安道麦A(000553)沙隆达Ａ2001年年度报告（英文版）

HUBEI SANONDA CO., LTD. 2001 ANNUAL REPORT Important: Board of Directors of Hubei Sanonda Co., Ltd. (hereinafter referred to as the Company) hereby confirms that there are no important omissions， fictitious statements or serious misleading contents in the information carried in this report, and shall take all responsibilities, individual and / or joint, for the reality, accuracy and completion of the whole contents. The summary was abstracted from the full text of Annual Report, so investors are suggested to read the full text for more detailed information. I. COMPANY PROFILE 1. Legal name of the Company in Chinese and English: Name in Chinese: 湖北沙隆达股份有限公司 (Abbr.: 沙隆达) Name in English: HUBEI SANONDA CO., LTD. (Abbr.: SANONDA) 2. Legal Representative of the Company: Zhang Maoli 3. Secretary of Board of Directors: Li Zhongxi Tel: (86) 716-8314802-2632 Liaison Address: No. 93, Beijing Rd. E., Jingzhou, Hubei Fax:(86) 716-8316796 Authorized Representative in Change of Securities Affairs: Wu Meng Liaison Address: No. 172, Beijing Rd., Jingzhou, Hubei Tel: (86) 0716-8114595 Fax:(86) 0716-8110066 4. Registered Address of the Company: No. 93, Beijing Rd. E., Jingzhou, Hubei Office Address of the Company: No. 93, Beijing Rd. E., Jingzhou, Hubei Post Code: 434001 Website of the Company: http://www. sanondas.com E-mail of the Company: sanondas@public.js.hb.cn 5. Newspaper Chosen for Disclosing the Information of The Company: China Securities, Securities Times and Ta Kung Pao Internet Web Site for Publishing the Annual Report of the Company: http://www.cninfo.com.cn The Place Where the Annual Report is Prepared and Placed: Securities Department of the Company 6. Stock Exchange Listed With: Shenzhen Stock Exchange Short Form of the Stock: Sanonda A (A-share), Sanonda B (B-share) Stock Code:000553 (A-share), 200553 (B-share) II. FINANCIAL HIGHLIGHTS AND BUSINESS HIGHLIGHTS (I) Particulars about Profit as of the Report Year Unit: In RMB Item Amount Total profit 16,699,339.40 Net profit 10,496,755.08 Net profit after deducting non-recurring gains and 9,773,983.79 losses Profit from main business lines 118,424,380.35 Profit from other business lines 3,153,404.46 Operating profit 14,643,847.56 Investment income 2,846,172.68 Subsidy income --- Net income / expenditure from non-operating -790,680.84 Net cash flows arising from operating activities 113,730,778.90 Net increase in cash and cash equivalents -218,427,652.33 Note: Amount of deducted non-recurring gains and losses is RMB 722,771.29, items as follows: Unit: RMB Item deducted Amount Net income / expenditure from non-operating -790,680.84 Capital occupation fee received from associated companies 1,641,000.00 Effect of income tax -127,547.87 Total 722,771.29 (II) Notes to difference in the net profit as audited according to CAS and IAS As audited by Tian Hua Certified Public Accountants according to CAS and Arthur Andersen & Company Certified Public Accountants under IAS, net profit of the Company as of 2001 was respectively RMB 10,497,000 and RMB –20,916,000. The difference was mainly due to follows: Unit: RMB’000 Net profit as of 2001 As reported in the statutory accounts of the Group 10,497 Impact of IAS adjustments, net - Additional provision for doubtful debts (12,978) - Depreciation of idle property, plant and equipment (3,878) - Provision to reduce inventories to net realizable value 1,427 - Provision for impairment loss of property, plant and equipment (4,666) - Provision for impairment loss of other long-term investments (15,200) - Recognition of deferred tax assets - - Adjustment of sales cut-off errors 338 - Others 3,544 As restated to IAS (20,916) (III). Major accounting data and financial indexes over previous three years ended of the report period Unit: In RMB 2000 1999 Items 2001 After adjustment Before adjustment After adjustment Before adjustment Income from main business lines (RMB) 963,788,396.61 913,091,597.08 913,091,597.08 972,243,239.34 972,243,239.34 Net Profit (RMB) 10,496,755.08 647,227.04 18,007,022.63 40,575,433.72 63,055,471.02 Total assets (RMB) 1,642,777,754.18 1,846,344,324.13 1,897,377,517.05 1,765,515,393.32 1,787,995,430.62 Shareholders’ equity (RMB) 973,700,189.12 963,203,434.04 1,008,137,600.62 967,650,540.69 990,130,577.99 Earnings per share (Fully diluted) (RMB) 0.035 0.0022 0.061 0.137 0.212 Earnings per share (weighted average) (RMB) 0.035 0.0022 0.061 0.137 0.212 Earnings per share (after deducting non-recurring 0.033 0.031 0.031 0.197 0.197 gains and losses) (RMB) Net assets per share (RMB) 3.28 3.24 3.39 3.26 3.33 Net assets per share after adjustment (RMB) 3.10 3.10 3.26 3.19 3.27 Net cash flows per share arising from operating 0.38 0.35 0.35 0.04 0.04 activities (RMB) Return on equity (Fully diluted) (%) 1.08 0.07 1.79 4.19 6.37 Return on equity (weighted average) (%) 1.08 0.07 1.79 4.19 6.37 Return on equity (after deducting non-recurring 1.00 0.04 0.91 5.93 5.93 gains and losses) (%) (IV) Profit as calculated according to Regulations on the Information Disclosure of Companies Publicly Issuing Shares (No. 9) released by CSRC: Net return on equity (%) Earnings per share Profit Fully diluted Weighted average Fully diluted Weighted average as of the report period 2001 2000 2001 2000 2001 2000 2001 2000 Profit from main business lines 12.16% 12.34% 12.23% 12.00% 0.3988 0.4002 0.3988 0.4002 Operating profit 1.50% 1.70% 1.51% 1.65% 0.0493 0.0551 0.0493 0.2003 Net profit 1.08% 0.07% 1.08% 0.07% 0.0353 0.0022 0.0353 0.0022 Net profit after deducting non- recurring gains and losses 1.00% 0.04% 1.01% 0.03% 0.0329 0.0012 0.0329 0.0012 III. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDER 1. Changes in Share Capital (1) Changes in shares Unit: share Amount at Increase/ Decrease (+ / -) as of the period Amount at the the year- Shares Bonus Capitalization of Others Sub-total year-end begin allotment shares Public reserve Ⅰ. Shares Unlisted 1. Promoters’shares Including: State-owed shares 84,729,334 84,729,334 Domestic juristic person’s shares Foreign juristic person’s shares Others 2.Raised juristic person’s shares 3.Employees’shares 4.Preference shares or other Total shares unlisted 84,729,334 84,729,334 II. Shares Listed 1.Domestically listed 97,232,276 97,232,276 Ordinary RMB shares Including: shares held by 40,158 40,158 senior executives 2.Domestically listed 115,000,000 115,000,000 foreign shares 3. Overseas listed foreign shares Total shares listed 212, 232,276 212, 232,276 Ⅲ. Total Shares 296,961,610 296,961,610 Note: Item of “others” means shares transferred from state-owned shares. There was no change in structure of share capital. 2. About Shareholders (1) Ended Dec. 31, 2001, the Company had total 28,455 shareholders of A share and B share, including nine of employees’share (director, supervisor and senior executive of the Company). (2) Ended Dec. 31, 2001, shares held by the top ten shareholders are as follows: Number of shares held Proportion in the No Shareholders (In shares) total shares 1 Sanonda Group Corporation (State Shareholder) 81,726,625 27.52% 2 Qichun County State Assets Management Bureau 3,002,709 1.01% 3 Changzhou Yadong Dress Co., Ltd. 2,480,471 0.83% 4 Hanxing Securities Investment Fund 1,800,101 0.60% 5 Wen San Rong (B share) 1,788,711 0.60% 6 Changzhou Xindong Fashion Co., Ltd. 1,593,400 0.53% 7 Renjun Development Co., Ltd. (B share) 1,446,860 0.48% 8 Taiji Investment Co., Ltd. (B share) 1,000,000 0.33% 9 Guangqi Investment Co., Ltd. (B share) 1,000,000 0.33% 10 Guotai Junan Securities Co., Ltd. 958,300 0.32% Note: There existed no related transaction among the top ten shareholders. (3) Brief introduction to shareholders holding over 10% of total shares of the company Name: Sanonda Group Corporation Shares in hold: 81,726,625 shares Proportion in the total share: 27.52% Legal representative: Zhang Maoli Scope of business: Agrochemical, chemical products, pharmaceutical products, mechanical equipments and fittings, import and export of the Company’s products and the necessary raw and auxiliary material, etc. Date of establishment: 1994 Registered capital: RMB 311,101,000 Note: 1) Sanonda Group Corporation is state-owned shareholder of the Company, there was no changes in shares held by the control shareholder in the report period. 2) In August 2000, 55,770,000 shares of the Company held by Sanonda Group Corporation were pledged by Industrial and Commercial Bank of China Jingzhong branch (share pledged taking 18.78% in the total shares) for the loan amounting to RMB 130 million. The relevant information was published on China Securities, Securities Times and Ta Kung Pao dated August 17, 2000. IV. PARTICULARS ABOUT DIRECTOR, SUPERVISOR AND SENIOR EXECUTIVE 1. About director, supervisor and senior executive Shares held at Shares held at Name Title Gender Age Office Term beginning of year end of year Zhang Maoli Chairman of the Male To May 26, 2003 Board 58 11,830 11,830 Liu Xingping Vice Chairman of Male To May 26, 2003 the Board & 39 2,000 2,000 General Manager Li Zuorong Director Male To May 26, 2003 52 3,000 3,000 Deng Guobin Director & Deputy Male To May 26, 2003 General Manager 34 2,000 2,000 Zhang Director Male To May 26, 2003 Jianguo 49 2,000 2,000 He Fuchun Director & deputy Male To May 26, 2003 general manager, 37 2,000 2,000 senior engineer Wan Zhemin Chairman of Male To May 26, 2003 Supervisory 53 7,098 7,098 Committee Chen Vice Chairman of Male To May 26, 2003 Changshun Supervisory 55 9,230 9,230 Committee Sang Supervisor Male To May 26, 2003 Maoxiong 51 0 0 Hu Wanfeng Supervisor Female To May 26, 2003 53 1,000 1,000 Xu Baojian Supervisor Male To May 26, 2003 46 0 0 Wang Deputy General Male To May 26, 2003 Xuewen Manager 35 0 0 Dai Juqing Chief Economist Male To May 26, 2003 51 0 0 Li Zhongxi Secretary of the Male To May 26, 2003 Board 32 0 0 1) As approved in the Board meeting, Mr. Li Xiuquan resigned the post as director and chief accountant due to change of work in the report year. This resolution was disclosed in the designated newspaper dated August 31, 2001. There were no changes in the shares held by directors, supervisors and senior executives. 2) The chairman of the Board of Directors Zhang Maoli is concurrently the Board chairman of SANONDA Group, the Company’s controlling shareholder. The vice chairman and general manager Liu Xingping is concurrently the director of SANONDA Group, and the director Li Zuorong is concurrently the vice chairman of the Board and general manager of SANONDA Group. 