宁通信B(200468)宁通信Ｂ2001年年度报告（英文版）

Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report (For Foreign Investors) Important Note: The Board of Directors and Directors of the Company hereby confirms that there are no factitious record, misleading statements or material omission in the information carried in this report, and collectively and individually accepts full responsibility for the truthfulness, accuracy and completeness of the whole contents. The report is prepared both in Chinese and in English. In case of any inconsistency between the two versions, the Chinese version should prevail. Contents I. Company Profile ┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄ 2 II. Financial & Operating Highlights ┄┄┄┄┄┄┄┄┄┄┄┄┄┄ 2 III. Share Capital Variation & Shareholders Introduction ┄┄┄┄┄┄ 4 IV. Directors, Supervisors, Senior Management & Employees┄┄┄┄ 6 V. Corporate Governance Structure┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄ 8 VI. Highlights of Shareholders General Meetings ┄┄┄┄┄┄┄┄┄ 11 VII. Report of the Board of Directors ┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄ 12 VIII. Report of the Supervisory Committee ┄┄┄┄┄┄┄┄┄┄┄┄ 18 IX. Significant Events ┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄ 19 X. Financial Report ┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄ 22 XI. Documents for Inspection ┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄ 23 Attached Financial Statement and notes ┄┄┄┄┄┄┄┄┄┄┄ 24 1 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report I. Company Profile 1. Company’s Legal Chinese Name: 南京普天通信股份有限公司 Company’s Legal English Name: Nanjing Postel Telecommunications Co., Ltd. 2. Legal Representative: Mr. Lu Junhai 3. Secretary of the Board of Directors: Mr. Xiao Zhaokai Securities Affairs Representative: Mr. Gu Xiaorong Address: No. 1 Postel Road, Qinhuai District Nanjing Telephone: 86-25-2409954 Facsimile: 86-25-2409954 Email Address: .ntelecom@public1.ptt.js.cn 4. Registration Address: Bldg. 1, West to Ericcson Building, Jiangning Economics and Technology Development Zone, Nanjing, Jiangsu Province PRC Business Address: No. 1 Postel Road, Qinhuai District Nanjing Postal Code: 210012 Company’s Web Site: .www.postel.com.cn Email Address: .securities@postel.com.cn 5. Appointed Newspaper for Company Information Disclosure: Securities Times & Ta Kung Pao Appointed Web Site for Annual Report Publication: www.cninfo.com.cn Annual Report Prepared At: Securities Office of the Company 6. Listing and Trading Place of the Company Shares: Shenzhen Stock Exchange Stock Abbreviation: Ning Tong Xin B Stock Code: 200468 7. Registration Date: 28 May, 1999 Registration Place: State Administration For Industry and Commerce Taxation Registration Code: 320121134878054 Appointed Auditor: Price WaterHouseCoopers Zhong Tian CPAs Co., Ltd. (Domestic Auditor) PricewaterhouseCooper China Limited(Foreign Auditor ) Auditor’s Business Address: 12th Floor Shui On Plaza 333, Huaihai Zhong Road, Shanghai(Domestic Auditor) 12th Floor Shui On Plaza 333, Huaihai Zhong Road, Shanghai(Foreign Auditor) II.Financial & Operating Highlights 1. Financial data for 2001 (Rmb’000) Profit Before Taxation 13,212 Net Profit 2,383 Profit After Deducting Non-recurrent profit/loss 3,113 Gross profit 179,907 Profit for Other Businesses 2,174 Operating Profit 33,525 Investment Income 1,249 Subsidy Receipt 1,258 Net Cash Generated from Operating Activities -2,550 2 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report Increase of Cash and Cash Equivalent 89,261 Note: Deducted non-recurrent profit/losses are: Items included in Other Operating Income 2,865 Items included in Other Operating Expenses -4,874 Profit on disposal of a subsidiary 1,150 Income tax 129 In total -730 Explanation of discrepancy as audited under CAS and IAS (Rmb’000 Yuan) Net assets at Net profit for 2001 31 December 2001 Per PRC reporting 2,383 430,847 Adjustments for IAS reporting: Fixed assets depreciation - (1,713) Revaluation - (28,618) Remeasurement of financial assets and financial liabilities in accordance with IAS 39 - (21,833) Other - 12,596   Per IAS reporting 2,383 391,279   2. Main financial data for the recent 3 years: Financial Indicators 2001 2000 2000 1999 (adjusted) ( not adjusted) Turnover(Rmb’000 yuan) 753,608 637,651 637,651 392,029 Net Profit(Rmb’000 yuan) 2,383 -54,361 -53,770 534 Total Assets(Rmb’000 yuan) 1,035,535 1,030,081 1,032,220 879,840 Shareholder’s Equity(excluding minor 391,279 388,916 412,763 466,579 shareholder’s equity) (Rmb’000 yuan) Earnings Per Share(yuan) 0.011 -0.253 -0.250 0.002 Net Assets Per Share(yuan) 1.82 1.91 1.92 2.17 Net Cash Per Share Generated from -0.01 -0.31 -0.31 -0.19 Operating Activities(yuan) Return On Net Assets(%) 0.61 -13.24 -13.03 0.11 Note 1: The share capital of the Company kept unchanged from the end of the reporting period to the day when this report is published. Note2: Attached Profit Form Profit for Return On Net Equity % Earnings Per Share reporting period Fully diluted Weighted average Fully diluted Weighted average Gross profit 45.98 46.12 0.8368 0.8368 Operating profit 8.57 8.59 0.1559 0.1559 Net profit 0.61 0.61 0.0111 0.0111 Net profit after 0.80 0.80 0.0145 0.0145 deducting Non-recurrent profit/losses 3 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report 3. Changes on Shareholders’ Equity during the reporting period (Rmb’000) Capital Statutory and Statutory Exchange Share accumu discretionary welfare Translation Other Retained Shareholder’s Item capital lation accumulation fund reserve reserve earnings equity in total fund fund s At 215,000 178,570 32,480 19,949 115 -57,198 388,916 year-begin ning Increase 533 309 60,005 60,487 Decrease 29,133 18,015 10,476 18 842 58,484 At 215,000 149,437 14,998 9,782 -18 115 1,965 391,279 year-end Decrease of capital accumulation fund resulted from transfer of employee housing benefits cost. Increase of statutory and discretionary accumulation fund as well as statutory welfare fund resulted from proposed appropriation for the year, and decrease of the latter resulted from transfer of employee housing benefits cost, adjustment for previous years’ profit appropriations and disposal of a subsidiary. Increase of retained earnings resulted from transfer of employee housing benefits cost, adjustment for previous years’ profit appropriations, net profit for the year and disposal of a subsidiary. Decrease of retained earnings resulted from proposed appropriation of statutory and discretionary accumulation fund as well as statutory welfare fund. III. Share Capital Variation & Shareholders Introduction 1. Share Capital Variation (1)Change of the share composition Changes in the period Year-beginni Placed Bonus Shares transferred Sub-t Year-end ng other shares shares from capital shares otal Un-listed shares 1.Promoter 115,000,000 115,000,000 shares Including: State-owned 115,000,000 115,000,000 shares Domestic legal person shares Foreign legal person shares Other 2.Placement legal person shares 3.Employee’s 4 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report shares 4.Preference shares and other Un-listed shares 115,000,000 115,000,000 in total Listed shares 1. Rmb ordinary shares 2.Domestically-li 100,000,000 100,000,000 sted foreign shares 3.Overseas listed foreign shares 4.Other Listed shares in 100,000,000 100,000,000 total Total shares 215,000,000 215,000,000 (2)Stock issuing and listing The Company did not issue shares in the last three years ended by 2001. The number and composition the Company’s shares kept unchanged during the reporting period. 2. Shareholders introduction (1) At 31st Dec 2001, the Company had 19712 shareholders, including 1 state-owned legal person shareholder and 19711 B- shareholders. (2) Top ten shareholders at year-end Order Shareholder Shareholder Shares held Ratio(%) Classification at year-end China PTIC Information Industry State-owned 115,000,000 1 53.49% Corporation Shareholder BONY A/C CMG CH CHINA B-shareholder 1,500,001 2 0.70% INVESTMENTS LIMITED 3 Yin Xiao’e B-shareholder 896,950 0.42% 4 Wang Xuanxuan B-shareholder 611,337 0.28% 5 Quan Guan Investment Co., Ltd. B-shareholder 500,000 0.23% 6 Chen Lijin B-shareholder 453,498 0.21% 7 Gu Yuming B-shareholder 330,100 0.15% 8 Liu Xiaodong B-shareholder 329,000 0.15% 9 He Meizhu B-shareholder 307,600 0.14% 10 He An’e B-shareholder 284,104 0.13% Note: China PTIC Information Industry Corporation owns over 5 percent of the Company’s shares. The number of the shares held by PTIC kept unchanged during the year and the shares were neither mortgaged nor frozen. There are no related parties among the top ten shareholders. (3) Introduction of holding company: 5 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report Company name: China PTIC Information Industry Corporation Company nature: state-owned sole enterprise Legal representative: Ou Yang Zhongmou Date of Corporation: 1980 Scale of business: develop and manufacture various communications equipment such as large-scale digital program-controlled switchboard, GSM and CDMA mobile telecommunication equipment and mobile phone, IP serial products, micro-wave telecommunication equipment, optical telecommunication equipment, optical and electric telecommunication cable, communication power supply, distribution equipment, IC phone, multi-media computer terminal, fax machine, postal mechanic and so on; engage in contract for international and domestic telecommunication project, engage in technical and economic business such as cooperation, technology introduction, import and export of relevant products. Other: It was originally named ”China Posts and Telecommunications Industry Corporation” under the Ministry of Posts and Telecommunications and the Ministry of Information Industry. At the end of 1998 it became a large-scale enterprise directly subordinate to the central government. (4) Introduction of legal representative shareholder owning over 10 percent shares Shareholder’s name: China PTIC Information Industry Corporation See Part 3 for introduction. IV. Directors, Supervisors, Senior Management & Employees 1. Directors, supervisors and senior management (1) Profile Name Sex Age Position Term of Office Shares Shares held held at at year-end year-begin ning Lu Junhai Male 59 President June2000-Jun 0 0 e 2003 Li Weide Male 54 Vice President and June2000-Jun 0 0 General Manager e 2003 Zhou Zhenkai Male 59 Director June2000-Jun 0 0 e 2003 Cao Bin Male 45 Director, Assistant June2000-Jun 0 0 General Manager and e 2003 Chief Engineer Huang Zhiqin Male 40 Director May 0 0 2001-June 2003 Wang Lili Femal 51 Director May 0 0 6 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report e 2001-June 2003 Dai Yuanfang Male 58 Independent Director May 0 0 2001-June 2003 Zhang Male 60 Independent Director May 0 0 Xiaoqiang 2001-June 2003 Wang Jiaqiang Male 51 Chairman of the May 0 0 Supervisory 2001-June Committee 2003 Sun Qiang Male 44 Supervisor, Chairman June2000-Jun 0 0 of Labor’s Union e 2003 Jiang Kun Male 34 Supervisor May 0 0 2001-June 2003 Jiang