深深房Ａ(000029)2001年年度报告（英文版）

SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. 2001 ANNUAL REPORT Important: The Board of Directors of SHENZHEN Special Economic Zone Real Estate & Properties (Group) Co., Ltd. (hereinafter referred to as the Company) hereby confirms that there are no important omissions, fictitious statements or serious misleading information carried in this report, and shall take all responsibilities, individual and/or joint, for the reality, accuracy and completion of the whole contents. This report is written both in Chinese and English. Should there be any difference in interpretation of the text of the two versions, the Chinese version shall prevail. I. COMPANY PROFILE ( ) Legal Name of the Company In Chinese: 深圳经济特区房地产 集团 股份有限公司 In English: SHENZHEN Special Economic Zone Real Estate & Properties (Group) Co., Ltd. Short Form in Chinese: 深房集团 Short Form in English: SPG ( ) Legal Representative: Ye Huanbao ( ) Secretary of the Board of Directors: Zhou Fushen Authorized Representative in charge of Securities Affairs: Tu Zhigang Address: 47/F, SPG Plaza, Renmin Rd. S., Shenzhen Tel.: (0755) 2293000-4654, 4715 Fax: (0755) 2294024 E-mail: szspgcs@public.szptt.net.cn ( ) Registered Address: 47/F, SPG Plaza, Renmin Rd. S., Shenzhen Office Address: 45-48/F, SPG Plaza, Renmin Rd. S., Shenzhen Post Code: 518001 E-mail: SZspgcs@public.SZptt.net.cn ( ) Newspapers for Disclosing the Information: Domestic: China Securities Daily, Securities Times Overseas: Ta Kung Pao Internet Website Designated by CSRC for Publishing the Annual Report: http://www.cninfo.com.cn The Place Where the Annual Report is Prepared and Placed: 47/F, SPG Plaza, Renmin Rd. S., Shenzhen ( ) Stock Exchange Listed with: Shenzhen Stock Exchange Short Forms of the Stock: SHENSHENFANG A (Stock Code: 000029) SHENSHENFANG B (Stock Code: 200029) ( ) Other Relevant Information of the Company The initial registration of the Company: Date: Jan. 8, 1980 Address: Shenzhen Municipality Administrative Bureau ofIndustry and Commerce Registration number of business license of enterprise juristic person: 4403011002426 Number for taxation registration: 440301192179585 Name and address of certified public accountants engaged by the Company: Shenzhen South Minhe Certified Public Accountants 1 Address: 8/F of Electronics Tech. Bldg., No. 2007, Shennan Center Road, Shenzhen II. FINANCIAL HIGHLIGHTS AND BUSINESS HIGHLIGHTS In RMB’000 Gross profit: 199,965 Net Profit: (498,295) Profit per share Baisc RMB(0.49) Operating profit: (408,570) Investment income: 19,092 Net assets: 846,155 Increased cash inflows arising from operating activities: 69,222 Impact of IAS and other adjustments on net profit and shareholders’ equity Net loss for the year Net assets RMB’000 RMB’000 As reported in the statutory consolidated financial statements (537,280 ) 1,019,082 Reversal of depreciation charges in respect of investment 24,110 24,110 properties Timing difference in write-off of pre-operating expenses 1,745 -- Adjustment for market value of short-term investments (55 ) (55) Expenses accrued in previous year 9,930 -- Difference in recognition of cost of fixed assets -- (189,006) Goodwill arising from acquisition of subsidiaries 1,397 (8,491) Others 1,858 515 As reported in the consolidated financial statements prepared in accordance with IAS (498,295 ) 846,155 ( ) Financial data summary over the past three years at the report year: 2001 2000 1999 Income from main business 593,660 857,997 849,158 lines (RMB’000) Gross profit (RMB’000) 199,965 283,584 249,034 Net profit (498,295) 75,971 98,277 Total assets (RMB’000) 3,205,534 3,870,840 4,005,163 Net assets (RMB’000) 864,115 1,340.558 1,263,361 Earnings per share (RMB) (0.49) 0.07 0.10 Net assets pet share (RMB) 0.85 1.37 1.24 Net cash flows per share 0.07 0.07 0.18 arising from operating activities (RMB) Return on equity (%) -57.67 5.46 7.78 III. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT THE PRINCIPAL SHAREHOLDERS ( )Changes in Share Capital 1. Changes in Shares (Ended Dec. 31, 2001) Before the Changes (+ / -) in report year After the change Shares Bonus Public reserve Added Others Sub- change allotted shares capitalized shares total . Shares not in circulation 1 Promoters’ shares Including: Stated-owned shares 743,820,000 743,820,000 Domestic juristic person’s Shares Foreign juristic person’s Shares Others 2 Raised juristic person’s shares 3 Employees’ shares 4 Preference shares or others Including: Shares allotted and Capitalized Total shares not in Circulation 743,820,000 743,820,000 ＩＩ. Shares in circulation 1. RMB ordinary shares 147,840,000 147,840,000 2 2. Domestically listed foreign shares 120,000,000 120,000,000 3. Foreign shares listed abroad 4. Others Total shares in circulation 267,840,000 267,840,000 . Total 1,011,660 1,011,660,000 2. Issuing and Listing (1) On June 13, 1993, the Company issued 112 million RMB ordinary shares at the price of RMB 3.80 per share and listed the shares in Shenzhen Stock Exchange for trading on Sep. 15, 1993. On Nov. 30, 1993, the Company issued 100 million domestically listed foreign shares at the price of RMB 3.90 per share (or HKD 3.5 after conversion) and listed the shares in Shenzhen Stock Exchange for trading on Jan. 10, 1994. (2) In the report year, the Company had never been involved in such activities as distributing bonus shares, capitalization, share allotment and issuance of new shares and there was no in the total shares and the share capital structure. (3) The employees’ shares were listed for trading through approval dated Aug. 26, 1994. At present, the Company has no more employees’ shares. ( ) About shareholders 1. Ended Dec. 31, 2001, the Company has totally 124664 shareholders, including 102583 shareholders of A-share, 22081 shareholders of B-share. 2. Ended Dec. 31, 2001, the only shareholder holding over 5% of the total shares of the Company is Shenzhen Construction Investment Holdings Co. (“Construction Investment Holdings”). In the report year, the shares held by Construction Investment Holdings were neither change in the shares nor pledging or freezing. The top ten shareholder of the Company (Ended Dec. 31, 2001) Number of holding Proportion in No. Name of shareholders shares (Share) total shares (%) 1 Shenzhen Construction Investment Holdings Co. 74,382.00 73.5247 2 CBNY S/A PNC/SKANDIA SELECT FUND/CHINA 169.81 0.1679 EQUITY AC 3 CHU KOON YUK 72.00 0.0712 4 SHUM YIP KWAN WING DEVELOPMENT LTD 66.20 0.0654 5 AHI FOOK SECURITIES CO LTD 66.06 0.0653 6 Pufeng Securities Investment Fund 61.32 0.0606 7 ORE BURNS AUSTRALIA PTY LIMITED 60.00 0.0593 8 Haitong Securities (Hong Kong) Co., Ltd. 58.19 0.0575 9 CHEN LI QIONG 58.00 0.0573 10 HSBC BROKING SECURITIES ASIA LIMITED- 54.33 0.0537 CLIENTS A/C Note: Shenzhen Construction Investment Holdings Co. hold s the Company’s shares on behalf of the state; Pufeng Securities Investment Fund is shareholder of A-share in circulating; the other shareholders are shareholders of B-share in circulating. There exist no associated relationship among the top ten shareholders. 3. Ended Dec. 31, 2001, the only shareholder holding more than 5% of the Company’s total shares is Shenzhen Construction Investment Holdings Co., Ltd., the Company’s control shareholder whose legal representative was Zhang Bao. The company is mainly engaged in the businesses of general contracting of industrial and civil building projects, construction and design of general industrial and civil building projects; management of land site, operation of commodity buildings, development of real estate, foreign economic and technical cooperation, import and export, etc. Its concurrent business scope includes contracting the installation/erection of equipment, electrical equipment, instruments and meters of big industrial construction projects, installation of big integrated production equipment; labor services and training for construction of municipal works; investment and property management, etc. 4. In the report year, there was no change in the Company’s holding shareholder. 3 IV. PARTICULARS ABOUT DIRECTOR, SUPERVISOR, SENIOR EXECUTIVE AND STAFF (I) Directors, supervisors and senior executives 1. Basis condition Number of Number of holding holding shares at Name Title Gender Age Office term shares at the year-end the year-begin (share) (share) Ye Huanbao Chairman of the Male 45 Jun. 1999 Jun. 2002 0 0 Board Chen Wuhua Director, General Male 49 Jun. 1999 Jun. 2002 0 0 Manager Zhuang Chuanghui Director Male 47 Jun. 1999 Jun. 2002 0 0 Yao Ruisheng Director Male 57 Jun. 1999 Jun. 2002 0 0 Hu Mingzhong Director Male 49 Jun. 1999 Jun. 2002 0 0 Peng Naidian Director Male 53 Jun. 1999 Jun. 2002 0 0 Zheng Tianlun Director Male 66 Jun. 1999 Jun. 2002 0 0 Zhou Fushen Director, Female 47 Jun. 2000 Jun. 2003 0 0 Secretary of the Board Ma Jianhua Director Male 37 Jun. 1999 Jun. 2002 0 0 Zhou Daosheng Chairman of the Male 55 Jun. 1999 Jun. 2002 0 0 Supervisory Committee Gan Lu Supervisor Male 43 Jun. 1999 Jun. 2002 0 0 Wang Hongbo Supervisor Male 32 Jun. 1999 Jun. 2002 0 0 Feng Xinying Supervisor Female 53 Jun. 1999 Jun. 2002 0 0 Yang Junwei Supervisor Male 37 Jun. 1999 Jun. 2002 0 0 Shen Yuesheng Deputy General Male 42 May 1999 0 0 Manager Wang Xiaolv Deputy General Male 45 May 1999 0 0 Manager Wagn Junzhao Chief Economist Male 42 Aug. 1999 0 0 Liang Song Deputy General Male 38 Aug. 1999 0 0 Manager Director Yao Ruisheng and Hu Mingzhong took the position of Chief Economist of Shenzhen Construction Investment Holdings Co. . 2. About the annual salary The Company carried out Annual Salary System on directors, supervisors and senior executives. The amount of annual salary is determined based on the salary standard in the same trade and the Company’s actual situation. The relevant department submits motion, and motion is subject to the Board of Directors for approval. In 2001, the Company paid the annual salary amounting to RMB 1.22 million to directors, supervisors and senior executives. The total amount of the top three directors is RMB 350,000. The total amount of the top three senior executives is RMB 310,000. Among them, 3 ones enjoy respectively the annual salary over RMB 100,000; 8 ones enjoy respectively the annual salary between RMB 80,000 to RMB 100,000; 4 ones enjoy respectively the annual salary between RMB 60,000 to RMB 800,000. Director Yao Ruisheng, Hu Mingzhong and Zheng Tianlun drew no pay from the Company. Of them, Yao Ruisheng and Hu Mingzhong drew their annual salary from Shareholding Company 4 3. In the report year, Liang Xu resigned from the post of Secretary of the Board due to work transfer in April 2001, and Zhou Fushen was engaged as instead by the Board of Director in Sep. 2001. 4. Number of employees, professional/occupational composition, education background and retired employees By the end of the year 2001, the Company had totally 2753 employees, including 1251 production personnel, 372 sales personnel, 503 technical personnel, 268 financial personnel and 359 administrative personnel. Among them, 287 ones graduated from university or above, 265 from 3-years regular college, 351 from technical secondary school, 1850 from high school or above. The Company had 175 retired employees. V. ADMINISTRATIVE STRUCUTRE I. Pursuant to PRC Company Law, Securities Law and requirements of relevant regulations released by CSRC, the Company has been standardizing its own operation, establishing and continually improving modern enterprise system. The Company has established a series of rules and systems including Articles of Association, Rules of Procedures of the Board of Directors and Rules of Procedures of the Supervisory Committee. The Company has also made self- inspection according to the Administrative Rules for Listed Companies as jointly issued by CSRC and State Economy and Trade Commission. Details are as follows: 1. Shareholders and Shareholders’ General Meeting The Company has been ensuring shareholders could fully implement their rights, ensuring all shareholders could enjoy equal status, and ensuring shareholders have right of participation and right of knowing facts regarding significant issues. Shareholders are entitled to protect their legal rights through legal means; Holding and voting of the Shareholders’ General Meeting are standardized; Correlative transactions are fair and reasonable. 