深粮控股(000019)深深宝2001年年度报告（英文版）

SHENZHEN SHENBAO INDUSTRIAL CO., LTD. 2001 ANNUAL REPORT (B-SHARE) -1- Content Important Chapter 1 Company Profile Chapter 2 Abstract of Financial Highlights and Business Data Section 1 Profit Index as of the Year 2001 Section 2 Principal Accounting Data and Financial Index over Previous Three Years Ended the Report Year Section 3 Changes in Shareholders’ Equity for the Year 2001 and the Causes Chapter 3 Changes in Share Capital and Particulars about Shareholders Section 1 Changes in Shares Capital Section 1 Changes in Shares Capital Section 3 Particulars about Shareholders Chapter 4 Particulars about Directors, Supervisors and Senior Executives and Staff Section 1 Particulars about the directors, supervisors and senior executives Section 2 About Stuff Chapter 5 Administrative Structure Section 1 Company Administration Section 2 Performance of Independent Directors Section 3 Separation between the Company and its Control Shareholder in terms of Business, Personnel, Assets, Organization and Finance. Section 4 Performance Valuation, Encouragement and Binding Mechanism for Chapter 6 Particulars about Shareholders’ General Meeting Chapter 7 Report of the Board of Directors Section 1 Operation Section 2 Investment Section 3 Financial Position Section 4 Impact from production and operation environment, macro-policies, laws and regulations on the Company Section 5 Operation Plan for the year 2002 Section 6 Routine Work of the Board of Directors -2- Section 7 Profit Distribution Preplan for the Year 2001 Section 8 Estimated Profit Distribution Policy for 2002 Chapter 8 Report of the Supervisory Committee Chapter 9 Significant Events Section 1 Material Lawsuits and Arbitration Section 2 Purchase and Sales of Assets Section 3 Material Related Transaction Section 4 Material Contract and the Implementation Section 5 Commitment Section 6 Engagement and Disengagement of Certified Public Accountants Section 7 Miscellaneous Chapter 10 Financial Report Section 1 Report of the Auditors Section 2 Accounting Statements (attachment) Section 3 Notices of Accounting Statements Documents available for reference -3- Important: Board of Directors of Shenzhen Shenbao Industrial Co., Ltd. (hereinafter referred to as the Company) and directors individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions or errors which would render any statement misleading. This report has been prepared in Chinese version and English version respectively. In the event of difference in interpretation between the two versions, the Chinese version shall prevail. -4- Chapter 1 Company Profile I. Legal Name of the Company In Chinese: 深圳市深宝实业股份有限公司 In English: SHENZHEN SHENBAO INDUSTRIAL CO., LTD. (Abbr.: SB) II. Legal Representative: Mr. Lin Jiahong III. Secretary of Board of Directors: Mr. Liu Xiongjia Liaison Address: 28/F, B and C Block of Bao’an Plaza, No. 1002 Sungang East Road, Shenzhen Tel: (86)755-5507480 Fax: (86)755-5507480 E-mail: a0019@21cn.com IV. Registered Address of the Company: No.1058 Wenjin North Road, Luohu District, Shenzhen Office Address of the Company: 28/F, B and C Block of Bao’an Plaza, No. 1002 Sungang East Road, Shenzhen Post Code: 518020 Internet Web Site: http://www.szsb.com.cn E-mail: szsbsy@cmmail.com V. Newspapers Chosen for Disclosing the Information of the Company: Securities Times (Domestic), Ta Kung Pao (Overseas) Internet Web Site for Publishing the Annual Report: http://www.cninfo.com.cn Place Where the Annual Report is Prepared and Placed: Secretariat of the Board of Directors VI. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: SHENSHENBAO – A, SHENSHENBAO-B Stock Code: 000019, 200019 VII. Other Relevant Information of the Company The initial registration date and place: July 30, 1981, Shenzhen -5- The changed registration date and place: June 26, 2001, Shenzhen Registration code for business license of corporation: 4403011024443 Number of taxation registration: GSDZ 440301192180754 Registration code: DSDZ 440303192180754 Name of the domestic certified public accountants engaged by the Company: Shenzhen Dahua Tiancheng Certified Public Accountants Address: 11/F., B Block of Confederation Square, No. 5022 Binhe Av. Futian Dis. Shenzhen Name of the overseas certified public accountants engaged by the Company: K.C.Oh & Company Certified Public Accountants Address: 8/F., New Henry House, No. 10 Ice House Street, Central, Hong Kong Chapter 2 Abstract of Financial Highlights and Business Data Section 1 Profit Index as of the Year 2001 I.Profit index of the year 2001 Unit: RMB ’000 Items Amount Profit before taxation (1,476) Profit held by shareholders (3,387) Operation profit (7,087) Other profit 9,404 Net cash flows arising from operating activities (8,802) Net increase in cash and cash equivalents 76,973 II. Discrepancy and explanation for the difference in the net profit as audited by domestic and international certified public accountants respectively. Net profit of the Company as of 2001 was respectively RMB 11,382,000 and (RMB 3,387,000) as audited under Chinese Accounting Standard (CAS) and International Accounting Standard (IAS). Difference between the two results was due to (RMB 4,501,000) provisions for devaluation of workshops and machine facilities; (RMB 3,842,000) provisions for devaluation of construction in progress; (RMB 2,244,000) offset of land use right; (RMB 6,000,000) losses of intending guaranteed loan; RMB 1,818,000 taxation of previous year. Section 2 Principal Accounting Data and Financial Index over Previous Three Years -6- Ended the Report Year (Unit: RMB ’000) Items 2001 2000 1999 Turnover 64,086 75,141 75,721 Net profit (3,387) 3,294 21,758 Total assets 402,677 421,587 465,586 Shareholders’ equity 338,842 286,204 285,413 Earnings per share (RMB) (0.0187) 0.0198 0.1305 Earnings per share (weighted average) (0.0187) 0.0198 0.1305 (RMB) Net assets per share (RMB) 1.863 1.717 1.712 Return on net assets (%) (1.00) 1.15 7.62 Section 3 Changes in Shareholders’ Equity for the Year 2001 and the Causes (Unit: RMB ’000) Share Capital public Surplus public Undistributed Items Total capital reserve reserve profit Amount at beginning 166,708 51,219 38,936 29,341 286,204 of the report period Increase in the report 15,215 57,481 1,707 3,022 77,425 period Decrease in the report 3,022 21,765 24,787 period Amount at end of the 181,923 108,700 37,621 10,598 338,842 report period Increase: share Withdrawal of Withdrawal of allotted and Premium price surplus public statutory Share increase in profit Reason of changes of share reserve, decrease welfare funds, allotment Decrease: allotment in current surplus distribution of distribution of reserve dividends dividends Chapter 3 Changes in Share Capital and Particulars about Shareholders Section 1 Changes in Shares Capital -7- 1. Changes of shares (Ended Dec. 31, 2001. Unit: In shares) At before of Increase / decrease this time (+, -) At after of the change Shares Bonus Shares transferred Additional Others Sub-total the change allotment shares from public reserve issuance I. Unlisted shares 1. Promoters’ shares 109,842,086 5,996,525 5,996,525 115,838,611 Including: State-owned shares 99,942,086 5,996,525 5,996,525 105,938,611 Domestic juristic person’s share 9,900,000 9,900,000 Foreign juristic person’s share Others 2. Raised juristic person’s shares 3. Employees’ share 4. Shares held by senior executives 5,964 1,788 1,788 7,752 5. Preference shares or others Total unlisted shares 109,848,050 5,998,313 5,998,313 115,846,363 II. Listed shares 1. RMB ordinary shares 30,723,634 9,217,091 9,217,091 39,940,725 2. Domestically listed foreign shares 26,136,000 26,136,000 3. Overseas listed foreign shares 4. Others Total listed shares 56,859,634 9,217,091 9,217,091 66,076,725 III. Total shares 166,707,684 15,215,404 15,215,404 181,923,088 Section 2 Particulars about the Share Issuance Over Previous Three Years Ended the Report Year Share allotment plan examined and approved by 1998 Shareholders’ General Meeting, Extraordinary Shareholders’ General Meeting dated Sep. 25, 1999 and 1999 Shareholders’ General Meeting has been examined by Shenzhen Securities Supervisory Office with document SZB Zi [1999] No.188, and approved by China Securities Supervisory Committee with document ZJGS Zi [2000] No. 54. Rights shares were distributed to all shareholders based on total share capital as at the end of 1998, 166,707,684 shares, at the rate of 3 for 10 with par value of RMB 1.00 per share and placing price of RMB 5.00 per share. Equity record date was Dec. 21, 2000, ex-right date was -8- Dec. 22, 2000, subscription payment commenced from Dec. 25, 2000 to Jan. 8, 2001 (business date within the period). In the share allotment, Shareholders of state-owned share subscribed 5,996,525 shares, the rest shares were given up; shareholder of juristic person’s share and shareholder of domestically listed foreign share given up this share allotment, thus, 15,215,404 shares RMB ordinary shares were actually placed in the said share allotment activity. RMB 76,077,000 proceeds were raised from the share allotment all in cash. After deducting the underwriting expenses and charges of SSE, actual proceeds raised from the share allotment reached RMB 73,993,000 (including agency charges and business trip expenses) and all of them were transferred to the designated accounts of the Company. 9,218,879 shares were listed for trade dated Feb. 8, 2001. Section 3 Particulars about Shareholders 1. Ended the report year, the Company had totally 28,993 shareholders, including 22,799 shareholders of A-share, 6,194 shareholders of B-share. 2. Ended Dec. 31, 2001, particulars about shares held by the top ten shareholders Number of holding Proportion in No. Name of Shareholder shares at end of total Shares Types report year (%) 1 SHENZHEN INVESTMENT HOLDING 105,938,611 58.23 State – owned shares CORPORATION 2 CHINA PING AN INSURANCE CO., 9,900,000 5.44 Juristic person’s share LTD. 3 XIAO LI ZHU 240,000 0.13 B-share in circulation 4 TAN ZHOU QUAN 238,960 0.13 A-share in circulation 5 JIANG YAN YU 234,200 0.13 A-share in circulation 6 FENG XIU LI 233,123 0.13 A-share in circulation 7 WANG YU LAN 233,100 0.13 A-share in circulation 8 XU ZHUANG GUO 231,384 0.13 B-share in circulation 9 ZHANG WEI JUN 205,890 0.11 A-share in circulation 10 WONG HOI KNAN 200,000 0.11 B-share in circulation Notes: A. Shenzhen Investment Holding Corporation (hereinafter referred to as the Investment -9- Company) transferred 58,347,695 shares and its 3,500,771 rights shares of the Company to Shenzhen Agricultural Products Co., Ltd. (hereinafter referred to as the Agricultural Products), whose procedures were still in process by the end of the report year. After the assignment, the Agricultural Products shall hold 61,848,466 shares of the Company, taking 34% of the total shares, as the first principal shareholder of the Company (the Agricultural Products had became the actual control shareholder of the Company); the Investment Company shall still hold 44,090,145 shares of the Company, taking 24.24% of the total shares, become the second principal shareholder of the Company. The Company shall disclose the progress of the procedure timely and truly. B. In the report year, there was neither pledge nor frozen on the shares held by the shareholders holding more than 5% of the total shares of the Company. C. Shenzhen Investment Holding Corporation holds 4,758,581 shares of Shenzhen Agricultural Products Co., Ltd., covering 2.57% of the total shares of the Agricultural Products, and it was the fifth principal shareholder of the Agricultural Products. D. The third principal shareholder to the tenth principal shareholder all are shareholders in circulated shares of the Company, and the change in shareholding of them was due to transaction of the Company’s shares in the secondary market. 