深赛格(000058)Ｂ2001年年度报告（英文版）

SHENZHEN SEG CO., LTD. 2001 ANNUAL REPORT Date: April 16, 2002 Important Note: Board of Directors of SHENZHEN SEG CO., LTD. and its members individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions nor errors which would render any statement misleading. Due to business engagement, Director Sun Shengdian was absent from the Board meeting, in which the Annual Report for 2001 was examined, with entrusting Director Shi Dechun to attend and vote on his behalf. The Company’s overseas auditor, Hong Kong Ho and Ho & Company Certified Public Accountants, issued an Auditors’ Report without reserved opinion for the Company; and the domestic auditor, Shenzhen Peng Cheng Certified Public Accountants, issued an Auditors’ Report without reserved opinion but with explanatory notes, to which the Board of Directors and the Supervisory Committee of the Company made explanations in details, the investors are suggested to notice the content. This report was prepared in both Chinese and English. Should there be any difference in interpretation between the two versions, the Chinese version shall prevail. -0- I. COMPANY PROFILE 1. Legal name of the Company In Chinese: 深圳赛格股份有限公司 In English: SHENZHEN SEG CO., LTD. 2. Legal Representative: Mr. Zhang Weimin 3. Secretary of the Board of Directors: Ms. Zheng Dan Liaison Address: 16/F, Baohua Tech. Bldg., Huaqing Rd. N., Futian District, Shenzhen Tel: (86) 755-3675060 Fax: (86) 755-3779770 E-mail: segcll@baohua.com.cn 4. Registered Address and Office Address: 16/F, Baohua Tech. Bldg., Huaqing Rd. N., Futian District, Shenzhen Post Code: 518031 Company’s Internet Website: http://www.segcl.com.cn E-mail: segcl@baohua.com.cn 5. Newspapers Chosen for Disclosing Information of the Company: Securities Times and Ta Kung Pao Internet Website Designated by CSRC for Publishing the Annual Report: http://www.cninfo.com.cn The Place Where the Annual Report is Prepared and Placed: Secretariat of Board of Directors, 16/F, Baohua Tech. Bldg., Huaqing Rd. N., Futian District, Shenzhen 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: A-share Shen SEG Stock Code: 000058 Short Form of the Stock: B-share Shen SEG-B Stock Code: 200058 -1- II. ACCOUNTING HIGHLIGHTS AND BUSINESS HIGHLIGHTS (I) Profit indexes of the Company as of the year 2001 Unit: In RMB Total Profit -395,706,145.75 Net Profit -338,760,825.56 Net profit after deducting non-recurring gains and losses -131,918,973.78 Profit from main business lines 214,311,045.08 Profit from other business lines 4,311,718.62 Operating profit -315,719,972.29 Investment income -23,102,507.64 Subsidy income 5,452,600.00 Net income / expenditure from non-operating -62,336,265.82 Net cash flows arising from operating activities 288,444,954.47 Net increase / decrease in cash and cash equivalents 96,010,634.51 Note: Items of non-recurring gains and losses and the related amounts: Unit: RMB No. Item Amount 1 Profit from deemed disposal of a investee subsidiary -1,059,257.18 2 Increase/(decrease) of profit due to changes in accounting estimation -160,910,695.45 3 Capital occupation charges received 1,087,879.49 4 Subsidy income 5,452,600.00 5 Income from non-operating 74,132,844.61 6 Expenditure of non-operating -136,469,110.43 7 Income from short-term investment 13,124,811.57 8 Amortization of equity investment premium -2,200,924.39 Total -206,841,851.72 (II) The explanation on the difference in the net profit as calculated based on different accounting standards and system respectively. As audited by the Company’s domestic auditors Shenzhen Peng Cheng Certified Public Accountants, in accordance with China’s Independant Auditing Standards, and Accounting Standards for Business Enterprises and related laws and rules, the net loss of the Company for the year 2001 was RMB 338,760,825.56 and the net assets was RMB1,120,309,434.69. As audited by Hong Kong Ho and Ho& Company Certified Public Accountants, in accordance with the International Accounting Standards on Auditing and International Accounting Standards and related requirements, the company’s net loss for the year 2001 was RMB 502,046,000 and the net assets was RMB1,140,991,000. The net loss and the net assets audited by domestic auditors were less than those audited by the International auditors byRMB163,285,174.44 and RMB20,681,565.31 -2- respectively due to the following reasons: 1. Prior year adjustments were made in accordance with the Accounting Standards for Business Enterprises and related laws and rules adopted by the Company. However, no prior year adjustment was made in accordance with the International Accounting Standards and it was included in the net loss for the year. 2. Loss from deemed disposal arising from the diluton of the shareholding of a subsidiary. 3. Difference arising from the calculation of the share of result of associates. 4. Negative goodwill arising from acquistion of subsidiaries. IMPACT OF IAS ADJUSTMENTS ON NET (LOSS) / PROFIT FOR THE YEAR AND NET ASSETS Net (loss) / profit for the year Net assets 2001 2000 2001 2000 RMB’000 RMB’000 RMB’000 RMB’000 As reported in the financial statements audited by the PRC auditors -338,761 -162,145 1,120,309 1,496,610 IAS adjustments : - Written off of interests in a subsidiary not consolidated - 13,038 - - - Understatement of cost of sales and administrative expenses - -4,068 - - - Understatement of depreciation - -6,221 - - - Provision for doubtful debts 59,643 -2,289 - -59,643 - Provision for other assets 12,166 -12,166 - -12,166 - Loss on deemed disposal of a subsidiary - - -30,907 -30,907 - Share of results of associates -22,181 6,786 4,636 26,817 - Negative goodwill arising from acquisition of equity interests in a subsidiary - 23,476 46,953 46,953 - Impairment loss on property, plant and equipment -290,132 280,000 - 290,132 - Provision for staff quarter benefits -309 - - 309 - Written off of unrealised loss on investments -40,156 - - - - Impairment loss shared by minority shareholders 126,234 -126,196 - -126,234 - Others -8,550 445 - 11,166 As adjusted in conformity to IAS -502,046 10,660 1,140,991 1,643,037 -3- (III) Accounting data and financial indexes over the previous three years at the end of report year 2000 1999 No. Indexes 2001 Before After Before After adjustment adjustment adjustment adjustment Income from main business lines 1 1,922,248,352.90 2,306,490,095.16 2,274,449,554.40 1,838,623,803.73 1,838,623,803.73 (RMB) 2 Net profit (RMB) -338,760,825.56 13,207,873.90 -162,145,474.11 84,462,054.84 74,059,011.27 3 Total assets (RMB) 3,459,289,772.70 4,108,583,390.77 3,772,300,213.33 3,832,216,888.17 3,823,894,453.32 Shareholder’s equity (excluding 4 1,120,309,434.69 1,681,626,604.98 1,496,610,380.79 1,334,787,044.86 1,326,464,610.01 minority interests) (RMB) Earnings per share (RMB/share) 5 -0.467 0.018 -0.223 0.138 0.124 (Fully diluted) Earnings per share (RMB/share) 6 -0.467 0.019 -0.229 0.138 0.124 (Weighted average) Earnings per share after 7 deducting non-recurring gains -0.182 -0.005 -0.005 0.138 0.138 and losses (RMB/share) 8 Net assets per share (RMB/share) 1.543 2.316 2.061 2.176 2.162 Net assets per share after 9 adjustment (RMB/share) 2.151 1.91 2.021 2.007 1.468 Net cash flows per share arising 10 from operating activities 0.397 -0.069 -0.069 -0.087 -0.087 (RMB/share) Return on equity (%) (Fully 11 -30.24 0.79 -10.83 6.33 5.74 diluted) Return on equity (%) (Weighted 12 -25.89 0.844 -11.06 6.53 5.76 average) Weighted return on equity after 13 deducting non-recurring gains -9.34 -0.236 -0.236 6.53 6.53 and losses (%) Note: retroactive adjustments on net profit as of 2000 and 1999 are set out as follows: Item 2000 1999 Net profit before retroactive adjustment 13,207,873.90 84,462,054.84 Provision for devaluation of fixed assets -175,353,348.01 -6,989,978.31 Including: adjustment on accounting of associated -21,549,348.01 - companies based on the equity method Provision for devaluation of intangible assets - -3,104,850.82 House revolving fund - -308,214.44 Net profit after retroactive adjustment -162,145,474.11 74,059,011.27 -4- For details, please refer to Notes VI –30 regarding the Retained Profit. (IV) Supplementary statement of profit in the report year Return on equity and earnings per share as calculated according to Regulations on the Information Disclosure of Companies Publicly Issuing Shares (No. 9) released by CSRC: 2001 2000 1999 Profit as of the report Return on equity Earnings per share Return on equity Earnings per share Return on equity Earnings per share year (%) (RMB) (%) (RMB) (%) (RMB) Fully Weighted Fully Weighted Fully Weighted Fully Weighted Fully Weighted Fully Weighted Items of profit diluted average diluted average diluted average diluted average diluted average diluted average Profit from main 19.13 16.38 0.295 0.295 20.02 20.44 0.413 0.423 24.88 24.96 0.538 0.538 business lines Operating profit -28.18 -24.13 -0.435 -0.435 -2.51 -2.57 -0.052 -0.053 9.31 9.34 0.201 0.201 Net profit -30.24 -25.89 -0.467 -0.467 -10.83 -11.06 -0.223 -0.229 5.58 5.60 0.121 0.121 Net profit after deducting non-recurring -11.78 -9.34 -0.182 -0.182 -0.22 -0.24 -0.005 -0.005 6.33 6.53 0.138 0.138 gains and losses (V) Particulars about changes in shareholders' equity at the report year Amount at the Increase in Decrease in Amount at Items year-begin the report year the report year the year-end Share capital 726,145,863 - - 726,145,863 Capital public reserve 607,339,923.86 3,355,119.20 - 610,695,043.06 Statutory surplus public reserve 44,068,838.65 - - 44,068,838.65 Statutory public welfare fund 52,777,228.24 - - 52,777,228.24 Discretional surplus public reserve 157,178,779.38 - - 157,178,779.38 Retained profit (88,675,923.85) - 338,760,825.58 (427,436,749.43) Less: unrealized loss on investment 2,224,328.49 40,895,239.73 - 43,119,568.22 Total 1,496,610,380.79 -37,540,120.53 338,760,825.58 1,120,309,434.68 Causes: (1) Capital public reserve as of the report period was increased by RMB 3,355,119.20 over the previous year, which was mainly due to the increase of this item of its investee subsidiaries, including Shenzhen SEG Samsung Co., Ltd. and Shenzhen SEG Navigation Technology Co., Ltd. (2) Retained profit as of the report period was decreased by RMB 338,760,825.58 over the previous year, which was mainly due to the deficits as of the report period. (3) Unrealized loss on investment as of the report period was increased by RMB 40,895,239.23 over the previous year, which was mainly due to the continue deficits suffered by the consolidated subsidiaries, whose net assets has been negative. -5- III. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS (I) Particulars about changes in share capital 1. Statement of change in shares Statement of change in shares Unit: share Increase/decrease of this time (+, - ) Before the After the Items Share Bonus Capitalization of Additional Sub- change Others change Allotment shares public reserve issuance total I. Unlisted Shares 1. Promoters’ shares 411,477,898 Including: State-owned share 411,477,898 -44,150,000 367,327,898 Domestic juristic person’s shares +44,150,000 44,150,000 Foreign juristic person’s shares Others 2. Raised juristic person’s shares 3. Employees’ shares 4. Preference shares or others Including: Transferred / allotted shares Total Unlisted shares 411,477,898 411,477,898 II. Listed Shares 1. RMB ordinary shares 86,626,238 86,626,238 Including: senior executives (242,552) (-155,922) (86,630) shares 2.Domestically listed foreign 228,041,727 228,041,727 shares 3. Overseas listed foreign shares 4. Others Total Listed shares 314,667,965 314,667,965 III. Total shares 726,145,863 726,145,863 Explanation of change in shares: The cause of decrease in state-owned juristic person’s shares and increase in domestic juristic person’s shares: In the report year, 44,150,000 state-owned juristic person’s shares of the Company (taking 6.08% of total shares of the Company) originally in hold of the holding shareholder of the Company, Shenhzen SEG Group Co., Ltd. (hereinafter referred to as the SEG Group), frozen by Beijing First Intermediate People’s Court due to lawsuit, were auctioned in Shenzhen Zhongziyuan Auction Company by means of bidding towards domestic juristic person. As a result, state-owned juristic person’s shares of the Company was decreased by 44,150,000 share while domestic juristic person’s shares was increased by 44,150,000 shares. The cause of change in senior executives shares: Because Mr. Li Yueju and Mr. Jin Haitao have left their position of Director dated Dec. 15, 2000, and up to Jun. 15, -6- 2001, they had left their position for six months. Deputy General Manager of the Company has retired dated Feb. 1, 2001, and up to Aug. 1, 2001, he had left his position for six months. As approved by Shenzhen Stock Exchange, 155,922 senior executives shares held by the said persons can be listed for negotiation. Thus, frozen senior executives shares of the Company was decreased from 242,552 shares to 86, 630 shares. Due to aforesaid two causes, the Company’s capital structure was changed as follows: Statement of change in share capital Amount at Proportion of Increase / Amount Proportion of Type of share the holding shares decrease at the holding shares year-begin at the year-begin (+/-) year-end at the year-end State-owned juristic person’s shares 411,477,898 56.67% -44,150,000 367,327,898 50.59% Domestic juristic person’s shares 0 0% +44,150,000 44,150,000 6.08% RMB ordinary shares (A shares) 86,626,238 11.93% 0 86,626,238 11.93% (including: senior executives shares) 242,552 0.03% (-155,922) (86,630) (0.01%) Domestically listed foreign shares (B share) 228,041,727 31.40% 0 228,041,727 31.40% Total share capital 726,145,863 100% 0 726,145,863 100% 2. Issuance and listing of the shares Particulars about the issuance of the shares over the previous three years at the end the report year Issuance Issuance number Trading number Expiration Type of share Issuance date Date of listing price (share) (share) date Share allotment Apr. 3, 2000 to RMB 6.82 51,377,231 May 8, 2000 35,248,199 (B shares) Apr. 17 2000 per share (II) About shareholders 1. Total shareholders at the end of the report year Based on shareholder’s beadroll of the Company provided by China Securities Registration and Clearing Co., Ltd. Shenzhen Branch, ended Dec. 31, 2001, the Company has 91,653 shareholders in total, including 63,658 shareholders of A shares and 27,995 shareholders of B shares. 2. Shares held by major shareholders (1) About changes in shares held by shareholders holding over 5% (including 5%) of the total shares Increase / Proportion of Amount at the Amount at Type of Name decrease in the holding shares Pledged or frozen year-begin the year-end shares report year (+,-) at the year-end State-owned In the report period, all state-owned juristic Shenzhen SEG 411,477,898 -44,150,000 367,732,898 50.59% juristic person’s shares were pledged without Group Co., Ltd. person’s share unfreezing till the end of the report year, -7- (2) Ended Dec. 31, 2001, the top ten shareholders of the Company Amount at the No. Shareholders’ name Proportion Type of shares year-end (share) 1 Shenzhen SEG Group Co., Ltd. 367,327,898 50.59% State-owned juristic person’s shares 2 Shanghai Zhongnan Investment Holdings Co., Ltd. 6,300,000 0.87% Domestic juristic person’s share 3 Shanghai Qile Economic and trading Co., Ltd. 6,000,000 0.83% Domestic juristic person’s share 4 Shenzhen Shengyi Industrial Development Co., Ltd. 5,000,000 0.69% Domestic juristic person’s share Shanghai Taili Science and Technology 5 4,000,000 0.55% Domestic juristic person’s share Development Co., Ltd. 6 Shanghai Xinyuan Investment Co., Ltd. 3,600,000 0.5% Domestic juristic person’s share 7 Qinhuangdao Sanyuan Co., Ltd. 3,100,000 0.43% Domestic juristic person’s share 8 Domestically listed foreign shares TOK YEK SENG 2,943,737 0.41% (B share) 9 Shanghai Wantong Painting and Chemical Co., Ltd. 2,450,000 0.34% Domestic juristic person’s share 10 Wuxi Hongyu Department Store 2,000,000 0.28% Domestic juristic person’s share Note: Among the top ten shareholders as listed above, there exists no association relationship between Shenzhen SEG Group Co., Ltd. (“SEG Group”) and other shareholders. The Company consulted other shareholders by means of the telecommunication, and the fifth and the seventh shareholders confirm that there exists no association relationship between them and other shareholders. For other shareholders, the Company is not aware of the relationships. 3. The holding shareholder of the Company The holding shareholder of the Company: Shenzhen SEG Group Co., Ltd. Legal representative: Mr. Li Yueju Date of foundation: Aug. 23, 1986 Business scope: Production and research of electronic products, electrical home appliances, electronic toys and electronics chemical; undertake various electronic system project. Raise development funds and invest credit; development of technology, information service and maintenance. Registration capital: RMB 319.81 million The structure of equity: Shenzhen Investment Holding Corporation holds 100% share equity of SEG Group 4. The holding shareholder of SEG Group The holding shareholder of SEG Group: Shenzhen Investment Holding Corporation Legal representative: Li Heihu Date of foundation: Feb. 10, 1988 Business scope: Management and supervision of enterprise’s state assets, financing and property right; to share all kinds of enterprise and turn over investment, to offer credit and assurance; to impose profit after taxation and occupying expenses of assets of state enterprise and the other business authorized by municipal government. Registration capital: RMB 2 billion -8- The structure of equity: 100% equity held by Shenzhen Municipal People’s Government. 