粤华包Ｂ(200986)2001年年度报告（英文版）

Foshan Huaxin Packaging Co., Ltd. 2001 ANNUAL REPORT Short Form of the Stock: Yue Huabao B Listed with: Shenzhen Stock Exchange Code of the Stock: 200986 Listing Time: July 6, 2000 Total share capital: 439.50 million B-Shares available to be listed: 149.50 million 1 Foshan Huaxin Packaging Co., Ltd. 2001 ANNUAL REPORT Important: The Board of Directors of the Company hereby confirms that there are no important omissions, fictitious statements or serious misleading information carried in this report, and shall take all responsibilities, individually and/or jointly, for the reality, accuracy and completion of the whole contents. . Company Profile 1. Legal Name in Chinese: 佛山华新包装股份有限公司 Legal Name in English: Foshan Huaxin Packaging Co., Ltd. 2. Legal Representative: Wang Qi 3. Secretary of the Board of Directors: Chen Haiyan Security affairs representative: Zhong Changgui Address: 20/F, Jinghua Bldg., Jihua Rd., Foshan Tel: 0757-3981729 Fax: 0757-3981025 E-mail: hxchy@21cn.com 4. Registered Address: 20/F, Jinghua Bldg., Jihua Rd., Foshan Office Address: 20/F, Jinghua Bldg., Jihua Rd., Foshan Post Code: 528000 E-mail: Zhuaxin@163.com 5. Newspapers Designated for Disclosing the Information: Securities Times, Hong Kong Commercial Daily Internet Web Site Designated by China Securities Regulatory Commission: http://www.cninfo.com.cn Place Where the Annual Report is Prepared and Placed: Office of the Board of Directors 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: Yue Huabao B Code of the Stock: 200986 7. Other Relevant Information 1) Date of first registration: June 21, 1999 Registration with: Guangdong Municipal Administration for Industry and Commerce. 2) Business License No.: 4400001008467 3) Taxation Registration No.: ST Zi No. 440601707682279 4) Certified public accountants engaged: Domestic certified public accountants: Guangdong Zhengzhong Jujiang Certified Public Accountants Address: 27/F, Yuehai Group Bldg., 555#, Dongfeng E. Road, Guangzhou International certified public accountants: KPMG Address: 8F, Prince’s Building, Hong Kong 2 . Financial and Business Highlights . Business Highlights Items Amount (In RMB) Total profit 129,052,598.24 Net profit 118,696,950.89 Net profit after deduction of non- recurring loss/gain 70,343,301.66 Profit from principal businesses 83,007,814.75 Profit from other business lines 177,747.64 Operating profit 27,227,594.72 Investment income 101,707,973.42 Subsidy income --- Net amount of non-operating income and expenses 117,030.10 Net cash flows arising from operating activities 26,953,113.09 Net increase of cash and cash equivalents -31,881,377.78 Note: The non-recurring loss in 2001 amounting to RMB 48,353,649.23 consists of the following parts: (1) The Company sold 24% equity in Tetra Pak Huaxin (Foshan) Packaging Co., Ltd. but still enjoyed its 24% earnings with amount of RMB 48,399,980.60; (2) Income tax and minority shareholders’ gains/losses amounting to RMB - 163,361.47; (3) Net amount of non-operating income and expenses totaling RMB 117,030.10. Net profit as audited respectively by the domestic and international auditors and the differences(in RMB’000): (1) The net profit as audited according to the international accounting standards was RMB117,478 and that as audited according to the domestic accounting standards was RMB118,697 The difference between the two was RMB1,219. (2) The difference in the net profit is mainly due to the amortization of the balance of the long term equity investment and the organization expenses. (3) The difference in the net profit is listed in detail as follows. Net profit as of 2001 (In RMB’000) Stated according to the domestic accounting standards: 118,697 Adjusted according to the international accounting standards: (1) Amortization of the balance of long-term equity -2883.3 investment (2) Amortization of Organization expenses 2329.5 (3) Other -665.2 Stated according to the international accounting standards: 117,478 3 2. Financial highlights over the past three years(consolidated number): Items 2001 2000 1999 Before After Before adjustment After adjustment adjustment adjustment Income from principal businesses (in 511300 405230 405230 293280 293280 RMB’000) Net profit (in RMB’000) 118690 113040 110030 118580 108600 Total assets (in RMB’000) 1301340 1318180 1297090 933680 915750 Shareholders’ equity (in RMB’000) 807200 747240 561440 545180 (Excluding minority shareholder’s equity) Earnings per share (in RMB) Fully Diluted 0.257 0.250 0.409 0.374 0.270 Weighted average 0.322 0.312 0.409 0.374 0.270 Earnings per share after deduction of 0.160 0.173 0.167 0.204 0.186 non- recurring loss/gain s (Fully Diluted) (In RMB) Net assets per share (in RMB) 1.8366 1.744 1.700 1.936 1.880 Net assets-income ratio Fully Diluted 14.70% 14.75% 14.72% 21.12% 19.92% Weighted average 14.72% 17.12% 17.03% 21.12% 19.92% Net assets-income ratio, less the non- 8.71% 9.69% 9.54% 18.10% 16.81% recurring gains and loss (Fully Diluted) Net assets per share after adjustment 1.8198 1.7166 1.6727 1.9116 1.8555 Net cash flow arising from business 0.0613 0.1984 0.1984 0.1073 0.1073 activities per share * Calculation formula of major financial indexes: Earnings per share = net profit / total number of common shares at the year end Net assets–income ratio = net profit / shareholders’ equity at the year end 100% Net assets per share = shareholders’ equity at the year end / total number of common shares at the year end Net assets per share after adjustment = (shareholders’ equity at the year end - net accounts receivable over three years – expenses to be apportioned - Net losses from (current / fixed) assets in suspense – Organization expenses – Long-term expenses to be apportioned - Negative balance amount of house revolving fund) / total number of common shares at the year end 3. Profit calculated in accordance with the Rules for Public Companies to Disclose Information and Prepare Statements (No. 9) promulgated by China Securities Regulatory Commission (CSRC) as follows: 4 2001 2000 Net assets-income Earnings per share Net assets-income Earnings per share Profit of report year ratio (%) (In RMB) ratio (%) (In RMB) Fully Weighted Fully Weighted Fully Weighted Fully Weighted diluted average diluted average diluted average diluted average 10.280 10.291 0.189 0.189 11.59 13.40 0.1970 0.246 Profit from principal businesses Operating profit 3.373 3.376 0.062 0.062 6.88 7.96 0.1172 0.1461 Net profit 14.700 14.716 0.270 0.270 14.72 17.03 0.2504 0.3124 Net profit after deduction of non- recurring 8.711 8.721 0.160 0.160 9.54 13.35 0.1670 0.2082 loss/gain 4. Changes in Shareholders’ Equity in the Report Period Total of Capital public Surplus Statutory public Undistributed Items Share capital Shareholders’ reserve public reserve welfare fund profit Equity Year beginning 439,500,000 250,531,482 32,184,332.21 10,728,110.74 747,245,674.90 Increase in the 17,621,700.00 5,873,900.00 136,318,650.89 report year Decrease in the 76,075,200.00 report year Year end 439,500,000 250,531,482 49,806,032.21 16,602,010.74 882,253,979.69 Reasons of Change: 1. Increase in the surplus public reserve and statutory public welfare fund is due to the provision from the profit in the report year.; 2. Increase in the retained profit is due to the retaining of the undistributed profit in the report year; 3. Increase in the shareholders’ equity is due to the retaining of the profit by the Company in the report year. . Changes in Share Capital and Particulars about Shareholders 1. Change in Share Capital (1). Statement of Change in the Company’s Shares In share ’000 Before change Increase/ Decrease (+ / -) as of the year After the change 1. Shares Unlisted Promoters’ shares 290,000 290,000 Total Shares Unlisted 290,000 290,000 2. Shares listed Share-B of foreign- 149,500 149,500 investment shares listed domestically Total shares listed 149,500 149,500 3. Total shares 439,500 439,500 (2) Issuing and Listing Approved by China Securities Regulatory Commission with the Document CSRC 5 Issuing Zi [2000] No. 65, the Company issued 149.5 million domestically listed foreign shares (B shares) in 2000. Plus the Company’s promotor’s shares totaling 290 million shares, the Company’s share capital is 439.5 million shares; In the report year, there was no change in the Company’s total share capital or the structure; The Company has no employees’ shares. 2. Shareholders (1) Ended Dec. 31, 2001, the Companry had totally 23077 shareholders. (2) Top 10 major shareholders (Dec. 31, 2001) Listed shares Unlisted Proportion No. Shareholders held shares held (%) 1 Foshan Huaxin Development Co., Ltd. 286532200 65.20 2 BONY A/C CMG CH CHINA INVESTMENTS 1500000 0.34 LIMITED 3 Dapu Investment Co., Ltd. 1279090 0.29 4 CHAN PONG HUANG 1259900 0.29 5 Wu Haoyuan 1047099 0.24 6 Deng Zuomin 761132 0.17 7 Chen Yuanfeng 710000 0.16 8 Luo Manling 690600 0.15 9 BEST RELIANCE INVESTMENTS LTD 590230 0.13 10 Li Qingshan 581100 0.13 Total 8419151 286532200 67.10 Notes: There exists no related relationship among the top 10 shareholders. No shares held by any shareholder holding over 5% of the total have been ever pledged in the report year. About the control shareholder: Foshan Huaxin Development Co., Ltd. holds 286532200 legal person shares (non-listed shares) of the Company, taking 65.2% of the total share capital. The company was established on May 27, 1993, its legal representative is Li Xiuping, its registered capital is RMB 457.93 million. Business scope: producing, manufacturing, distributing Packaging materials, paper, cable, wires, new materials; distributing packaging machinery and repairing, amplifiers and parts, decoration materials and beverage; information consulting, etc. Foshan Huaxin Development Co., Ltd. has 7 legal person shareholders. Of them, Foshan Industrial Investment & Management Co., Ltd. has contributed 62.1% of its capital. The actual controller of Foshan Industrial Investment & Management Co., Ltd. is Foshan Muncipal People’s Government. . Directors, Supervisors, Senior Executives and Employees ( ) Basic information of Directors, Supervisors, Senior Executives Name Sex Age Title Office Term Shares held (share) Year Year beginning end Wang Qi Male 48 Chairman of the Board June, 1999 to June, 0 0 6 2002 Liang Male 39 Vice Chairman of the April, 2001to June, 0 0 Weidong Board 2002 Tan Shanghui Male 51 Director and General June, 1999 to June, 0 0 Manager 2002 Chen Zeqing Female 50 Director June, 1999 to June, 0 0 2002 Zhang Male 37 Director April, 2001to June, 0 0 Chaoyang 2002 He Jichang Male 45 Director June, 1999 to June, 0 0 2002 Zhu Chenglun Male 51 Director June, 1999 to June, 0 0 2002 Wu Tie Male 44 Director June, 1999 to June, 0 0 2002 Tie Jingfu Female 39 Director June, 1999 to June, 0 0 2002 Chen Qikang Male 54 Director June, 1999 to June, 0 0 2002 Liao Peilin Male 48 Director June, 1999 to June, 0 0 2002 Liu Male 34 Director April, 2001to June, 0 0 Chongxiao 2002 Chen Guixing Female 48 Chairman of Supervisory June, 1999 to June, 0 0 Committee 2002 Zhou Guqing Female 38 Supervisor April, 2001to June, 0 0 2002 Mi Baogang Male 41 Supervisor April, 2001to June, 0 0 2002 Huang Male 49 Supervisor April, 2001to June, 0 0 Dabiao 2002 Chen Lijie Female 40 Supervisor June, 1999 to June, 0 0 2002 Zhou Qihong Male 34 Deputy General Manager June, 1999 to June, 0 0 2002 Chen Jiali Male 44 Deputy General Manager June, 1999 to June, 0 0 2002 Chen Haiyan Male 36 Secretary of the Board of June, 1999 to June, 0 0 Directors 2002 Notes: Job description of directors in shareholder units: Name Name of shareholder Title Wang Qi Foshan Huaxin Development Co., Ltd. General Manager Liang Weidon Foshan Industrial Investment & Management Co., Ltd Vice- General Manager Chen Zeqing Foshan Huaxin Development Co., Ltd. Party Secretary ( ) Annual Remuneration 1. The Company practices annual salary system for its directors, supervisors and senior executives with the amount determined by the plan approved by the Board. The total annual remuneration to directors, supervisors, senior executives in current office is RMB 2.36 million, the total amount to the three directors enjoying the highest salaries is RMB 1.36 million, the total amount to the three senior executives enjoying the highest salaries is RMB1 million. 2. In the report year, the Company just established the independent director system. The allowance to an independent director is planned to be RMB 38,000 per year and the Company shall bear all the expenses necessary in doing their duties. 7 The aforesaid proposal shall go into force after approval at the Shareholders’ General Meeting. 3. The annual remuneration to each of directors, supervisors, senior executives in current office: 2 enjoy annual remuneration between RMB 0.45 to 0.5 million, 1 enjoys between RMB 0.35 to 0.4 million and 3 enjoys between RMB 0.3 to 0.35 million. 4. Liang Weidong, vice Chairman, Directors Zhang Chaoyang, He Jichang, Zhu Chenglun, Wu Tie, Tie Jingfu, Chen Qikang, and Liu Chongxiao do not receive pay from the Company; Supervisors Zhou Guqing and Mi Baogang receive no pay from the Company either. The aforesaid persons receive remuneration from the companies where they are working for. ( ) Resignation of directors, supervisors and senior executives in the report period and the reason 1. In the report year, there were four directors, namely Mr. Chen Jinhui, Mr. Lin Zuqian, Mr. Xie Jinyu and Ms. Kong Cuiyu who applied for resignation of their respective offices due to job transfer and work requirement. Their application was approved at 2000 Shareholders’ General Meeting dated April 18, 2001; 2. In the report year, there were three supervisors, namely Mr. Zou He, Mr. Chen Hongxi and Ms. Liang Aihua who applied for resigning their office due to job transfer. Their application was approved at 2000 Shareholders’ General Meeting dated April 18, 2001. 3. In the report year, the Company had not newly engaged or disengaged such senior executives as manager, deputy manager, financial supervisor, the secretary of the Board. ( ) Staff The Company had totally 1283 staff members, including 872 production workers, 115 salespersons, 145 technical personnel, 31 financial personnel and 120 administrative personnel. Of them there were 280 persons graduated from university, college, secondary technical school or higher and 426 retired staff. . Company Administrative Structure 1. For protecting the rights and interests of investors, the Company has constantly improved its control structure and standardized its operation strictly according to the 8 requirements of the Company Law, Securities Law and the regulations issued by CSRC and Shenzhen Stock Exchange. The current control structure of the Company basically complies with the requirements of the Standards of the Control of Listed Companies. (1) Shareholders and shareholders’ general meeting: The Company was able ensure all shareholders, especially middle and small shareholders, enjoy equal position and can fully exercise their own rights. It established the effective channels for communicating with shareholders. It was able to convene and hold shareholders’ general meeting as required by the standard opinions on the shareholders’ general meeting. (2) The relationship between the controlling shareholder and the Company: The acts of the controlling shareholder of the Company were standardized. It did not surpass the shareholders’ general meeting so as to directly or indirectly intervene with the decision making and operating activites of the Company. The related transactions of the Company were fair and reasonable. The basis for pricing was fully disclosed. The Company is completely independent of its controlling shareholder in respect of personnel, assets, finance, internal structure and business. The board of directors, supervisory committee and internal organs of the Company were able to operate independently. The Company established sound internal control system. (3) The directors and the board of directors: The Company elected directors strictly according to the procedure provided by the Articles of Association of the Company. The number and composition of the Board of Directors of the Company complied with the requirements of laws and regulations. All directors were able to perform their duties faithfully and diligently. (4) Supervisors and the supervisory committee: The number composition of the supervisory committee of the Company complied with the requirements of laws and regulations. The supervisors of the Company were able to perform their duties seriously, take the attitude of being responsible for all shareholders and supervise the legality and regulation conformity of the Company’s finance and the duty performance of the directors, managers and other senior executives of the Company. (5) Performance appraisal and stimulation and restriction mechanism: The appointment and dismissal of managers and other senior executives were open, transparent and complied with the provisions of laws, regulations and the Articles of Association of the Companyt. The Company appraises the performance of the managers and other senior executives at the end of each year. (6) Interested parties: The Company was able to fully respect the legal rights and interests of the interested parties including banks, creditors, employees and consumers and seek joint promotion of its sustained and healthy development. (7) Information disclosure and transparency: The Company designated the secretary to the board of directors and securities affair representative to be responsible for information disclosure, reception of shareholders and consultation. The Company was able to truly, accurately, completely and timely disclose information strictly according to the provisions of laws, regulations and the Articles of Association of the 9 Company. 