Haishan Male 45 Assistant General June2000-Jun 0 0 Manager e 2003 Shi Xinhua Male 51 Vice Chairman of 0 0 Party Committee Jiang Hanbin Male 40 Assistant General June2000-Jun 0 0 Manager e 2003 Xiao Zhaokai Male 37 Secretary to BOD June2000-Jun 0 0 e 2003 Qian Ruicheng Male 54 Associate Chief June2000-Jun 0 0 Accountant e 2003 (2) Directors and supervisors working in shareholding company Name Company Position Lu Junhai China PTIC Information Industry Corporation Vice President Huang Zhiqin China PTIC Information Industry Corporation Assistant to President & Director of R & D Center Zhou Zhenkai China PTIC Information Industry Corporation Director of Auditing Office Wang Jiaqiang China PTIC Information Industry Corporation General Manager of Financial Department Wang Lili China PTIC Information Industry Corporation Assistant General Manager of Technology Department Jiang Kun China PTIC Information Industry Corporation Director and Assistant General Manager of Chongqing Telecommunications Equipment Co., Ltd. (3) Annual remuneration Procedure and referent basis of payment assess of directors, supervisors, and senior 7 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report management: Presently, the directors and supervisors are not paid by the Company for taking the position as director or supervisor. Those directors or supervisors who also hold the position of senior management at the same time receive remuneration according to their administrative posts by such a procedure: the Board of Directors decide the range of the amount of senior management’s remuneration, then the General Manager decides the standard of remuneration according to the their jobs by which the senior management are paid monthly. In 2001, a total amount of 473,825 yuan was paid to those directors, supervisors and senior management who receive remuneration from the Company, including 129,468 yuan to the two directors working in the Company and 201,677 yuan to the three senior management with highest remuneration. There are eight persons receiving remuneration from the Company among the directors, supervisors and senior management, including 5 persons with an annual remuneration of 50,000 to 60,000 yuan each, 2 persons with 60,000 to 70,000 yuan each and one person with over 70,000 yuan. Compensation of independent directors: policies and assessment standard has not been set up yet. Those directors and supervisors who do not receive remuneration from the Company are: Lu Junhai, Zhou Zhenkai, Hang Zhiqin, Wang Lili, Dai Yuanfang, Zhang Xiaoqiang, Wang Jiaqiang and Jian Kun. Among the latter Lu Junhai, Zhou Zhenkai, Hang Zhiqin, Wang Lili, Wang Jiaqiang and Jiang Kun receive remuneration from China PTIC Information Industry Corporation. (4) The directors, supervisors and senior management who left their posts in the reporting period In the reporting period, approved by the Shareholders General Meeting, Mr. Li Zongxin left the post of director, Mr. Xu Aimin resigned from director, and from Assistant General Manager as approved by the Board of Directors. Mr. Wang Jiaqiang left the post of director. Mr. Liu Xiangpin and Mr. Li Xuegen resigned from supervisor. 2. Employees of the Company At the end of 2001, the Company had 1,729 employees. A breakdown by job duties of the employees is as follows: Technology 295 Production 556 Sales 488 Services 175 Administration 215 A breakdown by educational level is as follows: University degree and above 268 College 376 Technical secondary school 241 High school 515 Below high school 329 The Company has 518 retired employees, among whom 16 people’s expenses were totally borne by the Company and the rest people’s expenses were jointly borne by the Company, a small section of about 12 percent, and the social security fund. 8 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report V. Corporate Governance Structure 1. Present state of the Company’s management Ever since it was listed in the stock market, the Company has been working hard to improve its management system to standardize its operation according to the Company Law, Securities Law and relevant rules promulgated by China Securities Regulatory Commission (CSRC). After formulating the Rule of Procedure of the Board of Directors, Rule of Procedure of the Supervisory Committee and Rule On Company Information Release, the Company is now studying Listed Company Governance Rule and other rules, ready to formulate the Rule of Procedure of Shareholders General Meeting and revise the Articles of Association to further improve relevant regulations and rules and standardize its operation. The Company believes that its operation is fundamentally in conformity with Listed Company Governance Rule in the following regards: (1) Shareholder and Shareholders General Meeting: To respect all the shareholders and ensure each of them to execute their rights equally, the Company organized and held the Shareholders General Meeting strictly according to the requirements by Proposal On Standardization of Shareholders General Meeting and the Articles of Association. It managed to select the most suitable place of meeting to enable more shareholders to attend and vote on the meeting. The Company’s related transactions are fair and reasonable. There are no such related transactions that do harm to the interest of the Company, no is there any misappropriation of fund, asset or other resources by related shareholders. According to the Listed Company Governance Rule, the Company is formulating the Rule of Procedure of Shareholders General Meeting and will the Articles of Association. (2) Holding Company: The holding company’s acts are in conformity with the relevant regulations. It did not impose any interference on the Company’s decision-making or operating activity directly or indirectly. The Company is independent on the holding company in terms of personnel, asset, finance, organization and business (“Five Separates”). The internal organizations such as the Board of Directors and Supervisory Committee can perform their duties independently. (3) Directors and the Board of Directors: The Company strictly adopted the required procedures in the Articles of Association to appoint the directors. It has appointed two independent directors and is going to further improve the procedure of director appointment through, for instance, actively practicing cumulative voting. The Board of Directors has formulated the Rule of Procedure of BOD. And the directors performed their duties conscientiously when attending the meetings of BOD and Shareholders General Meeting. (4) Supervisors and the Supervisory Committee: The membership of the Supervisory Committee is in conformity with the requirement of relevant laws and regulations. The Supervisory Committee has formulated the Procedure of the Supervisory Committee. And the supervisors did their jobs carefully by observing whether the actions of the directors, the managers and other senior 9 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report management abided by the laws in performing their duties. (5) Assessment and incentive system: The procedures of appointing the managers are in line with the relevant laws and regulations. The Company is preparing to establish fair and transparent assessment standard and incentive mechanism. (6) Those who share interest with the Company The Company respects and safeguards the legal interest of the banks and other creditors, employees, customers and all other who share interest with itself. (7) Transparency of information release: The Company has formulated the Rule on Company Information Release and appointed Secretary to BOD to take charge of the affairs on company information release and receive the visiting shareholders. It has been working hard to disclose the relevant information truthfully, accurately, completely and promptly to ensure all the shareholders to be equal in knowing the company information. 2. Independent directors’ actions in performing their duties The two independent directors could perform their duties and attend the meetings of the BOD personally. At the same time, the BOD also respected the opinions of them very much to make their decision more scientific to protect the interest of the shareholders, especially the minor shareholders. 3. “Five Separates” with the holding company (1) Personnel: The Company has independent laboring and salary management system. General Manager, Assistant General Manager and other senior management all receive remuneration from the Company. None of them take important position in the holding Company. The nomination of directors and managers by the holding company are executed through legal procedures. (2) Assets: As a wholly reorganized enterprise to be listed in stock market, the Company owns integrated assets that are totally separated with the holding company. Although the brand “Postel” is owned by the holding company PTIC, the Company is authorized to use the brand freely as long as its operating activity continues under an agreement between the two parties. (3) Finance: The Company has established independent financial control policies, and the control company did not interfere the Company on using its own fund. (4) Organization: The internal organizations such as the Board of Directors and Supervisory Committee can perform their duties independently. (5) Business: The Company does its business independent on its ultimate controlling 10 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report companies and related corporations. It owns systems of raw material purchasing, production and sales systems totally independent on the latter. VI. Highlights of Shareholders General Meetings 1. Meetings and resolutions (1) 2000 Shareholders General Meeting As the Seventh Meeting of the Second BOD decided to hold the 2000 Shareholders Annual General Meeting, notice of the meeting was published on the Securities Times and Ta Kung Pao on 12 April 2001. On 22 May 2001, the 2000 Shareholders General Meeting of the Company was held in the Company’s boardroom at No. 1 Postel Road, Qinhuai District, Nanjing. One state-owned legal person shareholder, representing 115,000,000 shares, and six B-shareholder and B-shareholder proxies, representing 213,500 shares, were present at the meeting. They represented 115,213,500 shares in total, 53.59% of the Company’s share capital of 215,000,000 shares, which applied to the relevant rules of the Company Law and the Company’s Articles of Association. The meeting examined and passed the following resolutions, including: (1) 2000 Annual Report (2) 2000 Work Report of the Board of Directors (3) 2000 Work Report of the Board of Supervisors (4) 2000 Work Report of General Manager (5) 2000 Financial Report (6) 2000 Profit Distribution Plan; (7) Adjusting members of the BOD (8) Adjusting members of the Supervisory Committee Jiangsu Gao Di Lawyer Firm presented Legal Opinion for the meeting. The resolutions of the meeting and Legal Opinion were published on Securities Times and Ta Kung Pao on 23 May 