5. In the report period, the holding shareholder of the Company remained unchanged. IV. PARTICULARS ABOUT DIRECTOR, SUPERVISOR AND SENIOR EXECUTIVE AND STAFF (I) Director, supervisor and senior executives 1. Introduction Number of Number of Increase / holding shares holding No. Name Gender Age Office term Title decrease at the shares at the (share) year-begin year-end 1 Zhang Weimin Male 51 May 2000 – May 2002 Chairman of the Board 0 0 0 2 Zhang Liying Female 47 Same as above Director, 0 0 0 General Manager 3 Zhang Male 58 May 1999 – May 2002 Director, 51,974 51,974 0 Wanzhang Deputy General Manager 4 Li Lifu Male 45 May 2000 – May 2002 Director, Financial Chief 0 0 0 Supervisor 5 Sun Shengdian Male 46 May 1999 – May 2002 Director 0 0 0 6 Sun Lei Male 36 Dec. 2000 – May 2002 Director 0 0 0 7 Shi Dechun Female 50 May 2000 – May 2002 Director 0 0 0 8 Wang Li Male 40 May 2001 – May 2002 Chairman of the 0 0 0 Supervisory Committee 9 Xu Changhui Male 53 May 1999 – May 2002 Supervisor 0 0 0 10 Chen Degen Male 56 May 2000 – May 2002 Supervisor 0 0 0 11 Fan Qing Female 47 May 1999 – May 2002 Supervisor 34,650 34,650 0 12 Xu Jiqian Male 53 Same as above Supervisor 0 0 0 13 Zheng Dan Female 36 Same as above Secretary of the Board 0 0 0 2. Particulars about directors or supervisors holding the position in Shareholding Company: Chairman of the Board Mr. Zhang Weimin took the position of Chief Economist of SEG Group from May 2000. Director Mr. Sun Shengdian took the position of Deputy General Manager of SEG Group from July 2001. Director Ms. Shi Dechun took the position of Secretary of Financial Dept. of SEG Group from Aug. 1996. Chairman of the Supervisory Committee Mr. Wang Li took the position of Chief Accountant of SEG Group from May 2000. Supervisor Mr. Xu Changhui took the position of Vice Secretary of the Party Committee and Chairman of work union of SEG Group from Oct. 2000. Supervisor Mr. Chen Degen took the position of Deputy Secretary of Auditing -9- Dept. of SEG Group from April 1996. (II) Annual Summary 1. The determinate procedure and basis of the recompense: The Company implemented the position wages system. The annual salary for senior executives comprises two parts, the wage (the position wage, floating wage and subsidy) and the year-end bonus. The wage is decided by the Board of Directors monthly based on the position function and the position wage rules of the Company; the year-end bonus is decided by the Board based on the accomplishment of annual operation targets and working tasks decided in the Shareholders’ General Meeting. According to the Articles of Association of the Company, the salary for directors, and supervisors shall be decided in the Shareholders’ General Meeting, while at present the Company had not practiced. Directors and supervisors only draw their position wage from the Company. 2. Particulars about the annual salary of directors, supervisors and senior executives in office No. Name Gender Title Notes 1 Zhang Weimin Male Chairman of the Board Drawing salary from SEG Group 2 Zhang Liyng Female Director, General Manager Drawing salary from the Company 3 Zhang Wanzhang Male Director, Deputy General Manager Same as above 4 Li Lifu Male Director, Financial Chief Supervisor Same as above 5 Sun Shengdian Male Director Drawing salary from SEG Group Drawing salary from the associated Company 6 Sun Lei Male Director Shenzhen Huafa Electronic Co., Ltd. 7 Shi Dechun Female Director Drawing salary from SEG Group 8 Wang Li Male Chairman of the Supervisory Committee Same as above 9 Xu Changhui Male Supervisor Same as above 10 Chen Degen Male Supervisor Same as above 11 Fan Qing Female Supervisor Drawing salary from the Company 12 Xu Jiqian Male Supervisor Same as above 13 Zheng Dan Female Secretary of the Board Same as above There are 13 directors, supervisors and senior executives in office at present. 6 senior executives draw their annual salary from the Company and the total annual salary amounts to RMB 845,344. The total amount of annual salary of the top three senior executives is RMB 469,104. Four enjoy their annual salary from RMB 100,000 to 150,000 respectively, and two enjoy the annual salary above RMB 150,000 per year. (III) Directors, supervisors and senior executives leaving the office and the reason in the report year No. Name Gender Position Causes Date Notes As examined and approved in Supervisor and Chairman Work 1 Huang Xuxi Male May 29, 2001 the 6th Shareholders’ General of supervisory Committee transfer Meeting dated May 29, 2001 Settled based on Retirement 2 Deng Xianfu Male Deputy General Manager Retirement Feb. 1, 2001 regulations of the Company - 10 - During the report year, the Company has not dismiss General Manager, Deputy General Manager, person in charge of financial or Secretary of the Board. (IV) About staff (number, Profession composing, education background and retirees) At the end of the report period, The Company has 3,337 persons on duty and 57 retirees (the Company bear the cost of the retirees). The Profession composing and education background of the staff are as follows: Production Financial Administrative Profession Salespersons Technicians personnel personnel personnel Number 2,624 211 206 50 246 Education 3-years regular Polytechnic school Senior high school Postgraduate Bachelor degree background college graduate graduate graduate or lower Number 47 256 522 1,392 1,120 V. CORPORATE GOVERNANCE (I) Corporate Governance of the Company According to requirements of laws and legislations of PRC Company Law, Securities Law and Administrative Rules for Listed Company, the Company keeps on perfecting its corporate governance and standardizing its operation so as to promote its healthy development. In the report year, the Company had established, modified and improved a series of governance detailed rules including Articles of Association of Shenzhen SEG Co., Ltd., Rules of Procedures of the Shareholders’ General Meeting of Shenzhen SEG Co., Ltd., Rules of Procedures of the Board of Directors of Shenzhen SEG Co., Ltd., Rules of Procedures of the Supervisory Committee, Detailed Work Rules for General Manager of Shenzhen SEG Co., Ltd., Information Disclosure Rules of Shenzhen SEG Co., Ltd., Work Rules for Secretary of the Board of Directors of Shenzhen SEG Co., Ltd., Provisional Management Measures for Raised Funds of Shenzhen SEG Co., Ltd., and Rules of Guarantee for stakeholders of Shenzhen SEG Co., Ltd. etc. Establishment and improvement of the above systems has set a good foundation for the Company’s standardized operation. Particulars about the Company’s administration are as follows: 1. Shareholders and the Shareholders’ General Meeting: The Company has been ensuring all shareholders, especially medium and small shareholders, could enjoy equal status and ensuring all shareholders could fully implement their own rights. The Company has established Rules of Procedures of the Shareholders’ General Meeting of Shenzhen SEG Co., Ltd. pursuant to Standardization Opinion for Shareholders’ General Meeting of Listed Company as well as Articles of Association of the Company, and could convene and hold the Shareholders’ General Meeting strictly according to such Rules of Procedures. The holding and voting procedures of the Shareholders’ General Meeting are standardized and legitimate. The Company, to the best of its ability, published meeting notifications and selected venues in order that more shareholders could attend the Shareholders’ General Meeting and implement their voting right. 2. Relationship between Controlling Shareholder and the Company: - 11 - The controlling shareholder could implement its right according to law as capital provider. The controlling shareholder is independent from the Company in terms of personnel, assets, finance, organization and business, and they make business accounting, undertake responsibilities and risks independently. The Company has established healthy financial and accounting administration systems and makes business accounting independently. The Board of Directors, the Supervisory Committee and other internal organizations function independently. 3. Directors and the Board of Directors: The Company elected directors strictly according to the election and engaging procedures as stated in the Articles of Association; Number of directors and personnel formation are in line with relevant requirements of laws and legislations; the establishment of Rules of Procedures of the Board of Directors of Shenzhen SEG Co., Ltd. promotes efficient function and scientific decision-making of the Board. The Board of Directors could hold meetings regularly and hold provisional meeting in time if needed strictly according to the procedures. All directors could seriously perform their duties and obligations and strictly comply with their promises and declarations. 4. Supervisors and the Supervisory Committee: The number of the Company’s supervisors and personnel formation are in line with requirements of relevant laws and legislations; The Supervisory Committee could hold meetings strictly according to the Rules of Procedures of the Supervisory Committee of Shenzhen SEG Co., Ltd. The Supervisory Committee could hold meetings regularly and hold provisional meeting in time if needed. Supervisors could perform their obligations conscientiously and supervise the Company’s finance, significant investment projects, correlative transactions as well as performance of directors, managers and other senior executives in terms of compliance with laws and legislations. 5. Stakeholders At the time when maintaining sustained development of the Company and realizing maximum profits for the Company and shareholders, the Company has been respecting the legal rights and interests of bank and other creditors, employees, customers etc., paying attention to issues such as the welfare of its community, environmental protection and commonweals etc., and attaching importance to social responsibilities. The Company has reinforced cooperation between the Company and stakeholders and pushed the Company to develop in a sustained, stable and healthy way. 6. Information Disclosures and Transparency The Company appointed the Board secretary to be wholly in charge of information disclosure, receiving shareholders and investment as well as consultation etc. The Company has established Work Rules for Secretary of the Board of Directors of Shenzhen SEG Co., Ltd., Information Disclosure Rules of Shenzhen SEG Co., Ltd., System of Security Work of Shenzhen SEG Co., Ltd. as well as information management and control system so as to ensure all possible information that could have substantial impact on the decision-making of shareholders and stakeholders - 12 - could be summed up and sorted out rapidly. The Company has been disclosing information in a timely, accurate, factual and complete manner strictly according to Rules of Shenzhen Stock Exchange for Stock Listing, and at the same time, ensuring all shareholders have equal opportunities to obtain information. (II) Corporate Governance Respects that Need Further Improvement The Company has been devoted to improving its corporate governance all along since its establishment. However, in comparison with Administrative Rules for Listed Companies, the Company still needs further improvement and standardization in the following respects: 1.The Company hasn’t practiced accumulative voting system in election of directors. 2. The Company hasn’t established an effective, fair and transparent performance evaluation, incentives and binding mechanism for directors, supervisors and senior executives, which are adaptive to its development. 3. The Company hasn’t signed engagement contract with directors, which is to define rights and obligations for the Company and directors, office term of directors, responsibilities that should be taken by directors when they violate the law, legislations and Articles of Association as well as compensation to directors in event of dissolution of contract ahead of schedule by the Company for some reasons. 4. The Company hasn’t signed contracts with managers to clarify the two parties’ rights and obligations. 5. The Company hadn’t engaged any independent director by the end of report year. In view of the above issues, the Company is now taking positive measures to make solution and improve in the shortest time. (III) Performance of Independent Directors: In the report year, the Company hadn’t engaged independent directors. Now the Company is preparing for the establishment of independent director system according to Guide Opinions for Establishing Independent Director System in Listed Companies as released by CSRC and positively looking for candidates of independent directors to ensure it engages at two independent directors at least before June 30, 2002. (IV) Particulars about the Company’s “Five Separations” from Controlling Shareholder in Respect of Business, Personnel, Assets, Organization and Finance: 1. In respect of business, the Company has integrated business system, keeps independence in operating management, confronts with the market independently during operation, and avoids competition with the SEG Group in same trade. 2. In respect of personnel, the Company’s senior executives including general manager, deputy general manager, financial supervisor and Board secretary are full time employers in the Company without taking concurrent position in controlling shareholder, and receive salary in the Company. The Company has integrated administration system of labor, human affairs and salaries, and maintains independence of its personnel. 3. In respect of assets, the equity of the eight enterprises striped from SEG Group to the Company have been audited and assessed by domestic and overseas Certified Public Accountants, and have also been ratified by national administrative authority of state owned assets. The control shareholder of these eight enterprises was changed - 13 - from SEG Group to the Company as registered in Industrial and Commercial Administration Bureau. The Company makes independent registration, establishes independent accounts, and implements business accounting and management independently for the assets so as to keep completeness and independence of these assets. In the report year, the controlling shareholder SEG Group converted RMB 142,956,602.70 from the Company, which was disclosed on the No. 21 page of Securities Times and the No.C2 page of Hong Kong Ta Kung Pao respectively dated December 29, 2001. The Company is now positively urging the controlling shareholder to refund the arrear, and is try its best to finish reclaiming the arrear within the time limit as stated in Plan of Reclaiming Arrears Owed by Large Shareholder and Related Parties of Shenzhen SEG Co., Ltd. that was disclosed by the Company. According to the Article No. 5 in Equity Right Transfer Agreement signed by the Company with the controlling shareholder SEG Group when the Company was listed, SEG Group agreed to let the Company and its subsidiaries and joint affiliated companies to use the eight trademarks that had been registered in National Trademark Bureau; And the SEG Group approved the Company to use the aforesaid trademarks or similar signs as the Company’s logo and during its operation; But the Company didn’t need to pay any fee to SEG Group for using the aforesaid trademarks or signs. 4. In respect of organization, the Company has set up organization and engaged staff fully in accordance with its own demand of management, and its production management department and administrative department are totally independent from the controlling shareholder. 5. In respect of finance, as an artificial person corporation that independently carries out management, business accounting and assumes sole responsibility for its profits and losses, the Company has independent financial and auditing department, has established independent business accounting system and financial administration system, has independent bank account, pays taxes according to law, and keeps absolute independence in its financial work. (V) Evaluation, Encourage Mechanism and System for Senior Executives In respect of evaluation, the controlling shareholder made annual performance evaluation towards senior executives according to accomplishment of the assigned annual operation targets and other targets as well as their report of work. VI. BRIEFINGS ON THE SHAREHOLDERS’ GENERAL MEETING (I) In the report year, the Company held the Shareholders’ General Meeting once, namely, the 6th Shareholders’ General Meeting. (II) The notification and proposals of the 6th Shareholders’ General Meeting were published on the page No.36 of Securities Times and the page No.A16 of Hong Kong Ta Kung Pao dated April 28, 2001. The Meeting was held in the meeting room of 11/F of SEG Group, No.4 Bldg., SEG Science and Technology Industrial Park, Huaqiang North Road, Shenzhen dated May 29, 2001. There were 8 shareholders and shareholders’ proxies attended the meeting who represented 368,630,440 shares, - 14 - taking 50.77% of total shares with voting right; Among the 8 participators, there were 3 shareholders and shareholders’ proxies of A share, representing 367,414,522 shares, and 5 of B share, representing 1,215,918 shares, which were in line with PRC Company Law, and the Articles of Association. The following resolutions were review and passed through voting one by one in the Shareholders’ General Meeting: 1. Reviewed and passed 2000 Work Report of the Board of Directors; 2. Reviewed and passed 2000 Work Report of General Manager; 3. Reviewed and passed 2000 Work Report of the Supervisory Committee; 4. Reviewed and passed 2000 Financial Report of Actual Budget; 5. Reviewed and passed 2000 Annual Report and Summary; 6. Reviewed and passed 2000 Profit Distribution Preplan; 7. Reviewed and passed the Proposal on 2001 Profit Distribution Policies; 8. Reviewed and passed the proposal on reengaging Hong Kong Ho and Ho& Company Certified Public Accountants as the Company’s overseas auditing institution in 2000; 9. Reviewed and passed the proposal on Mr. Wang Li’s replacing Mr. Huang Xuxi as supervisor of the 2nd Supervisory Committee; 10. Reviewed and passed Provisional Management Measures for Special Funds of the Board of Directors of Shenzhen SEG Co., Ltd.; 11. Reviewed and passed the proposal on amending the Articles of Association. The public notice on these resolutions of the Shareholders’ General Meeting was published on the page No.A13 of Securities Times and the page No.C8 of Hong Kong Ta Kung Pao dated May 30, 2001. (III) Election and Changing Directors and Supervisors in the Report Year Mr. Wang Li was elected supervisor in place of Mr. Huang Xuxi in the 6th Shareholders’ General Meeting dated May 29, 2001. This event was disclosed in the newspapers and on the date ditto. VII. REPORT OF THE BOARD OF DIRECTORS (I) Management in the Report Year (1) The Company is mainly engaged in scientific research, production management of hi-tech electronic and information products including CPT, electronic system engineering, network engineering etc., information service business, operating and management electronic products market, taxation protection, storage and overseas transportation etc. In 2001, facing the seriously flinty market situation, the Company ensured overall stability of its main business lines by strengthening various management work. In CPT business, the Company kept ranking the first place of its 21” CPT in production and sales volume as well as exporting volume on the domestic market (statistics gained from National Association of CPT industry); The Company also made breakthrough in exporting of 34” CPT. The production and sales ratio of both 21” and 34” CPT all exceeded 100%. In overseas transportation and bonded warehouse business, the Company made a good achievement of 10.29% increase above the corresponding period of last year by - 15 - means of optimizing service, reinforcing administration, and maintaining customers etc. In respect of electronic market, SEG Electronic Market directly managed by the Company kept its first place on domestic professional electronic market by means of implementing brand strategy, grasping the market, enlarging operating dimensions and boosting administration level etc. In 2001, revenue from this business was increased by 15% over the same period of previous