2. The Controlling Shareholder and the Public Company The controlling shareholder performs its rights of investor according to law, hasn’t interfered in decision- making, production and management of the public company, and hasn’t damaged the interests of public company and other shareho lders. The Company has realized separation from the public company in respect of personnel, assets and finance, and its organization and business are independent. 3. Directors and the Board of Directors The Company elected directors strictly according to the stated procedures in the Articles of Association, adopted accumulative voting system in election of directors; Directors could comply with relevant laws, legislations and Articles of Association, and could perform obligations in a loyal, honest and reliable manner; The number of the Board and the personnel formation are in line with relevant requirements; The Board of Directors could seriously perform the obligations as stated in relevant laws, legislations and Articles of Association; The Company has established standardized Rules of Procedures of the Board of Directors, and could hold Board meeting according to stated procedures. The Company shall establish independent director system as soon as possible. 5. Supervisors and the Supervisory Committee The number of the Supervisory Committee members and the personnel formation are normative and reasonable; The Company has standardized Rules of Procedures of the Supervisory Committee; It has been safeguarding the right of knowing facts of supervisors, and could provide necessary assistance to supervisors in their performing of obligations; The Supervisory Committee proceeds strictly in accordance with stated procedures, and meetings of the Supervisory Committee could be held regularly with normative meeting minutes being kept. 6. Beneficiaries The Company has been respecting the legal rights of creditors and other beneficiaries, cooperating with related beneficiaries actively so as to push the Company to develop in a healthy manner. 5 7. Information Disclosure and Transparent The secretary of the Board of Directors is responsible for information disclosure; Strictly according to regulations of laws, legislations and Articles of Association, the Company carried out disclosure of sustained information, administrative information and information regarding shareholder’s equity in real, accurate, complete and timely manner so as to ensure equal chance for all shareholders to obtain information. II. About Independent Directors The Company hasn’t established independent directors so far. The Company shall establish independent director system according to the Guide Opinions for Establishing Independent Director System in Listed Company. VI. BRIEFINGS ON THE SHAREHOLDERS’ GENERAL MEETING The Company held two Shareholders’ General Meetings in the report year: I. The notification on holding the Shareholders’ General Meeting was published in Securities Times, China Securities and Hong Kong Ta Kung Pao dated May 24, 2001. The 9th Shareholders’ General Meeting was held in the meeting room on the 48/F of Shen Fang Plaza at 9:00AM dated June 28, 2001 on schedule. There was one shareholder attending the meeting who held 743,820,000 A shares, taking 73.52% of the Company’s total shares. No shareholder of B share attended the meeting, and the meeting was in line with regulations of PRC Company Law and Articles of Association. Lawyer from Shenzhen Xin Da Lawyers’ Firm witnessed this Shareholders’ General Meeting and issued legal position paper. The following resolutions were reviewed and passed in the meeting: 1. 2000 Report of the Board of Directors; 2. 2000 Annual Business Report and 2001 Management and Investment Plan; 3. 2000 Report of the Supervisory Committee 4. Reviewed and passed 2000 Financial Report of Actual Budget and Profit Distribution Plan In 2000, the Company realized net profit of RMB 76,551,994.63 according to domestic accounting standards, and RMB 75,970,613.35 according to IAS. In the lower principle, the Company’s net profit in 2000 was RMB 75,970,613.35. After deduction of provision of RMB 4,974,391.15 of surplus public reserve to subsidiaries based on equity ratio, the balance was RMB 70,996,222.20, which was to make up losses of previous year and would not be distributed among shareholders. 5. Proposal on Engaging Certified Public Accountants for 2001 The Company decided to engage Shenzhen Nanfang Minhe Certified Public Accountants to be in charge of its financial auditing work for A and B shares in 2001 after exploration. The relevant resolutions of the Shareholders’ General Meeting were published in Securities Times, China Securities and Hong Kong Ta Kung Pao dated June 29, 2001. II. The notification on holding the Provisional Shareholders’ General Meeting was published in Securities Times, China Securities and Hong Kong Ta Kung Pao dated November 30, 2001, and the notification on revising proposals of the Provisional Shareholders’ General Meeting was published on December 15, 2001. The Provisional Shareholders’ General Meeting was held on the 48/F of Shen Fang Plaza at 9:00AM dated December 31, 2001. There was one shareholder attending the meeting who held 743,820,000 A shares, taking 73.52% of the total shares. No B shareholder attended the meeting. Lawyer from Shenzhen Xin Da Lawyer’s Firm witnessed this meeting. The meeting reviewed and passed the Proposal on Transferring Equity Rights of Guangdong Shantou Bay Bridge Co., Ltd. The resolutions of this shareholders’ general meeting were published in Securities Times, China Securities and Hong Kong Ta Kung Pao dated January 4, 2002. VII. REPORT OF THE BOARD OF DIRECTORS I. About Management of the Company (I) Main Business Lines and Management Status 1. The Company belongs to real estate industry, and is engaged in real estate development, sales of commercial house, estate management and leasing, trading and retail of commodities, 6 hotel business, equipment installation and maintenance, and inside decoration. According to the result as audited by Shenzhen Planning and State Land & Resources Bureau, the Company ranked 13th in the comprehensive development companies of Shenzhen in 2000. In the report year, the consolidated financial statement reflected an income of RMB 616,250,000 from main business lines, which dropped RMB 236,590,000, a decrease range of 27.74%; The total profit was RMB –537,575,000; And net profit was RMB –537,280,000. The reason of decrease was that the Company allocated RMB 503,040,000 of provision for assets devaluation and RMB 29,870,000 for losses in lawsuit and arbitration. Particulars about result of each trade: (Unit: RMB) Proportion in Gross Operating Trade main business Operating cost Gross profit profit income lines ratio Real estate development 240,602,915.69 39.04% 148,472,961.27 92,129,954.42 38.29% Circulation of commodities 181,887,683.41 29.52% 159,770,241.90 22,117,441.51 12.16% Leasing of house 71,219,228.25 11.56% 26,938,995.35 44,280,232.90 62.17% Estate management 61,875,531.40 10.04% 49,954,817.97 11,920,713.43 19.27% In the report year, the Company’s income of main busine ss lines decreased a lot, in which: a. The income from real estate decreased by RMB 28,770,000 for the main reason that the project of Hu Bin Ge developed by the parent company was not finished for joining partnership so that the sold building and houses couldn’t be carried forward into operating income; b. The income from leasing houses decreased by RMB 8,510,000, mainly because that the Company had sold part of estates available for leasing; c.. The income from circulation of commodities decreased by RMB 68,010,000, mainly because that Shenzhen Shen Fang Department had suspended operation for three months to make decoration and modification; d. The income from hotel and food service trades decreased by RMB 51,210,000, mainly because that it hadn’t consolid ated the operating income of Zhu Yuan Enterprise; e. The income from construction and installation trade decreased by RMB 24,420,000, mainly because that it hadn’t consolidated the operating income of Shenzhen Rong Hua Mechanical and Electrical Engineering Co., Ltd.; f. The income from other trades decreased by RMB 54,610,000 mainly because of the decrease in operating income of Xin Feng Enterprise Co., Ltd. 2. In the report year, the main business lines and their structure had no changes compared with those by the end of last reporting year. (II) Operation of Main Controlling Company and Companies Purchasing Shares and Achievement (Unit: RMB) Name of company Equit Operating scope Registered Income of Total profit Net profit y (%) capital main business lines Shenzhen Shen Fang 100% Domestic supplying and sales of 10,000,000 103,496,437 -3,108,465 -3,108,465 Department Store Co., Ltd. commercial goods and materials Shenzhen Shen Fang Bond 100% Bond business of steel, 5,000,000 78,187,247 -3,656,496 -3,656,496 Trade Co., Ltd construction material, mechanical & electrical equipment Shenzhen Hua Zhan 75% Construction and supervision 8,000,000 3,515,400 102,126 102,126 Construction and Supervision Co., Ltd. Shenzhen Zhen Tong 100% Repair and maintenance 10,000,000 33,064,838 -4,277,948 -4,277,948 Engineering Co., Ltd. Shenzhen Petrel Hotel Co., Ltd. 100% Hotel service 30,000,000 16,726,504 1,163,235 859,289 Shenzhen Shen Fang Group 100% Real estate development and 20,000,000 14,586,808 3,340,620 3,020,693 Bao’an Development Co., Ltd. sales of commercial house Shenzhen Special Economic 100% Real estate development 20,000,000 993,002 34,687 25,322 Zone Real Estate (Group) Guangzhou Real Estate Co., Ltd. Shenzhen Shen Fang (Group) 100% Real estate development and 30,000,000 25,692,591 -31,079,722 -31,079,722 Shanghai Real Estate management Development Co., Ltd. America Great Wall Estate Co., 70% Real estate development USD500,000 857,405 214,510 214,510 Ltd Shenzhen Numeral Harbour 70% Consultation of investment 20,000,000 8,986,433 3,644,190 3,644,190 Investment Co., Ltd. information and technology Shenzhen Zhu Yuan Tong 100% Mobile renting 10,290,000 2,108,035 146,421 146,421 Mini-bus Rent Co., Ltd. Shenzhen Shen Fang Parking 100% Construction of parking lot 42,500,000 2,724,917 446,403 375,969 Lot Co., Ltd. Shenzhen Xin Feng Estate 100% Agent for real estate sales and 5,140,000 3,558,173 -2,112,708 -2,124,858 Trading and Assessment Co., leasing Ltd. 7 Ltd. Shenzhen Estate Management 100% Estate managem ent and service 7,250,000 72,137,787 8,065,390 6,885,870 Co., Ltd. Xin Feng Estate Co., Ltd. 82% Investment and share holding HKD500,000 37,732,377 -8,976,466 -8,976,466 Xin Feng Enterprise Co., Ltd. 100% Consultation of investment HKD1,000,000 18,614,296 -154,160,948 -152,467,741 management Total 422,982,250 -190,215,171 -190,417,306 (III) Particulars about the First Five Customers Proportion in the Customer Name Total Sales Amount total income Shenzhen Dongfan Industrial Co., Ltd. 27,954,583 4.5% Shenzhen Yuelong Industrial Co., Ltd. 19,407,501 3.15% New Nan Hua Restaurant 17,837,555 2.89% Zhan Shengqian 174,047,95 2.82% Shenzhen Investment and Management Company 9,274,400 1.5% (IV) Problems and Difficulties Occurring in the Operation and Solutions The major problem and difficulty the Company faced in the operation were dropping of business volume in real estate development, lack of large-scale and high-quality development project and storage of resources, shortage in operating funds and low quality assets. In light of the above difficulties and problems, the Company is positively taking measures: 1. To concentrate limited funds, ensure smooth implementation of the planned development projects and solidify main profit sources. 