3) Director, supervisor and senior executive all receive salaries in the Company whose annual salary is between RMB 20,000 to RMB 30,000, and the total salaries are RMB 350,000. The total salaries of the top 3 directors amount to RMB 90,000. The total salaries of the top 3 senior executives amount to RMB 75,000. V. ADMINISTRATION STRUCTURE (I) Administration of the Company Strictly according to PRC Company Law, Securities Law, requirements of relevant laws and legislations of CSRC and Articles of Association, in the report year, the Company improved legal person administrative, standardized operation of the enterprise according to requirements of modern enterprise system, established Rules of Procedures of the Shareholders’ General Meeting, Rules of Procedures of the Board of Directors, Rules of Procedures of the Supervisory Committee and Work Rules of Operation and Management. The above rules are in line with the requirements of Administrative Rules for Listed Company as released by CSRC in January of 2001. The main contents are as follows: 1. Shareholders and the Shareholders’ General Meeting: The Company has been ensuring all shareholders, especially medium and small shareholders, could enjoy equal status and could fully perform their rights. The Company could convene and hold the Shareholders’General Meeting according to Requirements of Standardized Opinions for the Shareholders’General Meeting of Listed Company. Shareholders could implement their voting rights. The Company conducted correlative transactions in a fair and reasonable way, and disclosed pricing basis. 2. Relationship between Controlling Shareholder and the Listed Company: The controlling shareholder acts in a standardized manner, and hasn’t overstepped the Shareholders’General Meeting to directly or indirectly interfere in the Company’s decision-making and management activities; The Company pursues the “Five Separations”from its controlling shareholder in respect of personnel, finance, assets, organization and business; The Board of Directors, the Supervisory Committee and the internal organizations could function independently. 3. Directors and the Board of Directors: The Company has elected directors strictly according to the stated election procedures in the Articles of Association, and number of Board members and the personnel formation are in line with requirements of laws and legislations; Each director could work for the Company in a conscientious and diligent manner, implement obligations in accordance with laws and legislations, and treat all shareholders equally. 4. Supervisors and the Supervisory Committee: The Company has elected supervisors strictly according to the stated election procedures in the Articles of Association, and number of the Supervisory Committee members and the personnel formation are in line with requirements of laws and legislations; Each supervisor could work for the Company in a conscientious and diligent manner, and in the spirit of being serious and responsible, carried out superintendence and inspection on the Company’s finance as well as performance of directors, managers and other senior executives in terms of compliance with laws and standards. 5. Performance Evaluation Criteria and Encourage and Binding Mechanism: The Company is positively starting to establish fair and transparent performance evaluation criteria and encouragement and binding mechanism for directors, supervisors and senior executives; The engagement of members of management team is fair, transparent, and in accordance with regulations of laws and legislations. 6. Relevant Stake Holders: The Company has been fully respecting and safeguarding the legal rights and interests of the bank, other creditors, employees, consumers and other relevant stake holders so as to jointly push the Company to develop in a sustained and healthy manner. 7. Information Disclosure and Transparency: The secretary of the Board of Directors is in charge of information disclosure work and receiving visits and inquiries from shareholders; The Company disclosed relevant information in a real, complete, accurate and timely manner strictly according to regulations of relevant laws, legislations and Articles of Association, and ensured equal opportunity for all shareholders to obtain these information; The Company disclosed the detailed information about the large shareholder or the actual controller of the Company as well as change of shares in time according to relevant regulations. (II) Implementation of Obligations by Independent Directors: Now the Company has preliminarily determined the candidates for independent directors according to the requirements of Guide Opinions for Establishing Independent Director System in Listed Company so as to ensure it could establish independent director system before June 30, 2002 according to relevant regulation. VI. BRIEFINGS ON THE SHAREHOLDERS’GENEAL MEETING The Company held 2000 Annual Shareholders’General Meeting in the report year. Details are as follows: The 2000 Annual Shareholders’General Meeting was held in the Company’s meeting room on the 3rd floor on May 18, 2001. The public notice on relevant resolutions and the legal position paper were disclosed in China Securities, Securities Times and Hong Kong Ta Kung Pao dated May 19, 2001. Ⅶ. REPORT OF THE BOARD OF DIRECTORS 1. Principal Businesses and Operation The Company is mainly engaged in production and sales of agrochemicals. In 2001, the Company’income from the principal businesses was RMB 963.79 million and operating profit was RMB 14.64 million; foreign exchange earned through export was US$ 15.38 million, a 23.26% growth over the same period of the previous year; The Company produced 27,800 tons of agrochemicals (converted into 100%), a 15.64% growth over the same period of the previous year; 59,900 tons of caustic soda, a2.16% growth over the same period of the previous year. Where, the income from the agrochemical products take 66.45% of the income from the principal businesses. The products that take 10% of the income from the principal businesses are listed as follows: Products Sales income Sales cost Gross profit 50% methamidosphos emulsion 98,061,961.53 81,153,417.53 17.24% 50% methyl l 1605 missible oil 60,043,199.68 52,757,785.96 12.14% (Ⅱ) Operation and Performances of the Principal Controlled Subsidiaries Ended December 31, 2001, controlled subsidiaries include: In RMB Registered Equity Net profit (in Investees Principal Businesses capital proportion RMB ’000) Sanonda Jingzhou Agrochemical and Chemical 2800.00 Production of agrochemicals and 87.50％ -6,330 Co., Ltd. intermediates Sanonda Qichun Co., Ltd. 8000.00 Production of agrochemicals and 70.00％ -9,530 intermediates, packing products Hubei Sanonda Foreign Trade Co., Ltd. 1000.00 Export of agrochemicals and 90.00％ 7,690 intermediates, pharmaceuticals, chemical products; import of agrochemicals and intermediates, etc. Sanonda Zhengzhou Agrochemical Co., Ltd. 4000.00 Production of agrochemicals and 70.00％ -2,350 chemical products, including omethoate, caustic soda Jingzhoiu Dali Industrial Company 280.00 Packing materials 53.00％ 80 Jingzhou Sanonda Advertisement Company 120.00 Preparation and distribution of 60.00% 110 advertisement Jingzhou Sanonda Real Estate Company 1000.00 Development and sales of real estate, 90.00% 0 sales of building materials. Hubei Sanonda Tianmen Agrochemical and 800.00 Production and sales of agrochemicals 56.25％ 4,370 Chemical Co., Ltd. About the subsidiaries with the Company’s investment taking over 10% of the Company’s net profit: Companies Total assets (in Net assets (in Businesses Net profit (in RMB’000) RMB’000) RMB’000) Sanonda Foreign Trade Co., Ltd. 49,880 18,860 Export and services 7,690 Sanonda Tianmen Agrochemical 32,750 11,970 Production and sales of 4,370 and Chemical Co., Ltd. agrochemical products (III) Main suppliers and customers The total amount of purchase from the top five suppliers was RMB 41.89 million and accounted for 5.55% of the total purchase amount of the year. The total amount of sales to the top five customers was RMB 83.41 million and accounted for 41.1% of the total sales amount of the Company. (IV) Problems and difficulties occurred in operation and solutions The order and environment of agricultural material market did not fundamentally turned for better in 2001. Under the grim situation of continuous lowering of profit level of the industry, outstanding contradiction of product structure, damaged price system, lack of good faith mechanism, continuously depressed chemical industry market and difficulty in balancing production, the Company took measures in three respects: (1) It strengthened marketing coordination, clarified responsibilities, highlighted key varieties and markets, innovated marketing system and perfected integrated sales and ensured the growth of sales volume to certain extent. (2) It strengthened internal management, enhanced the quality of economic operation and ensured the reduction of total production cost by over 10%; (3) It strengthened the technical innovation of traditional products and the technical development of new products. The technical specifications of the key products of the Company have kept the advanced level in the same industry in China. (V)The investment of the Company 1. The Company did not raise funds in the report period. 2. The utilization of the funds previously raised in the report period The Company issued 115 million B shares at the price of HKD 3.48 (equivalent to RMB 3.73) per share in May 1997. It raised funds of RMB 403.73133 million in total (with the cost of issuance deducted). As of December 31, 2000, raised funds of RMB 357.3613 million had been used as planned. The remaining funds of RMB 46.37 million were deposited at banks temporarily (which has been disclosed in previous annual reports). The Company intended to invest RMB 46.37 million in manufacturing highly effective pesticide device by cooperation with foreign pesticide company in the report period. Influenced by macro-economic policies of the state, the joint venture project was not established. The remaining funds were deposited at banks temporarily. 