皇庭国际(000056)深国商2001年年度报告（英文版）

SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD 2001 ANNUAL REPORT I. IMPORTANT NOTICE Board of Directors of Shenzhen International Enterprise Co., Ltd. (hereinafter referred to as the Company) individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions nor errors which would render any statement misleading. II. COMPANY PROFILE 1. Legal Name of the Company In Chinese: 深圳市国际企业股份有限公司 In English: Shenzhen International Enterprise Co., Ltd. 2. Legal Representative: Li Jinquan 3. Secretary of the Board of Directors: Xie Wei Authorized Representative in Charge of the Securities Affairs: Zhang Weidong Tel: (86) 755-2281888, 2285565 Liaison Address: Investment and Management Dept., 23/F Development Center Bldg., Renmin Rd. S. Shenzhen Fax: (86) 755-2285573 E-mail: guoqi@szonline.net 4. Registered Address: Investment and Management Dept., 23/F, Development Center Bldg., Renmin Rd. S. Shenzhen Office Address: Investment and Management Dept., 23/F, Development Center Bldg., Renmin Rd. S. Shenzhen Post Code: 518001 Company’s Internet Website: http://www.china-ia.com E-mail: szia@szonline.net 5. Newspapers Chosen for Disclosing the Information of the Company: Securities Times, Ta Kung Pao Internet Website Designated by CSRC for Publishing the Annual Report: http://www.cninfo.com.cn The Place Where the Annual Report is Prepared and Placed: Investment and Management Dept., 23/F, Development Center Bldg., Renmin Rd. S. Shenzhen 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock (A-share): SZIEC-A Stock Code: 000056 Short Form of the Stock (B-share): SZIEC-B Stock Code: 200056 7. Date of the Initial Registration: March 1993; the Place: Shenzhen, Guangdong Date of the Adjustment Registration: Oct. 1998; the Place: Shenzhen Guangdong -1- Registration Number of Enterprise Juristic Person’s Business License: 4403011016891 Registration Number of Taxation: 440301520200039 The Certified Public Accountants Engaged by the Company: Domestic: Lianda Xinlong Certified Public Accountants Office Address: Rm 808, New Dong An Market, No. 138, Wangfujing Av., Dongcheng District, Beijing Overseas: Glass Radcliffe Chan Certified Public Accountants Office Address: 12/F China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road, Central, Hong Kong III. FINANCIAL HIGHLIGHTS AND BUSINESS HIGHLIGHTS 1. Major accounting data and business indexes as of the year 2001 (Unit: In RMB) As of the year 2001 Item Consolidated Statement Total profit 29,161,631.67 Net profit 19,705,795.74 Net profit after deducting non-recurring gains and losses -13,254,071.04 Profit from main business lines 79,298,682.21 Profit from other business lines 8,150,586.36 Operating profit -9,025,192.75 Investment income 39,220,321.65 Subsidy income 0 Net income / expenditure from non-operating -1,033,497.23 Net cash flows arising from operating activities -16,756,711.87 Net increase in cash and cash equivalents -22,090,936.22 Note: Items of non-recurring gains and losses and the amounts: The non-recurring gains and losses are one-time or occasional gains and losses excluded in the normal gains and losses. The non-recurring gains and losses deducted by the Company are mainly investment income, net income and expenditure from non-operating and the effect on income tax totaling RMB 32,959,866.78. The explanation on the difference between the auditing results under PRC GAAP and IAS: As audited by Lianda Xinlong Certified Public Accountants under PRC GAAP and by Glass Radcliffe Chan Certified Public Accountants under IAS, profit after taxation of the Company for the year ended 2001 was RMB 19,706,000 and RMB 471,000 respectively. The adjustment for the differences are as follows (Unit: In RMB’000) Profit for the year ended 2001 As reported in financial statements prepared in accordance with PRC GAAP 19,706 Adjustment to conform with IAS: Write off of intangible assets -162 Provision for doubtful debts -264 Provision for obsolete stock -843 Taxation paid -212 Additional depreciation charge -1,618 Leasehold improvement capitalised 655 Net profit of long term assets written off in the previous years disposed of 5,406 -2- during the year Minority interest 2,647 Sales of property under development -3,781 “A share” Prior year adjustments -21,063 471 Difference in the profit after taxation as audited by Lianda Xinlong Certified Public Accountants under PRC GAAP and by Glass Radcliffe Chan Certified Public Accountants under IAS is due to the different regulations in PRC GAAP and IAS. 2. Accounting data and financial indexes over the recent three year at the end of report year (Unit: In RMB) 2000 1999 Index 2001 Before After Before After adjustment adjustment adjustment adjustment Income from main business lines 301,449,766.02 469,862,925.05 653,336,594.47 314,703,822.65 314,703,822.65 Net profit 19,705,795.74 36,123,036.96 38,870,863.03 30,221,445.83 30,939,345.83 Total assets 1,188,321,640.00 1,108,846,910.43 1,265,245,320.81 1,233,332,764.08 1,190,509,906.27 Shareholder’s equity (excluding 372,763,039.20 424,662,995.72 353,057,243.46 416,034,158.76 388,539,958.76 minority interests) Earnings per share (RMB/share) 0.09 0.16 0.176 0.14 0.14 Weighted average earnings per 0.09 0.16 0.176 0.14 0.14 share Fully diluted earnings per share 0.09 0.16 0.176 0.14 0.14 Earnings per share after deducting non-recurring gains -0.06 0.16 0.195 0.12 0.13 and losses Net assets per share (RMB/share) 1.69 1.72 1.60 1.88 1.76 Net assets per share after 1.51 1.65 1.27 1.61 1.49 adjustment Net cash flows per share arising -0.08 0.18 0.18 0.22 0.22 from operating activities Return on equity (%) 5.29 8.51 11.01 7.26 8.29 Note: Income from main business lines as of 2000 was increased by RMB 183,473,669.42 after the retroactive adjustments because the Company included Shenzhen Rongfa Investment Co., Ltd. into its consolidation scope in the report period. 3. Supplementary statement of profit in the report year Return on equity (%) Earnings per share (RMB) Profit as of the year 2001 Fully Weighted Fully Weighted diluted average diluted average Profit from main business lines 21.27 21.85 0.36 0.36 Operating profit -2.42 -2.49 -0.04 -0.04 Net profit 5.29 5.43 0.09 0.09 Net profit after deducting -3.37 -3.46 -0.06 -0.06 non-recurring gains and losses 4. Changes in shareholders’ equity in the report year (Unit: RMB) Statutory Share Capital public Surplus Retained Items capital Total capital reserve public reserve profit welfare fund Amount at the year-begin 220,901,184 51,109,680.43 119,430,660.55 24,017,688.32 -38,384,281.52 353,057,243.46 Increase in the report year 0 0 8,296,602.34 2,765,534.11 11,409,193.40 19,705,795.74 Decrease in the report year 0 0 Amount at the year-end 220,901,184 51,109,680.43 127,727,262.89 26,783,222.43 -26,975,088.12 372,763,039.20 Causes Withdrawal Withdrawal Profits as of Profit as of -3- the year the year Note: Above retained profit at the year-begin is different from the amount disclosed in 2001, firstly because adjustments were made due to changes in accounting policy, accounting mistakes and withdrawal of surplus public reserve by the consolidated subsidiaries, resulting in decrease of retained profit of respectively RMB 37,489,667.39, RMB 27,893,718.54 and RMB 30,222,413.60; secondly because income from investment as of the previous years increased the surplus public reserve by RMB 323,055.00. Therefore, retailed profit was decreased after the adjustment by totally RMB 95,282,744.53 IV. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS (I) Particulars about the changes in share capital: Statement of change in shares (Ended Dec. 31,2001) Statement of change in shares as of the year 2001 Unit: share Increase/decrease of this time (+, - ) Before the After the Items change Share Bonus Capitalization of Additional Sub- change Others Allotment shares public reserve issuance total I. Unlisted Shares 1. Promoters’ shares 42,035,328 42,035,328 Including: State-owned share 42,035,328 42,035,328 Domestic juristic person’s shares Foreign juristic person’s shares Others 2. Raised juristic person’s shares 51,643,584 51,643,584 3. Employees’ shares 4. Preference shares or others Including: Transferred / allotted shares Total Unlisted shares 93,678,912 93,678,912 II. Listed Shares 1. RMB ordinary shares 55,222,272 55,222,272 2.Domestically listed foreign shares 72,000,000 72,000,000 3. Overseas listed foreign shares 4. Others Total Listed shares III. Total shares 220,901,184 220,901,184 2. Issuance and listing of shares (1) By the end of the report year, the Company has not issued shares over the past three year. (2) In the report year, both the total share capital and its structure remained unchanged. (3) The employee’s shares of the Company were listed for trading from July 8, 1999. (Except shares held by senior executives). (II) About Shareholders 1. Ended Dec. 31, 2001, the Company has 41,893 shareholders in total. 2. Particulars about shares held by the top ten shareholders (Ended Dec. 31, 2001) -4- Unit: share Number of holding shares Proportion to Shareholders’ name Type at the year-end (share) total shares (%) Shenzhen Special Economic Zone State-owned juristic person’s 42,035,330 19.03 Development (Group) Co. shares Foreign juristic person’s shares Malaysia Foh Chong & Sons SDN.BHD. 30,264,190 13.70 and B shares Shenzhen Taitian Industrial Development Co. 19,075,390 8.64 Domestic juristic person’s share F.C.(ASIA) HOLDINGS SDN.BHD. 8,719,850 3.95 B shares LETSCON HOLDINGS SDN.BHD. 6,208,340 2.81 B shares Hong Kong Mengxin Industrial Co. 3,744,000 1.69 Foreign juristic person’s shares Malaysia Uchino United Co. 2,880,000 1.30 Foreign juristic person’s shares Dapu Hechang Chemical Co., Ltd. 2,880,000 1.30 Foreign juristic person’s shares Hong Kong F.C. International Trade Co. 2,880,000 1.30 Foreign juristic person’s shares CBNY S/A PNC/SKANDIA SELECT 2,404,120 1.09 B shares FUND/CHINA EQUITY AC Notes: (1) There exists no associated relationship among the above top ten shareholders. (2) There was neither pledging nor freezing for the share held by the above shareholders. (3) Among the aforesaid shareholders, the state-owned shareholder is Shenzhen Special Economic Zone Development (Group) Co. Foreign shareholders: Malaysia Foh Chong & Sons SDN.BHD., F.C.(ASIA) HOLDINGS SDN.BHD., LETSCON HOLDINGS SDN.BHD., Hong Kong Mengxin Industrial Co., Malaysia Uchino United Co., Hong Kong F.C. International Trade Co. and CBNY S/A PNC/SKANDIA SELECT FUND/CHINA EQUITY AC. 3. The largest shareholder of the Company (1) The largest shareholder of the Company is Shenzhen Special Economic Zone Development (Group) Co. (“SDG”), who holds 42,035,330 shares of the Company, taking 19.03% of the total shares of the Company. Registration capital of SDG is RMB 104.85 million; legal representative is Zheng Hongjie; registration place is Shenzhen, Guangdong; business scope is: industrial transportation, tourism, real estate and land development, financial business and commerce and trade, issuing securities, information consultation, textile products, knitting products, department stores, grains and oils, other foods, metal wares and electrical appliances, chemical products, contracting overseas projects and domestic projects for international bidding. (2) Shenzhen Special Economic Zone Development (Group) Co. is the state wholly owned subsidiary of Shenzhen Investment Holding Corporation (“Investment Holding”). The registration capital of Investment Holding is RMB 2 billion; legal representative is Li Heihu; registration place is Shenzhen, Guangdong; business scope is: Management and supervision of enterprise’s state assets, financing and property right; to share all kinds of enterprise and turn over investment, to offer credit and assurance; to impose profit after taxation and occupying expenses of assets of state enterprise and the other business authorized by municipal government. 4. Other juristic person’s shareholder holding over 10% (including 10%) of the total share of the Company: Malaysia Foh Chong & Sons SDN.BHD. holds 30, 264, 190 shares of the Company, taking 13.70% of the total shares; legal representative is Xiao Guangsheng; registration place is Malaysia; and business scope is: rubber plantation, real estate development, chemical, metal wares, raw material import & export, financial companies, securities investment. -5- V. PARTICULARS ABOUT DIRECTOR, SUPERVISOR, SENIOR EXECUTIVE AND STAFF (I) Directors, supervisors and senior executives 1. Present directors, supervisors and senior executives in office Number of holding Number of Name Gender Age Title Office term shares at the holding shares at year-begin the year-end Li Jinquan Male 56 Chairman of the Board Dec. 1999 – Dec. 2002 144,000 144,000 Song Shengjun Female 48 Director, General Manager Dec. 1999 – Dec. 2002 172,800 172,800 Zhang Jianmin Male Director May 2001 – Dec. 2002 Cai Zhuan Male 37 Director Dec. 1999 – Dec. 2002 Xiao Male 54 Director Dec. 1999 – Dec. 2002 Guangsheng Chen Jiehou Male Independent director Dec. 2001 – Dec. 2002 Fang Yuji Male Independent director Dec. 2001 – Dec. 2002 Zhou Xiaoxing Female 46 Chairman of the Supervisory Dec. 1999 – Dec. 2002 Committee Zhou Xiaoling Female 40 Supervisor Dec. 1999 – Dec. 2002 Li Mugui Male Supervisor May 2001 – Dec. 2002 3,119,200 3,119,200 Huang Guizhen Female 52 Deputy General Manager Dec. 1999 – Dec. 2002 Ding Jingjia Male 53 Financial Chief Supervisor Dec. 1999 – Dec. 2002 144,000 144,000 Xie Wei Male 27 Secretary of the Board Dec. 1999 – Dec. 2002 Note: (1) Reason for decrease of the shares held by Supervisor Li Mugui: Mr’ Li Mugui held the B shares of the Company for many years, and as approved by 2000 Shareholders’ General Meeting, he took the post of Supervisor. Decrease of the shares held by him was occurred before he acted as supervisor. (2) Particulars about directors or supervisors holding the position in Shareholding Company Director Mr. Zhang Jianmin took the position of Deputy General Manager of Shenzhen Special Economic Zone Development (Group) Co.; Director Mr. Cai Zhuan took the position of General Manager of Shenzhen Taitian Industrial Development Co.; Director Mr. Xiao Guangsheng took the position of director of Malaysia Foh Chong & Sons SDN.BHD.; Supervisor Mr. Li Mugui took the position of Chairman of the Board of Dapu