2. To positively vitalize assets, expedite turnover of inventories and assets liquidity, transfer part of domestic investment projects. 3. To reinforce overall management of assets, improve structure of debts, and try hard to reduce financial cost. 4. To strengthen management of subsidiary enterprises, enhance the work of drawing the big and relax the small, and positively promote modification and reform for diversified equity rights. 5. To positively strive for more land reserve for the sustained development of main business lines. II. About Investment in the Report Year (I) Application of raised funds The Company hadn’t raised funds in the report year, and hadn’t used funds raised in the previous year. (II) Details about non-raised capital investment projects and progression see Note 5 & 6 of financial report. III. The financial Status in the Report Year (I) By December 31, 2001, the Company’s total assets were RMB 3,473,210,000, a decrease of RMB 640,690,000 below RMB 4,113,900,000 as of the beginning of the year. The reasons of change are as follows: 1. The current assets were RMB 2,451,260,000, a decrease of RMB 544,490,000 below RMB 2,995,750,000 as of the beginning of the year. a. The accounts receivable decreased by RMB 41,370,000; b. Other accounts receivable decreased by RMB 85,730,000; c. The advance payment decreased by RMB 58,050,000; d. The decrease of RMB 373,780,000 in inventories was mainly because of provision for inventory price drop. 2. The total fixed assets amounted to RMB 428,680,000, a decrease of RMB 92,490,000 below RMB 521,170,000 as of the beginning of the year. The reason was that: a. Since the consolidation scope decreased, the Company removed the corresponding fixed assets balance as of the beginning of the year; b. The net value of multi- layer parking lot RMB 49,347,000 was listed in the inventory. (II) By December 31, 2001, the Company’s total debts amounted to RMB 2,459,730,000, a decrease of RMB 104,920,000 compared with that at the beginning of the year. The main reasons are as follows: 8 1. The current liability was RMB 2,308,860,000, a decrease of RMB 133,800,000 below that of the beginning of the year, which was resulted from decrease in accounts payable and tax payable. 2. The long-term liability was RMB 147,250,000, an increase of RMB 25,260,000 above that of the beginning of the year. The reasons were: a. It asked for a loan of RMB 15 million from Guangdong Development Bank, and turned the short-term loan to long-term loan; b. The accounts payable to Guangzhou Sui Xin Real Estate Co., Ltd. increased. (III) The profit of main business lines was RMB 174,680,000, which decreased by RMB 99,550,000 compared with last year. The decrease was mainly resulted from decrease of main business lines income and increase of unit cost of main business lines. (IV) The net profit was RMB-537,280,000 , which decreased by a wide range compared with that of last year. The decrease was mainly because that the Company allocated RMB 503,040,000 of provision for assets devaluation and RMB 29,870,000 of provision for losses in lawsuit and arbitration. (V) By December 31, 2001, the Company’s shareholders’ equity was RMB1,019,080,000 , a decrease of RMB 533,390,000 below RMB 1,552,470,000 as of the beginning of the year, which was mainly resulted from losses of net profit. IV. Management Plan of New Year The management of year 2002 will become a connecting link of previous years and the future, which will have significant meaning for the Company to realize stable development. The Company will set about the work from inside, reinforce reforming dynamics, expedite reorganization pace, positively cope with challenges, try its best to carry out management well, strive to enlarge development scale, expedite turnover of inventories, improve assets quality, reduce debt risks, raise the ent erprise’s management level, and reciprocate shareholders with good management achievement. The Company will emphasize the following work: 1. To enlarge real estate development level, expedite progression of construction project in process, and raise project benefits level. The planned development projects in 2000 were: a. Cui Zhu Villa, located on Dongmen North Road, Luohu District, Shenzhen, covering an area of 5899 M2 with total construction area of 30170 M2 , is a 33-floor tall housing building and of which 20 floors of the main body are to be completed in the year. b. Modification project of Nan Yang Hotel, located on Jianshe Road, Luohu District, Shenzhen, covering an area of 2000 M2 with total construction area of 12747 M2 , is a 28-floor building of apartment houses and is to be completed and accepted within the year. c. The 3rd phase modification project of Ni Gang, located in Ni Gang Housing Estate, Luohu District, Shenzhen, covering an area of 12112 M2 with total construction area of 54000 M2 , are two 28- floor tall housing buildings and one 12- floor housing building, and of which the 12-floor building’s body ceiling is to be finished covering in the year and the tall housing building is to be finished with 10 floors. d. Hai Bin Building, located in Sha toujiao, Yantian District, Shenzhen, covering an area of 5314 M2 with total construction area of 49021 M2 , are two 29-floor tall housing buildings, which are to be finished with 10 floors in the year. e. The 3rd phase project of Zhong Huan Garden, located in Longhua Town, Bao’an District, Shenzhen, covering an area of 2796 M2 with total construction area of 10750 M2 , is a 7- floor housing building and ceiling of which is to be finished covering in the year. f. The 3rd and 4th project of Shantou Jinye Island Garden, located in Shantou Jinye Island, covering a total area of 29000 M2 with total construction area of 18665 M2 , contain altogether 49 villas, and are to be completed and accepted within the year. g. Guangzhou Huangpu New Housing Estate, located on Huangpu East Road, Huangpu District, Guangzhou, covering an area of 35462 M2 with total construction area of 52154 M2 , are four 9- floor housing building and five 17- floor housing building, which are to be finished with designing and declaring work of earlier development stage in the year. 9 2. To expedite vitalization of assets, and try hard to improve assets quality. The Company will expedite transferring some of its domestic investment projects. Since these projects have been on for quite a few years, they become heavy burden on the Company. In recent year, the Company has allocated a huge amount of provision so as to provide favorable condition for transferring these projects. The Company will grasp this opportunity and strive to realize transferring of key projects so as to improve status of capital and raise assets quality. Meanwhile, the Company will emphasize on reinforcing sales and leasing work, and adopt reasonable price strategy and sales strategy towards some of idle estates so as to expedite liquidity. 3. The Company will keep on strengthening financial management and overall capital management, and raise utilization efficiency of capital and reduce financial cost. The Company will positively take advantage of withdrew funds to push debt reorganization work, focus on reducing the proportion of high- interest foreign exchange loans so as to improve debt structure, reduce overall interest level and raise operating benefits. V. Daily Work of the Supervisory Committee (I) Meetings of the Board of Directors Held in the Report Year and Resolutions of Meetings The Company held altogether 4 meetings of the Board of director in 2001: 1. The 1st Meeting of the Board of Directors was held in the Company’s meeting room on April 23, 2001. There were 8 directors attending the meeting, and the following resolutions were reviewed and passed in the meeting: (1) 2000 Annual Report and Summary of A & B Shares; (2) 2000 Profit Distribution Plan; (3) Agreed to Liang Xuci’s resignation of post as secretary of the Board of Director, and appointed Tu Zhigang to be authorized representative in charge of securities affairs. The relevant resolutions of the Board of Directors were published in Securities Times, China Securities and Hong Kong Ta Kung Pao dated April 27, 2001. 2. The 2nd Meeting of the Board of Directors was held in the Company’s meeting room on August 3, 2001. There were 9 directors attending the meeting, who discussed election of candidate of Board secretary. No resolution was made in the meeting on that day. The meeting was resumed on September 20, 2001 to continue the topic of engaging secretary of the Board of Directors, and finally it was decided that the finance controller who was also director was appointed to be Board secretary. The relevant resolutions of the Board of Directors were published in Securities Times, China Securities and Hong Kong Ta Kung Pao dated September 21, 2001. 3. The 3rd Meeting of the Board of Directors was held in Petrel Hotel on November 28, 2001. There were 8 directors attending the meeting. The meeting discussed and approved unanimously that the transferring price of equity rights of Guangdong Shantou Bay Bridge Co., Ltd should be no less than RMB 320,000,000, and it was decided that the Provision Shareholders’ General Meeting was to be held on December 31, 2001 to review the above proposal. The relevant resolutions of the Board of Directors were published in Securities Times, China Securities and Hong Kong Ta Kung Pao dated December 1, 2001. 4. The 4th Meeting of the Board of Directors was held in the Company’s meeting room on December 14, 2001. There were 7 directors attending the meeting. The meeting discussed and decided to revise part of resolutions of the Provisional Shareholders’ General Meeting. The relevant resolutions of the Board of Directors were published in Securities Times, China Securities and Hong Kong Ta Kung Pao dated December 15, 2001. 5. On August 21, 2001, the Board of Director reviewed 2001 Interim Report by means of joint signature, and passed 2001 Interim Report and Summary and Interim Profit Distribution Plan. The relevant resolutions of the Board of Directors were published in Securities Times, China 10 Securities and Hong Kong Ta Kung Pao dated August 23, 2001. (II) Implementation of Resolutions of the Shareholders’ General Meeting by the Board of Directors The 8th Shareholders’ General Meeting passed the resolution of profit distribution of 2000, augmenting of director etc. The Board of Directors, authorized by the Shareholders’ General Meeting, strictly implemented the above resolutions. In the report year, the Company had neither plan of profit distribution and transferring of public reserve to share capital, nor allocation of shares and issuing of new share. VI. Profit Distribution Preplan of the Report Year According to domestic accounting standards, the Company, in 2001, realized net profit of RMB-537,280,146. Plus RMB –404,403,678 of the retained profit at the beginning of the year, the profit available for distribution was RMB-941,984,096. According to IAS, the Company, in 2001, realized net profit of RMB-498,295000, and the profit available for distribution was RMB-1,303,591,000. Through discussion in the Board meeting, the Company decided not to distribute profit of 2001. VII. Newspapers as designated for disclosing information were not changed, namely, domestic information disclosure newspaper was Securities Times and China Securities, and overseas information disclosure newspaper was Hong Kong Ta Kung Pao. VIII. REPORT OF THE SUPERVISORY COMMITTEE In 2001, pursuant to regulations of PRC Company Law and Articles of Association and in the spirit of being responsible to all shareholders, the Supervisory Committee seriously performed obligations as stated in laws and legislations and carried out work actively and effectively. In the report year, the Supervisory Committee attended Board meetings as non-voting delegates, inspected management and operation of the Board of Directors and the Company regularly, carried out necessary supervision and made inquiries towards significant management activities and issues, tried hard to safeguard the legal rights and interests of all shareholders, and gave a good play to the Company’s internal supervision and balance control. I. Meetings of the Supervisory Committee 1. The 1st Meeting of the Supervisory Committee was held on April 23, 2001, which reviewed and passed 2000 Annual Report and 2000 Work Report of the Supervisory Committee. 