3. Particulars about actual control shareholders of the Company (1) Name of actual control shareholder: Shenzhen Agricultural Products Co., Ltd. Legal representative: Mr. Lin Jiahong Date of foundation: Jan. 14, 1989 Main business and product: the company was engaged in construct market of agricultural products wholesale; deal in market lease and sale; domestic trading, supply and marketing of materials (excluding monopoly products); and offer auxiliary establishment to market of agricultural products wholesale, for instance, rest house, canteen, restaurant, transportation, load and unload, storage, packing (business license of specific item is to be applied in addition); service of information counseling, and wholesale of sugar, tobacco and drink. Registration capital: RMB 184,857,000 Structure of share equity: Ended Dec. 31, 2001, particulars about shares held by the top ten shareholders of the Agricultural Products: Number of holding Proportion in No. Name of Shareholder shares at end of total Shares Types report year (%) - 10 - 1 Shenzhen Commodity Trade and 49,279,988 26.658 State – owned shares Investment Holdings Co. 2 Shenzhen Social and Labor Insurance Co. 7,328,724 3.965 Juristic person’s share 3 Guangzhou Railroad Group Guangshen 7,328,724 3.965 Juristic person’s share Railroad Industrial Development Corporation 4 Shenzhen Huantong Agricultural Products 4,928,724 2.666 Juristic person’s share Co., Ltd. 5 Shenzhen Investment Holding Corporation 4,758,581 2.547 State – owned shares 6 Jiangsu Fuel Corporation 3,254,800 1.761 Juristic person’s share 7 Guoxin Securities Co., Ltd. 2,622,182 1.418 Share in circulation 8 Shenzhen Bao’an District Investment 2,400,000 1.298 Juristic person’s share Holding Corporation 9 Tongsheng Securities Investment Fund 1,500,210 0.812 Share in circulation 10 Guangdong Securities Co., Ltd. 1,208,042 0.653 Share in circulation (2) Shenzhen Commodity Trade and Investment Holdings Co., the first principal shareholder of the Agricultural Products Legal representative: Mr. Feng Yulin Date of foundation: Apr. 30, 1997 Main business and product: investment and setting up of industry (specific item is to be applied in addition); domestic trading, supply and marketing of materials (excluding monopoly products) Registration capital: RMB 800,000,000 Structure of share equity: state-owned sole corporation (3) Shenzhen Investment Holding Corporation Legal representative: Mr. Li Heihu Date of foundation: Feb. 10, 1988 Main business and product: Management and supervision of enterprise’s state assets, financing and property right; to share all kinds of enterprise and turn over investment, to offer credit and assurance; to impose profit after taxation and occupying expenses of assets of state enterprise and the other business authorized by municipal government. Registration capital: RMB 2,000,000,000 Structure of share equity: state-owned sole corporation Chapter 4 Particulars about Directors, Supervisors and Senior Executives and Staff - 11 - Section 1 Particulars about the directors, supervisors and senior executives I. Basic status Number of holding shares (share) Name Gender Title Date of birth Office term At beginning of At end of the the report year report period Lin Jiahong Male Chairman of the Board Jul., 1945 Feb. 18, 2000 – 0 0 Feb. 18, 2003 Zeng Pai Male Director, Oct., 1971 May 17, 2001 – 0 0 General Manager Feb. 18, 2003 Xue Bo Male Director Feb., 1959 Feb. 18, 2000 – 0 0 Feb. 18, 2003 Yang Male Director, Jun., 1962 Feb. 18, 2000 – 0 0 Shunjiang Party Secretary Feb. 18, 2003 Guan Lihua Male Director, May, 1954 Feb. 18, 2000 – 0 0 Deputy General Manager Feb. 18, 2003 Zhao Guorong Female Director Jul., 1951 Feb. 18, 2000 – 0 0 Feb. 18, 2003 Chen Xiaohua Male Director Mar., 1966 Feb. 18, 2000 – 0 0 Feb. 18, 2003 Tian Yanqun Male Director Jul., 1947 Feb. 18, 2000 – 0 0 Feb. 18, 2003 Chen Lei Male Director Feb., 1965 Feb. 18, 2000 – 0 0 Feb. 18, 2003 Li Meisheng Male Chairman of Supervisor Dec., 1942 Feb. 18, 2000 – 0 0 Committee Feb. 18, 2003 Zuo Heping Female Supervisor, Secretary of Oct., 1950 Feb. 18, 2000 – 5908 7680 Commission for Feb. 18, 2003 Discipline Inspection Peng Ying Male Supervisor Aug., 1961 Feb. 18, 2000 – 0 0 Feb. 18, 2003 Xie Zhenxian Male Supervisor Apr., 1955 Feb. 18, 2000 – 0 0 Feb. 18, 2003 Tang Guangzao Male Deputy General Manager Dec., 1959 Feb. 18, 2000 – 0 0 - 12 - Feb. 18, 2003 Fang Jianhui Male Deputy General Manager Jun., 1966 Feb. 18, 2000 – 0 0 Feb. 18, 2003 Sui Longchu Male Chief Engineer Sep., 1942 0 0 Luo Jiehua Female Chairman of labor union Jul., 1948 55 71 Liu Xiongjia Male Secretary of the Board of Jan., 1972 0 0 Directors Notes: (1) Increase of shares held by Supervisor Ms. Zuo Heping and Chairman of Labor Union Ms. Luo Jiehua were due to the Company’s previous shares allotment. (2) Particulars about directors, supervisors holding the post in Shareholder Company a. Chairman of the Board of the Company Mr. Lin Jiahong holds the post of Chairman of the Board and Party Secretary of Shenzhen Agricultural Products Co., Ltd., with office term from Jun. 2000 to Jun. 2003. b. Director of the Company Mr. Xue Bo holds the post of Minister of Industry No. 2 Department c. Director of the Company Ms. Zhao Guorong holds the post of Director and Chief Financial Supervisor of Shenzhen Agricultural Products Co., Ltd., and office term from Jun. 2000 to Jun. 2003. d. Director of the Company Mr. Chen Xiaohua holds the post of Director and Secretary of the Board of Directors of Shenzhen Agricultural Products Co., Ltd., with office term from Jun. 2000 to Jun. 2003. e. Supervisor of the Company Mr. Peng Ying holds the post of Minister of the Human Resource Department of Shenzhen Agricultural Products Co., Ltd.. f. Supervisor of the Company Mr. Xie Zhenxian holds the post of General Manager of Shenzhen Fruitage and Vegetable Trade Co., which is subsidiary company of Shenzhen Agricultural Products Co., Ltd.. II. Particulars about the annual pay of directors, supervisors and senior executives In the report year, directors, supervisors and senior executives received payment from the Company according to Provisional Regulation on Annual Salary of Operator of Shenzhen State-owned Enterprise, released by Shenzhen Municipality Government and other the relevant regulation, as well as other rules relevant to salary management and standards. There are 17 directors, supervisors and senior executives in the Company, 10 of them - 13 - received their payment from the Company totally amounting to RMB 763,000.00 (including base payment, all kinds of bonus, welfare, subsidy, housing and others subsidy). 3 persons enjoy their annual salary RMB 100,000 to RMB 110,000, 6 persons enjoy RMB 70,000 to RMB 80,000, 1 person enjoys under RMB 40,000. Amount of salaries of the top three directors was RMB 271,000; amount of salaries of the top three senior executives was RMB 211,000. In the report year, Chairman of the Board Lin Jiahong, Directors Ms. Zhao Guorong, Mr. Chen Xiaohua, and Supervisors Mr. Peng Ying, Mr. Xie Zhenxian received no pay from the Company, but received pay from Shenzhen Agricultural Products Co., Ltd. (the actual control shareholder of the Company). Director Mr. Xue Hui received no pay from the Company, but received pay form Shenzhen Investment Holding Corporation (the actual second principal shareholder of the Company). Director Mr. Chen Lei received pay form Shenzhen Pepsi Drink Co., Ltd.. In the report year, Independent Director Mr. Tian Yanjun received no pay form the Company because the Board of Directors of the Company has not studied out pay of independent director. III. In the report year, changes in directors, supervisors and senior executive As resolved in the 4th meeting of the 4th Board of Directors of the Company, Ms. Yuan Xueping resigned the post of Director and General Manager and Mr. Zeng Pai was engaged to take the post recommended by shareholders of the Company. (For detail, please refer Public Notice on Resolution of the 4th meeting of the 4th Board of Directors published on Securities Times and Ta Kung Pao dated Apr. 17, 2001 and Public Notice on Resolution of 2000 Shareholders’ General Meeting published on Securities Times and Ta Kung Pao dated May 18, 2001). As resolved in the 6th meeting of the 4th Board of Directors of the Company, Mr. Chen Lei resigned the post of Chief Financial Supervisor due to work transfer. (For detail, please refer Public Notice on Resolution of the 6th meeting of the 4th Board of Directors published on Securities Times and Ta Kung Pao dated Dec.13, 2001) Section 2 About Staff Ended 2001, there were totally 519 staff members registered in the Company. - 14 - Profession/occupation composition Education Background Profession Number Proportion Education Background Number Proportion (%) (%) Production members 224 43.16 Postgraduate or higher 4 0.77 Sales persons 58 11.17 Undergraduate 42 8.09 Technicians 45 8.67 3-years regular college 44 8.48 graduate Financial personnel 24 4.62 Polytechnic school 14 2.70 graduate Administrative 101 19.46 Senior middle school 415 79.96 personnel and others graduate or lower Work-off personnel 67 12.19 519 100 Total Total 519 100 By the ended the report year, there were totally 130 retirees; Shenzhen Social Insurance Bureau paid them relevant expenses. Chapter 5 Administrative Structure Section 1 Company Administration The Company strictly implements the PRC Company Law, the Securities Law and other laws and regulations issued by CSRC and Shenzhen Stock Exchange; continuously improves the legal person administration system and operates the Company in a standardized way. Details are set out as follows: 1. Shareholders and Shareholders’ General Meeting: The Company operates in accordance with relevant standards, practically safeguard the interests of small or medium shareholders, and ensures full rights of all shareholders. The Company calls and holds shareholders’ general meeting strictly in compliance with the rules for shareholders’ general meeting 2. Relationship between the control shareholder and the public Company: control shareholder of the public Company operates in line with rules, without intervening decision or operation of the public Company directly or indirectly exceeding authority of the shareholders’ general meeting. The Company is absolutely independent in personnel, assets, finance, organization and business from its control shareholder. The Board of Directors, the Supervisory Committee and the management perform their respective functions in an independent way. 3. Directors and the Board of Directors: The Company has elected directors strictly according to the Articles of Association, decided to further perfect the election procedure and practice accumulative voting system. Numbers and qualification of Board members are in compliance with requirements of laws and regulations. The Company has established the Rules of - 15 - Procedures of Board of Directors; all directors attended the Board meetings and shareholders’ general meeting in a positive and responsible manner, and implemented the responsibility of public company carefully and strictly. 4. Supervisors and the Supervisory Committee: Numbers and qualification of Supervisory Committee members are in compliance with requirements of laws and regulations. The Supervisory Committee has established the Rules of Procedures of the Supervisory Committee. The supervisors have 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 laws and regulations. 5. Relevant Beneficiaries: The Company has been fully respecting and safeguarding the legal rights and interests of the banks and other creditors, staff, consumers and other parties of related interests; developed the Company in a consistent and healthy way. 6. Information Disclosure: The Company has authorized the secretary of the Board of Directors to take charge of disclosing information, receiving the visit and inquiry of the shareholders. The Company has been disclosing the relevant information in a real, accurate, complete and timely way strictly according to the law, regulations and the Articles of Association, ensured all the shareholders to have equal opportunity to obtain the information. Section 2 Performance of Independent Directors Mr. Tian Yanqun, independent director of the Company, attended every Board meeting (three times in total) in the report period, in which Mr. Tian actively expressed his subjective, fair, scientific and independent opinion on the Company’s issues like strategic development, investment and lawsuits. His opinion played an important role in a scientific, subjective and rational decision made by the Company. The Company will establish and improve the independent director system before June 30, 2002 according to Guiding Opinion on Establishing Independent Director System in Listed Company promulgated by CSRC. Section 3 Separation between the Company and its Control Shareholder in terms of Business, Personnel, Assets, Organization and Finance. 