2. By contrast to the policies and regulations of CSRC and relevant department of the state, the Company will further improve its control structure in the following respects: (1) To further perfect the Articles of Association of the Company and the Rules of Procedure of Shareholders’ General Meeting of the Company and ensure its standardized operation according to requirements of relevant policies and regulations. (2) To quicken the establish the independent director system and special committees under the board of directors, perfect the procedure of selecting and appointing directors and practice the system of accumulated ballots. (3) To further establish and improve the performance appraisal standards and stimulation and restriction mechanism applicable to directors, supervisors and senior executives, stabilize its key operation team and promote its long-term and stable development. 3. Duty performance of independent directors In the report period, the Company did not appoint independent directors. It will actively promote the establishment of independent director system and further perfect its control structure according to the Standards of the Control of Listed Companies and the Guiding Opinions on the Establishment of Independent Director System at Listed Companies. . Brief Introduction of Shareholders’ General Meeting The Company held Annual Shareholders’ General Meeting and a Provisional Shareholders’ General Meeting 1. The Company published the notice of holding 2000 Annual Shareholders’ General Meeting on Securities Times and Hong Kong Commercial Daily on March 13, 2001. The meeting was held at the meeting hall on 5/F of Overseas Chinese Building, Foshan, Guangdong Province, on April 18. 19 shareholders and shareholders’ proxies attended the meeting, representing 295729000 shares which account for 67.28% of the total share capital of the Company. 11 shareholders of negotiable B shares attended the meeting, 5729000 shares which account for 1.3% of the total B shares of the Company. The meeting examined and adopted the following resolutions: (1) 2000 Work Report of the Board of Directors of the Company; (2) 2000 Work Report of the Supervisory Committee of the Company; (3) 2000 Final Accounting Report of the Company; (4) 2000 Profit Distribution Preplan (5) The proposal for changing part of directors; 10 (6) The proposal for changing part of supervisors; (7) The proposal for amending relevant contents of the Articles of Association of the Company; (8) Policy for 2001 Profit Distribution; (9) The proposal for dismissing the domestic certified public accountants for 2000 and appointing certified public accounts for 2001. The announcement of the resolutions of this meeting was published on Securities Times and Hong Kong Commercial Daily on April 19, 2001. 2. The Company published the notice of holding 2001 Provisional Shareholders’ General Meeting on Securities Times and Hong Kong Commercial Daily on July 17, 2001. The Meeting was held at the meeting room at 20/F, Jinghua Bldg., Jihua Rd., Foshan on August 17, 2001. 15 shareholders and shareholders’ proxies attended the meeting, representing 29238600 shares which account for 66.63% of the total share capital of the Company. 7 shareholders of negotiable B shares attended the meeting, 2838600 shares which account for 1.9% of the total B shares of the Company. The meeting examined and adopted the following resolutions: (1) The proposal concerning the Company’s satisfaction of the conditions for issuing new A shares; (2) The proposal concerning the Company’s application for issuing new A shares; (3) The proposal concerning the feasibility report of the utilization of the proceeds raised by issuing new A shares; (4) The proposal concerning the notes to the utilization of the proceeds previously raised; (5) The proposal that the new and old shareholders will share the retained profits after the completion of the issuance of new A shares; (6) The proposal for asking the shareholders’ general meeting to examine the matters concerning the issuance of new A shares and to authorize the board of directors to handle such matters; (7) The proposal for authorizing board meeting to examine the Company’s plan for holding less state-owned shares and handle relevant matters. The announcement of the resolutions of this meeting was published on Securities Times and Hong Kong Commercial Daily on August 18, 2001. . Report of the Board of Directors 1. The operation of the Company 11 (1) Scope of key business and particulars about operation The Company is engaged in packaging industry. It mainly produces and sells high- grade and high-quality packaging materials and packaging products including coated white board, soft packing boxes (Tetra Pak box) for liquid food, color-printed packaging, new-typed packing materials, aluminum-plastic compound paper cans, etc. The Company comes out in front among domestic packaging enterprises in terms of production and operation scale, product quality level, technology innovation ability and comprehensive profit-making ability. The key business of the Company is the production and sales of high-class coated white board, color-printed packaging and aluminum-plastic compound paper cans. In the report period, the income of the Company from the key business was RMB 0.511 billion, an increase of 26% over the same period of the previous year. Its profit from the key business was RMB 83 million, a decrease of 4.15% over the same period of the previous year. Its net profit was RMB0.118 billion, an increase of 7.88% over the same period of the previous year The composition of the income and profit of Company from the key business in terms of product/industry In terms of Income from the Proportion of the Profit from the key Proportion of the product/industry key business total income from business total profit from (RMB ’000) key business (%) (RMB ’000) key business (%) High-class coated white 426,329 83.38 86.71 board Color-printed 84,878 16.60 11.97 packaging Aluminum-plastic 2 523 0.52 1.31 compound paper cans The composition of the income and profit of Company from the key business in terms of region Most income and profit of Company from the key business come from South China area. The production of the main products from which the Company obtained income that accounted for over 10% of the total income from key business The products from which the Company obtained income that accounted for over 10% of the total income from key business are high-class coated white board and color- printed packaging. The sales income from and sales cost and gross profit rate of these two kinds of products are as follows: Product name Sales income (RMB ’000) Sales cost (RMB ’000) Gross profit rate (%) High-class coated white 426,329 353,836 17% board Color-printed packaging 84,878 74,867 11.8% In the report period, the key business and its structure did not change much as 12 compared with the previous report period. (2) The operation of the share-held companies In the report period, the Company owns 25% equity of Tetra Pak Huaxin (Foshan) Packaging Co., Ltd. This company is mainly engaged in the production and business of soft packing boxes (Tetra Pak box) for liquid food. According to the provisions of relevant contract between the Company and the cooperative foreign party of this company and the Articles of Association, the Company may enjoy the non-recurring income of this company according to the equity proportion of 24% apart from enjoy the income of this company according to the equity proportion of 25%. In the report period, due to the long-term market development and direction by both Chinese party and foreign party and increasingly mature consumption psychology of domestic consumers, the sales volume of high-quality beverage and milk increased by big margin over the same period of the previous year, which became an important source of the profit of the Company. (3) Main suppliers and customers The total amount of purchase from the top five suppliers accounted for 37.0% of the total purchase amount of the year. The total amount of sales to the top five customers accounted for 37.0% of the total sales amount of the Company. (4) Problems and difficulties occurred in operation and their solutions In the report period, due to the influence of depressed economy in foreign countries and the horrible event occurred in America on Sept. 11, the export orders from many customers of white board greatly decreased, which changed the relation between market demand and supply and resulted in white-hot competition in domestic white cardboard market. The market price of white cardboard lowered to the bottom in years. As color-printed packaging is a product in which the Company dealt just after acquisition of a packaging enterprise, the original potential operation problem affected the Company’s quick response to the change of external market environment. New customers were not timely developed while the orders from part of customers decreased. As a result, the Company was in passive position in respect of the production and business of color-printed packaging. To solve the above problems, the Company analyzed the problems according to the characteristics of the products, timely adjusted operation strategy and stressed the further enhancement of the quality of white cardboard. While winning by quick response and quality difference, the Company strengthened market investigation and research and market development and actively expand new sales market and channels so as to basically remove the influence of unfavorable situation. In the report period, the output and sales volume of high-class coated white board hit new record. Under the premise that the selling price was higher than that of the products of other domestic manufacturers of white board and payment for goods was completely collected, the sales volume of high-class coated white board was 115,000 tons, an increase of 16% over the same period of the previous year. To overcome the difficulties met by color-printed packaging products, the Company conducted thorough investigation and analysis, assist the enterprise in a series of operation and management reform through participating in the actual operation of the enterprise, strengthened marketing management and market development and basically changed the passive position so that the production and business of color-printed packaging products preliminarily entered the stage of benign 13 cycle. 2 Investment of the Company (1) Investment projects utilizing raised proceeds The Company issued 149.50 million domestically listed foreign investment shares (B shares) and raised proceeds of RMB 0.24636 billion. The raised proceeds were invested in such projects as promised in the Prospectus. By the end of the report period, the RMB 0.22735 billion was invested, which accounted for 92.28% of the raised proceeds. The remaining funds of RMB 19.01 million were deposited in bank accounts, which will be invested in the promised projects at appropriate time as planned. The progress of the investment projects is shown in the following table: Promised investment projects and actual investment projects Promised Time of investment and actual Progress investment investment (RMB 000’) (RMB’000) 2000 2001 Acquisition of Overseas Chinese Paper Making Branch Compan 200,000 200,000 0 100% Acquisition of Color Printing Plant and enlarging its production 51820 24000 3350 52.8% and operation scale The project of acquiring Overseas Chinese Paper Making Branch Company of was completed. The completion of this project made the Company form good product structure focusing on high-grade coated white cardboard, enhance the competitiveness and risk-resisting ability of its products and enlarge its production capacity to 120,000 tons in short time. In the report period, the output and sales volume of high-class coated white board hit new record. The output and sales were balanced. The sales volume increased by 16% over the same period of the previous year. Some part of the raised funds were invested in acquiring 64% equity of Foshan Color Printing Plant and enlarging its production and operation scale and enhance product grade in 2000. The Company made additional investment of RMB 3.35 million in the part of the color printing project that demanded technical renovation in 2001. In order to greatly develop color packaging and printing and enhance the competitiveness and profit-making ability of products, the Company established Huaxin (Foshan) Color Printing Co., Ltd. with Hong Kong Hengfeng Co., Ltd. as planned. It contributed capital with the appraised value of the whole assets of the former Foshan Color Printing Plant. The capital contribution proportion of the Company and the foreign party is 75% and 25% respectively. The Company is now prudently demonstrating the investment in color printing project as planned and hopes to create its competing advantages in respect of color printing packing through management standardization and technology renovation. As this project is still in the period of investment, its effect will only be gradually embodied in 2002. 3. Financial position and operating result of the Company The financial indicators of the Company and the main reason of the change as compared with the previous year RMB’000 Indicator 2001 2000 Amount of increase/decrease Proportion of increase/ decrease (%) Total assets 1301343 1297093 4250 0.33 Long-term liabilities 50000 0 50000 100 Shareholders’ equity 807489 747245 60244 8.06 Profit from key business 83007 86601 -3594 -4.15 Net profit 118697 110029 8669 7.88 14 Note: Reasons for change: (1) The total assets increased due to the enlargement of the scale of Huaxin (Foshan) Color Printing Co., Ltd. and the profit made by the Company. (2) The long-term liabilities increased mainly due to the conversion of part of short- term loan into long-term loan. (3) The shareholders’ equity increased due to the increase of the profits in the report period. (4) The profit from key business decreased due to the reduction of gross profit rate of products despite the increase of output and sales volume. (5) The net profit increased due to the increase of the income from the investment in associated companies. 4. The influence of the change of the production and operation environment and macro-economic policies, laws and regulation on the Company (1) The influence of the Company’s joining in WTO on the production and operation The Company is mainly engaged in the production of packaging materials and products. After China joins WTO, the tariff will be lowered and the price of imported raw materials and product cost will correspondingly be reduced. As for the products including aluminum-plastic compound packaging paper box (Tetra Pak box), color printing and packaging, aluminum-plastic compound paper cans, etc. the Company will benefit from this change. As for high-grade coated white cardboard, the Company will meet opportunities while facing challenges. Imported similar products may occupy part of domestic market. However, China’s entry to WTO is favorable to the export of Chinese garments, light industry products and small household electrical appliances, which will increase the market demand of high-class white cardboard. As the quality of high-grade coated white cardboard of the Company can rival that of the products of world-famous brands and the Company has competed with them in domestic and international markets for years and accumulated much experience, the Company believes that it is able to resist the impact made by China’s entry to WTO and seize opportunities for further development through giving full play to its characteristic competing advantages. (2) The influence of the cancellation of the policy of “refund after levy” by the state According to the provisions of the Notice of Correcting the Policy of Tax Refund After Levy Formulated by Local Government issued by the State Council, the Company no longer enjoyed the preferential policy of “refund after levy” from January 1, 2002. According to the preferential policy, the Company shall pay corporate income tax at the rate of 33% on taxable income and the local financial authority shall refund 18% of the taxable income in the concerned period. The actual income tax rate is 15%. The Company will be subject to the actual income tax rate of 33%. However, as the share-held subsidiaries and associated companies of the Company pay taxes independently at respective income tax rate and the investment income of the Company comes from their after-tax profits, the influence of the cancellation of this preferential policy on its future operation performance is not great. 