2. The 2nd Meeting of the Supervisory Committee was held on August 2, 2001, which studied the procedures and superintendence issues regarding proposals of the provisional Board meetings. 3. The 3rd Meeting of the Supervisory Committee was held on August 21, 2001, which reviewed and passed 2001 Interim Financial Report and Summary. 4. The 4th Meeting of the Supervisory Committee was held on December 14, 2001, which studied the issue of honest and reliable performance of obligations of directors included in the proposal on transferring equity rights of Shantou Bay Bridge Co., Ltd in which the Company held. In addition, the Supervisory Committee attended four Board meetings as non-voting delegates, and attended one Shareholders’ General Meeting. II. Independent Opinions of the Supervisory Committee 1. In the report year, the Company operated strictly according to PRC Company Law and Articles of Association, made decisions in legal procedures, implemented internal management in a healthy manner, and conducted business and operation in a standard way. Senior executives including directors of the Board, general managers hadn’t infringed laws and disciplines when they were performing obligations, or damaged the interests of the Company and shareholders. The Board of Directors has implemented resolutions of the Shareholders’ General Meeting. But the Company needs to further reinforce dynamics of 11 management and administration. 2. The Supervisory Committee made serious and careful inspection on the financial system and financial status, and believed the Company’s financial structure and status in 2001 were reasonable. The unqualified auditors’ report issued by Nanfang Minhe Certified Public Accountants in the report year was real and accurate, which objectively reflected the Company’s financial status and business results. 3. The Company hasn’t raised capital on securities market for successive years. Thus in the report year, there existed no doubt whether actual raised capital projects were in accordance with promised ones or not and whether changes happened or not. 4. In the report year, intermediary institutions had audited or assessed transactions of purchase or sales of assets in detail, issued viewpoints, and decided on the reasonable pricing basis. The Supervisory Committee hasn’t found inside trading, damaging of the rights and interests of part of shareholders or assets runoff. 5. The Company conducted correlative transactions according to relevant regulations of Rules of Shenzhen Stock Exchange for Stock Listing, complying with the principles of being equitable, freewill, equal in price, reasonable and rewarding, which accorded with the demand of the Company’s development in long run and was in line with maximum interests of the whole shareholders. 6. In the report year, the Company suffered great losses. The Supervisory Committee believed that the great loss was resulted from both market competition and historical problems carried down o the report year. It was also because that the Company allocated RMB 503,039,536 of provision for assets devaluation according to the new accounting system, and allocated RMB 29,873,181 for losses in lawsuit or arbitration. The provision allocated for assets devaluation has brought much impact on the current item of gains and losses, but will be beneficial to the Company’s future development. IX. SIGNIFICANT EVENTS I. Significant Lawsuit and Arbitration On January 21, 2002, the Company received the civil verdict issued by Guangdong Higher People’s Court (2001 YFJYZZ No.121 and No.122 documents), which settled final judgment on the case of lodging an appeal against Shenzhen Tian Hong Department Store Co., Ltd. (hereinafter referred to as Tian Hong Department Store) and pronounced judgment on the dispute lawsuit regarding contracting fee and investment capital. According to the judgment, the Company should pay RMB 25,148,474.68 of contracting fee and investment capital and the corresponding interest to Tian Hong Department Store, and undertake RMB 569,682 of case processing fee. The relevant public notice was published in Securities Times, China Securities and Hong Kong Ta Kung Pao dated January 4, 2002. Details about other lawsuit or arbitration events involved in the report year see Note of the the financial statement. II. The Company had no purchase and sales of assets as well as consolidation in the report year. III. Details about correlative transactions in the report year see Note of the financial statement/ IV. In the report year, the Company had neither signed any significant contract of trusteeship, contracting and leasing etc., nor signed material contract of guarantee and contract of entrusting other party to manage assets. V. The Company or shareholder holding over 5% of the total shares had no promised event in the report year or promised event carried down to the report year. VI. On June 28, 2001, the Shareholders’ General Meeting passed the Proposal on Engaging Certified Public Accountants for 2001, and decided to engage Nanfang Minhe Certified Public Accountants to be in charge of auditing work of 2001, and removed Shenzhen Hua Peng Certified Public Accountants as the Company’s auditor. According to the agreement, 12 the Company is to pay RMB 1.2 million of auditing fee to Shenzhen Nanfang Minhe Certified Public Accountants. VII. In the report year, the Company had been publicly condemned by Shenzhen Stock Exchange for once. In 2001, the Company realized interim net profit of RMB 4.83 million with RMB 0.005 earnings per share, which displayed a decrease compared with the net profit of RMB 18.46 million with RMB 0.018 earnings per share at the same period of last year. However, the Company hadn’t released any public notice of earlier warning, and then was publicly condemned by Shenzhen Stock Exchange on September 3, 2001. X. FINANCIAL REPORT(Attached hereinafter) XI. DOCUMENTS FOR REFERNECE 1. The financial statement carried with signatures and seals of the legal representative, the person in charge of accounting work, and the responsible person of accounting institution. 2. The original copy of auditors’ report carried with seal of Certified Public Accountants as well as signatures and seals of certified public accountants. 3. All the master copies of documents and original copies of public notices that had been disclosed in China Securities, Securities Times and Hong Kong Ta Kung Pao in the report year. Board of Directors of SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. April 20, 2002 13 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD Report and Financial Statements For the year ended December 31, 2001 14 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2001 CONTENTS PAGE(S) REPORT OF THE AUDITORS 1 CONSOLIDATED INCOME STATEMENT 2 CONSOLIDATED BALANCE SHEET 3 CONSOLIDATED CASH FLOW STATEMENT 4 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 5 NOTES TO THE FINANCIAL STATEMENTS 6 - 31 15 REPORT OF THE AUDITORS TO THE MEMBER OF SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD (Incorporated in the People’s Republic of China with limited liability) We have audited the financial statements of Shenzhen Special Economic Zone Real Estate & Properties (Group) Co., Ltd. on pages 2 to 31 which have been prepared in accordance with Statements of International Accounting Standards issued by International Accounting Standards Committee. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS The Group’s directors are responsible for the preparation of financial statements which give a true and fair view. In preparing financial statements which 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. 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 judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to 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 considered 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. OPINION In our opinion the financial statements give a true and fair view of the state of the Group as of December 31, 2001 and of its loss and cash flows of the Group for the year then ended and have been properly prepared in accordance with International Ac counting Standards. Moore Stephens Shenzhen Nanfang Minhe Certified Public Accountants -1- SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2001 Notes 2001 2000 RMB’000 RMB’000 Turnover 4 593,660 857,997 Cost of sales (393,695) (574,413) Gross profit 199,965 283,584 Other revenue 47,190 61,253 Gain from waiver of loan interests -- 10,870 247,155 355,707 General and administrative expenses (633,531) (145,367) Operating expenses (22,194) (59,259) (Loss) / profit from operations 5 (408,570) 151,081 Finance cost 8 (108,833) (67,846) Share of profit of non-consolidated subsidiaries, associated companies, and contractual joint ventures 19,092 3,083 (Loss) / profit before taxation (498,311) 86,318 Taxation 9 (2,089) (8,307) (Loss) / profit after taxation (500,400) 78,011 Minority interests 2,105 (2,040) Net (loss) / profit for the year (498,295) 75,971 (Loss) / profit per share Basic 10 RMB(0.49) RMB0.08 DIRECTOR DIRECTOR -2- SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 2001 Notes 2001 2000 RMB’000 RMB’000 ASSETS Non-current assets Fixed assets 11 288,019 291,151 Investment properties 12 602,622 187,148 Non-consolidated subsidiaries 13 151,352 105,971 Associated companies 14 14,818 54,578 Contractual joint ventures 15 312,569 263,475 Long term investments 16 59,072 89,373 Intangible assets 17 101,608 113,453 1,530,060 1,105,149 Current assets Properties under development for sale 18 868,380 1,288,008 Completed properties for sale 19 256,615 676,504 Inventories 20 16,392 49,476 Short term investments 21 3,051 3,141 Accounts receivable 146,046 361,789 Prepayments, deposits and other debtors 41,093 59,194 Cash and bank balances 343,897 327,579 1,675,474 2,765,691 Current liabilities Customers’ deposits 174,521 165,578 Accounts payable and accrued expenses 729,373 877,214 Dividends payable 138,764 139,334 Tax payable 22 68,746 110,519 Bank loans 24 1,143,772 1,121,207 2,255,176 2,413,852 Net current (liabilities) / assets (579,702) 351,839 Total assets less current liabilities 950,358 1,456,988 Non-current liabilitie s 23 (109,806) (119,925) Minority interests 5,603 3,495 NET ASSETS 846,155 1,340,558 CAPITAL AND RESERVES Issued capital 25 1,011,660 1,011,660 Reserves (165,505) 328,898 846,155 1,340,558 DIRECTOR DIRECTOR -3- SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2001 Notes 2001 2000 RMB’000 RMB’000 CASH FLOWS FROM OPERATING ACTIVITIES Cash received from sales of goods or rendering of services 645,320 846,401 Other cash received relating to operating activities 135,299 97,222 Cash paid for goods