3. Investment with non-raised funds In the report period, the investment projects using non-raised funds include: (1) The Company invested RMB 10 million in establishing Shalongda Real Estate Co. with Shalongda Group, holding 90% equity of this company. The investment has been completed and the construction of the real estate project has been started. The project did not generate profits in the report period. This company has been included in the scope of consolidation. (2) The Company invested RMB 40 million in establishing Hubei Fengyuan Chemical Industry Co., Ltd. with Hubei Datian Chemical Industry Co., Ltd., holding 55% equity of this company. The investment has been completed. The joint venture project with annual output of 0.2 million tons of NPK compound fertilizer is under construction, did not generate profits in the report period. (VI) Financial position of the Company 1. Main financial norms: (RMB ’0000) Item 2001 2000 Increase/decrease (%) over 2000 Total assets 164,278 184,634 -11.03 Long-term liability 12,658 18,668 -32.19 Shareholders’equity 97,370 96,320 1.09 Profit from key business 11,842 11,883 -0.35 Net profit 1,050 65 1,515.38 2. Reason for change: a. Total assets decreased by 11.03% over the end of the previous year mainly due to the decrease of monetary capital by RMB 218.42 million, decrease of construction-in- progress and fixed assets by RMB 47.21 million and the increase of short-term investment and prepayments by RMB 65.75 million and RMB 45.32 million respectively. b. The long-term liabilities decreased by 32.19% over the end of the previous year due to the liquidation and transfer of housing turnover fund of RMB 9.69 million according to the Notice of the Issues Concerning Accounting in the Reform of Enterprise Housing System (CQ(2000)No. 295 Document) issued by the Ministry of Finance and decrease of long-term loan by RMB 50.41 caused by the repayment of due long-term loan of RMB 50.41 million. c. The shareholders’equity increased by 1.09% over the end of the previous year due to the profit of RMB 10.5 million made in the report year. d. The profit from the key business decreased by 0.35% over the previous year due to the continuous lowering of product price, the increase of sales volume by around 10% over the previous year and the failure of the reduction of production cost to counteract price lowering. e. The net profit increased by 1515.38% over the previous year mainly due to the reduction of the profit of the previous year by RMB 17.36 million as a result of retroactive adjustment for the provision of four new reserves for value diminution. (VII) The influence of China’s entry to WTO on the operation of the Company After China’s entry to WTO, China will obtain a multilateral steady economic and trading environment, which will help enterprises participate in international work division in larger scope and at higher level, directly contact and cooperate with international large companies, absorb foreign capital, quicken the renovation of traditional industries, make use of the management experience of international large companies, quicken enterprise reform, reorganization and the establishment of modern enterprise system. Judging from the conditions of the Company, the Company, among enterprises engaged in the same industry, has outstanding key business, good brand and image and obvious hardware and software advantages for quickening its development and in respect of obtaining external funds, technologies and personnel. Meanwhile, the competition situation of localization of international market and the international of domestic market will occur after China’s entry to WTO. Domestic enterprises and transnational companies will fight hand to hand for markets and the external pressure on enterprises will be heavier. (VIII) Production and operation plan for 2002 In 2002, the Company will actively adapt to the new situation occurred after China’s entry to WTO, center on enhancing the efficiency and quality of its economic operation, constantly deepen reform, reasonably allocate internal resources, quicken structure adjustment, persist in technological innovation and standardize management system. The targeted total industrial output value, sales income and foreign exchange earned by export for 2002 are RMB 1.3 billion, RMB 1.2 billion and USD 16.50 million respectively, an increase of 10%, 10% and 8% over the same period of the previous year. To ensure the fulfillment of the above annual target, the Company will take the following strategies: (1) To actively quicken IT development, strengthen the management of funds, materials and personnel and try to increase profit by RMB 40 million in 2002. (2) To highlight the focal points of sales and try to increase sales income by 10%, reduce sales cost by 10% and export products of over 9000 tons in 2002. (3) To continue to further the reform of three internal systems and enhance the work initiative of its employees and its operation efficiency. The Company will focus on and greatly develop its key business and ensure the technical level and market share of its existing products occupy and keep leading position in the industry it is engaged. (IX) 2001 profit distribution preplan 2001 profit distribution preplan: The after-tax profit for 2001 audited pursuant to domestic accounting standards and international accounting standards was RMB 10.4967 million and RMB _2.0916 million respectively. In accordance with the Articles of Association, 10% of the after-tax profit, i.e., RMBG 1.049 million was set aside for statutory surplus common reserve fund and 5% thereof, i.e., RMB 0.524 million, was set aside for statutory public welfare fund. Meanwhile, the surplus common reserve fund of RMB 6.74 million for the previous year was reduced as a result of retroactive adjustment. According to the principle of taking the lower of the profits audited pursuant to different accounting standards as the basis of distribution, the profit available for distribution to shareholders is RMB –15.751 million. With the retained profit of RMB 39.656 million being added, the actual distributable profit is RMB 23.905 million. 2001 profit distribution policy was examined and adopted at the board meeting of the Company held on March 23, 2001. However, new product development and market development have occupied additional funds for sake of the development of the Company while the Company plans to quicken the construction of new projects. Large amount of funds will be needed in near term. Therefore, the Board of Directors of the Company decided neither to distribute profit nor capitalize capital common reserve fund. This preplan is to be submitted to 2001 annual shareholders’general meeting for examination. Ⅷ. REPORT OF THE SUPERVISORY COMMITTEE (Ⅰ) Meetings On March 23, 2001, the Supervisory Committee held a meeting. The meeting examined and adopted the following proposals: 2000 Work Report of the Supervisory Committee, 2000 Annual Report and Summary, 2000 Profit Distribution Proposal, Operation According to the Law. On August 2, 2001, the Supervisory Committee held a meeting. The meeting examined and adopted 2000 Interim Report and Summary. (Ⅱ) Independent Work Report In 2000, the Supervisory Committee carefully conduction inspection and supervision over the financial management, capital, internal control system, implementation of Shareholders’ General Meeting, decision making in operation, application of the proceeds raised through share offering and the operation activities of the directors and managers, and has well safeguarded the interests of the shareholders and the Company. In our opinion: 1. In the report period, the Company’s operation complied with the standards, and the decision-making procedures complied with the law. The Company has established complete and effective internal control system; 2. The change in the projects invested with the proceeds raised through issuing B shares was examined and approved by the extraordinary shareholders’meeting dated January 8, 1999. The change procedures were legal and the projects actually investment complied with the projects changed; 3. No action of the directors and manager of the Company that violated the laws, regulations and the Articles of Association of the Company or harmed the interests of the Company was found when they performed their duties; the related transactions were carried out in a fair and reasonable way without any harm to the Company’s interest; 4. The certified public accountants produced unqualified auditors’ report. In our opinion, the financial report as audited by the certified public accountants has truly reflected the Company’s financial position and operation results. Ⅸ. SIGNIFICANT EVENTS 1. In the report period, the Company has not been involved in any material lawsuit or arbitration in the report period; 2. Material related transactions: (1) Purchases In RMB Companies 2001 2000 Jingzhou Fude Food General Plant 16,897,454.00 2,394,829.00 Jingzhou Petrochemical Plant 8,395,125.00 132,041.00 Jingzhou Dali Industrial Co., Ltd. 5,526,077.05 99,000.00 Hubei Datian Holdings Co., Ltd. 1,803,836.60 811,778.13 Jingzhou Jianghan Pharmaceutical Co., Ltd., 928,720.00 3,964,564.73 Sanonda Coal Chemical Industrial Co., Ltd. 70,108.50 0.00 Jingzhou Sida Chemical Plant 0.00 625,916.60 (2) Sales In RMB Companies 2001 2000 Jingzhou Jianghan Pharmaceutical Co., Ltd., 178,836.31 Jingzhou Dali Industrial Co., Ltd. 1,060,631.41 3) Balance of Receivables from and Payables to the Related Parties In RMB Companies Dec. 31, 2001 Dec. 31, 2000 1. Other payables: Sanonda Group Company 37,233,944.14 Boerde Holdings Co., Ltd. 6,090,000.00 2 Accounts payable Jingzhou Fude Food General Plant 1,425,206.56 3,691,424.68 Jingzhou Sida Chemical Plant 661,317.09 1,562,024.87 Jingzhou Petrochemical Plant 0.00 512,272.24 Hubei Datian Holdings Co., Ltd. 0.00 594,814.28 Dali Industrial 976,801.25 928,779.49 3. Other receivable: Sanonda Group Company 20,251,971.91 Jingzhou Fude Food General Plant 20,414,152.72 19,630,005.35 Sanonda Coal Chemical Industrial Co., Ltd. 29,560,000.00 21,344,737.66 Hubei Datian Holdings Co., Ltd. 24,000,000.00 4,000,000.00 4 Accounts prepaid Sanonda Petrochemical General Factory 3,793,497.46 4) Other Related Transactions The Company received the fund occupancy fee from Sanonda Group Company amounting to RMB 1,641,000.00 in 2001 while RMB 1,680,000.00 in 2000. 5) In the report period, the Company reengaged Tianhua Certified Public Accountants as the Company’s domestic auditor. Both parties signed an agreement for this. The Company paid the auditing fee amounting to RMB 280,000 for the said year and its travel expenses for the work, in addition. The Company reengaged Arthur Anderson & Co. as the Company’s international auditor. Both parties signed an agreement for this. The Company paid the auditing fee amounting to HK$ 620,000 for the said year and its travel expenses for the work, in addition. 