Hechang Chemical Co., Ltd. 2. Particulars about the annual salary of directors, supervisors and senior executives During the report year, the annual salary of the directors, supervisors and senior executives are mainly composed from the monthly wage (including basis wage and benefit wage) and the allowance. The total amount of directors, supervisors and senior executives in office at present is RMB 565,000. Of them, (1) one enjoys his annual salary over RMB 100,000 per year, (2) five enjoy their annual salary from RMB 60,000 to 75,000 respectively, and (3) seven enjoy their annual salary under RMB 60,000 respectively. The total amount of the top three directors is RMB 145,000. The total amount of the top three senior executives is RMB 265,000. The Company pays the allowance of RMB 15,000 (excluding taxes) per year respectively to independent director Mr. Chen Jiehou and Mr. Fang Yuji. In 2001, Dir. Li Jinquan, Dir. Zhang Jianmin, Dir. Cai Zhuan, Dir. Xiao Guangsheng, Dir. Chen Jiehou, Dir. Fang Yuji and Supervisor Li Mugui draw no pay from the Company. Of them, Dir. Zhang Jianmin draws the annual salary from Shenzhen Special Economic Zone Development (Group) Co.; Dir. Xiao Guangsheng draws the annual salary from Malaysia Foh Chong & Sons SDN.BHD.. According to resolution of the 7th meeting of 3rd Board of Directors dated Nov. 20, 2001, the said directors draw the allowance of RMB 15,000 (excluding taxes) per year respectively from the Company; supervisors draw the allowance of -6- RMB 10,000 (excluding taxes) per year respectively from the Company. 3. Directors, supervisors and senior executives leaving the office and the reason in the report year Mr. Chen Yumin, Ms. Xu Li and Mr. Zhou Haolin resigned the position of director, supervisor and secretary of the Board respectively due to work transfer, and Zhang Jianmin, Mr. Li Muguiwas and Mr. Xie Wei were engaged as instead respectively. (II) About staff Ended Dec. 31, 2001, the Company has totally 1010 staff in office. The composing of P and background of education and the retiree are as follows: Composing of professional: salesperson: 835 persons; technicians: 75 persons; financial personnel: 35 persons; administrative personnel: 65 persons. Background of education: postgraduate: 3 persons; bachelor degree: 70 persons; 3-years regular college: 125 persons; person graduated from technical secondary school: 306 persons. The Company has 6 retirees. VI. AMINISTRATIVE STRUCTURE (I) The Company’s Actual Administration Strictly according to PRC Company Law, Securities Law and relevant requirements of normative documents released by CSRC, the Company, since its listing, has formulated the Articles of Association, the Rules of Procedures of the Shareholders’ General Meeting, the Rules of Procedures of the Board of Directors, the Rules of Procedures of the Supervisory Committee and the Working Rules for General Manager, etc. These rules are in line with requirements of the Administrative Rules for Listed Companies as issued by CSRC and State Economic and Trade Commission the following terms: 1. Shareholders and the Shareholders’ General Meeting As owners of the Company, shareholders have legal and equal rights based on the shares they hold as stated in laws, legislations and the Articles of Association. The Shareholders’ General Meeting formulated the Rules of Procedures of the Shareholders’ General Meeting according to PRC Company Law, Securities Law, the Rules of Shenzhen Stock Exchange for Stock Listing, the Normative Opinions of the Shareholders’ General Meeting of Listed Company and the Articles of Association. The Shareholders’ General Meeting made definite and detailed regulations in terms of the nature and duty power of the Meeting, holding conditions, notification of meeting, contents of proposals and submissions, confirmation of shareholders’ qualification and registration of attendance, signing of attendance, discussion procedures, resolutions of meeting, disciplines of meeting, meeting minutes, adjourning and breaking up of meeting, implementation and information disclosure of resolutions etc., practically protected all shareholders, especially medium and small shareholders’ rights and interests so as to ensure all shareholders could fully perform their rights. In respect of correlative transactions, the Company complied with the principle of being fair, voluntary, equal in price, and compensative, of which prices are fair and reasonable, and the Company fully disclosed the pricing basis. Meanwhile, the Company took effective measures in order to prevent shareholders and their related parties to occupy or transfer its funds, assets and other resources in various meanings. Definite stipulation was made in the Articles of Association and the Rules of Procedures of the Shareholders’ General Meeting on the concrete operation procedures of correlative transactions. The Company does not provide guarantee for shareholders and their related parties. -7- 2. Relationship between the Company and its Controlling Shareholder The Company’s first large shareholder Shenzhen Economic Zone Development (Group) Co., Ltd operates in a standardized way, has never overstepped the Shareholders’ General Meeting to directly and indirectly interfering in the Company’s decision-making and management activities; The Company achieved the “Five Separations” in terms of separation in personnel, assets, finance, organization and business; The Board of Directors, the Supervisory Committee and internal organizations could function independently. 3. Directors and the Board of Directors The Company elected directors strictly according to the stated procedures in the Articles of Association; There are at present 7 directors among who 2 are independent directors, which is line with requirements of laws and legislations; The Company has formulated the Rules of Procedures of the Board of Directors in accordance with PRC Company Law, Securities Law, the Rules of Shenzhen Stock Exchange for Stock Listing and the Articles of Association so as to ensure efficient operation and scientific decision-making of the Board of Directors; The Company shows a reasonable structure of majors among directors who hold necessary knowledge, techniques and qualification for performing duties, and could attend the Board Meeting and the Shareholders’ General Meeting with conscientious and responsible attitude; The Company engaged two independent directors at the end of 2001 in accordance with the Guide Opinions on Establishing Independent Director System in Listed Companies, who will play an important role in the Company’s decision-making. 4. Supervisors and the Supervisory Committee The Company elected supervisors strictly according to the stated procedures in the Articles of Association; There are at present 3 supervisors, which is line with requirements of laws and legislations; The Company has formulated the Rules of Procedures of the Supervisory Committee in accordance with PRC Company Law, Securities Law, the Rules of Shenzhen Stock Exchange for Stock Listing and the Articles of Association so as to ensure the Committee’s efficient operation; Supervisors could seriously implement their duties as well as legitimate and stated duties of supervision on the Company’s finance and on directors and senior executives taking responsible attitude towards shareholders. 