and services (415,288) (633,917) Cash paid to and on behalf of employees (93,623) (75,957) Payments of all types of taxes (82,349) (55,004) Cash paid relating to other operating activities (120,137) (103,759) Net cash flows from operating activities 69,222 74,986 CASH FLOWS FROM INVESTING ACTIVITIES Cash received from disposal of investments 33 100 Cash received from dividend and interest 25,502 28,025 Net cash received from the sale of fixed assets, intangible 530 73,104 assets and other long-term assets Cash paid to acquire fixed assets, intangible assets and other (22,830) (19,328) long-term assets Cash paid to acquire investments (5,226) (461) Net cash flows from investing activities (1,991) 81,440 CASH FLOWS FROM FINANCING ACTIVITIES Cash received from borrowings 696,733 527,496 Cash repayments of amounts borrowed (659,215) (612,122) Cash paid for distribution of dividends or profits and for (113,017) (70,196) interest expenses Net cash flows from financing activities (75,499) (154,822) NET INCREASE IN CASH AND CASH EQUIVALENTS (8,268) 1,604 Cash and cash equivalents at the beginning of the period 26 176,778 175,174 Cash and cash equivalents at the end of the period 26 168,510 176,778 DIRECTOR DIRECTOR - 4- SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2001 Cumulative Staff Share Capital translation General welfare Accumulated capital reserve reserve reserve fund profits Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Balance at December 31, 1999 1,011,660 684,885 6,447 322,778 113,936 (827,191) 1,312,515 Profit for the year 75,971 75,971 Statutory appropriation of profits 3,316 1,658 (4,974) Negative goodwill on consolidation of subsidiary 1,174 1,174 Balance at December 31, 2000 1,011,660 686,059 6,447 326,094 115,594 (756,194) 1,389,660 Prior year adjustment (note27) (49,102) (49,102) Restated balance at December 31, 2000 1,011,660 686,059 6,447 326,094 115,594 (805,296) 1,340,558 Loss for the year (498,295) (498,295) Others 175 3,717 3,892 Balance at December 31, 2001 1,011,660 686,234 10,164 326,094 115,594 (1,303,591) 846,155 PRC laws and regulations require PRC companies to provide statutory reserves. General reserve is appropriated at 15% and staff welfare fund at within 10% from net profits after taxation as reported in the statutory accounts. Provision for the general reserve ceases when the accumulated general reserve amounts to 50% of the registered capital. All statutory reserves, including the general reserve fund and staff welfare fund, are for specific purposes and are not distributed in the form of cash dividends. The Company declares dividends based on the lower of net profit after appropriation to reserves as reported in the statutory accounts prepared under the Accounting Standards for Business Enterprises and related accounting regulations in PRC and as reported in the financial statements prepared under IAS. For the year ended December31, 2001, the Company does not declare dividends to its shareholders. - 5- SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2001 GENERAL Shenzhen Special Economic Zone Real Estate and Properties (Group) Co., Ltd. (the “Company”) was incorporated in January 1980 in the People’s Republic of China (the “PRC") and was reorganized as a joint stock limited company in July 1993. A and B shares were issued by the Company in September 15, 1993 and January 10, 1994 respectively. The Company and its subsidiaries (the “Group”) are principally engaged in property development, investment and management, hotel operations, construction, fitting-out, equipment installation and maintenance, retail operations and trading. BASIS OF PREPARATION The financial statements of the Group companies have been prepared in accordance with International Accounting Standards (“IAS”) issued by the International Accounting Standard Committee. This basis of accounting differs from that used in the management accounts of the Group companies which were prepared in accordance with accounting principles and relevant financial regulations in the PRC. Adjustments which might restate the results of operations and the net assets have been made in compliance with IAS but will not be taken up in the accounting books of the companies in the Group. The financial statements of the overseas group companies have been prepared based on the accounting standards of the respective countries in which they operate are similar to IAS. PRINCIPAL ACCOUNTING POLICIES Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31 December each year. The results of subsidiaries acquired or disposed of during the year, if any, are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. All significant intercompany transactions and balances within the Group have been eliminated on consolidation. Goodwill Positive goodwill arising on consolidation represents the excess of the cost of the acquisition over the Group’s share of the fair value of the identifiable assets and liabilities acquired. In respect of subsidiaries: * For acquisitions before January 1, 2001, positive goodwill is eliminated against reserves. * For acquisitions on or after January 1, 2001, positive goodwill is amortized to the Consolidated Income Statement on a straight-line basis over its estimated useful life. Positive goodwill is stated in Consolidated Balance Sheet at cost less any accumulated amortization and any impairment losses. * On disposal of a subsidiary, any attributable amount of purchased goodwill not previously amortized through the Consolidated Income Statement or which has previously been dealt with as a movement on group reserves is included in the calculation of the profit or loss on disposal. - 6- SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD 3. PRINCIPAL ACCOUNTING POLICIES – (continued) Subsidiaries A subsidiary is an enterprise in which the Company, directly or indirectly, holds more than half of the issued share capital, or controls more than half of the voting power, or where the Company controls the composition of its board of directors or equivalent governing body. Investments in subsidiary companies are included in the Company’s balance sheet at cost less provision, if necessary, for any permanent diminution in value. Subsidiaries not consolidated In the consolidated balance sheet the unconsolidated subsidiaries are recorded at cost and adjusted thereafter for post acquisition change in the Group’s share of net assets of the subsidiaries. The consolidated income statement reflects the Group’s share of the results of operations of the subsidiaries. Investment in subsidiaries excluded from consolidation are stated at cost less provision for permanent diminution in value and the results of the subsidiaries are accounted for by the Company on the basis of dividends received and receivable. Associated companies An associated company is a company, not being a subsidiary company, in which the Group holds an equity interest for the long term and exercises significant influence in its management. The consolidated income statement includes the Group’s share of the post-acquisition results of the associated companies for the year, and the consolidated balance sheet includes the Group’s share of the net assets of the associated companies plus the unamortised goodwill less capital reserves on acquisition of the associated companies. In the Company’s balance sheet the investment in associated companies are stated at cost less provision, if necessary, for any permanent diminution in value. Contractual joint ventures A contractual joint venture is a venture which operates under a contractual agreement whereby the Group or Company and at least one other party undertake an economic activity which is subject to control and none of the parties involved unilaterally has control over the economic activity. The consolidated income statement includes the Group’s share of the post-acquisition results of its contractual joint venture for the year. In the consolidated balance sheet, interest in contractual joint venture are accounted under the equity method and are stated at cost, less goodwill, and adjusted for the post acquisition change in the Group’s share of the contractual joint venture’s net assets. - 7- SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD 3. PRINCIPAL ACCOUNTING POLICIES – (continued) Fixed assets and depreciation Fixed assets except investment properties are stated at cost less accumulated depreciation. Depreciation is provided to write off the cost of fixed assets over their estimated useful lives on a straight line basis. Estimated useful lives are summarized as follows: Land use rights and buildings in the PRC 25 – 30 years Plant and machinery 7 years Motor vehicles 6 years Furniture, fixtures and office equipment 5 years Major costs incurred in restoring fixed assets to their normal working condition are charged to the income statement. Improvements are capitalized and depreciated over their expected useful lives to the Group. Construction-in-progress represents plant and properties under construction and includes the costs of construction plus interest charges arising from borrowin gs used to finance the construction during the construction period. Investment properties Investment properties are completed properties which are held for their investment potential, any rental income being negotiated at arm’s length. Investment properties are stated at their open market value based on independent professional valuations or directors’ valuations at the balance sheet date. Any revaluation increase or decrease arising on the revaluation of investment properties is credited or charged to the investment property revaluation reserve unless the balance on this reserve is insufficient to cover a revaluation decrease, in which case, the excess of the revaluation decrease over the balance on the investment property revaluation reserve is charged to the income statement. Where a decrease has previously been charged to the income statement and a revaluation increase subsequently arises, this increase is credited to the income statement to the extent of the decrease previously charged. On the disposal of an investment property, the balance on the investment property revaluation reserve attributable to that property is transferred to the income statement to form part of the gain or loss on disposal. No depreciation is provided on investment properties except where the unexpired term of the relevant lease is 20 years or less. Completed properties and properties under development Completed properties and properties under development held for sale are stated at the lower of cost and net realizable value. Cost includes the cost of land, development expenditure, borrowing costs capitalized in accordance with the Group’s accounting policy and other attributable expenses. Net realizable value is determined by the management based on prevailing market conditions. - 8- SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD 3. PRINCIPAL ACCOUNTING POLICIES – (continued) Inventories Inventories are stated at the lower of cost and net realisable value. Cost, which comprises all costs of purchase and other costs that have been incurred in bringing the inventories to their present location and condition, is calculated using the first in first out method. Net realizable value represents 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. Other investments Long term investments are stated at cost less provision for permanent diminution in value, if any. Short term investments are stated in the balance sheet at fair value. Changes in fair value are recognised in the income statement. Revenue recognition Turnover comprises (i) proceeds from sales of properties, (ii) revenue from retail sales of merchandise, (iii) revenue from hotel services, (iv) revenue