the Company in accordance with Regulations on Governance of List Companies. The Company is looking for independent directors positively in order to build up Independent Director System and Special Committee of Board of Directors. 4) Supervisors and supervisory board: Persons in supervisory board and personnel structure are in compliance with the law and regulations. Supervisory board of the Company has formed Rules of Procedure for supervisory board. Supervisors of the Company take responsibilities based on shareholders’ interests seriously, supervising legality of performance of directors, manager and other senior management, and finance of the Company as well. The Company will go on improving Rules of Procedure for supervisory board, which would be added in Articles of Association of the Company in accordance with Regulations on Governance of List Companies. 5) Performance evaluation and system of excitation and restrain: Employment of management crew is open and transparent, which is in compliance with articles set by the laws and regulations. The Company begins to form fair and transparent standards of performance evaluation and system of excitation and restrain for directors, supervisors and management. 6) Related parties share interests: The Company respect and uphold legal interests of the banks, other creditors, staff, consumers and etc. so as to realize sustainable and healthy development of the Company. 7) Information disclosure and transparency: The Company appoints secretary of board of directors to deal with information disclosure, 18 shareholders’reception and advisory. Information disclosure of the Company is true, correct, complete and timely, in accordance with the laws, regulations and Articles of Association of the Company. It is made sure that every shareholder could know the information of the Company equally. The Company makes announcements on details and change of shareholding of the controlling shareholder. The Company standardizes operation in compliance with the Company Law and relevant laws and regulations since the establishment. And the Company will go on with the standardization operation according to related rules on procedures as well as Regulations on Governance of List Companies published on January 7, 2001, so as to maximize enterprise value and uphold interests of medium and small shareholders. 2. Performance of Independent Directors According to the Guild Opinion on Setting Up Independent Director in List Companies signed by Chinese Securities Regulatory Commission, board of directors of the Company is working on the draft and revision of relevant regulations and searching for independent directors as well. The Company will form the independent director system in compliance with relevant regulations before June 30, 2002. 3. About Separation of Personnel, Assets and Finance between the Company and the Controlling Shareholder Guangdong Communication Group Co., Ltd. is the biggest shareholder of the Company, holding 474,780,525 shares, accounting 37.77% of total shares. The legal person governance of the Company is sound. The business, assets, personnel, finance and organization are managed separately. 1) Independent Business Main business of the Company is toll collection and maintenance of Guangfo Expressway and Fokai Expressway, and investment in Shenzhen Huiyan Expressway Co., Ltd., Guangdong Maozhan Expressway Co., Ltd., Guangdong Jindaoda Expressway Economic Development Co., Ltd., Guangdong Guanghui Expressway Co., Ltd. and Guangdong Gaosu Science and Technology Investment Co., Ltd. as well. The Company possesses independent operating capacity with independent and complete business, and the main business is outstanding. Decisions of the Company concerning business were made independently, without any interference from the controlling 19 shareholder. As for the related party transaction, conditions and contents of transactions are based on the rules of fair transactions, not hurting interests of the Company and other shareholders. 2) Complete Assets Property right of the Company is clear. Assets invested in the Company by the shareholders, independent and complete, are with clear property right. All of the investment is fully paid, and formalities of changing property right have been finished. 3) Independent Personnel As personnel management is concerned, the General Manager, Deputy General Manager and the Secretary of the Board of Directors, each of them has specific full-time responsibilities and none of them has a part-time job in the parent company. All of them are paid by the Company. All of the directors and supervisors of the Company were elected with legal procedures. The general manager, chief accountant, chief economics and chief engineer are employed by the board of directors directly, while the management is employed by the general manager directly. The Company has the power of personnel appointment and removal. 4) Independent Finance In finance, the Company has set up independent financial department with independent accounting system and the finance management systems for its subsidiaries. The Company establishes a separate bank account and pay taxes separately. There is no capital deposited in accounts of finance company or settlement center of the big shareholders. Decisions of the Company concerning finance were made independently, without any interference from the big shareholders. 5) Independent Organization Operation of board of directors, supervisory board and other internal organization is independent, and the frame is complete and independent. 4. Establishment and implement of Check, Excitation and Reward System for Senior Management In order to link interests of directors, supervisors and senior management with interests of the Company closely by establishing effective reward 20 and excitation system, the Company withdrew bonus RMB 2 million (including tax) in accordance with resolutions passed at the shareholders’ general meeting, 2000. The bonus was rewarded to directors, supervisors and senior management, and they must purchase circulating shares of the Company in the stock market with the bonus and apply to Shenzhen Stock Market for frozen of the shares and go through relevant procedures. 21 VI. Shareholders' General Meeting The Company convened one annual shareholders' general meeting and two provisional shareholders' general meetings. Convention of the first provisional shareholders’meeting of the Company for 2001 was passed at the eighth meeting of the third board of directors. The notice of meeting convention had been published in Securities Times, China Securities, Shanghai Securities News, Ta Kung Pao (H.K.) and Hongkong Commercial Daily on December 16th, 2000. The first provisional shareholders’meeting of the Company for 2001 was held on January 17, 2001 in Mahui room, 4/F Guangdong Foreign Businessman Club Center. There were 16 shareholders or their proxies present at the meeting, representing 456,576,748 shares and 54.48% of the total share capital of 838,078,499 shares. Of the shareholders attending the meeting, 12 shareholders holding Domestic Investment Shares and 4 shareholders holding Foreign Investment Shares representing 117,714,801 shares and 2,303,051 shares respectively, in compliance with relevant stipulations set forth in the Company Law and the Articles of Association of the Company. Guangdong Gold Sun Law Firm presented the legal opinions for the shareholders’ meeting. Guangdong Provincial Notary Office notarized the meeting. The resolution proposed: purchase of 16% equity shares and relevant shareholders’ loan of Guangdong Fokai Expressway Co., Ltd., is considered and passed by ballot. By virtue of being a related party transaction, the related shareholders abandon the right to vote in the shareholders’meeting. Announcement on the above mentioned purchase and relevant independent financial advice and an abstract of the evaluation report have been published in Securities Times, China Securities, Shanghai Securities News, Ta Kung Pao (H.K.) and Hong Kong Commercial Daily on January 18th, 2001. Convention of the annual shareholders’general meeting of the Company for 2000 was passed at the ninth meeting of the third board of directors. The notice of meeting convention had been published in Securities Times, China Securities, Shanghai Securities News, Ta Kung Pao (H.K.) and Hongkong Commercial Daily on March 21st, 2001. 22 The annual shareholders’general meeting of the Company for 2000 was held on April 23rd, 2001 in Guangdong Foreign Businessman Club Center. There were 13 shareholders or their proxies present at the meeting, representing 395,113,740 shares and 47.15% of the total share capital of 838,078,499 shares. Of the shareholders attending the meeting, 6 shareholders holding Domestic Investment Shares and 7 shareholders holding Foreign Investment Shares representing 338,918,820 shares and 56,194,920 shares respectively, in compliance with relevant stipulations set forth in the Company Law and the Articles of Association of the Company. Guangdong Provincial Notary Office notarized the meeting. The resolutions examined and passed are as follows which were decided by ballot: 1) Final financial report for 2000 2) The proposal for 2000 profit distribution 3) The annual working report of board of directors 4) The annual business report for 2000 5) The annual report and abstract for 2000 6) Proposal for continuing to invite Yangcheng certified Public Accountants and Ernest & Young as the Company’s domestic and abroad auditors respectively. 7) Proposal of making up housing working cash fund 8) Proposal on changing the usage of collected fund from rights issue 9) Proposal of amendment on part of items in Articles of the Company 10) Proposal of bounty withdrawal 11) Proposal on changing director of the Company, approval of recommendation of Mr. Su Yongdong as director of the Company. 12) Proposal on alternation of shareholding unit of state-owned shares 13) Supervisory Board proposal: the Working Report of Supervisory Board for 2000 14) Supervisory board proposal: Detailed Rules of Procedure for Supervisory Board The resolutions were published in Securities Times, China Securities, Shanghai Securities News, Ta Kong Pao (H.K.) and Hongkong Commercial Daily on April 24th, 2001. Convention of the second provisional shareholders’general meeting of the Company for 2001 was passed at the tenth meeting of the third board of directors. The notice of meeting convention had been published in Securities Times, China Securities, Shanghai Securities News, Ta Kung Pao (H.K.) and Hongkong Commercial Daily on August 11, 2001 and September 5, 2001 respectively. 23 The second provisional shareholders’general meeting of the Company for 2001 was held on October 12, 2001 in Mahui room, 4/F Guangdong Foreign Businessman Club Center. There were 6 shareholders or their proxies present at the meeting, representing 573,312,409 shares and 45.61% of the total share capital of 1,257,117,748 shares. Of the shareholders attending the meeting, 5 shareholders holding Domestic Investment Shares and 1 shareholder holding Foreign Investment Shares representing 508,256,492 shares and 65,055,917 shares respectively, in compliance with relevant stipulations set forth in the Company Law and the Articles of Association of the Company. Guangdong Provincial Notary Office notarized the meeting. Proposal of postponing the examination of some items is discussed and approved. Because assets evaluation report and independent finance advisor report of Shenshanxi Expressway could not be completed on schedule, three proposals, namely proposal on purchasing part of assets of Shenshanxi Expressway, proposal of convertible corporate bond issue and the feasible report on investment with the proceeds, are not examined at the meeting. The proposals would be reviewed later when the two reports are finished. The resolutions examined and passed are as follows which are considered and passed by ballot. 1) Reviewed and approved the proposal of transferring 25% share equity of Guangdong Yuedong Expressway Industry Development Co., Ltd. 2) Reviewed and approved the proposal of transferring share equity investment of Guangdong Maozhan Expressway Co., Ltd. 3) Reviewed and approved the introduction and special report on usage of former proceeds. 4) Reviewed and approved the proposal of changing business scope of the Company. 5) Reviewed and approved the proposal of modifying some articles in Articles of Association. 6) Review and approved the proposal of changing some directors of board of directors; The resolutions were published in Securities Times, China Securities, Shanghai Securities News, Ta Kong Pao (H.K.) and Hongkong Commercial Daily on October 13, 2001. 2. Brief Introduction to the Reelection and change of Directors and 24 Supervisors 1) The annual shareholders’general meeting of the Company discussed and approved the resolution on approval of Mr. Lin Xingwang’s resignation from the directorship, and election of Mr. Su Yongdong as directors of the Company. 2) The second provisional shareholders’general meeting of the Company discussed and approved the resolution on the agreement on the relief Mr. Li Yinghao of his directorship of the Company. 