2001. (2) The First Extempore Shareholders General Meeting of 2001 As the Eighth Meeting of the Second BOD decided to hold the First Extempore Shareholders General Meeting of 2001, notice and deferment notice of the meeting was published on the Securities Times and Ta Kung Pao on 17 August and 18 September, 2001. On 31 October 2001, the First Extempore Shareholders General Meeting of 2001 was held in the Company’s boardroom at No. 1 Postel Road, Qinhuai District, Nanjing. One state-owned legal person shareholder, representing 115,000,000 shares, and two B-shareholder and B-shareholder proxies, representing 55,420 shares, were present at the meeting. They represented 115,055,420 shares in total, 53.514% of the Company’s share capital of 215,000,000 shares, which applied to the relevant rules of the Company Law and the Company’s Articles of Association. The meeting examined and passed the 11 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report following resolutions, including: 1) the proposal that Company was qualified to issue shares ; 2) to apply for issuing a maximum of 50,000,000 RMB Ordinary Shares(A-share); 3) the feasibility of the Company’s planned projects by using proceeds from new share issue; 4) the Company’s report on the use of the proceeds raised from the last time’s share issue ; 5) the proposal that the retained profit would be shared by both the old and new shareholders after issuing shares this time; 6) the proposal to authorize the Board of Directors to handle the matters on share issuing; 7) the proposal to reduce the state-owned shares in share issuing; 8) the term of validity of the resolution on share issuing. Jiangsu Gao Di Lawyer Firm presented Legal Opinion for the meeting. The resolutions of the meeting and Legal Opinion were published on Securities Times and Ta Kung Pao on 1November 2001. 2. Election and reelection of directors and supervisors As approved by 2000 Shareholders General Meeting, Li Zongxin, Wang Jiaqiang and Xu Aimin no longer took the position of director, Huang Zhiqin and Wang Lili were elected as directors of the Second BOD, Dai Yuanfang and Zhang Xiaoqiang were elected as the Independent directors of the Second BOD, Li Xuegen and Liu Xiangpin no longer took the position of supervisors, Wang Jiaqiang and Jiang Kun were elected as supervisors of the Second Supervisory Committee. VII. Report of the Board of Directors 1. Operating position of the Company (1) Introduction of main business The Company is a telecommunications equipment manufacturer, mainly engaged in manufacture, sales and after sales services of data communications products, wiring communications products, wireless communications products, distribution frame products as well as multi-media computers and relevant products. In 2001, by the joint effort of the company staff, the Company generally fulfilled the production and operation target set out by the Board of Directors. It realized turnover of 753,608,000 yuan for the year, 18.19 up from last year, and profit before tax of 13,212,000 yuan, 127.91% up from last year. Introduction of products which contributed 10 percent of turn over: (yuan) Product Turn over Cost Gross margin Distribution frame 248,701,106 173,537,356 30.22% Comprehensive 83,771,233 65,441,454 21.88% 12 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report wiring product Accessories 84,079,334 72,403,153 13.89% (2) Composition of turn over and gross profit (yuan) By business: Sales Gross profit Sales of manufactured telecommunication and 450,421,478 123,278,337 electrical products Sales of purchased telecommunication and electrical 196,124,256 29,925,663 products Sales of manufactured electronics products 81,660,090 18,589,664 Sub-contracting services 1,762,143 719,750 Other 23,640,019 7,393,344 In toatal 753,607,986 179,906,758 By products: Sales Gross profit Data communications products 119,377,637 12,980,199 Wiring communications products 22,459,882 2,216,276 Wireless communications products 76,576,195 12,867,836 Distribution products 298,828,835 84,211,267 Comprehensive wiring products 83,771,233 18,329,779 Other 152,594,204 49,301,401 In total 753,607,986 179,906,758 By region: Region Sales Gross profit North China 110,871,376 26,927,885 East China 305,240,646 76,762,483 South-east China 64,519,452 16,544,426 North-east China 92,281,753 18,209,333 Central China 39,083,994 8,944,206 South-west China 67,871,208 14,677,582 South China 42,168,828 9,724,311 North-west China 27,008,241 6,482,347 Other 4,562,488 1,634,185 In total 753,607,986 179,906,758 Note: North China includes: Beijing, Tianjin, Shanxi, Hebei, Inner Mongolia East China includes: Shanghai, Shandong, Jiangsu, Anhui South-east China: Zhejiang, Jiangxi, Fujian North-east China: Heilongjiang, Liaoning, Jilin Central China: Hunan, Hubei, Henan South-west China: Chongqing, Sichuan, Xizang, Yunnan, Guizhou 13 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report South China: Guangdong, Guangxi, Hainan North-west China: Xinjiang, Shan’xi, Gansu, Ningxia, Qinghai (3) Operating results of main subsidiaries (yuan) Subsidiary Company’s Main products Registered Total assets Turnover Net profit equity capital Nanjing Nanfang 100% Data 33,175,147 186,327,349 119,377,637 -7,935,977 Telecommunications communication Company equipment Nanjing Postel 70% Intelligent building 4,000,000 51,991,966 83,771,232 7,361,375 Smart-building system Technology Company Nanjing Postel 65% Electric appliances, US$ 19,772,289 41,693,418 4,709,918 Hongyan Electric telecommunication 400,000 Appliance Company parts Beijing Pi-com 41% Network electronic US $ 96,741,600 61,015,400 1,364,200 Telecommunications products, digital 500,000 Equipment Ltd. transmission system (4) Main suppliers and customers In 2001, the Company’s purchase from the top five suppliers accounted for about 21 percent of the total amount, and sales to the top five customers accounted for about 8 percent of the total. (5) Difficulty in operation It can be concluded from the operation of the Company that it should make more efforts on developing competitive products with good prospect and intellectual property and should accelerate the speed of industrialization of new products. And the Company’s marketing network, which is built on the platform of sales office, should fully play its role. From the financial state, it can be seen that the Company still should strengthen trade receivables collection as it still has a remarkable amount of trade receivables despite its record achievement on this regard. Moreover, it also needs to introduce more highly qualified intellectuals and improve its standard of fundamental management and quality management. 2. Investment in report period (1) Use of proceeds from share issuing In June 2001, Price WaterHouseCoopers Zhong Tian CPAs Co., Ltd. audited the Company on using of the proceeds from B-share issue in 1997 and has presented a Special Audit Report on that. (See the Securities Times and Ta Kung Pao on 17 August 2001 for details) (2) Other investment in report period 14 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report 1) In the reporting period the Company made an additional investment in Nanjing Postel Wong Zhi Telecommunications Co., Ltd. jointly with Wong’s Industrial (holdings) Ltd., Toshiba Corporation and Toshiba China Co., Ltd., each with the correspondent equity. And thereafter Nanjing Postel Wong Zhi Telecommunications Co., Ltd.’s total investment reached 15,270,000 yuan, including 34% equtity. of 3,079,000 yuan 2) In the reporting period the Company invested 3,000,000 yuan in setting up a joint venture named Dongda Broad Band Communications Technology Company Ltd., holding 20% of its equity. The joint venture is mainly engaged in research and production of WCDMA subsystem of telecommunication stations and so on. 3) The Company had an additional investment of 2,600,000 yuan in Nanjing Menneks Electric Appliance Ltd. jointly with Germany Mennekes Electric Appliance Company and still holds 50 percent equity after that. 3. Analysis on financial position and operating results 2001 Increase/decrease Reason of Indicator over last year increase/decrease Total assets 1,035,535 +0.53% Increase of liabilities Long-term liabilities 63,798 +55.41% Increase of Long-term liabilities Shareholder’s equity 391,279 +0.61% Net profit for the year Gross profit 179,907 +11.10% Increase of sales Net profit 2,383 104.38% Increase of gross profit 4. In 2002, the Company will face an environment of management and operation with new characteristics. Particularly, after China’s entry into WTO, more telecommunication equipment manufacturers will land the domestic market while new methods, bidding, for example, will be adopted by the domestic telecom operating company in purchasing equipment, which will lead the competition to be more intensive and raise higher requirement on our products, technology and services. The Company will make unremitting efforts to enhance its core competitiveness through adjusting industry structure, speeding up technology advancement and executing capital restructure, aiming to build itself into a leading enterprise in telecommunication and electric fields. 5. Work plan for next year (1) Continue to deepen reform and renovation and create an atmosphere full of competition through renovation in mechanism, technology, sales and services. In 2002, the Company will conduct capital restructuring and reorganization in its subsidiaries such as Nanjing Nanfang Telecom Company to establish standard modern enterprise system in these subsidiaries and cumulate the resources in the main industry. It will continue to do preparation work for building a state-level technology center and invest more money in research and development segment to enhance the speed of putting new products into production. It will strengthen the construction of a marketing network on the platform of sales office, trying to build a three-dimensional marketing network functioning in direct marketing, sales agency and e-commerce. The marketing department should formulate strict service procedures to enhance the quality of sales and service staff to provide first-class services for customers. Moreover, the Company will 15 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report further adopt the competition system in terms of personnel management. (2) Continue to improve product composition and increase new industries for economic growth Efforts should be made to build itself a into leading corporation in distribution products, building comprehensive wiring products and Hongyan electric appliances in terms of marketing, quality, services and market share while maintaining the growth of its traditional products. At the same time, progress should be made on new products such as CDMA mobile phone, broad-band IP Ether-net access system and LMDS products. (3) Continue to strengthen scientific management and implement low-cost strategy Having realizing Office Automation, the Company will further enhance the level of scientific management and modernization by deepening enterprise information management through ERP project. In respect of financial control, the Company will strengthen fund management, continue to adopt the low-cost strategy, strengthen access on collection of trade receivables to reduce pressure and risk of insufficient fund, invite public bidding and comparing quality and prices in purchase. (4) Strengthen capital operation, aiming at successfully issue new shares The Company will continue to make efforts on applying for approval on the projects which are planned to be invested with the proceeds from share issuing, preparing for relevant legal documents as well as doing other jobs for share issue. Besides, it will make some research in capital operation concerning purchasing, merger and restructuring. (5) Seize the gold opportunity of China’s accession into WTO to speed up the pace of developing export-oriented economy The company will continue to introduce advanced technology from other countries, seek for cooperation with large foreign corporations and develop new industry for economic growth. And it will seize the opportunity of China’s accession into WTO to increase its export volume through the platform of the Hong Kong subsidiary. 