1. In term of business: The Company is completely independent from the control shareholder in business and has independent and complete business and autonomous operation capacity. The Company owned independent purchase and sales system. Purchasing Dept. and Marketing Dept. is respectively responsible for purchasing all raw resources and distributing products. R & D, production, purchase and distribution departments are separate from each other. The Company has already been independent juristic person operating in the market. 2. In term of personnel: (1) The Company is absolutely independent in the management of labor, personnel and salaries. Office and production sites are different from those of the control shareholder. There is no such situation of operating and working together with control shareholder. (2) General manager, deputy general manager, financial supervisor, secretary of the Board - 16 - and other senior executives work for the Company in full time and draw salary from the Company, without taking concurrent position in the control shareholder enterprises. (3) The control shareholder recommends directors according to relevant legal procedures. All personnel resolution made in Board meetings and shareholders’ general meetings may be effectively carried out. There is no such situation that the control shareholder intervenes the personnel engagement of the Company. 3. In term of assets: The Company is totally independent from its control shareholder in term of assets and operates completely independent. The Company not only possesses independent production system, auxiliary production system and complementary facilities, but also enjoys such intangible assets as industrial property right, trademark, non-patent technology, etc. 4. In term of finance: (1) The Company has independent financial department, independent and complete accounting system and financial management system. (2) The Company makes financial decision independently without interfere of its control shareholder. (3) The Company has independent bank account without depositing fund into accounts of the control shareholder, financial company or settlement center controlled by related parties 4) The Company pays the duties in compliance with laws. Section 4 Performance Valuation, Encouragement and Binding Mechanism for Senior Executives The Company values the performance of its senior executives based on relevant index and standards, the valuation result is recorded in the personnel files and decides the welfare and engagement of the one. Chapter 6 Particulars about Shareholders’ General Meeting In the report period, the Company held one shareholders’ general meeting, which was the annual shareholders’ general meeting 2000. I. April 17, 2001, the Company published Announcement on Holding Shareholders’ General Meeting 2000 on Securities Times and Hong Kong Ta Kung Pao, declaring the date of the Meeting as May 17, 2001 and items on agenda. II. May 17, 2001, the Company held its shareholders’ general meeting 2000 in conference room on 1/F of the Company’s building addressed No. 1058 Wenjin Rd. N., Luohu Dis., Shenzhen. Six shareholders/shareholder’s proxies attended the meeting representing 166,201,904 shares (including 105,988,646 A shares and 213,258 B shares), taking 58.38% of total share capital of the Company. Following resolutions were examined and approved item by item by means of signed votes: 1. 2000 Report of Board of Directors; 2. 2000 Report of the Supervisory Committee; 3. 2000 Financial Settlement Report”; 4. 2000 Profit Distribution Preplan; - 17 - 5. 2001 profit Distribution Policy; 6. 2000 Annual Report and its summary; 7. Proposal on Engaging Auditors for 2001; 8. Proposal on Changing Directors. Since Ms. Yuan Xueping applied for resignation from the position of director, the Board elected Mr. Zeng Pai to take her place, to be director of the Company’s fourth Board in compliance with provisions in Articles of Association of the Company. III. Public Notice of 2000 Shareholders’ General Meeting of the Company was published in Securities Times and Hong Kong Ta Kung Pao dated May 18, 2001. Chapter 7 Report of the Board of Directors Section 1 Operation I. Main business lines and operation 1. Main business lines: production of food can, beverage and local special products; domestic trade and material logistics; and import and export business. 2. Main business of the Company was under the classification of food and beverage industry. In the report period, the Company realized a sales revenue of RMB 61,185,000, gross profit of RMB 12,044,000. Income and profit from main business lines classified according to product types: Unit: RMB’000 Main products Sales revenue Gross profit “San Jing” brand condiments 21,754 7,649 Soft drinks 26,878 (1,473) 3. Sales of production rendering over 10% of sales revenue Sales revenue Sales cost Gross profit Main products (RMB’000) (RMB’000) rate “San Jing” brand condiments 21,754 14,104 35.16 Soft drinks 26,878 28,351 (5.48) 4. Main business lines and the structure experienced no major changes in the report period. II. Business Operation and Achievement of Company’s Main Holding Subsidiaries and Share-holding Companies 1. Shenzhen Shenbao San Jing Food & Beverage Development Co., Ltd.: the Company holds total equity of this company, whose registered capital is RMB 25,000,000, legal representative is Mr. Lin Liqun. Business scope of the company: production and sales of - 18 - beverage, non-stamp foodstuff, and food additive (excluding limited items). As of the end of the report period, total assets of the company reached RMB 120,140,000. In the year 2001, the company realized sales revenue of RMB 3,614,000 and net profit of RMB 66,000. 2. Shenzhen Shenbao Industrial and Trade Development Company: as a sole-owned subsidiary of the Company, the Company has a registered capital of RMB 5,000,000 and legal representative as Mr. Fang Jianhui. Business scope of the company: food can, beverage, condiment and relevant packaging materials, raw and supplementary materials. As of the end of the report period, total assets of the company reached RMB 14,030,000. In the year 2001, the company realized sales revenue of RMB 2,059,000 and net profit of (RMB 5,152,000). 3. Shenzhen Pepsi Cola Beverage Co., Ltd.: the Company holds 40% equity of the Company, whose registered capital is RMB 5,000,000 and legal representative is Mr. Lin Jiahong. Business scope of the company covers production and sales of soda beverage represented by Pepsi Cola in districts of Shenzhen, Huizhou, Shantou and Meizhou, etc. III. Major Suppliers and Customers In the report period, the calculated purchase amount to the top five suppliers accounts for 65% of the Company’s total purchase amount, while the calculated sales amount to the top five customers accounts for 26.9% of the Company’s total sales amount. IV. Problems, Difficulties and Solutions Occurred during Company’s Operation 1. Personnel structure of the Company is not favorable; proportion of professionals in the total personnel is relatively low; qualification of the personnel expects more improvement, all of which partially because of the lack of establishment of perfect and effective encouraging system, human resource development and management system. Under the macro circumstances of steady development in domestic economy and confronting opportunities as well as challenges of China’s entrance of WTO, human resources is the key elements in the new round of competition. It is well known that competition of the market economy is actually the competition of personnel. Therefore, the Company will carry out reform on its personnel engagement and distribution system, introduce and train the professionals for the Company’s development based on the principal of “personnel is not only the resources but also the most valuable assets”. 2. Soft drinks produced by the Company are mainly sold in Shenzhen and its circumjacent areas. Summer is the midseason for sales of beverage, so sales revenue in summer accounts for high proportion in the total revenue. But From July to September 2001, it was raining persistently in Shenzhen and its circumjacent areas, which impose great impact on the Company’s soft drinks sales. With hard work on market promotion, the Company minimum the reduction in sales revenue of the soft drinks comparing with that as of the same period of previous year. - 19 - 3. Added-value of the beverage product is quite low and the competition of the beverage industry is fairly keen. Production cost of the Company’s soft drinks is continually high because its packing, LILE package, is patent product. In addition, partial products of the Company have been suffering long-term deficits. Hence, the Company decided to eliminate some unprofitable and outdated products types and instead, to produce natural and healthy acidophilus milk and tea series drinks. 4. San Jing brand condiments represented by oyster sauce are main products of the Company and enjoys high profitability, being well sold in areas of east and north of China, Hong Kong and Macao. But it is difficult for the Company to improve the sales of condiments because of the limited production scale. Given such situation, the Company decided to increase the production proportion of condiments availing the opportunity of plant relocation, so to realize scale production with scale merit. Section 2 Investment In the report period, the Company invested totally RMB 15,600,000 in the project of Henggang new plant of Shenzhen Pepsi Cola Beverage Co., Ltd. (details of the company refers to section 1 of this chapter), an increase of RMB 2,400,000 over RMB 13,200,000 as of the previous year, or 18.18%. I. Application of Proceedings Raised through Share Offering Particulars about application of proceedings previously raised Unit: RMB’000 Investment project committed in Investment amount committed Actual Progress Memorandum in Memorandum investment Henggang new plant of Shenzhen 29,000 15,606.4 53.82 Pepsi Cola Beverage Co., Ltd. Shenbao Commercial City 58,000 There are RMB 58,386,700 proceedings deposited in the bank without using. Henggang new plant of Shenzhen Pepsi Cola Beverage Co., Ltd.: since the previous share allotment was prolonged for over half a year, progress of this project was accordingly adjusted. The Company has invested RMB 15,606,400 in the project based on the adjusted plan. This project is under administration and operation of Shenzhen Pepsi, whose net profit as of 2001 amounted to RMB 28,042,000. Shenbao Commercial City : since the previous share allotment was prolonged for over half a year, progress of this project was accordingly adjusted. As of the end of the report period, - 20 - there is no investment input in the project. II. The Company has no material investment project with non-raised proceedings in the report period. Section 3 Financial Position K. C. Oh & Company Certified Public Accountants issued standard overseas Auditors’ Report without reserved opinion in the report period, details as follows: 1. Total assets as at the end of the report period reached RMB 402,677,000, a decrease of 4.49% over that as at the end of the previous period amounting to RMB 421,487,000. The decrease was mainly due to the redemption of bank loan and bonus distribution for 2000. 2. The Company had no long-term liabilities in the report period. 3. Shareholders’ equity as at the end of the report period reached RMB 338,842,000, an increase of 18.39% over that as at the end of the previous period amounting to RMB 286,204,000. The increase was mainly due to the share allotment. 