year. By December 31, 2001, the Company realized revenue of RMB 1.922 billion from its main business lines, a 15.49% decrease below that of the last year; It achieved RMB 214.31 million of total profits in the main business lines, a 28.47% decrease below that of the last year. These decreases were mainly due to the product price falling by great margin. Decrease range of the domestic average sales price of CPT below that of the last year is as follows: Type 21” CPT 34” CPT Decrease range in sales price (%) 26.44% 23.28% Note: Above information derived from the statistics released by the national association of CPT industry. (2) Income of Main Business Lines and Formation of Profits Income of main business lines and formation of profits as classified according to business type: Unit: RMB Classification of business Income of main Profit of main business lines business lines 1 Manufacture of CPT 1,662,317,250.33 105,109,927.55 2 Business of overseas transportation, bonded 31,715,508.33 14,313,189.49 warehouse storage 3 Operation of SEG Electronic Market 75,914,602.83 50,398,718.52 4 Commercial & trade business 96,531,234.04 14,220,720.14 5 Manufacture of communication products 55,769,757.37 30,268,489.38 Total 1,922,248,352.90 214,311,045.08 Income of main business lines and formation of profits as classified according to regions: Region of sales Income of main business lines Profit of main business lines Domestic 1,346,516,524.09 138,259,106.05 Overseas 575,731,828.81 76,051,939.03 Total 1,922,248,352.90 214,311,045.08 (3) Main Products, business and Market Share Businesses that took over 10% in the income of main business lines or in the profit of main business lines are CPT business, overseas transportation and bond warehouse. a. The joint venture – Shenzhen SEG Hitachi Color Monitor Co., Ltd. (hereinafter abbreviated as “SEG Hitachi) that is indirectly controlled by the Company with 54.93% of shares holds US$ 113,000,000.00 of registered capital, RMB - 16 - 1,860,690,000 of total assets, and is mainly engaged in designing, production and sales of 21” and 34” CPT. In 2001, this company produced 3,137,800 21” CPT and sold 3,139,500, among which 1,380,000 were exported directly while 410,000 were exported indirectly, and made more than US$ 69,000,000. The market share of SEG Hitachi 21” CPT is about 20%, and overseas market share is over 50%. In the year, it produced 275,000 34’’ CPT, sold 349,000 and exported 36,000, over 10 times’ increase above the corresponding period of the last year. The domestic market share of 34” CPT is about 30%. In the report year, prices of CPT dropped, which resulted in over RMB 300 million losses in revenue, and the actual sales income of this company was only RMB 1,663,700,000, a 17% decrease below the corresponding period of the last year. b. Shenzhen SEG Storage and Transportation Co., Ltd. (hereinafter abbreviated as “SEG Storage and Transportation”) as controlled by the Company with 99.59% of its shares has RMB 66,000,000.00 of registered capital and RMB 117,240,000 of total assets, and is mainly engaged in overseas transportation and bonded warehouse storage business. In the report year, this company realized RMB 31,720,000 of operating income, an increase of 20% above the last year, and realized RMB 17,640,000 of net profit, an increase of 183.15% above the last year. Sales Income, Sales Cost and Gross Profit Ratio of Main Products Taking Over 10% of Total Profits of Main Business Lines: Unit: RMB’000 Main products taking over 10% of Gross profit Sales income Sales cost income or profit of main business lines ratio 21” CPT 1,201,332 1,105,980 7.94% 34” CPT 460,985 422,417 8.37% (3) In the report year, neither the Company’s main business lines nor the structure took great change compared with those by the end of last report year. 2. Operation of Main Controlled Companies and Participated Companies The operation of other main controlled companies and participated companies besides the above two controlled enterprises are as follows: (1) As an A share listed company in SSE, Shenzhen SEG Samsung Holding Co., Ltd. (hereinafter abbreviated as “SEG Samsung”), whose 21.44% equity was held by the Company, has RMB 785,970,000.00 of registered capital and is mainly engaged in production and sales of glass cover of CPT and color monitor. In 2001, this company had RMB 2,784,400,000 of total assets and RMB 93,490,000 of net profit. (2) Shenzhen SEG Communication Co., Ltd. (hereinafter referred to as “SEG Communication”), whose 99.59% of equity was held by the Company, had RMB 13,800,000.00 of registered capital, and is mainly engaged in designing, production and installation business of communication products. This company realized a great improvement in both revenue and profit from main business lines in the report period over the last year. (3) Shenzhen SEG Navigation Science and Technology Holding Co., Ltd. (original - 17 - name as “Shenzhen SEG Shen Ying Communication Navigation Co., Ltd., and hereinafter referred to as “SEG Navigation”), whose 20.25% equity was held by the Company, holds RMB 33,000,000.00 of registered capital, and is mainly engaged in production and management business of global satellite positioning system (GPS) and its application. In the report year, the “Global Satellite Positioning Mobile Communication System” of this company was listed as major construction project of Shenzhen; State Economic and Trade Ministry listed “GPS Security Information Service System Based on GSM Mobile Communication Net” as the state major development project of new product. In 2001, this company had total assets RMB 41,830,000, sales income 28,960,000 and net profit RMB 1,880,000. (4) Shenzhen SEG Bao Hua Electronic Holding Co., Ltd. (hereinafter referred to as “SEG Bao Hua”, whose 66.58% equity was held by the Company, has RMB 30,808,800.00 of registered capital, and is mainly engaged in value added service of network information and real estate operation and management, etc. In the report year, it was ratified by the Communication Administration Bureau of Guangdong Province to be one of the first construction companies of wide-strip user station network. In 2001, this company’s total assets were RMB 111,230,000, and net profit RMB –7,360,000. (5) Shenzhen SEG Industrial Investment Co., Ltd., whose 91.79% equity was held by the Company, has RMB 25,500,000.00 of registered capital and is mainly engaged in investment business, domestic trade and supplying and sales of goods and materials. In 2001, this company had total assets of RMB 26,950,000 and net profit of RMB –3,100,000. (6) Shenzhen SEG Commercial Machinery Co., Ltd., whose 99.86% equity was held by the Company, has RMB 3,000,000.00 of registered capital and is mainly engaged in operating and repairing of office equipment including copy machine. In 2001, this company’s total assets were RMB 29,340,000 and net profit RMB -1,490,000. (7) SEG Electronic Market that is directly operated by the Company achieved RMB 75,910,000 revenue from rent business in the report year, and realized RMB 50,390,000 of profit from main business lines. 3. Main Suppliers and Customers: In the report year, the Company purchased RMB 747,900,000 from the top five suppliers, taking 70% of the total purchasing amount, and sold RMB 915,760,000 to the top five customers, taking 47% of the total sales amount. 4. Problems, Difficulties Occurring in the Operation, Reasons of Deficits and Solution The major problem and difficulty during the operation was mainly because of the keen competition in color TV industry that resulted in constant dropping in prices of CPT. In light of the above difficulty and problem, the Company carried out the following work: (1) According to the fact that supplies surpassed demands on the CPT market, the Company timely adjusted the operation strategy, employed the strategy of “reducing price without losing market share and decreasing of sales volume, enhancing production by promoting sales, and making up domestic sales by enlarging export” so as to assure the balance between production and sales and the stable sales income. - 18 - (2) The Company carried out the cost project in depth and cast about adopting various measures to reduce manufacture cost and operating cost so as to make up losses in revenue caused by price drop to the best of its ability. (3) Kept up with the market closely, adjusted production rhythm in time and enlarged production and sales volume. (4) Introduced TPM (Total Production Maintenance), ensured normal operation of equipment, improved quality insurance system, strengthened administration and stabilized product quality. (5) Reinforced dunning of accounts receivable, effectively reduced management expenditure and operating risks. The main reasons for the Company suffering losses in this report period are continuous price falling of its main businesses and the decrease of the systematic competitiveness of its traditional CPT manufacturing industry due to the impact from new products. Besides, there are also the following reasons: Since market-oriented economy is not matured yet, and market credit rules are in the process of establishment, the enterprises feel it difficult to master the control right of transactions in market-oriented economy, and the harmonious liability and creditor’s right relationship between enterprises is not easily formed, serious bad debts and doubtful debts are caused for receivable accounts (especially the receivable accounts of more than three years) and inventories, and some enterprises suffer from great losses in receivable accounts. Since the Company is not at all fully aware of the austerity of challenges that its operating environment and present industrial structure is faced with, and did not make enough efforts to push industry upgrading and optimization and adjustment of its product structure, some of the enterprises that the Company invested did not have enough competition capability to cope with overall price challenges and correspond to market demand changes, and thus their economic effects were substantially decreased. Some of the enterprises the Company invested had weak management and applied lagging methods in enterprise management, and did not perform effective supervision and control on their sales, finances and funds. Moreover, the quality and structure of human resources cannot keep up with enterprise development and demands for market change, mistaking were made in decision-making, these enterprises suffered from great losses in their operation activities and got into operational risks. As for financial accounting, changes of accounting policies of our country expanded the scope and amount of provisions for asset devaluation of the Company as of the report period. Due to changes of accounting estimation, the scope and amount of provisions for bad debts was increased in this report period. Besides, according to related stipulations of the new contingent liability accounting standards, full consideration for estimated liabilities also is one of the reasons for causing losses in this report period. In view of above-mentioned problems, in this report period, the Company made great efforts to strengthen internal management, took effective and practical measures stressing production and operation as main work, laying emphasis on budget - 19 - management, cost control, and financial risk control, as well as perfecting various internal control systems and management and control means, the Company neither suffered from further losses in operation due to bad management and insufficient supervision and control nor experienced significant reduction in main business in the seriously austere market during the report period. Confronting with both challenges and opportunities in the international and domestic markets in 2002, the Company is confident in bringing about an uprising based on the improvement in terms of assets quality, operative and administrative level, and structure adjustment by availing the opportunities and meeting the challenges. ( ) Investment In this report period, the net of long-term investment of the Company was increased by RMB 4,660,000, by 1.41%. About the investees’ names, principal operating activities, proportion of shares held by the Company, please refer to the Notes VI-11 to Accounting Statements. 1. Application of the proceeds raised through share offering In this report period, the Company raised no proceeds through share offering and there existed no such event concerning the proceeds raised through share offering before the report year carried down for use in the report year. 2. Major projects with the funds not raised through share offering, the progress and the earnings in the report year: (1) In this report period, SEG Hitachi, a subsidiary indirectly controlled by the Company and Hitachi Manufacture Co., Ltd. of Japan and its holding enterprises jointly formed a joint venture ---- Shenzhen SEG-HITACHI Display Devices Co., Ltd. on May 31st 2001 with registered capital of US$ 16,000,000, of which SEG-HITACHI subscribed US$ 4,800,000, accounting for 30% of total investment, and Hitachi Manufacture Co., Ltd. and its holding enterprises subscribed US$ 11,280,000, accounting for 70% of total investment. In this period, SEG-HITACHI paid up US$ 4,800,000 according to specified proportion. This joint venture will apply advanced technology and equipment produced by Hitachi to engage in the design, development, production, sales, and services of color projection tube (PRT) and other key parts. The project construction is going on smoothly as planned, and the production building was roofed one month in advance in December 2001. At present, equipment is being installed, and it is estimated that whole production line will be completed for trial production in July 2002, and batch production will be started in September. (2) The Company disclosed the following information on Page B1 of the Securities Times and Page C3 of Ta Kung Pao on June 13, 2001: with approval by the Board of Directors of the Company, the Company and Shanghai New Huangpu Investment Co., Ltd. invested RMB 5,000,000 to jointly set up Shanghai SEG Electronics Market Co., Ltd. , of which the Company subscribed RMB 3,500,000, accounting for 70% of total stock capital. In order that this joint venture can establish a good stimulation and binding mechanism, the Board of Directors of the Company has agreed to reduce the amount subscribed by it from RMB 3,500,000 to RMB 1,750,000, causing its investment proportion reduced from original 70% to 35%. Then the operator subscribed RMB 1,250,000, accounting for 25% of total stock capital, and other - 20 - natural persons subscribed RMB 500,000, accounting for 10% of total stock capital. As Shanghai SEG Electronics Market just started business operation, the Company did not include its financial statement into consolidating scope in this report period. (3) The Company disclosed on Page 21 of the Securities Times and Page C2 of Ta Kung Pao on December 29, 2001 that it would establish Xi’an SEG Electronics Market Co., Ltd. (hereinafter referred to “Xi’an SEG”) upon approval of the Board, with registered capital of RMB 2,000,000. By the end of this report period, related formalities for establishment of Xi’an SEG are in progress. ( ) Financial Status and Operating Results Analysis of the Company Financial Status Item 2001 2000 + /- (%) Total assets 3,459,289,772.69 3,772,300,213.33 -8.30 Notes receivable 214,672,655.60 40,087,322.00 435.51 Accounts receivable 275,821,787.76 467,169,269.98 -40.96 Accounts payable 241,740,769.87 184,133,706.98 31.29 Long-term liabilities due within one year 254,622,463.81 91,050,710.00 179.65 Long-term liabilities 312,262,727.65 458,719,742.55 -31.93 Long-term loan 312,262,727.65 458,719,742.55 -31.93 Shareholders’ equity 1,120,309,434.68 1,496,610,380.79 -25.14 Retained profit -427,436,749.43 -88,675,923.85 -382.21 Profit from main business lines 214,311,045.08 299,623,296.79 -28.47 Administrative expenditure 368,360,939.02 142,638,331.30 158.48 Expenses of non-operating 136,469,110.43 375,220,217.08 -63.30 Net profit -338,760,825.58 -162,145,474.11 -108.92 Retained profit as at the year-begin -88,675,923.85 134,811,047.26 -165.78 Reasons of Increase and Decrease: (1) Total assets: Total assets decreased by 8.30% below that of the last year, which was mainly because that in the report year, the Company’s inventory, net accounts receivable and other net accounts decreased by a wide range compared with those by the end of last year; (2) Note receivable: The balance in the report year was RMB 214,670,000, an increase of 435.51% , compared with RMB 40,087,300 by the end of last year. The increase was mainly because that settlement of notes of SEG Hitachi that was controlled indirectly by the Company was greatly increased in the report year compared with that of last year; (3) Other net account receivable: The net account receivable decreased by RMB 191,350,000 below that by the end of last year, a decrease range of 40.96%. The decrease was mainly because that the Company had allocated much provision for bad debts in the report year; (4) Accountant payable: The balance in the report year was RMB 241,740,000, an increase of 31.29%, compared with RMB 184,130,000 by the end of last year. The increase was mainly because that the material purchase payment that the Company should have paid to SEG Hitachi, a company indirectly controlled by the Company, - 21 - but didn’t pay at the end of the year increased by a wide range; (5) One-year due long-term liability: The balance was RMB 248,067,500 in the year, an increase of RMB 157,020,000 , compared with RMB 91,050,700 by of the end of last year, namely an increase range of 172.45%. The increase was mainly because that part of long-term loans due in the year was transferred into this item; (6) Long-term liability: The balance in the year was RMB 318,820,000, a decrease of RMB 139,900,000 , compared with RMB 458,720,000 by the end of last year, namely a decrease range of 30.50%. The decrease was mainly because that part of long-term loans due in the year was transferred into the item of one-year due long-term liability; (7) Long-term loans: The balance in the year was RMB 318,820,000, a decrease of RMB 139,900,000 compared with RMB 458,720,000 by the end of last year, namely a decrease range of 30.50%. The decrease was mainly because that part of long-term loans due in the year was transferred into the item of one-year due long-term liability; (8) Shareholder’s equity: The shareholder’s equity decreased RMB 376,300,000, a decrease range of 25.14%, compared with that by the end of last year. Reasons for decrease: A. RMB 338,760,000 of deficits that occurred in the year resulted in decrease of shareholder’s equity; B. RMB 40,900,000 of investment losses that hasn’t been defined by the Company also resulted in decrease of shareholder’s equity; (9) Retained profits: The balance at the end of the year was RMB –427,440,000, a decrease of 382.21%, compared with RMB –88,680,000 by of