6. Routine work of the Board of Directors (1) Meetings and resolutions of BOD during the reporting period 1) Five meetings were held during the reporting period. On 5 March 2001, the Company held the Sixth Meeting of the Second BOD, which approved Mr. Xu Aimin to resign from director and Assistant General Manager. Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 6 March 2001. 2) On 9 April 2001, the Company held the Seventh Meeting of the Second BOD, on which the following resolutions were passed: A. 2000 Work Report of General Manager B. 2000 Financial Report of the Company C. 2000 profit distribution preplan and 2001 profit distribution policy of the Company 16 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report D. 2000 Annual Report and Summary of 2000 Annual Report E. the resolution for filling the vacancy of director and adjusting members of the Board of Directors Nominated Mr. Huang Zhiqin and Ms. Wang Lili as nominees for the position of director, Mr. Dai Yuanfang and Mr. Zhang Xiaoqiang for the position of eternal independent director, to enter the Second Board of Directors of the Company. Mr. Li Zongxin, Mr. Wang Jiaqiang and Mr. Xu Aimin no longer hold the position as director since then. F. the resolution for increasing the investment to Nanjing Mennekes Electric Appliance Ltd. G. the resolution for increasing the investment to Nanjing Building Intelligence Limited: H. the resolution for holding the 2000 Shareholders Annual General Meeting: Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 12 April 2001. 3) On 15 August 2001, the Company held the Eighth Meeting of the Second BOD on which the following resolutions were approved: A. General Manager’s report on review of the operating position in the first half year and work plan for the next six months B. 2001 Interim Financial Report C. 2001 preplan of profit distribution D. 2001 Interim Report and Summary E. the proposal that Company was qualified to issue shares F. to apply for issuing a maximum of 50,000,000 RMB Ordinary Shares(A-share) G. the feasibility of the Company’s planned projects by using proceeds from new share issue H. the Company’s report on the use of the proceeds raised from share issuing last time I. the proposal that the retained profit would be shared by both the old and new shareholders after issuing shares this time J. the proposal to authorize the Board of Directors to handle the matters on share issuing K. the proposal to reduce the state-owned shares in share issuing L. the term of validity of the resolution on share issuing M. the resolution of holding the 2001 First Extempore Shareholders General Meeting Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 17 August 2001. 4) On 27 November 2001, the Company held the Ninth Meeting of the Second BOD, which approved the reorganization of its fully owned Changle Telecom Factory and rendered loan guarantee of a limited amount for its subsidiaries. Announcement of the meeting was published on the Securities Times and Ta Kung 17 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report Pao on 28 November 2001. 5) On 5 December 2001, the Company held the Tenth Meeting of the Second BOD, which approved to adjust the plan of making additional investment to Postel Smart-building Company Ltd. Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 7 December 2001. (2) Implementation of resolutions of Shareholders General Meeting by BOD As approved by the 2001 First Extempore Shareholders General Meeting, the Company is going to submit application for issuing shares to CSRC. By the efforts in 2001, it has completed the feasibility analysis of the projects to be invested with the proceeds. And four projects have been approved by the related state and provincial governmental administration and the rest two projects are under approval. 7. Preplan of profit distribution Under the audit of PricewaterHouseCoopers Zhong Tian CPAs Co., Ltd. and PricewaterhouseCoopers China Limited, the Company realized net profit of 2,382,223 yuan under China Accounting Standard, or –2,383 yuan under International Accounting Standard for the year 2001. As the amount of allocable profit is relatively small, and considering the development of the Company, the Board of Directors advised that no dividends be declared for 2001, and that no capital accumulation fund be transferred into share capital. According to budget for 2002, the Company may still realize a low profit, thereby the BOD advised that no dividend be declared for 2002 either. VIII. Report of Supervisory Committee 1. Meetings of the Supervisory Committee during the reporting period Three meetings of the Supervisory Committee were held during the year: (1) The Third Meeting of the Second Supervisory Committee was held on 9 April 2001, which considered and approved the 2000 Work Report of the Supervisory Committee, Procedure of the Supervisory Committee, the Company’s 2000 Annual Report and Summary, 2000 Financial Report and Profit Distribution Preplan, and proposal on adjusting members of the Supervisory Committee. Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 12 April 2001. (2) The Forth Meeting of the Second Supervisory Committee was held on 22 May 2001, which elected Mr. Wang Jiaqiang as Chairman of the Second Supervisory Committee Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 23 May 2001. 18 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report (3) The Fifth Meeting of the Second Supervisory Committee was held on 15 August 2001, which examined and passed the 2001 Annual Report and Summary, 2001 Interim Profit Distribution Plan and presented independent opinion on the Company’s operating position in the first half year: The Supervisory Committee believed that the Company’s operation and management was in conformance with the relevant rules of Company Law and the Articles of Association. No acts of the directors and senior management were observed violating the laws or contrary to the interest of the Company in performing their duties. Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 17 August 2001. 2. Independent opinion presented by the Supervisory Committee (1) The Company’s compliance with the laws in operation The Supervisory Committee inspected and supervised the procedures and resolutions of Shareholders General Meeting and the Board of Directors as well as implementation of Shareholders General Meeting by BOD, senior management’s actions in performing duties and enterprise management mechanism of the Company. The Supervisory Committee believe that the Board of Directors and the administrative management were in conformance with the relevant rules including Company Law, Securities Law, Regulations On Listed Company of Shenzhen Stock Exchange and the Articles of Association of the Company in operation during the reporting period. Internal control policies have been formulated. And no acts of the directors and senior management were observed violating the laws or contrary to the interest of the Company in their duties. The management were conscientious in performing their duties in achieving a relatively operating result in a rigorous environment. (2) The Company’s financial position: The Supervisory Committee carefully inspected the financial policy and position of the Company, and believe that the 2001 Accounting Statement gives a true view of the Company’s financial position and operating results, and the 2001 Auditor’s Report as well as the related judgement presented by Pricewaterhouse Coopers is objective and fair. (3) In the year the Company made distinctive achievement in collection of trade receivables. However, it’s still not positive in solving this problem. We hope that the Company can strengthen to enhance the quality of assets. (4) The Company was “Three Separate” with its parent company, China PTIC Information Industry Corporation, which was in conformity with rules of relevant regulatory departments. The related transactions with PTIC amounting to 842,410,000 yuan for the year, which were generated by sales agency executed at normal commercial terms under the rule of fair trade, did not harm the interest of the Company. 19 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report IX. Significant Events 1. The Company was not engaged in any lawsuit or arbitration of material importance during the reporting period. 