5. About Related Beneficiaries The Company has been fully respecting and safeguarding the legal rights and interests of the bank, legal person, creditors, employees, customers, consumers and other parties of related interests so as to collectively push the Company to develop in a sustained and healthy way. 6. About Information Disclosure Strictly according to regulations of PRC Company Law, Securities Law, the Rules of Shenzhen Stock Exchange for Stock Listing and the Articles of Association, the Company disclosed relevant information in a truthful, timely, accurate and complete manner so as to ensure equal chance for all shareholders to obtain information; The Company has been disclosing detailed information and share changes of the large shareholder in time according to relevant stipulations. The secretary of the Board of Directors is in charge of information disclosure, receiving visits and inquiries of shareholders, strengthening communication between the Company and shareholders, and providing various publicly disclosed information to investors. (II) Obligations Performed by Independent Directors The Company engaged Mr. Chen Jiehou and Fang Yuji to be independent director according to requirements of the Guide Opinions on Establishing Independent Director System in Listed Companies, which was passed in the 2nd Provisional Shareholders’ General Meeting of 2001 -8- dated December 28, 2001. The independent directors will play an important role in making various decisions. (III) The Company has been separated form Shenzhen Economic Zone Development (Group) Co., Ltd. - its first large shareholder in business, personnel, assets, organization, and finance etc. 1. In respect of business, the Company has independent purchase and sales system as well as independent and complete business and management capabilities. 2. In respect of personnel, the Company is absolutely independent management of labor, human affairs and salaries; The Company’s senior executives including the chairman of the Board, general manager, vice general manager, financial superintendent and the secretary of the Board haven’t been taking actual managerial positions and receiving salaries in shareholders’ companies concurrently 3. In respect of assets, the Company has clear property right of assets, and there exists no occupation of assets by the large shareholder or related parties. 4. In respect of organization, the Board of Directors, the Supervisory Committee and other internal organizations have been functioning independently. The large shareholder and its subsidiary organizations have neither assigned management plan and order to the Company and the Company’s subsidiaries, nor impacted the independency of the Company’s management and administration through other ways. 5. In respect of finance, the Company has established the independent finance department, and established independent business accounting system and financial management system, and opened independent bank account and paid taxes independently. (IV) Gap Existing between the Company’s Administration Structure and the Administration Rules for Listed Companies Although the Company has made certain achievement in terms of administrative structure according to laws and legislations including PRC Company Law and Securities Law etc., there still exists a gap compared with requirements of the Administration Rules for Listed Companies in the following 2 aspects: 1. Although the Company has been implementing the obligation of disclosing information strictly according to laws and legislations including PRC Company Law and Securities Law etc., it hasn’t established a definite information disclosure system. Now the system is being drafted; 2. The Company hasn’t established performance encouragement system for senior executives. In light of the above gap, the Company will keep on improving the administrative structure and raising administration level in accordance with the Administration Rules for Listed Companies. VII. BRIEFINGS ON THE SHAREHOLDERS’ GENERAL MEETING In the report year, the Company altogether held 3 Shareholders’ General Meetings, details of which are as follows: (I) The notification on holding 2000 Shareholders’ General Meeting was released in the 3rd meeting of 3rd Board of Directors of 2001 dated April 12, 2001. The meeting was held in the Company’s meeting room on the 23/F of Development Center, Renmin South Road, Luohu District, Shenzhen on May 15, 2001. Mr. Li Jinquan, the chairman of the Board, presided the meeting. There were totally 15 shareholders and shareholders’ proxies who represented 124,151,706 shares, taking 56.2% of the Company’s total shares, which was in line with regulations of the PRC Company Law and the Articles of Association. Following resolutions -9- were discussed and passed in the meeting: 1. 2000 Work Report of the Board of Directors; 2. 2000 Work Report of the Supervisory Committee; 3. 2000 Financial Report of Actual Budget; 4. 2000 Profit Distribution Plan; 5. 2001 Profit Distribution Policies; 6. The proposal on re-engaging Certified Public Accountants; 7. The proposal on re-electing directors; agreed to Mr. Chen Yuming’s resignation as director due to work change and augmented Mr. Zhang Jianmin to be director of the 3rd Board of Directors; 8. The proposal on re-electing supervisors; agreed to Ms. Xu Li’s resignation as supervisor due to work change and augmented Mr. Li Mugui, the representative of shareholders, to be supervisor of the 3rd Supervisory Committee; 9. The proposal on application of issuing additional Renminbi ordinary shares (A share); 10. The proposal on feasibility of the planned capital raising investment projects by issuing additional A shares; 11. The proposal of remarks on application of funds raised last time; 12. The proposal on sharing of the retained profits among old and new shareholders upon completion of issuing A shares; 13. The proposal on asking the Shareholders’ General Meeting to authorize the Board to deal with relevant events of issuing additional A shares. The public notice on the resolutions was published in Securities Times and Wen Wei Po dated May 16, 2001. (II) The notification on holding the 1st Provisional Shareholders’ General Meeting of 2001 was released in the 5th meeting of the 3rd Board of Directors of 2001 dated July 19, 2001. The meeting was held in the Company’s meeting room on the 23/F of Development Center, Renmin South Road, Luohu District, Shenzhen on August 23, 2001. Mr. Li Jinquan, the chairman of the Board, presided the meeting. There were totally 10 shareholders and shareholders’ proxies who represented 121,101,439 shares, taking 54.28% of the Company’s total shares, which was in line with regulations of the PRC Company Law and the Articles of Association. Following resolutions were discussed and passed in the meeting: 1. The proposal on changing the planned capital raising investment projects by issuing A shares; 2. The proposal