25 VII. Report of the Board of Directors 1.Operation of the Company in 2001 (1) Scope of the Main Operation and Summary of Operation Condition The Company belongs to the industry of infrastructure construction, with commercial development and operation of expressway and large bridges as its main business. It is one of the main organizations engaged in developing expressways and large bridges in Guangdong Expressway System and is also the major " window for financing " of Guangdong Province Communication Group Co., Ltd.. The expressway industry is an industry with special support from the state, and the Company's operation benefits from the support of the industrial policy of the country. Income and profit of the main operation for the year 2001 is RMB 625,400,744.00 and RMB 376,432,942.65 respectively; both come from the toll collection on expressways and very large bridges. Details are as follows: Main Operation Operating Income Percentage (RMB yuan) Fokai Expressway Co., Ltd. 383,255,694.00 61.28% Fuangfo Expressway Co., Ltd. 242,145,050.00 38.72% Main Operation Operating Income Percentage (RMB yuan) Fokai Expressway Co., Ltd. 196,738,859.24 56.03% Guangfo Expressway Co., Ltd. 165,534,083.41 43.97% (2) Operation and performance of main holding company and equity participant company: 1) Guangfo Expressway Co., Ltd.: The Company has a 75 percent interest in Guangfo Company, whose registered capital is RMB 44 million. Guangfo Company is in charge of construction and operation of Guangzhou-Foshan Expressway. Operation and management of Guangfo Company is road maintenance, toll collection, vehicle salvage and communication facilities service such as logo and lane. In 2001, total assets of Guangfo Company is RMB 676,576,834.66, and net profit is RMB 132,693,040.05. 26 2) Guangdong Fokai Expressway Co., Ltd.: The Company has a 51 percent interest in Fokai Company, whose registered capital is RMB 0.34 billion. Business of Fokai Company is operation and management of Fokai Expressway, as well as salvage, maintenance, cleaning and spares supply. In 2001, total assets of Fokai Company is RMB 3,531,936,133.18, and net profit is RMB 45,408,320.46. 3) Guangdong Gaosu Science and Technology Investment Co., Ltd.: The Company has an 85 percent interest in Science and Technology Company, whose registered capital is RMB 0.1 billion. Business scope of Science and Technology Company is investment in science and technology industry. In 2001, total assets of Science and Technology Company is RMB 99,389,786.61, and net profit is RMB -1,128,444.00. 4) Shenzhen Huiyan Expressway Co., Ltd.: The Company has a 1/3 percent interest in Huiyan Company, whose registered capital is RMB 36 million. Huiyan Company is in charge of management and organization of the construction of Huiyan Expressway Shenzhen Section, and operation, management, repairs, maintenance and toll collection of the Expressway as well. Construction management of road and bridge, as well as project consultation. In 2001, total assets of Huiyan Company is RMB 559,710,899.79, and net profit is RMB 78,476,715.65. 5) Guangdong Maozhan Expressway Co., Ltd.: The Company has a 20 percent interest in Maozhan Company, whose registered capital is RMB 0.32 billion. Business scope of Maozhan Company includes operation, maintenance and management of Dianbai-Zhanjiang Expressway and the association facilities. In 2001, total assets of Maozhan Company is RMB 2,047,023,465.25, and net profit is RMB -71,025,108.00. (3) Problems and difficulties arising in operation and the corresponding solutions Development of local highway, benefits from growth of local economy, has impact on the parallel expressways by dividing traffic volume. For example, Guangfo Expressway has born decrease in traffic volume and toll collection since the opening to traffic of Guangzhou ring road and implementation of annual check system in 2001. 27 For this reason, the Company will make further improvement on service quality, and respond to the call of connecting expressway toll collection net in Guangdong province by unifying standard of vehicle classification and developing electronic toll collection with IC card. The Company will advance automatics and intelligence of toll collection so as to promote the efficiency of vehicle’s move as well as upgrade the level of operation and management. In the second half of 2001, Communication Department and National Plan Commission issued the Opinion on Giving Container Transport Vehicle Preferential Policy on Toll of Expressways, and issued a document soliciting opinions for modification. It is said that national toll collection of container transport vehicles would decrease once the policy carries out. Since implementation details of the policy are not published, the Company could not estimate the negative influence. The Company will pay close attention to progress of the policy and make announcement on the influence on time. 2. Investment of the Company (1) Utilization of raised funds Approved by the GuangZhou Security Management Office of the China Security Regulatory Committee in the Document No: GZZJH.[2000]99, as well as verified and approved by the China Security Regulatory Committee in the Document No. ZJGSZ[2000]98, together with the approval of Shenzhen Stock Exchange, the Company offered 3 Rights for each 10 shares at the price of RMB11 per share in August 2000. The Company raised RMB 797,090,079.29 in the rights issue. The proceeds were invested into the following projects: Project Stated in Rights Capital Investment Actual Capital Allocation Offering Prospectus Stated in the Prospectus Guanghui Expressway RRMB601 million RRMB601 million Tangtang-Taihe Section of RRMB227.5 million RMB196.0901 million Jingzhunan Expressway Xiaotang-Gantang Section of RRMB160.33 million 0 Jingzhubei Expressway Actual investment and return of the collected fund: Name of Project Actual Time of Rate of Return of Project Investment Investment Construction Progress 28 Guanghui RMB 40 million Expressway were invested in no return since RMB 61.03728 2000; RMB being a 34.81% million 21.03728 million construction was invested in project in progress, 2001 Purchase 16% Investment return share equity and on share equity is shareholders’loan RMB8.5871 of Fokai RMB 375.3869 million in 2001; Expressway million were balance of RMB736.0528 invested in 2000; amortization share --- million RMB 360.6659 equity investment million was is RMB 5909000, invested in 2001 and return on liability investment is RMB 19.6338 million. Actual collected fund by rights offering amounts to RMB797 million. Pursuant to the use of capital stated in the Rights Offering Prospectus, the collected fund could satisfy only part of capital needs in Guanghui Expressway project and Jingzhunan project. The company will finance the capital requirement of Jingzhubei project through bank loan. The Company planed to invest in the Guanghui expressway project with RMB 601 million. The project was approved by the State Development Plan Commission with the document kuaijisijichuhanNo.[1999]252. By June 2001, the Company invested RMB 61.0373 million. The differences from the planned investment are due to the following reasons: a) Delay of project schedule until the second half of the year 2000 due to the problems on requisition of land and dismantling buildings; b) Lag of project schedule owing to alteration of cooperative parties, and the document procedures and the negotiations concerned. The Company planed to invest in Tangtang-Taihe Section of Jingzhunan Expressway with RMB 227.5 million. The project was approved by the State Development Plan Commission with the document kuaijijichuNo.[1998]1557 and No.[1998]1598. By December 30, 2001, the Company did not make any investment in Tangtang-Taihe section of Jingzhunan Expressway. The main reason was that the business license of Cooperation Company was in the process of application for approval, and 29 the Company didn’t need to make investment according to the cooperative contract. The Company passed the proposal of changing usage of the collected fund, so as to upgrade the capital use efficiency, reduce capital cost, promote new investment projects to produce good return in short term and provide shareholders with better return. The currently idle proceeds RMB 736.0528 million was used to purchase 16% share equity and shareholders’ loan of Fokai expressway. Fokai expressway opened to traffic at the end of 1996. Traffic volume and operation income increased stably every year from then on. The Company will continue the investment as stated in the rights issue prospectus. And the capital will be raised by bank loan and invested step by step in accordance with actual progress of projects. Actual investment of Guanghui Expressway, Jingzhunan Expressway Tangtang-Taihe Section and Jingzhubei Expressway Xiaotang-Gantang Section please refer to No. 3, 4 and 6 of Article 9. Commitments in Part X. Change of use of rights issue proceeds has been passed at the annual shareholders general meeting, 2000. And the related announcements have been published in Securities Times, China Securities, Shanghai Securities News, Ta Kung Pao (H.K.) and Hongkong Commercial Daily on March 21, 2001 and April 24, 2001 respectively. As ended December 31, 2001, the Company has invested all of the former proceeds in the projects without underexpenditure. (2) Investment of own funds 1) The Company signed an investment agreement about establishing Guangdong Gaosu Science and Technology Investment Co., Ltd. with Guangdong Road and Bridge Construction Development Company on May 9, 2001. Registered capital of Science and Technology Company is RMB 100 million. Guangdong Road and Bridge Construction Development Company holds 15% share equity, and the Company holds 85% share equity. The Company had paid investment RMB 85 million by the end of December 31, 2001. 2) The company re-signed “The Contract for Cooperation in Construction and Operation of Guanghui Expressway” with Guangdong Changda Development Co., Ltd., Guangdong Zhujiang 30 Highway and Bridge Investment Co. Ltd. and Huizhou Highway Development Company on July 14, 2000. According to the contract, the four parties would make investment jointly in construction and operation of the Guanghui Expressway project and the supporting facilities and service facilities concerned. The total investment is RMB6.2 billion, among which, 35% would be made by each shareholder at one time and the rest would be made by the shareholders according to the progress of the construction year by year. The registered capital of the project company is RMB 0.1 billion, of which 30% or RMB 30 million will be invested by the Company. Besides the registered capital, the rest of the investment is to be made by the shareholders in accordance with the percentage. Besides the 35% capital in cash, the rest capital will be financed from the bank on pledge of project equity. In case shortage of bank loan or the budgetary estimate approved by the government is more than the investment estimate, the cooperation parties will, with the approval of board of directors, make further investment in the form of shareholders’loan or more loans from bank loan in accordance with the percentage. The Company had invested RMB 210 million as ended December 31, 2001. The project company had finished the procedures of change of registration concerning share equity change. 3) Proposal on construction of Yayao Key Fly-over was passed at the eighth meeting of the third board of directors on December 15, 2000. Guangfo Expressway Co., Ltd. signed the Contract of Investment in Yayao Key Flyover Control Project Construction Co., Ltd. and the Agreement on Cooperation Construction of Yayao Key Flyover Control Project with Foshan Communication Development Corporation and Nanhai Communication Construction Group Corporation on December 28, 2000. The Supplementary Contract of Cooperation Construction of Yayao Key Flyover Control Project was signed on December 29, 2000. The project investment is amount to RMB 120 million, and the registered capital is RMB 10 million. Guangfo Company accounts for 60% of the total investment. Besides the registered capital, the remaining investment is in form of shareholders’loan. Guangfo Company had invested registered capital RMB 6 million and shareholders’loan RMB 11.7412 million as ended December 31, 2001. 4) Proposal on construction of Xiebian Key Fly-over was passed at the eighth meeting of the third board of directors on December 15, 2000. Guangfo Expressway Co., Ltd. signed the Contract of Investment in Xiebian Key Flyover Control Project Construction Co., Ltd. and the 31 Agreement on Cooperation Construction of Xiebian Key Flyover Control Project with Foshan Communication Development Corporation and Nanhai Communication Construction Group Corporation on December 28, 2000. The Supplementary Contract of Cooperation Construction of Xiebian Key Flyover Control Project was signed on December 29, 2000. The project investment is amount to RMB 320 million, and the registered capital is RMB 30 million. Guangfo Company accounts for 33% of the total investment. Guangfo Company had invested registered capital RMB 9.9 million and investment other than registered capital RMB 52.9665 million as ended December 31, 2001. 