2. matters related to purchasing assets, selling assets or merging during the reporting period In December 2001, the Company transferred its 51 percent of equity in Nanjing Changle Telecom Equipment Factory to some suppliers and key employees of the factory and thereafter changed its investment to 2,450,000 yuan, accounting for 49 percent of the factory’s registered capital 5,000,000 yuan 3. Material related transactions: (1) During the reporting period, the Company tendered loan guarantee for its fully owned subsidiary Nanjing Nanfang Telecom Company. Details are given in “Material Contract”. (2) Other related transactions: see Notes to the Financial Statements 4. Material contracts (1) During the reporting period the Company did not trust, contract or lease assets to other companies or from other companies. (2) Material guarantee: During the reporting period the Company tendered loan guarantee for the following companies (both refunded and not refunded yet) Recipient of bank loan Term of loan Amount of loan Type of Note guarantee Nanjing Nanfang 2000.7.12-2 5,000,000yuan Joint liabilities refunded Telecommunications Company 001.1.11 Nanjing Nanfang 2000.9.28-2 6,000,000yuan joint liabilities refunded Telecommunications Company 001.2.5 Nanjing Nanfang 2000.10.25- 20,000,000yuan joint liabilities refunded Telecommunications Company 2001.4.24 Nanjing Nanfang 2000.12.14- 20,000,000yuan joint liabilities refunded Telecommunications Company 2001.6.14 Nanjing Nanfang 2001.1.11-2 5,000,000yuan joint liabilities refunded Telecommunications Company 001.7.10 Nanjing Nanfang 2001.2.22-2 10,000,000yuan joint liabilities refunded Telecommunications Company 001.8.22 Nanjing Nanfang 2001.6.5-20 10,000,000yuan joint liabilities refunded Telecommunications Company 01.12.5 Nanjing Nanfang 2001.12.12- 10,000,000yuan joint liabilities Telecommunications Company 2002.6.12 Nanjing Nanfang 2001.4.24-2 20,000,000yuan joint liabilities refunded Telecommunications Company 001.10.23 Nanjing Nanfang 2001.10.23- 20,000,000yuan joint liabilities Telecommunications Company 2002.4.22 Nanjing Nanfang 2001.7.10-2 5,000,000yuan joint liabilities Telecommunications Company 002.1.10 Nanjing Nanfang 2001.6.15-2 20,000,000yuan joint liabilities refunded Telecommunications Company 001.12.15 Nanjing Nanfang 2001.8.21-2 10,000,000yuan joint liabilities Telecommunications Company 002.1.17 Nanjing Changle Telecom 2000.8.16-2 500,000yuan joint liabilities refunded Equipment Factory 001.8.16 Nanjing Changle Telecom 2000.12.27- 1,000,000yuan joint liabilities refunded Equipment Factory 2001.5.27 20 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report Nanjing Changle Telecom 2001.6.11-2 1,000,000yuan joint liabilities Equipment Factory 002.6.11 Nanjing Mennekes Electric 2001.7.23-2 2,000,000yuan joint liabilities Appliance Ltd. 002.2.23 Beijing Picom Telecommunications 2001.12.12- 5,000,000yuan joint liabilities Equipment Ltd. 2002.10.12 Nanjing Bada Telecommunications 2001.4.20-2 1,000,000yuan joint liabilities Factory 002.4.20 Nanjing Postel Hongyan Electric 2001.6.7-20 1,000,000yuan joint liabilities Appliance Company 02.6.7 Nanjing Postel Hongyan Electric 2001.11.30- 1,500,000 yuan joint liabilities Appliance Company 2002.5.29 Nanjing Hongyan Electric Appliance 2001.6.15-2 1,000,000 yuan joint liabilities Company 002.6.15 Nanjing Hongyan Electric Appliance 2001.7.12-2 1,000,000 yuan joint liabilities Company 002.1.12 Nanjing Hongyan Electric Appliance 2002.8.13-2 2,000,000 yuan joint liabilities Company 002.2.13 Nanjing Hongyan Electric Appliance 2001.10.29- 1,000,000 yuan joint liabilities Company 2002.4.29 Nanjing Postel Smart-building 2001.7.31-2 4,000,000yuan joint liabilities refunded Technology Ltd. 001.12.31 Nanjing Postel Smart-building 2001.4.24-2 2,000,000yuan joint liabilities Technology Ltd. 002.4.24 Note: Among the above companies, Nanjing Changle Telecommunications Factory is the Company’s joint venture and Nanjing Mennekes Electric Appliance Ltd. is the Company’s associate company. The remain companies are subsidiaries. (3) The Company made no entrust investment during the reporting period. 5. Promise by the Company or shareholders holding over 5 percent share capital The company’s estimated profit distribution policy for 2001 in last year was: It was estimated that the Company would conduct profit distribution for one time in 2001. According to the “Lower Preference” principle (i.e., when respectively audited under China Accounting Standard and International Accounting Standard, the lower result should be taken as allocable profit to shareholders.), 30%-50% of the audited net profit, as well as 20%-30% of the retained profit in 2000, will be distributed to shareholders in cash dividend. The Company realized 2,383,000 yuan for 2001. As the amount of allocable profit is relatively small, considering the development of the Company, the Board of Directors advised that no dividends be declared for 2001, and that no capital accumulation fund be transferred into share capital. 6. Appointment of Public Accountant The Company continued to appoint Price WaterHouseCoopers Zhong Tian CPAs Co., Ltd. and PricewaterhouseCoopers China Limited as the domestic and foreign auditors. Payment to the auditors: (unit: yuan) 2001 2000 Auditor Audit Other Audit Other Sub-total Sub-total expense expense expense expense Price WaterHouseCoopers 500,000 500,000 350,000 350,000 Zhong Tian CPAs Co., Ltd. PricewaterhouseCoopers 700,000 700,000 500,000 500,000 China Limited 21 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report Note: (1) Expense for business trip was borne by the auditors themselves. (2) At the end of the reporting period, there was 450,000 yuan not paid to the auditors yet as the audit for 2001 annual report had not been finished, and it will be settled as soon as the work is finished. (3) The auditors provided no other services charging fees except auditing to the Company. (4) Audit expense for 2001 includes expense for special audit for proposed share issuing. 7. The Company, the Board of Directors or the directors were not punished by the securities regulatory departments during the reporting period. X. Financial Report 1. Auditor’s report The Company’s 2001 Financial Statements were audited and issued a report with unqualified opinion by Price WaterHouseCoopers Zhong Tian CPAs Co., Ltd. and PricewaterhouseCoopers China Limited. REPORT OF THE AUDITORS TO THE SHAREHOLDERS OF NANJING POSTEL TELECOMMUNICATIONS CO., LTD. (incorporated in the People's Republic of China with limited liability) We have audited the accompanying consolidated balance sheet of Nanjing Postel Telecommunications Co., Ltd. (the “Company”) and its subsidiaries (the “Group”) as of 31 December 2001 and the related consolidated income and cash flow statements for the year then ended. These financial statements set out on pages 2 to 26 are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements present fairly in all material respects, of the financial position of the Group as of 31 December 2001 and of the results of its operations and its cash flows for the year then ended in accordance with International Accounting Standards. PricewaterhouseCoopers China Limited Shanghai, People's Republic of China 16 April 2002 22 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report 2. Financial statements(attached) 3. Notes to the financial statements (attached) XI. Documents for Inspection 1. Original text of accounting statements signed and sealed by legal person representative, financial controller and accountant officer. 2. Original text of Auditor’s Report signed and sealed by Certified Public Accountant with public accountant’s seals on. 3. Original texts of all the files and announcements published on the newspapers appointed by China Securities Regulatory Commission during the reporting period. Nanjing Postel Telecommunications Co., Ltd. 18 April 2002 23 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2001 (All amounts are stated in Renminbi thousand Yuan unless otherwise stated) 2001 2000 Notes Sales 3 753,608 637,651 Cost of sales 3 (573,701) (475,721)   Gross profit 179,907 161,930 Other operating income 7,049 4,942 Distribution costs (58,847) (68,073) Administrative expenses (89,709) (82,058) Other operating expenses (4,875) (888) Employee housing benefits cost 7 - (52,626)   Operating profit (loss) 4 33,525 (36,773) Finance costs, net 6 (19,954) (13,039) Profit on disposal of a subsidiary 8 1,150 - Profit on sale of trading investments 1,249 3,185   Group profit (loss) before tax 15,970 (46,627) Share of loss of associated companies 14 (2,758) (712)   Profit (loss) before tax 13,212 (47,339) Tax 9 (6,990) (3,862)   Group profit (loss) before minority interests 6,222 (51,201) Minority interests 10 (3,839) (3,160)   Net profit (loss) for the year 2,383 (54,361)   Earnings (loss) per share 11 Rmb 0.01 Rmb (0.25)   24 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2001 (All amounts are stated in Renminbi thousand Yuan unless otherwise stated) Notes 2001 2000 ASSETS Non-current assets Property, plant and equipment 12 118,527 132,582 Construction in progress 3,482 2,612 Land use rights 13 36,402 36,150 Investments in associated companies 14 18,253 12,833 Intangible assets 15 13,455 9,184   190,119 193,361   Current assets Inventories 16 189,188 175,157 Receivables and prepayments 17 421,993 514,129 Trading investments 17 2,477 Cash and cash equivalents 234,218 144,957   845,416 836,720   Total assets 1,035,535 1,030,081   25 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2001 (continued) (All amounts are stated in Renminbi thousand Yuan unless otherwise stated) Notes 2001 2000 EQUITY AND LIABILITIES Capital and reserves Share capital 18 215,000 215,000 Reserves 19 176,279 195,749   391,279 410,749   Minority interests 10 21,082 21,392   Non-current liabilities Long-term bank loan 20 35,000 - Employee housing benefits payable 7 26,862 38,380 Other non-current liabilities 1,936 2,671   63,798 41,051   Current liabilities Trade and other payables 21 173,063 259,360 Income tax payable 2,063 329 Dividend payable 50 - Short-term bank loans 22 384,200 297,200   559,376 556,889   Total liabilities 623,174 597,940   Total equity and liabilities 1,035,535 1,030,081   On 16 April 2002, Nanjing Postel Telecommunications Co., Ltd.’s Board of Directors authorised these financial statements for issue. 26 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2001 (All amounts are stated in Renminbi thousand Yuan unless otherwise stated) Year ended 31 December 2000 Statutory and Retained Capital discretionary Statutory Exchange earnings/ Total equity accumulation accumulation welfare translation Other (accumulated Total Share and fund fund fund reserve reserves losses) reserves capital reserves Balance at 1 January 2000 - As previously 178,616 31,225 19,425 - 115 22,198 251,579 215,000 466,579 reported - Pre-operating expenses written - - - - - (1,423) (1,423) - (1,423) off (note 2 (i))           - As restated 178,616 31,225 19,425 - 115 20,775 250,156 215,000 465,156 Devaluation of (46) - - - - - (46) - (46) fixed assets Net loss for the - - - - - (54,361) (54,361) - (54,361) year Profit - 1,255 524 - - (1,779) - - - appropriations           Balance at 31 178,570 32,480 19,949 - 115 (35,365) 195,749 215,000 410,749 December 2000           27 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2001 (continued) (All amounts are stated in Renminbi thousand Yuan unless otherwise stated) Year ended 31 December 2001 Statutory and Retained Capital discretionary Exchange earnings/ accumulation accumulation Statutory Translation Other (accumulated Total Share Total equity fund fund welfare fund reserve reserves losses) reserves capital and reserves Balance at 1 January 2001 - As previously 178,570 32,480 19,949 - 115 (33,351) 197,763 215,000 412,763 reported - Effect of adopting IAS - - - - - (21,833) (21,833) - (21,833) 39 (note a) - Pre-operating expenses written off - - - - - (2,014) (2,014) - (2,014) (note 2(i))          - As restated 178,570 32,480 19,949 - 115 (57,198) 173,916 215,000 388,916 Transfer of employee housing benefits (29,131) (15,283) (9,643) - - 54,057 - - - cost (note b) Adjustment for previous years’ profit - (479) (479) - - 958 - - - appropriations (note c) Investment reserves (2) - - - - - (2) - (2) Disposal of a - (2,253) (354) - - 2,607 - - - subsidiary (note 8) Exchange translation - - - (18) - - (18) - (18) difference Net profit for the year - - - - - 2,383 2,383 - 2,383 Proposed profit - appropriations - 533 309 - - (842) - - for 2001          Balance at 31 149,437 14,998 9,782 (18) 115 1,965 176,279 215,000 391,279 December 2001          (a) In accordance with the transitional requirements of IAS 39, the Group recorded a net loss of Rmb 21,833 in retained earnings for the remeasurement of its financial assets and financial liabilities at their amortised cost. (b) Pursuant to the circulars on housing reform issued by the Ministry of Finance of the PRC, the Group transferred the total employee housing benefits cost of Rmb 54,057 from the “accumulated losses” account to the “statutory welfare fund”, “statutory and discretionary accumulation fund” and “capital accumulation fund” accounts respectively in 2001. (c) Upon adoption of the new PRC accounting standard which became effective on 1 January 2001, certain prior year amounts were restated, and the profit appropriations in prior years were also adjusted accordingly. 