4. Gross profit as of this year reached RMB 12,944,000, an increase of 5.41% over that as at the end of the previous period amounting to RMB 12,280,000. The increase was mainly due to reduction in cost. 5. Net profit as of this year reached (RMB 3,387,000), a decrease of 2.82 % over that as at the end of the previous period amounting to RMB 3,294,000. The decrease is mainly due to the allotment of provisions for devaluation. Section 4 Impact from production and operation environment, macro-policies, laws and regulations on the Company After China’s joint to WTO in Nov. 2001, China will further perfect its regulations and laws relevant to food industry, and open its domestic food industry pursuant to provisions in WTO entrance documents. It will promote the internationalization of its food industry through introducing more foreign capital, technology and management mode. On one hand, tariff of farm products, major raw materials for food, will be lessened by great margin after the WTO entrance, which results in the reduction in purchase cost of raw materials, also production cost of the Company. Moreover, tariff of complete equipments will be continually lessened, which reduces the investment cost in fixed assets. It is beneficial for the Company to introduce advanced production equipments, improve the grade of the equipment and control method, and increase the packaging and product quality. Furthermore, members of WTO enjoys the national treatment, which is beneficial to the export and - 21 - development of international market for the Company. Lastly, China’s WTO entrance speeds up the internationalization of its food industry, which helps the Company to increase its market competitive consciousness and management level. On the other hand, after China’s WTO entrance, international food enterprises will participate in China’s market and international food will also enter the market, which will further increase the keen competition in the food industry. As a result, the Company will confront severe challenges in terms of existence and development. What’s more? The market demand for higher security and healthy standards becomes more and more strict, and meanwhile, demand for the Company’s production and management level become higher. According to international recognition, food manufacturers can earn the complete trust only after gaining three certifications, namely, ISO 9000 certification in term of management, HACCP certification in term of security and health, ISO 14000 certification in term of environmental protection. China’s entrance to WTO renders both challenges and opportunities for the food industry. The Company will conduct in-depth research on various issues in aspects of industry and commerce, security and health, as well as technical supervising, etc. relevant to WTO requirement; analysis the changes in production and sales of food and beverage in the market home and abroad; enthusiastically take part in the market competition, developing its advantages while discarding its disadvantage, meanwhile availing opportunities brought by the WTO entrance. In addition, the Company resolves to further perfect its management system, reinforce its internal management, strictly implement the ISO9002 Qualification Management System Standards, actively promote HACCP and ISO 14000 Standards, so as to enhance its competitiveness and increase its anti-risk ability in the market. Section 5 Operation Plan for the year 2002 I. To practice the brand development strategy, the Company will make great efforts in forming two famous brand “San Jing” (condiments series products) and “Shen Bao” (dairy products and soft drinks). It will reinforce its marketing group and increase the marketing investment, so to enhance the market share. Also, it will carry out a varied marketing strategy and explore the Hong Kong and international market availing the positive opportunities rendered by China’s WTO joint. II. Based on thorough research and scientific analysis, the Company will reinforce its technical reform and innovation, develop new models, gradually adjust its products mix, play great importance on following three series products: 1. Condiments series products represented by oyster sauce; - 22 - 2. Dairy series products represented by acidophilus milk; 3. Natural and healthy drinks represented by tea drinks. III. The Company will further perfect its financial management system, cement the management on purchasing, so to minimize the operation cost and expenditures. IV. The Company will improve its consciousness of production and qualification management as well as secure production, ensure the normal productive and operative activities of the Company, and strive for the upgrade of ISO 9000 certificate to 2000 version. V. The Company will implement the reform on personnel engagement and rewards, bearing the principal of flexibility and rewards binding with devotion. Moreover, it will reinforce the training and preparing of personnel, realize the full potentiality of the personnel. It will also establish a more flexible personnel engagement system, which makes it possible for qualified youth to take leading position; establish and improve the binding system and maximize the usage effectiveness of human resource. VI. The Company will expedite its reform on enterprise regulations, truly realize its administration innovation, regulation innovation, mechanism innovation and system innovation, introduce the completive, motive and encourage systems into the Company, so to develop and update the Company continually. VII. The Company will do its best to versatile the retained assets and to carefully settle the historical issues or contingent liabilities. Section 6 Routine Work of the Board of Directors I. Board meetings and resolutions in the report year, In 2001, the Board of Directors had held three board meetings: 1. The 4th meeting of the 4th Board of Directors was held on May 12, 2001. The meeting examined and adopted following resolutions: (1) 2000 Work Report of the Board of Directors; (2) 2000 Financial Settlement Report; (3) 2000 Profit Distribution Preplan; (4) 2001 Profit Distribution Policy; (5) 2000 Annual Report and its summary; (6) Proposal on Engaging Auditors for 2001; (7) Proposal on Changing Directors; (8) Proposal on Engagement and Disengagement of Senior Executives; (9) Proposal on Holding 2000 Shareholders’ General Meeting. The aforesaid resolutions were published in Securities Times and Hong Kong Ta Kung Pao respectively dated May 17, 2001. 2. The 5th meeting of the 4th Board of Directors was held on Aug. 16, 2001. Following resolutions were examined and approved in the meeting: - 23 - (1) 2001 Interim Report and its summary (for A and B shares respectively); (2) 2001 Interim Profit Distribution Plan. The aforesaid resolutions were published in Securities Times and Hong Kong Ta Kung Pao respectively dated Aug. 18, 2001. 3. The 6th meeting of the 4th Board of Directors was held on Dec. 12, 2001. Following resolutions were examined and approved in the meeting: (1) Proposal on Changing Certified Public Accountants; (2) Proposal on Relocation of Major Functional Department of the Company’s Headquarter (3) Proposal on Disengagement of Mr. Chen Lei from the Position of Financial Supervisor. The aforesaid resolutions were published in Securities Times and Hong Kong Ta Kung Pao respectively dated Dec. 13, 2001. II. Implementation of the Resolutions of the Shareholders’ General Meeting by the Board of Directors: In the report year, the Board of Directors had carefully implemented all the resolutions adopted by the Shareholders’ General Meeting strictly according to the resolutions and authorization of the Shareholders’ General Meeting with the details as follows: 1. Profit Distribution in 2000: the Company distributed the cash dividend to the whole shareholders at the rate of RMB 1 for every 10 shares (including tax) based on the Company’s total share capital of 166,707,684 shares as at Dec. 31, 2000. Distributed cash dividend totaled RMB 16,671,000. Record date for A share and last transaction date for B share was July 3, 2001. 2000 profit distribution was totally completed o July 9, 2001. (For details, please refer to Public Notice on 2000 Dividend Distribution published in Securities Times and Hong Kong Ta Kung Pao). 2. Implementation of the Previous Share Allotment 1999 Share Allotment Plan of the Company was agreed by CSRC Shenzhen Administrative Office with “SZBZ [1999] No. 188 Document”, and approved by CSRC with “ZJGSZ [2000] No. 54 Document”. The Company published Notice on Share Allotment Approval on Securities Times and Hong Kong Ta Kung Pao dated May 31, 2000. Influenced by the dispute case in regard to “Contract on Joint Establishment on Shenbao Commercial City ” and the complementary agreements signed between the Company and Shenzhen Jitai Investment Co., Ltd. (the case has been successfully settled on Aug. 18, 2000 and the details refers to Public Notice of Board of Directors on Securities Times and Hong Kong Ta Kung Pao dated Aug. 22, 2000), 2000 shares allotment was prolonged to start from Dec. 7, 2000, when the Share Allotment Memorandum 2000 was published in Securities Times and Hong Kong Ta Kung Pao. Feb. 8, 2001, 9,218,879 negotiable rights shares were listed with Shenzhen Stock Exchange for circulation. Total rights shares issued amounted to 15,215,404 shares, including 5,996,525 shares subscribed by shareholders of state-owned shares, 9,217,091 shares subscribed by shareholders of A share and 1,788 shares subscribed by senior executive shareholders. Proceedings raised from the allotment totaled RMB 76,077,000 in cash and after deducting expenditures for underwrite and procedure, total proceedings amounted to RMB 73,993,000, which has reached the designated accounts. Notice on the aforesaid event was published in Securities Times and Hong Kong Ta Kung Pao dated Jan. 20, 2001. Section 7 Profit Distribution Preplan for the Year 2001 Audited by Dahua Tiancheng Certified Public Accountants according to Chinese Accounting - 24 - Standards and K.C. Ho & Company Certified Public Accountants according to International Accounting Standards, net profit of the Company as of the year 2001 was RMB 11,382,000 and (RMB 3,387,000) respectively. Pursuant to relevant regulations in Company Law and Articles of Association of the Company, net profit as audited by Dahua Tiancheng Certified Public Accountants will be chosen as the basis, 10% of which is to allotted as statutory public reserve amounting to RMB 1,138,000 and 5% of which is to allotted as statutory welfare fund amounting to RMB 569,000. In addition to RMB 1,075,000 retained profit carried down from the previous year (after adjustment), profit attributable for shareholders amounts to RMB 10,750,000. The Company decides to distribute cash dividend to the whole shareholders at the rate of RMB 0.5 for every 10 shares (including tax) based on the total share capital as at the end of 2001 181,923,088 shares (dividend for B shares is converted into HK dollar at the interim HKD to RMB rate prevailing on the first business date of the Bank of China after the resolutions date of the Shareholders’ General Meeting 2001). Total distributed bonus totales RMB 9,096,000 and the remaining RMB 1,654,000 is carried down to the next year. The aforesaid preplan is subject to 2001 Shareholders’ General Meeting of the Company for further discussion. Section 8 Estimated Profit Distribution Policy for 2002 Estimated profit distribution policy for 2002 is as follows: (1) The Company plans to conduce profit distribution once for 2002; (2) No less than 10% of net profit realized in 2002 and no less than 10% of retained profit as of this year will be distributed. (3) The dividend will take the form of cash or bonus share or both. Concrete profit distribution plan for 2002 is subject to the resolution of the Shareholders’ General Meeting based on proposal submitted by the Board considering the Company’s actual situation. Board of Directors reserves the right to adjust the profit distribution policy according to the Company’s development and profitability as of the year. Chapter 8 Report of the Supervisory Committee I. Particulars about work of the Supervisory Committee in the report period In 2001, the Supervisory Committee had held two meetings, examined and adopted following resolutions: 1. The 4th meeting of the 4th Supervisory Committee was held on May 12, 2001, whose items on agenda was as follows: (1) 2000 Work Report of the Supervisory Committee; (2) 2000 Annual Report and its summary; (3) 2000 Financial Settlement Report; (4) 2000 Profit Distribution Preplan; (5) 2001 Profit Distribution Policy. The aforesaid resolutions were published in Securities Times and Hong Kong Ta Kung Pao respectively dated May 17, 2001. 2. The 5th meeting of the 4th Supervisory Committee was held on Aug. 16, 2001. Following resolutions were examined and approved in the meeting: 2001 Interim Report and its summary (for A and B shares respectively); (1) Neither interim profit distribution nor capital public reserve transferring into share capital. - 25 - The aforesaid resolutions were published in Securities Times and Hong Kong Ta Kung Pao respectively dated Aug. 18, 2001. II. Independent opinion of the Supervisory Committee on certain issues 1. Operation According to the Law The Supervisory Committee conducted supervision over the procedures of holding Board meetings, rules of procedures, implementation of the resolutions of the Shareholders’ General Meeting by the Board of Directors, status of the senior executives in implementing their duties and the Company’s management system. In our opinion, in 2001, the Board of Directors carried out the operation in a standardized way strictly according to the PRC Company Law, the Securities Law, the Listing Rules, the Articles of Association and other relevant rules and regulations. The directors have been working seriously and with responsibility and made operation decision in a scientific and reasonable way. They have further improved the internal management and control system, established good internal control mechanism. We have found no directors or senior executives ever involved in any actions against the law, rules and regulations, or the Articles of Association or harmful to the Company’s interest. 