晨鸣纸业(000488)2001年年度报告（英文版）

SHANDONG CHENMING PAPER HOLDINGS LIMITED 2001 ANNUAL REPORT Important: The Board and directors of the Company guarantees that there are no significant omissions, fictitious or misleading statements in the report and will accept individual and joint, responsibilities for the truthfulness, accuracy and completeness of the Report. This report is written in English and Chinese. If the two versions vary in translation, the Chinese version shall prevail. -1- . Company Profile 1. Legal Name in Chinese: 山东晨鸣纸业集团股份有限公司 Legal Name in English: SHANDONG CHENMING PAPER HOLDINGS LIMITED Short Form: SCPH 2. Legal Representative: Chen Hongguo 3. Secretary of the Board of Directors: Hao Jun Security Affairs Representative: Wang Wei Address: Securities Department, No. 595 Shencheng Rd., Shouguang City, Shandong Province Tel.: 0536 5280011 Fax: 0536 5228900 4. Registered / Office Address: No. 595 Shencheng Rd., Shouguang City, Shandong Province Post Code: 262700 Internet Website: http://www.chenmingpaper.com E-mail: cmzqb@public.wfptt.sd.cn 5. Newspapers designated for Disclosing the Information: China Securities Interactive, Hong Kong Commercial Daily Internet Website Designated by China Securities Regulatory Commission for Publishing the Annual Report: http://www.cninfo.com.cn The Place Where the Annual Report is Prepared and Placed: Securities Department of the Company 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stocks: Chenming Paper, Chenming B Stock Code: 000488, 200488 7. Other relevant information: Date of the change of the registration: March 22, 2002 Registration address: No. 595 Shencheng Rd., Shouguang City, Shandong Province Business License No.: SHANDONG PUB-CO No.000003 Taxation Registration No.: 370783613588986 Certified public accountants engaged: Shangdong Zhengyuan Hexin Certified Public Accountants Co., Ltd. Office Address: 4/Fl, Liangyou Fulin Hotel, No. 5 Luoyuan Avenue, Jinan Pricewaterhousecoopers Zhongtian Certified Public Accountants Address of the Office in the Mainland: Room 3706, Diwang Commerce Center, Shun Hing Square, No. 5002 Shennan E. Road, Shenzhen -2- . Financial and Business Highlights . Major profit index of the report year unit: RMB’000 Items 2001 Total profit 258,985 Net profit 149,472 Profit from principal businesses 595,099 Profit from other business lines 52,459 Operating profit 291,596 Investment income -514 Net cash flows arising from operating activities 243,745 Net increase of cash and cash equivalent 399,664 Note: The Company has produced not only the financial report prepared respectively according to the Chinese Accounting Standards (CAS), but also the report prepared according to the International Accounting Standards (IAS) for foreign investors. The net profit (consolidated) as audited by the domestic certified public accountants was RMB 142 million, net profit (consolidated) as audited by the international certified public accountants was RMB 149.479 million, which is RMB 7.479 million more than the former figure. The difference is mainly due to the fact that the international certified public accountants have: deducted the goodwill arising from the internal appraisal and the relevant amortized amount arising from the adjustment, and thus the profit increased by RMB 1.45 million; Reversed the organization expenses which had been written off in the previous years and thus the profit increased by RMB 7.276 million; Deducted the added value arising from the re-estimation of the fixed assets and the relevant income tax, and thus the profit increased by RMB 1.749 million; Reversed the provision for devaluation of the investments held for the purpose of trading, and thus the profit increased by RMB 3.079 million; Surplus amount contributed by the minority shareholders and thus the profit was reduced by RMB 4.17 million; Other decrease from profit adjustment: RMB 1.905 million. 2. Financial highlights over the past three years ended the report period Items 2001 2000 1999 Income from principal businesses (RMB’000) 2,394,607 2,405,546 1,720,308 Net profit (RMB’000) 149,472 208,600 179,638 Total assets (RMB’000) 7,386,440 5,353,483 3,294,918 Shareholders’ equity (RMB’000) (excluding minority 2,999,624 2,958,145 1,319,347 shareholders’ equity) Earnings per share (diluted) (RMB/Share) 0.2997 0.4601 0.4685 Earnings per share (weighted) (RMB/Share) 0.2997 0.5359 0.4685 Net assets per share(RMB/Share) 6.0144 6.5244 3.4410 Net cash flow per share arising from business activities 0.4887 0.3801 -6.4 Net assets-income ratio (%) (diluted) 4.98 7.05 13.62 Net assets-income ratio (%) (weighted) 4.93 13.53 14.62 Net assets-income ratio and earnings per share calculated based on fully diluted and weighted average methods in accordance with the Rules for Public Companies to Disclose Information and Prepare Statements (No. 9) promulgated by China Securities Regulatory Commission (CSRC): -3- Profit of report year 2001 Net assets-income ratio (%) Earnings per share (RMB) Fully diluted Weighted average Fully diluted Weighted average Profit from principal businesses 19.8391 19.6216 1.1932 1.1932 Operating profit 9.7271 9.6145 0.5847 0.5847 Net profit 4.9830 4.9284 0.2997 0.2997 Calculation formula for financial indexes: Earnings per share (fully diluted) = Profit at the report period / total shares at the end of the period Earnings per share (weighted average) = Profit at the report period / (total shares at the period beginning + shares increased in the report period due to conversion of the public reserve into share capital or distribution of the bonus shares + shares increased due to new issuing or conversion of bonds, etc. into shares in the report period months in which shares increased from the next month to the end of the report period months of the report period - shares reduced due to repurchase or shrinkage of shares in the report period months in which shares decreased from the next month to the end of the report period months of the report period) Net assets-income ratio (fully diluted) = Profit at the report period / Net assets at the end of the period Net assets-income ratio(weighted average) = Profit at the report period/(Net assets at the period beginning + Net profit at the report period 2 + shares increased due to new issuing or conversion of bonds, etc. into shares in the report period months in which net assets increased from the next month to the end of the report period months of the report period - net assets reduced due to repurchase or shrinkage of shares in the report period months in which net assets decreased from the next month to the end of the report period months of the report period) 3. Changes in shareholders’ equity in the report period and the reasons unit: RMB’000 Total of Capital public Surplus public Statutory public Undistributed Items Share capital Shareholders’ reserve reserve welfare fund profit Equity Year beginning 453,398 1,814,823 100,003 80,016 509,905 2,958,145 Increase in the 45,340 28,026 13,343 149,472 249,525 report year Decrease in the 13,344 208,046 208,046 report year Year end 498,738 1,842,849 113,346 93,360 451,331 2,999,624 ange of reason Profit Subsidy of Allotting profit Allotting profit Increase of profit distribution in discount interest in the report bonus shares from government year. bonds -4- . Change in Share Capitaland Particulars about Shareholders 1 Change in Share Capital 1 Statement of changes in shares In share Increase / decrease in this change (+/-) Shares capital Before change Allotted Sub-tot After change Bonus share converted from Increase Others share al public reserve I. Unlisted shares 1. Promoters’ shares 146,495,231 +14,649,523 161,144,754 Including: State-owned shares 142,371,440 +14,237,144 156,608,584 Domestic legal 4,123,791 +412,379 4,536,170 person's shares Foreign legal person's shares Others 2. Legal person’s shares placed 3. Employees’ 49,193,109 +4,919,311 54,112,420 shares 4. Preferencial shares or others Total unlisted shares 195,688,340 +19,568,834 215,257,174 II. Listed shares 1. RMB ordinary 70,000,000 +7,000,000 77,000,000 shares 2. Domestically 187,709,591 +18,770,959 206,480,550 listed foreign investment shares 3. Foreign investment shares listed abroad 4. Others Total listed shares 257,709,591 +25,770,959 283,480,550 III. Total shares 453,397,931 +45,339,793 498,737,724 (2) Issuing and Listing Through approval by China Securities Regulatory Commission with Document RSRC Public-Co. [2000] No. 151, the Company issued 70 million A shares to the public on September 30, 2000 at the issue price of RMB 20.80. Through approval by Shenzhen Stock Exchange with Document SSE Listing [2000] No. 151, the shares were listed for trading on November 20, 2000. Change of the equity structure In the report period, through approval by China Securities Regulatory Commission with the Document CSRC Public-Co. [2001] No. 44, the Company converted the foreign legal person shares in the unlisted circulating shares totaling 26,709,591 shares (taking 5.89% of the Company’s share capital) into B shares which were listed with Shenzhen Stock Exchange on May 15, 2001. Change of the total shares: In the report period, through examination and approval by 2000 Shareholders’ General Meeting, the Company implemented its 2000 Dividends Distribution Plan in August, 2001 at the rate of 1 bonus share for every 10 shares. As a -5- result, the Company’s total shares increased to 498,737,724 shares from 453,397,931 shares. The Company issued 18,591,500 employees’ shares at the price of RMB 1.2 per share by means of offering in March, 1993. After several years’ distribution, the shares increased to 54,112,420 shares at the end of 2001. 2. Shareholders (1) There are totally 75,449 shareholders at the end of the period. (2) Shares held by the major shareholders No. Shareholders Shares held at Increase/decrease in Proportion % Share properties the year end the year 1 Shangdong Shouguang Municipal 156,608,584 +14,237,144 31.40 Promoters’ state-owned State-owned Assets Administration shares Bureau 2 KWONG WAH INVESTMENT 7,560,000 -19,149,591 1.52 B-Share (SHOUGUANG) LIMITED 3 BONY /C CMG CH CHINA 3,307,381 +300,671 0.66 B-Share INVESTMENTS LIMITED 4 Hao Yunfeng 2,475,465 +225,042 0.50 Employee’s shares 5 Deng Wenping 2,120,635 +195,785 0.43 B-Share 6 Zhou Kanglin 2,115,322 +177,402 0.42 B-Share 7 TOK YEK SENG 1,970,722 +1,970,722 0.40 B-Share 8 Lin Shengmou 1,881,220 +151,100 0.38 B-Share 9 Shanghai Xinglong Investment Co., 1,574,634 +1,574,634 0.32 Promoters’ Domestic Ltd. legal person shares 10 The People’s Post and 1,455,300 +132,300 0.29 Promoters’ Domestic Telecommunications Publishing House legal person shares The shareholder holding over 5% of the Company’s shares is Shangdong Shouguang Municipal State-owned Assets Administration Bureau that held 156,608,584 promoter’s state shares at the end of the report period, increased by 14,237,144 shares in the report year. The shares held by the control shareholder had never been pledged or frozen. There exists no business relationship among the top ten shareholders. (3) The Company’s control shareholder is Shangdong Shouguang Municipal State-owned Assets Administration Bureau, with legal representative: Mao Derong; business scope: administration and supervision of the state owned assets, finance and property right representative in Shouguang City. In the report period, there was no change in controlling shareholder. . Directors, Supervisors, Senior Executives and Staff 1. Directors, Supervisors and Senior Executives Name Title Sex Age Office Term Shares held at the Shares held at Change (Increase/ year beginning the year end Decrease) (Share) (share) (Share) Chen Hongguo Chairman of the Board Male 37 Sep., 2001 to Sep., 2004 26,460 29,106 +2,646 Yi Tongyuan Vice Chairman of the Male 44 Sep., 2001 to Sep., 2004 30,429 33,471 +3,042 -6- Board, General Manager Han Wenjian Vice Chairman of the Male 48 Sep., 2001 to Sep., 2004 30,429 33,471 +3,042 Board Li Mingren Director Male 42 Sep., 2001 to Sep., 2004 0 0 0 Hu Wenhe Director Male 56 Sep., 2001 to Sep., 2004 5,292 5,821 +529 Guo Xiucheng Director, Deputy General Male 37 Sep., 2001 to Sep., 2004 0 0 0 Manager Wang Zhijun Director Male 41 Sep., 2001 to Sep., 2004 11,907 13,097 +1,190 Xia Youliang Director Male 38 Sep., 2001 to Sep., 2004 7,938 8,731 +793 Hu Changqing Director, Deputy General Male 36 Sep., 2001 to Sep., 2004 0 0 0 Manager Xu Xiangdong Director, Deputy General Male 52 Sep., 2001 to Sep., 2004 48,951 53,846 +4,895 Manager Li Ruohe Director Male 51 Sep., 2001 to Sep., 2004 0 0 0 Chairman of Supervisory Sun Qiang Committee, Assistant Male 32 Sep., 2001 to Sep., 2004 15,876 17,463 +1,587 General Manager Li Xueqin Vice Chairman of Female 39 Sep., 2001 to Sep., 2004 2,646 2,910 +264 Supervisory Committee Zhang Jun Supervisor Male 36 Sep., 2001 to Sep., 2004 6,615 7,276 +661 Zheng Liyong Supervisor, Assistant Male 36 Sep., 2001 to Sep., 2004 10,584 11,642 +1,058 General Manager Gao Junjie Supervisor Male 31 Sep., 2001 to Sep., 2004 10,584 11,642 +1,058 Sun Ping Deputy General Manager Male 46 Sep., 2001 to Sep., 2004 0 0 0 Fang Lijun Deputy General Manager Male 32 Sep., 2001 to Sep., 2004 7,938 8,731 +793 Zhang Yanjun Deputy General Manager Male 37 Sep., 2001 to Sep., 2004 10,584 11,642 +1,058 Hou Huancai Deputy General Manager Male 40 Sep., 2001 to Sep., 2004 15,876 17,463 +1,587 Wang Fuzeng Deputy General Manager Male 41 Sep., 2001 to Sep., 2004 10,584 11,642 +1,058 Li Ruohua Deputy General Manager Male 48 Sep., 2001 to Sep., 2004 13,230 14,553 +1,323 Hao Jun Secretary of the Board of Male 39 Sep., 2001 to Sep., 2004 15,876 17,463 +1,587 Directors Note: Increase in the shares held by the directors, supervisors and senior executives was due to the fact that the Company implemented 2000 Profit Distribution Plan based on one bonus share for every 10 shares. 