28 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2001 (All amounts are stated in Renminbi thousand Yuan unless otherwise stated) 2001 2000 CASH FLOWS FROM OPERATING ACTIVITIES Profit (loss) before tax 13,212 (47,339) Adjustments for: Depreciation 19,481 18,901 Impairment of property, plant and equipment 2,117 2,775 Amortization of land use rights and intangible assets 4,979 4,161 Interest expense 19,863 13,934 Share of loss of associated companies 2,758 712 Interest income (1,259) (1,195) Loss (profit) on disposal of property, plant and equipment 1,399 (715) Profit on disposal of a subsidiary (1,150) - Profit on sale of trading investments (1,249) (3,185) Employee housing benefits cost - 52,626   Operating profit before working capital changes 60,151 40,675   Increase in inventories (15,870) (19,491) Decrease (increase) in receivables and prepayments 49,560 (215,269) (Decrease) increase in trade and other payables (72,531) 145,620   Cash generated from (used in) operations 21,310 (48,465) Net interest paid (18,604) (12,739) Tax paid (5,256) (4,403)   Net cash used in operating activities (2,550) (65,607)   29 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2001 (continued) (All amounts are stated in Renminbi thousand Yuan unless otherwise stated) 2001 2000 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of government bonds 18 18 Proceeds from disposal of property, plant and equipment 1,846 1,364 Purchase of property, plant and equipment, land use rights, intangible assets and payments on construction projects (23,417) (18,206) Investments in associated companies (6,363) (2,566) Proceeds from sale of trading investments 3,709 2,946 Disposal of a subsidiary (note 8) (3,867) -   Net cash used in investing activities (28,074) (16,444)   CASH FLOWS FROM FINANCING ACTIVITIES Repayment of non-current liabilities (2,206) (600) Proceeds from bank loans 298,200 159,000 Repayment of bank loans (175,200) (143,750) Capital contributed by minority shareholders of consolidated subsidiaries - 4,993 Dividend paid to minority shareholders (909) (1,085)   Net cash generated from financing activities 119,885 18,558   Increase (decrease) in cash and cash equivalents during the year 89,261 (63,493) Cash and cash equivalents at beginning of year 144,957 208,450   Cash and cash equivalents at end of year 234,218 144,957   Cash and cash equivalents comprise: Bank balances and cash 234,218 144,957   30 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report 1 CORPORATE INFORMATION Nanjing Postel Telecommunications Co., Ltd. (the “Company”) was established in May 1997 in the People’s Republic of China (the “PRC”) as a joint stock limited company. The principal activities of the Company and its subsidiaries (the “Group”) are the manufacture and marketing of telecommunication equipment, electric appliances and other related accessories in the PRC. Particulars of the Company's principal subsidiaries, joint ventures and associated companies are shown in note 25. All the operating assets and substantially all the sales of the Group are based in the PRC. China Postel Information Industry Corporation, which holds the Company’s 115,000,000 state-owned shares, or 53.49% of the Company’s total share capital, is regarded as the Company’s ultimate holding company (the “Ultimate Holding Company”). 2 PRINCIPAL ACCOUNTING POLICIES (a) Basis of preparation The consolidated financial statements have been prepared based on the management accounts of the Company, its subsidiaries, joint ventures and associated companies. Those management accounts are prepared in accordance with PRC accounting regulations, which differ in certain respects from International Accounting Standards (“IAS”). These financial statements have incorporated adjustments made to the management accounts in order to conform with IAS. The consolidated financial statements have been prepared under the historical cost convention except as disclosed in the accounting policies below. In 2001 the Group adopted IAS 39 – Financial Instruments: Recognition and Measurement. The effect of adopting this standard is summarized in the consolidated statement of changes in shareholders’ equity. In accordance with IAS 39, the comparative financial statements for the year ended 31 December 2000 are not restated. (b) Subsidiaries Subsidiaries, which are those entities in which the Group has an interest of more than one half of the voting rights or otherwise has power to exercise control over the operations, are consolidated. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. All intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless cost cannot be recovered. Where necessary, accounting policies for subsidiaries have been changed to ensure consistency with those adopted by the Group. (c) Joint ventures The Group’s interests in jointly controlled entities are accounted for by proportionate consolidation. Under this method, the Group includes its share of the joint ventures’ individual income and expenses, assets and liabilities and cash flows in the relevant components of the financial statements. (d) Associated companies Investments in associated companies are accounted for by the equity method of accounting. Associated companies are companies over which the Group generally has between 20% and 50% of the voting rights, or over which the Group has significant influence, but which it does not control. Unrealised gains on transactions between the Group and its associated companies are eliminated to the extent of the Group’s interest in the associated companies; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Equity accounting is 31 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report discontinued when the carrying amount of the investment in an associated company reaches zero, unless the Group has incurred obligations or guaranteed obligations in respect of the associated company. (e) Trading investments Investments that are acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as trading investments and included in current assets. All purchases and sales of trading investments are recognised on the trade date, which is the date that the Group commits to purchase or sell the asset. Cost of purchase includes transaction costs. Trading investments are subsequently carried at fair value. Realised and unrealised gains and losses arising from changes in the fair value of trading investments are included in the income statement in the year in which they arise. (f) Property, plant and equipment Property, plant and equipment are stated at cost, less accumulated depreciation and impairment loss. Depreciation is calculated on the straight line method to write off the cost of each asset to their residual values over their estimated useful lives as follows: Buildings 15-35 years Plant and machinery 10-15 years Furniture, fixtures and office equipment 6-8 years Motor vehicles 4-11 years Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. (g) Construction in progress Construction in progress represents capital assets under construction or being installed and is stated at cost. Cost comprises cost of equipment, construction costs and other direct costs including interest expense arising from borrowings to finance projects during the construction period. On completion of construction, the cost is transferred to property, plant and equipment. (h) Land use rights Land use rights are stated at cost less amortization. Amortization is calculated on the straight line method to write off the cost of land use rights over their useful period of 50 years. (i) Intangible assets Intangible assets include pre-operating expenses and software expenditures. Pre-operating expenses incurred by the Company and its subsidiaries prior to their commencement of full operations are regarded as expenditure necessary to place the Company and its subsidiaries in a suitable condition to carry out normal operations. Prior to 31 December 2000, such expenditure has been capitalized and amortized on the straight line basis over a period of 5 years from the respective dates of commencement of full operations of the Company or its subsidiaries. Since 1 January 2001, such expenditure is charged to the income statement as incurred. The balance of pre-operating expenses at 31 December 2000 has been transferred to retained earnings; the comparative amounts for the prior years have been restated. Software expenditures represent the cost of software copyrights used for operations. They are stated at cost and amortized on the straight-line basis over 5 years from the 32 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report date they are put into use. (j) Inventories Inventories are stated at the lower of cost or net realisable value. Cost is determined by the weighted average method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity) but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses. (k) Trade receivables Trade receivables are carried at original invoice amount less provision made for impairment of these receivables. Such provision for impairment of trade receivables is established if there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, discounted at the market rate of interest for similar borrowers. (l) Borrowings Borrowings are recognised initially at the proceeds received, net of transaction costs incurred. In subsequent periods, borrowings are stated at amortised cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings. (m) Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. For the purpose of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks and other short-term highly liquid investments. (n) Pension costs The Group participates in a government defined contribution retirement scheme. Under the scheme, retirement benefits of existing and retired employees are guaranteed by the local Unified Retirement Fund and the Group has no further obligations beyond the annual contributions. The Group's contributions are charged to the income statement in the period to which they relate. (o) Taxes PRC income taxes are provided for based on the assessable profits computed in accordance with PRC tax regulations and tax rates applicable to the Group. Deferred income tax is provided, using the liability method, for all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. Currently enacted tax rates are used to determine deferred income tax. (p) Revenue recognition Sales are recognised upon delivery of products and customer acceptance, or on the performance of services. Sales are shown net of sales taxes and discounts, and after eliminating sales within the Group. 