15 5. Operation plan for 2002 In the new year, the Board of Directors of the Company will continue to focus on the development of its core business while prudently and actively investing in relevant projects with high investment value, promising market prospect and high technological content and developing new source of profit so as to ensure great growth of its income from key business and the further enhancement of profit making level and lay solid foundation for its sustained future development. The targeted income from the key business in 2002 is RMB 0.78 billion. The Company will strive to reduce the cost and expenses to certain extent and stabilize and somewhat raise the market share of its key products. To fulfill the above targets, the Company will focus on the following work: (1) To continue to strengthen internal operation management and make efforts to enhance the existing management level by system-based, standardized and information-based management means, gradually transform its production and operation management from perceptual and experiential management to scientific, quantitative and rational management and ensure long-term safe, steady and efficient production and operation. (2) According to the analysis of the situation of market competition of white board, the Company will actively develop coating project, reduce coating cost through technical innovation, enhance the printing suitability of coated white cardboard, enhance the grade of its key product - coated white cardboard from offset print to intaglio printing and enable it to suitable for offset print, intaglio printing and precoating processing so as to keep difference advantages in increasingly keen market competition, enlarge the difference between competitors and create better economic results. (3) To invest more in the equipment renewal and technical renovation of its associated company Tetra Pak Huaxi (Foshan) Packaging Co., Ltd. together with the cooperative party and greatly enhance the production capacity of soft packing boxes (Tetra Pak box) for liquid food to satisfy the ever-increasing market demand and realize greater investment return. (4) To pay attention to the level of development of environment-friendly printing and packaging products in the world and their application in domestic market, strengthen the investigation and research of the domestic market demand of environment- friendly printing and packaging products and make more investment in such products at appropriate time to improve the product structure of Huaxin (Foshan) Color Printing Co., Ltd. and enhance the competitiveness and grade of products. (5) To seriously prepare for issuance of new shares and strive for successful issuance of new shares at good timing. 6. Routine work of the Board of Directors (1) The Company held 4 board meetings in total. The particulars and the resolutions 16 are summarized as follows: The Company held the first board meeting on March 8, 2001. The meeting examined and adopted the following resolutions: A. 2000 working report of the Company; B. 2000 Annual Report and Annual Report Summary of the Company; C. 2000 Final Accounting Report of the Company; D. 2000 Profit Distribution Preplan and the Report on the Policy for 2001 Profit Distribution E. The Report on the 2001 Work Plan and Target of the Company F. The Report on the change of members of the Board of Directors of the Company. G. The proposal for revising relevant contents of the Articles of Association of the Company. H. The proposal for engaging certified public accountants for 2001. I. The proposal for holding 2000 Annual Shareholders’ General Meeting. (2) The Company held the second board meeting on July 31, 2001. The meeting examined and adopted the following resolutions: A. The proposal concerning the Company’s satisfaction of the conditions for issuing new A shares; B. The proposal concerning the Company’s application for issuing new A shares; C. The proposal for asking the shareholders’ general meeting to examine the matters concerning the issuance of new A shares and to authorize the board of directors to handle such matters; D. The proposal for authorizing board meeting to examine the Company’s plan for holding less state-owned shares and handle relevant matters. E. The proposal that the new and old shareholders will share the retained profits after the completion of the issuance of new A shares; F. The proposal concerning the feasibility report of the utilization of the proceeds raised by issuing new A shares; G. The notes of the Board of Directors of the Company to the matters concerning related transaction; H. The notes to the utilization of the proceeds previously raised; I. The decision of holding the first Provisional Shareholders’ General Meeting in 17 2001. (3) The Company held the third board meeting on August 9, 2001. The meeting examined and adopted the following resolutions: A. 2001 Interim Report of the Company and the summary of 2001 Interim Report of the Company B. 2001 Interim Profit Distribution Proposal; C. The proposal for implementing new Enterprise Accounting System from January 1, 2001 (4) The Company held the fourth board meeting on September 12, 2001. The meeting examined and adopted the following resolution: The Rules of Procedure of the Shareholders’ General Meeting The Company timely disclosed and announced the important contents of the above resolutions of board meeting on Securities Times and Hong Kong Commercial Daily according to relevant requirements and regulations in respect of information disclosure. 7. Implementation by the Board of Directors of the Resolutions of the Shareholders’ General Meeting In the report period, the Board of Directors was able to conduct work and seriously implement all resolutions of the Shareholders’ General Meeting strictly according to all such resolutions. 8 The Profit Distribution Preplan or Preplan of the Capitalization of Common Reserve Fund for the Report Year As audited by Guangdong Zhengzhong Zhujiang Certified Public Accountants pursuant to Chinese Accounting System and by KPMG Certified Public Accountants pursuant to IAS, the net profit of the Company in 2001 was respectively RMB 118,696,950.and RMB 117,478,000 .In accordance with the provisions of the Articles of Association of the Company, the Company’s net profit of RMB 117,478,000 in 2001 audited by KPMG Certified Public Accountants is to be taken as the basis for profit distribution. RMB17,621,700 is to be set aside as statutory common reserve and statutory public welfare fund. The profit available for distribution to shareholders is RMB99,856,300. According to the policy for 2001 profit distribution estimated in 2000 and considering the development of the Company and shareholders’ interests, the Board of Directors planned to pay cash dividend of RMB1.33 (including tax) per ten shares to all shareholders. Cash of RMB58,453,500 is to be distributed in total. The remaining undistributed profit of RMB 66,432,660 is to be carried forward for distribution in the 18 next year. This preplan is subject to the examination and approval by the Shareholders’ General Meeting of the Company. The dividends will be distributed within 2 months after the Annual Shareholders’ General Meeting passes this preplan. As for shareholders of RMB ordinary shares, the dividends will be calculated and paid in RMB. As for shareholders of B shares, the dividends will be calculated and declared in RMB and paid in HKD. The median of the exchange rate between RMB and HKD issued by China People’s Bank on the first working day after the adoption of this preplan by the Shareholders’ General Meeting is to be taken as the conversion rate. 9. Expected policy for 2002 profit distribution According to the requirements of the Notice on the Issues Concerning the Disclosure of Annual Report of Listed Companies issued by CSRC, the expected policy of the Company for profit distribution in 2001 is as follows: (1) The Company will distribute profit once after the completion of 2002 final accounting. (2) Proportion of distribution: Over 30% of the audited retained profit of the Company in 2002 will be used for dividend distribution. (3) Profit will be distributed by means of payment of cash dividend or bonus shares. Note: The Board of Directors will put forward preplan according to the actual conditions at that time and submit it to Shareholders’ General Meeting for examination and approval. It reserves the right to adjust this distribution policy according to the profit making status in 2002 and the development need of the Company. 10. Other matters The Company selected Securities Times and Hong Kong Commercial Daily as the press for information disclosure, which remained unchanged in the report period. . Report of the Supervisory Committee 1. The work of the Supervisory Committee in the report period For safeguarding the legal rights and interests of the shareholders of the Company and ensuring the operation of the Company according to law, the Supervisory Committee worked strictly according to relevant rules and procedure, could performed its duties seriously and independently and gave full play to its function of supervision, actively participated in the discussion of major decisions of the Company and supervised the legality and regulation conformity of the Company’s finance and the duty performance of the directors, managers and other senior executives of the Company in accordance with the relevant provisions of the Company Law, Securities Law, the Standards of Control of Listed Companies and the Articles of Association of the Company. 19 The Supervisory Committee of the Company held three meetings in total in 2001. The particulars are as follows: (1) The 2001 first meeting of the first Supervisory Committee was held on March 8, 2001. 5 supervisors were supposed to attend the meeting and 3 of them were actually present. 2 supervisors asked leave of absence. The meeting complied with relevant provisions of the Company Law and the Articles of Associations of the Company. The meeting examined and adopted the following proposals: 2000 Annual Report of the Company and its Summary; 2000 Working Report of the Supervisory Committee of Company; 2000 Final Accounting Report of the Company; 2000 Profit Distribution Preplan and the Policy for 2001 Profit Distribution. The proposal for changing supervisors. The Supervisory Committee of the Company approved the resignation of Zhou He, Liang Aihua and Mr. Cheng Hongxi from the post of supervisor and election of Zhou Guqing, Mi Bao Gang and Huang Dabiao as new supervisors of the Company. The announcement of the above resolutions was published on Securities Times and Hong Kong Commercial Daily on March 13, 2001. (2) The 2001 second meeting of the first Supervisory Committee was held on July 13, 2001. 5 supervisors were supposed to attend the meeting and 4 of them were actually present. 1 director authorized other supervisor to exercise voting right on his behalf. The meeting complied with relevant provisions of the Company Law and the Articles of Associations of the Company. The meeting examined and adopted the following proposals: In the opinion of the Supervisory Committee, the procedure of the voting of the Board of Directors on the project of acquiring 70% equity of Foshan Electrochemical Factory, one of the planned investment projects mentioned in the proposal for publicly issuing new A shares, which is a related transaction, complied with the provisions of relevant laws, regulations and Articles of Association of the Company. Relevant related directors refrained from voting on the above proposal for related transaction. The resolutions of the Board of Directors were legal and valid. The Supervisory Committee carefully examined the concrete matters concerning this related transaction and held the opinion that this transaction was legal and regulation compliant and would neither harm the interest of middle and small shareholders and non-related shareholders nor generate competition in the same industry. The announcement of the above resolutions was published on Securities Times and Hong Kong Commercial Daily on July 17, 2001. (3) The 2001 third meeting of the first Supervisory Committee was held on August 9, 2001. 5 supervisors were supposed to attend the meeting and all of them were actually present. The meeting complied with relevant provisions of the Company Law and the Articles of Associations of the Company. The meeting examined and adopted the 20 following proposals: 2001 Interim Report of the Company and its Summary; The proposal for neither distributing 2001 interim profit nor capitalizing any capital common reserve fund; The independent opinions of the Supervisory Committee on the operation and operation decisions of the Company in the first half of 2001. The announcement of the above resolutions was published on Securities Times and Hong Kong Commercial Daily on August 13, 2001. 2. Opinions of the Supervisory Committee on the operation of the Company according to law The Supervisory Committee supervised the operation of the Company according to relevant national laws and regulations in 2001. In its opinion, the Company centered on economic results, strengthened its management, standardized its operation and obtained excellent results. The making of decisions on important issues complied with statutory procedure and relevant information was timely disclosed. The Company established sound internal control system. The directors, managers and senior executives of the Company duly performed their duties diligently and were law- abiding. No act that violated the laws and regulations of the state and the Articles of Association or harmed the interests of the Company or its shareholders was found when they performed their duties. 3. Opinions of the Supervisory Committee on the financial status of the Company The standard and unqualified 2001 Auditors’ Report issued by Guangdong Zhengzhong Zhujiang Certified Public Accountants and Hong Kong KPMG Certified Public Accountants for the Company truly reflected the financial status and operating results of the Company in 2001. 4. Opinions of the Supervisory Committee on the investment projects utilizing the raised proceeds The Supervisory Committee inspected the investment projects utilizing the raised proceeds and held the opinion that the raised proceeds were fully available for use on time and the Company timely formulated corresponding Regulations on the Use and Management of Raised Proceeds and strictly implemented such regulations. The actual investment projects utilizing the raised proceeds were the same with those promised in the Prospectus. The utilization of raised proceeds basically obtained effect expected in the Prospectus. 5. Opinions of the Supervisory Committee on other matters (1) In the report year, the related transactions and the transactions relating to acquisition and sales of assets were concluded on basis of the principles of fairness, justness, mutual benefit and voluntariness and did not harm the interests of the 21 Company and its shareholders. When the Board of Directors voted on the project of acquiring 70% equity of Foshan Electrochemical Factory, one of the planned investment projects mentioned in the proposal for publicly issuing new A shares, which is a related transaction, related directors refrained from voting and performed the obligation of good faith and due diligence. No act that violated the laws and regulations of the state and the Articles of Association was found. (2) The Company was not involved in any material lawsuit, arbitration or guarantee in the report year. . Important Events 1. The Company did not get involved in any material lawsuit or arbitration in the report period. 