2. Annual Remuneration (1) The remuneration to directors, supervisors and senior executives is determined by the Board with reference to the measures for annual salary assessment in enterprises promulgated by the local government and the completion of the Company’s operation objectives and based on the duties and contributions of the relevant personnel. (2) The total annual remuneration of the directors, supervisors and senior executives in current office received from the Company was RMB 4.25 million. The amount to the top three directors was RMB 1.13 million; the amount to the top three senior executives was RMB 910,000. (3) Annual remuneration range of the directors, supervisors, senior executives: 4 of them enjoying annual pay from RMB 30,000 to 100,000; 9 of them from RMB 100,000 to 200,000, 6 of them from RMB 200,000 to 300,000 and 2 of them enjoying over RMB 300,000. Mr. Li Ruohe is a non-executive director and receives his pay from KWONG WAH INVESTMENT (SHOUGUANG) LIMITED, one of the Company’s shareholders instead of the Company. 3. Personnel change of directors, supervisors and senior executives in the report period At ’01 2nd Extraordinary Shareholders’ Meeting held on September 6, 2001, the Proposal on Election for the New Board of Directors and the Proposal on Election for the New Supervisory Committee were adopted respectively. The 3rd Board of Directors consists of 11 directors. The director who left the office was Mr. Chen Yongxing. The directors newly elected were Mr. Guo Xiucheng, Mr. Xia Youliang and Mr. Hu Changqing. The 3rd -7- Supervisory Committee consisted of 5 supervisors. The supervisor who left the office was Mr. Hou Huancai. The supervisor newly elected was Mr. Gao Junjie. The 1st meeting of the 3rd Board of Directors held on September 6, 2001 examined and adopted the Proposal on Election for the Chairman and Vice Chairmen of the Board and the Proposal on Engagement of Senior Executives. The meeting elected Mr. Chen Hongguo Chairman of the Board, Mr. Yi Tongyuan and Mr. Han Wenjian vice Chairmen. Mr. Yi Tongyuan was engaged as General Manager, Mr. Hao Jun was engaged as the Secretary of the Board; Mr. Guo Xiucheng, Mr. Hu Changqing, Ms. Xu Xiangdong, Mr. Sun Ping, Mr. Fang Lijun, Mr. Zhang Yanjun, Mr. Hou Huancai, Mr. Wang Fuzeng and Mr. Li Ruohua were engaged as deputy general managers. Mr. Han Wenjian, Mr. Li Mingren and Mr. Zhang Longquan were disengaged as deputy general managers. The 1st meeting of the 3rd Supervisory Committee held on September 6, 2001 examined and adopted the Proposal on Election for the Chairman and Vice Chairmen of the Supervisory Committee. The meeting elected Mr. Sun Qiang the Chairman of the 3rd Supervisory Committee and Ms. Li Xueqin vice Chairman. 4. About Staff The Company has totally 13347 staff members (with 10369 registered), including 9276 production workers, 387 salespersons, 2226 technical personnel, 214 financial personnel and 705 administrative personnel, 539 other personnel. Classified based on the education background, there were 463 with university degree, 1516 with college degree, 2471 graduated from secondary technical school, and 8897 graduated from senior middle school, vocational school or lower. There are totally 204 retired staff members. The above staff included the leased staff and that of the control shareholder. . Administrative Structure 1. Company Administration The Company has been continuously improving its legal person based administrative structure and standardizing the business operation strictly in accordance with the PRC Company Law and the PRC Securities Law as well as the regulations of China Securities Regulatory Commission. The Company has prepared the Articles of Association, the Rules of Procedures of the Board Meeting, the Rules of Procedures of the Meetings of the Supervisory Committee and the Work Rules of the General Manager. Based on the laws, regulations and standards, such as the Rules for Administration of Listed Companies (the Rules for Administration) promulgated by China Securities Regulatory Commission (CSRC) and the State Commission of Economy and Trading, the Company’s operation is summarized as follows: (1) Shareholders and Shareholders’ General Meeting: -8- The Company ensures all the shareholders, specially minority shareholders, enjoying equality and the shareholders can fully exercise their rights; The Company calls and convenes shareholders’ general meetings strictly according to the Official Opinions on Standardizing the Shareholders’ General Meeting and the Articles of Association and lets all shareholders to attend the shareholders’ general meeting and exercise their voting power as far as possible. (2) Relationship between the control shareholder and the listed company: The Company’s control shareholder is Shangdong Shouguang Municipal State-owned Assets Administration Bureau that has never been involved in any actions interfering, directly or indirectly, the Company’s decision making and operation activities. The Company is separated from its Control Shareholder in terms of personnel, assets and finance, and absolutely independent in organization and business. (3) Directors and the Board of Directors: The Company has elected directors according to the director engagement procedures as specified in the Articles of Association; at present, the Company adopts equivalent election system and shall implement the accumulative voting system according to the Rules for Administration in future; The composition of the number and membership of the Board comply with the laws and regulations. The directors attend the board meetings and shareholders’ general meetings in earnest and responsible attitude, positively attend the relevant training, have good knowledge of the relevant laws and regulations, understand the rights, obligations and liabilities of director. The Company has preliminarily chosen proper independent director candidates and shall engage according to the legal procedures. (4) Supervisors and the Supervisory Committee: The composition of the number and membership of the Supervisory Committee comply with the laws and regulations; The Supervisory Committee has conducted, in a serious manner, supervision over the Company’s business financial position and legality and compliance of directors, managers and other senior executives in performing the duties based on the spirit of responsibility to the shareholders. (5) About Interest Related Parties The Company has fully respected the legal interests to the interest related parties, including banks, creditors, staff, customers, suppliers, communities, etc. for the purpose of jointly promoting the Company to develop in a sustainable and healthy way. (6) Information Disclosure and Transparency The Company has been disclosing the information in a real, accurate, complete and timely way strictly according to the laws, regulations and the Articles of Association so that all the shareholders shall have the equal right to access to the information. Based on the Company’s practical situation of administration and the requirements as -9- specified in the Rules for Administration, the Company has prepared the Rules for Administration of Shandong Chenming Paper Holdings Limited, revised and perfected the articles of association so as to ensure the Company to operate in a standard way. The document shall go into force after approval according to the legal procedures. 2. Performance of Independent Directors The Board of Directors has established the Independent Director System and is selecting and engaging independent directors according to the legal procedures in accordance with the Guiding Opinions on Establishment of Independent Director System in Listed Companies promulgated by China Securities Regulatory Commission. 3. Separation between the Company and its Control Shareholder in terms of Business, Personnel, Assets, Organization and Finance. The first bigest shareholder of the Company is Shangdong Shouguang Municipal State-owned Assets Administration Bureau. The Company is separated from the control shareholders in terms of personnel, assets and finance, and absolutely independent in organization and business. (1) Independence in organization and personnel The Company has independent power organ, decision making organ, supervisory organ and implementation organ. The Chairman of the Board has not been engaged concurrently as legal representative of any shareholder; The senior executives, such as manager and deputy managers, have no part-time job in any shareholders; no financial personnel has been engaged in any part-time job in the related companies either. The Company is absolutely independent in labor, personnel and salary management. (2) Independence in businesses and assets The Company is independent in assets, including production system, auxiliary production system, complementary facilities, industrial property right, non-patent technologies, etc.; and has independent production, supply and sales system. The Company’s control shareholder is the state assets administration department. There is no competition of same trade between the control shareholder and the Company in the production and marketing. (3) Separation in Finance The Company has established independent financial department, accounting system and standardized and financial management system, the financial management system for its branches and subsidiaries; opened independent A/C in bank and independently pays taxes according to the law. 4. Valuation and Encouragement Mechanism of Senior Executives With a view to further improving the modern enterprise system and the operators’ encouragement and binding mechanism, the 3rd Board of Directors examined and approved the Encouragement System with Equity Holding of the Senior Executives, which is still subject to the examination and approval of the Shareholders’ General -10- Meeting before coming into force. VI. Shareholders’ General Meeting In the report year, the Company has held 2000 annual shareholders’ general meeting and 2001 1st and 2nd extraordinary shareholders’ meetings. (1) 2000 Shareholders’ General Meeting: The Company published the meeting notice for 2000 Shareholders’ General Meeting on China Securities Interactive, Securities Times, Shanghai Securities News and Hong Kong Commercial Daily dated May 29, 2001. 2000 Shareholders’ General Meeting was held on June 28, 2001 at the 3rd floor meeting room of the Company’s Science and Technology Building. 85 shareholders and shareholders’ representatives attended the meeting, including 81 shareholders/representatives of A shares and 4 shareholders/ representatives of B shares. The shareholders/representatives present at the meeting hold/represent 159,954,680 shares, taking 35.279% of the Company’s total voting bearing shares; including 145,980,954 A shares, taking 91.264% of the shares held/represented by shareholders/representatives present at the meeting; 13,973,726 B shares, taking 8.736% of the shares held/represented by shareholders/representatives present at the meeting. The meeting was held in compliance with relevant provisions of the Company Law, the Articles of Association of the Company and the Official Opinions on Standardizing Shareholders’ General Meeting of Listed Companies. Mr. Chen Weiyong, a lawyer qualified for offering law services in the securities sector, from Haotian Law Office attended the shareholders’ general meeting and produced a Letter of the Lawyer’s Opinion. The meeting examined and adopted the following resolutions item by item by voting: 1. Reviewed and passed 2000 Working Report of Board of Directors; 2. Reviewed and passed 2000 Work Report of the Supervisory Committee”; 3. Reviewed and passed 2000 Financial Settlement Report; 4. Reviewed and passed 2000 Profit Distribution Preplan; 5. Reviewed and passed the Proposal for Reengagement of the Certified Public Accountants. The aforesaid resolutions were published in China Securities and Securities Times, Shanghai Securities News and Hong Kong Commercial Daily respectively dated June 29, 2001. (2) 2001 1st Extraordinary Shareholders’ Meeting The Company published the meeting notice for 2001 1st Extraordinary Shareholders’ Meeting on China Securities Interactive, Securities Times, and Hong Kong Commercial Daily dated Feb. 22, 2001. 2001 1st Extraordinary Shareholders’ Meeting was held on -11- March 26, 2001 at the 3rd floor meeting room of the Company’s Science and Technology Building. 93 shareholders and shareholders’ representatives attended the meeting, including 90 shareholders/representatives of A shares and 3 shareholders/ representatives of B shares. The shareholders/representatives present at the meeting hold/represent 176,266,274 shares, taking 38.88% of the Company’s total voting bearing shares; including 145,952,577 A shares, taking 82.80% of the shares held/represented by shareholders/representatives present at the meeting; 30,313,697 B shares, taking 17.20% of the shares held/represented by shareholders/representatives present at the meeting. The meeting was held in compliance with relevant provisions of the Company Law, the Articles of Association of the Company and the Official Opinions on Standardizing Shareholders’ General Meeting of Listed Companies. Mr. Wang Xiaoming, a lawyer qualified for offering law services in the securities sector, from Haotian Law Office attended the shareholders’ general meeting and produced a Letter of the Lawyer’s Opinion. The meeting examined and adopted the following resolutions item by item by voting: 1. Reviewed and passed the “Proposal for revising Company’s Articles of Association”; 2. Reviewed and passed “Proposal for Listing the Company’s Unlisted B Shares for Trading”; 3. Reviewed and passed the Statement of Issuing Additional A Shares. The resolutions of the extraordinary shareholders’ meeting were published in China Securities Interactive and Securities Times and Hong Kong Commercial Daily dated March 27, 2001. (3) 2001 2nd Extraordinary Shareholders’ Meeting The Company published the meeting notice for 2001 2nd Extraordinary Shareholders’ Meeting on China Securities Interactive, Securities Times, Shanghai Securities News, Hong Kong Commercial Daily and Ta Kung Pao dated August 2, 2001. 2001 2nd Extraordinary Shareholders’ Meeting was held on September 6, 2001 at the 3rd floor meeting room of the Company’s Science and Technology Building. 