the end of last year. The decrease was mainly because of RMB 338,760,000 of losses in the year. (10) Profits of main business lines: The total amount in the report year was RMB 214,310,000, a decrease of 28.47%, compared with those of RMB 299,620,000 by the end of last year. The decrease was mainly because that the sales price for the Company’s major product color kinescope dropped by a wide range, which resulted in the decrease of sales gross profits; (11) Overhead: The total overhead in the year was RMB 368,360,000, an increase of RMB 225,720,000, namely 158.48%, compared with those of RMB 142,640,000 by the end of last year. The increase was mainly resulted from the increase of bad debt losses in the overhead, which was reflected in: a) According to the decision made by the Board of Director on changing of accounting assessment of allocating provision for bad debts, the Company allocated provision for bad debts for related companies; b) In the report year, since some of invested companies operated not well and faced the situation of having no enough assets to compensate for debts or the situation of liquidation, some of accounts receivable were impossible to reclaim any more; c) Since the age of some of accounts receivable is over 3 years, and in view of the condition that the Company hadn’t finished reclaiming in the sated period according to the consulting letter, the Certified Public Accountants allocated quite a big ratio of provision for the bad debts; (12) Non-operating expenditure: The non-operating expenditure in the year was RMB 136,470,000, a decrease of 63.30% , compared with those of RMB 375,220,000 by the end of last year. The decrease was mainly because that: on one hand, the Company allocated provision for fixed assets devaluation last year, but did not allocate such provision in the report year; on the other hand, the value-added tax (tax - 22 - on income item to be transferred out) for local production and sales as of 2001 was reduced because the taxation authority set the ratio lower than before in 2001; (13) Net profit: The Company suffered loss of RMB 338,760,000 in the report year, an increase of RMB 176,610,000, compared with RMB 162,150,000 that the Company suffered last year. The increase of losses was because that: a) one the one hand, prices of the Company’s leading products-color kinescopes dropped and thus gross profits decreased; b) one the other hand, the bad debt losses increased in the report year; c) the Company estimated a loss of RMB 83,880,000 in offering guarantee of loans. (14) Retained profit at the beginning of the year: The retained profit at the beginning of the year was RMB –88,680,000, a decrease of RMB 223,490,000 below the retained profit RMB 134810000 at the beginning of last year, namely a decrease range of 165.78%. The decrease was resulted from the losses of last year. ( ) Affect of Changes of Production and Operation Environment as well as Macro Policies and Laws/Regulations on the Company 1. In this report period, CPT industry where the Company is mainly engaged in was faced with increasingly-keener market competition, product sales prices further fell down substantially, therefore the production and operation environment of CPT of the Company got worse, which caused the reduction of the income and profit from its main business. 2. Changes of accounting policies of our country expanded the scope and amount of provisions for asset devaluation of the Company, which exercised great influence on its profit in this period. 3. Affect of China’s entry into the WTO on the operating activities of the Company (1) According to the Protocol on China Accession to the WTO, the customs duty for CPT will be reduced to 12% from 18% from the date of China’s accession to the WTO, and from 2002 on, import license will be eliminated, but import quota will be executed, with this quota increased at annual rate of 15%. This condition will bring direct challenge against CPT manufacturing industry of China, and the increase of CPT imported from foreign countries will cause CPT manufacturers of our country to be faced with greater price-reducing pressure. (2) After China’s entry into the WTO, the cancellation of foreign tariff and non-tariff barriers, will help the export of CPT especially medium- and low-grade CPT products. Meanwhile, the decrease of import cost of raw materials will promote the production of 21” CPT of the Company, which ranks at top position in the output, sales volume and export volume in China, and also bring opportunities for the Company to increase export of 34” CPT. (3) With coming of “Digital TV” era in China, more high-grade CPT will be demanded in the color TV market. After China’s entry into the WTO, if domestic CPT industry cannot complete the technical innovation and structure adjustment of the products as soon as possible, it will be unable to occupy this market, and will possibly be washed out by foreign rivals. The CPT business of the Company also is in adverse - 23 - situations ----less varieties and low grade, therefore it will necessarily meet serious challenges. (4) China’s entry into the WTO will speed up the paces for China to become the center of world manufacturing industry, and more large-scale foreign electronic information manufacturers will move their production bases to China and make greater efforts to sell their products in China, which will have favorable affect on the electronic market business that is one of main businesses of the Company. SEG Electronic Market’s position as the distribution center of electronic components and devices will not be impaired but also be further strengthened, particularly the electronic markets in large- and medium-scale cities will be developed rapidly. (5) China’s entry into the WTO has brought unprecedented opportunities and development space to China. According to the China’s commitment in Protocol on China’s Accession to the World Trade Organization, for the highway transportation enterprise of our country, foreign-funded enterprises can control it by holding most shares in the enterprise within one year after China’s entry into the WTO, and foreign investors can set up wholly-owned branch within three years China’s entry into the WTO. But after China’s entry into the WTO, foreign capital only can be access to warehousing sector through cooperative operation, and the shares held by foreign capital shall not exceed 49%; foreign-funded enterprises can hold it by holding most shares in the enterprise within one year after China’s entry into the WTO, and foreign investors cannot set up wholly-owned branch within three years after China’s entry into the WTO. These commitments will necessarily bring challenges to the Company in its foreign-related transportation and bonded warehousing business, and meanwhile also can provide more opportunities for seeking for cooperation with foreign enterprises, recombine resources,enhancing strength and speeding up its development. ( ) Notes Made by the Board of Directors of the Company on Matters Involved in the Auditors’ Report with Unqualified Opinions Issued by Domestic Accountants Shenzhen Peng Cheng Certified Public Accountants with Explanatory Remarks In this report year, the domestic auditor, Shenzhen Peng Cheng Certified Public Accountants issued audit report with unqualified opinions that contains explanatory remarks as follows: “In 2000, the Company transferred 28% shares held by it in Shenzhen SEG Dasheng Co., Ltd. (hereinafter referred to “Shenzhen Dasheng”) totaling 40,206,226 state-owned juristic person’s shares to Xinjiang Hongda Real Estate Co., Ltd. (hereinafter referred to “Xinjiang Hongda”) legal person shares (Shenzhen Dasheng) and according income of RMB 16,895,491.78 was recognized. As agreed in the Equity Assignment Contract, the effective date of the assignment is the registration date for equity transfer with Shenzhen Securities Registration Co., Ltd., while such registration has not been completed till now. Based on above-mentioned issue, the Board of Directors of the Company made explanations as follows: In the opinions of the Board of Directors of the Company, since the Ministry of Finance has not yet promulgated the policy on reducing the proportion of state-owned shares, the ownership of Shenzhen Dasheng shares transferred to Xinjiang Hongda by the Company were not transferred to the share subscriber because it was not approved - 24 - by Ministry of Finance. However, there was no change as to the fact that Xinjiang Hongda actually owned control power of operation and management since publishing of the annual report for the previous year to the present, and it is a fact that the Xinjiang Hongda actually controls financial and management policies of Shenzhen Dasheng. Therefore, the Board of Directors of the Company considers that in 2000 the Company confirmed that the earnings on share transfer of Shenzhen Dasheng complied with related financial regulation issued by Ministry of Finance. ( ) 2002 Business Plan In 2002, guided by the macro economic policy of expanding domestic demand, speeding up structure and reforms and further expanding the opening to the outside, the macro economy of our country will continue to steadily grow, and the economic growth is expected to fulfill the objective of 7% in tenth “Five-year” Plan. After China’s entry into the WTO, domestic investment market and legal environment will be further improved. On one hand, with improvement of market transparency and elimination of industrial barriers, foreign investors’ direct investment in our country still will be increased steadily, which will result in the steady growth of domestic investment demand, and help to provide more employment jobs and promote effective rise of consumption demands. Especially the policy and objective of the State on actively pushing the development of information industry, provides the Company with wide development space and good external conditions. On the other hand, with the development of Chinese market economy and accession of foreign rivals after China’s entry into the WTO, domestic market competition will become increasingly fierce. Therefore, faced with opportunities and challenges, the Company will continue to implement the operating strategies of controlling the competition by means of its superiority, strengthen operational management on overall basis, thoroughly improve the market shares, make full advantages in terms of brand and cost, accelerate industrial re-structuring and optimization, and accomplish the target of making up the deficits and getting surpluses as well as laying a foundation for sustainable development. 1. Operating Target In 2002, the Company plans to realize sales income of RMB 1800 million. Cost of main business will be decreased by 5% as compared with that of the previous year, and try its best to fulfill the target of making up the deficits and getting surpluses. 2. Operating Plan for 2002 (1) Fulfill the target of producing and selling 3,500,000 tubes. Under the market conditions of further falling down of prices, try its best to realize the same gross profit margin, cost and expense profit margin and sales income as that of the previous year. (2) The income from electronic market and from other business and trade will be increased by 10% as compared with that of the previous year, on the basis of further strengthening management and expanding sales. (3) Transportation between Shenzhen and Hong Kong and bonded warehousing business will be increased by 10% as compared with the present value, and full preparations should be made for developing large logistics business; (4) The income from IT service products and engineering business will be at least the - 25 - same as the previous year, and exceed those in the previous year through great efforts; sales volume of GPS terminal products will be increased by 25% as compared with that of the previous year, number of operation network users will be increased by 20% or more; business volume and profit of wireless railway dispatch system will be increased by 15% as compared with those of the previous year, and large-scale operation will be realized for the service for access to the Internet through fully exercising the company’s special superiority; (5) Expand the deep cooperation with international strategic partners, increase constant competitiveness of leading industry and products, and try its best to develop to one or two electronic information hi-tech projects that have a wide market prospect in this year, and foster new profit-generating channels. 3. In order to realize the aforesaid operation objectives and operation plan, the Company plans to take the following measures: (1) Focus on economic efficiency, enhance the management, insist on promoting the cost control and quality assurance project, further improve the operation ability of the Company and competitiveness of the products. - Continue to lay emphasis on the manufacture of color display products. SEG-HITACHI and SEG Samsung shall further focus on tapping the potential, improving the efficiency, improve the product quality and bringing down the cost so as to maintain the superiority of the product competitiveness. - Further improve the operation of the specialized market of electronics despite the situation of intense competition. The Company shall deepen the reform and innovation and upgrade the level in terms of the superiority of brand, management mode, way of operation and operation system, etc. - Overcome the difficulties arising from the continuous change in economic environment, make good operation of the Shenzhen-Hong Kong transportation and duty-free warehousing. SEG Warehousing and Transportation shall make good use of the development of the Chinese logistics and develop its own business, try to maintain the good trend of sustainable development. Meanwhile, make good preparations in improving the warehousing and transportation ability, expanding the alliance of logistics, and cooperative operation; - Continue to quicken the steps of developing hi-tech enterprise and projects. SEG Piloting should reinforce the development of automobile front market by adjusting the operation structure, speed up the construction of the network of the Pearl River Delta, enhance the construction of the quality system, realize the complete range and standardization of the products, upgrade the development, production, marketing of GPS automobile application system and the products, construction of operation network and services, and maintain the existing leading position and superiority in this sector. SEG Communication Co. shall overcome all difficulties to continue the operation of the railway radio control system project and products, improve the quality, enhance the services, expand the sales, bring down the costs and further upgrade its superiority in brand, technology and services in the domestic market. SEG Baohua shall seize the opportunity of the recovery of IT industry for its Internet - 26 - Access services, look for cooperation by means of external capital on the existing basis, further expand market shares by means of strategic partnership so as to form a big scope operation. (2) Quicken the steps of the intra-company technology innovation, the development and application of new products, and promote industrial upgrading and industrial structure optimizing by means of product creation and technology creation. - For the purpose of seizing the business opportunities brought from digitalization of the Chinese color TV and meeting the direct challenge from China’s accession to WTO, the Company’s subsidiaries of color display products shall enhance the technical innovation and research and development of new products. The technical innovation of the 21” CPT production line shall be oriented at upgrading the product quality; the technical innovation projects of 34” production line and extra-plat CPT are planned to be completed in the first three quarters of 2002 as far as possible and the planned product output shall be realized; the project of developing and producing high value-added 21” pure flat glass shells should be carried out successfully and ensured to be completed in time. - With a view to seizing the business opportunity of rise of modern logistics after China’s entry into WTO, the Company shall reinforce the integration of the existing resources, positively exploit the way of cooperation with foreign investors, and form a feasible way and preliminary structure of modern logistic industry of SEG Holdings with SEG warehousing and transportation as the principal and the existing cooperation resources as the development platform. - Seize the business opportunities arising from China’s focus on development of information industry, enhance the product development, application in a practical way, trying to complete the periodical development of the new products and projects this year, including GPS T2000 series terminal appliances, radio dialing series application solution, coach transportation management and ticket booking monitor system and terminal products, taxi control system application solution and terminal products, portable type tunnel repeater, railroad switch ice melting system, and individual soldier digital communication system, etc. In this way, let the IT and service industry become the Company’s new principal businesses so as to realize the objective of optimizing the industrial structure. (3) Further improve the budget management system and establish and modify internal control system so as to prevent risks on overall basis, thoroughly upgrade the overall quality of the operation and management of the Company. By improving the awareness of the budget management on overall basis, improve the budget management system, specially the implementation and supervision system, establish the monitor and management system integrated with accounting calculation and financial management and internal audit. Strictly control the expenses and expenditure, conduct strict risk control, strict management responsibility system. Timely discover problems, find solution to such problems and promote healthy operation; Improve the management level by reinforcing the establishment and improvement of the fundamental management system, especially reinforce the construction and implementation of the economic contract management system, - 27 - eliminate the occurrence of material mistakes and economic losses possibly to arise therefrom. (4) Continue to expidite the reinforcement of the Company’s administration structure, and upgrade the standardized operation level. - It is necessary to improve the construction of the Company’s internal organization, systems and power balancing mechanism according the specifications for modern corporate system, specially to reinforce the organization decision-making power of the Board and the decision-making ability of the all members of the Board, with the focus on trustworthiness and due diligence as well as ability of doing duties of the directors and manager. Emphasis