2. In order to greatly develop color packaging and printing industry, the Company established Huaxin (Foshan) Color Printing Co., Ltd. with Hong Kong Hengfeng Co., Ltd. as planned. It contributed capital with the appraised value of the whole equities of Foshan Color Printing Plant owned by it. The registered capital of this company is RMB 6.6 million. The capital contribution proportion of the Company and the foreign party is 75% and 25% respectively. This company is engaged in high-class packaging and printing products. Relevant information was fully disclosed on Securities Times and Hong Kong Commercial Daily on September 13, 2001. 3. The project of acquiring 70% equity of Foshan Electrochemical Factory, one of the planned investment projects mentioned in the proposal for publicly issuing new A shares, is a related transaction. On October 25, 2001, Foshan Electrochemical Factory was transformed into Foshan Huahao Chemical Industry Co., Ltd. according the requirements of the Company Law. The Company signed the Agreement for the Transfer of 70% Equity of Foshan Huahao Chemical Industry Co., Ltd. with Foshan Industrial Investment Co. Ltd. on January 8, 2002. The Company acquired 70% equity of Foshan Huahao Chemical Industry Co., Ltd. As confirmed by both parties, the price of this transaction is RMB 18.4835 million. The information about this acquisition was fully disclosed on Securities Times and Hong Kong Commercial Daily on July 17, 2001, August 11, 2001 and January 8, 2002 respectively. 4. Important contracts and their performance. The Company signed the Contract for the Transfer of 24% of Huaxin Tetra Pak (Foshan) Packaging Co., Ltd. with the transferee Baldurion B. V. on June 22, 1999. This financial year is the last beneficial period for the purchase price of this equity transfer. 5. The Company did not sign any important contact on material guarantee, asset management entrustment, the care, contracting or lease of the assets of other companies by the Company or the care, contracting or lease of the assets of the Company by other companies in the report period. 6. The commitment made by the Company or shareholders holding over 5% equity of the Company in the report period or lasting till the report period. 2001 profit distribution preplan of the Company: The Company planned to pay cash 22 dividend of RMB 1.33 (including tax) per ten shares to all shareholders with its total share capital, i.e., 439.50 million shares, as the base. Cash of RMB58,453,500 is to be distributed in total. The remaining undistributed profit is to be carried forward for distribution in the next year. This preplan complied with the profit distribution policy disclosed in 2000 Annual Report. The shareholders holding over 5% equity of the Company did not disclose or promise any matters on designated newspapers and website. 7. In the report period, the Company amended its Articles of Association. The contents of the amendment and relevant resolutions passed at the Shareholders’ General Meeting were fully disclosed on Securities Times and Hong Kong Commercial Daily on March 13, 2001 and April 19, 2001. 8. The influence of China’s entry to WTO and the cancellation of the preferential policy of tax refund after levy has been reported in “(IV) The influence of the change of the production and operation environment and macro-economic policies, laws and regulation on the Company” of “VII The Report of the Board of Directors” in this annual report, which is not repeated here. 9. Appointment and dismissal of certified public accountants and the remuneration paid to them In the report period, as passed at the Shareholders’ General Meeting, the Company continued to appoint Guangdong Zhengzhong Zhujiang Certified Public Accountants and Hong Kong KPMG Certified Public Accountants as domestic and overseas accounting auditing organs. The procedure of deciding the remuneration paid to the certified public accountants: The Board of Directors determined the remuneration for audit based on the authorization of the Shareholders’ General Meeting and according to relevant charging standard and work volume. The audit fees paid to the above auditing organs were RMB 0.2 million for Guangdong Zhengzhong Zhujiang Certified Public Accountants and HKD 0.55 million for Hong Kong KPMG Certified Public Accountants. The traveling and lodging expenses of the accountants during the period of audit were borne by the certified public accountants. 10. The Company, its Board of Directors and its directors were not investigated, administratively punished or publicly criticized by CSRC or publicly condemned by Shenzhen Stock Exchange in the report period. 11. The Company was not involved in other important events in the report period. 23 .Financial Report Auditors’ Report GD ZZZJ CPA A ZI (2002) No To all the shareholders of Foshan Huaxin Packaging Co., Ltd. We have audited the accompanying balance sheet and consolidated balance sheet of Foshan Huaxin Packaging Co., Ltd. (hereinafter referred to as “the Company”) as of Dec.31, 2001 and the related statement of profit and profit distribution, consolidated statement of profit and profit distribution, statement of cash flows and consolidated statement of cash flows as of the year 2001. These accounting statements are the responsibility of the Company. Our responsibility is to express an opinion on these accounting statements based on our audits. We conducted our audits in according with the Independent Auditing Standards of Chinese Certified Public Accountants. During the auditing, we exercised the auditing procedures we think necessary based on the practical situation of the Company including by sampling the accounting records. In our opinion, the aforesaid accounting statements comply with the relevant regulations as specified in the Enterprise Accounting Standards and the Enterprise Accounting System, fairly present, in all material aspects, the financial position of the Company as of Dec. 31, 2001 and the results of its operation and its cash flows as of the year 2001 and follow the doctrine of consistency in respect of accounting treatment method. Guangdong Zhengzhong Zhujiang Certified Certified Public Accountant: Public Accountants Ji Zhengxiong Guangdong Zhengzhong Zhujiang Certified Certified Public Accountant Public Accountants He Guoquan Guangzhou, China April 12, 2002 24 FOSHAN HUAXIN PACKAGING CO., LTD. Balance Sheet In RMB Parent company Consolidation Assets Note Dec. 31, 2001 Dec. 31, 2000 Note Dec. 31, 2001 Dec. 31, 2000 Current Assets: Monetary funds 6,027,244.36 53,454,739.84 1 74,752,935.62 106,634,313.40 Short-term investment Notes receivable 2 27,128,188.98 7,352,186.18 Dividends receivable 37,047,843.89 27,874,498.32 Accounts receivable 1 256,502.60 171,150.64 3 93,086,938.24 98,384,581.16 Other receivables 1 479,272,969.10 405,665,752.89 3 58,310,725.62 41,716,219.52 Advances to suppliers 4 12,457,215.27 9,881,916.15 Subsidies receivable Inventories 235,425.15 161,722.19 5 89,039,045.26 93,564,454.08 Expenses to be 225,837.45 1,952,799.94 6 apportioned Net losses on current 20,654.40 assets in suspense Long-term equity investment due within one year Other current assets Total current assets 522,839,985.10 487,327,863.88 355,000,886.44 359,507,124.83 Long-term investment: Long-term equity 577,885,633.71 538,866,462.14 197,036,331.65 180,860,996.72 2 7 investment Long-term credit investment Total long-term 577,885,633.71 538,866,462.14 197,036,331.65 180,886,996.72 investment Fixed assets: Fixed assets – cost 259,827.04 253,227.04 8 879,381,355.42 844,838,200.35 Less: accumulative 177,517.91 158,039.99 8 183,964,794.97 142,950,339.12 depreciation Fixed assets – net value 82,309.13 95,187.05 695,416,560.45 701,887,861.13 Less: Provision for devaluation of fixed assets Fixed assets, net 82,309.13 95,187.05 695,416,560.45 701,887,861.13 Engineering materials Construction in progress 9 6,249,640.74 5,839,969.22 Disposal of fixed assets -10,902.84 Total fixed assets 82,309.13 95,187.05 701,666,201.19 707,716,927.61 Intangible and other assets: Intangible assets 10 40,336,743.37 39,461,525.19 Organization expenses 11 3,106,015.65 Long-term expenses to be 11,106.36 14,447.65 7,303,757.05 6,441,288.12 12 apportioned Other long-term assets Total intangible and other 11,106.36 14,447.65 47,640,500.42 49,008,828.96 assets Deferred taxes: Deferred taxes – debt Total assets 1,100,818,944.30 1,026,303,960.72 1,301,343,919.70 1,297,093,878.12 25 FOSHAN HUAXIN PACKAGING CO., LTD. Balance Sheet (Con.) In RMB Liabilities and Note Parent company Note Consolidation shareholders’ equity Dec. 31, 2001 Dec. 31, 2000 Dec. 31, 2001 Dec. 31, 2000 Current liabilities: Short-term loans 180,000,000.00 210,000,000.00 13 183,000,000.00 253,806,115.86 Notes payable 3,758,392.30 Accounts payable 82,284.11 145,217.69 14 37,481,108.65 42,549,088.61 Payment in advance 1,574,669.85 1,429,895.05 4,844,537.02 10,195,776.01 Wages payable 452,208.55 821,193.07 Welfare fund payable 40,791.94 1,743,538.52 Dividend payable 58,622,546.67 55,715,093.34 15 61,680,328.52 55,715,093.34 Taxes deliverable 36,529.92 8,437,991.83 16 7,087,018.82 12,608,279.19 Other deliverables 5,677.59 4,588.92 1,891,974.96 1,718,132.94 Other payables 1,720,965.02 2,531,661.42 17 9,598,918.62 15,872,644.00 Accrued expenses 1,287,145.35 793,837.57 18 5,054,510.20 3,917,069.61 Estimated liabilities Long-term liabilities 19 26,908,598.95 due within a year Other current liabilities Total current 243,329,818.51 279,058,285.82 314,889,789.22 425,855,530.10 liabilities Long-term liabilities: Long-term loans 50,000,000.00 50,000,000.00 Bonds payable Long-term accounts payable Special accounts payable Other long-term liabilities Total long-term 50,000,000.00 50,000,000.00 liabilities Deferred taxes: Deferred taxes – credit Total liabilities 293,329,818.51 279,058,285.82 364,889,789.22 425,855,530.10 Minority 128,965,004.69 123,992,672.12 shareholders’ equity Shareholders’ equity: Share capital 439,500,000.00 439,500,000.00 20 439,500,000.00 439,500,000.00 Capital public reserve 250,531,482.00 250,531,482.00 21 250,531,482.00 250,531,482.00 Surplus public reserve 49,806,032.21 32,184,332.21 22 49,806,032.21 32,184,332.21 Including: statutory 16,602,010.74 10,728,110.74 16,602,010.74 10,728,110.74 welfare fund Retained earnings 67,651,611.58 25,029,860.69 23 67,651,611.58 25,029,860.69 Total shareholders’ 807,489,125.79 747,245,674.90 807,489,125.79 747,245,674.90 equity Total liabilities and 1,100,818,944.30 1,026,303,960.72 1,301,343,919.70 1,297,093,878.12 shareholders’ equity 26 FOSHAN HUAXIN PACKAGING CO., LTD. Statement of Profit / Profit Distribution In RMB Parent company Consolidation Items Note Note 2001 2000 2001 2000 1. Income from principal business 2,676,108.44 18,819,114.45 511,303,619.01 405,235,060.19 3 24 Less: principal business cost 1,445,576.45 11,257,121.67 427,570,567.16 318,577,340.28 4 25 Business taxes and surcharge 54,743.21 56,379.75 725,237.10 56,379.75 26 2. Profit from principal business 1,175,788.78 7,505,613.03 83,007,814.75 86,601,340.16 Add: profit from other business lines 9,405.00 177,747.64 39,074.69 Less: operating expenses 126,192.00 380,765.16 11,183,022.21 7,660,898.06 Administrative expenses 4,172,407.21 5,493,326.66 28,684,204.20 18,569,011.34 Financial expenses -2,934,426.93 -753,918.66 16,090,741.26 8,962,977.09 27 3. Operating profit -188,383.50 2,394,844.87 27,227,594.72 51,447,528.36 Add: investment revenue 118,885,334.39 104,145,341.64 101,707,973.42 66,468,881.79 5 28 Subsidy income 1,298,000.00 Non-operating income 3,489,546.89 442,712.87 3,528,079.97 Less: non-operating expenses 325,682.77 30,335.03 4. Total profit 118,696,950.89 110,029,733.49 129,052,598.24 122,712,155.09 Less: income tax 3,872,382.05 229,828.64 29 Minority shareholders’ gain and losses 6,483,265.30 12,452,592.96 5. Net profit 118,696,950.89 110,029,733.49 118,696,950.89 110,029,733.49 Add: retained profit at year beginning 25,029,860.69 85,839,063.72 25,029,860.69 85,839,063.72 Add: other transfer-in 6. Distributable profit 143,726,811.58 195,868,797.21 143,726,811.58 195,868,797.21 Less: allotting statutory surplus public 11,747,800.00 11,002,973.35 11,747,800.00 11,002,973.35 reserve Allotting statutory public welfare fund 5,873,900.00 5,501,486.67 5,873,900.00 5,501,486.67 7. Profit Distributable to shareholders 126,105,111.58 179,364,337.19 126,105,111.58 179,364,337.19 Less: allotting discretionary public reserve Dividend payable for common shares 58,543,500.00 154,334,476.50 58,543,500.00 154,334,476.50 Dividend for common shares capitalized 8. Undistributed profit 67,651,611.58 25,029,860.69 67,651,611.58 25,029,860.69 27 FOSHAN HUAXIN PACKAGING CO., LTD. Statement of Profit / Profit Distribution Supplementary information Items Annual accumulative amount Actual amount in the previous year 1. Income from selling or disposal of departments or investees 48,399,980.60 35,639,644.69 2. Losses occurred due to natural calamity - - 3. Total amount of profit increased (or decreased) due to change of -2,329,511.74 - accounting policies 4. Total amount of profit increased (or decreased) due to change of -19,276,716.21 accounting estimation 5. Losses on debt reorganization - - 6. Others FOSHAN HUAXIN PACKAGING CO., LTD. Attachment of Profit Statement For the year 2001 Net assets-income Net assets-income Earnings per share Earnings per share Profit in the report period ratio (fully diluted) ratio (weighted (fully diluted) (weighted (%) average) (%) (RMB/share) average)(RMB/share) Profit from principal business 10.280 10.291 0.189 0.189 Operating profit 3.372 3.376 0.062 0.062 Net profit 14.700 14.716 0.270 0.270 Net profit, less non- recurring loss/gain 8.711 8.721 0.160 0.160 28 FOSHAN HUAXIN PACKAGING CO., LTD. Cash Flow Statement For the year 2001 Items Note Parent company consolidation Items Note Parent company consolidation 1. Cash flows from operating Net cash flows from fund raising -42,008,964.78 -111,340,920.36 activities: activities Cash received from selling 4. Influence of fluctuation in commodities and providing 2,747,541.28 517,278,658.38 exchange rate on cash labor service Refunded tax received 5. Net increase of cash and cash -47,427,495.48 -31,881,377.78 equivalents Other cash received in connection 101,396,123.47 2,008,167.54 with operating activities Subtotal of cash inflows 104,143,664.75 519,286,825.92 Supplementary information Cash paid for purchasing 1. Cash flow in adjusting the net commodities and receiving labor 1,582,212.99 412,346,227.85 profit for operating activities service Cash paid to / for employees 1,362,770.19 18,353,013.41 Net profit 118,696,950.89 118,696,950.89 Various taxes paid Add: minority shareholders’ gain 8,690,511.90 33,099,240.42 6,483,265.30 and losses Other cash paid concerning ( )34 Add. Provisions allocated for 170,690,974.94 28,535,231.15 -179.95 36,755.87 operating activities assets devaluation Subtotal of cash outflows 182,326,470.02 492,333,712.83 Depreciation of fixed assets 19,477.92 35,589,359.33 Net cash flows from operating Amortization of intangible assets -78,182,805.27 26,953,113.09 919,154.86 activities 2. Cash flows from investment Amortization of organization activities expenses and long-term expenses 6,779,224.54 to be apportioned Cash received from recovering Decrease (less: increase) of 1,726,962.49 investment expenses to be apportioned Cash received from investment Increase (less: decrease) of 72,764,274.57 72,764,274.57 493,307.78 -1,137,440.59 income accrued expenses Net cash received from disposal of Losses on disposal of fixed, fixed, intangible and other long- 38,933.00 intangible and other long-term -1,654.54 term assets. assets Other cash received concerning Financial expenses -2,934,426.93 16,090,741.26 investment activities Subtotal of cash inflows 72,764,274.57 72,803,207.57 Losses in investment (less: gains) -118,885,334.39 -101,707,973.42 Cash paid for purchasing fixed, Deferred taxes – loan (Less: debts) intangible and other long-term 20,296,778.08 assets. Cash paid for investment Decrease of inventories (Less: -73,702.96 4,525,408.82 increase) Other cash paid in connection with Decrease of receivables in -65,224,367.97 -26,172,288.27 investment activities operation (less: increase) Subtotal of cash outflows Increase of payables in operation 20,296,778.08 -10,274,529.66 -34,875,353.45 (less: decrease) Net cash flow from investment Others 72,764,274.57 52,506,429.49 activities 3. Cash flows from fund raising Net cash flows from operating -78,182,805.27 26,953,113.09 activities activities Cash received by absorbing 2. Investment and fund raising investment activities without cash incomings / outgoings involved 29 Including: cash received by the Liabilities