95 shareholders and shareholders’ representatives attended the meeting, including 90 shareholders / representatives of A shares and 5 shareholders/ representatives of B shares. The shareholders/representatives present at the meeting hold/represent 172,391,795 shares, taking 34.57 % of the Company’s total voting bearing shares; including 160,127,526 A shares, taking 92.89 % of the shares held/represented by shareholders/representatives present at the meeting; 12,264,269 B shares, taking 7.11% of the shares held/represented by shareholders/representatives present at the meeting. The meeting was held in compliance with relevant provisions of the Company Law, the Articles of Association of the Company and the Official Opinions on Standardizing Shareholders’ General Meeting of Listed Companies. Mr. Chen Weiyong, a lawyer qualified for offering law services in the securities sector, from Haotian Law Office attended the shareholders’ general meeting and produced a Letter of the Lawyer’s Opinion. The meeting examined and -12- adopted the following resolutions item by item by voting: 1. Reviewed and passed the “Proposal for revising Company’s Articles of Association”; 2. Reviewed and passed the Proposal for Election for New Board of Directors; 3. Reviewed and passed the Proposal for Election for New Supervisory Committee. The aforesaid resolutions were published in China Securities Interactive and Securities Times, Shanghai Securities News, Hong Kong Commercial Daily and Ta Kung Pao respectively dated September 7, 2001. (4) Selection and Replacement of the Company’s Directors and Supervisors In the report year, both the 2nd Board of Directors and the 2nd Supervisory Committee were terminated. In accordance with the Company Law and the Articles of Association of the Company, the Board and the Supervisory Committee conducted election for the new ones. Through examination at 2001 2nd Extraordinary Shareholders’ General Meeting, the Company elected through voting Mr. Chen Hongguo, Mr. Yi Tongyuan, Mr. Han Wenjian, Mr. Li Mingren, Mr. Wu Wenhe, Mr. Guo Xiucheng, Mr. Wang Zhijun, Mr. Li Ruohe, Mr. Xia Youliang, Mr. Hu Changqing and Ms. Xu Xiangdong directors to form the 3rd Board of Directors. Mr. Sun Qiang, Ms. Li Xueqin, and Mr. Zhang Jun were elected supervisors to form the 3rd Supervisory Committee together with Mr. Zheng Liyong and Mr. Gao Junjie, two staff’s representative supervisors. VII. Report of the Board of Directors 1. Business Scope and Operation The Company is engaged in paper making sector with the principal businesses of production and sales of the machine-made paper, board, paper materials, paper-making machinery, electric power and heat energy. The Company has been taking the leading position in China in terms of economic efficiency in the sector from 1995 to 2001. In the report period, the Company produced 558,000 tons of machine-made paper, a 19.07% growth over the same period of the previous year; realized a turnover of RMB 23.95 billion, 0.45% drop over the same period of the previous year; realized a profit amounting to RMB 258,985 million, 34.72% drop over the same period of the previous year. The turnover of light coated paper, the Company’s key product, was RMB 568.7734 million, taking 23.64% of the income from the principal businesses, its sales cost was RMB 513.09 million, taking 28.49% of the cost of the principal businesses, and the gross sales profit rate was 9.79%; The turnover of double-faced offset printing paper was RMB 560.1843 million, taking 23.29% of the income from the principal businesses, its sales cost was RMB 446.8888 million, taking 24.81% of the cost of the principal businesses, and the gross sales profit rate was 20.22%; The turnover of writing paper was RMB -13- 468.6063 million, taking 19.48% of the income from the principal businesses, its sales cost was RMB 337.2435 million, taking 18.72% of the cost of the principal businesses, and the gross sales profit rate was 28.03%. 2. Operation and Performances of the Principal Controlled Subsidiaries. (1) The total assets of Qihe Board Mill, operated by the Company by leasing is RMB 279.5624 million. Its leading product is case board. In 2001, the company produced 106,600 tons of kraft board and corrugated board, realized a turnover of RMB 270,0876 million and net profit of RMB 21.6263 million. (2) The registered capital of Wuhan Chenming Hanyang Paper Co., Ltd., one of the Company’s controlled subsidiaries, is RMB 211.367 million and its total assets is RMB 1951.77 million. Its leading product is writing paper. In the report year, the company produced 165,900 tons of machine-made paper, realized a turnover of RMB 817.2308 million and net profit of RMB 54.6669 million. (3) The registered capital of Shandong Chenming Thermal Power Co., Ltd., one of the Company’s controlled subsidiaries, is RMB 99.5531 million and its total assets is RMB 466.3573 million. It is mainly engaged in production and sales of electric power and heat energy. In the report year, the company realized a turnover of RMB 134.3655 million and net profit of RMB 15.3293 million. (4) The registered capital of Xianfan Chenming Coated Art Paper Co., Ltd., one of the Company’s controlled subsidiaries, is RMB 32.2258 million and its total assets is RMB 94.3841 million. Its leading product is coated art paper. In the report year, the company produced 16,673.88 tons of coated art paper, realized a turnover of RMB 91.7869 million and net profit of RMB 3.2437 million. (5) The registered capital of Hailaer Chenming Paper Co., Ltd., one of the Company’s controlled subsidiaries, is RMB 16 million and its total assets is RMB 64.375 million. Its leading product is bleached reed pulp sheet. In the report year, the company produced 23,645.55 tons of the product, realized a turnover of RMB 68.4837 million and net profit of RMB 9.323 million. (6) The registered capital of Shibi Chenming Paper Co., Ltd., one of the Company’s controlled subsidiaries, is RMB 177.4194 million and its total assets is RMB 290.4679 million. Its leading product is double-faced offset printing paper. In the report year, the company produced 30,113.12 tons of the product, realized a turnover of RMB 136.9574 million and net profit of RMB –5.7164 million. 3. In the report year, the total purchase amount from the top five suppliers was RMB 128.9457 million, taking 15.10% of the total annual purchase amount; the total sales amount to the top five customers was RMB 167.1323 million, taking 6.95% of the turnover. -14- 4. Problems and difficulties occurred in the operations and the solutions (1) In 2001, the paper market was involved in great depression very rare in the recent years, the competition was intensified day after day and the price was falling continuously. In addition, the international market also went downhill and the paper price was falling by a big margin. All these factors have affected the Company’s profit making. After the adjustment of the Company’s leadership, the Board studied the situation and further improved the ideology of the business and focused the work on the business operation. The Company took a series of effective measures, such as further improving the integrated sales mechanism, improving the new encouragement and assessment mechanism, attaching great importance on recovering the arrears, and further developing the international market, and has created a new situation of the operation. (2) To deal with the existing difficulties of short supply of raw materials, high dependence of the imported wood pulp, and difficult control over the production costs, the Company regarded the construction of material base as a strategic measure. First of all, the Company did a job in purchasing the raw materials of wheat straw, reed, etc.; secondly, the Company attached importance on constructing and fostering wood pulp base; thirdly, the Company prepared good planning for constructing quick growing trees so that the Company may speed up the practice of integration of trees and paper so as to bring the cost into effective control and enhance the superiority of competition. 5. The profit in the estimation of the profit making in the year as disclosed in the Offering Memorandum for issuing additional A shares in 2001 was RMB 394,978,876.40, while the actually realized profit was RMB 248,088,023.53, 37.19% lower than the estimated amount of the profit. The main reasons that caused the difference were the intensified market competition and big price falling of paper which have directly affected the Company’s profit making, as well as the provision for devaluation of the assets managed by trust. 6. Investment 1 Application of the proceeds raised through previous share offering carried down to the report year Committed investment Project actually Total investment Predicted earnings Proceeds invested project invested 153,000 ton coated art 153,000 ton coated art RMB 1,515.14 million RMB 258.76 million RMB 931.9347 million paper paper The proceeds raised through issuing A shares in 2000 was invested to construct coated art paper project with annual capacity of 153,000 tons as specified in the Offering Memorandum. Ended the report year, the invested amount was RMB 931.9347 million. The civil engineering works of the project has been completed. All the equipment, including paper machine and paper cutting machine has been completed in installation. Other equipment is in process of installation in succession. The complementary thermal power station was put into operation in March, 2002. Through the painstaking work day and night, the project is predicted to be put into production in July, 2002, or 4 months -15- ahead of time. The unused proceeds are now all deposited in the bank and are planned to be invested in succession. (2) Investment with the fund not raised through share offering In September, 2001, the Company and Jilin Yasong Industrial Co., Ltd. established Jilin Cheming Yasong Pulp and Paper Co.,Ltd. by joint venture. The company’s registered capital was RMB 81.633 million. The Company contributed cash amounting to RMB 41.633 million, taking 51% of the registered capital. The company had not yet been put into operation in the report year. Wuhan Chenming Hanyang Paper Co., Ltd., one of the Company’s controlled subsidiaries, succeeded in the first trial run on for its 50,000 high grade color offset printing paper on January 18, 2002. The actual annual output capacity of the project may reach over 100,000 tons; the annual added turnover was expected to be over RMB 500 million. This project, after being put into production, shall greatly improve the Company’s market competitiveness and bring about new profit growth channels. The information was disclosed on China Securities Interactive, Securities Times and Hong Kong Commercial Daily dated February 1, 2002. Wuhan Cheming Hanyang Paper Co., Ltd., one of the Company’s controlled subsidiaries, carried out the technical innovation project of 120 T/bleached wheat straw production line with total investment of RMB 48 million, which is expected to bring about new annual profit by RMB 20.4 million. The project was put into production in August, 2001. Qihe Board Mill, leased by the Company for cooperation, started 100,000 ton A-grade case board technical innovation project in May, 2001 with total investment of RMB 198.06 million. The project is expected to add new profit by RMB 48.45 million. Ended the report year, the total amount of fund invested was RMB 180.74 million. The project was predicted to start operation in May, 2002. The Company has a alkaline recovery project with capacity of 150 tons/day. In the report period, the invested fund was RMB 24.3023 million. The Project started formal operation in April, 2002. After the project was put into operation, it can recover caustic soda by 11,385 tons per year. Thus, the project of the black liquor pollution can been solved. Meanwhile, it shall greatly improve the quality of the bleached straw paper pulp. The Company has a reed pulp production line project with daily capacity of 200 tons with total investment of RMB 60 million. In the report year, the Company invested RMB 25.2723 million in the project which started operation in March, 2002. After the project was put into production, the supply channel of paper materials would be added and the production cost would be brought down and the economic efficiency would be improved. The Company is carrying out the intermediate water project with capacity of 60,000 -16- cubic meters/day with total investment of RMB 50 million. In the report period, the actual investment was RMB 22.57 million. The civil engineering work of the project has been basically finished and the equipment is in process of installation. The project is planned to be put into operation in May, 2002. This project shall greatly improve the waste water treatment capacity of the existing production workshops and the new projects and bring out good social efficiency. 7. Financial Highlights (in RMB’000) Items 2001 2000 Increase / decrease (%) Total assets 7,386,440 5,353,483 37.97 Long-term liabilities 1,797,946 482,785 272.41 Shareholders’ equity 2,999,624 2,958,145 1.40 Profit from principal businesses 595,099 683,061 -12.88 Net profit 149,472 208,600 -28.35 (1) Increase in the total assets is mainly due to increase of investment loans on the new projects and increase of the net profit. (2) Increase in the long term liabilities is mainly due to increase of the investment loans for the new projects. (3) Increase in the shareholders’ equity is mainly due to the increase of the net profit and increase of the capital reserve arising from the subsidy fund of the government bond discount in the report year. (4) Decrease in the profit from the principal businesses is mainly due to the price falling of the products in the report year. (5) Decrease in the net profit is mainly due to price falling of the products and the provision for the devaluation of partial cash assets under management by trust in the report year. 8. Affect from the change in the production and operation environment on the Company’s operation In 2001, the whole paper market appeared unprecedented depression and intense competition which caused big price falling of the sales price. The Company sold 556,000 tons of paper products, 18.3% increase over the previous year (470,000 tons). However, the sales price per ton dropped by RMB 427 over the previous year. The newly added profit from the sales is not enough to compensate the decrease of the profit resulted from price falling. 