on sales of equity rights of Shenzhen Longgang Rongfa Investment Co., Ltd.; 3. The proposal on authorizing the Board to deal with decreasing of state-owned shares according to relevant national laws and legislations. The public notice on the resolutions was published in Securities Times and Wen Wei Po dated August 24, 2001. (III) The notification on holding the 2nd Provisional Shareholders’ General Meeting of 2001 was released in the 7th meeting of the 3rd Board of Directors of 2001 dated November 20, 2001. The meeting was held in the Company’s meeting room on the 23/F of Development Center, Renmin South Road, Luohu District, Shenzhen on December 28, 2001. Mr. Li Jinquan, the chairman of the Board, authorized Ms. Song Shengjun, director and general manager of the Company, to preside the meeting. There were totally 8 shareholders and shareholders’ proxies who represented 120,238,439 shares, taking 54.43% of the Company’s total shares, which was in line with regulations of the PRC Company Law and the Articles of Association. Following resolutions were discussed and passed in the meeting: 1. The proposal on electing independent directors; - 10 - 2. The proposal on modifying the Articles of Association; 3. The proposal on formulating the Rules of Procedures of the Shareholders’ General Meeting; 4. The proposal on changing domestic and overseas Certified Public Accountants; The public notice on the resolutions was published in Securities Times and Wen Wei Po dated December 29, 2001. VIII. REPORT OF THE BOARD OF DIRECTORS (I) Operation 1. Business scope and the operation (1) The Company is principally engaged in the retail business of chain stores and development of real estate, concurrently engaged in the international trade and pharmaceuticals business. Achievements of its operation as of 2001 was decreased to certain extend comparing with the previous year due to the periodicity of the property development and strict implementation of new accounting regulations and standards. In the report period, the Company realized revenue and profit of respectively RMB 301,449,766.02 and RMB 29,298,682.21 from its main business lines, and net profit of RMB 19,705,795.73, details as follows: Revenue from main business lines Profit from main business lines Retail business 192,585,326.56 41,788,555.23 Real estate development 98,518,313.65 39,789,206.49 Revenue and profit generated from the retail business accounted for respectively 63.89% and 48.83% of the total revenue and total profit as of the report period. Revenue and profit generated from the real estate development accounted for respectively 32.68% and 46.49% of the total revenue and total profit as of the report period. 2. Operation and achievements of major controlled subsidiaries (1) With registered capital of RMB 10 million (99.9375% equity held by the Company) and principally engaged in the retail and wholesale of chain stores, Shenzhen International Market realized revenue and profit of respectively RMB 192,585,326.56 and RMB 41,788,555.23from main business lines and net profit of RMB 41,788,555.23 in the year 2001. (2) With registered capital of USD 5 million (60% equity held by the Company) and principally engaged in the real estate development, Shenzhen Rongfa Investment Co., Ltd. realized revenue and profit of respectively RMB 98,518,313.65 and RMB 39,789,206.49 from main business lines in the year 2001. 3. Major suppliers and customers The calculated purchase amount of the top five suppliers accounted for 7.44% of the total purchase amount of the year; and the calculated sales amount of the top five customers accounted for 2.05% of the total sales amount of the year. 4. Problems and difficulties occurred in the operation and the countermeasures While confirming the achievements realized in the year 2001, the Company recognized the problems and difficulties occurred in the operation in following respects: (1) On one hand, the Company’s competence in the high competitive retail business market was not admirable, and the demand for high and medium grade commodities was insufficient; on the other hand, the Company’s property development was undergoing the preparation phase without immediate profitability. (2) The Company expected a further improvement in its management with specified - 11 - administrative structure and rational department allocation. (3) High-qualified executives were in urgent deed and the present management group needs to be advanced. Confronting with above problems, the Company concluded following solutions implemented in 2002: (1) To attach great emphasis on the development of core business, expand the operation scope while maintaining the operation characteristics, reinforce the brand consciousness. (2) To reset the administrative structure, business flow and management regulations system, so to improve the management level of the Company. (3) To strengthen the human resources development: to introduce high qualified personnel via various channels and by verified methods on one hand and to reinforce training and cultivating the present personnel on the other hand. (4) To reinforce the internal information system structure. (II) Investment By the end of Dec. 31, 2001, balance long-term investment reached RMB 21,461,837.96, a falling of 63.69% over the previous year, or RMB 37,637,726.92. 1. Application of raised proceeds All raised proceeds have been used up in previous years, so the Company applied no raised proceeds in the report period. 2. Investment projects funded with non-raised proceeds May 2001, the Company purchased 10% equity of Shenzhen Rongfa Investment Co., Ltd. from Malaysia Foh Chong & Sons SDN.BHD. at the price of RMB 20.6 with self-owned capital. After the purchase, the Company owned 60% of Rongfa in total, which realized sales revenue of RMB 98,518,313.65 and profit of RMB 39,789,206.49 from main business lines. (III) Financial Highlights and Achievements in Operation Item 2001 2000 +/- (%) Causes Total assets 1,188,321,640.00 1,265,245,320.81 -6.08 Decrease in current assets and long-term assets Long-term liabilities 0 129,828.99 -100 Repayment Shareholders’ equity 372,763,039.20 353,057,243.46 5.58 Increase in profit as of the year Income from main 301,449,766.02 653,336,594.47 -53.86 Periodicity of the property business lines development Profit from main 79,298,682.21 157,124,159.71 -49.53 Decrease in sales reduction business lines Net profit 19,705,795.74 38,870,863.03 -49.30 Decrease in profit from main business lines Inventory 434,669,352.87 310,808,693.18 39.85 Increase in pledge in cost of development Investment in 21,461,837.96 66,441,194.54 -67.70 Assignment of large amount of long-term equity equity Accounts payable 41,614,789.89 84,420,966.85 -50.71 Accounts payable for purchased equipments Tax payable 39,075,460.41 68,341,686.40 -42.82 Decrease in income tax and operation tax Financial 18,475,700.92 13,653,622.49 35.32 Increase in interests paid expenditure (IV) Operation plan for the new year With China’s WTO entrance, business competition in Shenzhen will become more serious in 2002. Under such situation, the Company will continue to improve its core competitiveness, reinforce its internal management and cost control and strive for the maximum profit and high return to the shareholders. To accomplish such targets, the Company will focus on following works: - 12 - 1. The Company will reinforce the brand consciousness, stick to a characteristic operation and explore for the long-term development in aspect of chain store operation. Availing the opportunities brought by the WTO entrance, the Company will further improve its competitiveness through the reinforcement of market analyzing and cooperation with well-known commerce enterprises home and abroad. Meanwhile, the Company will attach great emphasis on the study, research and application of new theory and new operation mode of the chain store commerce domestic and overseas. 