3. Analysis on financial position of the Company Unit: RMB yuan Indicators 2001 2000 Increase or Decrease (%) Gross Assets 5,775,201,426.79 3,791,087,549.15 52.34% Long-term Liabilities 1,402,925,786.26 93,461,930.20 1401.07% Shareholders’Equity 3,331,314,404.76 3,276,688,685.57 1.67% Main Business Profit 376,432,942.65 154,264,519.27 144.02% Net Profit 158,930,022.26 127,015,164.94 25.13% a) Total assets, as at year ended December 31, 2001 is an increase of 52.34% than that of last year. The main reason for the increase is due to the consolidation of financial statements of Fokai Company and Science and Technology Company. b) The long-term liabilities as at year ended December 31, 2001 are an increase of 1401.07% than that of last year. The main reason for the decrease is due to the consolidation of financial statements of Fokai Company. c) Shareholders' equity as at year ended December 31, 2001 is an increase of 1.67% than that of last year. The main reason of the increase is due to increase of profits in 2001 and the profit distribution. d) The main business operating income as at year ended December 31, 2001 is an increase of 144.02% than that of last year. The main cause of it is the consolidation of financial statements of Fokai Company. e) Net profit as at year ended December 31, 2001 is an increase of 25.13% than that of last year. The main cause is increase of return 32 from Fokai Company. 4. Yangcheng Certified Public Accountants has provided audit report without any reserve for the Company in 2001. 5. Effects of the Change of Operating Environments and Macro-Policies China received the entrance to the World Trade organization at the end of 2001. On one hand, increment of passengers and goods will bigger and bigger with the increase of international trade and international communication; on the other hand, import tax on cars will decrease by a big margin so as to stimulate demand for cars which have positive influence on traffic volume of expressways. 6. Development Plans for the New Year 1) The Company will further strengthen internal management and control cost. Target of main business income in 2002 is RMB 635.0457 million, and cost of main business is RMB 226.4299 million. In order to fulfil and surpass the objective, the Company will promote scientific management and standardization management, and strengthen objective management and discipline as well. At the same time, the Company will improve management efficiency and guarantee profits by tapping the internal latent power and reducing management cost. 2) The Company will carry out the big repair of Guangfo Expressway with good organization so as to ensure the project completes with good quality on time and lessen the negative impact on traffic volume. 3) The Company will establish Independent Director System according to the requirements of Regulations on Governance of List Companies and in compliance with characteristics and needs of the Company. What’s more, the Company formulates and improves Rules on Procedures for Shareholders’General Meeting; modify modes and procedures of management continuously so as to upgrade governance level. 4) The Company will go on promoting the excitation and discipline system for senior management, linking the short term interests of management, key members and outstanding staff with the long term interests of the Company in order to stimulate creativity and 33 responsibility of the staff, so as to achieve stable long-term return for shareholders. 7. The Daily Work of the Board of Directors (1) Meetings of board of directors and resolutions in the reporting period: The board of directors convened five Directors’Meetings in 2001. The details of the meetings and the resolutions passed are as follows: 1) The ninth meeting of the third board of directors of the Company was held on March 19, 2001 in the meeting room of the Company. Among eleven directors of the Company, 6 of them attended the meeting, and 5 of them authorized other directors to vote, in compliance with relevant stipulations set forth in the Company Law and the Articles of Association of the Company. Chairman of board of directors Mr. You Guojing convened and presided over the meeting. All supervisors and the senior management team attended the meeting as nonvoting delegates. Resolutions discussed and approved at the meeting are as follows: (i) Final financial report for 2000 (ii) The proposal for 2000 profit distribution (iii) The annual working report of board of directors (iv) The annual business report for 2000 (v) The annual report and abstract for 2000 (vi) Proposal for continuing to invite Yangcheng certified Public Accountants and Ernest & Young as the Company’s domestic and abroad auditors respectively. (vii) Proposal of making up housing working cash fund (viii) Proposal on listing of non-circulating shares held by foreign investors (ix) Proposal of amendment on part of items in Articles of the Company (x) Proposal of changing the shareholding unit of state-owned shares (xi) Proposal of bounty withdrawal (xii) Approval of Mr. Lin Xingwang’s resignation from the directorship and recommendation of Mr. Su Yongdong as director of the Company. (xiii) Proposal on changing the usage of collected fund from rights issue (xiv) The proposal of profit distribution policy for 2001 34 (xv) Proposal of withdrawing devaluation preparation for short-term investment (xvi) Decided to hold annual shareholders’meeting for 2000 on April 23, 2001. The resolutions were published in Securities Times, China Securities, Shanghai Securities News, Ta Kong Pao (H.K.) and Hongkong Commercial Daily on March 21, 2001. 2) The provisional meeting of the third board of directors was held by means of communication on July 9, 2001. The proposal of transferring 25% share equity of Guangdong Yuedong Expressway Industry development Co., Ltd. was discussed and passed. The resolutions were published in Securities Times, China Securities, Shanghai Securities News, Ta Kong Pao (H.K.) and Hongkong Commercial Daily on July 11, 2001. 3) The tenth meeting of the third Board of Directors of the Company was held in the meeting room of the Company on August 8, 2001. The chairman of Board of Directors Mr. You Guojing convened and presided over the meeting. Among eleven directors of the Company, seven of them attended the meeting, three of them authorized others to vote, which is in compliance with relevant stipulations set forth in the Company Law and the Articles of Association of the Company. All supervisors and senior management of the Company attended the meeting as observers. The following resolutions have been discussed and approved: (i) The interim report, 2001 and abstract for disclosure (ii) The proposal for interim profit distribution, 2001 (iii) Proposal of purchase 25% share equity of Shenshanxi Expressway (iv) Proposal of transferring 20% share equity of Guangdong Maozhan Expressway Co., Ltd. (v) Discussed and passed the proposal of convertible corporate bond issue item by item (vi) Discussed and passed the introduction and special report on usage of former proceeds (vii) Discussed and passed the feasible report on investment with capital collected by convertible corporate bond issue (viii) The proposal of bank loan application 35 (ix) Proposal of changing business scope of the Company (x) Proposal of modifying some articles in Articles of Association (xi) Proposal of changing some directors of board of directors (xii) Proposal on modifying internal controlling system on provision for diminution in value of different assets (xiii) Decided to hold the second provisional shareholders’general meeting, 2001 on September 12, 2001. The resolutions were published in Securities Times, China Securities, Shanghai Securities News, Ta Kong Pao (H.K.) and Hongkong Commercial Daily on August 11, 2001. 4) Board of directors of the Company held the provisional meeting of third board of directors by means of telecommunication on September 25, 2001. Resolutions passed at the meeting are as follows: Because assets evaluation report and independent finance advisor report could not be completed on schedule, three proposals, namely proposal on purchasing part of assets of Shenshanxi Expressway, proposal of convertible corporate bond issue and the feasible report on investment with the proceeds, will not be examined at the second provisional shareholders’meeting, 2001. The above-mentioned proposals would be reviewed later when the two reports are finished. Besides, the agenda of the meeting is the same, that is: (i) To review the proposal of transferring 25% share equity of Guangdong Yuedong Expressway Industry Development Co., Ltd.; (ii) To review the proposal of transferring share equity investment of Guangdong Maozhan Expressway Co., Ltd.; (iii) To review the introduction and special report on usage of former proceeds; (iv) To review the proposal of changing business scope of the company; (v) To review the proposal of modifying some articles in Articles of Association; (vi) To review the proposal of changing some directors of board of directors. The above-mentioned (hereafter the delayed examination) should be discussed and passed at the second provisional shareholders’general meeting on October 12, 2001. 36 The resolutions were published in Securities Times, China Securities, Shanghai Securities News, Ta Kong Pao (H.K.) and Hongkong Commercial Daily on September 27, 2001. 5) Board of directors of the Company held the provisional meeting of third board of directors by means of telecommunication on October 30, 2001. Proposal of selling 26 commodity departments in Huizhou was reviewed at the meeting. Resolutions passed at the meeting are as follows: Agreement on sale of 26 commodity departments at market price, 2340.62 square meter in area, which located at Hualing Building, No.8 Gongjian Lu, Xia Jiao, Huizhou. Resolution passed at the meeting of board of directors had been submitted for reference of Shenzhen Stock Exchange. (2) The Implementation of the Resolutions of Shareholders’General Meetings by Board of Directors Implementation of Profit Distribution The annual shareholders’meeting for 2000 approved the proposal of profit distribution for 2000 as follows: Cash dividends of RMB 1.00 (including tax) for every 10 shares; as well as the proposal of transferring capital surplus into share capital at the percentage of 10:5. The distribution and the share capital transfer had been completed in June 2001. 8. Proposal for Profit Distribution According to the audited financial statements and net profit of the Company for the year ended December 31, 2001 by the Yangcheng Certified Public Accountants in accordance with the PRC Accounting Standards, the Company’ s profit after taxation for the year ended December 31, 2001 is RMB 158,930,022.26, the accumulated distributable profit after tax is RMB 387,388,697.84. By the audit of Ernst & Young Accounting Firm in accordance with the International Accounting Standards ("IAS"), the net profit of the Company after the tax in 2001 is RMB 149,811,000.00, the accumulated distributable profit after tax amounts to RMB 37 289,564,000.00. Following the lower of profit under PRC Accounting Standards or profit under IAS according to relevant regulations of the Company's Article of Association, 2001 profit is distributed as follows: 1. From the 2001 net profit of RMB 158,930,022.26 audited by Yangcheng Certified Public Accountants, 10% will be drawn for statutory surplus reserve (RMB 15,893,002.23), 5% for statutory public welfare fund (RMB 7,946,501.11). 2. The Company decides to draw RMB 125,711,774.80 from the distributable profit for cash dividend of 2001. The Board of Directors decides to distribute the year 2001’s profit in form of cash dividends. Cash dividend of RMB 1.00 (including tax) for every 10 shares will be distributed to shareholders based on the total 1,257,117,748 shares, with the total amounting to RMB 125,711,774.80. The undistributed profit will be carried forward as retained earning of the Company. The conversion rate of the cash dividend for shareholders of B Share and overseas legal persons shares will be determined by the mean exchange price of HK Dollars for Renminbi as quoted by the People's Bank of China on the first working day after the resolution is passed at the 2001 annual shareholders' general meeting. 9. Estimated Profit Distribution Policy for 2002 In accordance with the net profit audited by public accountants, the Company plans to carry out profit distribution in cash dividend by the end of 2002. Proportion of the dividend distribution won’t be lower than 40% of the net profit for the year. The undistributed profit of the Company for 2001 will not be distributed in 2002. There are no plans for transfer of Capital surplus in 2002 into share capital. 10. Newspaper for information disclosure Newspapers for information disclosure: Securities Times, China Securities, Shanghai Securities News, Ta Kong Pao (H.K.) and Hongkong Commercial Daily. 38 VIII. Report of the Supervisory Board 1. Meeting of supervisory board The Board of Supervisors convened two Supervisors’Meetings in 2001. The seventh meeting of the third board of supervisors of Guangdong Provincial Expressway Development Co., Ltd. (hereinafter the Company) was held on March 19, 2001 in the meeting room of the Company. Mr. Lu Yongzheng, chairman of the supervisory board, convened and presided over the meeting. All of the 5 supervisors of the Company attended the meeting, in accordance with related regulations in the Company Law. The following resolutions have been discussed and approved: 1) Examined and passed the working report of supervisory board for 2000, and submitted it to the annual shareholders’meeting for 2000 for discussion. 2) Examined and passed the Detailed Rules of Procedure for supervisory board, and submitted it to the annual shareholders’meeting for 2000 for discussion. 