9. Business Plan In 2002, the Company shall implement the objective of building itself into a international company with outstanding development theme, focus on the improvement of the -17- economic efficiency and operation quality, continuously improve the technical innovation investment, bring down the production costs, try to optimize the product structure, personnel structure and market structure, devote every means to promote the updating of the system, technology and management, enhance the core competitiveness and ensure the Company to be developed in a sustainable, healthy and speedy way. Operation objectives: In the new year, the Company shall try to realize a output volume of paper products by 850,000 tons, a turnover of RMB 4.05 billion and ensure the profit to grow by a big margin. Work Focus and Measures: (1) Stressing the focus, reinforce the marketing and reinforce the market development. Insist on the ideology of “regarding the market demand as the guide”, and regard the market development as the essential task in the whole year. First of all, reinforce the foundation management with the management of the sales contract as the key; Secondly, convert the sales mode, reinforce the management of the customer resources, implement the practice of “payment in the same time of delivery”, and convert the sales work from the form of extensive management to the intensive management; Thirdly, conduct optimization grouping for sales personnel in an overall way, reinforce the construction of the sales team, and put emphasis on the training of composite personnel who are familiar with the international market regulations and rules, understand management and understand the technology. (2) Expand the investment, optimize the product structure and implement the corporate technology progress on overall basis. While ensuring the safety and quality of the projects in process, speed up the construction, and make sure all the projects in process shall be put into production successfully. Meanwhile, focusing on the work of bringing down the cost and improving the quality of the products, use the advanced technology to make technical innovation of the existing production lines. (3) Deepen the reform, speed up the innovation, and upgrade the enterprise management to a new level. Insist on deepening the reform of the three systems in side the Company, reinforce the financial management and quality management on overall basis. Meanwhile, learn from the domestic and foreign advanced experience, and devote great efforts to conduct information based management and modern logistic management. 10. Routine Work of the Board of Directors (1) In the report period, the Board held altogether five meetings. The 11th meeting of the 2nd Board of Directors was held at 9:00 a.m., February 21, 2001 at the 2nd floor meeting room of Chenming Hotel. 9 directors were supposed to attend the meeting and 6 of them were actually present, and 3 supervisors attended the -18- meeting as non-voting delegates. The meeting was held in compliance with the relevant laws, regulations and the Articles of Association. The directors present at the meeting examined and adopted the proposals involved in the board meeting and formed the following resolutions: 1. Reviewed and passed the Proposal for revising Company’s Articles of Association; 2. Reviewed and passed Proposal for Listing the Company’s Unlisted B Shares for Trading; 3. Reviewed and passed the Statement of Issuing Additional A Shares. The above proposals would be submitted to 2001 1st Extraordinary Shareholders’ Meeting for examination item by item, and would be further, if they are all approved, submitted to China Securities Regulatory Commission for verification before coming into force. 4. Reviewed and passed the Proposal on Holding 2001 1st Extraordinary Shareholders’ Meeting. The public notice of the resolutions was published on China Securities Interactive, Securities Times and Hong Kong Commercial Daily respectively dated Feb. 22, 2001. The 12th meeting of the 2nd Board of Directors was held at 9:00 a.m., March 27, 2001 at the 2nd floor meeting room of Chenming Hotel. 9 directors were supposed to attend the meeting and 7 of them were actually present, and 4 supervisors attended the meeting as non-voting delegates. The meeting was held in compliance with the relevant laws, regulations and the Articles of Association. The directors present at the meeting examined and adopted the proposals involved in the board meeting and formed the following resolutions: 1. Reviewed and passed 2000 Annual Report and the Summary; 2. Reviewed and passed 2000 Work Report of the Board of Directors which was to be submitted to the Annual Shareholders’ General Meeting for examination; 3. Reviewed and passed 2000 Financial Settlement Plan which was to be submitted to the Annual Shareholders’ General Meeting for examination; 4. Examined and passed 2000 Profit Distribution Preplan and 2001 Profit Distribution Policy; 5. Reviewed and passed the Proposal for Reengagement of the Certified Public Accountants; -19- 6. For the time for holding 2000 Shareholders’ General Meeting, separate notice would be issued. The public notice of the resolutions was published on China Securities Interactive, Securities Times and Hong Kong Commercial Daily respectively dated March 29, 2001. The 13th meeting of the 2nd Board of Directors was held at 9:00 a.m., May 28, 2001 at the 2nd floor meeting room of Chenming Hotel. 9 directors were supposed to attend the meeting and 7 of them were actually present, and 4 supervisors attended the meeting as non-voting delegates. The meeting was held in compliance with the relevant laws, regulations and the Articles of Association. The directors present at the meeting examined and adopted the following resolutions: Reviewed and passed the resolution on holding 2000 Shareholders’ General Meeting. The public notice of the resolution was published on China Securities Interactive, Securities Times, Shanghai Securities News and Hong Kong Commercial Daily respectively dated May 29, 2001. The 14th meeting of the 2nd Board of Directors was held on July 31, 2001 at the 2nd floor meeting room of Chenming Hotel. 9 directors were supposed to attend the meeting and all 9 of them were actually present. All the supervisors and relevant senior executives attended the meeting as non-voting delegates. The meeting was held in compliance with the relevant laws, regulations and the Articles of Association. The directors present at the meeting examined and adopted the proposals involved in the board meeting and formed the following resolutions: 1. Reviewed and passed 2001 Interim Report and the Summary; 2. Reviewed and passed 2001 Interim Profit Distribution Plan: the Company would conducted neither interim profit distribution nor converting the public reserve into the share capital; 3. Reviewed and passed the proposal for revising Company’s Articles of Association; 4. Reviewed and passed the Proposal for Election for New Board of Directors; The proposal needed to be submitted to 2001 2nd Extraordinary Shareholders’ Meeting for examination. 5. Reviewed and passed the Proposal on Holding 2001 2nd Extraordinary Shareholders’ Meeting. -20- The public notice of the resolutions was published on China Securities Interactive, Securities Times, Shanghai Securities News and Hong Kong Commercial Daily respectively dated August 2, 2001. The 3rd meeting of the 3rd Board of Directors was held on September 6, 2001 at the nd 2 floor meeting room of Chenming Hotel. 11 directors were supposed to attend the meeting and 8 of them were actually present, and 3 directors entrusted others to attend the meeting and exercise voting rights on behalf. All the supervisors and relevant senior executives attended the meeting as non-voting delegates. The meeting was held in compliance with the relevant laws, regulations and the Articles of Association. The directors and authorized representatives present at the meeting examined and adopted the proposals involved in the board meeting and formed the following resolutions: 1. Elected Mr. Chen Hongguo Chairman of the Board, Mr. Yi Tongyuan and Mr. Han Wenjian vice Chairmen. 2. Mr. Chen Yongxing was engaged as senior adviser of the Board; 3. Nominated by Mr. Chen Hongguo, Chairman of the Board, Mr. Yi Tongyuan was engaged as the General Manager; Mr. Hao Jun was engaged as the Secretary of the Board and Mr. Wang Wei was engaged as the securities representative of the Board. 4. Norminated by Mr. Yi Tongyuan, the General Manager, Mr. Guo Xiucheng, Mr. Hu Changqing, Ms. Xu Xiangdong, Mr. Sun Ping, Mr. Fang Lijun, Mr. Zhang Yanjun, Mr. Hou Huancai, Mr. Wang Fuzeng and Mr. Li Ruohua were engaged as deputy general managers. 5. Mr. Quan Shaoning, Mr. Chen Weiyong and Mr. Wang Xiaoming, lawyers from Haotian Law Office, were engaged as the standing law advisers of the Company. 6. Approved the proposal for establishing the Encouragement System with Equity Holding of the Senior Executives The proposal would go into force after approval by the Shareholders’ General Meeting. The public notice of the resolutions was published on China Securities Interactive, Securities Times, Shanghai Securities News and Hong Kong Commercial Daily respectively dated September 7, 2001. The Board held its 2001 1st extraordinary meeting on March 6, 2001 at the 2nd floor meeting room of Chenming Hotel. 9 directors were supposed to attend the meeting and 6 of them were actually present, and 3 supervisors attended the meeting as non-voting -21- delegates. The meeting was held in compliance with the relevant laws, regulations and the Articles of Association in terms of the proportion of the directors present at the meeting in the whole members of the Board and the procedures of the meeting. In accordance with the Provisions of the Shareholders’ General Meeting on Authorizing the Board of Directors to Exercise the Power of Investment Decision Making, the Board formed the following resolutions concerning entrusting assets management of the partial self-raised funds in the report year: With a view to improving the fund application efficiency, the Board decided to entrust some relevant securities company to invest partial self-raised funds with amount not exceeding RMB 300 million in the government bonds or securities market. 1. The management would be responsible for specific operation; 2. It is necessary to do best to choose the trustee through careful investigation and at least two trustees should be chosen. The funds should be invested in batches and risks should be avoided. 3. The information should be disclosed when the accumulative amount of the monetary assets involved in the assets management on commission has reached over 10% (including 10%) of the total net assets as audited in the latest. (2) Implementation of the Resolutions of the Shareholders’ General Meeting by the Board of Directors: 2000 Shareholders’ General Meeting reviewed and passed 2000 Profit Distribution Plan: To pay cash dividend of RMB 3.00 for every ten shares (including tax) to all shareholders with the total share capital of the Company, i.e. 453,397,931 shares as the base. The profit distribution plan was completed in August 2001. 11. Profit Distribution Proposal or Proposal for Converting the Capital Public Reserve into Share Capital Profit Distribution Proposal or Proposal for Converting the Capital Public Reserve into Share Capital Audited by Shandong Zhengyuan Hexin Certified Public Accountants, in the year 2001, the Company realized net profit amounting to RMB 141,999,714.53. In accordance with the Articles of Association of the Company, after provision of the statutory public reserve based on 10% of the net profit which amounts to RMB 13,343,172.88 and provision of statutory public welfare fund based on 10% of the net profit which amounts to RMB 13,343,172.88, plus the undistributed profit carried down from the year beginning amounting to RMB 366,617,702.17, less RMB 45,339,793.00 which was converted into share capital in August,2001, the total profit distributable to the whole -22- shareholders in the report year is RMB 436,591,277.94. With the consideration of the Company’s long term development and the fund demand of the construction-in-progress, the Company decided to neither conduct profit distribution, nor convert the public reserve into share capital for the report year. This proposal is subject to approval by the Shareholders’ General Meeting. 12. Other matters for reporting Newspapers Designated for Disclosing the Information were China Securities Interactive and Hong Kong Commercial Daily. . Report of the Supervisory Committee In the report year, the Supervisory Committee performed seriously their duties, taken responsible attitude to all the shareholders, supervised the financial affairs, the duties performed by the Company’s directors, managers and other senior executives in terms of compliance with the law and regulations and safeguarded the legal rights and interest of the Company and the shareholders. In the report year, the Supervisory Committee held three meetings: 1. The 6th meeting of the 2nd Board of Directors was held March 27, 2001 at the 2nd floor meeting room of Chenming Hotel. 5 supervisors were supposed to attend the meeting and 4 of them were actually present. The meeting was presided by Mr. Hou Huancai, Chairman of the Supervisory Committee. The supervisors present at the meeting unanimously approved and formed the following resolutions: (1) Reviewed and passed 2000 Annual Report and the Summary; (2) Reviewed and adopted 2000 Financial Settlement Report; (3) Reviewed and passed 2000 Work Report of the Supervisory Committee which was to be submitted to the Annual Shareholders’ General Meeting for examination; 2. The 7th meeting of the 2nd Board of Directors was held on July 31, 2001 at the 2nd floor meeting room of Chenming Hotel. 