converted into capital subsidiaries in absorbing minority shareholders’ equity investment Cash received from loans Convertible company bond due 255,000,000.00 262,244,071.53 within a year Other cash received concerning Financing for hiring the fixed fund raising activities assets Subtotal of cash inflows 3. Particulars about net increase 255,000,000.00 262,244,071.53 of cash and cash equivalents Cash paid for settling debts 235,000,000.00 307,852,669.61 Balance of cash at year end 6,027,244.36 74,752,935.62 Cash paid for distributing dividend Less: balance of cash at period 61,971,734.78 65,544,236.49 53,454,739.84 106,634,313.40 or profit or repaying interest beginning Including: dividends paid to Add: balance of cash equivalents minority shareholders by at period end subsidiaries Other cash paid in connection with Less: balance of cash equivalents 37,230.00 188,085.79 fund raising activities at period beginning Subtotal of cash outflows Net increase of cash and cash 297,008,964.78 373,584,991.89 -47,427,495.48 -31,881,377.78 equivalent 30 FOSHAN HUAXIN PACKAGING CO., LTD. Statement of Provision for Assets Devaluation For the year 2001 In RMB Items Dec. 31, 2000 Increase in the period Carried-back in the period Dec. 31, 2001 1. Total provision for bad debt 14,228,843.99 2,259,740.40 - 16,488,584.39 Including: accounts receivable 14,089,883.71 2,266,611.00 - 16,356,494.71 Other receivables 138,960.28 -6,870.60 - 132,089.68 2. Total provision for devaluation of - - short-term investment Including: stock investment Bond investment 3. Total provision for devaluation of 2,668,739.65 30,029.46 2,253,013.99 445,755.12 inventories Including: merchandise inventories 2,654,170.97 - 2,238,445.31 415,725.66 Raw materials - 30,029.46 - 30,029.46 Work-in-process 14,568.68 - 14,568.68 - 4. Total provision for devaluation of - - long-term investment Including: long-term equity investment Long-term credit investment 5. Total provision for devaluation of - - fixed-assets Including: houses and buildings Plant and machinery 6. Provisions for devaluation of - - intangible assets Including: patent right Trademark right 7. Provisions for devaluation of - - construction in progress 8. Provisions for devaluation of entrusted - - loans 31 Foshan Huaxin Packaging Co., Ltd. Notes to the Accounting Statements Dec. 31, 2001 In RMB . Company Profile 1. The Company was established through approval by Guangdong Provincial People’s Government with Document GDGO Official-Letter (1999) No. 297 and Guangdong Provincial Commission of Economic System Restructuring with Document GDCESR (1999) No. 032, with Foshan Huaxin Development Co., Ltd. as the principal promoter, with the capital contributed by Foshan Investment Corp., Foshan Xinhui Industry Development Co., Ltd., China Packaging Corp., China Materials Development and Investment Corporation, Guangdong Technology Innovation Investment Co., Ltd., China Chemical Industry Corp. and Foshan Light Industry Co., by means of initiation. It is a joint stock company with limited liabilities registered with Guangdong Provincial Administration for Industry and Commerce dated June 21, 1999 with business license No. 4400001008467. In 2000, the company successfully issued domestically listed foreign capital stock (B-stock) by private offering and listed with Shenzhen Stock Exchange. Thus the total share capital had been turned into RMB FOUR HUNDRED AND THIRTY-NINE MILLION FIVE HUNDRED THOUSAND ONLY. 2. Business scope: producing and marketing packing materials, packing products, decoration materials, aluminum composite materials, selling and repairing packing machinery. 3. Address: 20/F., Jinghua Bldg., Jihua Rd., Fushan, Guangdong . Principal Accounting Policies, Accounting Estimation and Preparation of the Consolidated Accounting Statements 1. Accounting system a. The Company implements the PRC Enterprise Accounting Standards and the PRC Enterprise Accounting System and the complementary provisions. b. Foshan Huafeng Paper Co., Ltd., one of the Company’s subsidiaries, implements the PRC Enterprise Accounting System for Enterprises with Foreign Investment, and had made necessary adjustment according to the PRC Enterprise Accounting System and the additional provisions in preparing this accounting statement. 2 Fiscal Year From January 1 to December 31 of each calendar year. 3. Standard currency for bookkeeping The Company uses Renminbi as the standard currency for bookkeeping. 4. Bookkeeping basis and valuation principle The Company takes the accrual system as the basis for bookkeeping and historical cost as the basis of pricing. 32 5. Foreign Currency Translation Non-standard currency transactions are translated into standard currency at the median price of national foreign exchange market prevailing at the day of transactions. The balance in the foreign currency account at the end of a month is adjusted based on the average of the domestic foreign exchange market price of the very day. The conversion difference thus incurred is stated in the item of gains and losses in the report period as “ financial expenses - exchange gains and losses”. 6. Recognition of Cash Equivalent Cash equivalents refer to the investments held by the Company with short term, high liquidity, easy to be converted into cash with known amount, with very small risk of value variation. 7. Criteria for recognizing bad debts (1) The Company adopts the allowance method when calculating bad debts; Provision for bad debts is made over the accounts receivable (excluding the accounts involved in the internal relations among the subsidiaries and the related parties in the accounting statements) according to the aging analysis with the exception of a few of special items over which the provision for bad debts is made based on the analytic method. The provision proportion is determined based on the following principle: age Provision proportion Within one year 0% 1 to 2 years 10% 2 to 2 years 20% Over 3 years 50% Based on the analysis on the production, operation and financial status of the related parties, there exists no loss of bad debts receivable from the related parties. Therefore, no reserve for bad debts has been provided. (2) Bad debts are recognized based on the following principle: a. the credit has been determined as impossible to be recovered due to bankruptcy of the debtor according to the legal procedures after liquidation; b. The credit cannot be recovered due to the death of the debtor; c. The debtor has failed to implement the repayment liability for three years overdue and the account receivable involved has been listed as bad debt through approval by the Board. 8. Inventories Inventories are divided into 5 categories: raw materials, finished products, work-in- process, packing materials and easily-consumed products with low value. The purchased raw materials are stated based on the actual cost; the cost for the delivered raw materials is calculated based on the moving weighted average method; The finished products in storage are stated based on the actual production cost. The delivered finished products are stated based on the moving weighted average. The low cost and easily consumed goods are stated based on once-and-for-all amortization. 33 At the end of the period, based on overall inventory taking, inventory depreciation reserve shall be provided for the part of inventories whose cost is estimated to be unrecoverable due to the reasons that the inventories suffer damage, the inventories are wholly and partly outdated or that its sales price is lower than cost, etc.. The provision is based on the balance of the cost of individual inventory lower than the net realizable value. 9. Short-term investment Short term investments are stated based on the actual payment when they were purchased less the cash dividends or interest as have been announced to distribute but not have been actually taken. Short term investments at the end of the period are stated at the lower of cost and the prevailing price. Provision for devaluation is made based on individual investment projects. 10. Short-term investment (1) Long-tern creditors’ right investment The bond investment is stated in the cost according to the amount actually paid. The interest involved in actual payment which is due but has not yet been received is charged based on the balance after deduction of the interest; The premium or discount is amortized based the straight-line method during the existence of the long term credit; the earnings are stated in the gains and losses of the very period. (2) Long-term equity investment A. Method of pricing and income confirmation Long-term equity investment is stated according to the actual payment or determined value; The investment with the amount exceeding 50% of the total capital of the investee is stated according to the equity method and consolidated in the accounting statement; the investment with the amount exceeding 20% but less than 50% of the total capital of the investee is stated according to the equity method; the investment with the amount less than 20% of the total capital of the investee is stated according to the cost method. B. Equity investment difference As for the investees calculated with the equity method, if there is a balance between the cost at the time of obtaining long-term investment and the shares in the owners’ equity of the investee and the accounting method of long-term equity investment has been changed from the cost method to the equity method, such balance is stated in the “itemized accounts for the balance in the equity investment.” The balance from the borrower should be amortized in less than 10 years and that from the lender should be amortized in no less than 10 years in case the investment term has not been specified in the contract. (3) Long-term investment depreciation reserve At the end of the period, if the recoverable amount of long-term investment is lower than their book value due to continuously falling market price and that the successive 34 depression of the investee’s business, provision for long-term investment devaluation is made for the balance between the recoverable amount and the book value of long- term investment. 11. Fixed assets and depreciation Fixed assets are defined as the premises, buildings, plants and machinery, etc with the service life of more than one year and that does not belong to the main equipment in connection with the production or operation but with the service life more than 2 years and unit price over RMB 2000. The fixed assets are charged according to the actual cost except that contributed by the shareholders at the time of the Company establishment which needs revaluation. The depreciation of fixed assets is provided with straight-line method. The depreciation rate is calculated according to the types, original values, estimated economic useful lives and predicted residual value rate (10% of their original value). Fixed assets depreciation is as follows: Type Estimated Service life Annual depreciation rate (1) Housing and buildings 40 2.25 (2) Machinery equipment 20 4.50 (3) Motor vehicles 8 11.25 (4) Other equipment 5 18.00 At the end of the period, if the recoverable amount of fixed assets is lower than their book value due to continuously falling market price, out-of-date technology, damage, long-term idleness or other reasons, fixed assets devaluation reserve is provided for the difference between the recoverable amount and the book value of fixed assets. 12. Construction-in-progress The interest of the engineering loan incurred during purchase/construction of the fixed assets which satisfies the conditions as specified in the Enterprise Accounting Standards – Loan Costs can be capitalized.The construction in progress is transferred into the fixed assets according to the whole expenses actually occurred when the works is up to be in the predicted applicable situation. At the end of the period, if the recoverable amount of the construction in progress is lower than their book value in case the construction in progress involves in one or more of the following events, construction in progress devaluation reserve is provided for the difference between the recoverable amount and the book value of single construction in progress. a. The construction has been stopped for a long time and shall not restart within 3 years; b. The project is backward in terms of performances and technology and shall bring the Company about big uncertainty in profit making; c. Other conditions that have proved that the construction-in-progress has been involved in depreciation. 35 13. Intangible assets The intangible assets purchased by the Company is stated according to the actual payment; The intangible assets transferred in as investment is stated based on the value confirmed by the investment parties. Different intangible assets are amortized within the valid term according to the straight-line method commencing from the month when they are obtained, of which, land use right is amortized based on the legally specified term. At the end of the period, one or more of the following cases involved in the intangible assets have caused the recoverable amount of the intangible assets lower than the book value, the provision for devaluation of the intangible assets is made based on the balance of the recoverable amount lower than the book value of individual intangible assets: a. such intangible asset has been replaced by some other new technology and its ability to create economic benefit for the enterprise has been reversedly affected in big degree; b. its market price has drooped by a big margin and it is expected impossible to get recovered in the remaining years of amortization; c. It still has partial application value but the legal protection term expires. d. Other conditions that can fully prove the intangible asset has got devaluated 14. Long-term expenses to be apportioned: Long-term expenses to be apportioned are averagely amortized over the beneficial period. In case the long-term expenses to be apportioned cannot bring about any benefit in the later period of a fiscal year, the balance of this item not yet amortized is all transferred into the gains and losses of the very period. 15. Calculation of loan cost (1) Recognition of capitalized expenses The amortization of the interest, discount or premium of other loans and balance of exchange are recognized as the expenses of the very period. The auxiliary expenses incurred in arranging the special loans can be capitalized if they incur before the fixed assets to be purchased/constructed have reached the predicted application status; the auxiliary expenses to incur afterwards are recognized as the expenses incurred in the very period. In case the amount of such auxiliary expenses is relatively small, it may be recognized as the expenses incurred in the very period; (2) Commence of the Capitalization of the Loan Costs When the following three conditions are satisfied, the interest, discount or premium for amortization and the balance of exchange incurred from the specialized loans can start to be capitalized: a. Assets expenditure has already incurred; 36 b. Loan costs have already incurred; c. The purchase/construction activities necessary for the assets to reach the predicted application status have already started. (3) Suspension and stop of loan costs. If the purchase/construction activities of the fixed assets have been interrupted abnormally and the interruption has exceeded 3 months continuously. The capitalization of the loan costs should suspend until the purchase/construction of the fixed assets restart again. In case the interruption is a necessary procedure for the fixed assets under purchase/construction to reach the predicted application status, the capitalization of the loan costs should continue. When the fixed assets under purchase/construction has reached the predicted application status, the capitalization of the loan costs should stop. The expenses incurred afterwards should be recognized as the expenses of the very period. (4) Calculation for the loan costs capitalized The interest capitalization for each fiscal period is calculated as follows: Amount of the interest capitalization for each fiscal period = weighted average of the accumulative expenses for the fixed assets under purchase and construction at the end of the period ×Weighted average interest rate Accumulative expenditure weighted average = (amount of payment for each asset × days actually taken for payment of each asset/days involved in the fiscal period) Weighted average interest rate = (sum of the interest actually incurred in the very period of the designated loan/weighted average of the principal of the designated loan) ×100% 16. Principle of income recognition (1) Sales of commodities: The Company has been transferred the significant risks and rewards of ownership of the goods to the buyer and will not continually implement the management right and actual control power to such commodities. The economic benefits associated with the transaction can flow into the Company and the amount of sales-related income and costs can be measured reliably. The cash discount is taken as the expense of the very period when it incurs and the sales discount is used to eat up part of the income of the very period when it actually incurs. (2) Supply of labor service: the income from the labor service is recognized when labor services have been provided, the payment has been received or evidence of receipt has been obtained. The income from the labor services with extension to the next year is recognized based on the percentage of the services offered. (3) The income from the assigned assets includes the interest income and income from use fee. The interest income and use fee income are recognized when the following conditions are satisfied: the economic benefit involved in transaction can flow into the 37 enterprise and the income amount can be reliably measured. 