6) Post Events Ended December 31, 2001, the Company had accounts receivable amounting to RMB 29.56 million from Jingzhou Sanonda Coal Chemical Industry Co., RMB 20.41 million from Jingzhou Fude Food General Plant, RMB 26.7 million from Jingzhou Municipal Bureau of Finance as the financial refunded over the years and RMB 10 million from Jingzhou Municipal Bureau of State Assets, with the total RMB 86.67 million. In accordance with the Designated Meeting Minutes of Jingzhou Municipal People’s Government No. 56, the overpaid income tax amounting to RMB 26.7 million was repaid to the Company with the public finance; the loan borrowed by the Municipal Bureau of State Land Resources from Sanonda Group Company and the Company amounting to RMB 10 million respectively was repaid, with the total RMB 20 million; Sanonda Coal Chemical Industry Co. and Jingzhou Fude Food General Plant, two of Sanonda Group Company’s subsidiaries, borrowed RMB 49.97 million from the Company in the process of the enterprise system restructuring; Sanonda Coal Chemical Industry Co. and Jingzhou Fude Food General Plant borrowed RMB 5.01 million from Sanonda Group Company. The total amount of the above items was RMB 101.68 million. It has been decided through meeting that the municipal government shall transfer the land with an area of 600 mu located at Xuetangzhou, Jingzhou to the Company to offset the aforesaid amount RMB 101.68 million. (Through appraisal conducted by Hubei Wanxin Assets Appraisal Co., Ltd. with the Document HWAAC Appraisal-Report (2001) No. 064, the appraised value of the land is RMB 102.10 million.). Jingzhou Municipal Bureau of State Land Resources has handled the procedures of the land transfer according to the law. The Company has obtained the use right of the land free of charge. The balance amounting to RMB 15.01 million between the land price RMB 102.1 million and the Company’s account receivable RMB 86.67 million is the arrears of Jingzhou Municipal Bureau of State Land Resource and Jingzhou Coal Chemical Co. and Jingzhou Fude Food General Plant, the two subsidiaries of the Group to Sanonda Group Company. Since the land is undividable, the Company should pay RMB 15.01 million to Sanonda Group Company which has formed the liabilities to the Group. Since Sanonda Group Company is authorized to hold 81726625 state owned shares of the Company, taking 27.52% of the Company’s shares, the Group is the Company’s control shareholder. Sanonda Coal Chemical Co. and Jingzhou Fude Food General Plant are two subsidiaries of Sanonda Group Company, the Company’s control shareholder. In accordance with the relevant regulations, the Company’s activities of accepting the transferred land and payment of RMB 15.01 million to Sanonda Group Company have formed significant related transactions. The Company published public notice of the aforesaid information as significant events on China Securities Interactive, Securities Times and Ta Kung Pao dated December 28, 2001. X. FINANCIAL REPORT (I) Auditors’Report (please refer to the attachment) (II) Financial Statements (please refer to the attachment) XI. DOCUMENTS FOR REFERENCE 1. The Annual Report carried with original signatures of Chairman of the Board. 2. Accounting statements carried with the personal signatures and seals of legal representative and person in charge of accounting affairs. 3. Original of auditor’s report carried with seal of the Certified Public Accountants as well as personal signatures and seals of certified public accountants. 4. All of the Company’s original documents and announcements, which were published in China Securities, Securities Times and Ta Kung Pao. 5. Articles of Association of the Company. Board of Directors of HUBEI SANONDA CO., LTD. April 20, 2002 HUBEI SANONDA CO., LTD. AND SUBSIDIARIES (Incorporated in the People’s Republic of China) CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 TOGETHER WITH AUDITORS’REPORT AUDITORS’REPORT TO THE SHAREHOLDERS OF HUBEI SANONDA CO., LTD.: We have audited the accompanying consolidated balance sheet of Hubei Sanonda Co., Ltd. (hereinafter referred to as the “Company”) and its subsidiaries (hereinafter together with the Company referred to as the “Group”) as of December 31, 2001, and the related consolidated statements of income, changes in equity and cash flows for the year then ended. These consolidated financial statements set out on pages 2 to 31 are the responsibility of the Group’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as of December 31, 2001, and the results of its operations and its cash flows for the year then ended, in accordance with International Financial Reporting Standards , as published by the International Accounting Standards Board. Certified Public Accountants Hong Kong, the People ’s Republic of China April 17, 2002 HUBEI SANONDA CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2001 (Amounts expressed in thousands of Renminbi) Note 2001 2000 ASSETS Non-current assets Land use rights 3 71,889 73,482 Property, plant and equipment 4 482,646 534,065 Investments in unconsolidated subsidiaries 5 2,575 1,480 Investments in associates 5 2,423 2,173 Deferred tax assets 16 11,796 11,796 Other long-term investments 6 13,930 32,152 Total non-current assets 585,259 655,148 Current assets Inventories 7 256,076 249,852 Due from related parties 20 85,619 146,572 Prepayments 30,047 34,454 Trade and other receivables 8 268,450 269,620 Short-term investments 70,282 4,534 Restricted cash deposits 9 14,726 25,745 Cash and cash equivalents 19(b) 306,618 471,879 Total current assets 1,031,818 1,202,656 Total assets 1,617,077 1,857,804 EQUITY AND LIABILITIES Shareholders ’equity Share capital 10 296,962 296,962 Reserves 11 646,545 667,461 Total shareholders ’equity 943,507 964,423 Minority interests 30,610 41,239 Non-current liabilities Long-term borrowings, net of current portion 12 86,380 176,990 Other non-current liabilities - 9,693 Total non-current liabilities 86,380 186,683 Current liabilities Provision for staff welfare 15 2,127 609 Due to related parties 20 7,479 33,052 Trade and other payables 13 258,877 201,798 Current portion of long-term borrowings 12 115,223 63,950 Short-term borrowings 12 172,874 366,050 Total current liabilities 556,580 665,459 Total equity and liabilities 1,617,077 1,857,804 The accompanying notes are an integral part of this consolidated financial statement. 2 HUBEI SANONDA CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2001 (Amounts expressed in thousands of Renminbi, except (loss) earnings per share data) Note 2001 2000 Revenue 955,663 913,328 Cost of sales (831,414) (783,545) Gross profit 124,249 129,783 Other operating income 5,407 4,719 Distribution costs (31,407) (33,810) Administrative expenses (82,386) (89,008) Impairment loss of property, plant and equipment 4 (4,666) - Gain from sale of short-term investments 5,719 8,276 Other operating expenses (3,940) (4,820) Profit from operations 12,976 15,140 Finance cost 14 (33,067) (25,815) Interest income 16,462 19,134 Impairment loss of a long-term investment 6 (17,500) - (Loss) profit before taxation and minority interests 15 (21,129) 8,459 Income tax expense 16 (6,104) (5,221) (Loss) profit after taxation but before minority interests (27,233) 3,238 Minority interests 6,317 3,248 Net (loss) profit for the year (20,916) 6,486 (Loss) earnings per share - Basic 18 Renminbi(0.07) Renminbi 0.02 - Diluted Not applicable Not applicable The accompanying notes are an integral part of this consolidated financial statement. 3 HUBEI SANONDA CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2001 (Amounts expressed in thousands of Renminbi) Reserves Statutory Statutory Discretionary Capital surplus public surplus Total Share capital reserve reserve fund welfare fund reserve fund Retained profits reserves Total Equity (Note 10) (Note 11(a)) (Note 11(b)) (Note 11(c)) (Note 11(d)) Balance as of January 1, 2000 296,962 565,353 37,290 18,645 3,816 65,567 690,671 987,633 Dividends declared after January 1, 2000 from retained profits as of December 31, 1999 (Note 17) - - - - - (29,696) (29,696) (29,696) Net profit of 2000 - - - - - 6,486 6,486 6,486 Profit appropriations from net profit of 2000 - Statutory surplus reserve fund - - 1,801 - - (1,801) - - - Statutory public welfare fund - - - 900 - (900) - - Balance as of December 31, 2000 296,962 565,353 39,091 19,545 3,816 39,656 667,461 964,423 Net loss of 2001 - - - - - (20,916) (20,916) (20,916) Restatement of reserves in the statutory accounts - - (4,493) (2,247) - 6,740 - - Profit appropriations from net profit of 2001 - Statutory surplus reserve fund - - 1,050 - - (1,050) - - - Statutory public welfare fund - - - 525 - (525) - - Balance as of December 31, 2001 296,962 565,353 35,648 17,823 3,816 23,905 646,545 943,507 4 The accompanying notes are an integral part of this consolidated financial statement. 5 HUBEI SANONDA CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2001 (Amounts expressed in thousands of Renminbi) Note 2001 2000 CASH FLOWS FROM OPERATING ACTIVITIES: Cash generated from operations 19(a) 175,317 102,759 Interest paid (36,231) (30,866) Income tax paid (12,909) (16,076) Net cash generated from operating activities 126,177 55,817 CASH FLOWS FROM INVESTING ACTIVITIES : Purchase of property, plant and equipment (25,514) (59,326) Proceeds from disposal of property, plant and equipment 4,860 2,150 Interest received 16,462 11,556 Proceeds from sale of short-term investments 10,253 8,276 Increase in short-term investments (70,282) (4,534) Increase in investments in associates (250) - Increase in investments in unconsolidated subsidiaries (1,095) - Increase in other long-term investments (66) (35,718) Net cash used in investing activities (65,632) (77,596) CASH FLOWS FROM FINANCING ACTIVITIES : Decrease (increase) in restricted cash deposits 11,019 (25,745) Draw-down of short-term borrowings 172,874 366,050 Repayment of short-term borrowings (366,050) (236,441) Draw-down of long-term borrowings - 7,000 Repayment of long-term borrowings (39,337) - Dividends paid - (29,696) (Decrease) increase in minority interests (4,312) 7,349 Net cash (used in) generated from financing activities (225,806) 88,517 Net (decrease) increase in cash and cash equivalents (165,261) 66,738 Cash and cash equivalents, beginning of year 471,879 405,141 Cash and cash equivalents, end of year 19(b) 306,618 471,879 The accompanying notes are an integral part of this consolidated financial statement. HUBEI SANONDA CO., LTD. AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS 6 AS OF DECEMBER 31, 2001 (Amounts expressed in thousands of Renminbi (“RMB”) unless otherwise stated) 1. ORGANIZATION AND OPERATIONS Hubei Sanonda Co., Ltd. (the “Company”) was incorporated in the People’s Republic of China (the “PRC”) on September 30, 1992 as a joint stock limited company. The Company’s ordinary (“A”) shares and special ordinary (“B”) shares have been listed on the Shenzhen Stock Exchange since December 1993 and May 1997, respectively. The principal activities of the Company and its subsidiaries are the manufacture and both domestic and export sales of agrochemical and chemicalproducts. The immediate parent company and ultimate parent company of the Company is Sanonda Group Company (“SGC”). The address of the Company’s registered office is 93 East Beijing Road, Jingzhou City, Hubei Province, China 434001. As of December 31, 2001, there are 5,837 employees in the Group (2000: 6,180). As of December 31, 2001, the Company’s subsidiaries and associates, which are all incorporated in the PRC, are as follows: Attributable Date of Equity Registered Principal Name of Company Establishment Interest Capital Activity Direct Indirect (a) Consolidated subsidiaries Qichun Agrochemical Co., Ltd June 25, 1998 70% - 80,000 Manufacture and sale of (沙隆达蕲春有限公司） agrochemicals Jingzhou Agrochemical Co., Ltd. April 8, 1993 87.5% - 28,000 Manufacture and sale of （沙隆达(荆州)农药化工有限公司） agrochemicals Hubei Sanonda International Trade Co., Ltd. July 29, 1998 90% - 10,000 Import and export sales of （湖北沙隆达对外贸易有限公司） agrochemical, chemical and medicinal products Sanonda Zhengzhou Agrochemical Co., Ltd. December 10, 70% - 40,000 Manufacture and sale of （沙隆达郑州农药有限公司） 1998 agrochemical and chemical products Sanonda Tianmen Agrochemical Co., Ltd. July 18, 1994 56.25% - 8,000 Manufacture and sale of （湖北沙隆达天门农化有限责任公司） agrochemicals Jingzhou Sanonda Real Estate Development Co., March 15, 2001 90% - 10,000 Real estate development Ltd. （荆州市沙隆达房地产开发有限公司） (b) Unconsolidated subsidiaries Sanonda Dali Co., Ltd. September 18, 53% - 2,830 Manufacture and sale of （荆州市达利实业公司） 1992 packaging materials Jingzhou Sanonda Advertisement Co., Ltd. January 1, 1999 60% - 500 Design, make, release and （荆州沙隆达广告有限公司） agency of domestic advertisement 7 Attributable Date of Equity Registered Principal Name of Company Establishment Interest Capital Activity Direct Indirect (c) Associates Yichang Changda Real Estate April 18, 1994 50% - 5,000 Property development Development Company （宜昌市昌达房地产开发公司） Jingzhou Sida Chemical Plant February 17, 50% - 1,690 Manufacture and sale of （荆州市四达化工厂） 1988 agrochemicals Zhengzhou Sanonda Weixin Agrochemical Co., April 13, 1999 - 21% 7,900 Manufacture and sale of Ltd. agrochemicals （郑州沙隆达伟新农药有限公司) Jingzhou Sanonda Jianghan Pharmaceutical Co., June 20, 2001 25 - 1,000 Manufacture and sale of Ltd. % pharmaceutical products （荆州市沙隆达江汉制药有限公司） In June 2001, Sichuan Chuanda Chemical Co., Ltd. (originally the Company’s associate) was dissolved and no loss on liquidation was incurred. On March 15, 2001, the Company invested RMB 9,000 to set up Jingzhou Sanonda Real Estate Development Co., Ltd. together with SGC. On June 20, 2001, the Company invested RMB 250 to set up Jingzhou Sanonda Jianghan Pharmaceutical Co., Ltd. together with other investors. 