3) Proposal on changing the usage of collected fund from rights issue. 4) Examined and discussed related proposals and resolutions of the ninth meeting of the third board of directors, which include the annual report and abstract for 2000, the proposal for 2000 profits distribution and profit distribution policy for 2001, proposal of withdrawing devaluation preparation for short-term investment, proposal of making up housing working cash fund and resolutions passed at the ninth meeting of the third board of directors. The resolutions were published in Securities Times, China Securities, Shanghai Securities News, Ta Kong Pao (H.K.) and Hongkong Commercial Daily on March 21, 2001. The eighth meeting of the third board of supervisors of Guangdong Provincial Expressway Development Co., Ltd. (hereinafter the Company) was held on August 8, 2001 in the meeting room of the Company. Mr. Lu Yongzheng, chairman of the supervisory board, convened and presided over the meeting. All of the 5 supervisors of the Company attended the meeting, in accordance with related regulations in the Company Law. The following resolutions have been discussed and approved: 1) Examined and passed the interim report, 2001 and the abstract; 2) Examined and passed the profit distribution for 2001 interim; 3) Examined and passed the proposal of purchasing part of assets of 39 Shenshanxi Expressway; 4) Examined and passed the proposal of convertible corporate bond issue; 5) Examined and passed the introduction and special report on usage of the former proceeds; 6) Examined and passed the proposal on modifying internal controlling system on provision for diminution in value of different assets. 7) The supervisory board made serious supervision on operation and decision-making for the first half of 2001. The independent opinion is as follows: The interim report, 2001 really reflects the operation and financial status of the Company impartially. The Company standardizes the operation strictly in accordance with Company law, Securities Law, Articles of the Company and other relevant regulations. The Company establishes and upgrades the internal control system, and the decision-making procedures are legal. The related party transactions went through legal procedures, priced on adequate basis, and were at fair and reasonable price. No damage to interests of the Company occurred. Neither did directors and senior management team of the Company go against the law, regulations and Articles of the Company, nor they hurt interests of the Company. The resolutions were published in Securities Times, China Securities, Shanghai Securities News, Ta Kong Pao (H.K.) and Hongkong Commercial Daily on August 11, 2001. 2. The Work of the Management in 2001 In 2001, the management of the Company practice democratic decision-making process, and pays attention to opinions from different sides, and follows the regulations of the Company and the authority delegated by the Board of Directors and the Shareholders’ meeting strictly. The Company has established 49 internal controlling rules, including internal controlling system, system of personal responsibility and others. The Supervisory Board supervised the operating activities of the Board of Directors, the General Manager and the other senior management personnel, finding no unlawful activities or activities contrary to the Company’s Articles of Associations and the benefit of the Company. 3. Financial Examination 40 The Board of Supervisors strengthened financial supervision by establishing internal auditor system and internal audit management rules of the Company. The audit found no illegal activities in 2001. The financial statements of the Company have been audited respectively by Yangcheng Certified Public Accountants and Ernst & Young. Their conclusions are that the financial statements of the Company present fairly, in all material respects, the business performance and the financial status of the Company, and are truthful, objective and reliable. 4. Utilization of capital funds Details of utilization of raised funds please refer to part VIII report of board of directors. After investigation, the Board of Supervisor has conclusion that change of utilization of raised funds are passed at meeting of board of directors as well as shareholders’ general meeting, and the procedure is in compliance with law. 5. Acquisitions and Sale of Assets In 2001, the Company transferred 25% share equity of Guangdong Yuedong Expressway Industry Development Co., Ltd. and whole investment share equity of Guangdong Maozhan Expressway Co., Ltd. to Guangdong Communication Industry Investment Company. (For the details please refer to Important Events part (2).) The Board of Supervisor has conclusion that the above-mentioned sales have been evaluated by the intermediary consultants independently, who have confirmed that the price is based on the estimated price and the transaction price is fair; no under table activities are found; thus the purchase does not hurt the interest of the Company and the assets of the Company. 6. Induction on the Related Party Transaction: In 2001, the Company transferred 25% share equity of Guangdong Yuedong Expressway Industry Development Co., Ltd. and whole investment share equity of Guangdong Maozhan Expressway Co., Ltd. to Guangdong Communication Industry Investment Company. (For the details please refer to Important Events part (2).) The Board of Supervisors regards the related transactions are fair, reasonable and won’t hurt the interest of the Company. 41 IX. Significant Events (1) Significant litigation and arbitration events In accordance with the Stock List Regulations No.7.4.2 of Shenzhen Stock Exchange, there are no significant litigation and arbitration events in 2001. (2) Significant Transactions Concerning Purchases, Sales or Mergers 1) Transfer the whole investment share equity of Guangdong Maozhan Expressway Co., Ltd. to Guangdong Communication Industry Investment Company The Company signed the Agreement on Transferring investment share equity of Guangdong Maozhan Expressway Co., Ltd. with Guangdong Communication Industry Investment Company on August 23, 2001. The Company transferred the whole investment share equity of Guangdong Maozhan Expressway Co., Ltd. to Guangdong Communication Industry Investment Company at the price of RMB 228.5 million. Delivery date for the transfer is August 1, 2001. The agreement took effect with approval of the decision-making authority of the parties, and with the approval of Guangdong Foreign Trade Economic Cooperation Bureau as well. The resolutions have been published in Securities Times, China Securities, Shanghai Securities News, Ta Kung Pao (H.K.) and Hongkong Commercial Daily on July 11, 2001. 2) Transfer 25% share equity of Guangdong Yuedong Expressway Co., Ltd. to Guangdong Communication Industry Investment Company The Company signed the Agreement on Transferring 25% share equity of Guangdong Yuedong Expressway Co., Ltd. with Guangdong Communication Industry Investment Company on August 23, 2001. The Company transferred 25% share equity of Guangdong Yuedong Expressway Co., Ltd. to Guangdong Communication Industry Investment Company at the price of RMB 75.26 million. Delivery date for the transfer is August 1, 2001. The agreement took effect with the approval Yuejiaoji [2001] 891 signed by Guangdong Province Communication Bureau. As ended 42 December 31, 2001 the company had received RMB 37.63 million, 50% of the transaction price, paid by Guangdong Communication Industry Investment Company in advance. The resolutions have been published in Securities Times, China Securities, Shanghai Securities News, Ta Kung Pao (H.K.) and Hongkong Commercial Daily on August 11, 2001. (3) Significant Related Party Transactions The above-mentioned sales of assets are related party transaction, for details please refer to the announcements. Besides the two related party transactions, there is no other significant related party transaction in the reporting period. (4) Significant Contract and Performing 1) During the reporting period, no assets trustee, contract or lease of assets was concerned with the Company. 2) There is no guarantee happened during the reporting period. 3) There is no finance in trust during the reporting period. (5) Commitments The proposal of profit distribution policy for 2001 is passed at the ninth meeting of the third board of directors: In accordance with the net profit audited by public accountants, the Company plans to carry out profit distribution in cash dividend by the end of 2001. Proportion of the dividend distribution won’t be lower than 40% of the net profit for the year. The undistributed profit of the Company for 2000 will not be distributed in 2001. Profit distribution of 2001 is fully in accordance with the above-mentioned resolution passed at the meeting of board of directors. For details please refer to the proposal of profit distribution of 2001 and proposal of share capital transfer from capital surplus in Report of Board of Directors. (6) Auditors of the Company The Company continued to invite Yangcheng Certified Public Accountants and Ernst & Young as the Company's domestic and overseas auditors respectively. Recompense for the auditors are as follows: 43 Unit: RMB yuan 2001 2000 Auditor Finance Audit Other fees Finance Audit Other fees Yangcheng Certified Public 500000 140000 290000 8000 Accountants Ernst & Young 562400 - 541400 - (7) Income Tax Rate According to the approval document yuecaiqiNo. [2001] 127 signed by Guangdong Finance Bureau, the Company enjoys preferential policy in the year 2000 and 2001. The government levies enterprise income tax at the rate of 33% first and returns 18% later. From January 1, 2001on the government levies enterprise income tax at the rate of 33%. (8) Other Important Events 1) During the reporting period, neither the Company nor board of directors or the directors was punished by the supervisory department. 2) During the reporting period, no changes were made in the parent shareholders of the Company. 3) During the report period, no changes were made in the name and code of the shares of the Company. 44 X. Report of the Auditors To the members Guangdong Provincial Expressway Development Co., Ltd. (Established in the People’s Republic of China with limited liability) We conducted our audit in accordance with International Standards on Auditing. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements give a true and fair view of the financial position of the Group as at 31 December 2001 and of the results of the Group’s operations and its cash flows for the year then ended in accordance with International Accounting Standards. Hong Kong 1 February 2002 45 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. CONSOLIDATED INCOME STATEMENT Year ended 31 December 2001 2001 2000 Notes RMB’000 RMB’000 Turnover 4 592,204 238,546 Operating costs (221,894) (86,286) Gross profit 370,310 152,260 Other revenue 4 34,272 82,299 Administrative expenses (86,577) (54,822) Other operating expenses (4,288) (2,991) OPERATING PROFIT 5 313,717 176,746 Finance costs 6 (98,162) (7,125) Share of profits less losses of associates 10,231 4,838 PROFIT BEFORE INCOME TAX 225,786 174,459 Income tax expense 7 (26,050) (24,136) PROFIT BEFORE MINORITY INTERESTS 199,736 150,323 Minority interests (49,925) (33,795) NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS 149,811 116,528 Dividends 8 125,712 83,808 EARNINGS PER SHARE 9 RMB0.119 RMB0.098 Other than the net profit for the year attributable to shareholders, the Group had no recognized gains or losses. Accordingly, a consolidated statement of recognized gains and losses is not presented in the financial statements. 