5 supervisors were supposed to attend the meeting and 4 of them were actually present. The meeting was presided by Mr. Hou Huancai, Chairman of the Supervisory Committee. The supervisors present at the meeting carefully reviewed and approved all the proposals and formed the following resolutions: (1) Reviewed and passed 2001 Interim Report and the Summary; (2) Reviewed and passed the Proposal on Election for New Supervisory Committee, which was to be submitted to 2001 2nd Extraordinary Shareholders’ Meeting for examination. -23- 3. The 1st meeting of the 3rd Supervisory Committee was held on September 6, 2001 at the 2nd floor meeting room of Chenming Hotel. 5 supervisors were supposed to attend the meeting and all 5 of them were actually present. The directors present at the meeting carefully examined and adopted the proposals involved in the meeting and formed the following resolutions: The meeting elected Sun Qiang the Chairman of the 3rd Supervisory Committee and Ms. Li Xueqin was elected vice Chairman. Independent Opinions of the Supervisory Committee (1) The Company was legal in decision-making procedures, had established healthy internal control system, and standardized the operation. No action of the directors and managers of the Company that violated the laws, regulations and the Articles of Association of the Company or harmed the interests of the Company was found when they performed their duties; (2) The Supervisory Committee has supervised and inspected the financial position of the Company. In the opinion of the Supervisory Committee, the Auditors’ Opinions and the Company’s Financial Audit Report produced respectively by Shandong Zhengyuan Certified Public Accountants and Pricewaterhouse Coopers Certified Public Accountants have truly, objectively and fairly reflected the Company’s financial position and operation results; (3) The 153,000 Ton Coated Art Paper Project invested with the proceeds raised through issuing additional A shares in November, 2000 complied with the investment project as committed in the Offering Memorandum and the application of the proceeds has never been changed; (4) In the report year, the assets acquisition was carried out at the reasonable price without doing any harm to the shareholders’ interests. (5) The related transactions were carried out in a fair and reasonable way without any harm to the Company’s interest. . Significant Events 1. In the report year, the Company had been involved in no material lawsuits or arbitration. 2. In September 2001, the Company and Jilin Yasong Industrial Co., Ltd. established Jilin Chenming Yasong Pulp and Paper Co., Ltd. by joint venture. For the detail, please -24- refer to the Investment with the Funds not Raised by Share Offering . 3. Related transactions (1) Related Parties Companies Registered Registered Principal Relationship with Equity Ownership Legal address capital businesses the Company held representative Shouguang Liben Shouguang, USD8,924,000 Paper Associated 26.4% Sino-foreig San hao Paper Co., Ltd. Weifang production company n joint xiaoyan and marketing venture (2) Related transactions Items 2001 Electricity fee received from Liben Paper Co., Ltd. RMB 6,205,322.70 The aforesaid related transactions were carried out according to the local market price and settled through banks based on the actual amount incurred from purchase/sales of goods and providing labor services. (3) Balance of the Current Accounts with the Related Parties At period end Other receivable – Shouguang Liben Paper Co., Ltd. RMB 1,705,218.16 4. Important Contacts (1) The Company signed the Mutual Guarantee Agreements with Weifang Yaxing Group Co., Ltd. (Weifang Yaxing) and Shandong Shouguang Lianmeng Chemical Group Co., Ltd. (Shouguang Lianmeng) respectively dated December 20, 1999 and January 12, 2000 which are summarized as follows: A party may directly offer guarantee to the other party for the amount within the guarantee balance (RMB 300 million for Weifang Yaxing and RMB 150 million for Shouguang Lianmeng) (including the amount in foreign currency based on the sum converted at the exchange rate published by the state) with single guarantee below RMB 5 million. Should one party offer guarantee to the other party with a sum exceeding RMB 10 million while a single guarantee with a sum not exceeding RMB 5 million, the case shall be handled upon approval through mutual consultation between the legal representatives of both parties The Agreements came into force commencing from the date after it was signed with valid term of two years. Ended December 31, 2001, the Company offered guarantee to Weifang Yaxing for its loan amounting to RMB 194.86 million; offered guarantee to Shouguang Lianmeng for it loan amounting to RMB 41.9 million. Ended December 31, 2001, the Company offered guarantee of Wuhan Chenming -25- Hanyang Paper Co., Ltd. for its loan amounting to RMB 30 million. (2) On March 8, 2001, the Company signed “Agreement on Purchasing Government Bonds on Commission” with Southwest Securities Co., Ltd. According to the agreement, the Company was the trustor and Southwest Securities Co., Ltd. was the trustee. The amount involved in the entrustment was RMB 200 million. The entrustment term was one year commencing form the availability of the fund. In March, 2002, the Company recovered the principal and at the same time received partial investment return amounting to RMB 6.65 million. On May 28, 2001, the Company signed the Assets Custody Agreement with Beijing Securities Co., Ltd. According to the agreement, the Company was the trustor and Beijing Securities Co., Ltd. was the trustee. The amount involved in the entrustment was RMB 100 million. The entrustment term was one year commencing form June 1, 2001 to May 30, 2002. According to the agreement, the trustee may enjoy 20% of the investment income. According to the accounting standards, the Company made provision for devaluation of the investment amounting to RMB 31.0284 million in 2001. The aforesaid two entrustments were authorized by the Board through 2001 1st Extraordinary Board Meeting and were disclosed through public notice published on China Securities Interactive, Securities Times, Shanghai Securities News, Hong Kong Commercial Daily and Ta Kung Pao respectively dated July 24, 2001. The Company signed the Entrusted Loan Agreement with the trustee of CITIC Industrial Bank Jinan Branch and the debtor Shanghai Tiantong Diqin Online Assets Management and Investment Service Co., Ltd. with the amount involved totaling RMB 150 million with a term of one year, annual interest rate of 10%, with payment frequency of once every three months. In 2001, the recovered interest amounted to RMB 18.9167 million. The principal involved in the entrusted loan had been all recovered in March, 2002. 5. On March 27, 2001, the 12th meeting of the 2nd Board of Directors predicted that the Company would conduct profit distribution once in 2001. Since the Company and its controlled subsidiaries would put the projects of the year 2002 into operation in succession, the Company took the sustainable and stable development of the Company into consideration. For the purpose of ensuring the demand of the operation funds of those projects, improving the operation quality, the Company has decided to neither conduct profit distribution nor convert the capital public reserve into share capital for the report year. 6. In the report period, the Company engaged Shandong Zhengyuan Hexin Certified Public Accountants Co., Ltd. and Pricewaterhousecoopers Zhongtian Certified Public Accountants as the Company’s domestic and international auditors respectively. Certified Public Accountants 2001 2000 Financial auditing expenses Financial auditing expenses -26- Shangdong Zhengyuan Hexin Certified Public RMB 0.6 million RMB 0.6 million Accountants Co., Ltd. Pricewaterhousecoopers Zhongtian Certified Public HKD 1 million HKD 1 million Accountants The Company was not responsible for the travel expenses incurred to the auditors from the aforesaid two auditing organizations. 7. In the report year, the Company, its directors or senior executives had never been punished by the China Securities Regulatory Commission or blamed by the stock exchange. 8. In 2002, the head office’s income tax rate is to be increased from 12% to 24%, which shall affect partial net profit of the Company. -27- . Financial Report 1 Auditor’s Report INTERNATIONAL AUDITORS’ REPORT TO THE SHAREHOLDERS OF SHANDONG CHENMING PAPER HOLDINGS LIMITED (Incorporated as a joint stock limited company in the People’s Republic of China) We have audited the accompanying consolidated balance sheet of Shandong Chenming Paper Holdings Limited (the “Company”) and its subsidiaries (the “Group”) as of 31st December 2001 and the related consolidated income and cash flow statements for the year then ended. These financial statements set out on pages 2 to 26 are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those 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 statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion the consolidated financial statements present fairly in all material respects the financial position of the Group as of 31st December 2001 and the results of its operations and its cash flows for the year then ended in accordance with International Accounting Standards. PricewaterhouseCoopers Certified Public Accountants Hong Kong, 23rd April 2002 -28- 2 Financial Statements(attached hereinafter) 3 Notes To Financial Statements(attached hereinafter) SHANDONG CHENMING PAPER HOLDINGS LIMITED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31ST DECEMBER 2001 Notes 2001 2000 RMB’000 RMB’000 Sales 3 2,394,607 2,405,546 Cost of sales (1,799,508) (1,722,485) Gross profit 595,099 683,061 Other operating income 3 52,459 60,333 Distribution costs (167,147) (152,027) Administrative expenses (188,815) (137,933) Operating profit 4 291,596 453,434 Finance costs, net 6 (32,097) (56,502) Share of result before tax of an associated undertaking 12 (514) (202) Profit before tax 258,985 396,730 Tax 7 (70,291) (95,722) Profit after tax 188,694 301,008 Minority interests 28 (39,222) (92,408) Net profit 149,472 208,600 Earnings per share 8 RMB0.30 RMB0.48 The notes on pages 6 to 26 form an integral part of these consolidated financial statements. 29 SHANDONG CHENMING PAPER HOLDINGS LIMITED CONSOLIDATED BALANCE SHEET AS OF 31ST DECEMBER 2001 Notes 2001 2000 ASSETS RMB’000 RMB’000 Non-current assets Property, plant and equipment 10 2,176,514 1,822,767 Construction in progress 11 1,982,264 331,005 Investment in an associate undertaking 12 18,822 19,336 Available-for-sale investments 13 5,792 3,892 4,183,392 2,177,000 Current assets Inventories 14 464,837 579,906 Receivables and prepayments 15 1,091,614 839,229 Prepaid income tax 7,729 - Deposits with a non-bank financial institution - 200,000 Loan receivable 16 150,000 - Trading investments 17 272,051 - Pledged bank deposits 18 83,099 95,494 Bank balances and cash 18 1,133,718 1,461,854 3,203,048 3,176,483 Total assets 7,386,440 5,353,483 EQUITY AND LIABILITIES Capital and reserves Share capital 26 498,738 453,398 Capital reserves 27 1,842,849 1,814,823 Statutory common reserve fund 31(a) 113,346 100,003 Statutory public welfare fund 31(b) 93,360 80,016 Retained earnings 32 451,331 509,905 2,999,624 2,958,145 Minority interests 28 710,651 563,655 Non-current liabilities Borrowings 20 1,611,586 482,785 Deferred income 21 186,360 - 1,797,946 482,785 Current liabilities Trade and other payables 19 735,545 548,396 Borrowings 20 1,142,674 787,272 Current tax liabilities - 13,230 1,878,219 1,348,898 Total liabilities 3,676,165 1,831,683 Total equity and liabilities 7,386,440 5,353,483 On 23rd April 2002,the Company’s Board of Directors authorised these financial statements for issue. The notes on pages 6 to 26 form an integral part of these consolidated financial statements. 30 SHANDONG CHENMING PAPER HOLDINGS LIMITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31ST DECEMBER 2001 Statutory Statutory Share Capital common public Retained Notes capital reserves reserve fund welfare fund earnings Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Balance at 1st January 2000 383,398 454,625 76,627 56,641 348,056 1,319,347 Contributed surplus 30 - 6,598 - - - 6,598 Issue of A shares 26 70,000 1,353,600 - - - 1,423,600 Net profit - - - - 208,600 208,600 Transfer from retained earnings to statutory reserve funds - - 23,376 23,375 (46,751) - Balance at 31st December 2000 453,398 1,814,823 100,003 80,016 509,905 2,958,145 Balance at 1st January 2001 453,398 1,814,823 100,003 80,016 509,905 2,958,145 Contributed surplus 30 - 28,026 - - - 28,026 Bonus issue 26 45,340 - - - (45,340) - Net profit - - - - 149,472 149,472 Dividend relating to 2000 9 - - - - (136,019) (136,019) Transfer from retained earnings to statutory reserve funds - - 13,343 13,344 (26,687) - Balance at 31st December 2001 498,738 1,842,849 113,346 93,360 451,331 2,999,624 The notes on pages 6 to 26 form an integral part of these consolidated financial statements. 