2. PRINCIPAL ACCOUNTING POLICIES The principal accounting policies adopted in preparing the consolidated financial statements of the Company and its subsidiaries are as follows: (a) Basis of preparation The consolidated financial statements are prepared under historical cost convention (except that short-term investments are stated at their fair value (Note 2(h)) in accordance with International Financial Reporting Standards (“IAS”), as published by the International Accounting Standards Board, effective as of December 31, 2001. This basis of accounting differs from that used in the preparation of the Group’s consolidated statutory accounts which are prepared in accordance with the accounting standards and regulations applicable to joint stock limited companies in the PRC (“statutory accounts”). The principal adjustments made to conform the statutory accounts of the Company and its subsidiaries to IAS are shown in Note 22. (b) Principles of consolidation The consolidated financial statements include the financial statements of the Company and its consolidated subsidiaries (the “Group”). 8 The purchase method of accounting is used for acquired businesses. Results of subsidiaries and associates acquired or disposed of during the year are included in the consolidated financial statements from the date of acquisition or to the date of disposal. The equity and net income attributable to minority shareholders’interests are shown separately in the consolidated balance sheet and statement of income, respectively. Intercompany balances and transactions, including intercompany profits and unrealized profits and losses are eliminated on consolidation. Consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. (c) Property, plant, equipment and depreciation Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment loss. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the property, plant and equipment have become ready for its intended use, such as repairs and maintenance and overhaul costs, are recognized as expense in the period in which they are incurred. In situations where it is probable that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of the asset beyond its originally assessed standard or performance, the expenditures are capitalized as an additional cost of the asset. Depreciation is calculated using the straight-line method to write off the cost, after taking into account the estimated residual value, of each asset over its expected useful life. The expected useful lives are as follows: Buildings 24 years Plant, machinery and equipment 9-18 years Motor vehicles 9 years The useful life and depreciation method are reviewed periodically to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefits from items of property, plant and equipment. When property, plant and equipment are sold or retired, their costs and accumulated depreciation and accumulated impairment losses are eliminated from the accounts and any gain or loss resulting from their disposal is included in the consolidated statement of income. (d) Operating leases Leases of assets under which substantially all the risks and rewards of 9 ownership are effectively retained by the lessor are recognized as operating leases. Lease payments under an operating lease are recognized as an expense on a straight-line basis over the lease term. (e) Construction-in-progress Construction-in-progress represents plant and properties under construction or equipment under installation and is stated at cost. This includes costs of construction, acquisition and other direct costs, plus borrowing costs which include interest charges and exchange differences arising from foreign currency borrowings (to the extent they are regarded as an adjustment to the interest costs) used to finance these projects during the construction period. Construction-in-progress is not depreciated until such time as property, plant and equipment are completed and ready for its intended use. (f) Subsidiaries A subsidiary is a company in which the Company controls. Control exists when the Company has the power to govern the financial and operating policies of the subsidiary so as to obtain benefits from its activities. Investments in unconsolidated subsidiaries are not material to the consolidated financial statements of the Group both individually and taken as a whole. They are accounted for as available-for-sale financial assets. These investments are unlisted investments that do not have quoted market price in an active market, and there are no other practical methods of reasonably estimating their fair values. Accordingly, they are stated at cost less provision for impairment loss. An assessment of investments in unconsolidated subsidiaries is performed when there is an indication that the asset has been impaired or the impairment losses recognized in prior years no longer exist. (g) Associates An associate is a company, not being a subsidiary or a joint venture, in which the Company has significant influence. Significant influence exists when the Company has the power to participate in, but not control, the financial and operating decisions of the associate. Investments in associates are not material to the consolidated financial statements of the Group both individually and taken as a whole. They are accounted for as available-for-sale financial assets. These investments are unlisted investments that do not have quoted market price in an active market, and there are no other practical methods of reasonably estimating their fair values. Accordingly, they are stated at cost less provision for impairment loss. An assessment of investments in associates is performed when there is an indication that the asset has been impaired or the impairment losses recognized in prior years no longer exist. 10 (h) Investments Available-for-sale investments are classified as current assets if management intends to realize them within 12 months of the balance sheet date. (i) Other long-term investments Other investments held for the long-term are classified as available-for- sale financial assets. These investments are unlisted investments that do not have quoted market price in an active market, and there are no other practical methods of reasonably estimating their fair values. Accordingly, they are stated at cost less provision for impairment loss. An assessment of long-term investments is performed when there is an indication that the asset has been impaired or the impairment losses recognized in the prior year no longer exist. Income from investments is accounted for to the extent of interest and dividends received and receivable . Upon disposal of a long-term investment, the difference between net disposal proceeds and the carrying amount is charged or credited to the consolidated statement of income. (ii) Short-term investments Short-term investments represent treasury bonds and other marketable securities. They are classified as available-for-sale financial assets and are stated at fair value , without any deduction for transaction costs, by reference to their quoted market price at the balance sheet date. Gains or losses on measurement to fair value of short-term investments are included in the consolidated statement of income. Income from investments is accounted for to the extent of interest and dividends received and receivable . Upon disposal of an investment, the difference between the net disposal proceeds and the carrying amount is included in the consolidated statement of income. (i) Inventories Inventories are stated at the lower of cost and net realizable value. Cost, calculated on the weighted average basis, comprises all costs of purchase, costs of conversion and other costs incurred to bring the inventories to their present location and condition. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. 11 (j) Receivables Receivables are stated at fair value of the consideration given and are carried at cost, after provision for impairment. (k) Cash and cash equivalents Cash represents cash on hand and deposits with banks which are repayable on demand. Cash equivalents represent short-term, highly liquid investments which are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. (l) Provisions A provision is recognized when, and only when: (i) The Group has a present obligation (legal or constructive) as a result of a past event; (ii) It is probable (i.e. more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation; and (iii) A reliable estimate can be made of the amount of the obligation. At balance sheet date, if it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision will be reversed. (m) Liabilities and equity Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement on initial recognition. Interest, dividends, gains, and losses relating to a financial instrument classified as a liability, are reported as expense or income. Distribution to holders of financial instruments classified as equity are charged directly to equity. (n) Minority interests Minority interests include their proportion of the fair values of identifiable assets and liabilities recognized upon acquisition of a subsidiary. (o) Revenue recognition Provided it is probable that the economic benefits associated with a 12 transaction will flow to the company and the revenue and costs, if applicable, can be measured reliably, revenue is recognized on the following bases: (i) Sale of goods Revenue is recognized when the significant risks and rewards of ownership of goods have been transferred to the buyer. (ii) Interest income Interest income is recognized on a time proportion basis that takes into account the effective yield on the assets. (iii) Dividend income Dividend income is recognized when the right to receive payment is established. (p) Taxation The Group is subject to PRC enterprise income tax on the basis of its profit per the statutory accounts, adjusted for income and expense items which are not assessable or deductible for income tax purposes and after considering all available tax benefits. Other taxes are provided in accordance with the prevailing PRC tax regulations applicable for the Group. Deferred taxes are calculated using the balance sheet liability method. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled based on tax rates enacted or substantially enacted at the balance sheet date. Deferred tax assets are recognized when it is probable that sufficient taxable profits will be available against which the deferred tax assets can be utilized. Deferred tax assets and liabilities are recognized regardless of when the temporary difference is likely to reverse. Deferred tax assets and liabilities are not discounted and are classified as non-current assets or liabilities in the consolidated balance sheet. 13 (q) Measurement currency and foreign currency translation Based on the economic substance of the underlying events and circumstances relevant to the Group, the measurement currency of the Group has been determined to be RMB. Transactions in other currencie s are translated into the measurement currency at exchange rates prevailing at the time of the transactions. Monetary assets and liabilities denominated in other currencies at the balance sheet date are translated into the measurement currency at exchange rate prevailing at that date. Non-monetary assets and liabilities in other currencies are translated at historical rates. Exchange differences, other than those capitalized as a component of borrowing costs, are recognized in the consolidated statement of income in the year in which they arise. (r) Borrowings and borrowing costs Borrowings are initially recognized at the proceeds received, net of transaction cost. They are subsequently carried at amortized costs using the effective interest rate method, the difference between net proceeds and redemption value being recognized in the net profit or loss for the year over the life of the borrowings. Borrowing costs include interest charges and other costs incurred in connection with the borrowing of funds. Borrowing costs are expensed as incurred, except when they are directly attributable to the acquisition, construction of property, plant and equipment that necessarily takes a substantial period of time to get ready for its intended use in which case they are capitalized as part of the cost of that asset. Capitalization of borrowing costs commences when expenditures for the asset and borrowing costs are being incurred and the activities to prepare the asset for its intended use are in progress. Borrowing costs are capitalized at the weighted average cost of the related borrowings until the asset is ready for its intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recorded. (s) Government grants Government grants are not recognized until there is reasonable assurance that the Company will comply with the conditions attached to them, if any, and that the grants will be received. Income from government grants is recognized as a deduction from the appropriate expense. 14 (t) Statutory pension scheme Pursuant to the PRC laws and regulations, contributions to the basic old age insurance for the Group’s local staff are to be made monthly to a government agency based on 25% of the standard salary set by the provincial government, of which 20% is borne by the Group and the remainder is borne by the staff. The government agency is responsible for the pension liabilities relating to such staff on their retirement. The Group accounts for these contributions on an accrual basis. (u) Financial instruments (i) Definition A financial instrument is any contract that gives rise to both a financial asset of one enterprise and a financial liabilities or equity instrument of another enterprise. A financial asset is any asset that is: (a) cash; (b) a contractual right to receive cash or another financial asset from another enterprise; (c) a contractual right to exchange financial instruments with another enterprise under conditions that are potentially favourable; or (d) an equity instrument of another enterprise. A financial liabilit y is any liability that is a contractual obligation: (a) to deliver cash or another financial asset to another enterprise; or (b) to exchange financial instruments with another enterprise under conditions that are potentially unfavourable. The financial assets and financial liabilities of the Group include bank deposits, trade and other receivables and payables, short-term investments and long-term investments, balances with related parties and borrowings. (ii) Recognition and measurement Financial assets are initially recognized at cost which is the fair value of the consideration given, including transaction costs. They are subsequently carried at either fair value, cost or amortized cost (using the effective interest rate method) according to IAS 39. A “regular way” purchase or sale of financial assets is recognized using trade date accounting. Gains and losses arising from changes in the fair value of those available-for-sale financial assets that are measured at fair value subsequent to initial recognition are included in consolidated statement of income. The accounting policies on recognition and measurement of 15 the major items are disclosed in the respective accounting policies found in this Note. 16 (iii) Presentation Financial instruments are offset when the Group has a legally enforceable right to offset and intends to settle either on a net basis or to realize the asset and settle the liability simultaneously. (v) Impairment of assets (i) Financial instrument Financial instruments are reviewed for impairment at each balance sheet date. For financial assets carried at cost or amortized cost, whenever it is probable that the Group will not collect all amounts due according to the contractual terms of receivables or held-to-maturity investments, an impairment or bad debt loss is recognized in the consolidated statement of income. Reversal of impairment losses previously recognized is recorded when the decrease in impairment loss can be objectively related to an event occurring after the write-down. Such reversal is recorded in income. However, the increased carrying amount is only recognized to the extent it does not exceed what amortized cost would have been had the impairment not be recognized. (ii) Other assets Other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. At the balance sheet date, whenever the carrying amount of an asset exceeds its recoverable amount, the carrying amount will be written down to recoverable amount, and an impairment loss is recognized in consolidated statement of income. The recoverable amount is the higher of an asset’s net selling price and value in use. The net selling price is the amount obtainable from the sale of an asset in an arm’s length transaction less costs of disposal, while value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Recoverable amounts are estimated for individual assets or, if this is not possible, for the cash-generating unit to which the asset belongs. Reversal of impairment losses recognized in prior years is recorded when the impairment losses recognized for the asset no longer exist or have decreased. The reversal is recorded in income. (w) Segment For management purposes the Group is organized into two major business segments, agrochemical and chemical, upon which basis the Group reports its primary segment information. There are no geographical segments because 17 substantially all of the Group’s products are sold domestically in the PRC. 18 (x) Contingencies Contingent liabilities are not recognized in the consolidated financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognized in the consolidated financial statements but disclosed when an inflow of economic benefits is probable. (y) Subsequent events Post-year-end events that provide additional information about the Group’s position at the balance sheet date (“adjusting events”) are reflected in the consolidated financial statements. Post-year-end events that are not adjusting events are disclosed in the notes when material. (z) Changes in accounting policy A change in accounting policy should be made only if required by statute, or by an accounting standard setting body, or if the change will result in a more appropriate presentation of events or transactions in the consolidated financial statements of the Group. A change in accounting policy should be applied retrospectively unless the amount of any resulting adjustment that relates to prior periods is not reasonably determinable, in which case, the change in accounting policy should be applied prospectively. 3. LAND USE RIGHTS 2001 2000 Original prepaid lease payments 79,785 79,785 Cumulative amount charged against income (7,896) (6,303) Net 71,889 73,482 All land in the PRC is owned by the state or is subject to collective ownership and neither individuals or legal entities may own land. Payment for land use rights represent prepaid lease payments for the parcels of land in which the Group’s plants are located, and are recognized as an expense on a straight-line basis over the estimated period of use of the land use rights. Estimated period of use of a land use right is the land use period according to the land use right certificate (twenty to fifty years). As of December 31, 2001, the Group had no future lease payment obligations in respect of the above land use rights. 19 4. PROPERTY, PLANT AND EQUIPMENT Movement in property, plant and equipment for the year ended December 31, 2001 is as follows: M achinery and Construction- Buildings equipment Motor vehicles in-progress Total Cost Beginning of year 234,635 479,411 15,249 78,874 808,169 Additions 2,414 9,873 1,807 11,420 25,514 Reclassification 7,471 160 - (7,631) - Disposals (5,088) (2,781) (2,474) (10,343) (20,686) End of year 239,432 486,663 14,582 72,320 812,997 Accumulated depreciation and impairment losses Beginning of year 59,239 207,673 7,192 - 274,104 Depreciation charge 9,171 45,349 1,413 - 55,933 for the year Impairment losses - 4,148 518 - 4,666 Disposals (1,285) (2,186) (881) - (4,352) End of year 67,125 254,984 8,242 - 330,351 Net book value End of year 172,307 231,679 6,340 72,320 482,646 Beginning of year 175,396 271,738 8,057 78,874 534,065 Management’s current forecast indicates that the economic performance of certain production facilities is worse than originally expected. The impaired assets were written down to their recoverable value which is their value in use. The value in use is the present value of estimated future cash flows expected to arise from the continuing use of the relevant assets and from their disposals at the end of their useful lives. The discount rate used is 5.85% per annum. As described in Note 21, these facilities cannot be divided between the Group’s two business segments because they basically share the same production process. As of December 31, 2001, certain of the Group’s property, plant and equipment amounting to RMB 134,115 (2000: RMB 218,278) were mortgaged as collateral for bank loans (see Note 12). 