46 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. CONSOLIDATED BALANCE SHEET 31 December 2001 2001 2000 Notes RMB’000 RMB’000 ASSETS Non-Current Assets Fixed assets 10 4,230,446 627,882 Construction in progress 11 96,533 15,759 Goodwill 12 28,109 33,248 Investments in associates 13 595,329 1,637,471 Other investments, unlisted 14 8,737 9,385 Other long term assets 15 28,732 17,626 Bridge operating rights 17 59,874 - Deferred tax assets 7 4,036 4,858 Total Non-Current Assets 5,051,796 2,346,229 Current Assets Cash and cash equivalents 461,366 768,737 Time deposits - 12,736 Prepayments and other receivables 7,706 4,285 Current investment securities 18 136,105 153,416 Inventories 128 347 Due from a related company 19 37,630 375,387 Due from a minority shareholder - 10,000 Total Current Assets 642,935 1,324,908 TOTAL ASSETS 5,694,731 3,671,137 Director Director 47 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. CONSOLIDATED BALANCE SHEET (CONTINUED) 31 December 2001 2001 2000 Notes RMB’000 RMB’000 EQUITY AND LIABILITIES Capital and Reserves Issued capital 23 1,257,118 838,078 Reserves 24 2,120,746 2,473,782 Total Equity 3,377,864 3,311,860 Minority Interests 603,329 90,482 Non-Current Liabilities Bank loans 21 240,000 58,000 Due to minority shareholders 22 908,219 - Amounts payable 2,077 2,077 Total Non-Current Liabilities 1,150,296 60,077 Current Liabilities Bank loan 21 58,000 90,000 Other payables 52,431 14,421 Taxes payable 20,097 11,473 Due to related companies 20 116,861 Due to minority shareholders 22 315,853 38,474 Total Current Liabilities 563,242 54,350 208,718 Total Liabilities 1,713,538 268,795 TOTAL EQUITY AND LIABILITIES 5,694,731 3,671,137 Director Director 48 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. CONSOLIDATED CASH FLOW STATEMENT Year ended 31 December 2001 2001 2000 Note RMB’000 RMB’000 NET CASH INFLOW FROM OPERATING ACTIVITIES 25 325,124 275,918 CASH FLOW FROM INVESTING ACTIVITIES Interest received 6,632 52,161 Purchase of current investment securities, listed (104,847) (58,220) Proceeds from disposal of equity interest in an associate 37,630 28,710 Purchases of fixed assets and additions of construction in progress (120,590) (24,095) Acquisition of equity interest in an associate (5,000) - Acquisition of equity interest and a shareholders’loan in a subsidiary (312,235) (375,387) Advance to an associate (120,000) - Proceeds from disposal of fixed assets 326 20 Proceeds from disposal of current investment securities, listed 135,056 67,661 Proceeds from returns of long term investment, unlisted 486 - Decrease/(increase) in time deposits 12,736 (12,736) Repayment of a loan to an associate 17,000 18,000 Dividends received from associates 21,652 2,749 Net cash outflow from investing activities (426,154) (306,137) CASH FLOW FROM FINANCING ACTIVITIES Issue of new shares through rights issue - 801,020 Share issue expenses - (3,930) Dividends paid (83,808) (114,638) Minority interests (23,450) (46,647) Loan from a minority shareholder 30,000 - New bank loans 80,000 170,000 Repayment of bank loans (270,000) (280,000) Advance from a related company 114,250 - Advance from/(Repayment to) an associate (53,333) 53,333 Net cash inflow/(outflow) from financing activities (206,341) 579,138 INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (307,371) 548,919 Cash and cash equivalents at beginning of year 768,737 219,818 CASH AND CASH EQUIVALENTS AT END OF YEAR 461,366 768,737 ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash at bank and cash on hand 461,366 748,737 Time deposits - 32,736 49 Less: Deposits with maturity of more than three months - (12,736) 461,366 768,737 50 1. CORPORATE BACKGROUND The Company was established in the People’ s Republic of China (the “PRC”) on 9 February 1993 in the name of Guangdong Foshan-Kaiping Expressway Shareholding Company Ltd. (the “Predecessor Company”) as a joint stock limited company in accordance with the regulations for Joint Stock Limited Companies. Pursuant to the approval at the shareholders’meeting of the Predecessor Company and the approval from the Guangdong Provincial State Asset Bureau in June 1993, Guangdong Provincial Freeway Company (“GPFC”) transferred its 75% equity interest in Guangzhou-Foshan Expressway Company Limited (“Guangfo Company”) and its 100% interest in Jiujiang Bridge to the Company in exchange for shares in the Company. In July 1996, the Company issued for subscription 135,000,000 B shares by way of private placing with foreign investors. Dealings in the B shares on the Shenzhen Securities Exchange commenced in August 1996. After the completion of the B share issue, the Company changed its name to Guangdong Provincial Expressway Development Co., Ltd. In January 1998, the Company issued for subscription 100,000,000 A shares for local PRC investors. Dealings in the A shares on the Shenzhen Security Exchange commenced in February 1998. In August 2000, the Company issued 30,000,000 listed A shares and 43,822,250 unlisted A shares by way of rights issue on the basis of 3 new shares of RMB1 each for every 10 existing shares for the shareholders on the register of members on 15 August 2000 at RMB11 per rights share payable in full on acceptance. The ultimate holding company of the Group for the year ended 31 December 2001 was Guangdong Communications Group Company Limited (“GCGC”), a company established in the PRC. With effect from 1 January 2001, upon the completion of the acquisition of 16% additional equity interest in Fokai Company, the Company aggregately held 51% equity interest in Fokai Company (For details, please refer to note 16). The principal activity of Fokai Company is the operation of Foshan-Kaiping Expressway (“Fokai Expressway”) and Jiujiang Bridge. The Company contributed RMB85,000,000 as share capital to establish Guangdong Gaosu Science and Technology Investment Company Limited (“Gaosu Company”) in June 2001 which accounted for 85% equity interest in Gaosu Company (For further details, please refer to note 16). The principal activity of Gaosu Company is investment to the industry of science and technology. Apart from this, there were no significant changes in the principal activities of the Company and its subsidiary, Guangzhou-Foshan Expressway Company Limited (“Guangfo Company”) for the year ended 31 December 2001. The principal activity of the Company in 2001 is investment holding. The principal activity of Guangzhou-Foshan Expressway Company Limited is the operation of Guangzhou-Foshan Expressway (“Guangfo Expressway”). 51 1. CORPORATE BACKGROUND (continued) The consolidated financial statements of the Group for the year ended 31 December 2001 were authorised for issue in accordance with a resolution of the directors dated 1 February 2002. The registered office of the Company is located at No.85 Baiyun Road, Guangzhou, Guangdong Province, the People’ s Republic of China. The Group operates in the Guangdong Province of the PRC and employed 1,061 employees as at the end of the financial year. 2. BASIS OF PRESENTATION These financial statements have been prepared in accordance with International Accounting Standards (“IAS”) issued by the International Accounting Standards Committee. The Group maintains its books and prepares its statutory financial statements in accordance with the relevant accounting principles and financial regulations applicable to joint stock limited companies established by the Ministry of Finance of the PRC. The accounting policies and bases adopted in the preparation of the statutory financial statements differ in certain material respects from IAS. The material adjustments arising from restating the results and net assets to comply with IAS have been made in the preparation of these financial statements, but will not be taken up in the accounting records of the Group. The adjustments include, primarily, adjustments for the elimination of the unrealised profits arising on the disposal of 100% ownership of the Jiujiang Bridge and related assets to Fokai Company against the Group’ s share of 35% equity interest in Fokai Company in 1999, deferred tax, goodwill arising on the acquisition of associates and a subsidiary, interest income on subscription monies received in connection with the issue of A shares, amortisation of goodwill, depreciation charges, amortisation of other long term assets, provision for diminution in value of construction in progress, current investment securities at market value, dividends payable, and other adjustments in accordance with the prudence concept. Further details with respect to the net impact of these IAS adjustments are included in note 26. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Principles of consolidation The consolidated financial statements comprise those of the Company and subsidiaries which the Company controlled at the balance sheet date. The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies which may exist. All intercompany balances and transactions, and unrealised profits arising from intra-group transactions have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered. 52 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (b) Fixed assets and depreciation Fixed assets are stated at acquisition cost or valuation less accumulated depreciation. In connection with the Group’s reorganisation, property, plant and equipment as at 31 January 1993 were revalued by Zhongzhou Certified Public Accountants, a firm of certified public accountants in the PRC, on a depreciated replacement cost basis. Depreciation of expressways and a bridge is calculated to write off their cost on a sum-of-the-units method whereby depreciation are provided based on the share of forecasted traffic volume for a particular period over the projected total traffic volume throughout the remaining operating periods of respective expressways and bridge, the relevant joint venture period or its estimated useful life, whichever is shorter. In addition, the directors would review the projected total traffic volume throughout the operating periods of respective toll expressways and a bridge on a regular basis. An independent professional traffic survey would be obtained if the directors considered appropriate. Appropriate adjustment will be made should there be a material change. Depreciation of Guangfo Expressway was previously calculated on the straight-line basis to write off the cost or valuation over the operating period, the relevant joint venture period or its estimated useful life, whichever is shorter. Pursuant to the approval of directors at the Guangfo Company’ s directors’ meeting on 26 September 2001, with effect from 1 January 2001, depreciation method of Guangfo Expressway was changed from the straight-line method to the sum-of-the-units method, as the directors considered it more justified accounting for the expected pattern of consumption of economic benefits of Guangfo Expressway based on the sum-of-the-units method. Further details are set out in note 10. All direct and indirect costs relating to the construction of expressways, bridge and office premises, including interest costs on related borrowed funds during the construction period, are capitalised as the costs of fixed assets. Amortisation of improvements relating to the expressways and bridge is calculated on the straight-line basis to write off the cost over the period, the relevant joint venture period or its estimated useful life, whichever is shorter. Depreciation of other fixed assets is calculated on the straight-line basis to write off the cost or revaluation of each asset, less any estimated residual value, over its estimated useful life. The principal annual rates used for this purpose are as follows: Buildings 3.2 ~ 4.5% Machinery 6.4 ~18% Furniture, fixtures and other equipment 18 ~ 19.4% Motor vehicles 12 ~ 18% (c) Construction in progress Construction in progress represents costs incurred in connection with the construction of expressways, bridge, office premises and other fixed assets. No provision for depreciation is made on construction in progress until such time as the relevant assets are put into use. 53 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (d) Bridge operating rights Bridge operating rights represent the rights to operate a bridge and are stated at cost less accumulated amortisation. Amortisation is provided on a straight-line basis over the period of the bridge operating rights granted to the Group. (e) Other long term assets Other long term assets represent losses on the disposal of residential apartments to the staff of the Group, and are eliminated by amortisation through the consolidated income statement on the straight-line basis over 10 years, the average remaining service duration of the staff in the Group. (f) Goodwill Goodwill arising on the acquisition of equity interest in a subsidiary and associates represents the excess of the purchase consideration paid for the equit y interest of a subsidiary and associates over the fair values ascribed to the net underlying assets acquired at the date of acquisition, and is eliminated by amortisation through the income statement on the straight-line basis over five years. (g) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of an asset which takes a substantial period of time to get ready for its intended use are capitalised until the construction/production of the relevant asset is completed, and are included in the carrying value of the asset. (h) Associates Associates are companies, not being subsidiaries, in which the Group has a long term interest of not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence. The Group’ s share of the post-acquisition results and reserves of its associates is included in the consolidated income statement and consolidated reserves, respectively. The Group’ s investments in its associates are stated in the consolidated balance sheet at the Group’ s share of net assets under the equity method of accounting less any provisions for permanent diminutions in values deemed necessary by the directors. 54 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (h) Associates (continued) Where associates are accounted for using the equity method, unrealised profits and losses resulting from “upstream”and “downstream”transactions between the Group and the associates are eliminated to the extent of the Group’s interests in the associates. Unrealised losses would not be eliminated to the extent that the transaction provides evidence of an impairment of the asset transferred. (i) Subsidiaries Subsidiaries are companies in which the Company has a long term interest of more than 50% and has effective control over the management of the companies. (j) Investments Long term investments are stated at cost less provisions for any permanent diminutions in values deemed necessary by the directors, on an individual investment basis. Current investment securities are investments in securities held for trading purposes and are stated at their fair values on the basis of their quoted market prices at the balance sheet date, on an individual investment basis. The gains or losses arising from changes in the fair value of a security are credited or charged to the income statement for the period in which they arise. (k) Inventories Inventories represent, primarily, low value consumable and are stated at cost less provisions for obsolescence. (l) Cash and cash equivalents Cash on hand and in banks and short term deposits which are held to maturity are carried at cost. Cash and cash equivalents are defined as cash on hand, demand deposits and short term, highly liquid investments readily convertible to known amount of cash and subject to insignificant risk of changes in value. For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash on hand and deposits in banks. (m) Loans and borrowings All loans and borrowings are initially recognised at cost, being the fair value of the consideration received and include acquisition charges associated with the borrowings/loans. 