2. Financial Inspection We have made careful inspection of the Company’s financial system and financial position. In our opinion, the Company’s financial report of the year 2001 has truly reflected the Company’s financial position and operation achievements. The auditors’ report and the auditors’ opinion on the relevant issues produced by Dahua Tiancheng Certified Public Accountants and K.C. Oh & Company Certified Public Accountants are objective and fair. 3. Committed investment project funded by the latest proceedings is the same as the commitment. 4. In the report period, the Company’s purchase and sale of assets have been conducted in a fair and reasonable way and there has existed no insider transaction or action harmful to the shareholders’ right or interest or in connection with loss of the Company’s assets. 5. In the report period, the Company had no material related transaction and conduct no action harmful to the interest of the Company. 6. Implementation of resolution of the Shareholders’ General Meeting by the Board of Directors Supervisory Committee of the Company attended the Board meetings and shareholders’ general meetings as non-voting delegates; it inspected the implementation of resolution of the Shareholders’ General Meeting by the Board of Directors. In the opinion of the Supervisory Committee, the Board of Directors carefully implements all resolutions of the Shareholders’ General Meeting by the Board of Directors. Chapter 9 Significant Events Section 1 Material Lawsuits and Arbitration I. Material lawsuits occurred in the report period 1. On July 1, 1997, the Company provided guarantee for Shenzhen Nanfang Tongfa Industrial Company (hereinafter called Nanfang Tongfa) concerning its applying to Shenzhen - 26 - Commercial Bank (former Shenzhen Municipal Cooperative Commercial Bank, hereinafter called “Commercial Bank”) for a loan of RMB 30 million, with the guarantee period of one year (from August 29, 1997 to August 28, 1998). Until June 20, 2000, Nanfang Tongfa didn’t repay the capital of RMB 30 million and the according interest of RMB 6,164,000 to the Commercial Bank. On July 17, 2000, the Commercial Bank submitted the litigation to Shenzhen Municipal Intermediate People’s Court (hereinafter called “Shenzhen Court”), applying to the court to order first-mentioned defendant Nanfang Tongfa to immediately repay its loan capital and interest of RMB 36,164,000 and the interest from June 21, 2000 until the date of payment. As the second-mentioned defendant, the Company undertakes the joint guarantee responsibility. Meanwhile, the defendant is judged to undertake the case’s lawsuit expense. On November 9, 2000, the Company received [2000 SZFJTCZ No. 205 summons] from Shenzhen Court, and Shenzhen Court decided to open the court to hear the above case dated November 15, 2000. The notice of the above issue was published on Securities Times and Ta Kung Pao respectively on November 11, 2000. With reference to the dispute case of the delayed payment of RMB 30 million loan that Nanfang Tongfa got from Commercial Bank, in which the Company is the guarantor, the Company received the paper of civil judgment “(2000) SZFJTC No. 205” from Shenzhen Court on January 15, 2001. The judgment is as follows: A. The defendant Nanfang Tongfa should pay off the loan capital RMB 30 million, its interest and overdue interest (calculated as per the interest rate stipulated by the People’s Bank of China from the date of actual loan issuing until the date of payment, deducting the paid interest) owed to the plaintiff Commercial Bank within 15 days after this paper takes the legal effect. In case of delay, it will pay double the delayed debt interest as per regulation of the civil law. B. The defendant Shenbao Co. undertakes the joint liquidation responsibility for Nanfang Tongfa to repay the Commercial Bank the above loan capital and interest. After Shenbao Co. undertakes the guarantee responsibility; it has the right to recourse to Nanfang Tongfa. Nanfang Tongfa will be responsible for the case’s acceptance and hearing fee RMB 191,000 and property attachment fee RMB 181,000 (Commercial Bank already prepaid the amount, which will not be returned, and the defendant Nanfang Tongfa should pay directly to the plaintiff Commercial Bank within 10 days after this paper takes the legal effect.) If the plaintiff or defendant disobeys the judgment, within 15 days after the judgment paper is delivered, it can submit the appealing to Shenzhen Court and provide the copy based on the number of the other party, appealing to Guangdong Provincial People’s Superior Court. - 27 - In view that: A. The loan contract signed between Nanfang Tongfa and Commercial Bank has stated the loan is used as the working capital, but actually it is borrowing new amount before repaying the old amount. Obviously, both the debit and credit have hidden the truth to the Company, causing the Company to make the wrong decision. According to the law, the main contract and accessory contract are both invalid. The company is not necessary to undertake the joint responsibility. B. The provisions about the guarantee period as specified in Article 11 of the Guarantee Contract have been revised but without official seal stamped on the revision. This means the commercial bank has not accepted the revised provisions. It can only be considered that these provisions have not been clarified. According to the stipulation of the Guarantee Law, the guarantee period of the guarantor is 6 months. If the creditor doesn’t claim its right, the guarantor will release its guaranteeing responsibility. In summary, the Company should be released of the joint responsibility. Therefore, the Company disobeys the judgment and already submitted the appealing to Shenzhen Court and appealed to Guangdong Provincial Superior People’s Court. The notice of the above issue was published in Securities Times and Ta Kung Pao respectively on January 18, 2001. Guangdong Provincial Superior People’s Court has not made final judgment on the case till the end of the report period. II. Other lawsuits 1. Dec. 18, 2001, Shenzhen International Trust Investment Company (hereinafter called International Trust), Shenzhen Tellus (Group) Co., Ltd. (hereinafter called Tellus) and the Company reached a settlement agreement in regard to the dispute case of the delayed payment of RMB 50 million loan that Tellus got from International Trust, in which the Company was the guarantor: principal and interest of the old loan RMB 5,000,000 was transferred into new loan amounting to RMB 5,280,000. That is, International Trust and Tellus signed a Transferred Loan Constrict, still with the Company as guarantor. In the Agreement it was stated that Tellus repaying the principal and interest before Dec. 31, 2001. Till the end of the report report, Tellus has not repaid the principal and interest of the loan. 2. June 1, 2001, Nantou Branch of Shenzhen Development Bank (hereinafter called Development Bank), Shenzhen Lionda Holdings Co., Ltd. (hereinafter called Lionda) and the Company reached a executive agreement in regard to the dispute case of the delayed payment of RMB 60 million loan that Lionda got from Development Bank, in which the Company was the guarantor: principal and interest of the old loan RMB 60 million was transferred to new loan of HKD 50 million, still with the Company as guarantor. Interest, penalty interest, lawsuits expense, executive cost and partial principal totaling HKD 10 million was paid by the Company for Lionda. - 28 - 3. Nov. 7, 2001, Zhenhua Rd. Shenzhen Branch of Guangdong Development Bank, (hereinafter called Development Bank), Shenzhen Lionda Holdings Co., Ltd. (hereinafter called Lionda) and the Company reached a settlement agreement in regard to the dispute case of the delayed payment of RMB 80 million loan that Lionda got from Development Bank, in which the Company was the guarantor: the Company paid RMB 10 million interest for Lionda, and the remaining principal and interest was transferred into new loan with the Company as guarantor. 4. For the case of the delayed payment of RMB 70 million loan that Shenzhen China Bicycle Group Co., Ltd. (hereinafter called China Bicycle) got from Shenzhen Branch of Construction Bank (hereinafter called Construction Bank), the Company undertook the joint liquidation responsibility pursuant to (1998) SZFJYCZ No. 131 Civil Judgment issued by Shenzhen Medium People’s Court. Till the end of the report period, the judgment has not been carried out. 5. June 1996, the Company provided guarantee for China Bicycle concerning its applying to Shenzhen Branch of Bank of China for LC of USD 8 million. China Bicycle failed to take its duties, the Company was jointly liable for the liquidation pursuant to (1999) YFJYZZ No. 26 Civil judgment issued by Guangdong Superior People’s Court as well as the implementing order issued by Shenzhen Medium People’s Court. Till the end of the report period, the court ruling has not been carried out. Note: With reference of the above litigations arisen from its historical guarantee provided for other companies, the Company made every effort to find the solutions; actively apply to the authorities and relevant departments for understanding and support, which relieve the litigation and implementation pressure of banks and courts. Presently, Lionda and China Bicycle were undertaking reorganization. In case of success of the reorganization, it is beneficiary for the Company to break away from the obsession of aforesaid lawsuits. Section 2 Purchase and Sales of Assets Dec. 2001, the Company assigned its land use right of a piece of land with land series number G08511-4(4), covering a area of 6466.1 sq. m. and locating in Heao Village, Henggang County, Longgang Dis.. The assignment was carried out at the price of RMB 500 per sq. m., totally RMB 3,232,000. Relevant land use right transfer procedure has been completed now. This transaction rendered the Company RMB 1,884,000 profit, taking 14.17% of total annual profit and imposed no material influence on the Company’s production, operation and financial situation. The said event has been published on Securities Times and Ta Kung Pao dated Dec. 7, 2001. - 29 - Section 3 Material Related Transaction The Company conducted no material transaction with its related parties in the report period. Section 4 Material Contract and the Implementation 1. Entrustment, contracting and lease 2. Material guarantee The Company provided no material guarantee for others in the report period. 3. Entrusted financing The Company has no entrusted financing in the report period. 4. Progress of the unfinished material contract (1) Dec. 26, 1999, the Company signed Cooperation Contract on Property Construction and the accessory Agreement with Shenzhen Maoye (Group) Co., Ltd. (hereinafter called Maoye), in which it was agreed that two parties cooperate to develop the land covering a area of 42, 945.6 sq. m. locating in Wenjin Rd.N., Shenzhen (present address of the Company). According to provisions in the accessory Agreement, the Company may receive totally RMB 146,280,000 subsidy in installation. The Company need to help Maoye to carry out procedures in connection with the property construction and sales, but was free from the construction cost and sales income. Till Dec. 31, 2001, the Company has gained totally RMB 14 million subsidy from the cooperated land development, of which RMB 25,029,300 was received in the year 2001. The unpaid subsidy totaling RMB 6,280,000 is to be settled in lump-sum payment when the projects goes into construction. (2) Pursuant to Agreement reached by Maoye Jitai Investment Co., Ltd. (Jitai) and the Company on Aug. 18,2 001, all rights and liabilities of Jitai as stipulated the original Agreement with the Company was undertook by Maoye. Till now, the Company has prepaid land development expenses, municipality government facility expenses and assignment cost for land use right totaling RMB 34,483,600 for Maoye, who were liable to repaying the Company by the end of 2002 as stated in the accessory agreement. (For details of aforesaid issues, please refer to the previous annual reports, relevant Public Notice in Securities Times and Hong Kong Ta Kung Pao dated Dec. 11, 1997, May 15, 2000, June 10, 2000 and Aug. 22, 2000, ect.). 