20 5. INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES AND ASSOCIATES The Company’s directors are of the opinion that the recoverable amounts of investments in unconsolidated subsidiaries and associates are not less than their carrying value as of December 31, 2001. The increase in investments in unconsolidated subsidiaries in 2001 represented additional paid-in capital contributed into these subsidiaries. 6. OTHER LONG-TERM INVESTMENTS 2001 2000 Investment in Jingzhou Commercial Bank 20,000 20,000 Real estate venture 6,010 6,000 Investments in unlisted shares 2,190 2,134 Investments in debentures 400 400 Other long-term investments 2,830 3,618 31,430 32,152 Less: Provision for impairment loss for investment in Jingzhou Commercial Bank (17,500) - 13,930 32,152 The unaudited financial statements of Jingzhou Commercial Bank indicated a substantial accumulated loss. The impaired asset was written down to its recoverable value which is its expected net selling price. The expected net selling price is estimated to be the Group's share of the net assets of Jin gzhou Commercial bank as of December 31, 2001 because management believe this amount can best approximate the disposal proceeds that the Company is likely to obtain, at December 31, 2001, should the investment be disposed in an arm’s length transaction between knowledgeable, willing parties. For the year ended December 31, 2001, the Company recorded an impairment loss of RMB 17,500 (2000: Nil) related to this investment. 7. INVENTORIES 2001 2000 Raw materials 54,554 69,661 Work-in-process 32,796 35,891 Real estate in development 10,692 - Finished goods 158,034 144,300 21 256,076 249,852 22 For the year ended December 31, 2001, inventories expensed in the consolidated statement of income amounted to approximately RMB 831,400 (2000: approximately RMB 783,500). Certain inventories with a total carrying amount of RMB 61,424 (2000: RMB 28,445) were stated at net realizable value. 8. TRADE AND OTHER RECEIVABLES 2001 2000 Accounts receivable 264,619 262,269 Notes receivable 750 760 265,369 263,029 Less: Provision for doubtful accounts (60,717) (55,985) Trade receivables 204,652 207,044 Add: Other receivables 63,798 62,576 Trade and other receivables 268,450 269,620 9. RESTRICTED CASH DEPOSITS Restricted cash deposits represented deposits with banks pledged for acceptance of commercial bills. 10. SHARE CAPITAL As of December 31, 2001, the outstanding share capital represented ordinary shares (“A Shares”) and special ordinary shares (“B Shares”). The B shares rank pari passu in all respects with the A shares. The details of share capital (par value of RMB 1 each) are as follows: 2001 2000 2001 2000 Number of shares (‘000) Amount Authorized, issued and fully paid: State-owned A shares 84,730 84,730 84,730 84,730 Publicly-owned A shares (including employee shares) 97,232 97,232 97,232 97,232 B shares 115,000 115,000 115,000 115,000 296,962 296,962 296,962 296,962 23 11. RESERVES (a) Capital reserve In accordance with the articles of association, the Company shall record the following as capital reserve: (i) share premium; (ii) donations; (iii) appreciation arising from revaluation of assets; and (iv) other items in accordance with the articles of association and relevant regulations in the PRC. Capital reserve may be utilized to offset prior years’losses or for the issuance of bonus shares. As of December 31, 2001, the capital reserve of the Company represents share premium, that is, net assets acquired from SGC in excess of par value of state shares issued and proceeds from the issuance of A shares and B shares in excess of their par value, net of expenses directly relating to the issue of the shares. (b) Statutory surplus reserve fund In accordance with the Company Law of the PRC, the Company shall appropriate 10% of its annual statutory net profit (after offsetting any prior years’losses) to the statutory surplus reserve fund. When the balance of such reserve reaches 50% of the Company’s share capital, any further appropriation is optional. The statutory surplus reserve fund can be utilized to offset prior years’ losses or to issue bonus shares. However, such statutory surplus reserve fund must be maintained at a minimum of 25% of share capital after such issuance. (c) Statutory public welfare fund In accordance with the articles of association, the Company is also required to allocate 5% to 10% of its annual statutory net profit to the statutory public welfare fund, which can only be used for the collective welfare of the employees of the Company. (d) Discretionary surplus reserve fund Discretionary surplus reserve fund represents appropriations made at the sole discretion of the board of directors of the Company, which are subject to the ratification of the shareholders at the shareholders’meeting. 12. BORROWINGS (a) Short-term borrowings As of December 31, 2001, the Group had short-term borrowings granted by various banks amounting to RMB 172,874 (2000: RMB 366,050), of which RMB 24,859 (2000: RMB 21,168) were secured by certain property, plant and 24 equipment of the Group (see Note 4), and borrowings of RMB 98,600 (2000: RMB 338,465) were guaranteed by SGC. 25 The interest rates of short-term bank borrowings range from 2.88% to 7.56% (2000: 2.88% to 8.40%) per annum. (b) Long-term borrowings (i) Security 2001 2000 Bank loans Secured 196,513 240,940 Unsecured 5,090 - 201,603 240,940 Amounts due within one year included under current liabilities (115,223) (63,950) 86,380 176,990 As of December 31, 2001, long-term borrowings of RMB 107,633 (2000: RMB 183,085) were secured by certain property, plant and equipment of the Group (see Note 4) , borrowings of RMB 81,080 (2000: RMB 48,355) were guaranteed by SGC , and borrowings of RMB 7,800 (2000: RMB 9,500) were guaranteed by third parties. (ii) Interest rate Except for interest-free borrowings of RMB 36,780 (2000: RMB 44,037), long-term bank borrowings bear floating interest at rates ranging from 5.94% to 10.80% per annum (2000: 5.94% to 10.08% per annum). The floating interest rates are fixed on a semi-annual or quarterly basis. (iii) Repayment terms As of December 31, 2001, long-term borrowings comprised: Amounts repayable: 2001 2000 - within one year 115,223 63,950 - between two and five years 86,380 176,990 - after five years - - 86,380 176,990 26 13. TRADE AND OTHER PAYABLES 2001 2000 Accounts payable 156,745 127,341 Notes payable 15,042 15,550 Advances from customers 54,027 30,847 Accrued expenses and other payables 33,063 28,060 258,877 201,798 14. FINANCE COST 2001 2000 Interest expense on bank loans 36,074 31,049 Less: amount capitalized in construction-in-progress (3,007) (5,234) 33,067 25,815 For the year ended December 31, 2001, the Group's capitalization rate is 6.03% (2000: 6.03%) per annum. 15. (LOSS) PROFIT BEFORE TAXATION AND MINORITY INTERESTS (Loss) profit before taxation and minority interests is determined after crediting and charging the following items: 2001 2000 Crediting: Realized gain from sale of short-term investments 5,719 8,276 Charging: Staff costs - Salaries and wages 50,133 50,672 - Provision for staff welfare 6,574 6,340 - Contribution to statutory pension scheme (Note 2(t)) 5,659 7,105 62,366 64,117 Depreciation of property, plant and equipment 55,933 53,530 Operating lease rentals for plant and machinery 732 2,261 Lease prepayment for land use rights charged against income 1,593 1,512 27 Write-down of inventories to net realizable value 4,324 3,057 Provision for doubtful debts 11,676 9,899 28 The Group provide for certain staff welfare and contributions to the statutory pension fund based on a certain percentage of gross salaries. Staff welfare consists of staff welfare benefit, housing fund, labour union fund, unemployment insurance, etc. Provisions for staff welfare are made based on the following percentages of employees’gross salaries: Percentage 2001 2000 Staff welfare benefit 14% 14% Housing fund 5% 5% Labour union fund 2% 2% Unemployment insurance 1% 1% Movement of provision for staff welfare benefit in 2001 is as follows: Balance as of 1st January 2001 609 Provision 6,574 Payment (5,056) Balance as of 31st December 2001 2,127 16. TAXATION (a) Value-added Tax (“VAT”) The Group is subject to VAT, which is charged on the top of the selling price at a general rate of 17%. Certain of the Group’s products are subject to VAT at 13% or are exempt, as noted below. As for sale of products subject to VAT, an input credit is available whereby VAT previously paid on purchases of semi-finished products, raw materials, etc. can be used to offset against the output VAT on sales to determine the net VAT payable. Pursuant to the relevant tax laws and regulations, a substantial portion of the Group’s products are VAT exempt and, accordingly, the related input VAT paid for the semi-finished products or raw materials is not deductible. The non-deductible input VAT is charged to cost of goods sold. (b) Enterprise income tax (“EIT”) The Group is subject to EIT levied at a rate of 33%. According to the relevant document issued by the Hubei Provincial Government and Jingzhou City Local Tax Bureau, the Company is entitled to a financial refund equivalent to 18% of taxable income in 2001. Pursuant to Cai Shui [2000] No.99 issued in October 2000, the above preferential tax treatment relating to the Company will remain effective until December 31, 29 2001. 30 Details of taxation charged for the year ended December 31, 2001 are as follows: 2001 2000 Current taxation 7,878 12,380 Deferred tax credit relating to the origination and reversal of temporary differences - (3,182) Tax expense before financial refund 7,878 9,198 Financial refund (1,774) (3,977) Tax expense after financial refund 6,104 5,221 Movements of deferred taxation for the year ended December 31, 2001 are as follows: 2001 2000 Deferred tax assets, beginning of the year 11,796 8,614 Current year movement - 3,182 Deferred tax assets, end of the year 11,796 11,796 The deferred tax assets mainly comprise temporary differences arising from the provision for doubtful accounts receivable. Reconciliation of tax expense based on the effective tax rate to tax expense based on the applicable tax rate is as follows: 2001 2000 Accounting (loss) profit before taxation (21,129) 8,459 (Tax credit) tax at the tax rate of 33% (6,973) 2,791 Tax effect of unrecognized temporary differences (i) 12,595 - Tax effect of income that are not taxable and expenses that are not deductible, in determining taxable profit 2,256 6,407 Tax expense before financial refund 7,878 9,198 (i) No deferred tax assets is recognized for these temporarily differences as of December 31, 2001 because it is not probable that sufficient taxable profits will be available against which the deferred tax assets can be utilized. 