55 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (n) Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, on the following bases: --toll revenue, net of any applicable revenue taxes, when received; -- rental revenue, on a time proportion basis, over the lease terms; -- interest income, on a time proportion basis; and -- dividends and investment income, when the shareholders’ right to receive payment is established. (o) Income taxes PRC income tax is provided at the rates applicable to enterprises, sino-foreign joint stock limited companies and sino-foreign co-operative joint venture company in the PRC on the income for financial reporting purposes, adjusted for income and expense items which are not assessable or deductible for income tax purposes, based on existing PRC income tax legislation, practices and interpretations thereof. Tax refunds received are recorded as a reduction of income tax expense upon receipt. Deferred income tax is provided, using the liability method, for all temporary differences arising between the tax base of assets and liabilities and their carrying values for financial reporting purposes. Currently enacted tax rates are used to determine deferred income tax. Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which the deferred tax assets can be utilised. (p) Retirement benefits The Group is required to make contributions on behalf of its employees to a government administered retirement scheme in accordance with the rules and regulations thereof. The Group’s liability with regard to this retirement scheme is limited to its contributions, which are accounted for on an accrual basis. (q) Repairs and maintenance expenses Repairs and maintenance expenses are charged to the income statement as incurred. (r) Related parties Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party, or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. (s) Foreign currency transactions Foreign currency transactions are recorded at the applicable rates of exchange ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange ruling on that date. Exchange differences are dealt with in the consolidated income statement. 56 4. REVENUE Revenue mainly represents toll income from the operations of toll expressways and a bridge, net of relevant revenue taxes. An analysis of revenue is as follows: 2001 2000 RMB’000 RMB’000 Toll income 625,401 251,101 Less: Revenue taxes (33,197) (12,555) Turnover 592,204 238,546 Interest income from an associate - 44,584 Interest income 9,091 7,577 Income on current investment securities 12,898 12,829 Dividend income from other long term investment, unlisted 486 - Gain on disposal of equity interest in an associate 1,500 - Rental income 2,168 2,375 Other operating income 8,129 14,934 Other revenue 34,272 82,299 Total revenue 626,476 320,845 Other operating income for the year ended 31 December 2000 mainly represents the write-back of accrued hous ing fund of Guangfo Company. Pursuant to the directive issued by the Ministry of Finance of the PRC, Guangfo Company wrote back the accrued housing fund as at 31 December 2000, which amounted to RMB8,492,000. The Company and its subsidiaries are subject to the following types of revenue taxes: - Business Tax (“BT”), levied at 5% on toll income and on other services income; - City Development Tax, levied at 5% to 7% of BT; and - Education Supplementary Tax, levie d at 3% of BT. 57 5. OPERATING PROFIT The Group’ s operating profit is arrived at after charging the following: 2001 2000 RMB’000 RMB’000 Operating cost 221,894 86,286 Depreciation 61,676 153,764 Amortisation of bridge operating rights 3,522 - Amortisation of goodwill 12,031 10,653 Amortisation of other long term assets 3,664 2,596 Wages and salaries 35,255 14,155 Loss on disposal of fixed assets 288 835 Provision for diminution in value of construction in progress 3,808 2,141 Provision for diminution in value of other long term investments, unlisted 649 - Provision for staff welfare and bonuses 6,580 6,372 Provision for doubtful debts 147 573 Rental expenses 1,040 963 6. FINANCE COSTS 2001 2000 RMB’000 RMB’000 Interest expense from: Related party loans and an advance 73,702 - Loans 24,460 7,125 98,162 7,125 58 7. INCOME TAX EXPENSE A reconciliation of the expected tax with the actual tax expenses is presented below: 2001 2000 RMB’000 RMB’000 Operating profit before tax and share of profits less losses of associates 215,555 169,621 Non-deductible expenses and others 13,437 5,948 228,992 175,569 Average tax rate 23.5% 20% Expected PRC tax 53,790 34,720 Deferred tax expense relating to the reversal of temporary differences 822 821 Tax refund of the Company (13,950) - Tax exemption from subsidiaries with accumulated taxable (14,612) - losses, addition through business combination Tax reduction - a subsidiary (11,405) - Income tax expense 26,050 24,136 Pursuant to an approval document issued by the State Tax Bureau in Guangzhou dated 16 March 2001, the income tax rate of the Company was revised from the preferential tax rate of 24% to the basic tax rate of 33%, commencing from 1 January 2000 retrospectively. In accordance with the circular numbered “Yue Cai Fa 2000 76” issued by Guangdong Provincial Finance Bureau dated 9 September 2000, listed companies in the Guangdong Province with corporate income tax rated 33% are granted a 18% tax refund before 1 January 2002. Accordingly, tax refund of the Company amounting to RMB13,950,000 was received, and recognised as a reduction of income tax expense for the year ended 31 December 2001. Pursuant to an approval document issued by the Guangdong Tax Bureau, Guangfo Company was exempt from income tax from 1 January 1991 to 31 December 1995 and was subject to income tax on the assessable profits at rates applicable to sino-foreign joint ventures commencing 1 January 1996. For the period from 1 January 1996 to 31 December 2000, Guangfo Company was entitled to a 50% reduction in the applicable tax rate. With effect from 1 January 2001, Guangfo Company was entitled to a tax rate of 15%. In accordance with the tax regulations in the PRC, the applicable corporate income tax rate for Fokai Company and Gaosu Company is 33%. As Fokai Company and Gaosu Company had accumulated losses as at 31 December 2001, no provision for corporate income tax has been made. 59 7. INCOME TAX EXPENSE (continued) The amount of deferred tax assets recognised in the consolidated balance sheet, and the amount of deferred tax expense recognised in the consolidated income statement in respect of unrealised profits arising from the disposal of Jiujiang Bridge and related assets in 1999 are as follows: 2001 2000 RMB’000 RMB’000 Deferred tax assets 4,036 4,858 Deferred tax expense 822 821 8. DIVIDENDS PAID AND PROPOSED During 2001, a dividend of RMB0.1 per share (totalling RMB83,808,000) was declared and paid. In addition, a further dividend of RMB0.1 per share has been proposed and will be submitted for formal approval at the 2002 annual general meeting. As such, this dividend (totalling RMB125,712,000) has not been recognised as a liability as at 31 December 2001. During 2000, a dividend of RMB0.15 per share (totalling RMB114,638,000) was declared and paid. In addition, a further dividend of RMB0.10 per share was proposed and approved at the 2001 annual general meeting, and was paid in 2001 following that approval. As such, that dividend (totalling RMB83,808,000) was not recognised as a lia bility as at 31 December 2000. 9. EARNINGS PER SHARE Earnings per share are calculated by dividing the net profit attributable to shareholders for the year of RMB149,811,000 (2000: RMB116,528,000) by the weighted average number of 1,257,117,749 (2000: 1,183,700,005) shares in issue after the transfer from share premium and capital reserve to share capital in 2001 (please refer to note 23 for further details). The earnings per share for 2000 have been adjusted accordingly. 60 10. FIXED ASSETS Furniture, fixtures Expressway and other Motor and bridges Improvements Buildings Machinery equipment vehicles Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Cost or valuation: At beginning of year 749,149 37,351 33,522 4,440 16,813 23,953 865,228 Additions 27,825 - 2,747 562 6,346 5,107 42,587 Additions through business combination 3,649,297 6,797 145,053 125,161 52,088 10,179 3,988,575 Disposals - - - - (222) (2,701) (2,923) At 31 December 2001 4,426,271 44,148 181,322 130,163 75,025 36,538 4,893,467 Accumulated depreciation: At beginning of year 175,546 31,623 8,925 2,498 8,763 9,991 237,346 Provided during the year 108,073 2,997 7,400 16,292 12,975 6,027 153,764 Additions through business combination 166,576 2,047 18,280 58,103 24,840 4,374 274,220 Disposals - - - - (179) (2,130) (2,309) At 31 December 2001 450,195 36,667 34,605 76,893 46,399 18,262 663,021 Net book value: At 31 December 2001 3,976,076 7,481 146,717 53,270 28,626 18,276 4,230,446 At 31 December 2000 573,603 5,728 24,597 1,942 8,050 13,962 627,882 61 10. FIXED ASSETS (continued) In connection with the Group reorganisation, fixed assets as at 31 January 1993 were revalued by Zhongzhou Certified Public Accountants on a depreciated replacement cost basis. The revaluation surplus of RMB147.6 million arising from the revaluation has been approved by the Guangdong Provincial State Assets Bureau and reflected in the Group’ s financial statements. The 1993 valuation was a one-off exercise which established the deemed cost of the fixed assets injected on the formation of the Company. As a result, the directors consider that the requirements of International Accounting Standard 16 “Property, plant and equipment” with respect to carrying assets at amounts other than cost less accumulated depreciation are not applicable. Pursuant to the approval of the directors at the Guangfo Company’ s directors’meeting on 26 September 2001, with effect from 1 January 2001, the depreciation method of Guangfo Expressway was changed from the straight-line method to the sum-of-the-units method, as the directors considered it more justified accounting for the expected pattern of consumption of economic benefits of expressway based on the sum-of-the-units method. Accordingly, the depreciation charge of Guangfo Expressway under sum-of-the-unit basis was RMB27,222,000 for the year ended 31 December 2001 rather than RMB35,338,000 under the previous straight-line method. 11. CONSTRUCTION IN PROGRESS Construction in progress consists of various construction projects in progress. These projects mainly include the Yayao Interchange, Xiebian Interchange, toll collection facilities of Guangfo Expressway and the Siling Complex. Pursuant to the approval of the directors at the Guangfo Company’ s directors’meeting on 15 November 2000, Guangfo Company entered into an establishment agreement (“Establishment Agreement of Yayao Project Company”) with Foshan City Transportation Development Company (“Foshan Transportation Company”) and Nanhai City Transportation Construction Group Company Limited (“Nanhai Transportation Group Company”) to establish Nanhai City Yayao Interchange Project Construction Company Limited (“Yayao Project Company”) dated 28 December 2000. According to Establishment Agreement of Yayao Project Company, Guangfo Company was subject to the contributions of RMB6,000,000 and RMB66,000,000 as share capital and a shareholders’loan, respectively, and accounted for 60% equity interest in Yayao Project Company. During the year, Guangfo Company contributed RMB6,000,000 and RMB11 ,741,000 as paid-up capital and a shareholders’ loan, respectively. Pursuant to the approval of the directors at the Guangfo Company’ s directors’meeting on 15 November 2000, Guangfo Company entered into an establishment agreement (“Establishment Agreement of Xiebian Project Company”) with Foshan Transportation Company and Nanhai Transportation Group Company to establish Foshan City Xiebian Interchange Project Construction Company Limited (“Xiebian Project Company”) dated 28 December 2000. According to Establishment Agreement of Xiebian Project Company, Guangfo Company was subject to the contributions of RMB9,900,000 and RMB95,700,000 as share capital and a shareholders’loan, respectively, and accounted for 33% equity interest in Xiebian Project Company. During the year, Guangfo Company contributed RMB9,900,000 and RMB52,960,000 as paid-up capital and a shareholders’loan, respectively. 