33 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report Other revenues earned by the Group are recognised on the following bases: • Interest income - on an effective yield basis. • Dividend income - when the Group’s right to receive payment is established. (q) Foreign currencies Income statements of foreign entities are translated into the Group’s reporting currency at the weighted average exchange rates for the year and balance sheets are translated at the exchange rates ruling at the balance sheet date. On disposal of a foreign entity, accumulated exchange differences are recognised in the income statement as part of the gain or loss on sale. Transactions in foreign currencies are translated into Renminbi at the exchange rates stipulated by the People’s Bank of China at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into Renminbi at the exchange rates stipulated by the People’s Bank of China at the balance sheet date. Exchange differences arising from these translations are recognised in the income statement. (r) Financial instruments Financial instruments carried on the balance sheet include cash and bank balances, investments, receivables and prepayments, payables and borrowings. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. 3 SALES AND COST OF SALES Sales and cost of sales include the following: Manufactured Purchased telecommunication telecommunication and and Manufactured Sub-contracting electrical products electrical products electronics products services Other Total 2001 Sales 450,422 196,124 81,660 1,762 23,640 753,608 Cost of sales (327,143) (166,199) (63,070) (1,042) (16,247) (573,701)       Gross profit 123,279 29,925 18,590 720 7,393 179,907       2000 Sales 466,986 122,175 12,762 12,735 22,993 637,651 Cost of sales (351,243) (98,035) (9,221) (3,044) (14,178) (475,721)       Gross profit 115,743 24,140 3,541 9,691 8,815 161,930       The Group is organized into one main business segment, telecommunication and related products. Accordingly no business segment information is presented. All assets and operations of the Group are located in the PRC, which is considered as one geographic location in an environment with similar risks and returns. Accordingly, no geographical segment information is presented. 34 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report 4 OPERATING PROFIT (LOSS) 2001 2000 The following items have been included in arriving at operating profit (loss): Profit from sale of raw materials 1,819 1,508 Subsidy income 1,258 1,218 Depreciation on property, plant and equipment 19,481 18,901 Loss (profit) on disposal of property, plant and equipment 1,399 (715) Staff costs (note 5) 59,276 49,078 Provision for (reversal of) impairment of receivables 110 (783) Provision for diminution in value of inventories 5,985 2,999 Impairment of property, plant and equipment 2,117 2,775 Amortization of land use rights 1,034 780 Amortization of intangible assets 3,945 3,381   5 STAFF COSTS 2001 2000 Employees’ wages and salaries 47,212 34,806 Pension costs 9,003 11,507 Directors’ remuneration 661 616 Other 2,400 2,149   59,276 49,078   Average number of persons employed by the Group during the year 1,767 1,732   6 FINANCE COSTS, NET 2001 2000 Interest expense on bank loans 19,863 13,934 Interest income (1,259) (1,195) Other 1,350 300   19,954 13,039   7 EMPLOYEE HOUSING BENEFITS COST Pursuant to the circulars on housing reform issued by the Ministry of Finance of the PRC and as approved by the Board of Directors, expenditures related to housing reform totaling Rmb 52,626 provided to employees hired before 31 December 1998 were expensed in the year ended 31 December 2000. 8 DISPOSAL OF A SUBSIDIARY 35 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report In December 2001, the Company sold 51% of the share capital of Nanjing Changle Telecommunications Equipment Factory (“Changle”), a 100% owned subsidiary of the Company before disposal, to independent third parties. Accordingly, Changle became an associated company and was no longer consolidated into the Group since the date the shares were sold. The related assets and liabilities of Changle at the date of disposal are as follows: Property, plant and equipment 3,127 Inventories 1,569 Accounts receivables 2,441 Other receivables 8,255 Bank balances and cash 3,867 Accounts payable (9,105) Other payables (4,154) Short-term bank loans (1,000)  Net assets at the date of disposal 5,000  Portion of net assets disposed of 2,550 Proceeds on disposal 3,700  Profit on disposal 1,150  The effect of the disposal on cash and cash equivalents of the Group is as follows: Cash received on disposal - Bank balances and cash at the date of disposal 3,867  Net cash outflow on disposal (3,867)  9 TAX 2001 2000 Current tax 6,990 3,862 Share of tax of associated companies (note 14) - -   6,990 3,862   The Company and its subsidiaries and joint ventures are subject to the following income tax rates in 2001 and 2000: 2001 2000 The Company (a) 15% 15% Nanjing Nanfang Telecommunications Company (b) 15% 15% Nanjing Bada Telecommunications Factory 33% 33% Nanjing Hongyan Electric Appliance Company 33% 33% Shanghai Huaning Telecommunications Development Ltd. (c) 15% 15% Nanjing Golden Huali Electronics Ltd. (d) - - Nanjing Yuhua Electroplating Factory 33% 33% Nanjing Postel Shiye Company Ltd. 33% 33% 36 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report Nanjing Postel Computer Company Ltd. 33% 33% Nanjing Mennekes Electric Appliance Ltd. (d) 12% 12% Nanjing Postel Jingtong Distribution Frames Equipment Sales Company Ltd. 33% 33% Nanjing Postel Smart-building Technology Ltd. 33% 33% Postel Telecommunications (Hong Kong) Co., Ltd. (e) 16% 16% Beijing Picom Telecommunications Equipment Ltd. (d) - - Nanjing Postel Hongyan Electric Appliance Company (d) - - Nanjing Postel Triway Telecommunications Company Ltd. (f) - - Nanjing Postel Computer Technology Company Ltd. 33% 33% (a) In accordance with the approval document NGSHF [1997] No. 248 issued by the Nanjing State Tax Bureau on 31 December 1997, the Company, being qualified as a high technology enterprise established in the Nanjing High and New Technology Industrial Development Zone, is subject to income tax at 15% from 1 January 1997. (b) In accordance with approval documents issued by the state and local tax bureau, Nanjing Nanfang Telecommunications Company, a subsidiary operating in the Nanjing High and New Technology Industrial Development Zone, is subject to income tax at 15% (2000: 15%) on the assessable profit computed in accordance with the PRC regulations. (c) Shanghai Huaning Telecommunications Development Ltd. (“Huaning”) is an enterprise established in the Shanghai Pudong Area. In accordance with the relevant regulations, Huaning is subject to income tax at 15%. (d) Nanjing Golden Huali Electronics Ltd., Nanjing Mennekes Electric Appliance Ltd., Beijng Picom Telecommunications Equipment Ltd. and Nanjing Postel Hongyan Electric Appliance Company, being Sino-foreign joint ventures, were entitled to full exemption from income tax for the first two years starting from the first profit-making year (after utilising all tax losses brought forward) and a 50% reduction in the corporate income tax rate for the three years thereafter. Nanjing Golden Huali Electronics Ltd. has not yet fully utilised its cumulative losses brought forward from prior years, and therefore, is not subject to income tax for the year ended 31 December 2001. Nanjing Mennekes Electric Appliance Ltd. entered into its first profit-making year in 1997 and was exempt from income tax for 1997 and 1998. In 1999, 2000 and 2001, Nanjing Mennekes Electric Appliance Ltd. is subject to income tax rate of 12%. Beijing Picom Telecommunications Equipment Ltd. and Nanjing Postel Hongyan Electric Appliance Company entered into their first profit making year in 2001 and was exempted for income tax for 2001. (e) In accordance with the Hong Kong tax law, Postel Telecommunications (Hong Kong) Co., Ltd., a subsidiary established in Hong Kong on 1 December 2000, is subject to income tax at 16%. 9 TAX (continued) (f) Nanjing Postel Triway Telecommunications Company Ltd. has not provided any income tax since it has no taxable income for 2001. The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the tax rate of the Company as follows: 2001 2000 Profit (loss) before tax 13,212 (47,339)   Tax calculated at a tax rate of 15% 1,982 (7,101) 37 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report Tax effect of income and expense items which are not assessable or deductible for income tax purposes 3,450 8,800 Effect of different tax rates for certain subsidiaries, joint ventures and associated companies 1,558 2,163   Tax charge 6,990 3,862   The Group does not have any significant unprovided deferred tax. 10 MINORITY INTERESTS 2001 2000 At beginning of year 21,392 12,774 Establishment of new subsidiaries - 6,543 Share of net profit of subsidiaries 3,839 3,160 Dividend paid (959) (1,085) Adjustment on employee housing benefits cost (3,190) -   At end of year 21,082 21,392   11 EARNINGS (LOSS) PER SHARE Earnings (loss) per share is calculated by dividing net profit (loss) for the year by the 215,000,000 shares in issue during the year. 12 PROPERTY, PLANT AND EQUIPMENT Furniture, fixtures Plant and and office Motor Buildings machinery equipment vehicles Total Cost At 1 January 2000 101,955 83,909 36,848 9,048 231,760 Additions in 2000 1,982 2,611 3,857 634 9,084 Disposals for 2000 (53) (1,048) (819) (1,274) (3,194)      At 1 January 2001 103,884 85,472 39,886 8,408 237,650 Additions in 2001 3,280 1,284 6,152 3,199 13,915 Disposals in 2001 (1,072) (3,393) (3,370) (255) (8,090) Transfer out in 2001 (note 8) (3,956) (206) (434) (333) (4,929)      At 31 December 2001 102,136 83,157 42,234 11,019 238,546      Accumulated depreciation At 1 January 2000 23,290 41,406 16,132 5,109 85,937 Charge for 2000 3,679 8,058 5,414 1,750 18,901 Disposals for 2000 (8) (918) (524) (1,095) (2,545) 38 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report Impairment charge for 2000 - 2,775 - - 2,775      At 1 January 2001 26,961 51,321 21,022 5,764 105,068 Charge for 2001 3,515 8,514 6,184 1,268 19,481 Disposals for 2001 (149) (2,762) (1,812) (122) (4,845) Transfer out in 2001 (note 8) (1,391) (98) (180) (133) (1,802) Impairment charge for 2001 - 1,642 453 22 2,117      At 31 December 2001 28,936 58,617 25,667 6,799 120,019      Net book value At 31 December 2001 73,200 24,540 16,567 4,220 118,527      At 31 December 2000 76,923 34,151 18,864 2,644 132,582      13 LAND USE RIGHTS 2001 2000 Cost At beginning of year 38,897 38,758 Additions 1,286 139 _______ _______ At end of year 40,183 38,897 _______ _______ Accumulated amortization At beginning of year (2,747) (1,967) Amortization for the year (1,034) (780)   At end of year (3,781) (2,747)   Net book value 36,402 36,150   14 INVESTMENTS IN ASSOCIATED COMPANIES 2001 2000 At beginning of year 12,833 13,336 Share of loss (2,758) (712) Share of tax (note 9) - - Investments during the year 8,178 2,566 Other movements - (2,357)   At end of year 18,253 12,833   Details of associated companies are included in note 25. 