from sales of goods, (v) billings related to construction, fitting-out, equipment installation and maintenance contracts, and (vi) rental income from investment properties. Income from sales of properties is recognized upon the execution of a binding sales agreement or upon the issuance of an occupation permit by the rele vant authority, whichever is the later. Installment sales of developed properties are recognized to the extent that installments are received or become due under the relevant sales contracts. Revenue from hotel services, property management services and taxi services is recognised when the services are rendered. Revenue from the sale of goods, other than merchandise, is recognized upon delivery of the goods to customers entitlement to the sales consideration is obtained. Profit from construction, fitting-out, equipment installation and maintenance contracts, which are mainly short-term in nature, is recognised under the completed-contract method, whereby billings and costs are accumulated and deferred, together with the related profit, until completion of the work. Rental income, including rental invoiced in advance from properties under operating leases, is recognized on a straight line basis over the terms of the relevant leases. Interest income is accrued on a time basis, by reference to the principal outstanding and at the interest rate applicable. - 9- SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD 3. PRINCIPAL ACCOUNTING POLICIES – (continued) Retirement benefit costs In accordance with local government regulations, the Group is required to make contributions to a retirement insurance fund whic h is administered by the local social security bureau in accordance with government regulations. The amount of contributions is determined at a fixed percentage of the basic salaries of the Group’s existing PRC staff. Retirement benefits are paid directly from the fund and are calculated based upon a retired employee’s basic monthly salary and their number of years’ service. The amount charged to the income statement represents the amount of contribution payable to the scheme by the Group. Taxation The charge for taxation is based on the result for the year as adjusted for items which are non-assessable or disallowable. Timing difference arise from the recognition for tax purposes of certain items of income and expense in a different accounting period from that in which they are recognised in the accounts. The tax effect of timing differences, computed using the liability method, is recognised in accounts to the extent it is probable a liability or an asset will crystallise in the foreseeable future. Intangible assets Intangible assets represent the cost of acquisition of taxi licenses, computer software and land use right and are stated at cost less amortisation and provision, if any, for any permanent diminution in value. Amortization is provided to write off the cost of taxi licences over the licence period granted by relevant authorities, namely 10 years, by equal installments. Amortization is provided to write off the cost of computer software over 5 years and land use right over 62 years. Foreign currency translation Foreign currency transactions are translated at exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the rates of exchange ruling at the balance sheet date. Exchange differences arising in these cases are dealt with in the income statement. On consolidation, the financial statements of overseas subsidiaries maintained in foreign currencies are translated at exchange rates ruling on the balance sheet date. Exchange difference arising on consolidation, if any, are dealt with in reserves. Borrowing costs Borrowing costs are directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale are capitalized as part of the cost of those assets. Capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from borrowing costs capitalized. All other borrowing costs are recognised as an expense in the period in which they are incurred. - 10 - SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD BUSINESS AND GEOGRAPHICAL SEGMENTS For management purposes, the Group is organised into five major operating divisions – property, retailing and trading, transportation and catering services, construction technical support and others. The divisions are the basis on which the Group reports its primary segment information. Principal activities are as follows: Property - construction and development, sales, leasing and management of properties Retailing and trading - sale of general merchandise Transportation and - hotel and restaurant operation and provision of taxi services catering service Construction - construction, fitting out and equipment installation and maintenance technical support Others - corporate financing, etc. The Group’s business is principally conducted in the People’s Republic of China (PRC) with its turnover for the year ended December 31, 2001 identified by geographical segments as follows: RMB (’000) PRC 584,270 Hong Kong 8,564 The United States 826 593,660 Segment information about these businesses for the year ended December 31, 2001 is presented below: Transportation Construction Retailing and catering technical Properties and trading services support Others Eliminations Consolidated RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 REVENUE External sales 354,265 180,630 15,857 20,304 22,604 -- 593,660 Inter-segment -- -- -- 11,729 5,494 (17,223) -- sales Total revenue 354,265 180,630 15,857 32,033 28,098 (17,223) 593,660 Inter-segment sales are charged on terms as determined by the directors. - 11 - SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD 4. BUSINESS AND GEOGRAPHICAL SEGMENTS (continued) Transportation Construction Retailing and catering technical Properties and trading services support Others Eliminations Consolidated RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RESULTS Segment results 154,180 20,860 1,771 3,671 67,080 (3,502) 244,060 Unallocated corporate expenses (652,630) Operating profit (408,570) Finance cost (108,833) Share of profits of associates and joint ventures 19,092 Profit before tax (498,311) Income taxes (2,089) Profit after tax (500,400) Minority interests 2,105 Net profit for the year (498,295) OTHER INFORMATION Segment assets 1,666,925 141,073 52,659 13,782 79,707 1,954,146 Non-consolidated subsidiaries 46,719 8,180 -- 9,058 62,845 126,802 Associated companies 1,473 -- -- -- 4,847 6,320 Contractual joint ventures 83,552 4,511 105,690 -- 87,023 280,776 Unallocated corporate assets 837,490 Consolidated total assets 3,205,534 Segment liabilities 1,255,893 138,250 109,079 13,314 138,951 1,655,487 Unallocated corporate liabilities 709,495 Consolidated total liabilities 2,364,982 Capital expenditure 1,364 8,493 6,786 919 5,268 Depreciation 8,312 3,605 6,589 -- 5,880 Non-cash expenses 389,234 2,730 1,420 3,055 111,092 other than depreciation - 12 - SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD 4. BUSINESS AND GEOGRAPHICAL SEGMENTS (continued) Segment information about these businesses for the year ended December 31, 2000 is presented below: Transportation Construction Retailing and catering technical Properties and trading services support Others Eliminations Consolidated RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 REVENUE External sales 478,560 252,434 71,124 38,957 16,922 -- 857,997 Inter-segment sales 5,154 -- 2,011 18,669 1,978 (27,812) -- Total revenue 483,714 252,434 73,135 57,626 18,900 (27,812) 857,997 Inter-segment sales are charged on terms as determined by the directors. Transportation Construction Retailing and catering technical Properties and trading services support Others Eliminations Consolidated RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RESULTS Segment results 252,637 13,418 35,471 9,295 19,735 (7,963) 322,593 Unallocated revenue 10,870 Unallocated corporate expenses (182,382) Operating profit 151,081 Finance cost (67,846) Share of profits of associates and joint ventures 3,083 Profit before tax 86,318 Income taxes (8,307) Profit after tax 78,011 Minority interests (2,040) Net profit for the year 75,971 - 13 - SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD 5. BUSINESS AND GEOGRAPHICAL SEGMENTS (continued) Transportation Construction Retailing and catering technical Properties and trading services support Others Eliminations Consolidated RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 OTHER INFORMATION Segment assets 2,012,770 160,350 64,871 20,642 101,067 2,359,700 Investment in equity method Non-consolidated 32,711 5,727 -- 7,570 42,774 88,782 subsidiaries Associated 5,495 -- -- -- 18,082 23,577 companies Contractual joint 70,462 3,800 89,165 5,905 67,543 236,875 ventures Unallocated corporate 1,161,906 assets Consolidated total 3,870,840 assets Segment liabilities 1,369,257 154,910 165,124 139,240 26,464 1,854,995 Unallocated corporate liabilities 678,782 Consolidated total liabilities 2,533,777 Capital expenditure 2,865 3,159 3,865 2,886 6,553 Depreciation 9,623 5,261 4,718 -- 5,276 Non-cash expenses 11,588 2,140 1,560 2,311 3,960 other than depreciation LOSS)/PROFIT FROM OPERATIONS 2001 2000 RMB’ 000 RMB’000 (Loss) / Profit before taxation is stated after crediting and charging the following: Crediting: Interest income - bank deposits 8,137 21,036 - others -- 35 Rental income 71,219 44,084 Write back of bad debts 11,662 904 Unrealized gain on short-term investments -- 1,101 Write-back of liabilities -- 1,369 Exchange gain 2,090 2,976 Gain on disposal of fixed assets 75 21 Charging: - 14 - SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD Depreciation 24,386 24,878 Amortization 4,502 86 Staff costs (note 6) 77,428 60,714 Rent paid under operating leases of land and building 492 300 Goodwill written-off -- 9,888 Exchange loss 2,814 -- Provision for impairment losses of assets (note 7) 503,029 11,585 STAFF COSTS 2001 2000 RMB’ 000 RMB’000 Salaries and bonus 63,491 50,995 Retirement benefit costs and provision for other welfare 13,937 9,719 77,428 60,714 PROVISION FOR IMPAIRMENT LOSSES OF ASSETS 2001 2000 RMB’ 000 RMB’000 Fixed assets 1,641 -- Non-consolidated subsidiaries 3,444 -- Associated companies 22,406 -- Contractual joint venture 18,892 -- Long term investments 20,301 -- Intangible assets 10,377 -- Properties under development for sale 398,974 -- Completed properties for sale 17,000 -- Inventories 18 814 Accounts receivable 9,976 10,771 503,029 11,585 FINANCE COSTS 2001 2000 RMB’ 000 RMB’000 Interest expenses - bank borrowings 108,833 67,846 9. TAXATION 2001 2000 RMB’ 000 RMB’000 The charge comprises: PRC income tax for the year 2,089 8,307 Domestic income tax is calculated in accordance with applicable income tax regulations and at 15% (2000: 15%) of the estimated assessable profit determined in accordance with the accounting principles and the relevant financial regulations applicable to enterprises in - 15 - SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD the PRC. Taxation for other jurisdictions is calculated at rates prevailing in the respective jurisdictions, details of which are as follows: Income Tax Rate 2001 2000 RMB’ 000 RMB’000 PRC enterprises income tax - enterprises in Shenzhen 15% 15% - enterprises outside Shenzhen 33% 33% Hong Kong profits tax 16% 16% United States corporation income tax 15-59% 15-59% 10. (LOSS)/PROFIT PER SHARE The calculation of basic earnings per shares is based on the consolidated loss for the year of RMB498,295,000 (2000: profit of RMB75,971,000) and 1,011,660,000 shares on issue. FIXED ASSETS Plant Office Land and and Motor equipment Construction buildings machinery Vehicles and others in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 COST At January 1, 2001 268,598 59,702 50,163 63,712 13,198 455,373 