5. Miscellaneous (1) Dec. 1998, the Company provided guarantee for Lionda concerning its HIK 3,000,000 - 30 - loan from Futian Shenzhen Branch of Industrial and Commercial Bank of China (hereinafter called Industrial and Commercial Bank). The guarantee period was from Dec. 30, 1998 to June 30, 1999. Lionda failed to repay the loan on time. May 18, 2000, the Industrial and Commercial Bank entrusted Shenzhen Tong Da Law Firm to send a Layer’s Letter to the Company. Presently, the above event has not be brought to court. (2) Dec. 1998, the Company provided guarantee for Lionda concerning its HIK 3.2 million loan from Shenzhen Branch ofl Bank of China (hereinafter called Bank of China). The guarantee period was from Dec. 31, 1998 to Oct. 31, 1999. Lionda failed to repay the loan on time. June 1, 2000, the Bank of China issued the collection notification on overdue loan. Presently, the above event has not be brought to court. (3) Lionda is conducting liability reorganization at present. In case of success in the reorganization, it is possible for the Company to be free from the guarantee liability. Section 5 Commitment In the Company’s Shareholders’ General Meeting 2000, Profit Distribution Policy for the year 2001 was examined and approved, whose details is as follows: Pursuant to Circular on Certain Issues in connection with Disclose of 2000 Shareholders’ General Meeting of Listed Company issued by CSRC in the afternoon of Nov. 27, 2001, the Company decided its profit distribution policy for 2001: (1) Distribution plan The Company planned to conduct one profit distribution for 2001 and to be implemented within 6 months after the end of fiscal year of 2001. (2) Distribution proportion 10% to 60% net profit realized in 2001 and 10% to 60% retained profit as of 2000 would be distributed as dividend. (3) Dividend form: the profit would be distributed in the form of cash or bonus share or the combination. Concrete profit distribution for 2001 is subject to resolution of the Shareholders’ General Meeting proposed by the Board of Directors based the actual situation of the Company. The Board of Directors reserves its rights to adjust the policy considering the actual development and profitability of the Company. With reference of the above resolutions and the actual financial status of 2001, 2001 profit distribution preplan adopted in the 7th meeting of the 5th Board is to be submitted ot the shareholders’ general meeting for examination. If it is approved, the said plan is to be carried out. - 31 - Section 6 Engagement and Disengagement of Certified Public Accountants May 17, 2001, Proposal on Engaging Auditors for the Company in 2001 was examined and approved in the Company’s Shareholders’ General Meeting 2000, in which it was decided to reengage Shenzhen Zhongtianqin Certified Public Accountants as domestic auditor and reengage Horwath International Certified Public Accountants as international auditor for the Company in 2001. Dec. 12, 2001, Proposal on Changing Certified Public Accountants was examined and approved in the 6th Meeting of the 4th Board of Directors, in which it was decided to disengage Shenzhen Zhongtianqin Certified Public Accountants and Horwath International Certified Public Accountants due to the problems of Certified Public Accountants. Instead, the Company engaged Shenzhen Dahua Tiancheng Certified Public Accountants as domestic auditor and K.C.Ho & Company Certified Public Accountants as international auditor for the Company in 2001. The proposal is subject to 2001 Shareholders’ General Meeting for examination and approval. Remuneration paid to Certified Public Accountants in recent two years: Unit: RMB’000 2001 Financial audit fee Other fee Notes Shenzhen Dahua Tiancheng 200 -- Certified Public Accountants K.C.Ho & Company Certified 180 -- Public Accountants 2001 Financial audit fee Other fee Notes Shenzhen Zhongtianqin Certified 200 -- Public Accountants Horwath International Certified 180 -- Public Accountant Section 7 Miscellaneous I There were no such situation occurred in the report period that the Company, its directors or its Board of Directors were inspected or disciplinarily sanctioned or publicly criticized by CSRC or Shenzhen Stock Exchange. II. After the previous share allotment, registered capital of the Company as at June 26, 2001 was changed to RMB 181, 923, 000. - 32 - Chapter 10 Financial Report I. Report of the auditors Report of the auditors to the members of Shenzhen Shenbao Industrial Co., Ltd. (Incorporated in the People’s Republic of China) We have audited the financial statements, which have been prepared in accordance with International Accounting Standards. Respective responsibilities of directors and auditors The Company’s directors are responsible for the preparation of financial statements that give a true and fair view. In preparing financial statements that give a true and fair view, it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion, based on our audit, on those statements and to report our opinion to you. Basis of opinion We conducted our audit in accordance with International Standards on Auditing issued by the International Federation of Accountants. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company’s and the Group’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we consider necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion. Fundamental uncertainty In forming our opinion, we have considered the adequacy of the disclosures made in the financial statements concerning the contingent loss the Company may have to suffer in respect of the guarantees it has given to various companies that have defaulted the banks. The court has ruled that the Company is jointly liable to repay various bank loans on maturity but has not enforced any of its rulings to date. The defaulting companies are continuing to negotiate with the banks for settlement of the outstanding loans so that the guarantors may not have any eventual loss. Details of the circumstances relating to this fundamental - 33 - uncertainty are described in note 23 to the financial statements. The Company’s directors are responsible for the disclosure and possible results of the issue and our opinion is not qualified in this respect. Opinion In our opinion the financial statements give a true and fair view of the financial position of the Group as at December 31, 2001 and the results and cash flows of the Group for the year then ended. K. C. Oh & Company Certified Public Accountants Hong Kong: February 22, 2002 II. Financial Statements attachment 1. Consolidated profit and loss accounting statement 2. Consolidated balance sheet 3. Consolidated cash flow statement III. Notes to Financial Statements (RMB ’000) 1. General information Shenzhen Shenbao Industrial Co., Ltd. (the “Company”), formerly a state-owned enterprise incorporated in the People’s Republic of China (“PRC”) in 1975, obtained approval from the Shenzhen Municipal People’s Government to reorganize to a company limited by shares in 1991. On the approval of the People’s Bank of China, Shenzhen Branch, the Company issued A shares and B shares. They are listed on the Shenzhen Stock Exchange and carry equal rights. The Company is principally engaged in investment holding and the principal activities of its principal subsidiaries include manufacture and trading of food products and beverages. 2. Basis of presentation The consolidated financial statements have been prepared in accordance with the International Accounting Standards (“IAS”) issued by the International Federation of Accountants. These accounting standards differ from those used in the preparation of the PRC statutory financial statements, which are prepared in accordance with the PRC Accounting Standards. To conform to IAS, adjustments have been made to the PRC statutory financial statements. Details of the impact of such adjustments on the - 34 - net asset value as at December 31, 2001 and on the operating results for the year then ended are included in note 26 to the financial statements. 3. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and of its subsidiaries (the “Group”) made up to December 31 each year. Except for those subsidiaries not consolidated for the reasons stated below, all significant inter-company transactions and balances within the Group have been eliminated on consolidation. (a) Subsidiaries A subsidiary is a company in which the Company holds, directly or indirectly, more than 50% of the equity interest as a long-term investment and/or has the power to cast the majority of votes at meetings of the board of directors/management committee. As at December 31, 2001, the Company held the following subsidiaries, all of which were incorporated in the PRC: i) Subsidiaries consolidated Effective Year of equity held Company name registration by the Company Principal activities Shenzhen Shenbao Industrial 1989 100% Trading and wholesaling Trading & Development Co., Ltd. Shenzhen Shenbao Properties 1998 100% Property management of Management Co., Ltd. Group’s properties Shenzhen Shenbao Bioproducts 1998 100% Manufacture of healthy Co., Ltd. food and additives, etc. Shenzhen Shenbao Tri-well Food & 1998 100% Manufacture of soft drinks, Beverage Co., Ltd. canned food and additives, etc. ii) Subsidiaries not consolidated Effective Year of equity held Company name registration by the Company Principal activities Chaozhou Shenbao Development 1993 70% Property development Co., Ltd. Shenzhen Shenbao Fruit Juice 1994 70% Fruit juice Co., Ltd. The board of directors is of the opinion that the above subsidiaries not consolidated are not fully put into operation and their operating results and net assets have no significant effect on the Group. Therefore, they have not been included in the consolidation. The investments in the above companies are accounted for at cost less provision for diminution in value. - 35 - (b) Associates An associate is a company in which the Company holds, directly or indirectly, not less than 20% and not more than 50% equity interest as a long-term investment and is able to exercise significant influence on this company. The investments in associates are accounted for by the Group using the equity method of accounting. The associates held by the Company as at December 31, 2001 are shown in note 12 to the financial statements. 