2. The Company will stick to the principal of high quality in aspect of its real estate business. Focused on the program and development of Jin Hu Garden project and Shenzhen Central Mall project, the Company will make every effort to cultivate profit growth point for the Company and carry out the land reserve for future five year. As one the three key stores in Shenzhen commercial center, the Central Mall project is estimated to be high-yielding, so the Company will accomplish a thorough success in both planning and development. 3. The Company will further improve its capital operation ability, adopt various methods to vitalize assets and strip bad debts, improve its assets quality as well as its profitability. 4. The Company will enthusiastically carry out the reform on its systems including administrative structure and internal management regulations, and continue to strengthen its construction in informatization and network. 5. The Company will take the reform on distribution system as the starting in the reform on human resources; will establish a fair and rational personnel valuation system and a thorough encouraging system; will carry out the professional training to improve the quality of present staff. (V) Routine Work of the Board of Directors 1. Board meetings in the report period and the resolutions (1) The Company held totally seven Board meetings in the report period, details as follows: 1) The 1st Meeting of the 3rd Board of Directors was held in the conference room on 23/F of Development Center Bldg., Renmin Rd. S., Shenzhen on March 2, 2001. Three of the five directors attended the meeting, in which following resolutions were examined and adopted: a. Resolutions on Changing Domestic Certified Public Accountants; b. Resolutions on Reengaging Overseas Certified Public Accountants; c. Resolutions on Submitting the said two resolutions to 2000 Shareholders’ General Meeting fro approval. Notice on resolutions of the meeting was published in Securities Times and Wen Wei Po dated March 3, 2001. 2) The 2nd Meeting of the 3rd Board of Directors was held in the conference room on 23/F of Development Center Bldg., Renmin Rd. S., Shenzhen on March 14, 2001. Three of the five directors attended the meeting, in which Resolutions on Changing Domestic Certified Public Accountants was examined and adopted: Notice on resolution of the meeting was published in Securities Times and Wen Wei Po dated March 15, 2001. 3) The 3rd Meeting of the 3rd Board of Directors was held in the conference room on 23/F of Development Center Bldg., Renmin Rd. S., Shenzhen on April 12, 2001. Four of the five directors attended the meeting, in which following resolutions were examined and adopted: a. 2000 Work Report of the Board of Directors; b. 2000 Annual Report and the summary; c. 2000 Financial Settlement Report; d. 2000 Profit Distribution Preplan; e. 2001 Profit Distribution Policy; - 13 - f. Resolution concerning Resignation of Dir. Chen Yuming and Recommendation of Mr. Zhang Jianmin as Director Candidate; g. Resolution on Changing Secretary of the Board; h. Resolution on Conformity with Regulations on New Issuance; i. Resolutions on Application for Public Offer for Additional A Share; j. Resolutions on Feasibility on Investment Projects Funded with Proceeds Raised from Additional A Share Issuance; k. Resolutions on Accumulated Profit Distribution before Additional A Share Issuance; l. Resolutions on Applying to Shareholders’ General Meeting for Entrusting Board of Directors with Issues relevant to Additional A Share Issuance; m. Resolution on Engaging Lead Underwriter for the Company’s Additional A Share Issuance; n. Resolution on Convening 2000 Shareholders’ General Meeting. Notice on resolutions of the meeting was published in Securities Times and Wen Wei Po dated April 14, 2001. 4) The 4th Meeting of the 3rd Board of Directors was held in the conference room on 23/F of Development Center Bldg., Renmin Rd. S., Shenzhen on May 30, 2001. Four of the five directors attended the meeting, in which Resolution on Purchasing 10% Equity of Shenzhen Rongfa Investment Co., Ltd. was examined and adopted. Notice on resolution of the meeting was published in Securities Times and Wen Wei Po dated June 1, 2001. 5) The 5th Meeting of the 3rd Board of Directors was held in the conference room on 23/F of Development Center Bldg., Renmin Rd. S., Shenzhen on July 19, 2001. Four of the five directors attended the meeting, in which following resolutions were examined and adopted: a. Resolution on Changing Application of Proceed raised from Additional A Share Issuance; b. Resolution on Assigning Equtiy of Shenzhen Longgang Rongfa Investment Co., Ltd.; c. Resolutions on Applying to Shareholders’ General Meeting for Entrusting Board of Directors with Issues relevant to Decrease of State-owned Shares in conformity with the Law; d. Resolution on Convening the 1st Extraordinary Shareholders’ General Meeting. Notice on resolutions of the meeting was published in Securities Times and Wen Wei Po dated July 24, 2001. 6) The 6th Meeting of the 3rd Board of Directors was held in the conference room on 23/F of Development Center Bldg., Renmin Rd. S., Shenzhen on Aug. 24, 2001. Four of the five directors attended the meeting, in which following resolutions were examined and adopted: a. 2001 Interim Report and the summary; b. 2001 Interim Profit Distribution Plan; c. Report on Rectification and Reform in answer to Problems Pointed by Shenzhen Office of CSRC in Itinerate Inspection; d. Resolution on Amending Work Regulations for the Board of Directors; e. Work Regulations for the General Manager; f. Internal Management System on Withdrawing Provisions for Devaluation of Assets and Disposal on Losses. Notice on resolutions of the meeting was published in Securities Times and Wen Wei Po dated Aug. 29, 2001. 