39 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report 15 INTANGIBLE ASSETS Software expenditures Cost At 1 January 2000 9,794 Additions in 2000 5,800  At 31 December 2000 15,594 Additions in 2001 8,216 Transfer out in 2001 (1,566)  At 31 December 2001 22,244  Accumulated amortization At 1 January 2000 3,912 Amortization for 2000 2,498  At 31 December 2000 6,410 Amortization for 2001 3,945 Transfer out in 2001 (1,566)  At 31 December 2001 8,789  Net book value At 31 December 2001 13,455  At 31 December 2000 9,184  16 INVENTORIES 2001 2000 Raw materials - at cost 37,984 54,593 - at net realizable value 965 2,584 Work in progress - at cost 25,813 30,378 - at net realizable value 1,762 3,881 Finished goods - at cost 118,031 77,811 - at net realizable value 4,633 5,910   189,188 175,157   17 RECEIVABLES AND PREPAYMENTS 2001 2000 Trade receivables 402,749 389,248 Other receivables 22,323 35,554 40 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report Less: Provision for impairment (40,628) (8,638)   Trade and other receivables, net 384,444 416,164 Prepayments 16,420 72,752 Receivables from related parties (note 26 (2)) 21,129 25,213   421,993 514,129   18 SHARE CAPITAL 2001 2000 Registered, issued and fully paid shares of Rmb 1 each: State-owned shares, not listed 115,000 115,000 Domestically-listed foreign shares (B shares) 100,000 100,000   215,000 215,000   19 RESERVES (a) Capital accumulation fund Transactions of the following nature are recorded in the capital accumulation fund: i) Share premium arising on the issue of shares at prices in excess of their par value; ii) Donations received; iii) Surplus arising from the revaluation of assets; and iv) Any other items required by the PRC regulations to be so treated. Amounts in the capital accumulation fund can be utilised to offset prior years’ losses or for issue of bonus shares. (b) Statutory accumulation fund and statutory welfare fund Statutory reserves include both the statutory accumulation fund and the statutory welfare fund. PRC Company Law requires a company to appropriate 10% of its profit for the year computed in accordance with the PRC accounting regulations (after offsetting prior years’ losses) to the statutory accumulation fund. When the balance of such fund reaches 50% of the company’s registered share capital, any further appropriation is optional. The statutory accumulation fund can be utilised to offset prior years’ losses or for issue of bonus shares. However, the fund shall be maintained at a minimum of 25% of registered share capital after any such issue. PRC Company Law also requires a company to appropriate between 5% to 10% of its profit for the year computed in accordance with the PRC accounting regulations to the statutory welfare fund. The fund shall be utilised for the collective benefit of the workforce, including the provision of staff quarters or housing. No other distribution shall 41 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report be made from the fund other than upon liquidation of the company. In 2001, Rmb 532,817 and Rmb 308,743 had been appropriated to the statutory accumulation fund and statutory welfare fund respectively. (c) Discretionary accumulation fund and dividends The Board of Directors recommends that: • no appropriation to discretionary accumulation fund be made for 2001; and • no dividend be proposed for 2001. The above recommendations are subject to approval by the shareholders in the Company’s Annual General Meeting to be held in 2002. 20 LONG-TERM BANK LOAN Long-term bank loan represents an unsecured loan borrowed from China Construction Bank and will be due on 4 February 2007. The long-term bank loan is guaranteed by the Ultimate Holding Company. 2001 2000 (i) Weighted average effective interest rates at 31 December 6.21% -   (ii) The carrying amount of the long-term bank loan approximates its fair value. The fair value is based on discounted cash flows using a discount rate based upon the borrowing rate which was available to the Group for bank borrowings with similar terms at the balance sheet date. 21 TRADE AND OTHER PAYABLES 2001 2000 Trade payables 132,405 198,981 Customer deposits 8,610 5,776 Accrued expenses 250 4 Other payables 25,067 54,599   166,332 259,360 Payables to related parties (note 26 (2)) 6,731 -   173,063 259,360   22 SHORT-TERM BANK LOANS 2001 2000 Secured (b) 2,000 2,000 Unsecured (c) 382,200 295,200   384,200 297,200   42 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report (a) Interest is charged on the outstanding balances at rates ranged from 5.30% to 7.02% per annum in 2001 (2000: 5.30% to 6.23%). (b) The loan is secured by a fixed deposit of US$251,200. (c) Unsecured short-term loans of Rmb 237,000 are guaranteed by the Ultimate Holding Company (2000: Rmb 60,000). 23 FINANCIAL INSTRUMENTS (1) Credit risk The carrying amounts of accounts receivable included in the balance sheet represent the Group's maximum exposure to credit risk in relation to its financial assets. No other financial assets carry a significant exposure to credit risk. The Group have no significant concentration of credit risk. Cash is placed with state-owned banks and financial institutions. (2) Foreign exchange risk The Group operates in the PRC and has no significant exposure to any specific foreign currency. (3) Interest rate risk The Group has no significant interest-bearing assets, as such its income and operating cash flows are substantially independent of changes in market interest rates. The Group sometimes borrows at variable rates and these represent the Group’s maximum exposure to interest rate risk in relation to its financial liabilities. (4) Fair values The carrying amounts of the following financial assets and financial liabilities approximate their fair value: bank balances and cash, trading investments, trade receivables and payables, other receivables, prepayments and other payables, short-term borrowings. 24 CAPITAL COMMITMENTS Capital expenditure in respect of property, plant and equipment contracted for at 31 December 2001 but not recognised in the financial statements amounted to Rmb 55,000 (2000: Rmb 36,507). 25 PRINCIPAL SUBSIDIARIES, JOINT VENTURES AND ASSOCIATED COMPANIES The Company’s subsidiaries, joint ventures and associated companies, all of which are established in the PRC except Postel Telecommunications (H.K.) Co., Ltd. which is 43 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report established in Hong Kong, are as follows: Name of company Group’s equity interest Principal activities 2001 2000 Subsidiaries: Nanjing Nanfang 100% 100% Manufacture and sale of data Telecommunications Company communication equipment Nanjing Bada 60% 60% Manufacture and sale of Telecommunications Factory telecommunication equipment Nanjing Hongyan Electric 74% 74% Manufacture and sale of Appliance Company electrical products Shanghai Huaning Telecommunications 95% 95% Export agency business Development Ltd. Nanjing Golden Huali 60% 60% Manufacture and sale of lights, Electronics Ltd. electronic products and accessories Nanjing Yuhua Electroplating 60% 60% Metal surface processing and Factory manufacture and sale of consternation hardware Nanjing Postel Shiye Company Ltd. 100% 100% Hotel and catering and sale of telecommunication equipment Nanjing Postel Computer 99.5% 99.5% Design, manufacture and sale Company Ltd. of computer products Nanjing Postel Smart-building 70% 70% Manufacture and sale of smart Technology Ltd. building system Postel Telecommunications (H.K.) 90% 90% Export and import of Co., Ltd. telecommunications equipment Beijing Picom Telecommunications 41% 41% Manufacture and sale of data Equipment Ltd. communication equipment Nanjing Postel Hongyan Electric 65% 65% Manufacture and sale of Appliance Company electrical products Nanjing Postel Triway 51% 51% Design, manufacture and sale Telecommunications Company Ltd. of internet phone equipment Nanjing Postel Computer Technology 86.6% 86.6% Sale of communication Computer Ltd. equipment Joint ventures: Nanjing Mennekes 50% 50% Manufacture and sale of Electric Appliance Ltd. switches Nanjing Postel Jingtong Distribution 50% 50% Sale of telecommunication Frames Equipment Sales Company Ltd. equipment Associated companies: Xishan Postel Information 49% 49% Provision of data and Network Co., Ltd. voice transmission services Nanjing Postel Wangzhi 34% 34% Design and production of CDMA Telecommunications Ltd. and 3G products 44 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report Danyang Hongyan Electric 45% 45% Manufacture and sale of Appliance Factory electrical products Nanjing Dongda Broadband 20% - Design, manufacture and sale of Technology Co., Ltd. telecommunication equipment Nanjing Zhongyou Telecommunications Ltd. 30% - Manufacture and sale of telecommunication equipment and electrical accessories Nanjing Changle Telecommunications 49% 100% Manufacture and sale of Equipment Factory (note 8) telecommunication equipment 26 RELATED PARTY TRANSACTIONS (1) The following transactions were carried out with related parties: 2001 2000 Sale of goods to Nanjing Postel Jingtong Distribution Frames Equipment Sales Company Ltd. 109 - Sale of goods to Ultimate Holding Company 11,192 8,028 Sale of intangible assets to Nanjing Changle Telecommunications Equipment Factory 589 -   11,890 8,028   (2) Balances with related parties 2001 2000 Receivables from Nanjing Postel Jingtong Distribution Frames Equipment Sales Company Ltd. 763 8,334 Receivables from Ultimate Holding Company 8,424 5,725 Receivables from Xishan Postel Information Network Co., Ltd. 11,942 11,154   21,129 25,213   Payables to Nanjing Changle Telecommunications Equipment Factory 6,731 -   The above balances are unsecured, interest free and have no fixed terms of repayment. NANJING POSTEL TELECOMMUNICATIONS CO., LTD. RECONCILIATION OF NET PROFIT AND NET ASSETS BETWEEN PRC REPORTING AND IAS REPORTING (All amounts are stated in Renminbi thousand Yuan unless otherwise stated) Net assets at Net profit for 2001 31 December 2001 45 Nanjing Postel Telecommunications Co., Ltd. 2001 Annual Report Per PRC reporting 2,383 430,847 Adjustments for IAS reporting: Fixed assets depreciation - (1,713) Revaluation - (28,618) Remeasurement of financial assets and financial liabilities in accordance with IAS 39 - (21,833) Other - 12,596   Per IAS reporting 2,383 391,279   46