4. Summary of significant accounting policies (a) Turnover Turnover represents the proceeds from the sales of goods, net of returns, discounts and sales tax, supplied to customers outside the Group. Turnover and profit of the Group are from the manufacture and sale of soft drinks and food products. (b) Fixed assets and depreciation Fixed assets are stated at cost or valuation less accumulated depreciation. Depreciation of fixed assets is provided using the straight-line method over the estimated useful lives, taking into account the estimated residual value of 5% of the cost or revalued amount, as follows: Plant and buildings 5-40 years Machinery and equipment 12 years Motor vehicles 9 years Furniture, fixtures and office equipment 6 years Construction-in-progress - Construction-in-progress represents the factory and office buildings under construction and is stated at cost. This includes costs of construction, machinery and furniture as well as interest charges and exchange differences arising from borrowings that are used to finance the construction during the construction period. No depreciation is provided on construction-in-progress prior to its completion. Land use rights are amortized on a straight-line basis over 50 years. (c) Deferred assets Deferred assets are amortized on a straight-line basis over their estimated useful lives. The estimated useful lives are as follows: Pre-operating expenses 5 years Others 5 years (d) Investments - 36 - Long-term investments are stated at cost less provision for permanent diminution in value whilst short-term investments are stated at the lower of cost and market value or net realizable value. (e) Cash and cash equivalents Cash and cash equivalents are short-term, highly liquid investments that are readily available to known amounts of cash and which are subject to an insignificant risk of changes in value. (f) Revenue recognition Revenue from the sale of goods is recognized when the risks and rewards of ownership of the goods are transferred to customers. Income from services is recognized when it is probable that the economic benefits associated with the transaction will flow to the Group, the stage of completion of the transaction can be measured reliably and the costs incurred and expected to be incurred for the transaction can be measured reliably. (g) Inventories Inventories are valued at the lower of cost (using weight-average method) and net realizable value.Cost comprises direct materials, direct labor cost and an appropriate portion of overheads. Net realizable value is calculated as the estimated selling price less all further costs of production and the related costs of marketing, selling and distribution. (h) Foreign currency translation The financial statements are expressed in Renminbi. Transactions in foreign currencies are translated at the rates prevailing at the date of transactions. Monetary assets and liabilities in foreign currencies are translated at the rates prevailing at the balance sheet date. Exchange differences that are attributable to the translation of foreign currency borrowings for the purpose of financing the construction of factory and office buildings, plant and machinery and other major fixed assets for periods prior to their being in a condition to enter into services are included in the cost of the fixed assets concerned. Other exchange differences are dealt with in the profit and loss account. (i) Deferred taxation Deferred tax assets and liabilities are calculated using the liability method. Liabilities arising from timing differences, which are probable to be crystallized in the foreseeable future, are recognized as deferred tax liabilities. Deferred tax assets are not recognized. - 37 - 5. Other revenue 2001 2000 RMB’000 RMB’000 Profit from co-operation in land development project 25,029 18,990 Profit from transfer of land use rights 1,884 1,396 Profit from transfer of shares - 2,800 Profit from transfer of equity investments 2,274 18,735 Transfer from VAT of local-product-local-sale 2,017 2,705 Consultancy fee income 626 - Rental income less direct outgoings 206 3,515 Other income 365 - 32,401 48,141 Profit from co-operation in land development project: (1) Pursuant to the contract and the supplementary agreement signed between the Company and Shenzhen Moye (Group) Co., Ltd. (“Moye”) on December 26, 1999, the Company and Moye would develop a land of 42,945.6 square meters in Wenjin Road North, Shenzhen, on which the Company’s premises are located. In accordance with the terms defined in the supplement agreement, the Company would receive land compensation income in installments arising from such co-operation at a total consideration of RMB146,280,000. The Company would assist Moye in relevant legal procedures for the construction and the sale of the properties. The costs of construction and the proceeds from the sale of such properties were irrelevant to the Company. (2) In addition, pursuant to the agreement signed amongst the Company, Moye and Jitai Investment Co., Ltd. (“Jitai”) on August 18, 2000, all rights and obligations of Jitai previously agreed with the Company would be transferred to Moye. Up to present, the Company has paid a total sum of RMB34,484,000 on acquiring land use rights, land development and other related costs for and on behalf of Moye. Pursuant to the supplementary agreement, the aforesaid sum will be settled by Moye by the end of 2002 and is now included in others receivable. Profit from transfer of land use rights: The Company had transferred the land use rights for land with area of 6,466.1 square meters at Heao Village, Henggang Town, Shenzhen to other companies. The consideration was RMB3,233,000 and the profit was RMB1,884,000 after deduction of the direct cost and other tax expenses in the amount of RMB1,349,000. 6. Profit/loss before taxation 2001 2000 RMB’000 RMB’000 Profit/loss before taxation has been arrived at: - 38 - after charging : Provision for impairment loss of fixed assets 27,367 - Loss on disposal of fixed assets - 29 Amortization of deferred assets 520 268 Provision for impairment loss of associates 1,815 - Provision for impairment loss of other investments 3,127 - Provision for obsolete inventories - 511 Provision for bad debts - 8,281 Depreciation 8,240 16,931 Interest expense 4,108 7,457 Exchange loss 1 - and after crediting : Profit from transfer of land use rights 1,884 1,396 Reversal of provision for obsolete inventories 3,330 - Reversal of bad debt provision 1,427 - Interest income 326 232 Exchange gain - 5 7. Taxation PRC income tax is determined by reference to the profit reported in the audited financial statements under PRC Accounting Standards, and after adjustments for income and expense items that are not assessable or deductible for income tax purposes. It is provided at the rate of 15% on the estimated assessable income for the year. 8. Earnings/loss per share The calculation of the basic earnings/loss per share is based on the current year’s loss of RMB3,387,000 (2000 - profit of RMB3,294,000) attributable to the shareholders and on the weighted average number of 181,506,228 shares (2000 - 166,707,684 shares) in issue during the year. - 39 - 9. Fixed assets Plant & Land Machinery Motor buildings use rights & equipment vehicles office RMB’000 RMB’000 RMB’000 RMB’000 Cost/valuation As at January 1, 2001 45,216 41,649 90,589 11,984 Additions 7,250 - 73 199 Reclassification - - 642 - Disposals - ( 21,056) - - As at December 31, 2001 52,466 20,593 91,304 12,183 Accumulated depreciation As at January 1, 2001 ( 20,589) - ( 58,437) ( 9,401) Additions ( 1,538) ( 664) ( 4,994) ( 893) Reclassification 190 - 1,286 1,519 Impairment loss provision ( 5,308) ( 2,244) ( 16,580) - As at December 31, 2001 ( 27,245) ( 2,908) ( 78,725) ( 8,775) Net book value As at December 31, 2001 25,221 17,685 12,579 3,408 As at December 31, 2000 24,627 41,649 32,152 2,583 The Group’s fixed assets were revalued by Shenzhen Assets Valuation Office on July 31, 1991. All of them were appraised on the replacement cost ba reserves. (1) Land use rights for land of 81,524 square meters located at Henggang Town, Shenzhen : These have a useful life of 50 years up to December 2043 a described in note 25. (2) Land use rights for land of 3,000 square meters located at the center of Longgang Town, Shenzhen : This piece of land is for commercial use and has a use rights have a useful life of 70 years up to February 2063 and their entitlement was due to an exchange of land use rights for land located at Huaq taken back by the local government. (3) Land use rights for land on which the Company’s premises are located : These were granted free by the government before establishment of the Shenzh Company had paid the amount for acquisition of land use rights of 48,353.6 square meters with a valid use period of 70 years up to March 2069. The of land would be developed by a real estate company. The amount of acquisition of land use rights previously paid would be recovered from the real es - 41 - 10. Deferred assets Pre-operating expenses Others Total RMB’000 RMB’000 RMB’000 Cost 691 692 1,383 Accumulated amortization (691) (669) (1,360) Net book value at December 31, 2001 - 23 23 Net book value at December 31, 2000 415 128 543 11. Investments in unconsolidated subsidiaries 2001 2000 RMB’000 RMB’000 Investments, at cost 37,512 37,512 Impairment loss provision ( 2,773) ( 2,773) 34,739 34,739 With registered share capital of RMB14,280,000, Chaozhou Shenbao Development Co., Ltd. was planned to be a property development enterprise. The actual investment of RMB21,026,000, which had been fully paid by the Company, had exceeded the agreed 70 percent of its share capital. However, it has not been put into normal operation since its establishment. Currently, Chaozhou Shenbao Development Co., Ltd. owns a piece of land of 72,000 square meters at cost of RMB17,753,000 with a useful life until December 2043. It also owns fixed assets, including properties, at cost of RMB2,070,000. The Company has made an impairment loss provision on this investment based on the anticipated loss. With registered share capital of RMB16,500,000, Shenzhen Shenbao Fruit Juice Co., Ltd. was planned to be involved in fruit juice production. The Company fully paid the investment amounting to RMB16,500,000, which had exceeded the agreed 70 percent of its share capital. However, it has not been put into actual production after its establishment. Currently, Shenzhen Shenbao Fruit Juice Co., Ltd. owns a set of fruit juice production facilities. Based on the mutual understanding between this subsidiary and Shenzhen Shenbao Shennei Biological Products Co., Ltd., an associate of the Company, this subsidiary planned to rent this set of fruit juice production facilities out to the above-named associate and the expected rental income would be RMB16,000,000. The Company has made an impairment loss provision on this investment based on the anticipated loss. 12. Interests in associates 2001 2000 RMB’000 RMB’000 Share of net assets 138,752 124,658 - 42 - Impairment loss provision ( 8,245) ( 6,430) Share of net assets less impairment loss provision 130,507 118,228 Amounts due from associates - 6,440 130,507 124,668 As at December 31, 2001, particulars of the associates are set out as: Effective Year of equity held Company name registration by the Company Principal activities Shenzhen Pepsi-Cola Beverage Co., Ltd. Shenzhen 40% Pepsi-Cola beverages Shenzhen Agriculture Business Co., Ltd. Shenzhen 20% Agricultural technology and consultancy, internet development, etc. Shenzhen Shenbao (Xinmin) Food Co., Ltd. * Xinmin 49% Canned food and cakes, etc. Shenzhen Shenbao (Liaoyuan) Co., Ltd. * Liaoyuan 53.5% Soft drinks Shenzhen Shenbao (Xinmin) Duoweijian Co., Ltd. * Xinmin 47.71% Soft drinks and food Shenzhen Shenbao Shennei Biological Shenzhen 48% Soft drinks and food Products Co., Ltd. ** * These three associates have not been put into normal operation since their establishments years ago because of the lack of the capital. As a result, impairment loss has been fully provided. ** The associate has not commenced business. 13. Other investments 2001 2000 RMB’000 RMB’000 Listed shares, at cost 8,480 8,480 Unlisted shares, at cost 17,809 18,726 Impairment loss provision (10,173) ( 7,046) 16,116 20,160 As at December 31, 2001, the market value of the listed shares is RMB54,630,000. 14. Inventories 2001 2000 RMB’000 RMB’000 Raw materials 5,846 7,853 - 43 - Packing materials 6,338 9,792 Goods at warehouse 2,100 1,659 Materials on consignment 6,492 5,319 Provision for inventory obsolescence ( 7,358) (10,688) 13,418 13,935 15. Amount due from a related company 2001 2000 RMB’000 RMB’000 Shenzhen Lionda Holdings Company Limited 4,182 - 16. Accounts receivable 2001 2000 RMB’000 RMB’000 Amounts receivable 28,335 26,995 Provision for bad debts (15,231) ( 12,476) 13,104 14,519 17. Prepayments, deposits and others receivable 2001 2000 RMB’000 RMB’000 Advance payments 275 468 Prepayments 296 137 Others receivable 69,688 27,929 70,259 28,534 Provision for bad debts (17,842) (22,024) 52,417 6,510 18. Cash and bank balances The Group’s certain bank deposits have been frozen as a result of several litigation cases. As at December 31, 2001, the amount frozen was RMB1,502,000 (2000 - RMB916,000). 19. Amount due to a related company 2001 2000 RMB’000 RMB’000 Shenzhen Investment Administration Co. 3,510 3,593 20. Short-term bank loans - 44 - 2001 2000 Note RMB’000 RMB’000 Bank loans - secured 25 13,800 15,000 Bank loans - unsecured 24,000 87,000 37,800 102,000 The above loans bear interest at normal commercial lending rates. 21. Share capital 2001 2000 RMB’000 RMB’000 Registered, issued and paid-up A shares of RMB1 each 155,787 140,572 B shares of RMB1 each 26,136 26,136 181,923 166,708 A shares, listed and tradable 39,941 30,724 B shares, listed and tradable 26,136 26,136 66,077 56,860 A shares, listed but temporarily not tradable 115,846 109,848 181,923 166,708 In accordance with the resolution passed in shareholders’ meeting and upon the approval of China Securities Supervisory and Management Committee, the Company was authorized to issue 15,215,404 new shares with RMB1 each at a subscription price of RMB5 per share to its A-shareholders. During this issue of new shares, the net amount received after deduction of underwriter’s costs and tax expenses was RMB72,695,804. The share capital of the Company has been increased by RMB15,215,404 and the share premium increased by RMB57,480,400. The number of the issued shares has been increased from 166,707,684 (RMB166,707,684) to 181,923,088 (RMB181,923,088). 