7) The 7th Meeting of the 3rd Board of Directors was held in the conference room on 23/F of Development Center Bldg., Renmin Rd. S., Shenzhen on Nov. 20, 2001. Four of the five directors attended the meeting, in which following resolutions were examined and adopted: - 14 - a. Resolution on Electing Independent Director; b. Resolution on Fixing Allowance for Independent Director; c. Resolution on Amending Articles of Association; d. Resolution on Amending Work Regulations for Board of Directors; e. Resolution on Establishing Rules of Procedure for Shareholders’ General Meeting; f. Resolution on Changing Domestic and Overseas Certified Public Accountants; g. Resolution concerning Self-examination and Self-rectification Report on Legal Operation; h. Resolution on Convening the 2nd Extraordinary Shareholders’ General Meeting. Notice on resolutions of the meeting was published in Securities Times and Wen Wei Po dated Nov. 22, 2001. (2) Implementation of resolutions of the Shareholders’ General Meeting by the Board of Directors In the report period, the Board of Directors strictly, carefully and timely implemented the resolutions of the Shareholders’ General Meeting, safeguarding the interests of all shareholders. As entrusted by 2000 Shareholders’ General Meeting, the Board of Directors did a good job in the additional A share issuance and adjusted the issuance plan closely with the changes in market and policies. However, the additional A share issuance failed to be implemented in 2001 since the domestic securities market maintained a sluggish status and the application and issuance procedure for IPO and additional A share issuance need quite a long time. (VI) Profit Distribution Preplan As audited by Lianda Xinlong Certified Public Accountants under PRC GAAP and Glass Radcliffe Chan Certified Public Accountants under IAS, profit after taxation as at Dec. 31, 2001 was respectively RMB 19,70,795.74 and RMB 471,000. Based on the principal of taking the lower results of the domestic and overseas auditing as the basis of profit distribution, 10% and 5% of profit after taxation as audited under IAS, RMB 471,000, shall be withdrew as public reserve and welfare fund respectively amounting to RMB 47,100 and RMB 23,550. In addition to RMB –26,975,088.12 retained profit at the end of 2000, total profit attributable to shareholders as of 2001 was RMB –26,574,738.12. The Company decided to conduct neither profit distribution nor capital public reserve transferring into share capital for 2001. Such distribution preplan was in contradiction with the estimation stated in 2000 annual report mainly because the Company’s development in No. 19 land located in the central area of Shenzhen still required large amount of fund. The Board adjusted the estimation based on the Company’s actual operation in 2001 for the Company’ consistent and healthy development. (VII) 2002 Profit Distribution Policy The Company plans to conduct once profit distribution upon the completion of the year 2002. 20% to 30% of the net profit will be distributed. The Board of Directors reserved the adjustment rights based on the actual operation of the Company in 2002. (VIII) The Company designated Hong Kong Ta Kung Pao as the overseas newspaper for disclosing information in 2002. IX. REPORT OF THE SUPERVISORY COMMITTEE (I) Particulars on the Work of the Supervisory Committee in the Report Year The Supervisory Committee held 3 meetings in the report year besides attending the Board meetings as non-voting delegates: 1. The 1st Meeting of the 3rd Supervisory Committee of 2001 was held in the Company’s meeting room on April 22, 2001. The 3 supervisors that should attend the meeting were all - 15 - present. The meeting was presided by Ms. Zhou Xiaoxing, the chairman of the Supervisory Committee. Following resolutions were reviewed and passed in the meeting: (1) 2000 Work Report of the Supervisory Committee; (2) 2000 Annual Report and the Report Summary; (3) The proposal on Ms. Xu Li’s resignation as supervisor and electing Mr. Li Mugui, the representative of shareholders, to be candidate of supervisor. The public notice on the resolutions was published in Securities Times and Wen Wei Po dated April 14, 2001. 2. The 2nd Meeting of the 3rd Supervisory Committee of 2001 was held in the Company’s meeting room on August 24, 2001. The 3 supervisors that should attend the meeting were all present. The meeting was presided by Ms. Zhou Xiaoxing, the chairman of the Supervisory Committee. Following resolutions were reviewed and passed in the meeting: (1) 2001 Interim Report and the Summary; (2) 2001 Interim Profit Distribution Plan; (3) The Rectification Report on Problems Found in the Tour Inspection by Shenzhen Securities Superintending and Administration Office of CSRC; (4) The Supplementary Regulation on the Internal Control System of Provision for Assets Devaluation and Disposal of Losses. The public notice on the resolutions was published in Securities Times and Wen Wei Po dated August 29, 2001. 3. The 3rd Meeting of the 3rd Supervisory Committee of 2001 was held in the Company’s meeting room on November 22, 2001. The 3 supervisors that should attend the meeting were all present. The meeting was presided by Ms. Zhou Xiaoxing, the chairman of the Supervisory Committee. Following resolutions were reviewed and passed in the meeting: (1) The Rules of Procedures of the Shareholders’ General Meeting; (2) The proposal on changing Certified Public Accountants; (3) The proposal on the self-inspection and self-correction report on operating standardizedly according to law. The public notice on the resolutions was published in Securities Times and Wen Wei Po dated November 22, 2001. (II) Independent Opinions of the Supervisory Committee on the Company’s Operation 1. Operation according to law In the report year, the Board of Directors seriously implemented various resolutions according to requirements of the Shareholders’ General Meeting, and the decision-making procedures during implementation were in line with PRC Law and the Articles of Association. In the principle of carrying out management cautiously and preventing and resolving risks of losing assets effectively, the Company has established a rather perfect internal control system, which will be officially carried out after being discussed and passed by the Board of Directors; The Supervisory Committee hasn’t found senior executives including directors and managers etc. violating laws, legislations and the Articles of Association or damaging the interests of the Company during their performance of duties. 2. Financial status Lianda Xinlong Certified Public Accountants and Glass Radcliffe Chan Certified Public Accountants Hong Kong issued standard unqualified auditors’ reports for 2001, which truly reflected the Company’s financial status and management results. 3. In the report year, the Company had no application of raised funds. 4. Purchase and sale of assets in the report year. In the report year, the Company purchased and sold assets at reasonable prices. There existed - 16 - neither inside trading nor damage of the rights and interests of part of shareholders or runoff of the Company’s assets. 5. Correlative Transaction in the Report Year In the report year, the Company’s correlative transactions were fair, and the Company’s interests hadn’t been damaged. X. SIGNIFICANT EVENTS (I) Material Lawsuit and Arbitration There was no new lawsuit or arbitration in the report year. Particulars about progress of previous lawsuits and arbitration in the report year are as follows: 1. As the plaintiff in the dispute case, the Company took proceedings against Fanyu Fu Mao Curtain Co., Ltd for the export agreement on processing and producing curtains with imported materials. However, since the defendant has no assets available for prosecution and hasn’t been operating normally, Luohu People’s Court decided judicially to stop the case through SLFZZ (1995) No. 466-3 civil declaration letter. 