Additions 14,262 368 2,941 2,246 39,333 59,150 Disposals (22,407) (2,812) (6,496) (2,121) (6,907) (40,743) Transfer (4,413) (2,196) (8,159) (31,856) (7,159) (53,783) At December 31, 2001 256,040 55,062 38,449 31,981 38,465 419,997 DEPRECIATION At January 1, 2001 73,180 16,497 38,067 36,478 -- 164,222 Charge for the year 16,154 1,981 4,050 2,201 -- 24,386 Written back (11,889) (4,493) (5,905) (2,300) -- (24,587) Transfer (8,689) (1,174) (6,896) (16,925) -- (33,684) At December 31, 2001 68,756 12,811 29,316 19,454 -- 130,337 PROVISION FOR DIMINUTION IN VALUE Charge for the year 1,313 68 164 96 -- 1,641 NET BOOK VALUE At December 31, 2001 185,971 42,183 8,969 12,431 38,465 288,019 At December 31, 2000 195,418 43,205 12,096 27,234 13,198 291,151 - 16 - SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD The Group’s leasehold land and buildings including investment properties are being held in the People’s Republic of China under medium term leases. Certain properties have been pledged as security for the Group’s bank borrowings (see note 28). Under PRC laws, legal title to land and buildings is evidenced respectively by land use right certificates and title certificates issued by the relevant government agencies administering state-owned assets. As the land registration system in the PRC was not systematic and orderly in the 1980’s the Group’s title to a number of property interests in the PRC acquired in previous years has not been duly registered, and as a result, title certificates are not available for these properties. The Group is still in the process of effecting the registration of the title to these properties. INVESTMENT PROPERTIES 2001 2000 RMB’ 000 RMB’000 Net book amount at beginning of year 187,148 155,594 Disposal of properties (10,763) (101,250) Reclassified from fixed assets and inventories 426,237 132,804 Net book amount at end of year 602,622 187,148 The investment properties have been revalued as at 31 December 2001 by the directors. SUBSIDIARY COMPANIES At December 31, 2001, the Company had interests in the following principal subsidiaries which were grouped in the consolidated financial statements: Place of equity Interest held Subsidiaries establishment/incorporation Principal activities Direct Indirect % % Great Wall Estate Co., Inc. U.S.A. Property development 70 -- Shenzhen Shenfang (Group) PRC Property development 100 -- Shanghai Property Development Co., Ltd. Shenzhen Special Economic PRC Property development, 100 -- Zone Real Estate (Group) decoration Guangzhou Property and and construction design Estate Co., Ltd. Skill Elite Ltd. Hong Kong Corporate financing 100 -- Shenzhen City SPG Bao An PRC Property development 95 5 Development Ltd. and sales Shenzhen City Shenfang Free PRC Trading of construction 95 5 Trade Trading Ltd. materials - 17 - SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD Shenzhen City Shenfang PRC Investment and 90 10 Investment Ltd. management Shenzhen City Bamboo PRC Car rental 100 -- Garden Car Rental Ltd. Shenzhen Shenfang Car Park PRC Develop and operate car 70 30 Ltd. park 13. SUBSIDIARY COMPANIES – (continued) Place of equity Interest held Subsidiaries establishment/incorporation Principal activities Direct Indirect % % Shenzhen City Wa Gen Construction PRC Construction project 75 -- Management Ltd. management Shinnying Tongxin Real Est. Dev. PRC Real estate development -- 93.1 Co. Ltd. Barenie Co. Ltd. Hong Kong Properties investment -- 80 Openice Ltd. Hong Kong Investment holding 20 80 Shantou SEZ Wellam Fty Bldg., PRC Factory building, sales and -- 82 Dev. Co. rental Xin-Feng Real Estate Dev. PRC Real estate management -- 55 Construction (Wuhan) Co. Ltd. and rental service Fresh Peak Investment Ltd. Hong Kong Properties investment -- 55 Wellam Ltd. Hong Kong Investment holding -- 82 Shenzhen Petrel Hotel Co. Ltd. PRC Hotel operations 68.1 31.9 Shenzhen Cyber Port Co., PRC Property investment and 70 -- Ltd information technology consultancy Shenzhen Fresh Peak Real Estate PRC Property trading agency 95 5 Trading and Revaluation Co. Ltd. Shenzhen Shenfang Department PRC Commercial goods supplier 95 5 Store Co. Ltd. Shenzhen City Property PRC Property management 95 5 Management Ltd. - 18 - SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD Shenzhen Zhen Tung Engineering PRC Fitting-out contracting and 73 27 Ltd. maintenance Fresh Peak Holdings Ltd. Hong Kong Investment, management 100 -- and consultation Fresh Peak Enterprise Ltd. Hong Kong Investment holdings 82 -- 广州黄埔新邨房地产有限公司 PRC Property development and -- 100 sale Keyear Development Ltd. Hong Kong Investment holding -- 100 - 19 - SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD 13. SUBSIDIARY COMPANIES (continued) The non-consolidated subsidiaries involved have either been terminated or liquidated, in the process of liquidation or not intended to be held for long term. The Group already made appropriate provision therefore and consequently they have not been grouped in the consolidated financial statements for the year but included as non-consolidated subsidiaries as follows: 2001 2000 RMB’ 000 RMB’000 Unlisted Investments, at cost 394,259 287,012 Less: Provision for diminution in value of investments (394,259) (287,012) -- -- Add: Amounts due from non-consolidated subsidiaries 151,352 105,971 151,352 105,971 Details of the non-consolidated subsidiaries are summarized in the following: Place of Establishment/ Interest held Subsidiaries incorporation Principal activities Direct Indirect % % Shenzhen Shen Fang Industrial PRC Property management, 100 -- Development Co., Ltd. investment holding Shenzhen New Oriental Department PRC Retailing/trading in 100 -- Store Co., Ltd. consume goods Shenzhen Oriental New Word PRC Retailing/trading in 50 -- Department Store Co., Ltd. Consume goods Shenzhen Real Estate Consolidated PRC Construction material, 100 -- Service Co., Ltd. consume goods Shenzhen Tefa Real Estate PRC Construction and decoration 100 -- Consolidated Service Co., Ltd. Guangdong Province Fengkai Lian PRC Manufacturing and trading -- 90 Feng Cement Manufacturing Co., in cement products Ltd. Shenzhen Shen XI Constructions Co., PRC Fitting-out contracting and -- 60 Ltd. trading in fitting-out materials - 20 - SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD 13. SUBSIDIARY COMPANIES (continued) Place of equity establishment/ Interest held Subsidiaries incorporation Principal activities Direct Indirect % % Shenzhen China Hong Kong Hoi PRC Tourism and Service 100 -- Yan Enterprise Co., Ltd. Fidelity Development Limited Canada Property Development 75 -- Bekaton Property Limited Australia Property Development 60 -- Beijing SPG Property PRC Property management 100 -- Management Limited 湖 社 信息 服 中心 PRC Information service -- 100 北京新峰房地公司 PRC Property development 75 25 and management Dergetta Company Limited HK -- 70 Guangzhou Zhen Tung (Pearl) PRC Air-conditioning 70 -- Engineering Enterprise Ltd. engineering Shenzhen City Shenfang PRC Retailing/trading of 100 -- Construction and Decoration construction materials Materials Ltd. Shenzhen City SPG Long Gang PRC Property development, 100 -- Development Ltd. sales, management and rental Shenzhen Lian Hua Industry PRC Trading of equipment and 100 -- and Trading Co. Ltd. provision of renovation goods Paklid Limited HK Property construction and 100 -- tradin g of construction materials Shenzhen City Zhen Tung New PRC Investing on electronic and 95 5 Electronic and Electrical electrical engineering Development Ltd. project Shenzhen City Wing Wah PRC Repairs and maintenance of 90 10 Engineering Ltd. machinery - 21 - SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD ASSOCIATED COMPANIES 2001 2000 RMB’000 RMB’000 Unlisted investments, at cost 38,327 42,094 Share of post-acquisition (losses) / profits (843) 1,331 37,484 43,425 Less: Provision for diminution in value of investments (22,406) (43,425) 15,078 -- Add: Amounts due (to) / from associated companies (260) 54,578 14,818 54,578 At December 31, 2001 the Company had interests in the following principal associated companies: Place of Establishment/ Equity interest held Associated companies incorporation Principal activities Direct Indirect % % Yunnan Kun Peng Aviation PRC Aviation service 25 -- Service Ltd. Tung Yick Property Co., Ltd. Hong Kong Property development 20 -- 新疆深房百信物 公司 PRC Property management and leasing 40 -- 深圳 博 有限公司 PRC Property management and leasing 45 -- 武 通表面工程有限公司 PRC Engineering 40 -- 武 通冷气工程公司 PRC Air-conditioning engineering 40 -- 15. CONTRACTUAL JOINT VENTURES 2001 2000 RMB’ 000 RMB’000 Unlisted Investments, at cost 477,867 148,102 Share of post-acquisition profits 29,495 1,268 507,362 149,370 Less: Provision for diminution in value of investments (165,803) (129,998) 341,559 19,372 Add: Amount due (to) / from contractual joint ventures (28,990) 244,103 312,569 263,475 - 22 - SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD 15. CONTRACTUAL JOINT VENTURES (continued) Particulars of the principal contractual joint ventures are set out as follows: Group Joint venture committed registered capital Principal Method of Contractual Joint venture capital contribution activity Participation in earnings (’000) (’000) Guangzhou Sui Xin Property 5 years from RMB30,000 RMB71,000 Construction and 36% of profits from Da De Plaza and Estate Co Ltd. 14 October sales of properties 1992 Xian Fresh Peak Building Co. 30 years RMB20,000 RMB600,000 Construction and All profits after tax and appropriation commercial buildings Ltd. from 6 July sales of properties to statutory reserves are to be used first to repay the capital 1993 contributions and interest on capital. Thereafter 67% of net profits. Harbin Jianfeng Technology 30 years RMB20,000 RMB30,000 Technology All profits of Harbin after tax and Jianfeng appropriation Development Co. Ltd. from 26 June development Technology to statutory Building reserves are to be used 1993 first to repay the capital contributions. Thereafter 50% of net profits. Shantou Bay Bridge Co. Ltd. 35 years RMB75,000 RMB225,000 Construction All profits after of Shantou tax and Bay Bridge from 24 appropriation to statutory reserves are to be used first to December repay the capital contributions and interest on shareholder’s 1993 loans. There after 30% of net profits. - 23 - SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD 16. CONTRACTUAL JOINT VENTURES – (continued) Group committed Joint venture capital Principal Method of Contractual joint venture registered capital contribution activity Participation in earnings (’000) (’000) Jiangmen Xinjian Real 10 years US$6,600 US$6,000 Property 33% of net of Jianmen profits, Xinjian commercial Estate Co. Ltd. from 19 development building. May 1993 Kunshan Diao Feng 20 years US$7,200 US$9,000 Supply of Profit distributions and appropriation to statutory Electricity Power Co. from 29 electricity reserves are to be determined by the board of Ltd. November directors annually. 