should be put on establishment of performance assessment, examination, awarding and punishment systems applicable to the directors, supervisors and senior executives as soon as possible. - It is necessary to abide by the essence of multiplication of the property rights of modern corporate, further emancipate the mind, make bald exploitation of such reform forms as MBO and mixed ownership, promote the reform of the property right system of medium and small enterprises. - Based on the principle of high efficiency and low cost operation, further straighten out the relationship between the organization construction and operation requirements, bring down the organization operation cost and non-business operation costs, improve the operation and management efficiency on maximum basis with high efficiency operation and good configuration of human resources. (5) Do a good job in production safety, fire-fighting and public security in a practical way. Insist on the principle of focusing on prevention, eliminate any idea of leaving things to chance, strictly implement safety specifications, never do things carelessly, always warn ourselves, implement rules strictly always, assign responsibilities to everyone, don’t leave hidden trouble in the death corner. It is necessary to provide a favorable environment for safety operation so that the Company may achieve outstanding success in the new year. (VII) Daily Work of the Board of Directors 1. The Meeting of the Board of Directors and Resolutions In the report year, the Company held altogether four meetings of the Board of Directors. The resolutions of the meeting are as follows: (1) The 13th Meeting of the 2nd Board of Directors was held on April 24, 2001. Seven directors that should attend the meeting were all present at the meeting. The meeting reviewed and passed one by one the following resolutions through voting by a show of hands: a. Reviewed and passed 2000 Work Report of General Manager; b. Reviewed and passed 2000 Work Report of the Board of Directors; c. Reviewed and passed 2000 Financial Report of Actual Budget; d. Reviewed and passed 2000 Profit Distribution Preplan; e. Reviewed and passed 2000 Annual Report and Summary of Report; f. Reviewed and passed 2001 Profit Distribution Policies; - 28 - g. Reviewed and passed the proposal on amending the Articles of Association; h. Reviewed and passed the Provisional Management Measures for Special Funds of the Board of Directors of Shenzhen SEG Co., Ltd. i. Reviewed and passed the proposal on adjusting depreciation term of fixed assets as machines and equipment; j. Reviewed and passed the Provisional Management Rules of Raised Funds of Shenzhen SEG Co., Ltd.; k. Reviewed and passed the proposal on holding the 6th Shareholders’ General Meeting. The public notice on the resolutions of the meeting was published on page No.36 of Securities Times and on page No. A16 of Hong Kong Ta Kung Pao dated April 28, 2001. (2) The 14th Meeting of the 2nd Board of Directors was held on August 13, 2001. There should be 7 directors present at the meeting, while there were actually 6. Director Shi Dechun didn’t attend a meeting for she was on a business trip, and she didn’t entrust any other director to attend the meeting for her. The meeting reviewed and passed one by one the following resolutions through voting by a show of hands: a. Reviewed and passed the Report on Management of First Half of Year 2001; b. Reviewed and passed 2001 Interim Report and Summary of Interim Report; c. Reviewed and passed 2001 Interim Profit Distribution Plan and Plan of Transferring of Capital Public Reserve to Share Capital; d. Reviewed and passed the proposal on Supplementary Rules for Provisional Rules of Various Provision for Assets Devaluation; e. Reviewed and passed the proposal on establishing development strategy commission of Shenzhen SEG Co., Ltd. The public notice on the resolutions of the meeting was published on page No.40 of Securities Times and on page No.A17 of Hong Kong Ta Kung Pao dated August 15, 2001. (3) The 15th Meeting of the 2nd Board of Directors was held on November 10, 2001. Seven directors that should attend the meeting were all present at the meeting. The meeting reviewed and passed one by one the following resolutions through voting by a show of hands: a. Reviewed and passed the proposal on reengaging Shenzhen Peng Cheng Certified Public Accountants as the Company’s domestic auditors in 2001 and on application to the Shareholders’ General Meeting for authorizing the Board of Directors to decide on remuneration of Certified Public Accountants. b. Reviewed and passed the proposal on reengaging Hong Kong Ho & Ho Company as the Company’s overseas auditors in 2001 and on application to the Shareholders’ General Meeting for authorizing the Board of Directors to decide on remuneration of Certified Public Accountants. c. Reviewed and passed the proposal on amending the Articles of Association. d. Reviewed and passed the Rules of Procedures of the Shareholders’ General Meeting of Shenzhen SEG Co., Ltd. e. Agreed to transfer 15.67% of equity rights the Company held in Shenzhen Seg - 29 - Xinlide Intellectual Power System and Engineering Co., Ltd. to Shenzhen Shiji Hua’an Industrial Co., Ltd. According to the official reply on the transferring of equity rights by Shenzhen Investment Administration Company, the transferring price should be no less than 15.67% of the net asset assessment value (RMB 8,051,500), namely RMB 1,262,000, as assessed by Shenzhen Peng Cheng Certified Public Accountants by September 22, 2000. After the transferring, the Company wouldn’t hold any equity right of this company. f. Reviewed and passed Rules of Procedures of the Board of Directors of Shenzhen SEG Co., Ltd., and terminated the old version of Rules of Procedures of the Board of Directors of Shenzhen SEG Co., Ltd. as enacted and implemented in July of 1998. g. Reviewed and passed Information Disclosure Rules of Shenzhen SEG Co., Ltd. h. Reviewed and passed Self-inspection and Self-correction Report on Normative Operation of Shenzhen SEG Co., Ltd. The public notice on the resolutions of the meeting was published on page No.11 of Securities Times and on page No.C7 of Hong Kong Ta Kung Pao dated November 13, 2001. (4) The 16th Meeting of the 2nd Board of Directors was held on December 27, 2001.There should be 7 directors present at the meeting, while there were actually 7 directors and director’s proxy (Due to business engagement, Director Sun Shengdian was absent from the Board meeting, with entrusting Director Shi Dechun to attend and vote on his behalf ). The meeting reviewed and passed one by one the following resolutions through voting by a show of hands: a. Reviewed and passed Plan of Reclaiming Arrears Owed by Large Shareholder and Related Parties of Shenzhen SEG Co., Ltd.; b. Reviewed and passed the proposal on revising some articles of Provisional Rules of Various Provision for Assets Devaluation of Shenzhen SEG Co., Ltd. c. Reviewed and passed the proposal on establishing Xi’an SEG Electronic Market Co., Ltd. with registered capital of RMB 2 million. The public notice on the resolutions of the meeting was published on page No.21 of Securities Times and on page No.C2 of Hong Kong Ta Kung Pao dated December 29, 2001. 2. Implementation of Resolutions of the Shareholders’ General Meeting by the Board of Directors In the report year, the Board of Directors implemented each resolution of the six Shareholders’ General Meetings and authorization events by the Shareholders’ General Meeting according to law in honest, reliable and conscientious manner. (VIII) Profit Distribution Preplan or Preplan of Capital Public Reserve to Share Capital As audited by Shenzhen Peng Cheng Certified Public Accountants based on PRC GAAP, PRC Enterprise Accounting Regulations and Standards as well as other relevant laws and regulations and by Hong Kong Ho and Ho & Company Certified Public Accountants based on IGAAP and IAS as well as other relevant laws and regulations, the Company realized a net profit of respectively RMB -338,760,825.56 and RMB -502,046,000.00 as of 2001. So the net profit as of the report period audited - 30 - by domestic auditors plus the retained profit RMB –88,675,923.85 at the beginning of the year amounted to RMB –427,436,749.42. In view of the big deficit that occurred for the first time since listing, the Company is neither going to distribute profit of 2001 nor to transfer capital public reserve to share capital. This preplan is subject to discussion and approval in the 7th Shareholders’ General Meeting. (IX) Preplan on 2002 Profit Distribution Policies and Policies of Transferring Capital Public Reserve to Share Capital According to Articles of Association, profit realized in 2002 shall be firstly used for making up deficits of previous years, for the retained profit of 2001 was RMB –427,436,749.42. The Company will neither distribute profit nor transfer capital public reserve to share capital in 2002. This preplan is subject to discussion and approval in the 7th Shareholders’ General Meeting. (XI) Other Reporting Events The information disclosure newspapers as designated by the Company were Securities Times and Hong Kong Ta Kung Pao, which were not changed in the report year. VIII. REPORT OF THE SUPERVISORY COMMITTEE (I) Work of the Supervisory Committee In 2001, the Company held altogether four meetings of the Supervisory Committee, in which following resolutions were made: 1. The 9th Meeting of the 2nd Supervisory Committee of Shenzhen SEG Co., Ltd. was held in SEG Group s small meeting room on April 24, 2001, which reviewed and passed: (1) Agreed to Mr. Huang Xuxi’s resignation as supervisor and chairman of the Supervisory Committee, and proposed to elect Mr. Wang Li to be successor according to recommendation of SEG Group; (2) 2000 Annual Report and Summary; (3) 2000 Financial Report of Actual Budget; (4) 2000 Profit Distribution Plan; (5) 2001 Profit Distribution Policies; (6) 2000 Work Report of the Supervisory Committee. The public notice on the resolutions of the meeting was published on page No.36 of Securities Times and on page No.A13 of Hong Kong Ta Kung Pao dated April 28, 2001. 2. The 10th Meeting of the 2nd Supervisory Committee was held in SEG Group s big meeting room on May 29, 2001, in which Mr. Wang Li was elected chairman of the 2nd Supervisory Committee. The public notice on the resolutions of the meeting was published on page No.A13 of Securities Times and on page No.C8 of Hong Kong Ta Kung Pao dated May 30, 2001. 3. The 11th Meeting of the 2nd Supervisory Committee was held in SEG Group’s small meeting room dated August 13, 2001, in which the following resolutions were made: (1) Reviewed and passed 2001 Interim Report and Summary of Interim Report; - 31 - (2) Reviewed and passed 2001 Interim Profit Distribution Plan and Plan of Transferring Capital Public Reserve to Share Capital. The public notice on the resolutions of the meeting was published on page No.A40 of Securities Times and on page No.A16 of Hong Kong Ta Kung Pao dated August 15, 2001. 4. The 12th Meeting of the 2nd Supervisory Committee was held in SEG Group’s small meeting room on November 10, 2001, in which following resolutions were made: (1) Reviewed and passed Self-inspection and Self-correction Report on Normative Operation of Shenzhen SEG Co., Ltd.; (2) Reviewed and passed Rules of Procedures of the Supervisory Committee of Shenzhen SEG Co., Ltd., and terminated the Work Procedures of the Supervisory Committee of Shenzhen SEG Co., Ltd. enacted and implemented in April of 1999. The public notice on the resolutions of the meeting was published on page No.11 of Securities Times and on page No.C7 of Hong Kong Ta Kung Pao dated November 13, 2001. In the report year, the Supervisory Committee members attended each Board meeting as non-voting delegates. (II) Independent Opinions Expressed by the Supervisory Committee on the Company’s Management and Operation of 2001: 1. Operation according to Law According to relevant stipulations of national laws, legislations and the Articles of Association, the Company has established and improved the legal administrative structure, established a rather perfect internal control system, and well kept away risks of operating and finance; the Company’s decision-making procedures were legitimate. In the report year, the Board of Directors and management team seriously implemented each resolution of the Shareholders’ General Meeting in a diligent and conscientious manner, and didn’t violate laws, legislations and Articles of Association or damage the Company’s interests when performing duties and obligations. 2. Financial Inspection The Supervisory Committee made serious and careful inspection on the Company’s financial system and financial status, and believed the 2001 financial report could truly reflect the Company’s financial status and business results. 3. Purchase or sales of Assets In the report year, the Company hadn’t purchased assets. The assets sales prices were reasonable, no inside trading was found, and the transactions hadn’t damaged the rights and interests of shareholders or resulted in runoff of assets. 4. About Correlative Transactions The correlative transactions conducted in 2001 were all in accordance with the principle of equitability and fairness as checked by the Supervisory Committee. No inside trading was found, and the transactions hadn’t damaged the interests of the Company as well as rights and interests of other shareholders or resulted in runoff of assets. 5. Opinion on the Auditors’ Report as Issued by Certified Public Accountants. Shenzhen Peng Cheng Certified Public Accountants that was in charge of domestic - 32 - auditing in 2001 issued an unqualified domestic auditors’ report carried with explanatory remarks. The Supervisory Committee agreed to the special remarks made by the Board of Directors on the events involved in the explanatory remarks of the domestic auditors’ report. . SIGNIFICANT EVENTS ( ) The Company had never been involved in any material lawsuits or arbitration. ( ) Assets Acquisition and Sales in the Report Year 1. In the report period, the Company did not purchase assets from other companies. 2. Equity Assignment in the report period In the report period, the Company transferred 15.67% equity in Shenzhen SEG Xinlide Intelligence System Engineering Co., Ltd. to Shenzhen Century Hua’an Industrial Co., Ltd. According to the official reply on the transferring of equity rights by Shenzhen Investment Administration Company, the transferring price should be no less than 15.67% of the net asset assessment value (RMB 8,051,500), namely RMB 1,262,000, as assessed by Shenzhen Peng Cheng Certified Public Accountants by September 22, 2000. After the transferring, the Company wouldn’t hold any equity right of this company. Since the said company has not been in the range of the Company’s consolidated accounting statements since 2000 and in addition the amount involved in the transfer was quite small, the event produced little effect on the continuity of the Company’s business, stability of the management, the Company’s financial position or operation results. The aforesaid event was disclosed in Page 11 of the Securities Times and Page C& of Ta Kung Pao dated November 13, 2001. ( ) Material Related Transactions 1. Related Transactions concerning Purchase/Sales of Commodities (1) SEG Hitachi Purchasing Glass Shells from SEG Samsung SEG-HITACHI is a subsidiary indirectly controlled by the Company by shareholding (54.93%), with registered capital of USD 113,000,000.00, legal representative of Sun Shengdian. The company is mainly engaged in design, production and sales of 21” and 34” CPT. SEG Samsung: The Company is a shareholder of the company by 21.44%. It is a public company listed with Shenzhen Stock Exchange, with the registered capital of RMB 785,970,000, the legal representative of Zhang Jiliang. The company is mainly engaged in production and sales of CPT glass shells. Based on the market fairness principle, in the report year, SEG-HITACHI purchased glass shells from SEG Samsung at the fair price amounting to RMB 94,000,000, taking 8.80% of the total glass shells in the report year. This related transaction - 33 - belongs to continuous related transaction and is settled with commercial invoice. (2) SEG-HITACHI purchasing electronic guns and chemical materials from Hitachi Asia (Hong Kong) Ltd. Hitachi Asia (Hong Kong)Ltd.: It is a subsidiary of one of the Company’s minority shareholder, with registered capital of HK$ 20 million, legal representative: Mr. Yamamoto Katsuni. The company is mainly engaged in sales and services of electrical&electronic products; procurement of parts and meterials. Based on the market fairness principle, in the report year, SEG-HITACHI purchased electronic guns and chemical materials from Hitachi Asia (Hong Kong)Ltd. at the fair price amounting to RMB 99,400,000, taking 9.30% of the total raw materials in the report year. This related transaction belongs to continuous related transaction and is settled with commercial invoice. 2. Related Transactions concerning Assets and Equity Transfer In the report year, the Company had never been involved in any related transactions concerning assets/equity transfer. 3. Issues concerning Credit, Liabilities and Guarantees with the Related Parties (1) Credit and Liability Relations with Related Parties Accounts Related parties Dec. 31, 2001 Dec. 31, 2000 Reasons/Types Accounts receivable Hitachi Manufacture Industrial 16,729,889.79 11,122,587.96 Sales of products Shenzhen SEG Plaza Inv. & Dev. Co., Ltd. - 1,659,286.29 Hitachi Asia Co., Ltd. 3,498,927.13 21,704,026.40 Sales of products Hitachi Asia (Hong Kong) Co., Ltd. 4,222.80 1,604,537.40 Sales of products Accounts prepaid Hitachi Asia (Hong Kong) Co., Ltd. - 1,874,046.45 Dividend receivable Shenzhen SEG Sumsung Co., Ltd. 5,038,856.98 13,436,616.32 Dividend distribution Other receivables Shenzhen SEG Plaza Inv. & Dev. Co., Ltd. 48,576,811.79 96,124,375.55 Loan and interest Shenzhen SEG Software Technology Co., Ltd. 7,811,050.90 7,851,630.73 Loan and interest Loan and interest from the Shenzhen SEG Dasheng Co., Ltd. 153,710,735.65 66,745,256.48 financial support to Shenzhen SEG Dasheng Shenzhen SEG Financial Company 4,784,367.12 4,784,367.12 deposit and interest Shenzhen SEG Electronic Engineering Co. 102,400.00 102,400.00 Loan SEG (Hong Kong) Co., Ltd. 2,833,758.42 Loan and interest Borrowings of SEG Group and Shenzhen SEG Group Co., Ltd. 142,956,602.70 deposit and interest with the Clearing Center of SEG Group Shenzhen SEG Jiamei Science Instrument Co., Ltd. 16,023,144.46 17,813,493.58 Loan and interest Shenzhen SEG Xinlide Intelligence Systems Engineering Interest 228,941.35 3,000,000.00 Co., Ltd. Notes payable Shenzhen SEG Samsung Co., Ltd. 17,156,000.00 46,859,520.00 Due payment for raw materials Accounts payable Hitachi Asia (Hong Kong) Ltd. 11,592,545.90 9,015,727.38 Due payment for raw materials Shenzhen SEG Samsung Co., Ltd. 11,446,223.96 19,964,230.86 Due payment for materials Other payable Hitachi Manufacture Co., Ltd. Of Japan 284,050.00 13,185,000.00 Temporary borrowing Effect of above liabilities owned to related parties on the Company: the Company was actively urging above related parties to settle the due payment according to the payment plan, which was expected to be fulfied in 2002. As for receivalbes due from related companies under liquidation or cancellation, the Company has withdrew large - 34 - amount of provisions in 2001 and no significant effect will be imposed on the Compny in future operation. (2) For the guarantees with the related parties, please refer to “Important Guarantees” ( ) Important Contracts and Implementation 1. Material custody, contract and leasing: The Company disclosed the Contract for Contracting Operation and Management of Chinese West Electronic Commercial City signed between the Company and Shaanxi West Electronics Development Co., Ltd. (hereinafter referred to as the West Electronics Co.) on Page 9 of the Securities Times and Page C1 of Ta Kung Pao dated September 1, 2001. According to the contract, the Company is to contract China West Electronic Commercial City of the West Electronics Co. for establishment of China West Electronic Commercial City with the contract term of 10 years commencing form to July 1, 2001 and end on June 30, 2001. 