31 17. DIVIDEND In accordance with the articles of association, provisions of Statutory Surplus Reserve Fund and Statutory Public Welfare Fund should be based on profit after taxation determined in accordance with PRC accounting standards and regulations. The amount of profit available for distribution to shareholders shall be determined based on the lower of the unappropriated profit determined under the accounting principles and financial regulations applicable in the PRC and that determined under IAS. During the year ended December 31, 2000, the Company declared a cash dividend of RMB 0.10 per share, totaling RMB 29,696, in respect of retained profits as of December 31, 1999. Pursuant to a resolution of board of directors dated April 17, 2002, the board of directors of the Company proposed to appropriate 10% and 5% of net profit according to the statutory accounts for the year ended December 31, 2001 (2000: 10% and 5%) to the Statutory Surplus Reserve Fund and Statutory Public Welfare Fund, respectively, and not to distribute cash dividend, which are subject to the approval by shareholders at the shareholders’meeting. 18. (LOSS) EARNINGS PER SHARE The calculation of basic (loss) earnings per share for the year ended December 31, 2001 is based on the net loss of RMB 20,916 (2000: net profit of RMB 6,486) divided by the weighted average number of shares outstanding during the year of 296,962,000 (2000: 296,962,000). The diluted (loss) earnings per share was not presented because no dilutive potential ordinary shares existed during the year. 32 19. SUPPLEMENTARY INFORMATION TO CONSOLIDATED STATEMENT OF CASH FLOWS (a) Reconciliation from (loss) profit before taxation and minority interests to cash generated from operations: 2001 2000 (Loss) profit before taxation and minority interests (21,129) 8,459 Adjustments for: Provision for doubtful debts 11,676 9,899 Write-down of inventories to net realizable value 4,324 3,057 Depreciation of property, plant and equipment 55,933 53,530 Charging prepaid land lease payments to the profit and loss accounts 1,593 1,512 Provision for impairment loss of property, plant and equipment 4,666 - Loss on disposal of property, plant and equipment 11,474 1,498 Provision for impairment loss of other long-term investments 17,500 - Income from sale of short-term investments (5,719) (8,276) Loss on disposal of other long-term investments 788 - Interest income (16,462) (19,134) Interest expenses 33,067 25,815 Operating profit before working capital changes 97,711 76,360 Decrease in trade and other receivables, prepayments and due from related parties 54,854 22,493 (Increase) decrease in inventories (10,548) 30,925 Increase (decrease) in trade and other payables and due to related parties 33,300 (27,019) Cash generated from operations 175,317 102,759 33 (b) Analysis of the balance of cash and cash equivalents: 2001 2000 Cash on hand 119 258 Demand deposits 296,499 146,835 Fixed deposits 10,000 324,786 306,618 471,879 20. RELATED PARTY TRANSACTIONS Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party, or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. (a) Name of related party and relationship Name Relationship SGC Parent company Subsidiaries of SGC Unconsolidated subsidiaries and associates (b) Significant transactions and balances with related parties For the year ended December 31, 2001, the Group had the following material transactions with related parties: 2001 2000 Purchases of raw materials from SGC and its subsidiaries 28,662 25,802 Purchases of raw materials from unconsolidated subsidiaries and associates 6,169 8,096 Sales of products to SGC and its subsidiaries 134 6,382 Sales of products to unconsolidated subsidiaries and associates 1,244 - Construction costs and miscellaneous expenses 46,093 72,851 34 paid on behalf of SGC and its subsidiaries 35 As of December 31, 2001, the Group had the following material balances with related parties: 2001 2000 Due from SGC and its subsidiaries: - Trade and other receivables 2,259 39,936 - Loans 82,360 106,636 Due from unconsolidated subsidiaries and associates: - Loans 1,000 - Total 85,619 146,572 Trade and other payables to SGC and its subsidiaries 5,411 27,226 Trade and other payables to unconsolidated subsidiaries and associates 2,068 5,826 Total 7,479 33,052 Included in the balance of due from related parties are loans of RMB 83,360 (2000: RMB 106,636) which bear interest at rates ranging from 2% to 12% per annum (2000: 5% to 7% per annum). The interest income from these balances for the year ended December 31, 2001 was approximately RMB 4,009 (2000: RMB 6,408). Other balances due from and due to related parties are interest-free, unsecured and have no fixed repayment date. 21. SEGMENT INFORMATION The Group conducts majority of its activities in two business segments, which is manufacturing and sale of agrochemical products and chemical products. An analysis by business segment is as follows: Agrochemical Chemical Total 2001 2000 2001 2000 2001 2000 Segment revenue 717,232 655,388 238,431 257,940 955,663 913,328 Segment gross profit 112,337 115,832 11,912 13,951 124,249 129,783 Segment accounts receivable 224,848 203,728 39,771 58,541 264,619 262,269 A substantial portion of the Group’s chemical products are the by-products manufactured during the production of its agrochemical products. As such, the two segments share the same production process and raw materials. Accordingly, segment results, segment assets (other than segment accounts receivable), segment capital expenditures and segment liabilities for the two business segments are not 36 divisible . 37 22. IMPACT OF IAS ADJUSTMENTS ON NET (LOSS) PROFIT AND NET ASSETS Net (loss) profit Net assets 2001 2000 2001 2000 As reported in the statutory accounts of the Group 10,497 18,007 973,700 1,008,138 Impact of IAS adjustments, net - Additional provision for doubtful debts (12,978) (7,818) (21,952) (7,818) - Depreciation of idle property, plant and equipment (3,878) (2,173) (22,988) (18,489) - Provision to reduce inventories to net realizable value 1,427 (1,342) (3,598) (5,025) - Provision for impairment loss of property, plant and equipment (4,666) - 3,746 - - Provision for impairment loss of other long-term investments (15,200) - - - - Recognition of deferred tax assets - 3,182 11,796 11,796 - Adjustment of sales cut-off errors 338 (4,984) 275 (63) - Others 3,544 1,614 2,528 (24,116) As restated to IAS (20,916) 6,486 943,507 964,423 23. FINANCIAL INSTRUMENTS (a) Financial risk management The Group’s operation gives rise to exposure to credit risk, liquidity risk, interest rate risk and foreign exchange risk. (i) Credit risk The Group has no significant concentration of credit risk with any single counterparty or group of counterparties having similar characteristics, other than receivables from and loans to SGC and its subsidiaries. Transactions with SGC and its subsidiaries are entered into in the ordinary course of business. Credit risks associated with these transactions are closely monitored by management of the Group. In the opinion of the directors of the Group, such concentration of credit risk on SGC and its subsidiaries would not result in significant credit default exposure to the Group as of December 31, 2001. The maximum exposure to credit risk is represented by the carrying amount of each financial asset, including bank deposits, receivables and investments. 38 (ii) Liquidity risk The Group’s policy is to maintain sufficient cash and cash equivalents to meet its commitments over the next year in accordance with its strategic plan. (iii) Interest rate risk The interest rate and terms of repayments of short-term and long-term bank borrowings are disclosed in Note 12. As of December 31, 2001, change in interest rates would not have material impact on the Group’s operating results and operating cash flows. (iv) Foreign exchange risk The Group does not have material foreign exchange risk and it does not have material transactions in foreign currency. (b) Estimation of fair value (i) Bank deposits and restricted cash deposit The carrying amount of bank deposits and restricted cash deposit approximates their fair value due to the short-term maturity of these financial instruments. (ii) Trade and other receivables and payables The carrying amount of trade and other receivables and payables, which are all subject to normal trade credit terms, approximates their fair value. (iii) Balances with related parties The fair value of amounts due from and due to related parties cannot be reliably estimated and disclosed because these amounts are with no fixed repayment terms. (iv) Borrowings The carrying amount of borrowings approximates their fair value as these borrowings bear interest rates quoted at market. (v) Short-term Investments The market value of short-term investment approximates their fair value. 39 (vi) Other Investments The carrying amount of investments in unconsolidated subsidiaries, associates and other long-term investments cannot be reliably estimated and disclosed because these investments do not have quoted market price in an active market and there are no other practicable methods of reasonably estimating their fair values. 24. CONTINGENT LIABILITIES As of December 31, 2001, the Group had no material contingent liabilities. 25. COMMITMENTS As of December 31, 2001, the Group had no material commitment. 26. SUBSEQUENT EVENTS As of December 31, 2001, the Company had receivables from two subsidiaries of SGC amounting to RMB 51,256 and receivables from local government institutions of Jingzhou City amounting to RMB 36,698. Pursuant to Circular Jin Cai Gong No. [2001] 19 issued by Government of Jingzhou City, the above receivables will be settled by transferring to the Company a parcel of land located in the suburb area of Jingzhou City. As of the date of approval of the consolidated financial statements, the above transaction was still in progress. 27. CHANGE IN ACCOUNTING POLICY From January 1, 2001, the Group is subject to the newly effective IAS 39 “Financial Instruments – Recognition and Measurement” and revised IAS 12 “Income Taxes” (see Note 2). There is no significant financial impact caused by adopting these standards on the opening balances of the Group's consolidated financial statements. 28. APPROVAL OF THE FINANCIAL STATEMENTS The financial statements (set out on pages 2 to 31) were approved by the board of directors on April 17, 2002. 40