31 SHANDONG CHENMING PAPER HOLDINGS LIMITED CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST DECEMBER 2001 Notes 2001 2000 RMB’000 RMB’000 Cash flows from operating activities Cash generated from operations 29 466,727 381,547 Interest paid (131,732) (80,012) Tax paid (91,250) (129,203) Net cash from operating activities 243,745 172,332 Cash flows from investing activities Purchase of property, plant and equipment (42,550) (154,279) Payment for construction costs, excluding interest capitalised (1,954,820) (334,196) Proceeds from disposal of property, plant and equipment 21,933 16,292 Proceeds from disposal of available-for-sale investments - 28 Payment of loan receivable 16 (150,000) - Purchase of trading investments 17 (300,000) - Purchase of available-for-sale investments (1,450) (2,000) Interest received 67,089 16,747 Government grants received 186,360 - Government subsidies received 44,662 96,471 Net cash used in investing activities (2,128,776) (360,937) Cash flows from financing activities Net proceeds from issue of ordinary shares - 1,423,600 Increase in borrowings 1,484,203 356,187 Dividends paid to group shareholders (136,019) - Dividends paid to minority shareholders by subsidiaries 28 (3,684) (57,715) Contribution from a minority shareholder - 47,870 Bank deposits withdrawn/(pledged) 18 12,395 (95,494) Bank deposits expiring beyond three months 18 727,800 (827,800) withdrawn/(placed) Deposits withdrawn from/(placed with) a non-bank financial institution 200,000 (200,000) Net cash from financing activities 2,284,695 646,648 Increase in cash and cash equivalents 399,664 458,043 Movement in cash and cash equivalents At start of year 634,054 176,011 Increase 399,664 458,043 At end of year 18 1,033,718 634,054 The notes on pages 6 to 26 form an integral part of these consolidated financial statements. 32 SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 General The Company was incorporated in the People’s Republic of China (the “PRC”) as a joint stock limited liability company on 5th May 1993. The Group is principally engaged in the manufacturing of paper. The Company’s B shares and A shares were listed on the Shenzhen Stock Exchange on 26th May 1997 and 20th November 2000 respectively. The address of the Company’s registered office is as follows: No.595 Shencheng Street Shouguang City Shandong Province, PRC 2 Accounting policies The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below: (a) Basis of preparation The consolidated financial statements have been prepared in accordance with International Accounting Standards (“IAS”). This accounting basis differs in certain respects from that used in the preparation of the statutory financial statements in the PRC. The PRC statutory financial statements of the Company and its subsidiaries comprising the Group have been prepared in accordance with accounting principles and regulations applicable in the PRC. Appropriate adjustments have been made to these consolidated financial statements to conform with IAS. Differences arising from these adjustments are not incorporated in the accounting records of the Company and its subsidiaries. Apart from those accounting policies stated below, the consolidated financial statements have been prepared under the historical cost convention. (b) Change in accounting policy The Group adopted the following new IAS issued by the International Accounting Standards Committee (“IASC”) commencing from 1st January 2001: IAS 39 “Financial Instruments: Recognition and Measurement”. The change in accounting policy as a result of the adoption of the above new IAS is not required to be applied retrospectively in these financial statements. (c) Basis of consolidation The consolidated financial statements comprise the consolidation of financial statements of the Company and its subsidiaries as at 31st December 2001 and of the results for the year then ended. Subsidiaries undertakings, which are those companies in which the Group, directly or indirectly, has an interest of more than one half of the voting rights or otherwise has power to exercise control over the financial and operating policies, have been consolidated. 33 SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2 Accounting policies (Continued) (c) Basis of consolidation (Continued) Subsidiaries are consolidated from the date on which the effective control is transferred to the Group and are no longer consolidated from the date that control ceases. All significant intercompany transactions, balances and unrealised gains and losses on transactions between group companies have been eliminated. Separate disclosure is made for minority interests. Details of the Group’s subsidiaries are shown in note 34. (d) Investments in associated undertakings Investment in associated undertaking is accounted for by the equity method of accounting. An associated undertaking is an undertaking over which the Group has between 20% and 50% of the voting rights, or over which the Group exercises significant influence, but which it does not control. Unrealised gains and losses on transactions between the Group and the associated undertaking are eliminated to the extent of the Group’s interest in the associated undertaking. Equity accounting involves recognising in the consolidated income statement the Group’s share of profit or loss of the associated undertaking for the year. The Group’s interest in the associated undertaking is carried in the consolidated balance sheet at an amount that reflects its share of the net assets of the associated undertaking. Details of the Group’s associated undertaking are shown in note 12. (e) Foreign currency translation The Group maintains its books and records in Renminbi (“RMB”). Foreign currency transactions are accounted for at the applicable rates of exchange prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into RMB at the exchange rates prevailing at the balance sheet date. Exchange differences are included in the consolidated income statement. (f) Financial instruments Financial instruments carried in the consolidated balance sheet include cash and bank balances, available-for-sale investments, trading investments, receivables, payables and borrowings. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. Disclosures about financial assets and liabilities of the Group are provided in note 23. (g) Investments At 1st January 2001 the Group adopted IAS 39 and classified its investments into the following categories: (i) Trading; (ii) Held-to-maturity; and (iii) Available-for-sale. 34 SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2 Accounting policies (Continued) (g) Investments (Continued) Investments that are acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as trading investments and included in current assets. Investments with fixed maturity that management has the intent and ability to hold to maturity are classified as held-to-maturity and are included in non-current assets. Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are classified as available-for-sale; these are included in non-current assets unless management has the express intention of holding the investment for less than twelve months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in current assets. Management determines the appropriate classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis. All purchases and sales of investments are recognised on the trade date, which is the date that the Group commits to purchase or sell the asset. Cost of purchase includes transaction cost. Trading and available-for-sale investments are subsequently carried at fair value, whilst held-to-maturity investments are carried at amortised cost using the effective yield method. Realised and unrealised gains and losses arising from changes in the fair value of trading investments and of available-for-sale investments are included in the consolidated income statement in the period in which they arise. During the current year, the Group did not hold any held-to-maturity investments. (h) Operating leases Leases where a significant portion of the risks and the rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the consolidated income statement on the straight-line basis over the period of the lease. (i) Property, plant and equipment All property, plant and equipment is stated at cost less accumulated depreciation and accumulated impairment loss. Depreciation is calculated on the straight-line method to write off the cost of the assets to their residual values over their estimated useful lives as follows: Buildings 20-40 years Plant and machinery 5-20 years Land use rights are stated at cost less accumulated amortisation. Land use rights are amortised over their lease terms using the straight-line method. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gain or loss on disposal of property, plant and equipment is the difference between the net sales proceeds and the carrying amount of the relevant asset, and is recognised in the consolidated income statement. 35 SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2 Accounting policies (Continued) (i) Property, plant and equipment (Continued) Major costs incurred in restoring property, plant and equipment to their normal working condition are charged to the income statement as incurred. Improvements to property, plant and equipment are capitalised and depreciated over their expected useful lives. (j) Construction in progress Construction in progress represents factory premises under construction and production plant and machinery and other related fixed assets under installation or testing. Construction in progress is stated at cost which includes all expenditure and other direct costs, prepayments and deposits attributable to the construction and interest charges arising from borrowings used to finance the construction during the construction period. Depreciation is not provided on construction in progress until the related asset is completed for intended use and transferred to property, plant and equipment. (k) Borrowing costs Borrowing costs that are directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to be ready for their intended use or sale are capitalised as part of the costs of the assets. Interest is capitalised at the Group’s weighted average interest rate on long-term debt or, where applicable, the interest rate related to specific borrowings. Capitalisation of interest ceases when the related fixed asset is placed in service. All other borrowing costs are recognised as an expense in the period in which they are incurred. (l) Inventories Inventories are stated at the lower of cost or net realisable value. Cost is determined by the weighted average method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads, but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses. (m) Trade receivables Trade receivables are carried at original invoice amount less provision made for impairment of these receivables. Such provision for impairment of trade receivables is established if there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, discounted at the market rate of interest for similar borrowers. (n) Cash and cash equivalents Cash and cash equivalents are carried in the consolidated balance sheet at cost. For the purposes of the consolidated cash flow statement, cash and cash equivalents comprise cash on hand and deposits held at call with banks, other short-term highly liquid investments, net of bank fixed deposits with maturity over three months. 36 SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2 Accounting policies (Continued) (o) Retirement scheme obligations The Group participates in several defined contribution retirement schemes organised by the respective municipal governments where the Group operates. These plans are generally funded by payments from employees and by the relevant group companies at a total of 20% to 25% of permanent staff basic salary. The Group’s contributions to the defined contribution retirement schemes are charged to the income statement as and when incurred. (p) Government grants relating to construction of property, plant and equipment Government grants relating to the construction of property, plant and equipment are included in non-current liabilities as deferred income and are credited to the income statement on the straight-line basis over the expected useful lives of the related assets. The income is not available for distribution to shareholders. Once the income is credited to the income statement, an equivalent amount will be transferred from retained earnings to capital reserve. (q) Income taxes The charge for PRC income tax is based on the result for the year as adjusted for items which are non-taxable or non-deductible and is provided at the rates applicable to the Company and its subsidiaries. Deferred income tax is provided, using the liability method, for all temporary timing differences arising between the tax bases of assets and liabilities and their carrying values in the consolidated financial statements. Currently enacted tax rates at the balance sheet date are used to determine deferred income tax. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. (r) Revenue recognition Revenue from the sale of paper products is recognised on the transfer of ownership, which generally coincides with the time when delivery is made. Revenue from the sale of electricity is recognised when electricity is transmitted to the power grid operated by the local electric power company. Interest income is recognised on an accrual basis, taking into account the principals outstanding and the interest rates applicable. Government subsidy is recognised when there is reasonable certainty that it can be received and is included as other operating income. 37 SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3 Sales and other operating income Notes 2001 2000 RMB’000 RMB’000 Analysis of sales (a) Sale of paper products 2,314,211 2,322,116 Sale of electricity 80,396 83,430 2,394,607 2,405,546 Analysis of other operating income Government subsidies - expansion subsidy (b) 38,431 36,763 - income tax (c) 3,425 - - value-added tax refund (d) 1,134 5,785 - others 1,672 9,778 44,662 52,326 Others 7,797 8,007 52,459 60,333 2,447,066 2,465,879 (a) The Group operates only in the PRC. Business segment information is not shown as the sale of paper products accounted for more than 90% (2000: more than 90%) of the consolidated revenue and results of the Group. (b) During the year, the Company received an expansion subsidy of RMB7,142,000 (2000: nil) from the local municipal government and Wuhan Chenming Hanyang Paper Company Limited (“Wuhan Chenming”), a subsidiary company, received an expansion subsidy of RMB31,289,000 (2000: RMB36,763,000) from the Wuhan Economic and Technology Development Zone. (c) Xiangfan Chenming Copperplate Paper Company Limited, a subsidiary company, received an income tax refund relating to the year 2000 of RMB3,425,000 (2000: nil) from the local municipal government. (d)Pursuant to various circulars issued by the State Administration of Taxation and local government authorities, the Group received various types of refund on value-added tax and other local taxes paid. (e) Interest income is disclosed in note 6. 