2. Significant Guarantees: (1) Guarantees with Non-related Parties On August 11, 2001, through approval by the Board, the Company and Shenzhen Nanguang (Group) Co., Ltd. (hereinafter referred to as “Shen Nanguang”) signed a Mutual Guarantee for Loans with a term of one year with the maximum quota of RMB 150 million which is convertible into HK dollars and US dollars. For the detail, please refer to Page 4 of Securities Times and Page C7 of Ta Kung Pao dated August 11, 2001. Ended the report year, through approval by the Board, the Company offered guarantee for loans amounting to RMB 70 million to Shen Nanguang which were respectively due in February, 2002 and October, 2002. The guarantee belongs to joint responsibility type. (2) Guarantees with Related Parties Through approval by the Board, the Company offered bank loan guarantees amounting to RMB 67 million to Shen Dasheng which were respectively due in February, 2002 and October, 2002 respectively. Where, the loan guarantee of RMB 10 million to be due in June, 2002 is secured by means of hypothecation of the self-raised fund deposit with amount of HK$ 10 million. Reason of the formation of the aforesaid guarantee and the affects upon the Company possibly arising therefrom. The guarantee aims at supporting the normal production and operation of the company; in addition,Xinjiang Hongda Company, the company’s biggest shareholder has offered counter-guarantee. The guarantee with the amount of RMB 10 million was formed in 2001 with the purpose of supporting the company’s operation so as to ensure Shen Dasheng may smoothly transit in the process of the equity transfer. The said loan guarantee has been counter-guaranteed by mortgaging the legal person shares of the aforesaid three listed companies held by Shen Dasheng and its own real estate. It is predicted that the guarantee offered to the company involves certain risks. - 35 - Through approval by the Board, the Company offered guarantee of SEG Samsung for the bank loans with contract amount of RMB 71 million which are going to be due respectively in December, 2002 and May, 2004. Where, of the loan amounting to RMB 50 million which is due in May, 2004, RMB 12.5 million has been repaid. Ended the report year, the balance Company has actually offered guarantee for was RMB 58.5 million. This guarantee is of joint responsibility type. Reason of the formation of the aforesaid guarantee and the affect upon the Company: Of the balance of the aforesaid guarantee at the end of the guarantee, the amount totaling RMB 21 million was formed when the Company acquired the equity of Shenzhen Zhongkang Glass Co., Ltd., (“Zhongkang”) the predecessor of SEG Samsung at the initial period of listing in 1997, according to Equity Assignment Agreement and Bank Loan Contract from the original shareholders of Zhongkang; The amount totaling RMB 37.5 million was formed for supporting the company’s technical innovation project. Since SEG Samsung is in good operation standing. It is predicted that the guarantee offered to the company involves quite less risk. Through approval by the Board, the Company offered guarantees to Samsung Industrial Co., Ltd. (hereinafter referred to Samsung Industrial) for its bank loans amounting to RMB 30 million and US$ 6.51 million to be due in June, 2000 and December, 2002 respectively. Where, the amount of US$ 6.51 million to be due in June, 2000 shall be used for debts reorganization through approval by the loan provider. The aforesaid guarantees with amounting to RMB 30 million and US$ 6.51 million are of joint responsibility type. This guarantee has been disclosed in periodic reports as of previous years. Reason of the formation of the aforesaid guarantee and the affect upon the Company: The aforesaid two guarantees were formed when the Company acquired the equity of Shenzhen Zhongkang Glass Co., Ltd., the predecessor of Samsung Industrial at the initial period of listing in 1997 according to Equity Assignment Agreement and Bank Loan Contract from the original shareholders of Zhongkang. As Samsung Industrial has been involved in serious insolvency at present, there exists possibility that the Company has to assume joint responsibility for repaying the debts. In the report year, the Company made provision for the predicted losses possibly arising from the said guarantee. 3. Management of Cash Assets: In the report year, the Company did not entrust others to manage the cash assets. 4. Other Important Contracts: (1) The Company signed the Agreement for Equity Transfer on December 18, 2000 with Xinjiang Hongda Company which was approved by Shenzhen Investment Management Company and Shenzhen State Assets Control Office respectively in the report year. The relevant documents were submitted to the PRC Ministry of Finance on Septembe 3, 2001. By the end of December 31,2001, the Company has received the payment for equity in Shenzhen Dasheng of RMB 75,100,000 with the due balance of RMB 11,700,000 unpaid. Ended the date of disclosing this annual report, the Company had not yet received any reply from the ministry. - 36 - ( ) Commitments of the Company and the Shareholders Holding over 5% of the Total Share Capital in the Report Year 1. The 6th Shareholders’ General Meeting examined and adopted the resolution on 2001 Profit Distribution Policy with details as follows: “In accordance with the Circular of China Securities Regulatory Commission on the Issues concerning Disclosing 2000 Annual Reports of Listed Companies: (1) The Company planned to conduct a profit distribution for the year 2001 and implement within 6 months after the end of the fiscal year; (2) No less than 20% of the net profit realized in the year 2001 should be used for distributing dividends and the dividends should be distributed in cash; (3) The Company has decided not to distribute the retained profit at the end of 2000 in the year 2001. The specific profit distribution policy in 2001 would be subject to the examination and approval by the Shareholders’ General after the proposal was submitted by the Board of Directors. The Board of Directors reserves the right to make adjustment according to the development and profit making in the very year.” As the Company suffered from losses in 2001, the Company was not able to implement 2001 profit distribution policy, and would not make profit distribution for the year 2001, or convert the capital public reserve into the share capital. 2. The Company published the Plan of Shenzhen SEG Co., Ltd. for Clearing the Accounts Receivable from the Principal Shareholders and the Related Parties on Page 21 of the Securities Times and Page C2 of Ta Kung Pao dated December 29, 2001, and committed the clearing term and ways of the accounts receivable from the principal shareholders and part of the related companies. At present, the Company has assigned designated persons to urge and settle the debts repayment and pay debts in kind from the aforesaid companies. ( ) Engagement/Disengagement of Certified Public Accountants As approved in the 15th Meeting of the 2nd Board of Directors on Nov. 10, 2001, the Company reengaged Shenzhen Peng Cheng Certified Public Accountants as the Company’s domestic auditor for the year 2001 and reengaged Hong Kong Ho and Ho & Company as the international auditor for the year 2001. The said issues are subject to the approval in the 7th Shareholders’ General meeting. The Company disclosed the issues on Page 11 of the Securities Times and Page C7 of Hong Kong Ta Kung Pao dated November 13, 2001. The decision making procedures of the Company in determining the remuneration to the certified public accountants are: In accordance with the Provisional Regulations on Service Charges of Certified Public Accountants (Document of Shenzhen Municipal Bureau of Finance (1995) No. 38), based on the total assets of the Company in the report year, with reference to the payment of the auditing service charges of other listed companies in the same sector, the Company’s financial - 37 - department submits a proposal on the remuneration and the Board submits the proposal after examination and approval to the Shareholders’ General Meeting for approval. The remuneration paid by the Company to the certified public accountants in the past two years is listed as follows: 2001 2000 Certified Public Financial auditing Other Financial auditing Other Accountants charges expenses charges expenses Shenzhen Peng Cheng Certified Public RMB 300,000 ---- RMB 270,000 ---- Accountants Hong Kong Ho and Ho & HK$ 450,000 RMB 20,000 HK$ 450,000 RMB 20,000 Company Notes: The Company paid an amount totaling RMB 20,000 to Hong Kong Ho and Ho & Company which cover the financial audit charge, accommodation and others during the audit for the fiscal year from 2000 to 2001. The Company paid only the financial audit charge to Shenzhen Peng Cheng Certified Public Accountants for the fiscal year from 2000 to 2001 without any other charges during the audit. The remuneration payable to both of the domestic and international auditors for the year 2000 had been paid up in the report year. The remuneration payable to both of the domestic and international certified public accountants for the year 2001 would be paid on once-and-for-all basis upon producing the annual auditors’ reports and approval in the 7th Shareholders’ General Meeting. ( ) In the report year, there existed no such event resulted in inspection, administrative punishment or circulating notice of criticism from China Securities Regulatory Commission or public blame from the Stock Exchange against the Company, the Board of Directors or any directors. ( ) Other important matters 1. The Company disclosed the significant issues on Page 12 of the Securities Times and Page C8 of Hong Kong Ta Kung Pao dated March 6, 2001. The Company’s 60,000,000 state owned legal person shares held by SEG Group, the controlling shareholder were frozen by Beijing No. 1 Intermediate People’s Court due to lawsuit with a term of one year. Ended the report year, the shares had still not yet been unfrozen. 2. The Company published a notice on Page 17 of the Securities Times and Page C8 of Hong Kong Ta Kung Pao dated March 23, 2001. The Company’s 44.15 million state owned legal person shares (taking 6.08% of the Company’s total share capital) held by SEG Group frozen by Beijing No. 1 Intermediate People’s Court were sold by auction at Shenzhen Zhongziyuan Auction Co., Ltd. 3. The Company published a notice on Page 2 of the Securities Times and Page C1 of Hong Kong Ta Kung Pao dated July 13, 2001. The Company’s 100,000,000 state - 38 - owned legal person shares held by SEG Group, the controlling shareholder, were frozen by Guangzhou Intermediate People’s Court due to lawsuit with a term of two years; in addition, there were 15,000,000 state owned legal person shares of the Company were frozen with a term of half a year by Shenzhen Intermediate People’s Court with a term of half a year. Ended the report year, the aforesaid frozen shares had not yet been unfrozen yet. 4. The Company published a notice on Page 5 of the Securities Times and Page C1 of Hong Kong Ta Kung Pao dated September 7, 2001. The Company’s 59,300,000 state owned legal person shares held by SEG Group, the controlling shareholder, were frozen by Beijing No. 1 Intermediate People’s Court due to lawsuit with a term of two years; in addition, there were 26,000,000 state owned legal person shares of the Company were frozen with a term of half a year by Shenzhen Intermediate People’s Court with a term from August 21, 2001 to December 31, 2002. Ended the report year, the aforesaid frozen shares had not yet been unfrozen yet. 5. The Company published a notice on Page 10 of the Securities Times and Page C10 of Hong Kong Ta Kung Pao dated October 9, 2001. The Company’s 167,027,898 state owned legal person shares held by SEG Group, the controlling shareholder, were frozen by Guangzhou Intermediate People’s Court due to lawsuit with a term from September 28, 2001 to September 28, 2002. Ended the report year, the aforesaid frozen shares had not yet been unfrozen yet. 6. The Company published a notice on Page 3 of the Securities Times and Page C12 of Hong Kong Ta Kung Pao dated May 25, 2001. According to the Conference of General Managers of CPT Enterprises convened by China CPT Association, SEG-HITACHI, a subsidiary indirectly controlled by the Company by shareholding (54.93%), is going to stop production of CPT for 34” extra-large screens commencing from early June for a term of expected two months. The Company published a notice on Page A11 of the Securities Times and Page C1 of Hong Kong Ta Kung Pao dated September 12, 2001. According to the present market situation and SEG-HITACHI’s inventories of 34” CPT, it was decided to recover the production of 34” CPT line commencing from September 14, 2001. 7. To meet the demands of the color TV market and promote upgrading of the industry of the Company and the market competitiveness of 34” CPT, through approval by the Board, SEG-HITACHI signed the Contract for Technology Transfer of 34” Extra-flat CPT and the Contract for Supply of 34” Extra-flat CPT (34”S-HS) Equipment on November 29, 2001 with Hitachi Manufacture Co., Ltd. of Japan. On December 6, 2001, SEG-HITACHI received the Official Reply on the Feasibility Study Report on 86 cm CPT Production Line Technical Innovation Project of Shenzhen SEG Hitachi Monitors by Shenzhen Municipal Economic and Trade Development Bureau (SETDB Official Reply on Finance [2001] No. 121. The Company disclosed the aforesaid issues on Page A2 of the Securities Times and Page C1 of Hong Kong Ta Kung Pao dated December 8, 2001. ( ) Post Events Entrusted by Guangdong Provincial High People’s Court, China Jiade Guangzhou - 39 - International Auction Co., Ltd. published three public notices on the Securities Times dated respectively on December 29, 2001, January 8, 2002 and January 29, 2002 to sell 167,027,898 state owned legal person shares by public auction. The three public auctions were respectively conducted on January 7, 2002, January 18, 2002 and February 8, 2002. So far, however, there has been no successful bidder yet. The Company has been paying close attention to the development of the aforesaid events. ( ) There had been no change in the policy of income tax enjoyed by the Company commencing from January 1, 2002. X. FINANICAL REPORT SHENZHEN SEG CO., LIMITED REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER, 2001 REPORT OF THE AUDITORS To the Shareholders of B shares of Shenzhen SEG Co., Limited (Incorporated in the People’s Republic of China with limited liability) We have audited the financial statements on page 2 to 30 which have been prepared in accordance with International Accounting Standards. The preparation on these financial statements is the responsibility of the Group’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 from 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 the management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements give a true and fair view of the state of affairs of the Group as at 31st December, 2001 and of the loss and cash flows for the year then ended and have been prepared in accordance with International Accounting Standards. Ho and Ho & Company Certified Public Accountants Hong Kong 16th April, 2002 - 40 - CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31ST DECEMBER, 2001 NOTE 2001 2000 S RMB’000 RMB’000 Revenue 5 1,922,248 2,306,490 Cost of sales (1,707,937) (2,001,810) Gross profit 214,311 304,680 Other operating income 7 78,090 41,698 Distribution costs (101,128) (140,960) Administrative expenses (299,957) (173,444) Impairment loss on property, plant and equipment (290,132) - (Loss) / profit from operations 8 (398,816) 31,974 Finance costs 9 (92,547) (87,752) Amortisation of negative goodwill - 23,476 Gain on disposal of interests in an associate - 1,733 Loss on disposal of subsidiaries 25(a) (6,136) - Provision for contingent loss 10 (83,881) - Share of results of associates (48,995) 30,059 Loss before tax (630,375) (510) Taxation 11 (3,738) (3,184) Loss before minority interests (634,113) (3,694) Minority interests 132,067 14,354 Net (loss) / profit for the year (502,046) 10,660 (Loss) / earnings per share 12 RMB(0.691) RMB0.015 - 41 - CONSOLIDATED BALANCE SHEET AS AT 31ST DECEMBER, 2001 NOTES 2001 2000 RMB’000 RMB’000 ASSETS Non-current assets Property, plant and equipment 13 1,317,181 1,771,562 Construction in progress 14 28,279 3,441 Interests in associates 16 257,615 252,358 Other investments 17 54,520 22,382 1,657,595 2,049,743 Current assets Inventories 18 162,726 347,805 Investments in securities 19 31,500 10,525 Accounts receivable, deposits and prepayments 20(c)(ii) 1,100,772 1,114,288 Pledged deposits 62,596 54,625 Cash and bank balances 469,168 432,468 1,826,762 1,959,711 Total assets 3,484,357 4,009,454 EQUITY AND LIABILITIES Capital and reserves Share capital 21 726,146 726,146 Reserves 22 414,845 916,891 1,140,991 1,643,037 Minority interests 418,215 554,635 Non-current liabilities Loans 23(a) 306,780 458,720 Current liabilities Loans - due within one year 23(a) 868,105 775,111 Accounts payable, deposits received and accruals 20(c)(iv) 741,662 571,769 Tax payable 8,604 6,182 1,618,371 1,353,062 Total equity and liabilities 3,484,357 4,009,454 The financial statements on pages 2 to 30 were approved by the Board of Directors and authorised for issue on 16th April, 2002 and are signed on its behalf by : Director Director - 42 - CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31ST DECEMBER, 2001 Reserves Accumulate Statutory Statutory d Share Capital surplus public Exchange Proposed profits / Reserve capital reserve reserve welfare fund reserve dividend (losses) sub-total Total RMB ‘000 RMB ‘000 RMB ‘000 RMB ‘000 RMB ‘000 RMB RMB ‘000 RMB ‘000 RMB ‘000 ‘000 Balance at 1st January, 2000 613,427 336,921 218,555 52,279 295 42,940 106,415 757,405 1,370,832 Net profit for the year - - - - - - 10,660 10,660 10,660 Premium on placing RMB denominated and listed shares - 284,015 - - - - 284,015 284,015 Loss on deemed disposal of a subsidiary - - - - - - (30,907) (30,907) (30,907) Placement of RMB denominated ordinary shares 16,129 - - - - - - - 16,129 Placement of RMB denominated listed ordinary shares 35,248 - - - - - - 35,248 Bonus issue 61,342 - - - - - (61,342) (61,342) - Dividend paid - - - - - (42,940) - (42,940) (42,940) Transfer from / (to) reserves - - 1,321 1,321 - - (2,642) - - Balance at 31st December, 2000 and 1st January, 2001 726,146 620,936 219,876 53,600 295 - 22,184 916,891 1,643,037 Net loss for the year - - - - - - (502,046) (502,046) (502,046) Transfer from / (to) reserves - - 2,361 2,361 - - (4,722) - - Balance at 31st December, 2001 726,146 620,936 222,237 55,961 295 - (484,584) 414,845 1,140,991 - 43 - CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST DECEMBER, 2001 NOTES 2001 2000 RMB’000 RMB’000 OPERATING ACTIVITIES Cash generated from/(used in) operations 24 323,683 (109,776) Interest paid (92,547) (87,752) Income tax refunded / (paid) 880 (8,173) NET CASH FROM/(USED IN) OPERATING ACTIVITIES 232,016 (205,701) INVESTING ACTIVITIES Interest received 27,680 25,108 Proceeds from disposal of other investments - 11,639 Purchase of property, plant and equipment (23,266) (246,418) Expenditure on construction in progress (38,065) (75,896) Proceeds from disposal of property, plant and equipment 20,373 2,513 Increase in investments in associates (56,198) (6,350) Purchase of other investments (32,138) (10,024) Increase in investments in securities (20,975) (10,525) Increase in pledged deposits (7,971) (29,025) Net cash outflow from disposal of subsidiaries 25(b) (5,810) - NET CASH USED IN INVESTING ACTIVITIES (136,370) (338,978) FINANCING ACTIVITIES Dividend paid - (42,228) Net proceeds from issue of shares - 335,392 Shares issued to minority shareholders of subsidiaries - 231 New bank and other loans raised 884,500 949,131 Repayment of bank and other loans (943,446) (842,300) NET CASH (USED IN)/FROM FINANCING ACTIVITIES (58,946) 400,226 INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 36,700 (144,453) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 432,468 576,921 ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS AT END OF YEAR Cash and bank balances 469,168 432,468 - 44 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2001 1. CORPORATE INFORMATION Shenzhen SEG Co., Limited (the “Company”) and its subsidiaries are collectively referred to the “Group”. The Company, which was approved by the Shenzhen Municipal Government, the People’s Republic of China (the “PRC”) on 10 April, 1996, was established in the name of Shenzhen SEG Co., Limited. The Company obtained a business certificate licence on 16 July, 1996. The Company’s shares have been listed and traded on the Shenzhen Stock Exchange since July, 1996. The holding company of the Company is Shenzhen Electronics Group Ltd. (the “SEG Group”), a state-owned enterprise registered in the PRC and under the direct supervision of the Shenzhen Municipal Government. The Company, its subsidiaries (note 15) and its associates (note 16) are engaged primarily in the production and sales of electronic products of which colour cathode tubes are the major product. 2. PRESENTATION OF FINANCIAL STATEMENTS The financial statements have been prepared in accordance with International Accounting Standards (“IAS”). These financial statements are presented in Renminbi (“RMB”) since that is the currency in which the majority of the Group’s transactions are denominated. 3. ADOPTION OF INTERNATIONAL ACCOUNTING STANDARDS During the year, the Group has adopted the following IAS for the first time: IAS 39 Financial Instruments: Recognition and Measurement IAS 40 Investment Property In addition, revisions to a number of other IAS also took effect in 2001. The adoption of the new IAS and the revisions concerning matters of detailed application which has no significant effect on amounts reported for the current or prior accounting periods. - 45 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2001 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared on the historical cost basis except for the revaluation of certain investments in securities. The principal accounting policies adopted are set out below :- (a) Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and enterprises controlled by the Company (“its subsidiaries”) made up to 31st December each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee enterprise so as to obtain benefits from its activities. On acquisition, the assets and liabilities of a subsidiary are measured at their fair values at the date of acquisition. The interest of minority shareholders is stated at the minority's proportion of the fair values of the assets and liabilities recognised. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those used by other members of the Group. All significant inter-company transactions and balances between group enterprises are eliminated on consolidation. (b) Interests in associates An associate is an enterprise over which the Group is in a position to exercise significant influence, through participation in the decision making on the financial and operating policies of the investee. The results, assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. The carrying amount of such investments is reduced to recognise any impairment in the value of individual investment. NOTES TO THE ACCOUNTS - 46 - FOR THE YEAR ENDED 31ST DECEMBER, 2001 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued (b) Interests in associates - Continued Where a group enterprise transacts with an associate of the Group, unrealised profits and losses are eliminated to the extent of the Group’s interests in the relevant associate, except where unrealised losses provide evidence of an impairment of the asset transferred. (c) Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interests in the fair value of the identifiable assets and liabilities of a subsidiary or an associate at the date of acquisition. Goodwill is recognised as an asset and amortised on a straight-line basis following an assessment of its useful life. Goodwill arising on the acquisition of an associate is included within the carrying amount of the associate. Goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet. Negative goodwill, which represents the excess of the Group’s interests in the fair value of the identifiable assets and liabilities of a subsidiary or an associate acquired over the cost of acquisition, is eliminated proportionately against the fair value of the non-monetary assets acquired. Any amount in excess of the fair value of the non-monetary assets acquired should be amortised over the remaining weighted average useful life of the identifiable acquired depreciable or amortisable assets. On disposal of a subsidiary or an associate, the attributable amount of unamortised goodwill or negative goodwill is included in the determination of the profit or loss on disposal. - 47 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2001 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued (d) Property, plant and equipment (i) Investment properties Investment property, which is property held to earn rentals and for capital appreciation, is stated at cost less accumulated depreciation and impairment. (ii) Other property, plant and equipment Other property, plant and equipment are stated at cost less accumulated depreciation and impairment. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and location for its intended use. Expenditure incurred after the asset has been put into operation, such as repairs and maintenance and overhaul costs, is normally charged to the income statement in the year in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset, the expenditure is captialised as an additional cost of the asset. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement. Depreciation is calculated to write off the cost of other property, plant and equipment on a straight-line basis over their estimated useful lives as follows :- Leasehold land Over the remaining lease terms Buildings 20-40 years Machinery and equipment 5-10 years Motor vehicles 5-10 years - 48 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2001 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued (e) Construction in progress Construction in progress represents properties under construction and equipment purchased prior to installation and is stated at cost. Cost comprises direct costs, attributable overheads and borrowing costs capitalised in accordance with the Group’s accounting policy. No depreciation is provided on construction in progress prior to their completion upon which they will be reclassified into the appropriate categories of property, plant and equipment and depreciation will be provided. (f) Impairment At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the asset to which the asset belongs. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately, unless the relevant asset is land or buildings at a revalued amount , in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. - 49 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2001 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued (g) Other investments Other investments represent listed and unlisted investments held for long-term purposes. Other investments are stated at cost less impairment. (h) Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price less estimated costs to completion and costs to be incurred in marketing, selling and distribution. (i) Financial instruments Financial assets and liabilities are recognised on the Group’s balance sheet when the Group has become a party to the contractual provisions of the instrument. (i) Accounts receivable, deposits and prepayments Accounts receivable, deposits and prepayments are stated at cost as reduced by appropriate allowances for estimated irrecoverable amounts. (ii) Investments in securities Investments in securities are recognised on a trade-date basis and are initially measured at cost. At subsequent reporting dates, debt securities that the Group has the expressed intention and ability to hold to maturity (held-to-maturity debt securities) are measured at amortised cost, less any impairment loss recognised to reflect irrecoverable amounts. The annual amortisation of any discount or premium on the acquisition of a held-to-maturity security is aggregated with other investment income receivable over the terms of the instrument so that the revenue recognised in each year represents a constant yield on the investment. - 50 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2001 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued (i) Financial instruments - Continued (ii) Investments in securities - Continued Investments other than held-to-maturity debt securities are classified as either held for trading or available-for-sale and are measured at subsequent reporting dates at fair value. Where securities are held for trading purposes, unrealised gains and losses are included in net profit or loss for the period. For available-for-sale investments, unrealised gains and losses are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the net profit or loss for the year. (iii) Loans Interest-bearing loans are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption, are accounted for on an accrual basis and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. (iv) Accounts payable, deposits received and accruals Accounts payable, deposits received and accruals are stated at cost. (j) Operating leases Rentals payable under operating leases are charged to the income statement on a straight-line basis over the terms of the relevant lease. - 51 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2001 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued (k) Foreign currencies Transactions in currencies other than RMB are initially recorded at the rates of exchange prevailing on the dates of the transactions. Monetary assets and liabilities denominated in such currencies are re-translated at the rates prevailing on the balance sheet date. Profits and losses arising on exchange are included in net profit or loss for the year. (l) Taxation The charge for current taxation is based on the results for the year as adjusted for items which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred taxation is accounted for using the liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit. In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill (or negative goodwill) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction which affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, associates and jointly controlled entities, except where the Group is able to control the reversal of the timing difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is calculated at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled. Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. - 52 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2001 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued (m) Related parties Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities. (n) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the cost of those assets. All other borrowing costs are recognised in net profit or loss in the year in which they are incurred. (o) Retirement benefit costs The Group participates in retirement funds scheme managed by the local social security bureau in accordance with government regulations. The contributions are charged to the income statement as incurred at rates specified in the rules of the scheme. (p) Provisions Provisions are recognised when the Group has a present obligation as a result of a past event which it is probable that it will result in an outflow of economic benefits that can be reasonably estimated. (q) Cash equivalents Cash equivalents represent short-term and highly liquid investments that are readily convertible to a known amount of cash and subject to an insignificant risk of changes in value. - 53 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2001 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued (r) Revenue recognition (i) Sales of goods are recognised when goods are delivered and title has passed. (ii) Rental income is recognised on a straight-line basis over the respective lease terms. (iii) Transportation and warehousing service income and maintenance fee income are recognised over the relevant period in which the services are rendered. (iv) Interest income is accrued on a time basis, by reference to the principal outstanding and at the interest rate applicable. (v) Income from other investments is accounted for to the extent of dividend income received and receivable during the year. 5. REVENUE An analysis of the Group’s revenue is as follows:- 2001 2000 RMB’000 RMB’000 Sales of goods 1,808,055 2,181,774 Rental income 82,478 94,079 Transportation and warehousing service income 30,021 28,403 Others 1,694 2,234 1,922,248 2,306,490 - 54 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2001 6. BUSINESS AND GEOGRAPHICAL SEGMENTS (a) Business segments Since the Group is mainly engaged in the business of production and sales of colour cathode tubes and related products, the analysis of business segments is not presented. (b) Geographical segments The analysis of the Group’s revenue by geographical market is as follows: 2001 2000 RMB’000 RMB’000 The PRC 1,346,516 1,697,106 Countries other than the PRC (mainly South East Asia countries) 575,732 609,384 1,922,248 2,306,490 Since the Group’s assets are mainly in the PRC, the analysis of geographical segments is not presented. 7. OTHER OPERATING INCOME An analysis of the Group’s other operating income is as follows: 2001 2000 RMB’000 RMB’000 Interest income 27,680 25,108 Retention of value-added tax (“VAT”) on products manufactured and sold in Shenzhen (see note below) 25,695 4,645 Gain on disposal of investments in securities 12,307 - Handling fee income 2,041 3,256 Penalty imposed on customers for late payments 5,895 543 Others 4,472 8,146 78,090 41,698 The Group is subject to assessment of VAT in respect of the sales of its products pursuant to the “Provisional Value-added Tax Regulations of the PRC” and the “Implementation Rules of the Provisional Value-added Tax Regulations of the PRC”. VAT payable on sales is borne by customers. VAT is levied at the rate of 17% on the invoiced value of goods sold. VAT payable by the Group on its purchases can be offset against VAT receivable on its sales. - 55 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2001 7. OTHER OPERATING INCOME - Continued However, the Group is given special treatment in Shenzhen and is allowed to keep the amount of VAT received from customers in excess of their payments of VAT to suppliers for those products manufactured and sold to local manufacturers in Shenzhen by the Group. The Group therefore had net gains in VAT which are included in the item “Retention of VAT on products manufactured and sold in Shenzhen”. 8. (LOSS) / PROFIT FROM OPERATIONS (Loss) / profit from operations has been arrived at after charging / (crediting) : 2001 2000 RMB’000 RMB’000 Retirement benefit costs 7,950 8,374 Loss on disposal of property, plant and equipment 5,277 819 Staff costs 104,979 133,228 Depreciation and amortisation 170,776 146,939 Operating lease charges on land and buildings 10,747 905 Provision for bad debts 157,910 17,213 Written off of construction in progress 23 30,416 Amortisation of pre-operating expenses - 2,912 Gain an disposal of other investments - (512) 9. FINANCE COSTS 2001 2000 RMB’000 RMB’000 Interest expenses on bank and other loans 92,547 87,752 - 56 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2001 10. PROVISION FOR CONTINGENT LOSS The provision represents full provision for loss in respect of an guarantee given for bank loan borrowed by the Group’s 30% owned investee company, Shenzhen SEG Samsung Enterprise Co., Ltd (“SEG Samsung Enterprise”). In the opinion of the Directors, since SEG Samsung Enterprise has difficulty to meet its financial obligations, the Group has a present obligation as a result of the guarantee fee given and it is probable that it will result in an outflow of economic benefits, provision for loss should be made. 11. TAXATION 2001 2000 RMB’000 RMB’000 Income tax - the Company and its subsidiaries 1,792 2,070 - associates 1,946 1,114 3,738 3,184 Income tax represents the provision for the PRC income tax charged for the year. The PRC income tax has been provided for at 15% (2000 : 15%) on the assessable profits of each individual company comprising the Group. Deferred taxation has not been provided for in the financial statements as in the opinion of directors, there are no material timing differences which are expected to crystallise in the foreseeable future. 