17. Accounting of income tax The Company adopts tax payable method for the accounting of the income tax. 18. Method of preparing the consolidated statements (1) Confirmation of the scope of consolidation The Company lists its directly or indirectly controlled subsidiaries into the consolidated statements and implements the Official Letter of the Ministry of Finance concerning Application for Consolidation Scope in Consolidated Statements. The subsidiaries listed in the consolidation scope in the report year include: Foshan Huafeng Paper Co., Ltd. and Huaxin (Foshan) Color Printing Co., Ltd. Of them, Foshan Huafeng Paper Co., Ltd. is a subsidiary directly controlled by the Company. The Company has invested 75% of its equity investment; Huaxin (Foshan) Color Printing Co., Ltd. is a subsidiary newly established in the report year and directly controlled by the Company. The Company has invested 75% of its equity investment. For the detail, please refer to Note 12. (2) Preparation The consolidation statements are prepared based on the accounting statements at the same period of the parent company and the subsidiaries listed in the consolidation range and other relevant information according to the Provisional Rules of Consolidated Accounting Statements. The principal accounting policies of the subsidiaries are based on the accounting policies chosen by the parent company in a unified way. The material transactions and the current accounts between the parent company and subsidiaries have been written off in consolidating statements. 19. Change in accounting policy and accounting estimation, accounting error correction and the affect: (1) The Company originally implemented the Accounting System for Joint Stock Companies with Limited Liabilities, the Circular of the Ministry of Finance concerning Printing and Issuing the Enterprise Accounting System (Accounting Zi [2000] No. 25) and the Circular of the Ministry of Finance concerning the Issues of Policy Connection in Printing, Issuing and Implementing the Enterprise Accounting System, etc. The Company has been implemented the PRC Enterprise Accounting Standards, the PRC Enterprise Accounting System and the complementary provisions since January 1, 2001. The accounting systems changed include: a. The organization expenses used to be amortized in no less than 5 years; and now are stated in the gains and losses of the month on once-and-for-all basis when the enterprise started production and operation; b. No provision used to be made for devaluation of the fixed assets, construction-in- progress and intangible assets; however, the provision for such devaluation has started to be made (For the detail, please refer to the aforesaid accounting policy). Based on the change of the above accounting policies, it has been verified that it exists no necessity to make provision for devaluation for the Company’s fixed assets, construction-in-progress or intangible assets in the aforesaid accounting policies. That the organization expenses have been stated in the gains and losses of the very term on 38 once-and-for-all basis has affected the net profit of this term by RMB - 2,329,511.74. Therefore, the change of the aforesaid accounting policies does not affect the Company’s financial position and operation results in the previous period. (2) In accordance with the No. 5 Questions and Answers on Disclosing Company Information of Public Company – Difference in Financial Reports Respectively Prepared according to Domestic and International Accounting Standards and the Disclosure (CSRC Accounting Zi [2001] No. 60) promulgated by China Securities Regulatory Commission dated November 7, 2001: “The same management must not make different accounting estimation on the same events within the same fiscal period. Therefore, there should not exist difference in accounting estimation of two financial reports”. The difference arising from the different estimation for bad debts in the financial reports prepared respectively according to the domestic accounting standards and the international accounting standards for the year 2000 was RMB 19,276,716.21. Insufficient estimation has been made in the domestic report of the report year, and therefore, adjustment has been made as accounting mistake in the report year. In accordance with the Enterprise Accounting Standards – Change in Accounting Policy and Accounting Estimation and Correction of the Accounting Errors (Accounting Zi (2001) No. 7) promulgated by the Ministry of Finance, the difference arising from the insufficient estimation of bad debts in the domestic financial report at the end of 2000 was adjusted by means of retroactive adjustment method. Thus the retained profit at the beginning of 2000 was reduced by RMB 13,823,695.21, the surplus public reserve at the beginning of the period was adjusted by RMB 2,439,475.63. After the adjustment, there existed no difference in estimation of the bad debts in the financial statements respectively prepared according to the domestic accounting standards and the international accounting standards. (3) According to the official reply of the Ministry of Foreign Trade and Economic Cooperation on change of the cooperative venture term of Foshan Huafeng Paper Co., Ltd., one of the Company’s subsidiaries dated March 22, 2002, it has been approved that the original 13 years of the cooperation term is to be changed into 50 years. Therefore, the Company has made adjustment on the years for amortization of the balance in equity investment because of the change in the cooperation years. According to the Enterprise Accounting Standards – Change in Accounting Policy and Accounting Estimation and Correction of the Accounting Errors (Accounting Zi (2001) No. 7) promulgated by the Ministry of Finance, future adaptation method has been used for the said adjustment. Commencing from this report year, the remaining amortization is to be made over 40 years. Due to the change of this accounting estimation, this equity investment balance has been under-amortized by RMB 2,965,362.31 over the previous year. . Taxation Items Tax Ratio Operation tax 5% Value-added tax 17% Tax for urban development and maintenance 7% Educational Surcharge 7% Business income tax 15% River bank maintenance fee 3% 39 1. Foshan Huafeng Paper Co., Ltd., the Company’s controlled subsidiary, enjoyed preference policy in income tax as an enterprise with foreign investment with “complete exemption for two years and exemption by half for three years” commencing from 1999. The income tax payment rate in the report year was 12%. Tetra Pak Huaxin (Foshan) Packaging Co., Ltd., one of the Company’s associated companies, is a hi-tech enterprise. In accordance with Article 75.8 of the Rules for Implementation of the People’s Republic of China concerning the Income Tax of Enterprises with Foreign Investment and Foreign Solely Funded Enterprises and Article 15 of the Document of CNTGB 1991 (No. 165), the enterprise has been approved to pay tax at the rate of 10% from 1999 to 2001. 2. In accordance with Article 4 of the Document of the Ministry of Finance Financial- Tax [2000] No. 99, and the Official Reply of Guangdong Provincial People’s Government concerning the Issues of Preferential Treatment for Income Tax Offered to Foshan Huaxin Packaging Co., Ltd., the company has been approved to enjoy the preferential policy in paying income tax by levying 33% in advance and rebating 18% afterwards (the actual tax rate is 15%). . Profit distribution Net profit distribution policy specified in the articles of association of the Company is as follows: 1. Make-up loss; 2. Allotting statutory surplus public reserve based on 10% of the total net profit; 3. Allotting statutory public welfare fund based on 5% to 10% of the total net profit; 4. Allotting discretionary surplus public reserve; 5. Distributing profit . Controlled subsidiaries and joint ventures 1. Controlled subsidiaries Proportion of Registered Investment by Companies Business Scope equity held by capital the Company the Company Foshan Huafeng Paper USD73.2 Producing and marketing RMB 390.79 75% Co., Ltd. million coated white board million Huaxin (Foshan) Color Printing USD 6.6 Processing, printing and RMB 37.26 75% Co., Ltd. million producing packing, million decorative and printed products; the products are sold both at home and abroad. 2. Associated companies Proportion of Registered Investment by the Companies Business Scope equity held by capital Company the Company Tetra Pak Huaxin (Foshan) Manufacturing and Packaging Co., Ltd. operation of Tetra USD 5.5 Pak packaging million materials. RMB107 million 25% 3. Change in the scope of consolidated accounting statements in the report period Since Huaxin (Foshan) Color Printing Co., Ltd. is a subsidiary directly controlled by 40 the Company established by the Company by contributing the capital with the cleared net assets of Foshan Color Printing Plant, a former subsidiary solely funded by the Company. Therefore, in preparing this consolidated accounting statement, the company had been assumed as already existing at the beginning of the report period and it had been also assumed that the operation of its core business and its business had been transferred into Huaxin (Foshan) Color Printing Co., Ltd. by Foshan Color Printing Plant and had been included in its accounting statements; in addition, the two were regarded as a complete and continuous operation process. . Notes to the Major Items in the Accounting Statement ( ) Notes to the Major Items in the Consolidated Accounting Statement Note 1. Monetary assets: Items Dec. 31, 2001 Dec. 31, 2000 Cash 902.38 12,355.06 Bank deposit * 74,752,033.24 106,134,259.69 Other monetary funds - 487,698.65 Total 74,752,935.62 106,634,313.40 * Including: foreign-currency deposit is itemized as follows: Currency Balance of Original Currency Converted to RMB USD USD 94,499.44 782,134.07 HK$ HKD 655,649.70 694,988.69 Total 1,477,122.76 2. Notes receivable Type Dec. 12, 2001 Dec. 31, 2000 Banker’s acceptance 25,699,785.14 7,352,186.18 Commercial acceptance 1,428,403.84 - Total 27,128,188.98 7,352,186.18 * At the end of the report year, there had been no commercial acceptance pledged. 3. Accounts receivable Aging analysis Dec. 31, 2001 Dec. 31, 2000 Age Provision for Provision for Amount Proportion (%) Amount Proportion (%) bad debts bad debts Within 1 year * 74,975,725.96 68.51 - 77,316,844.88 68.74 - 1 to 2 years 27,349,551.86 24.99 10,806,342.09 32,792,918.13 29.16 13,350,678.72 2 to 3 years 5,979,516.08 5.46 4,980,833.09 1,477,153.15 1.31 295,430.63 Over 3 years 1,138,639.05 1.04 569,319.53 887,548.71 0.79 443,774.36 Total 109,443,432.95 100.00 16,356,494.71 112,474,464.87 100.00 14,089,883.71 * 1. In the accounts receivable, the total arrears owed by the top five debtors was RMB 24,554,602.53, taking 22.44% of the total at the end of the report year. *2. The Company practices strict credit policy, and uses shorter credit term; has chosen higher credit standards in selecting the customers. The Company has also engaged full-time personnel for urging the debtors to repay the arrears. As a result, the Company has well recovered the fund. In addition, the Company made confirmation individually of each customer, and made special provision for bad debts in case there was no evidence to show that such debts were recoverable. Therefore, no provision 41 was made for the bad debts for the accounts receivable within a year. *3. In the accounts receivable, there are no arrears from the shareholders that hold over 5% (including 5%) of the Company’s shares. 4. Other receivables Aging analysis Dec. 31, 2001 Dec. 31, 2000 Age Provision for Provision for Amount Proportion (%) Proportion (%) bad debts Amount bad debts Within 1 year * 58,870,687.38 97.31 - 41,219,269.88 98.48 - 1 to 2 years 1,147,805.74 1.90 1,789.22 443,161.92 1.06 44,316.20 2 to 3 years 368,802.29 0.61 73,760.46 5,766.40 0.01 1,153.28 Over 3 years 113,080.00 0.18 56,540.00 186,981.60 0.45 93,490.80 Total 60,500,375.41 100.00 132,089.68 41,855,179.80 100.00 138,960.28 * 1. In the accounts receivable, the total arrears owed by the top five debtors was RMB 58,723,579.99, taking 97.06% of the total at the end of the report year. Of them, Baldurion B.V. owed RMB 50,457,540.72 which was 24% of the after-tax profit of Tetra Pak Huaxin (Foshan) Co., Ltd. in 2001 payable to the Company. * 2. About the arrears owed by the shareholders holding more than 5%(including 5%) of the Company’s shares, please refer to Note VII. *3. Increase of other receivables in the report year by 44.55% was mainly due to 24% of the after-tax profit of Tetra Pak Huaxin (Foshan) Co., Ltd. in 2001 payable to the Company, a big growth over the previous year. 5. Accounts in advance Aging analysis Age Dec. 31, 2001 Dec. 31, 2000 Amount Proportion (%) Amount Proportion (%) Within 1 year 12,374,295.52 99.33 9,799,821.84 99.17 1 to 2 years 825.44 0.01 13,675.00 0.14 2 to 3 years 13,675.00 0.11 - - Over 3 years 68,419.31 0.55 68,419.31 0.69 Total 12,457,215.27 100.00 9,881,916.15 100.00 * The advanced payment with the age exceeding one year is mainly due to failure in timely stating or missorting. At present, the Company is clearing these accounts. 6. Inventories Items Dec. 31, 2001 Dec. 31, 2000 Amount Provision for price Amount Provision for price falling of inventories falling of inventories Raw materials 58,526,645.62 30,029.46 59,748,566.29 - Products in process 3,204,077.26 - 4,175,756.68 14,568.68 Finished products 27,754,077.50 415,725.66 32,215,768.80 2,654,170.97 Packaging - - 93,101.96 - Total 89,484,800.38 445,755.12 96,233,193.73 2,668,739.65 *1. For the inventories for which provision for devaluation has been made, the determination of the realizable net value is based on the market price at the year end less the relevant expenses; *2. Provision for price falling of the finished products was made by Huaxin (Foshan) Color Printing Co., Ltd., a subsidiary of the Company’s. The provision for price falling made at the end of the previous period had been offset in disposal of the 42 finished products in this report year. The balance of the year end was the amount newly provided for the report year. 7. Expenses to be proportioned Items Dec. 31, 2000 Increase in the report year Amortization in the report year Dec. 31, 2001 Coarse cotton cloth 498,075.41 1,208,452.21 1,706,527.62 - Formation fabric 1,073,891.46 2,687,741.61 3,761,633.07 - Other 380,833.07 5,816,801.72 5,971,797.34 225,837.45 Total 1,952,799.94 9,712,995.54 11,439,958.03 225,837.45 8. Long-term investment (1) Long-term investment is itemized as follows: Dec. 31, 2000 Increase in Decrease in Dec. 31, 2001 Items Amount Provision for the report the report Amount Provision for devaluation year year devaluation Long-term equity 180,860,996.72 - 52,438,954.41 38,321,179.59 194,978,771.54 - investment 2 Long-term equity investment is itemized as follows: Investees Investment Investment Increase/decreas Increase/decrease Proportion of Provision Year end term principal e of equity in of accumulative the investee’s for the period equity registered devaluation capital Tetra Pak Huaxin June, 1999 121,116,117.55 11,234,456.47 37,341,827.57 25% - 158,457,945.12 (Foshan) Packaging to 12, -2045 Co., Ltd. * Commercial Bank 100,000.00 100,000.00 Xinjiang Sub- branch Foshan 3,000,000.00 3,000,000.00 Commercial Bank Guangdong 113,558.00 0.32% 113,558.00 Development Bank Foshan Suburbs 1,000.00 - - 1,000.00 Rural Credit Cooperative Total 124,330,675.55 11,234,456.47 37,341,827.57 161,672,503.12 *1. In the report year, the Company was distributed with cash dividends amounting to RMB 37,124,629.88 from Tetra Pak Huaxin (Foshan) Packaging Co., Ltd. based on 25% of its equity. *2. In the report year, the investment discount and remittance of the investment return from Tetra Pak Huaxin (Foshan) Packaging Co., Ltd. is not a significant restrictive event necessary for the Company to disclose. *3. Through auditing of the operation status of the investee, nothing was found that the recoverable amount of the Company’s long term investment may be lower than the book value due to bad operation or long term deficits making. Therefore, in the report year, it is unnecessary to make provision for devaluation of long term investment. (3) Equity investment difference is itemized as follows: Amortizatio Amortization in Accumulated Amortized Investees Initial amount n term the report period amortization amount amount Tetra Pak Huaxin (Foshan) -14,118,213.84 46.50 years -303,617.50 -759,043.75 -13,359,170.09 Packaging Co., Ltd. Foshan Huafeng Paper Co., Ltd. 54,104,856.25 40 years 1,196,549.71 7,439,417.74 46,665,438.51 Foshan Color Printing Plant -2,221,717.05 10 years -2,184,688.43 -2,221,717.05 - Foshan Foao Color Golden Beer -1,679,982.25 38 months -1,591,562.13 -1,679,982.25 Box Printing Co., Ltd. - Total 36,084,943.11 -2,883,318.35 2,778,674.69 33,306,268.42 * Amortization of equity investment balance: 43 a. About the change of the years for amortization of the equity investment balance on Foshan Huafeng Paper Co., Ltd., please refer to Note II (19). b. The equity investment balance on Tetra Pak Huaxin (Foshan) Packaging Co., Ltd. and Foshan Huafeng Paper Co., Ld. is the balance between the allowance of the equity from the contribution to the Company when the Company was established and the net assets shares. c. The equity investment balance on Foshan Color Printing Plant and Foshan Foao Color Golden Beer Box Printing Co., Ltd. is the balance between the capital contribution and the net assets share. Since the two enterprises were in process of liquidation in the report year, the corresponding equity investment balance has been amortized all timely. 