1993 浮山旅游 公司 30 years RMB30,000,000 RMB30,000,000 Tourism Profits net of taxation will be distributed to the extent from development of 70% to the Company. The remaining 30% will January be shared by the Company and the other venturer by 1985 the proportion of 55% and 45% respectively. - 24 - SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD 17. LONG TERM INVESTMENTS 2001 2000 RMB’ 000 RMB’000 PRC legal entity shares, at cost 16,825 16,825 Unlisted equity investments, at cost less provision for diminution in value 42,247 72,548 59,072 89,373 INTANGIBLE ASSETS Vehicle Land use Computer licenses right software Total RMB’ 000 RMB’ 000 RMB’ 000 RMB’ 000 At January 1, 2001 2,731 110,686 36 113,453 Addition -- -- 80 80 Amortization for the year (714) (826) (8) (1,548) Provision for diminution in value -- (10,377) -- (10,377) At December 31, 2001 2,017 99,483 108 101,608 PROPERTIES UNDER DEVELOPMENT FOR SALE 2001 2000 RMB’ 000 RMB’000 Cost 1,585,328 1,614,084 Less: Provision for diminution in value (716,948) (326,076) 868,380 1,288,008 Included in properties under development for sale is a piece of land awaiting development held in the United States at a cost of RMB122,479,046 against whic h provision for diminution in value of RMB104,723,917 was made in prior years. In last year, the Group brought a lawsuit over an unauthorized sale of the land. Whilst the litigation was in progress the land was held in custody by the court. - 25 - SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD COMPLETED PROPERTIES FOR SALE 2001 2000 RMB’ 000 RMB’000 Cost 304,765 707,653 Less: Provision for diminution in value (48,150) (31,149) 256,615 676,504 INVENTORIES 2001 2000 RMB’ 000 RMB’000 Raw materials 4,202 11,160 Work-in-progress -- 11,222 Finished goods 12,923 27,695 Less: Provision for diminution in value (833) (815) Consumables 100 214 16,392 49,476 21. SHORT-TERM INVESTMENTS 2001 2000 RMB’ 000 RMB’000 Listed equity investments, at market value 3,034 3,091 Debentures, at market value 17 50 3,051 3,141 22. TAX PAYABLE 2001 2000 RMB’ 000 RMB’000 Income tax 58,235 71,912 Business tax and value added tax 7,647 37,566 Others 2,864 1,041 68,746 110,519 - 26 - SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD 23. NON-CURRENT LIABILITIES 2001 2000 RMB’ 000 RMB’000 Bank loans (note 24) 90,735 75,783 Other liabilities 19,071 44,142 109,806 119,925 At December 31, 2001, the bank loans were secured by certain bank deposits, fixed assets, investment properties and equity interests in contractual joint ventures. Details are set out in note 28. Bank loans and other liabilities are repayable in various installments up to June 2003 and November 2004 respectively. Interest is charged on the outstanding balances at rates ranging from 8.6% to 16% per annum. BORROWINGS 2001 2000 RMB’ 000 RMB’000 Bank loans Secured 1,053,439 1,016,553 Guaranteed 161,068 152,840 On credit 20,000 27,597 1,234,507 1,196,990 Bank loans repayable: Within one year or on demand 1,143,772 1,121,207 In the second year 89,298 -- In the third to fifth years, inclusive 1,437 75,783 1,234,507 1,196,990 Portion classified as current liabilities 1,143,772 1,121,207 Long term portion 90,735 75,783 1,234,507 1,196,990 Particulars of assets pledged from bank loans and other facilities are set out in note 28. - 27 - SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD SHARE CAPITAL 2001 2000 RMB’ 000 RMB’000 Registered, issued and paid-in 891,660,000 A shares 891,660 891,660 120,000,000 B shares 120,000 120,000 1,011,660 1,011,660 ‘A’ shares are issued to Chinese national investors resident in the PRC and ‘B’ shares are issued to foreign investors. Chinese national investors resident in the PRC are entitled to purchase and sale ‘B’ shares since June 2001. ‘A’ and ‘B’ shares have a par value of RMB 1 per share and rank pari passu. NET INCREASE IN CASH AND CASH EQUIVALENT 2001 2000 RMB’ 000 RMB’000 Cash and bank balances 343,897 327,579 Less: deposits secured over 3 months (174,663) (144,709) 169,234 182,870 Effect of foreign exchange rate changes (724) (6,092) Restated cash and cash equivalents 168,510 176,778 PRIOR YEAR ADJUSTMENT The prior year adjustment represents the correction of an error in respect of the calculation of minority shareholders’ interests in prior years, of which the effect on the Group’s results is RMB(49,102,000). - 28 - SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD PLEDGE OF ASSETS At December 31, 2001, certain of the Group’s investment properties, leasehold land and buildings, properties under development and properties held for sale with an aggregate net carrying value of RMB733,711,400 and fixed deposits amounting to RMB131,900,100 were pledged to secure loans and general banking facilities to the extent of RMB999,246,200 granted to the Group. Facilities amounting to RMB998,246,200 were utilized at December 31, 2001. In addition to the above, at December 31, 2001, 30% interest in rights under Sino-foreign cooperate joint venture agreement dated August 6,1993, as novated and supplemented by a Supplement on 20 May 1997 for the establishment and operation of Guangdong Shantou Bay Bridge Company Limited, assignment of 10% of all dividend and revenues received from Guangdong Shantou Bay Bridge Co., Ltd. for the period from 2000 to 2028 and 31.89% share interest in a subsidiary, Shenzhen Petrel Hotel Co., Ltd. were pledged to secure loans amounted to HK$52,000,000, equivalent to RMB55,192,800. 29. RELATED PARTY RELATIONSHIPS AND TRANSACTIONS In addition to subsidiaries, associated companies and contractual joint ventures stated in notes 12, 13 and 14 respectively, the following entities have also been defined as related parties with whom the Group has had significant transactions during the year or with whom a significant balance exists at the year end. Nature of relationship Shenzhen Construction Investment Holding Corporation Ultimate holding company Shenzhen Jianye (Group) Co., Ltd With the same ultimate holding company RELATED PARTY RELATIONSHIPS AND TRANSACTIONS (continued) The following is a summary of the significant transactions with related parties during the year. Shenzhen Jianye (Group) Co., Ltd 2001 2000 RMB’ 000 RMB’000 Construction and development expenses 2,350 14,246 In August 1994, the construction agreement was entered into between the Company and Shenzhen Jianye (Group) Co., Ltd. The expenses were made based on the market price. Some net balances due from / (to) related parties at December 31, 2001 and 2000 are - 29 - SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD stated in notes 12-14 and included in the balance sheet of the Group as non-consolidated subsidiaries, associated companies and contractual joint venture; the remaining balances are summarized as follows. 2001 2000 RMB’ 000 RMB’000 Shenzhen Construction Investment Holding Corporation (188,764) (198,039) Shenzhen Jianye (Group) Co., Ltd -- (4,161) (188,764) (202,200) The above amounts are included in the balance sheet of the Group in the following ways: 2001 2000 RMB’ 000 RMB’000 Accounts payable and accrued expenses (50,000) (63,436) Dividends payable (138,764) (138,764) (188,764) (202,200) Directors’ emoluments There are nine directors in the Company. Six of the directors received emoluments amounting to RMB520,000 for the year ended December 31,2001. Three directors did not receive salary and other benefits from the Company. 30 CONTINGENT LIABILITIES 2001 2000 RMB’ 000 RMB’000 Guarantee given for banking and credit facilities granted to: - contractual joint ventures 11,000 14,000 - third parties 158,600 -- 169,600 14,000 - 30 - SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD 31. MATERIAL CONTRACTS As authorized by Extraordinary Shareholders’ General Meeting, 30% interests in Shantou Bay Bridge Co. Ltd. held by Fresh Peak Holdings Ltd., a subsidiary of the Company, has been transferred, but the related procedures for the transfer were still in negotiation up to December 31, 2001. The carrying value of the contractual joint venture of Shantou Bay Bridge Co. Ltd. amounted to RMB141,657,451 as at December 31, 2001, which has a higher value according to the directors of the Company. 32. LITIGATION AND ARBITRATION 1. On March 21, 1997, the Company executed an agreement with Baoxin Real Estate Development (Shenzhen) Company Limited (“Baoxin”) to sell its share of 68% interests in Guo Xin Building at a consideration of RMB145,000,000. In addition, the construction cost for the building of RMB15,000,000 was undertaken by Baoxin. Baoxin has paid a deposit of RMB45,000,000. The outstanding purchase consideration of RMB100,000,000 and the construction cost of RMB15,000,000 have still not been settled. The Company has lodged a claim to the Shenzhen Intermediate People’s Court. The process of litigation is still in progress. For prudence purposes, the Company has not taken up any income on the above transaction. The deposit that has been received was included as other payable. Up to December 31, 2001, the construction cost for Guo Xin Building included in properties under development for sale in the balance sheet amounted to RMB166,109,047. As the title of Guo Xin Building was in the name of Baoxin, the Company has made a provision of RMB69,907,107 for loss in the construction of this building. 2. On June 26, 1993, the Company and Harbin Construction Engineering College (“Harbin”) have signed a cooperative agreement. Under the agreement, the Company has advanced a loan of RMB21,450,000 to Harbin. As Harbin has not yet repaid the loan, in November 2000, the Company took an action against Harbin for payment in Shenzhen Intermediate People’s Court. The legal proceeding is still in progress. The Company expects this loan will be recoverable in full and as a result, no provision is required. 3. On August 20, 2001, the Company applied to China International Economic Arbitration Committee for an arbitration against a joint venture company for a construction advance of RMB37,330,000 and the compensation for early redemption of the land use rights. The arbitration is still in progress. Up to December 31, 2001, the construction in progress for this project amounting to RMB38,256,853 was included in the construction in progress. The construction work has been stopped. The Company has not made any provision for impairment against this construction in progress. 4. A subsidiary, Great Wall Estate Company Inc. Incorporated in the United States, took a law suit against several parties including a bank for the ownership of a piece of land in Los Angeles, California which was unlawfully transferred by the defendants without the consent of the Company. The transfer was executed in - 31 - SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD August 2000 and a new corporation grant deed was issued. Subsequently, the land was mortgaged to a bank for a loan of US$650,000. The Company has applied for the court’s adjudication to restore the legal title thereof to the Company. At December 31, 2001, the case was still in judicial process. The land value of this property included in properties under development for sale of the Group amounted to RMB17,755,129. The Company expects it will either resume the ownership of the land or receive the compensation and no loss will be incurred ultimately. As a result, no provision has been made. 33. COMMITMENTS At December 31, 2001, the Group has outstanding commitments payable in the following year under an operating lease in respect of land and building as follows: 2001 2000 RMB’000 RMB’000 In the second to fifth years inclusive 400 667 The Group also had outstanding commitments amounting to RMB887,568,300 for property development projects of which RMB325,437,600 was authorized and contracted by the directors. 34. IMPACT OF IAS AND OTHER ADJUSTMENTS ON NET PROFIT AND SHAREHOLDERS’ EQUITY Net loss for the year Net assets RMB’000 RMB’000 As reported in the statutory consolidated financial statements (537,280 ) 1,019,082 Reversal of depreciation charges in respect of investment 24,110 24,110 properties Timing difference in write-off of pre-operating expenses 1,745 -- Adjustment for market value of short-term investments (55 ) (55) Expenses accrued in previous year 9,930 -- Difference in recognition of cost of fixed assets -- (189,006) Goodwill arising from acquisition of subsidiaries 1,397 (8,491) - 32 - SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD Others 1,858 515 As reported in the consolidated financial statements prepared in accordance with IAS (498,295 ) 846,155 35. COMPARATIVE FIGURES Certain comparative figures have been reclassified to conform with the current year’s presentation. - 33 -