12. (LOSS) / EARNINGS PER SHARE The calculation of basic (loss) / earnings per share is based on the following data : 2001 2000 Net (loss) / profit for the year RMB(502,046,000) RMB10,660,000 Weighted average number of issued shares 726,145,863 710,564,244 The Company has no issued shares with potential dilutive effect. Therefore, no diluted (loss)/earnings per share is presented. NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2001 13. PROPERTY, PLANT AND EQUIPMENT Machinery - 57 - Investment Leasehold land and Motor Properties and buildings equipment vehicles Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 COST At 1st January, 2001 57,362 1,108,877 1,421,239 41,852 2,629,330 Additions - 5,769 10,722 6,775 23,266 Disposal of subsidiaries - (3,392) (3,053) (879) (7,324) Transfer from construction in progress (note 14) - - 13,204 - 13,204 Disposals / written off - (31,951) (9,327) (6,248) (47,526) At 31st December, 2001 57,362 1,079,303 1,432,785 41,500 2,610,950 ACCUMULATED DEPRECIATION At 1st January, 2001 - 250,836 578,604 28,328 857,768 Charge for the year 1,399 39,467 127,767 2,143 170,776 Impairment loss recognised in the income statement - 7,920 282,180 32 290,132 Written back on disposal of subsidiaries - (955) (1,640) (436) (3,031) Written back on disposals/ written off - (10,003) (6,067) (5,806) (21,876) At 31st December, 2001 1,399 287,265 980,844 24,261 1,293,769 NET BOOK VALUE At 31st December, 2001 55,963 792,038 451,941 17,239 1,317,181 At 31st December, 2000 57,362 858,041 842,635 13,524 1,771,562 Rental income earned by the Group from its investment properties, all of which are leased out under operating leases, amounted to RMB20,086,622 (2000:RMB17,774,841). Direct operating expenses arising on the investment properties in the year amounted to RMB12,933,737 (2000:RMB7,787,371). In the opinion of the directors, the aggregate carrying value of investment properties approximates to their fair value at the balance sheet date. - 58 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2001 14. CONSTRUCTION IN PROGRESS 2001 2000 RMB’000 RMB’000 COST At beginning of year 3,441 828,406 Additions 38,065 75,896 Transfer to property, plant and equipment (note 13) (13,204) (870,445) Written off (23) (30,416) At end of year 28,279 3,441 15. SUBSIDIARIES Details of the Company’s principal subsidiaries at 31st December, 2001 are as follows : Place of incorporation, Effective registration and rate of Name of subsidiary operation equity held Principal activities Shenzhen SEG Communication PRC 99.59% Manufacture and Co., Ltd. installation of communication equipment Shenzhen SEG Store and PRC 99.59% Cargo transportation Transport Enterprise Co., Ltd. and storage Shenzhen Baohua PRC 66.58% Manufacture of Electronic Joint Stock Co., Ltd. electronic consumer products and property investment Shenzhen SEG CNEDC PRC 73.24% Investment holding Color Display Devices Corp. Shenzhen SEG Hitachi Color PRC 54.93% Manufacture of Display Devices Co., Ltd.* colour TV tubes Shenzhen SEG East Industrial PRC 100% Import and export Development Co., Ltd. trading Shenzhen SEG Real PRC 91.79% Investment holding Estate Co., Ltd. Shenzhen SEG Business PRC 99.86% Sale of computers, Machine Co., Ltd. equipment and communication devices * Indirectly held subsidiary - 59 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2001 16. INTERESTS IN ASSOCIATES 2001 2000 RMB’000 RMB’000 Unlisted investments in the PRC Share of net assets 281,148 319,182 Amounts due from associates 50 - Amounts due to associates (23,583) (66,824) 257,615 252,358 Details of the Company’s principal associates at 31st December, 2001 are as follows : Place of Effective incorporation, rate of registration equity Name of associate and operation held Principal activities Shenzhen SEG PRC 21.44% Manufacture and sale of cathode Samsung Glass Co., tubes, glass shells and relevant Ltd. (“SEG Samsung”) moulds and tools Shenzhen SEG Navigations PRC 20.25% Development, design and Technology Stock Co., Ltd provision (Formerly known as Shenzhen of consultancy services in SEG Saint Wisdom respect Communication Navigation of electronic and Co., Ltd.) communication products 上海賽格電子市場有 PRC 35% Sale of electronic and 限公司 communication products 深圳市網上賽格 PRC 49% Trading and provision of services 電子商務有限公司 for electronic and communication products 17. OTHER INVESTMENTS 2001 2000 RMB’000 RMB’000 Unlisted investments in the PRC, at cost 54,520 22,382 - 60 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2001 18. INVENTORIES 2001 2000 RMB’000 RMB’000 Raw materials 118,072 159,094 Work in progress 13,179 23,582 Finished goods 31,475 165,129 162,726 347,805 At the balance sheet date, raw materials of approximately RMB344,000 (2000: RMB2,000,000) are stated at net realisable value. No finished goods (2000: approximately RMB6,000,000) are stated at net realisable value. 19. INVESTMENTS IN SECURITIES 2001 2000 RMB’000 RMB’000 Listed shares in the PRC, at cost 31,500 10,220 Unlisted shares in the PRC, at cost - 305 31,500 10,525 Market value of listed shares 31,500 10,086 20. FINANCIAL INSTRUMENTS Financial assets of the Group include cash and bank balances, pledged deposits, investments in securities, accounts receivable, deposits and prepayments. Financial liabilities of the Group include bank loans, accounts payable, deposits received and accruals. The Group exposes to credit and interest rate risk arising from the normal course of the Group’s business. (a) Credit risk The Group has a credit policy in place and the exposure to credit risk is monitored on an on-going basis. Credit evaluations are performed on all customers requiring credit over a certain amount. (b) Interest rate risk The interest rates and terms of repayment of the bank loans of the Group are disclosed in note (23). - 61 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2001 20. FINANCIAL INSTRUMENTS - Continued (c) Fair value The carrying amounts of significant financial statements and liabilities approximate to their respective fair values at the balance sheet date. (i) Cash and bank balances and pledged deposits Cash and bank balances and pledged deposits represent cash and short-term deposits placed at bank. The carrying amounts of these assets approximate their respective fair values. (ii) Accounts receivable, deposits and prepayments An allowance has been made for estimated irrecoverable amounts of the accounts receivable, deposits and prepayments by reference to past default experience. The Directors consider that the carrying amounts of these assets approximate their respective fair values. Amounts receivable, deposits and prepayments included amounts due from holding company and related companies. The major balances at the balance sheet date are shown in note (31) to the accounts. (iii) Loans The carrying amount of loans approximates its fair value based on the borrowing rates currently available for loans with similar terms and maturity. (iv) Accounts payable, deposits received and accruals Accounts payable, deposits received and accruals are short-term in nature. The carrying amounts of these liabilities approximate their respective fair values. Accounts payable, deposits received and accruals included amounts due to holding company, related companies and minority shareholders. The major balances at the balance sheet date are shown in note (31) to the accounts. 21. SHARE CAPITAL 2001 2000 RMB’000 RMB’000 Registered, issued and fully paid : 498,104,136 ‘A’ shares of RMB 1 each 498,104 498,104 228,041,727 ‘B’ shares of RMB 1 each 228,042 228,042 726,146 726,146 - 62 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2001 22. RESERVES Statutory Accumulated Capital Statutory public welfare Exchange Proposed profits / reserve surplus reserve fund reserve dividend (losses) Total RMB ‘000 RMB ‘000 RMB ‘000 RMB ‘000 RMB ‘000 RMB ‘000 RMB ‘000 Balance at 1st January, 2000 336,921 218,555 52,279 295 42,940 106,415 757,405 Net profit for the year - - - - - 10,660 10,660 Premium on placing RMB denominated and listed shares 284,015 - - - - 284,015 Loss on deemed disposal of a subsidiary - - - - - (30,907) (30,907) Bonus issue - - - - - (61,342) (61,342) Dividend paid - - - - (42,940) - (42,940) Transfer from / (to) reserves - 1,321 1,321 - - (2,642) - Balance at 31st December, 2000 and 1st January, 2001 620,936 219,876 53,600 295 - 22,184 916,891 Net loss for the year - - - - - (502,046) (502,046) Transfer from / (to) reserves - 2,361 2,361 - - (4,722) - Balance at 31st December, 2001 620,936 222,237 55,961 295 - (484,584) 414,845 Attributable to : The Company and subsidiaries 620,936 222,237 55,961 295 - (636,106) 263,323 Associates - - - - - 151,522 151,522 Balance at 31st December, 2001 620,936 222,237 55,961 295 - (484,584) 414,845 Under the relevant law, regulations and policies in the PRC, the Company is required to make an appropriation of the profit after tax to the statutory surplus reserve account until the reserve amount has reached 50% of the registered capital of the Company. The Company is also required to make an appropriation to the statutory public welfare fund. Any premium received on the issue of shares (net of issue costs) is treated as capital reserve. The statutory surplus reserve and capital reserve may be applied only for the following purposes: (i) The statutory surplus reserve may be used to make up losses; and - 63 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2001 22. RESERVES - Continued (ii) The reserves may be converted into share capital by the issue of new shares to shareholders in proportion to their existing shareholdings, but when reserves are converted into share capital, the amount remaining in the reserves shall not be less than 25% of the enlarged registered capital. The statutory public welfare fund shall be applied only for the collective welfare of the Company’s employees. Prior to making up the Company’s losses and making the relevant appropriations to the statutory surplus reserve and the statutory public welfare fund, no dividends may be paid. 23. LOANS (a) The loans are repayable as follows : 2001 2000 RMB’000 RMB’000 Bank loans - secured 582,385 497,279 - unsecured 590,000 734,052 Other unsecured loans 2,500 2,500 1,174,885 1,233,831 Less : Amount shown under current liabilities (868,105) (775,111) Amount shown under non-current liabilities 306,780 458,720 (b) The weighted average interest rates paid were as follows : 2001 2000 Bank loans - short-term 6.41% 6.43% - long-term 5.99% 5.90% Other loans 8.19% 5.27% - 64 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2001 23. LOANS - Continued (c) Bank loans of approximately RMB 260,000,000 (2000: approximately RMB 105,000,000) were guaranteed by independent third parties. 24. CASH GENERATED FROM/(USED IN) OPERATIONS 2001 2000 RMB’000 RMB’000 (Loss)/profit from operations (398,816) 31,974 Adjustments for : Depreciation on property, plant and equipment 170,776 146,939 Written off of construction in progress 23 30,416 Interest income (27,680) (25,108) Amortisation of pre-operating expenses - 2,912 Provision for contingent loss (83,881) - Loss on disposal of property, plant and equipment 5,277 819 Gain on disposal of other investments - (512) Impairment loss on property, plant and equipment 290,132 - Decrease/(increase) in inventories 170,713 (58,360) Decrease/(increase) in accounts receivable, deposits and prepayments 7,512 (279,926) Increase in accounts payable, deposits received and accruals 189,627 41,070 Cash generated from/(used in) operations 323,683 (109,776) - 65 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2001 25. DISPOSAL OF SUBSIDIARIES (a) During the year, the Group disposed three of its subsidiaries, namely Shenzhen SEG Bank System Engineering Company Limited, Shenzhen SEG Telecommunications Devices Company Limited and Shenzhen SEG Navigations Technology Stock Company Limited (formerly known as Shenzhen SEG Saint Wisdom Communication Navigation Company Limited). The net assets of these three subsidiaries at their corresponding dates of disposals were as follows :- RMB’000 Property, plant and equipment 4,293 Inventories 14,366 Accounts receivable, deposits and prepayments 6,004 Cash and bank balances 5,810 Accounts payable, deposits received and accruals (19,734) Tax payable (250) 10,489 Share of loss by minority interests (4,353) Loss on disposal of subsidiaries (6,136) Cash consideration - (b) The net cash outflow arising on disposal of subsidiaries is as follows : RMB’000 Cash consideration - Cash and bank balances disposed (5,810) (5,810) 26. PLEDGE OF ASSETS At 31st December, 2001, certain of the Group’s properties, machinery and equipments, bills receivable and bank deposits with an aggregate net book value of approximately RMB736,419,000 (2000: approximately RMB383,379,000) were pledged to secure banking and other facilities granted to the Group. - 66 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2001 27. CONTINGENT LIABILITIES At 31st December, 2001, the Group had contingent liabilities not provided for in the financial statements as follows : 2001 2000 RMB’000 RMB’000 (a) The Group had given guarantees to bankers in respect of banking facilities utilised by : An associate – Shenzhen SEG Samsung Glass Co., Ltd. 58,500 80,000 Investee companies - Shenzhen SEG Dasheng Joint Stock Co., Ltd. 67,000 - - Shenzhen SEG Samsung Enterprise Co., Ltd. 83,881 83,881 An independent third party – 深圳南光(集團)股份 有限公司 70,000 210,894 279,381 374,775 Provision made for guarantee given for Shenzhen SEG Samsung Enterprise Co., Ltd. (83,881) - 195,500 374,775 (b) Bills discounted with recourse 36,879 45,047 28. CAPITAL COMMITMENTS At 31st December, 2001, the Group had capital commitment contracted for but not provided for in the financial statements in respect of acquisition of property, plant and equipment totalling approximately RMB5,122,000 (2000 : approximately RMB7,956,000). 29. OPERATING LEASE COMMITMENTS At the balance sheet date, the Group had outstanding commitments under non-cancellable operating leases, which fall due as follows:- 2001 2000 RMB’000 RMB’000 Within one year 1,775 1,604 In the second to fifth year inclusive 1,774 619 3,549 2,223 - 67 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2001 30. RETIREMENT BENEFIT PLANS The employees of the Group are members of a state-managed retirement benefit scheme operated by the PRC government. The subsidiaries are required to contribute a specified percentage of their payroll costs to the retirement benefit scheme to fund the benefits. The only obligations of the Group with respect to the retirement benefit scheme are included in the amount disclosed in note (8) to the accounts for contribution to defined retirement benefit plans. 31. RELATED PARTY TRANSACTIONS The followings are the major related party transactions entered by the Group during the year and the corresponding balances at the balance sheet date: Name of Company Relationship Nature 2001 2000 RMB’000 RMB’000 Shenzhen SEG Group Holding - Payment of rental 13,850 41,875 Ltd. Company - Purchase of properties - 210,330 - Payment of guarantee charges 9,449 - - Receipt of interest income 1,088 - - Amount the therefrom 142,957 - - Amount due thereto - (33,597) 深圳市賽格廣場投資 Fellow - Receipt of interest income - 543 發展有限公司 subsidiary - Amount due therefrom 48,577 97,784 深圳市賽格物業發展 Fellow - Payment of rental - 8,000 有限公司 subsidiary - Amount due therefrom 239 - 深圳市賽格軟件技術 Fellow - Amount due therefrom 7,811 7,852 有限公司 subsidiary Shenzhen SEG Associate - Purchase of raw materials 94,003 210,370 Samsung Glass Co., - Guarantee given 56,250 80,000 Ltd. - Receipt of guarantee charges 865 - - Amount due thereto (23,563) (53,387) Hitachi, Ltd. (Japan) Minority - Purchase of equipment 5,572 - shareholder - Payment of technology 8,222 - royalties (284) (13,185) - Amount due thereto Hitachi Asia (Hong Minority - Purchase of equipment 7,910 - Kong) Ltd. shareholder - Purchase of raw materials 99,401 89,367 - Disposal of colour picture tubes - 44,206 - Amount due thereto (11,592) (7,142) Shenzhen SEG Samsung Investee - Guarantee given 83,881 83,881 Enterprise Co., Ltd. Company Shenzhen SEG Dasheng Investee - Guarantee given 67,000 - Joint Stock Co., Ltd. Company - Receipt of interest income - 241 - Amount due therefrom 149,517 66,745 In the opinion of the directors, the above transactions were undertaken in the normal course of the business and were conducted at a price agreed by each party. - 68 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2001 32. IMPACT OF IAS ADJUSTMENTS ON NET (LOSS) / PROFIT FOR THE YEAR AND NET ASSETS Net (loss) / profit for the Net assets year 2001 2000 2001 2000 RMB’000 RMB’000 RMB’000 RMB’000 As reported in the financial statements audited by the PRC auditors (338,761) (162,145) 1,120,309 1,496,610 IAS adjustments : - Written off of interests in a subsidiary not consolidated - 13,038 - - - Understatement of cost of sales and administrative expenses - (4,068) - - - Understatement of depreciation - (6,221) - - - Provision for doubtful debts 59,643 (2,289) - (59,643) - Provision for other assets 12,166 (12,166) - (12,166) - Loss on deemed disposal of a subsidiary - - (30,907) (30,907) - Share of results of associates (22,181) 6,786 4,636 26,817 - Negative goodwill arising from acquisition of equity interests in a subsidiary - 23,476 46,953 46,953 - Impairment loss on property, plant and equipment (290,132) 280,000 - 290,132 - Provision for staff quarter benefits (309) - - 309 - Written off of unrealised loss on investments (40,156) - - - - Impairment loss shared by minority shareholders 126,234 (126,196) - (126,234) - Others (8,550) 445 - 11,166 As adjusted in conformity to IAS (502,046) 10,660 1,140,991 1,643,037 33. COMPARATIVE FIGURES Certain comparative figures have been reclassified in conformity to the presentation of the financial statements for the year. 34. LANGUAGE The report is originally prepared in Chinese. In the event of a conflict between this English translation and the original Chinese version or difference in interpretation between the two - 69 - versions of the report, the Chinese language report shall prevail. X. DOCUMENTS FOR REFERENCE 1. Accounting statements carried with personal signatures and seals of legal representative, person in charge of the financial affairs and person in charge of handling accounting affairs. 2. Original of Auditors’ Report carried with the seal of Certified Public Accountants as well as personal signatures and seals of certified public accountants; 3. Originals of all documents and manuscripts of Public Notices of the Company disclosed in public on the newspapers designated by CSRC in the report period; 4. Annual Report published on other securities marketss. This report has been prepared in Chinese version and English version respectively. In the event of difference in interpretation between the two versions, the Chinese report shall prevail. Board of Directors of SHENZHEN SEG CO., LTD. April 16, 2002 - 70 -