9. Fixed assets and accumulative depreciation Fixed assets – cost Items Dec. 31, 2000 Increase in the Decrease in the Dec. 31, 2001 report period report period Housing and buildings 192,064,671.92 7,668,147.71 - 199,732,819.63 Machinery equipment 631,418,553.12 22,530,898.56 65,000.00 653,884,451.68 Means of transport 8,898,051.45 485,299.60 - 9,383,351.05 Other equipment 12,456,923.86 4,825,444.07 901,634.87 16,380,733.06 Total 844,838,200.35 35,509,789.94 966,634.87 879,381,355.42 Accumulative depreciation Items Dec. 31, 2000 Increase in the Decrease in the Dec. 31, 2001 report period report period Housing and buildings 16,220,985.90 8,351,522.93 - 24,572,508.83 Machinery equipment 117,710,870.62 29,607,414.81 - 147,318,285.43 Means of transport 3,152,718.52 1,092,679.37 - 4,245,397.89 Other equipment 5,865,764.08 2,105,981.68 143,142.94 7,828,602.82 Total 142,950,339.12 41,157,598.79 143,142.94 183,964,794.97 Net value of fixed assets 701,887,861.23 695,416,560.45 *1. Both the cost of the fixed assets at the year beginning and the accumulative depreciation were decreased by RMB 5,425,096.52 over the amount in the report of the previous year. This is due to the fact that while stating the newly purchased Huaqiao Paper Branch Company in the previous year, the variable amount of the re- purchase value was mistakenly stated in the accumulative depreciation account. Due to the aforesaid accounting mistake, the adjustment of the initial amount of the fixed assets involves RMB -5,425,096.52; the corresponding adjustment has been made for the year beginning amount of the accumulative depreciation by RMB -5,425,096.52. The aforesaid adjustment produces no affect on the net value of the fixed assets. * 2. For the mortgage of the fixed assets, please refer to Note VIII. *3. In the report year, there was no such condition that the predicted recoverable amount of individual fixed asset is lower than its book value, it is therefore unnecessary to make provision for devaluation of the fixed assets. *4. Increase of the fixed assets in the report year is mainly due to transfer in of the completed construction-in-progress, unplanned purchase and reception of spares and parts. 10. Construction in progress 44 Year beginning Increase in the report period Fixed assets transferred-in in the Year end Project report period investment Fund Project Cost Including Cost Including: Cost Including: Cost Including in the recourse : interest interest interest : interest budget proportion Huafeng 4,762,381.78 - 2,221,187.08 - 4,762,693.08 - 2,220,875.78 - Self-raised Paper technical innovation project Huafeng 1,077,587.44 - 2,333,728.08 139,456.43 1,009,334.76 139,456.43 2,401,980.76 - Loan from technical financial innovation institution, project self-raised Color 5,839,969.22 - 12,134,555.48 10,507,771.28 1,626,784.20 - Proceeds Printing raised technical through innovation share project offering Total - 16,689,470.64 139,456.43 16,279,799.12 139,456.43 6,249,640.74 - *1. In capitalizing the Huafeng technical innovation project in the report year, the capitalization rate (monthly interest rate) is determined as 5.4962‰ for the first half year and 5.398‰ for the second half year. *2. The construction-in-progress at the year end are all the projects unfinished. Based on the inspection over the actual construction of various projects, it is unnecessary to make provision for devaluation. 11. Intangible assets Items Original Dec. 31, 2000 Increase in the Amortization in Dec. 31, 2001 Remained Way of amount report period the report amortization obtaining period period Land use right *1 32,978,923.04 30,195,419.85 1,794,373.04 844,924.33 31,144,868.56 出让 Land use right *2 11,118,000.00 11,118,000.00 - 259,420.00 10,858,580.00 49 years 出让 Goodwill *3 -1,851,894.66 -1,851,894.66 - -185,189.47 -1,666,705.19 9 years Purchase Total 42,245,028.38 39,461,525.19 1,794,373.04 919,154.86 40,336,743.37 *1 refers to the land use right of Foshan Huafeng Paper Co., Ltd. The increase in this report year is due to the payment for transfer of the land; *2 refers to the land use right of Huaxin (Foshan) Color Printing Co., Ltd.; *3 refers to the difference between the book value of Huaxin development Co., Ltd. Huaqiao Paper Branch purchased in the previous period after the adjustment according to the Enterprise Accounting System and its additional provisions and the fair price. *4. In the report year, there was no such condition that the predicted recoverable amount of individual intangible asset is lower than its book value, it is therefore unnecessary to make provision for devaluation of the intangible assets. 12. Organization expenses Original amount Dec. 31, 2000 Increase in the report Amortization in the Dec. 31, 2001 period report period 5,120,448.62 3,106,015.65 - 3,106,015.65 - * As stated in the aforesaid Note II (19), due to the change of the accounting policy, the organization expenses of the report year were stated in the gains and losses of the report year on once-and-for-all basis. 45 13. Long-term expenses to be apportioned Items Dec. 31, 2000 Increase in the Amortization in Dec. 31, 2001 report period the report period Top overhaul expenses 3,535,672.09 2,068,624.52 1,906,605.35 3,697,691.26 Repair fee for public 836,606.02 220,568.60 71,698.89 985,475.73 facilities Other 2,069,010.01 2,246,484.70 1,694,904.65 2,620,590.06 Total 6,441,288.12 4,535,677.82 3,673,208.89 7,303,757.05 14. Short-term loan Classified according to loan conditions: Arrears Dec. 31, 2001 Dec. 31, 2000 Guarantee loan * 40,000,000.00 27,900,000.00 Mortgage loan * 63,000,000.00 173,800,000.00 Hypothecation loan * 80,000,000.00 50,000,000.00 Credit loan - 2,106,115.86 Total 183,000,000.00 253,806,115.86 * 2. For the mortgages and pledges, please refer to Note VIII. 15. Notes payable Items Dec. 31, 2001 Dec. 31, 2000 Banker’s acceptance * 3,758,392.30 - Total 3,758,392.30 - * Of them, the amount RMB 2,000,000 is going to be due on June, 20, 2002 and RMB 1,758,392.30 was paid on March 26, 2002. 16. Accounts Payable At the end of the report year, there were accounts payable from the shareholders holding more than 5% (including 5%) of the Company’s shares, and there were no accounts payable in big amount with age exceeding three years, either. 17. Advance Receipts At the end of the report year, there were advance receipts payable to the shareholders holding more than 5% (including 5%) of the Company’s shares. The advance receipts with age exceeding one year are mainly due to missorting and the Company is now clearing these accounts. 18. Dividends payable Shareholders Dec. 31, 2001 Dec. 31, 2000 Foshan Huaxin Development Co., Ltd. 38,108,782.60 36,103,057.20 Foshan Investment Corp. 234,934.87 231,467.07 Foshan Xinhui Industry Development Co., Ltd. 65,888.20 231,467.07 China Packaging Corp. 65,888.20 62,420.40 China Materials Corp. 65,888.20 62,420.40 Guangdong Technology Innovation Investment Co., Ltd. 65,888.20 62,420.40 China Chemical Industry Corp. 65,888.20 62,420.40 Foshan Light Industry Co. 65,888.20 62,420.40 Public 19,883,500.00 18,837,000.00 Hong Kong Hengfeng Company * 3,057,781.85 - Total 61,680,328.52 55,715,093.34 * It refers to the amount of profit distributed for 2000 payable to the foreign investors by Foshan Huafeng Paper Co., Ltd. The amount shall be used as the reinvestment of 46 the foreign investor in increase of the capital to Foshan Huafeng Paper Co., Ltd. 19. Taxes payable Items Dec. 31, 2001 Dec. 31, 2000 Value-added tax 2,695,893.24 2,381,964.34 Urban construction tax 517,609.53 323,290.83 Business tax 1,134.00 1,296.00 Income tax 3,872,382.05 9,901,728.02 Total 7,087,018.82 12,608,279.19 20. Other receivables Items Dec. 31, 2001 Payment Criteria River bank repair fee 1,296,119.02 3% of Circulating tax payment Education surcharge 595,855.94 1% of Circulating tax payment Total 1,891,974.96 21. Other payables At the end of the report year, there were other payables from the shareholders holding more than 5% (including 5%) of the Company’s shares, and there were no accounts payable in big amount with age exceeding three years, either. 22. Accrued expenses Items Dec. 31, 2001 Dec. 31, 2000 Reason of carrying in the year end Interest 1,724,175.59 1,384,313.09 Not yet paid Processing expenses 437,294.97 890,909.14 Not yet paid Audit fee 750,000.00 750,000.00 Not yet paid Other 2,143,039.64 891,847.38 Not yet paid Total 5,054,510.20 3,917,069.61 23. Long-term loans due within one year Companies Dec. 31, 2001 Dec. 31, 2000 Loan period Interest rate Loan condition in the year Foshan Branch, Bank of China - 1,668,598.95 Dec., 1991 to Floating Guarantee Dec., 1999 interest rate Shiwan Sub-branch, Foshan Branch, - 25,240,000.00 Sep., 1998 to 5.445% Mortgage Constriction of China Sep., 2001 Total - 26,908,598.95 24. Long-term loan Classified according to loan conditions: Loans Currency Dec. 31, 2001 Dec. 31, 2000 Mortgage loan* RMB 50,000,000.00 - Total 50,000,000.00 - * For the mortgages and pledges, please refer to Note VIII. 25. Share capital Items Dec. 31, 2000 Increase/decrease (+/-) this Dec, 31, 2001 report period I. Unlisted shares Promoters’ shares 290,000,000.00 - 290,000,000.00 including: state-owned shares - - - Domestic legal person shares 290,000,000.00 - 290,000,000.00 Foreign legal person shares - - - Others - - - 2. Legal person shares placed - - - 3. Employees’ shares - - - 4. Preference shares or others - - - 47 Total of shares unlisted 290,000,000.00 - 290,000,000.00 II. Listed shares - 1. RMB ordinary shares - - - 2. Foreign shares listed 149,500,000.00 - 149,500,000.00 domestically 3. Foreign shares listed abroad - - - 4. others - - - Total of shares listed 149,500,000.00 - 149,500,000.00 III. Total shares 439,500,000.00 - 439,500,000.00 * The Company’s share capital has been verified by KPMG Huazhen Certified Public Accountants with the capital verification report No. KPMG-C 2000 CVNO.0013, 0016. 26. Capital public reserve Items Dec. 31, 2000 Increase in the Decrease in the Dec. 31, 2001 report period report period Share capital premium 250,531,482.00 - - 250,531,482.00 27. Surplus public reserve Items Dec. 31, 2000 Increase in the period Decrease in the period Dec. 31, 2001 Statutory surplus public reserve 21,456,221.47 11,748,800.00 - 33,205,021.47 Public welfare funds 10,728,110.74 5,873,900.00 - 16,602,010.74 Total 32,184,332.21 17,621,700.00 - 49,806,032.21 28. Retained profit Items Dec. 31, 2001 Retained profit at period end of the previous year 41,867,101.27 Retroactive adjustment of provision for bad debts in the period * -16,837,240.58 Retained profit at the report period 25,029,860.69 Add: net profit of the period 118,696,950.89 Less: allotting statutory surplus public reserve 11,747,800.00 Allotting statutory welfare funds 5,873,900.00 Dividends of common shares payable 58,453,500.00 Retained profit at period end 67,651,611.58 29. Income and cost of principal business (1) List based on sectors: Business income Business cost Business gross profit Sectors 2001 2000 2001 2000 2001 2000 White board 426,329,737.02 384,905,288.86 353,836,875.60 302,044,497.75 72,492,861.42 82,860,791.11 Printing products 84,878,724.17 17,744,256.06 74,869,065.73 14,843,436.95 10,009,658.44 2,900,819.11 Aluminum-plastic composite tank 2,523,690.00 2,170,169.12 1,423,990.00 1,399,008.55 1,099,700.00 771,160.57 Paper products 152,418.44 415,346.15 21,586.45 290,397.03 130,831.99 124,949.12 Offsetting among the sectors of the Company -2,580,950.62 - -2,580,950.62 - - - Total 511,303,619.01 405,235,060.19 427,570,567.16 318,577,340.28 83,733,051.85 86,657,719.91 (2) List based on region: Business income Business cost Business gross profit Sectors 2001 2000 2001 2000 2001 2000 Domestic sales 464,065,493.14 403,143,773.16 393,542,263.09 317,211,297.58 70,523,230.05 85,932,475.58 Export sales *1 47,238,125.87 2,091,287.03 34,028,304.07 1,366,042.70 13,209,821.80 725,244.33 Total 511,303,619.01 405,235,060.19 427,570,567.16 318,577,340.28 83,733,051.85 86,657,719.91 *1. The export products in the report year were all white board. The big growth was resulted from the intense competition of the domestic paper market. Huafeng Paper Co., Ltd., one of the Company’s subsidiaries devoted great efforts throughout the year to developing the foreign market. With the opening of the market channel, the export volume grew by a big margin in the report year. * 2. The total sales volume to the top five distributors was RMB 106,625,045.51, taking 20.85% of the total turnover. 