62 11. CONSTRUCTION IN PROGRESS (continued) Pursuant to Establishment Agreement of Yayao Project Company and Establisment Agreement of Xiebian Project Company, the subsequent management and maintenance of Yayao Interchange and Xiebian Interchange will be handed over to local government authorities upon completion of respective construction. In return, Guangfo Company was entitled to a commitment of toll price-up of Guangfo Expressway upon the completion of Xiebian Interchange pursuant to the approval document issued by Guangdong Provincial Government dated 15 May 2000. Accordingly, the directors of the Group considered the expenditure for Yayao Interchange and Xiebian Interchange for the year ended 31 December 2001 should be accounted for as the construction in progress rather than interest in a subsidiary or an associate on the basis of substance over form. 12. GOODWILL RMB’000 Cost: At 1 January 2001 53,264 Addition during the year 6,892 At 31 December 2001 60,156 Accumulated amortisation: At 1 January 2001 20,016 Provided during the year 12,031 At 31 December 2001 32,047 Net book value: At 31 December 2001 28,109 At 31 December 2000 33,248 Addition of positive goodwill of RMB6,892,000 arising on the acquisition of 16% additional equity interest in Fokai Company represents the excess of the purchase consideration paid for the equity interest over the fair values ascribed to the net underlying assets acquired at the date of acquisition, and is eliminated by amortisation through the consolidated income statement on the straight-line basis over five years. 63 13. INVESTMENTS IN ASSOCIATES 2001 2000 RMB’000 RMB’000 Share of net assets 280,749 726,360 Due from associates 314,580 964,444 Due to an associate - (53,333) 595,329 1,637,471 Particulars of the associates, which operate in the PRC, are as follows: Date of Attributable equity Principal Name establishment interest of the Group activities 2001 2000 Shenzhen Huiyan 20 November 33.33% * 33.33% * Construction and Expressway Limited 1991 operation of Company Huizhou-Yantian (“Huiyan Company”) Port Expressway Shenzhen portion Guangdong Maozhan 8 February 20% * 20% * Construction and Expressway Limited 1999 operation of Company Dianbai-Zhanjiang (“Maozhan Company”) Expressway Guangdong Guanghui 12 August 30% * 30% * Construction and Expressway Limited 1999 operation of Company Guangzhou - (“Guanghui Company”) Huidong Expressway Guangdong Jindaoda 10 November 25%* 25%* Investment and Expressway Economic 1997 development of Development Limited properties and Company accessory facilities (“JDD Company”) alongside expressways in China * The Group’ s profit sharing in associates is in proportion to its share of equity interest therein. 64 13. INVESTMENTS IN ASSOCIATES (continued) The Company entered into a disposal agreement (“Disposal Agreement”) with a related company, Guangdong Transportation Industrial Investment Company Limited (“GTIIC”) dated 23 August 2001. The Disposal Agreement was approved by the shareholders at a general meeting and local government authorities on 12 October 2001 and 12 December 2001, respectively. According to the Disposal Agreement, the Company disposed of 25% equity interest in Guangdong Yuedong Expressway Enterprise Co., Limited (“Yuedong Company”) to GTIIC at a consideration of RMB75,260,000, resulting in a gain on disposal of RMB1,500,000, which was included in the consolidated income statement for the year ended 31 December 2001. Accordingly, RMB37,630,000 related to the above mentioned disposal was received in September 2001. The amounts due from associates mainly represent a loan to Huiyan Company and an advance to Guanghui Company. The loan to Huiyan Company represents part of a shareholders’loan made through Guangdong Financial Trust and Investment Corporation (“GFTIC”), which is a financing institution authorised to lend money to PRC companies. A formal loan agreement was entered into dated 9 November 1998. The loan is unsecured, interest-free and has no fixed terms of repayment. Huiyan Company repaid a shareholders’loan to the Company for the year ended 31 December 2001, amounting to RMB17,000,000. The advance to Guanghui Company is unsecured, interest-free and has no fixed terms of repayment. 14. OTHER INVESTMENTS, UNLISTED The amount consists of investments for rental purposes in real estates located at Huizhou and Shunde cities in the Guangdong Province, the PRC, and other long term investments, unlisted. 15. OTHER LONG TERM ASSETS RMB’000 Cost: At 1 January 2001 20,222 Additions through business combination 16,411 At 31 December 2001 36,633 Accumulated amortisation: At 1 January 2001 2,596 Additions through business combination 1,641 Provided during the year 3,664 At 31 December 2001 7,901 Net book value: At 31 December 2001 28,732 At 31 December 2000 17,626 65 15. OTHER LONG TERM ASSETS (continued) Other long term assets represent losses on disposal of residential apartments to staff. In accordance with the relevant regulations issued by the State Council of the PRC applicable to the companies established in the PRC, the residential apartments of the Group were sold to the staff of the Group at a discounted value according to their remaining duration of service in the Group. Additions during the year represent the loss on disposal of residential apartments to the staff of Fokai Company, as a result of business combination. 16. INVESTMENT IN SUBSIDIARIES As at 31 December 2001, the Company had three subsidiaries which were established and operating in the PRC. All material intercompany transactions and balances have been eliminated on consolidation. Particulars of the subsidiaries are as follows: Attributable equity Date of Paid-up interest of Principal Name establishment capital the Group activity RMB’000 Guangzhou-Foshan Expressway Company Limited Operation of (“Guangfo 7 July 1988 200,000 75% the Guangfo Company”) Expressway Guangdong Provincial Foshan-Kaiping Operation of Expressway the Fokai Limited Liability 12 March 1996 340,000 51% Expressway Company and Jiujiang (“Fokai Company”) Bridge Guangdong Gaosu Science and Technology Investment Investment to the Company Limited 13 August 2001 100,000 85% industry of (“Gaosu science and Company”) technology Pursuant to an agreement between the Company and Chu Kong Infrastructure Investment Limited (“Chu Kong”) dated 28 August 1998, and the approval of relevant authorities dated 30 November 2001, Guangfo Company was changed from a sino-foreign equity joint venture company to a sino-foreign co-operative joint venture company. In addition, Guangfo Company increased its registered capital from RMB100,000,000 to RMB200,000,000 and the term of Guangfo Company was revised from 20 years to 28 years, but the attributable equity interest of the Company and Chu Kong remained unchanged at 75% and 25%, respectively. 66 16. INVESTMENT IN SUBSIDIARIES (continued) Pursuant to the approval of the Company’ s shareholders at a general meeting held on 17 January 2001, and the approval from the Guangdong Provincial Government dated 14 May 2001, the Company acquired 16% additional equity interest in Fokai Company at a consideration of RMB379,311,000 and granted an addit ional shareholders’loan to Fokai Company, amounting to RMB356,741,000, with effect from 1 January 2001. Accordingly, the Company aggregately held 51% equity interest in Fokai Company with effect from 1 January 2001. Pursuant to the approval of the Company’ s shareholders at a general meeting held on 18 September 2000, the Company entered into an agreement with Guangdong Provincial Road and Bridge Construction Company Limited dated 9 May 2001 to jointly establish Gaosu Company. Accordingly, the Company contributed RMB85,000,000 as share capital and accounted for 85% equity interest in Gaosu Company. 17. BRIDGE OPERATING RIGHTS RMB’000 Cost: Additions through business combination and as at 31 December 2001 66,918 Accumulated amortisations: Additions through business combination 3,522 Provided during the year 3,522 At 31 December 2001 7,044 Net book value: At 31 December 2001 59,874 Fokai Company, a 51% owned subsidiary of the Company as at 31December 2001, acquired the bridge operating rights to operate the Jiujiang Bridge for the operating period from 1 January 2000 to 10 June 2018. 18. CURRENT INVESTMENT SECURITIES 2001 2000 RMB’000 RMB’000 Government bonds, listed 132,983 147,408 Shares, listed 3,122 6,008 136,105 153,416 67 18. CURRENT INVESTMENT SECURITIES (continued) The amount consists of investments in listed PRC government bonds and listed shares through authorised financial institutions registered in the PRC. The market values of listed government bonds and listed shares as at 31 December 2001 were RMB132,983,000 and RMB3,122,000, respectively. The government bonds held at the balance sheet date have nominal interest rates from 3.28 % to 3.30% receivable annually in arrears, and with maturity from 20 August 2007 to 23 September 2009, respectively. The government bonds and listed shares were carried at market value as at 31 December 2001. The gains of RMB3,845,000 and the losses of RMB1,330,000, which represent the differences between costs and market values of the government bonds and listed shares dated 31 December 2001, respectively, have been recognised in the consolidated income statement for the year. 19. DUE FROM A RELATED COMPANY The amount due from a related company as at 31 December 2001 represents the receivables for the disposal of 25% equity interest in Yuedong Company to GTIIC (please refer to note 13 for further details). The amount is unsecured, interest-free and repayable on or before 26 January 2002. The amount due from a related company as at 31 December 2000 mainly represents the initial payment to GPFC for the acquisition of 16% additional equity interest in Fokai Company and an additional shareholders’loan in December 2000. 20. DUE TO RELAT ED COMPANIES The amount due to a related company of RMB114,250,000 is unsecured, bears interest at prevailing market rates based on the rates quoted by the People’ s Bank of China (2001: 5.85% per annum; 2000: Nil per annum), and has no fixed terms of repayment. The remaining balances due to related companies are unsecured, interest-free and have no fixed terms of repayment. 21. BANK LOANS 2001 2000 RMB’000 RMB’000 Bank loans, unsecured 298,000 148,000 The maturities of the above amount are as follows: Bank loans repayable: Within one year 58,000 90,000 In the second year - 58,000 In the third to fifth years, inclusive 240,000 - 298,000 148,000 Long term portion 240,000 58,000 68 21. BANK LOANS (continued) A bank loan of RMB58,000,000 is unsecured but is guaranteed, in accordance with the terms and conditions of an agreement between GPFC and Guangfo Company, and bears interest at 5.94% per annum. Bank loans of RMB240,000,000 are unsecured but are guaranteed by GPFC in accordance with the terms and conditions of an agreement between GPFC and Fokai Company, and bear interest at 5.643% per annum. 22. DUE TO MINORITY SHAREHOLDERS The amounts due to minority shareholders at the balance sheet date are unsecured and are analysed as follows: 2001 2000 RMB’000 RMB’000 Interest-bearing borrowings: Current portion 214,301 - Non-current portion 908,219 - 1,122,520 - Non interest-bearing borrowings: Current portion 101,552 54,350 1,224,072 54,350 The maturities of the amounts due to minority shareholders as at the balance sheet date are as follows: 2001 2000 RMB’000 RMB’000 Repayable : Within one year or no fixed terms of repayment 315,853 54,350 In the second year 54,031 - In the third to fifth years, inclusive 163,000 - Thereafter 691,188 - 1,224,072 54,350 69 22. DUE TO MINORITY SHAREHOLDERS (continued) A formal loan agreement (“Loan Agreement”) was entered into dated 18 June 1996 for the loan of RMB1,092,520,000 borrowed from GPFC by Fokai Company made through GFTIC, which is a financing institution authorized to lend money to PRC companies. The Loan Agreement was renewed dated 25 December 2000. According to the renewed Loan Agreement, the loan is unsecured, and bears interest at 6.21% per annum (2000: 6.21%). The principal is repayable semi-annually over 25 years commencing from 1 January 1997. The loan of RMB30,000,000 from Chu Kong is unsecured, bearing interest at prevailing market rates based on the rates quoted by the People’s Bank of China but no less than 5.5% per annum, and repayable within 3 years. The applicable interest rate for the outstanding loan as at 31 December 2001 is 5.85% per annum (2000: Nil). 23. ISSUED CAPITAL 2001 2000 RMB’000 RMB’000 Registered, issued and fully paid: 633,836,999 (2000: 475,578,500) unlisted A shares of RMB1 each 633,837 475,578 45,000,000 (2000: 30,000,000) unlisted foreign investment shares of RMB1 45,000 30,000 each 303,750,000 (2000: 202,500,000) listed B shares of RMB1 each 303,750 202,500 274,530,750 (2000: 130,000,000) listed A shares of RMB1 each 274,531 130,000 1,257,118 838,078 In July 1996, the Company issued for subscription 135,000,000 B shares by way of private placing with foreign investors. Dealings in the B shares on the Shenzhen Securities Exchange commenced in August 1996. Pursuant to the approval at a shareholders’general meeting in May 1997, the Company distributed a scrip dividend of 1.7 shares for every 10 shares of RMB1 and a bonus issue of 3.3 shares for every 10 shares of RMB1 to shareholders on the register of members dated 20 June 1997. In January 1998, the Company issued for subscription 100,000,000 A shares for local PRC investors. Dealings in the A shares on the Shenzhen Securities Exchange commenced in February 1998. Pursuant to the approval of the Company’ s shareholders at a general meeting held on 22 70 August 2000, the Company issued 30,000,000 listed A shares and 43,822,250 unlisted A shares by way of rights issue on the basis of 3 new shares of RMB1 each for every 10 existing shares for the shareholders on the register of members on 15 August 2000 at RMB11 per rights share payable in full on acceptance. Pursuant to the approval of Shenzhen Securities Exchange and Securities Regulatory Commission of the PRC, 53,020,500 unlisted A shares commenced dealing on the Shenzhen Securities Exchange on 5 February 2001. Pursuant to the approval of the Company’ s shareholders at a general meeting held on 23 April 2001, the Company transferred RMB419,039,249 of share premium and capital surplus to share capital in the financial statements for the year ended 31 December 2001. 