38 SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 4 Operating profit The following items have been charged/(credited) in arriving at operating profit: 2001 2000 RMB’000 RMB’000 Depreciation on property, plant and equipment (note 10) 134,878 105,821 Loss on disposal of property, plant and equipment 13,912 19,209 Unrealised loss on trading investments (note 29) 27,949 - Repairs and maintenance expenditure 31,072 17,945 Cost of inventories recognised as expense (included in cost of sales) 1,799,508 1,722,485 Operating lease rentals on property, plant and equipment 22,386 19,786 Provision/(Reversal of provision) for bad and doubtful debts 21,436 (1,511) 5 Staff costs 2001 2000 RMB’000 RMB’000 Wages and salaries 121,506 90,04 Staff welfare 19,292 17,255 Retirement schemes - defined contributions (note 22) 18,002 12,256 158,800 119,555 Average number of full time employees of the Group during the year 11,741 9,083 6 Finance costs, net 2001 2000 RMB’000 RMB’000 Interest expense on bank borrowings (128,793) (77,032) Interest expense on other loan (2,939) (2,980) Less: interest capitalised in construction in progress (note 11) 38,877 11,053 Net interest expense (note 29) (92,855) (68,959) Interest income (note 29) 67,089 16,747 Net foreign exchange loss (3,196) (1,330) Other finance charges (3,135) (2,960) (32,097) (56,502) 39 SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 7 Tax 2001 2000 RMB’000 RMB’000 Current - PRC income tax 70,291 95,722 (a) PRC income tax of the Group mainly comprises income tax of the Company and certain of its subsidiaries which are calculated at rates applicable to the relevant companies ranging from 24% to 33% (2000: 24% to 33%). (b) The Company has been exempted from paying PRC income tax for two years starting from the first year with assessable income followed by a 50% reduction in the income tax rate in the following three years. Pursuant to the approval of the Shandong Foreign Economics and Trade Committee, the Company was qualified as a Foreign Investment Advanced Technology Enterprise. As a result, the Company was granted a three year extension of the preferential tax treatment lasting to the year ended 31st December 2001. Accordingly, the preferential income tax rate applicable to the Company for both years ended 31st December 2001 and 2000 was 12%. (c) Pursuant to the approval of the Shouguang State Tax Bureau, Shandong Chenming Xinli Co-generation Company Limited, a subsidiary company, being a foreign investment enterprise, is exempted from paying PRC income tax for two years starting from the first year with assessable income followed by a 50% reduction in income tax rate in the following three years. This is the second profit-making year of the subsidiary and accordingly, no income tax has been provided. (d) Pursuant to the approval of the Hailaer local government and according to relative regulations issued by PRC Ministry of Foreign Trade and Economic Cooperation, Hailaer Chenming Paper Company Limited, a subsidiary Company, is exempted from paying PRC income tax for two years starting from the first year with assessable income followed by a 50% reduction in income tax rate in the following three years. This is the second profit-making year of the subsidiary and accordingly, no income tax has been provided. (e) The Company’s associated undertaking reported a loss for tax purposes in 2001 (2000: loss), as a result, no provision for PRC income tax has been made. (f) As a result of deferred income taxes arising on temporary timing differences to 31st December 2001 being insignificant, no deferred income tax has been recorded. 40 SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 7 Tax (Continued) (g) The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the basic tax rates applicable to the Group as follows: 2001 2000 RMB’000 RMB’000 Profit before tax 258,985 396,730 Tax calculated at tax rates of 24% (2000: 24%) 41,221 62,683 Effect of different tax rates applicable to subsidiaries 59,634 90,935 Effect of tax incentives (41,357) (42,413) Income not subject to tax (7,829) (25,257) Expenses not deductible for tax purposes 18,622 9,774 Tax charge 70,291 95,722 8 Earnings per share Basic earning per share is calculated by dividing the net profit attributable to shareholders by the weighted average number of ordinary shares in issue during the year. 2001 2000 Net profit attributable to shareholders (RMB) 149,472,000 208,600,000 Weighted average number of ordinary shares in issue 498,738,000 436,601,000 Basic earnings per share (RMB per share) 0.30 0.48 The weighted average number of shares in issue in 2000 has been adjusted to take into account the bonus issues made during the year. The company has no dilutive potential shares and as a result basic and diluted earnings per share are the same. 9 Dividend per share During the year, the Company paid dividend of RMB0.3 (2000: nil) per ordinary share totalling RMB136,019,000 (2000: nil). By a resolution passed on 23rd April 2002, the Directors recommended no payment of dividend for the year ended 31st December 2001 (2000: RMB0.3 per share, totalling RMB136,019,000). The decision is subject to approval by the shareholders of the Company in the next annual general meeting. 41 SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 10 Property, plant and equipment Buildings Plant and machinery (Note(b)) Non- Non- Production production Production production Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Year ended 31st December 2001 Opening net book amount 487,092 73,561 1,240,793 21,321 1,822,767 Transfer from construction in progress (note 11) 23,753 9,575 307,882 1,227 342,437 Additions (note (a)) 52,881 10,604 72,435 46,113 182,033 Disposals (5,273) (3,433) (24,359) (2,780) (35,845) Depreciation charge (note 4) (15,621) (3,400) (105,285) (10,572) (134,878) Closing net book amount 542,832 86,907 1,491,466 55,309 2,176,514 At 31st December 2001 Cost 617,601 107,326 1,818,925 78,678 2,622,530 Accumulated depreciation (74,769) (20,419) (327,459) (23,369) (446,016) Net book amount 542,832 86,907 1,491,466 55,309 2,176,514 At 31st December 2000 Cost 546,677 92,188 1,472,409 36,517 2,147,791 Accumulated depreciation (59,585) (18,627) (231,616) (15,196) (325,024) Net book amount 487,092 73,561 1,240,793 21,321 1,822,767 (a) Additions included property, plant and equipment amounting to RMB139,484,000 (2000: RMB97,835,000) contributed by the minority shareholders of two subsidiaries, Yasong Chenming Paper Company Limited (“Yasong Chenming”) and Wuhan Chenming Qianneng Electric Power Generation Company Limited (“Wuhan Qianneng”), as capital contributed. (b) Included in plant and machinery was RMB13,297,000 (2000: RMB17,188,000) which represented net book value of the costs incurred in respect of the upgrading of certain production facilities pursuant to an agreement entered into between the Group and an unrelated third party (the “lessor”) dated 20th June 1996 under which the Group has agreed to lease the factory premises and production facilities located in Qihe County of Shandong Province from the lessor for a period of ten years commencing from 1st July 1996. The Group has also committed to, at its own cost, upgrade such production facilities for the lessor. Such production facilities will revert to the lessor at the expiry of the lease. The costs incurred in relation to the upgrading of the production facilities were capitalised and amortised on a straight line basis over the unexpired period of the lease. In addition, the Group is required to pay an annual rental of RMB5,000,000 during the lease period. The relevant lease commitments are included in note 25. 42 SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 11 Construction in progress Construction in progress represents factory premises, plant and machinery under construction, installation or testing and is stated at cost. Borrowing costs of RMB38,877,000 (2000: RMB11,053,000), arising on financing specifically for such construction, were capitalised during the year. The actual borrowing costs are calculated at 6.00% (2000: 6.25% ) per annum on the loans used to finance the projects. During the year, completed construction in progress of approximately RMB342,437,000 (2000: RMB97,392,000) was transferred to property, plant and equipment (note 10). 12 Investment in an associated undertaking 2001 2000 RMB’000 RMB’000 Opening net book amount 19,336 19,538 Share of result before tax (514) (202) Closing net book amount 18,822 19,336 The associated undertaking, Shouguang Liben Paper Making Company Limited (“Shouguang Liben”), is an unlisted entity in which the company holds 26.4% of the equity interest. Shouguang Liben is incorporated and operates in the PRC, with its principal activities being the manufacture of paper. There was no change in the percentage of ownership interest in Shouguang Liben during the two years ended 31st December 2001 and 2000. 13 Available-for-sale investments 2001 2000 RMB’000 RMB’000 Opening net book amount 3,892 1,920 Additions 1,900 2,000 Disposals - (28) Closing net book amount 5,792 3,892 Available-for-sale investments comprise unlisted investments in the companies incorporated in the PRC in which the Group holds not more than 20% of their paid-up capital or the associated undertakings over which the Group cannot exercise significant influence. At 31st December 2001, available-for-sale investments of the Group have neither a quoted market price in an active market nor a fixed maturity, and are measured at cost less provision for impairment, if any. 43 SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 14 Inventories 2001 2000 RMB’000 RMB’000 At cost - Raw materials 287,879 260,868 Work in progress 15,020 17,683 Finished goods 161,938 301,355 464,837 579,906 15 Receivables and prepayments 2001 2000 RMB’000 RMB’000 Trade and bills receivables 896,775 584,546 Other receivables 57,561 84,202 Prepayments 137,278 145,629 Value-added tax recoverable - 24,852 1,091,614 839,229 16 Loan receivable Amount represented a short term loan to a third party entrusted by Zhongxin Industrial Bank with an annual interest rate of 10%. Zhongxin Industrial Bank has the related approved licence to conduct entrusted financing activities in the PRC. The entrusted short term loan has been repaid in full to the Company on schedule subsequent to the balance sheet date. 17 Trading investments 2001 2000 RMB’000 RMB’000 Listed investments, at fair value 272,051 - Trading investments mainly represented investments entrusted in two securities companies in the PRC. The two securities companies, namely, Xinan Securities Co., Limited (“Xinan Securities”) and Beijing Securities Co., Limited (“Beijing Securities”) hold the required licences to undertake securities trading and entrusted financing business in the PRC. The entrusted investments mainly comprised government bonds and equity securities listed on the Shanghai Stock Exchange and the Shenzhen Stock Exchange of the PRC. Details of these investments are as follows: Entrusted entities At cost Fair value Investment categories RMB’000 RMB’000 Xinan Securities 200,000 203,079 Government bonds Beijing Securites 100,000 68,972 Equity securities 300,000 272,051 44 SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 17 Trading investments (Continued) Subsequent to 31st December 2001, the investments entrusted with Xinan Securities matured; consequently the proceeds were received by the company, on 29th March 2002. 18 Cash and cash equivalents 2001 2000 RMB’000 RMB’000 Bank balances and cash 1,133,718 1,461,854 Pledged bank deposits (note 20(b)) 83,099 95,494 1,216,817 1,557,348 For the purposes of the cash flow statement, the cash and cash equivalents comprise the following: 2001 2000 RMB’000 RMB’000 Cash and cash equivalents 1,216,817 1,557,348 Less: Pledged bank deposits (note 20(b)) (83,099) (95,494) Bank deposits expiring beyond three (100,000) (827,800) months 1,033,718 634,054 The weighted average effective interest rate on short-term bank deposits was 2.25% (2000: 6.34%); and these deposits had maturities of 12 months. 19 Trade and other payables 2001 2000 RMB’000 RMB’000 Trade payables 424,336 331,698 Accrued expenses 8,559 24,333 Advances from customers and other payables 282,475 192,365 Value-added tax and other taxes payable 20,175 - 735,545 548,396 45 SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 20 Borrowings 2001 2000 RMB’000 RMB’000 Borrowings from banks and other financial institutions Guaranteed borrowings (note (a)) - Current 426,037 542,982 - Non-current 1,198,963 395,952 1,625,000 938,934 Secured borrowings - current (note (b)) 83,000 115,695 Unsecured borrowings - Current 622,637 117,595 - Non-current 374,150 42,860 996,787 160,455 2,704,787 1,215,084 Borrowings from a minority shareholder (note (c)) - Current 11,000 11,000 - Non-current 38,473 43,973 49,473 54,973 Total borrowings 2,754,260 1,270,057 Total borrowings - at fixed rates (note (d)) 2,444,056 1,154,943 - at floating rates (note (e)) 310,204 115,114 2,754,260 1,270,057 (a) Of the amounts, RMB393,020,000 were guaranteed by two unrelated PRC enterprises to whom the Group has provided cross-guarantees (note 24), and RMB1,231,980,000 were guaranteed by three unrelated PRC enterprises to whom the Group did not provide cross-guarantees. (b) The full amount (2000: RMB95,000,000) was pledged by fixed bank deposits with a total value of RMB83,099,000 (2000: RMB95,494,000) as at 31st December 2001. (c) Amount represented an unsecured loan obtained from Hong Kong Daybreak Holdings Limited, a minority shareholder of a subsidiary company, Shandong Chenming Xinli Co-generation Company Limited. Interest is charged at a rate of 5.94% per annum. The borrowing is being repaid in ten equal installments commencing from 31st December 2000, with the final payment due on 31st December 2009. (d) All fixed interest rate borrowings are charged at the rate of 5.76% (2000: 6.4%), being the effective weighted average annual rate for the year ended 31st December 2001. 