22. Reserves According to the corporation law and relevant regulations of a joint stock limited company, the Company’s specified profit should be classified as capital reserves, which include share premium, surplus on revaluation of fixed assets and other investments, etc. The capital reserves are normally used for issue of new shares. The Company is required to transfer an amount of not less than 10% of the profit after making up the accumulated loss as statutory surplus reserve until it - 45 - is up to 50% of the registered share capital. Statutory surplus reserve can be used to cover current year loss or for issue of new shares. The amount of statutory surplus reserve to be utilized for issue of new shares should not exceed an amount such that the balance of the reserve will fall below 25% of the registered share capital after the issue of new shares. The movements of reserves and retained earnings during the year are as follows: Capital Surplus Retained reserves reserves earnings Total RMB’000 RMB’000 RMB’000 RMB’000 As at January 1, 2001 51,219 38,936 12,670 102,825 Loss for the year - - ( 3,387) ( 3,387) Transfer to reserves (1) - 1,707 ( 1,707) - Proposed final dividend for 2001 (1) - - ( 9,096) ( 9,096) Transfer from reserves as a result of over-transfer in prior years (2) - ( 3,022) 3,022 - Diminution investment 57,481 - - 57,481 As at December 31, 2001 108,700 37,621 1,502 147,823 (1) Based on the profit figure of RMB11,382,000 in the financial statements for the year ended December 31, 2001 under the PRC Accounting Standards, sums of RMB1,138,000 and RMB569,000 are transferred from retained earnings to statutory surplus reserve and statutory public welfare fund respectively. The total sum transferred is RMB1,707,000. In addition, based on the number of issued shares as at December 31, 2001, the Company proposed a final cash dividend of RMB0.05 per share totaling RMB9,096,000. This proposal will be tabled at the shareholders’ general meeting for approval. (2) There has been an opening adjustment in respect of surplus reserves in the financial statements for the year ended December 31, 2001 under the PRC Accounting Standards, within which the sums of RMB2,015,000 and RMB1,007,000 from statutory surplus reserve and statutory public welfare fund respectively are transferred back to retained earnings. The total sum transferred backwards is RMB3,022,000. 23. Contingent liabilities As at December 31, 2000, the Company has provided irrevocable guarantees for short-term bank loans granted to other companies as set out below: Name of company Guaranteed loans RMB HK$ US$ RMB ’000 ’000 ’000 ’000 Shenzhen Tellus Holdings Co., Ltd. (1) 5,280 - - 5,280 - 46 - Shenzhen South Tongfa Co., Ltd. (2) 30,000 - - 30,000 Shenzhen China Bicycle Company (Holdings) Limited (3) 7,000 - 800 13,640 Shenzhen Lionda Holdings Company Limited (4) 8,000 40,000 - 50,800 50,280 40,000 800 99,720 (1) The loans had already matured on December 31, 2001. This company had partially repaid the loans and it is expected that the loan balance can be fully repaid. (2) The Company had made a guarantee to the banker in respect of the loans advanced to Shenzhen South Tongfa Co., Ltd. that had defaulted the payment on maturity. The court made rulings that the Company was jointly liable for the repayment obligations. The Company had appealed to the higher court and no further judgement is made up to date. Shenzhen South Tongfa Co., Ltd. is a company also substantially owned by the Company’s majority shareholder Shenzhen Investment Administration Co. and the guarantee provided in fact was as a result of historical problem. The Shenzhen Municipal Government is now taking care of this issue, which is expected to be resolved in the near future. For prudence reasons, the Company has made a provision for contingent loss of RMB6,000,000 out of the guaranteed loans of RMB30,000,000. (3) Shenzhen China Bicycle Company (Holdings) Limited has been undergoing the debt restructuring process since 1999 and has a total debt restructuring income of RMB399,568,000 up to December 31, 2000 (extracted from its financial statements for the year 2000). As this company is still in the process of the debt restructuring process, it is expected that the debt issue can be properly resolved. (4) Shenzhen Lionda Holdings Company Limited is a company listed on the Shenzhen Stock Exchange. It had a profit last year and is a company also substantially owned by the Company’s majority shareholder Shenzhen Investment Administration Co. It is anticipated that its debt issue can be resolved. 24. Related parties and transactions (1) As at December 31, 2001, as the majority shareholder, Shenzhen Investment Administration Co. which is a wholly state owned enterprise incorporated in Shenzhen, held 58.23% (2000 - 59.95%) of the issued capital of the Company. (2) The Company had the following transactions with the associate: 2001 2000 Name of company Particulars RMB’000 RMB’000 - 47 - Shenzhen Pepsi-Cola Steam supply 3,221 5,095 Beverage Co., Ltd. Rental received 5,040 5,550 25. Pledge of assets The Company pledged land use rights for land of 81,524 square meters located at Heao Village, Henggang Town, Shenzhen with book value of RMB12,730,000 to secure short-term bank loans of RMB13,800,000. 26. Impact on profit/(loss) attributable to shareholders and net asset value as reported by the PRC Certified Public Accountants Profit/(loss) attributable Net to shareholders asset value RMB’000 RMB’000 As reported by PRC Certified Public Accountants 11,382 327,806 Adjustments to conform to IAS: Provision for impairment loss of buildings, machinery and equipment ( 4,501) - Provision for impairment loss of construction-in-progress ( 3,842) - Amortization of land use rights ( 2,244) - Provision for contingent loss on guaranteed loans ( 6,000) - Over-provision for tax in prior years 1,818 - Proposed final dividend for 2001 - 9,096 Unidentified payable reversed as income - 1,067 Interest capitalization on land use rights - 873 As restated in conformity with IAS ( 3,387) 338,842 27. Language The translated English version of financial statements is for reference only. Should any disagreement arise, the Chinese version shall prevail. 28. Comparative figures Certain comparative figures have been reclassified so as to conform to the current year’s presentation. Documents for Reference There are complete following documents in Secretariat of the Board of Directors of the Company provided for reference upon demand of China Securities Regulatory Commission, Shenzhen Stock Exchange and Shareholders of the Company: - 48 - 1. Accounting statements carried with the personal signatures and seals of legal representative, chief financial supervisor and person in charge of handling accounting affairs. 2. Original of Report of the Auditors carried with seal of Certified Public Accountants as well as personal signatures and seals of certified public accountants. 3. Originals of all the documents as disclosed in public on Securities Times and Ta Kung Pao as well as the original manuscripts of the public notices as published in the report year. 4. Original of 2001 Annual Report carried with the personal signature of the Chairman of the Board of the Company. SHENZHEN SHENBAO INDUSTRIAL CO., LTD. Chairman of the Board: Lin Jiahong Feb. 26, 2002 - 49 - Shenzhen Shenbao Industrial Co., Ltd. Consolidated profit and loss account for the year ended December 31, 2001 Note 2001 2000 RMB’000 RMB’000 Turnover 4(a) 64,086 75,141 Cost of sales ( 51,142) ( 62,861) Gross profit 12,944 12,280 Other revenue 5 32,401 48,141 Distribution costs ( 10,825) ( 9,027) Administrative expenses ( 41,590) ( 48,932) Other operating expenses ( 17) ( 214) Operating profit/(loss) ( 7,087) 2,248 Finance costs ( 3,793) ( 7,247) Share of profit in associates 9,404 10,765 Profit/(loss) before taxation 6 ( 1,476) 5,766 Taxation 7 ( 1,911) ( 2,472) Profit/(loss) before minority interests ( 3,387) 3,294 Minority interests - - Profit/(loss) attributable to shareholders ( 3,387) 3,294 Retained profits at beginning of year 12,670 27,640 Retained profits available for appropriations 9,283 30,934 Appropriations : Transfers from/(to) reserves 22 1,315 ( 1,593) Cash dividends 22 ( 9,096) ( 16,671) ( 7,781) ( 18,264) Retained profits at end of year 1,502 12,670 Earnings/(loss) per share - basic 8 RMB(0.0187)RMB0.0198 - 50 - Shenzhen Shenbao Industrial Co., Ltd. Consolidated balance sheet as at December 31, 2001 Note 2001 2000 RMB’000 RMB’000 Non-current assets Fixed assets 9 68,758 117,884 Deferred assets 10 23 543 Investments in unconsolidated subsidiaries 11 34,739 34,739 Interests in associates 12 130,507 124,668 Other investments 13 16,116 20,160 250,143 297,994 Current assets Tax recoverable 920 - Inventories 14 13,418 13,935 Amount due from a related company 15 4,182 - Accounts receivable 16 13,104 14,519 Prepayments, deposits and others receivable 17 52,417 6,510 Cash and bank balances 18 68,493 88,629 152,534 123,593 Current liabilities Dividends payable (218) - Tax payable - (1,806) Amount due to a related company 19 (3,510) (3,593) Accounts payable (11,151) (12,756) Others payable and accrued expenses (11,156) (5,228) Notes payable - (10,000) Short-term bank loans 20 (37,800) (102,000) (63,835) (135,383) Net current assets/(liabilities) 88,699 (11,790) Net assets employed 338,842 286,204 Financed by : Share capital 21 181,923 166,708 Reserves 22 147,823 102,825 Proposed final dividends 22 9,096 16,671 Shareholder’s equity 338,842 286,204 - 51 - Shenzhen Shenbao Industrial Co., Ltd. Consolidated cash flow statement for the year ended December 31, 2001 2001 2000 RMB’000 RMB’000 Cash flow from operating activities Operating profit/(loss) before taxation (1,476)5,766 Adjustment items: Provision for impairment loss of fixed assets 27,367 - Loss on disposal of fixed assets - 274 Depreciation 8,240 16,931 Profit from transfer of land use rights (1,884) (1,000) Amortization of deferred assets 520 268 Share of profit in associates (9,404) (10,765) (Profit)/loss from other investments 3,127 (14,662) Profit from transfer of equity investments (2,274) - Interest received (326) (232) Interest paid 4,108 7,457 Decrease in amounts due from associates 6,440 - Decrease in inventories 517 1,711 Increase in amount due from a related company (4,182) - (Increase)/decrease in accounts receivable 1,415 (46,556) Increase in prepayments, deposits and others receivable (33,287) - Decrease in amount due to a related company (83) - Increase/(decrease) in accounts payable (1,605) 58,604 Increase/(decrease) in others payable and accrued expenses 3,985 (2,472) Decrease in notes payable (10,000) - Net cash inflow/(outflow) from operating activities (A) (8,802) 15,324 Income tax payment (B) (2,694) (2,623) Returns on investments and servicing of finance Interest received 326 232 Interest paid (4,108) (7,457) Dividends received from associates 12,680 16,411 Profit from transfer of equity investments - 18,735 Dividends paid (16,453) - Net cash inflow/(outflow)from investments and servicing of finance (C) ( 7,555) 27,921 Cash flow from investing activities Purchases of fixed assets and land use rights (287) (1,612) Proceeds from disposal of fixed assets - 134 Proceeds from transfer of land use rights 3,070 1,000 Additional investments in associates (15,555) - Proceeds from sale of other investments 3,191 38,666 - 52 - Net cash inflow/(outflow) from investing activities (D) (9,581) 38,188 Net cash inflow/(outflow) before financing activities (A+B+C+D) (28,632) 78,810 Cash flow from financing activities Decrease in short-term bank loans (64,200) (36,000) Proceeds from issue of new share capital 72,696 - Net cash inflow/(outflow) from financing activities 8,496 (36,000) Increase/(decrease) in cash and cash equivalents (20,136) 42,810 Cash and cash equivalents at beginning of year 97,109 54,294 Exchange differences at beginning of year - 5 Cash and cash equivalents at end of year 76,973 97,109 Analysis of cash and cash equivalents Cash and bank balances - liquid 66,991 87,713 Bank deposits - frozen 1,502 916 Other investments - listed shares 8,480 8,480 76,973 97,109 - 53 -