24. RESERVES Share premium Statutory and Statutory public Discretionary capital surplus welfare surplus Retained surplus reserve fund reserve profits Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 At beginning of year 1,953,800 117,765 64,091 108,716 229,410 2,473,782 Net profit for the year - - - - 149,811 149,811 Cash dividends - - - - (83,808) (83,808) Transfer to capital (419,039) - - - - (419,039) Transfer to reserves -Statutory surplus reserve - 15,893 - - (15,893) -Statutory public welfare fund - - 7,947 - (7,947) -Discretionary surplus reserve - - - 5,849 (5,849) 1,534,761 133,658 72,038 114,565 265,724 2,120,746 In accordance with the Company Law of the PRC and the Company’ s articles of association, the Company is required to transfer part of the profit after tax as reported in the Group’ s statutory financial statements, to the statutory surplus reserve and the statutory public welfare fund. In addition, the board of directors may determine to appropriate part of the profit after tax to the discretionary surplus reserve. At the board of directors’meeting held on 1 February 2002, the directors proposed to transfer RMB15,893,000 and RMB7,946,500 to each of the statutory surplus reserve and the statutory public welfare fund, respectively. These represent 10% and 5% of the profit after tax as reported in the Group’ s statutory financial statements for the year ended 31 December 2001. At a board of directors’meeting held on 19 March 2001, the directors proposed to transfer RMB 5,849,000 to the discretionary surplus reserve. The transfer was approved by the 2001 annual general meeting and reported in the Group’s financial 71 statements for the year ended 31 December 2001. According to the relevant regulations in the PRC, the retained profits available for distribution as dividends is the lower of the amount determined under PRC accounting regulations and the amount determined under IAS. 72 25.NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (a) Reconciliation of profit before income tax to net cash inflow from operating activities 2001 2000 RMB’000 RMB’000 Profit before income tax 225,786 174,459 Adjustments for: Share of profits less losses of associates (10,231) (4,838) Depreciation 153,764 61,676 Loss on disposal of fixed assets 288 835 Provision for doubtful debts 147 573 Provision for diminution in value of construction in progress 3,808 2,141 Provision for diminution in value of other long term investments, unlisted 649 - Amortisation of goodwill 12,031 10,653 Amortisation of bridge operating rights 3,522 - Amortisation of other long term assets 3,664 2,596 Interest expense 98,162 7,125 Interest income (9,091) (52,161) Dividend income from other long term investment, unlisted - (486) Gain on disposal of equity interests in an associate - (1,500) Income on current investment securities, listed (12,898) (12,829) Operating profit before working capital changes 190,230 467,615 Decrease/(increase) in inventories 219 (3) Decrease/(increase) in prepayments and other receivables (1,807) 8,831 Decrease in amounts due from associates - 118,341 Increase/(decrease) in amounts due to related companies 650 17,708 Increase/(decrease) in payables 10,586 (17,495) Cash generated from operations 477,263 317,612 Interest paid (113,417) (7,642) Income taxes paid (38,722) (34,052) Net cash inflow from operating activities 275,918 325,124 73 25. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (continued) (b) Cash flow on acquisition net of cash acquired Fokai Company was consolidated in the Group’ s consolidated financial statements from 1 January 2001. The fair value of assets and liabilities of Fokai Company as at 1 January 2001 was as follows: 1 January 2001 RMB ’00 0 Net assets acquired: Cash on hand and bank deposits 48,430 Prepayments and other receivables 2,295 Other long term assets 14,770 Fixed assets, net 3,714,355 Bridge operating rights 63,396 Minority interests (456,371) Other payables and accruals (29,120) Long term bank loans (340,551) Long term payable to investors (2,298,150) 719,054 Capital reserve ( 346,635) Net assets acquired 372,419 Goodwill arising from acquisition 6,892 Acquisition consideration of equity interest 379,311 Acquisition of proportional a shareholders’loan 356,741 Less: Cash and cash equivalents acquired (48,430) Net cash outflows for acquisition of subsidiary, net of cash and cash equivalents acquired 687,622 Analysis of payment schedule of the cash consideration for the acquisition: Initial payment for acquisition in 2000 375,387 Final payment for acquisition in 2001, net of cash and cash equivalents acquired (see note 16) 312,235 687,622 74 26. IMPACT OF IAS ADJUSTMENTS ON CONSOLIDATED PROFIT ATTRIBUTABLE TO SHAREHOLDERS AND CONSOLIDATED NET ASSETS Consolidated profit Consolidated attributable to shareholders net assets as at Year ended 31 December 31 December 2001 2000 2001 RMB’000 RMB’000 RMB’000 As reported under PRC accounting principles 158,930 127,015 3,331,314 IAS and other adjustments, net * ( 9,119 ) ( 10,487 ) 46,550 As restated under IAS 149,811 116,528 3,377,864 * The adjustments include, pr imarily, adjustments for the elimination of the unrealised profits arising on the disposal of 100% ownership of the Jiujiang Bridge and related assets to Fokai Company against the Group’ s share of 35% equity interest in Fokai Company in 1999, deferred tax, goodwill arising on the acquisition of associates and a subsidiary, interest income on subscription monies received in connection with the issue of A shares, amortisation of goodwill, depreciation charges, amortisation of other long term assets, provision for diminution in value of construction in progress, current investment securities at market value, dividends payable, and other adjustments in accordance with the prudence concept. 27. COMMITMENTS AND CONTINGENT LIABILITIES (a) Capital expenditure commitments The Group has capital expenditure commitments not provided as at 31 December as follows: 2001 2000 RMB’000 RMB’000 Authorised, but not contracted for 753,000 526,518 Contracted for 1,590,568 736,265 2,343,568 1,262,783 (b) Operating lease commitments The Group has future minimum rentals under non-cancellable leases as at 31 December as follows: 2001 2000 RMB’000 RMB’000 Within one year 840 - After one year but not more than five years 48 - 888 - 75 27. COMMITMENTS AND CONTINGENT LIABILITIES (continued) (c) Contingent liabilities As at 31 December 2001, the Group did not have any significant contingent liabilities. 28. RETIREMENT BENEFITS As stipulated by the State regulations, the Group participates in a defined contribution retirement plan organised by the Guangdong Provincial Government. All staff are entitled to an annual pension which is equal to a fixed proportion of their final basic salary at their retirement date. The Group is required to make contributions to the retirement plan at a rate of 15 ~ 18% (2000: 18%) of the basic salary of its staff. The Group has no obligations for the pension benefits beyond the annual contributions as described above. During the year, contributions to registered insurance companies made by the Group under the defined contribution retirement scheme amounted to RMB 4,059,000 (2000: RMB1,370,000). 29. RELATED PARTY TRANSACTIONS The following is a summary of the significant transactions carried out between the Group and its related parties in the ordinary course of business during the year: 2001 2000 RMB’000 RMB’000 Construction fees payable to GPFC 27,483 - Interest payable to GPFC (see note 22) 70,386 - Initial payment for acquisition of an additional equity interest and a shareholders’loan in a subsidiary from GPFC (see note - 375,387 16) Final payment for acquisition of an additional equity interest and a shareholders’loan in a subsidiary from GPFC (see note 16) 360,665 - Disposal of equity interest in an associate to GPFC - 12,210 Loan from Chu Kong (see note 22) 30,000 - Interest payable to Chu Kong (see note 22) 1,316 - Construction fees payable to a related company 24,740 - Interest payable to a related company 2,000 - Expressway maintenance and repair expenses payable to related companies 21,103 9,534 Rental expenses payable to a related company 1,040 963 Acquisition of equity interest in an associate from related companies - 5,000 76 Disposal of equity interest in an associate to a related party (see note 13) 75,260 - Advance from and interest payable to a related company (see note 20) 116,250 - Advance from an associate (see note 13) - 53,333 Advance to an associate (see note 13) 120,000 - Interest receivable from an associate - 48,461 29. RELATED PARTY TRANSACTIONS (continued) The construction fees payable to GPFC and a related company were based on actual costs incurred and under normal commercial terms and conditions. The loan from GPFC is unsecured, bearing interest at 6.21% per annum and is repayable semi-annually over 25 years commencing 1 January 1997. Pursuant to an agreement between GPFC and the Company, the Company acquired 16% additional equity interest in Fokai Company from GPFC under normal commercial terms and conditions. Upon the completion of acquisition, the Company aggregately held 51% equity interest in Fokai Company with effect from 1 January 2001. The Company made an initial payment of RMB375,387,000 in December 2000 and a final payment of RMB360,665,000 in March and May 2001. The loan from Chu Kong is unsecured, bearing interest at prevailing market rates based on the rates quoted by the People’ s Bank of China but no less than 5.5% per annum, and is repayable within 3 years. The applicable interest rate for the outstanding loan as at 31 December 2001 is 5.85% per annum. Pursuant to an agreement between GTIIC and the Company, the Company disposed of 25% equity interest in Yuedong Company to GTIIC under normal commercial terms and conditions. The outstanding balance as at 31 December 2001 is unsecured, interest-free and repayable on or before 26 January 2002. The advance to Guanghui Company is unsecured, interest-free and has no fixed terms of repayment. The advance from a related company is unsecured, bears interest at prevailing market rates based on the rates quoted by the People’ s Bank of China (2001: 5.85%) and has no fixed terms of repayment. Expressway maintenance and repair expenses payable to a related company were based on actual costs incurred and under normal commercial terms and conditions. Rental expenses payable to a related company were based on actual costs incurred and under normal commercial terms and conditions. 30. FINANCIAL INSTRUMENTS Financial assets of the Group include cash, investments, deposits, prepayments, other receivables and an amount due from a related company. Financial liabilities of the 77 Group include bank loans, other payables, amounts due to related companies, and amounts due to minority shareholders. (a) Credit risk Cash at bank and on hand Substantial amounts of the Group’ s cash balances are deposited with China Construction Bank, Bank of China, Agriculture Bank of China, China International Trust and Investment Company Industrial Bank, Shenzhen Development Bank, Industrial and Commercial Bank of China, China Everbright Bank and Huaxia Bank, Bank of Communication and Shanghai Pudong Development Bank. (b) Fair value The fair values of cash, investments, deposits, prepayments, other receivables, an amount due from a related company, bank loans, an amount due to a related company, and other payables are not materially different from their carrying amounts. The carrying values of time deposits are estimated to approximate their fair values based on the nature of these instruments. Fair value estimates are made at a specific point in time and based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgement and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. 31. SEGMENTED INFORMATION The Group’ s revenue and profit for the year were almost entirely derived from the management and operations of the toll expressways and a bridge which are located in the Guangdong Province, the PRC. Accordingly, no segmented analysis by activity and geographical area is provided. 32. COMPARATIVE AMOUNTS Certain comparative amounts in the prior year have been reclassified so as to conform to the current year’ s presentation. 33. APPROVAL OF THE FINANCIAL STATEMENTS The financial statements were approved by the board of directors on 1 February 2002. 78 XI. Document for Reference 1) The financial statement with original signatures and seals of the legal person, the chief accountant and the head of accounting organizations. 2) Original audit report with the seal of the accounting firm, the signature and seal of certified accountant. 3) Original copies of all the documents and announcements disclosed in the newspapers specified by the State Securities Regulatory Commission. 79