46 SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 20 Borrowings (Continued) (e) Interest on borrowings at floating rates are calculated based on 1.0% to 1.5% over the London Inter-bank Borrowing Rates (2000: 1.5% to 2% over the London Inter-bank Borrowing Rates and 10% to 40% over the borrowing rates offered by the People’s Bank of China). The carrying amounts of borrowings approximate their fair values. The fair values are based on discounted cash flows using a discount rate based upon the borrowing rates which the Directors expect would be available to the Group at the balance sheet date. Maturity of borrowings: 2001 2000 RMB’000 RMB’000 Current portion 1,142,674 787,272 Between 1 and 2 years 371,470 132,492 Between 2 and 5 years 1,120,116 328,320 Over 5 years 120,000 21,973 1,611,586 482,785 Total borrowings 2,754,260 1,270,057 21 Deferred income During the year, the Company and Wuhan Chenming obtained government grants in relation to the construction of property, plant and equipment amounting to RMB158,830,000 (2000: nil) and RMB27,530,000 (2000: nil) respectively from their respective local municipal governments. The grants were recorded as deferred income in the balance sheet to be credited to the income statement on a straight-line basis over the expected useful lives of the related assets. As the related assets which are intended to be subsidised by such government grants are still under construction as at 31st December 2001, no deferred income was recognised in the income statement for the year. 22 Retirement schemes The Company and its subsidiaries participate in certain defined contribution retirement schemes organised by the respective municipal governments where the Group operates, covering all permanent staff of the Group. The Group has no obligation beyond the contributions which are calculated based on 20% to 25% (2000: 20% to 25%) of permanent staff basic salaries. The Group contributed RMB18,002,000 (2000: RMB12,256,000) in total to the schemes during the year. 47 SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 23 Financial assets and liabilities (a) Interest rate risk The interest rates and terms of repayment of borrowings of the Group are disclosed in note 20. Other financial assets and liabilities do not have material interest rate risk. (b) Credit risk The Group has no significant concentrations of credit risk. Cash is placed with large financial institutions and trade receivables are spread among a number of customers in the PRC. At 31st December 2001, the carrying amount of financial assets best represent their maximum credit risk exposures at the balance sheet date. (c) Foreign currency risk Most of the transactions of the Group were settled in Renminbi and US dollar. In the opinion of the Directors, the Group does not have significant foreign currency risk exposure. (d) Fair values The carrying amounts of the following financial assets and liabilities approximate to their fair values: bank balances and cash, pledged bank deposits, deposits with a non-bank financial institution, investments, trade receivables and payables, other receivables and payables, short-term borrowings and long-term borrowings. Information on the fair values of borrowings is included in note 20. Fair value estimates are made at a specific point in time and are based on relevant market information. These estimates are subjective in nature and involved uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in valuation methods and assumptions could significantly affect the estimates. 24 Contingent liabilities At 31st December 2001, the Group had contingent liabilities of RMB236,760,000 (2000: RMB227,550,000) in respect of cross-guarantees to banks for loans granted to two unrelated PRC enterprises. 48 SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 25 Commitments Capital commitments Capital expenditure contracted for at the balance sheet date but not recognised in the consolidated financial statements is as follows: 2001 2000 RMB’000 RMB’000 Purchase of plant and equipment 585,047 1,111,873 Operating lease commitments At 31st December 2001, the future minimum lease payments under non-cancellable operating leases in respect of warehouses, staff quarters and plant and machinery are as follows: 2001 2000 RMB’000 RMB’000 Not later than 1 year 13,423 16,310 Later than 1 year and not later than 5 years 47,000 51,269 Later than 5 years 31,631 44,972 92,054 112,551 26 Share capital Overseas Number of State-owned PRC legal Employees legal person shares shares person shares shares shares B shares A shares Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 At 31st December 1999 383,397,931 142,371 4,124 49,193 26,710 161,000 - 383,398 Issue of A shares 70,000,000 - - - - - 70,000 70,000 At 31st December 2000 453,397,931 142,371 4,124 49,193 26,710 161,000 70,000 453,398 Overseas legal person shares transferred to B shares - - - - (26,710) 26,710 - - Bonus issues (c) 45,339,793 14,237 412 4,919 - 18,772 7,000 45,340 At 31st December 2001 498,737,724 156,608 4,536 54,112 - 206,482 77,000 498,738 (a) All issued shares are fully paid with a par value of RMB1 each. The PRC legal person shares, A and B shares carry equal voting rights. (b) Apart from the A shares and B shares which are listed on the Shenzhen Stock Exchange, all the other types of shares are not allowed to be transferred unless approvals are obtained from the relevant authorities. (c) On 26th June 2001, with the approval by the shareholders of the Company in the 2000 annual general meeting, a bonus issue of 45,339,793 shares in the proportion of 1 share for every 10 shares were distributed to the shareholders of the Company. Consequently, as at 31st December 2001, the total registered number of ordinary shares of the Company was increased to 498,737,724 shares (2000: 453,397,931 shares). 49 SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL TATEMENTS 27 Capital reserves Capital reserves mainly comprise the following: (a) surplus between the appraised value of the net assets and the value of shares issued when the Company was converted from a state-owned enterprise to a joint stock limited company; (b) the placing of 115,000,000 B shares at a premium of RMB3.75 per share; (c) the placing of 70,000,000 A shares at a premium of RMB19.8 per share; and (d) contributed surplus arising from injection of capital from minority shareholders (note 30). 28 Minority interests 2001 2000 RMB’000 RMB’000 At beginning of year 563,655 382,233 Capital contributions 111,458 146,729 Share of results of subsidiaries 39,222 92,408 Dividends paid by subsidiaries (3,684) (57,715) At end of year 710,651 563,655 29 Cash generated from operations Reconciliation of profit before tax to cash generated from operations: 2001 2000 RMB’000 RMB’000 Profit before tax 258,985 396,730 Government subsidies (note 3) (44,662) (52,326) Depreciation (note 10) 134,878 105,821 Loss on disposal of property, plant and equipment 13,912 19,209 Interest income (note 6) (67,089) (16,747) Interest expense (note 6) 92,855 68,959 Share of result of an associated undertaking (note 12) 514 202 Unrealised loss on trading investments (note 4) 27,949 - Changes in working capital: - receivables and prepayments (252,834) (31,021) - inventories 115,068 (24,919) - trade and other payables 187,151 (84,361) Cash generated from operations 466,727 381,547 50 SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 30 Contributed surplus Contributed surplus represents the Group’s share of the excess amount of the fair value of assets over the amount of capital required to be injected by the minority shareholders in the establishment of subsidiaries. 31 PRC statutory reserve funds In accordance with relevant PRC regulations applicable to companies limited by shares and the Company’s Articles of Association, the Group is required to allocate its profit after tax to the following reserves: (a) Statutory common reserve fund Each year to transfer 10% of the profit after tax as reported under the PRC statutory financial statements to the statutory common reserve fund until the balance reaches 50% of the paid-up share capital. This reserve can be used to make up prior years’ losses or to increase share capital. Except for the reduction of losses incurred, any other usage should not result in this reserve balance falling below 25% of the registered capital. (b) Statutory public welfare fund Each year to transfer between 5% to 10% of the profit after tax as reported under the PRC statutory financial statements to the statutory public welfare fund which is restricted to finance capital expenditure for staff welfare facilities which are owned by the Group. The statutory public welfare fund is not available for distribution to shareholders (except in liquidation). Once the capital expenditure on staff welfare facilities has been made, an equivalent amount will be transferred from the statutory public welfare fund to the discretionary common reserve fund. (c) Discretionary common reserve fund The discretionary common reserve fund can be set up by means of appropriation from the retained profits or transfer from the statutory public welfare fund. Subject to the approval of shareholders in general meeting, the reserve can be used to make up any losses, to increase share capital or to pay dividends. The Group has not made any appropriation for the retained profits or transfer from the statutory public welfare fund to the discretionary common reserve fund. 32 Distributable profits Pursuant to PRC regulations and the Company’s Articles of Association, the profit available for distribution as dividends is determined based on the lower of the distributable profits as reported in the PRC statutory financial statements and the distributable profit adjusted according to IAS. 51 SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 33 Related party transaction (a)The following significant transaction was carried out at cost with its associated company, Shouguang Liben: 2001 2000 RMB’000 RMB’000 Sale of electricity 6,205 8,020 Included in other receivables at 31st 1,705 90 December 2001 (b) Directors’ remuneration In 2001, the total remuneration of the directors amounted to approximately RMB2,700,000 (2000: RMB1,750,000). 34 Subsidiary companies Place of incorporation Principal Attributable and operation activities equity interest Directly held by the Company Shandong Chenming Electric Power Investment 51.00% PRC Generation Holdings Company Limited holding Wuhan Chenming Hanyang Paper Company Manufacturing 50.93% PRC Limited of paper Hailaer Chenming Paper Company Limited Manufacturing 75.00% PRC of paper Shandong Chenming Paper Group Qihe Manufacturing 99.57% Linerboard Paper Company Limited PRC of paper (“Qihe Linerboard”) Yasong Chenming Paper Company Manufacturing 51.00% Limited (“Yasong Chenming”) PRC of paper pulp 52 SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 34 Subsidiary companies (Continued) Place of incorporation and Principal Attributable operation activities equity interest Indirectly held by the Company Xiangfan Chenming Copperplate Paper Manufacturing 35.79% PRC Company Limited (“Xiangfan Chenming”) of paper Chibi Chenming Paper Company Limited Manufacturing 35.79% PRC (“Chibi Chenming”) of paper Shandong Chenming Xinli Co-generation Supply of 26.01% PRC Company Limited (“Xinli Co-generation”) electricity Manzhouli Kelin Paper Development PRC Manufacturing 60.00% Company Limited (“Manzhouli Kelin”) of paper Wuhan Chenming Qianneng Electric Power PRC Supply of 25.97% Generation Company Limited (“Wuhan electricity Qianneng”) (a) The Group holds 51% of the voting rights in the following companies: Xiangfan Chenming Chibi Chenming Xinli Co-generation Manzhouli Kelin (b) All holdings are in the form of paid-up capital in the companies concerned. Yasong Chenming, Qihe Linerboard, Manzhouli Kelin and Wuhan Qianneng are companies newly established during the year, holdings in the remaining companies did not change significantly from 2000. . 53 SHANDONG CHENMING PAPER HOLDINGS LIMITED SUPPLEMENTARY INFORMATION The impact of IAS and other adjustments on the PRC statutory financial statements are as follows: Consolidated Consolidated net profit net assets for the year as at ended 31st 31st December December 2001 2001 RMB’000 RMB’000 As per the PRC statutory financial statements 142,000 3,176,670 Impact of IAS and other adjustments:- Elimination of internally generated trademark and reversal of corresponding amortisation 1,450 (7,975) Adjustment of pre-operating expenses previously written off 7,276 - Provision for bad and doubtful debts - (13,862) Reversal of revaluation surplus on property, plant and equipment and adjustment of tax charge on revaluation and depreciation 1,749 (17,132) Contributed surplus arising from capital contributed by minority shareholders (4,170) 35,962 Reclassification of government grants relating to construction of property, plant and equipment from capital reserve to - (172,851) deferred income Reversal of unrealised loss on trading investments 3,079 3,079 Others (1,912) (4,267) As restated after IAS and other adjustments 149,472 2,999,624 54 . Documents Available for Inspection 1. Accounting Statements with signatures and seals of the legal representative, Chief Accountant and person in charge of accounting affairs; 2. Original copy of the Auditors’ Report under the seal of the accounting firm and signed by and under the seal of certified accountants. 3. Originals of all documents and manuscripts of Public Notices of the Company disclosed in public in the newspapers as designated by China Securities Regulatory Commission. The Board of Directorsof Shandong Chenming Paper Holdings Limited April 23, 2002 55