48 *3. The growth of the turnover in the report year by 26.17%, and the operation cost by 34% were mainly due to the big growth of the export volume of white board and the consolidation range expanded in the report year. 30. Tax and surcharge of principal business Items 2001 2000 Payment standards Urban construction taxes 309,295.23 25,188.78 7% of circulating taxes Educational surcharge 271,326.90 25,188.78 7% of circulating taxes River bank maintenance fee 144,128.97 6,002.19 4% of circulating taxes Business income 486.00 - 5% of taxable business income Total 725,237.10 56,379.75 31. Financial expenses Items 2001 2000 Interest expenses 17,327,497.42 13,710,928.50 Less: interest income 1,571,335.37 5,487,317.50 Add: exchange gain and losses 82,887.85 531,857.80 Add: others 251,691.36 207,508.29 Total 16,090,741.26 8,962,977.09 * The growth rate of the financial expenses by 79.52% was mainly due to the expansion of the consolidation range in the report year. 32. Investment income Items 2001 2000 Income from equity transfer to Tetra Pak *1 48,399,980.60 35,639,644.69 Income from equity investment to Tetra Pak *2 50,416,646.47 34,562,082.88 Amortization of equity investment difference 2,883,318.35 -3,732,845.78 Others 8,028.00 - Total 101,707,973.42 66,468,881.79 *1. In accordance with the Contract for the Equity Transfer of 24% Shares of Huaxin Tetra Pak (Foshan) Packing Co., Ltd. signed with the transferee Baldurion B.V. dated June 22, 1999, the Company sold part of the new equity in Tetra Pak Huaxin (Foshan) Packing Co., Ltd. to its joint venture partner Baldurion B.V. with the transfer fee consisting of cash RMB 134,996,406 and 24% of the after-tax profit of Tetra Pak Huaxin (Foshan) Packing Co., Ltd. in 1999, 2000 and 2001. Where the cash part and 24% of the after-tax profit of Tetra Pak Huaxin from January 1, 1999 to December 31, 1999 have been stated in the Company’s investment income of the equity transfer period (i.e. 1999) after deduction of the investment cost. While 24% of the after-tax profit from January 1, 2000 to December 31, 2001 has been stated in the investment income of various beneficial periods as the equity transfer income. Therefore, the equity transfer income realized in 2001 was 24% of the after-tax profit of Tetra Pak Huaxin (Foshan) Packaging Co., Ltd., namely RMB 48,399,980.60. *2. The equity investment income realized in 2001 was the after-tax profit calculated based on the proportion of the 25% equity of Tetra Pak Huaxin (Foshan) Packaging Co., Ltd. *3 The investment income in the report year grew by 53.02% over the previous year was due to the big growth of the after-tax profit of Tetra Pak Huaxin (Foshan) Packaging Co., Ltd., completion of the amortization of the Company’s equity investment balance on Foshan Color Printing Plant and the Foshan Color Printing Plant’s equity investment balance over Foshan Foao Color Golden Beer Printing Co., 49 Ltd. and the change of the amortization years of the equity investment balance by Foshan Huafeng Paper Co., Ltd. 33. Income tax Items 2001 2000 Income tax 3,872,382.05 229,828.64 * The growth rate of the income tax by 1584.90% in the report year is mainly due to that Huafeng Paper Co., Ltd., one of the Company’s subsidiaries, used to enjoy the national tax preferential policy in the previous periods while started to implement 12% income tax rate in the report year. 34. Notes to the items in consolidated cash flow statement a. Other cash paid in connection with operating activities is itemized as follows: Items 2001 Operating expenses paid 16,132,244.29 Administrative expenses paid 8,526,223.38 Current accounts paid of other companies 3,876,763.48 Total 28,535,231.15 b. About the other big sum cash in connection with investment activities and fund raising activities unnecessary to be disclosed. ( ) Notes to the major items in the parent company’s accounting statement 1. Accounts receivable and other receivables Aging analysis Dec. 31, 2001 Dec. 31, 2000 Age Amount Proportion % Provision for bad debts Amount Proportion % Provision for bad debts Within one year 229,223.02 88.32 - 171,150.64 100.00 - 1 to 2 years 30,310.64 11.68 3,031.06 - - - 2 to 3 years - - - - - - Over 3 years - - - - - - Total 259,533.66 100.00 3,031.06 171,150.64 100.00 - * In the accounts receivable, the total arrears owed by the top five debtors was RMB 253,913.76, taking 97.83% of the total at the end of the report year. 2. Other receivables Aging analysis Dec. 31, 2001 Dec. 31, 2000 Age Amount Proportion % Provision for bad Amount Proportion % Provision for bad debts debts Within one year 481,330,079.21 99.99 - 405,636,403.80 99.99 - 1 to 2 years 500.00 0.01 50.00 32,610.10 0.01 3,261.01 2 to 3 years - - - - - - Over 3 years - - - - - - Total 481,330,579.21 100.00 50.00 405,669,013.90 100.00 3,261.01 * In the other receivables, the total arrears owed by the top five debtors was RMB 481,298,813.85, taking 99.99% of the total at the end of the report year, 3. Long-term investment (1) Long-term investment is itemized as follows: Dec. 31, 2000 Dec. 31, 2001 Increase in the Decrease in the Items Amount Provision for Amount Provision for period period devaluation devaluation Long-term equity investment 538,866,462.14 - 107,145,143.56 70,183,532.10 575,828,073.60 - (2) Long-term equity investment is itemized as follows: Increase / Increase / Proportion of Provision Investment Investment decrease of decrease of the investee’s Balance at Investees for term principal equity in the accumulative registered period end devaluation period equity capital 50 Tetra Pak Huaxin (Foshan) Packaging Co., June 1999 to Ltd. Dec. 2045 121,116,117.55 11,234,456.47 37,341,827.57 25% - 158,457,945.12 Foshan Huafeng Paper Co., Ltd. 佛山华丰纸业有 June 1999 to 限公司 June 2012 336,687,149.63 9,861,722.06 13,599,279.20 75% - 350,286,428.83 Foshan Color Printing Plant 21,221,717.05 -22,027,423.52 -21,221,717.05 100% - - Huaxin (Foshan) Color Printing Dec. 2000 to Co., Ltd. Dec. 2015 37,262,683.65 -661,583.42 -3,485,252.42 75% - 33,777,431.23 Total 516,287,667.88 -1,592,828.41 26,234,137.30 - 542,521,805.18 (3) Equity investment difference is itemized as follows: Amortization Amortization in Accumulative Amortized Investees Initial amount term the period amortization balance Tetra Pak Huaxin (Foshan) Packaging Co., Ltd. -14,118,213.84 46.50 years -303,617.50 -759,043.75 -13,359,170.09 Foshan Huafeng Paper Co., Ltd. 54,104,856.25 40 years 1,196,549.71 7,439,417.74 46,665,438.51 Foshan Color Printing Plant -2,221,717.05 10 years -2,184,688.43 -2,221,717.05 - Total 37,764,925.36 -1,291,756.22 4,458,656.94 33,306,268.42 4. Income from principal business Items 2001 2000 Export sales: White board - - Aluminum-plastic composite tank - - Paper products - - Subtotal - - Domestic sales: White board - 16,233,599.18 Aluminum-plastic composite tank 2,523,690.00 2,170,169.12 Paper products 152,418.44 415,346.15 Subtotal 2,676,108.44 18,819,114.45 Total income from principal business 2,676,108.44 18,819,114.45 5. Cost of principal business Items 2001 2000 Export sales: White board - - Aluminum-plastic composite tank - - Paper products - - Subtotal - - Domestic sales: White board - 9,567,716.09 Aluminum-plastic composite tank 1,423,990.00 1,399,008.55 Paper products 21,586.45 290,397.03 Subtotal 1,445,576.45 11,257,121.67 Total cost of principal business 1,445,576.45 11,257,121.67 6. Investment income Items 2001 2000 Income from equity investment 69,193,597.57 72,326,962.85 Income from equity transfer 48,399,980.60 35,639,644.69 Amortization of equity investment difference 1,291,756.22 -3,821,265.90 Total 118,885,334.39 104,145,341.64 . Relationship with related parties and transactions Relationship with related parties a. Relationship with control relationship Relationship with Legal Companies Registered address Principal business the Company Ownership representative Foshan Huaxin Development 19-20/F., Jinghua Bldg., Jihua Investing in controlling Parent company Co., Ltd. Wang Qi 51 Co., Ltd. Rd., Foshan, Guangdong company of the Company Foshan Huafeng Paper Co., 17 Binhe Rd., Foshan, Manufacturing and Subsidiary of the Joint venture (HK Wang Qi Ltd. Guangdong selling of coated white Company investment) board. Huaxin (Foshan) Color 33 Jiangwan No.1 Rd., Process and printing of Subsidiary of the Joint venture (HK Wang Qi Printing Co., Ltd. Foshan, Guangdong decorative printing Company investment) products and sales of products domestically or aboard. b. Registered capital of the related parties with control relationship and changes Companies Balance at period end Increase in the period Increase in the period Balance at period end Foshan Huaxin Development Co., Ltd. 411,811,907.00 - - 411,811,907.00 Foshan Huafeng Paper Co., Ltd. USD 73. 2 million - - USD 73.2 million Huaxin (Foshan) Color Printing Co., Ltd. - - - USD 6.6 million c. Shares held by the related parties with control relationship and changes Shares held at Increase in the Decrease in the Shares held at Companies period beginning % period (%) period (%) period end % Foshan Huaxin Development Co., Ltd. 286,532,200.00 65.20 - - 286,532,200.00 65.20 Foshan Huafeng Paper Co., Ltd. 336,689,020.88 75.00 - - 336,689,020.88 75.00 Huaxin (Foshan) Color Printing Co., Ltd. - - 37,262,683.65 - 37,262,683.65 75.00 d. Related parties without control relationship Relationship with the Companies Company Principal business Ownership Foshan Huaxin Imp. & Exp. Co., Ltd. The same parent company Investment and consulting of Co., Ltd. packaging materials and import and export of raw materials. Tetra Pak Huaxin (Foshan) Packaging Associated company Manufacturing and operation of Sino-foreign joint Co., Ltd. of the Company Tetra Pak packaging materials. venture . Transactions among related parties a. Leasing office building For the particulars that the Company lease office building from its parent company, please refer to Note . b. Balance of payables and deliverable of related parties Items Dec. 31, 2001 Dec. 31, 2000 Other receivable Foshan Huaxin Imp. & Exp. Co., Ltd. - 1,409,098.69 Accounts payable Tetra Pak Huaxin (Foshan) Packaging Co., Ltd. 82,284.11 137,117.69 .Contingent events 1. The Company’s subsidiary Foshan Huafeng Paper Co., Ltd. signed the “Maximum mortgage contract” with Bank of China Foshan Branch, and contract number is [1999] Fo Zhong Yin Di Zi No. 58. The contract agreed Foshan Huafeng Paper Co., Ltd. takes its own disposing property as the mortgage for getting the loan from Bank of China Foshan Branch. The mortgaged property is listed as follows: Name and type of mortgage Qty Original book value Estimated value Auxiliary equipment of paper-making machine One RMB42.05 million RMB57.71 million Paper-cutting portion of paper- making machine One RMB37.53 million RMB51.50 million Huafeng’s office buildings and workshops 20,175m2 RMB62.94 million RMB37.45 million The maximum limit of the main credit guaranteed in this mortgage is based on the total loan principal in all the loan contracts signed between the Company and Bank of China Foshan Branch from Nov. 11, 1999 to Dec. 30, 2001, not exceeding RMB80,800,000. The implementation term is from the effective date of each loan 52 contract to the agreed loan expiration term in the loan contract. 2. The Company signed “Bank of China share mortgage contract” with Bank of China Guangdong Branch and Foshan Branch, and the contract number is Fo Zhong Yin Zhi Zi No.001. The contract agreed the Company to provide share mortgage guarantee with its 25% of Tetra Pak Huaxin (Foshan) Packaging Co., Ltd., valued RMB150.62 million, to get the loan from Bank of China Guangdong Branch and Foshan Branch. The total balanced loan principal guaranteed in this mortgage can’t exceed RMB380,000,000. . Committed Item The Company signed an agreement with its parent company Foshan Huaxin Development Co., Ltd. on leasing the office building. The Company leases the office of Foshan Huaxin Development Co., Ltd. on the 20th floor of Jinghua Building at Jihua Road, Foshan City, with an area of 907m2. The Company commits to pay a rent of RMB326,520 to Foshan Huaxin Development Co., Ltd. every year from June 1, 1999 to June 1, 2002 calculated based on RMB30/month for each square meter of floor area. . Future Items of Balance Sheet The Company held its 2002 first meeting of the first board of directors on Jan. 8, 2002, and decided to implement in advance some projects of fund utilization plan proposed to raise through issuing additional A shares. The details are as follows: The Company signed “Agreement on acquiring 70% equity of Foshan Electrochemical General Plant” with Foshan Industry Investment Management Co., Ltd. on July 13, 2001, and planned to acquire 70% stock right of Foshan Electrochemical General Plant with RMB20.13 million raised from issuing additional A shares. It is now changed to acquire 70% equity of Foshan Huahao Chemical Co., Ltd. from Foshan Industry Investment Management Co., Ltd. through financing with bank loan. Foshan Huahao Chemical Co., Ltd. was a limited liability company established by former Foshan Electrochemical General Plant on Oct. 25, 2001 according to the requirement of Company Law. Based on the assets evaluation report issued by Guangzhou Zhong Tian Heng Evaluation Co., Ltd. Zhong Tian Heng Zi (2001) No. 113, after non- business net assets (staff’s dormitory) of RMB2.359 million are deducted from the net assets value of RMB28.764 million evaluated for the former Foshan Electrochemical General Plant, the business net assets value of RMB26.405 is taken as the total capital stock of Foshan Huahao Chemical Co., Ltd. The Company’s board of directors signed “Agreement on 70% equity transfer of Foshan Huahao Chemical Co., Ltd.” with Foshan Industry Investment Management Co., Ltd. on Jan. 8, 2002, acquiring 70% stock right of Foshan Huahao Chemical Co., Ltd. Both parties confirmed that the price of this transaction is RMB18.4835 million. . Debt Restructuring Item The Company doesn’t have any debt restructuring item to be disclosed. . Other Important Items 1. The Company held 2001 second meeting of the first board of directors on July 13, 2001 and passed the proposal of issuing less than 55 million additional RMB common A shares. The fund raised through such issuance will be used for the new project of 165,000t/year new thermo plastic engineering plastics, equity acquisition, investment 53 increase and expansion project of Foshan Electrochemical General Plant, technical renovation project of Foshan Huafeng Paper Co., Ltd. and supplementary circulating fund (in which the equity acquisition, investment increase and expansion project of Foshan Electrochemical General Plant has been changed to acquisition through bank loan financing as decided in the 2002 first meeting of the first board of directors held on Jan. 8, 2002. Please refer to Annex X for details). This proposal has been reviewed and passed in the 2001 first interim shareholders’ meeting of the Company, but it still needs the approval of China Securities Supervision Management Committee before implementation. 2. The Company signed a contract with Hong Kong Hengfeng Co., Ltd. on Sept. 28, 2000 regarding the joint investment to establish a Sino-foreign joint venture Huaxin (Foshan) Color Printing Co., Ltd. (hereinafter called “Joint Venture”). The contract stipulated that the total investment of the Joint Venture is USD16.30 million, with a registered capital of USD6.60 million, in which the Company invests USD4.95 million, accounting for 75% of the registered capital; Hong Kong Hengfeng Co., Ltd. invested USD1.65 million, accounting for 25% of the registered capital. The production and business scope of the Joint Venture is engaged in production and sales of package printing product, and the production scale of the Joint Venture is producing 680,000 color reams of offset printing, and 65.50 million m2 of intaglio printing and Flexographic printing of high-class packaging decoration printed materials per year. As of this report period, the Joint Venture has received the Company’s inputted capital of RMB37,262,683.65, equivalent to USD4,505,765.86; and the inputted capital of RMB12,420,894.55, equivalent to USD1,501,921.95 from Hong Kong Hengfeng Co., Ltd. This investment has been certified by the verification report of Guangzhou Yangcheng Public Certified Accountants Co., Ltd. Foshan Branch (2001) Yang Fo Yan Zi No. 015 and No. 017, and the corporate business license has been obtained with the registration number of Qi He Yue Chan Zong Fu Zi No. 001907. 3. According to the “Transfer contract of 24% equity share of Huaxin Tetra Pak (Foshan) Packaging Co., Ltd.” signed between the Company and assignee Baldurion B.V. on June 22, 1999, this accounting year is the final beneficiary period of the transfer amount obtained through this stock right transfer (i.e. 24% after-tax profit of Tetra Pak Huaxin in the year). Since 2002, the Company will complete the extra distribution right of 24% after-tax profit of Tetra Pak Huaxin. 4. According to the resolution of the second meeting of the Company’s first board of directors on April 12, 2002, the Company’s profit distribution proposal of 2001 is: After withholding 10% and 5% respective legal surplus public accumulation fund and legal public accumulation fund from the net profit as audited by Bi Ma Wei Public Certified Accountants, with a total of 439.50 million shares in 2001 as the basis, a cash dividend of RMB1.33(including tax) per ten shares will be allotted to all the shareholders, totaling RMB58,453,500. The above proposal will be submitted to the shareholders’ meeting for approval before implementation. XIII. Supplementary information Net assets (In RMB’000) Net profit (In RMB’000) According to international accounting standard (IAS) 827,806 117,478 1. Amortization of equity investment difference 33,306.2 2,883.3 2. Amortization of organization expenses -2,329.5 -2329.5 54 3. Dividend distribution -58,453.5 - 4. Others 7,159.9 665.2 According to the Enterprise Accounting System 807,489.1 118,697 . Documents Available for Inspection The investors and relevant authorities can view the following materials at the office of the Board of the Company. 1. Accounting Statements with signatures and seals of the legal representative, Chief Accountant and person in charge of accounting affairs; 2. Auditors’ Report under the seal of the accounting firm and signed by and under the seal of certified accountants. 3. Originals of all documents and manuscripts of Public Notices of the Company disclosed in public in the newspapers as designated by China Securities Regulatory Commission in the report peirod. 4. Original copy of the 2001 Annual Report signed by the Chairman of the Board; Board of Directors of Foshan Huaxin Packaging Co., Ltd. Chairman of the Board: _____ (signature) April 16, 2002 55