2. The Company took proceedings against Shen Fa Enterprise Co., Ltd for dispute of debts. The mediate has come into effect through (1997) SLFJTZ No. 34 issued by Shenzhen Luohu People’s Court, which confirmed the debts of RMB 8 million that Shen Fa Enterprise Co., Ltd owed to the Company ended January 31, 1997. The Company made application to the Court for implementing the case according to law. Shen Fa Enterprise Co., Ltd. offset the debts with the No. II-7 resident district of Yantai Development Zone with area of 18388.44 M2 amounting to RMB 8,494,700 in land assessment value, which was priced for the 70% equity rights of Yantai Tong Fa Real Estate Co., Ltd as owned by Shen Fa. The rest of unsettled debts are in process. 3. As the plaintiff in the dispute case of transferring of equity rights, the Company took proceedings against Hong Kong Wei Yi Enterprise Co., Ltd., Shenzhen Hua Yuan Industrial Investment Co., Ltd. and Jiangyin Hua Yuan Thermal Power Co., Ltd. The (1998) SZFJTCZ No. 3 civil mediate letter issued by Shenzhen Intermediate People’s Court has come into legal effect. Ended February 7, 2002, RMB 20 million was claimed. The case is in further process. 4. As the plaintiff in the debt dispute, Shenzhen Economic Zone Development (Group) took proceedings against the Company. According to (2000) YFJYZZ No. 170 civil verdict issued by Guangdong Superior People’s Court, the Company should repay RMB 7,112,950, US$ 1 million and corresponding interests. The two sides came into Reconciliation Agreement on February 4, 2002. Ended February 7, 2002, the Company had repaid RMB 18 million to the defendant. (II) Purchase and Sale of Assets in the Report Year 1. On May 31, 2001, the Company signed an equity share transfer agreement with Malaysia He Chang Father & Son Co., Ltd on purchasing 10% of equity rights that it owned in Shenzhen Rong Fa Investment Co., Ltd. After purchasing, the Company held 60% of equity rights of Shenzhen Rong Fa Investment Co., Ltd. According to the assessment results on the transaction objects by Zhong Hua Financial Accounting Consultant Co., Ltd., ended December 31, 2000, Shenzhen Rong Fa Investment Co., Ltd held total assets of RMB 1,022,100,000 and net assets of RMB 246,610,000. The book value of Shenzhen Rong Fa Investment Co., Ltd ended December 31, 2000 was RMB 746,730,000 of total assets, and RMB 172,270,000 of net assets. According to the principle of equality and fairness, the two parties negotiated and agreed that the price for the 10% of equity rights of Shenzhen Rong Fa Investment Co., Ltd was RMB 20,600,000. The completion of the transaction is beneficial to - 17 - giving full play to the mutual advantages of commercial business and real estate business so as to further realize the management goal as nourishing the commercial business with land business and promoting land business with commercial business. Meanwhile, there are abundant profits in real estate business, which will raise the asset profit-making level by a wide range and will broaden the Company’s development space in the future. The transaction has been notarized in the notary office and approved by Shenzhen Foreign Investment Bureau, and has been registered in Industrial and Commercial Administration Bureau for the change. 2. On June 27, 2001, Shenzhen Rong Fa Investment Co., Ltd in which the Company held 60% of equity rights signed a contract on transferring 75% of equity rights in Shenzhen Long Gang Rong Fa Investment Co., Ltd. with Shenzhen Ya Hao Yuan Investment Co., Ltd. On the same date, Shenzhen Long Gang International Department Store Co., Ltd in which the Company held 100% of equity rights signed a contract on transferring 25% of equity rights in Shenzhen Long Gang Rong Fa Investment Co., Ltd with Guangdong Hua Rong Construction and Engineering Co., Ltd. As audited by Shenzhen Hua Peng Certified Public Accountants, Shenzhen Long Gang Rong Fa Investment Co., Ltd. held total assets of RMB 183,210,000 and net assets of 49,400,000. According to the principle of equality and fairness and negotiation of the two parties, Shenzhen Long Gang International Department Store transferred 25% of equity rights it held in Shenzhen Long Gang Rong Fa Investment Co., Ltd. to Guangdong Hua Rong Construction and Engineering Co., Ltd. at the price of RMB 25 million; Shenzhen Rong Fa Investment Co., Ltd. transferred 75% of equity rights it held in Shenzhen Long Gang Rong Fa Investment Co., Ltd. to Shenzhen Ya Hao Yuan Investment Co., Ltd. at the price of RMB 54,190,000. Meanwhile, Shenzhen Ya Hao Yuan Investment Co., Ltd. paid RMB 133,810,000 running amount for Shenzhen Long Gang Rong Fa Investment Co., Ltd. that it owed to Shenzhen Rong Fa Investment Co., Ltd. Thus Shenzhen Ya Hao Yuan Co., Ltd actually paid RMB 188 million in total to Shenzhen Rong Fa Investment Co., Ltd. Transferring of Shenzhen Long Gang Rong Fa Investment Co., Ltd.’s equity rights vitalized the Company’s stock assets, further enhanced the asset profit-making capability, increased cash flow, and was beneficial to the Company’s sustained development in the future. In the report year, the Company realized investment earnings of RMB 35,053,584.99 through this transaction. (III) Significant Correlative Transactions 1. In the report year, the Company purchased 10% of equity rights of Shenzhen Rong Fa Investment Co., Ltd. and conducted correlative transaction with its shareholder Malaysia He Chang Father & Son Co., Ltd., and the details about the transaction see the above section of “Purchase and Sale of Assets in the Report Year”. 2. March 28, 2001, Shenzhen Rongfa Investment Co., Ltd., a subsidiary of the Company, assigned the project of Shenzhen Liantang Xianghe Garden to Malaysia Malaysia Foh Chong & Sons SDN.BHD. at the price of book value. (IV) Significant Contracts and Implementation of Contracts 1. In the report year, the Company had never kept as custodian, contracted or leased any other company’s assets and vice versa. 2. In the report year, the Company hadn’t signed any significant guarantee contract. 3. In the report year, the Company hadn’t entrusted others to manage assets or handle loans for it. 4. In the report year, the Company hadn’t singed other significant contracts. (V) Promised Events in the Report Year or Carried Down to the Report Year by the Company or Shareholder Holding Over 5% Shares. 1. In the tour inspection, it was found the Company hadn’t handled transferring of ownership - 18 - for part of its estates, towards which the Company made the following promise: The Company will take lessons in the future, assign people to strictly inspect assets regularly, and improve the corresponding legal procedures. Now the relevant procedure of transferring ownership of estates is being gone through. 2. In the tour inspection, it was found the Company and Shenzhen Rong Fa Investment Co., Ltd sometimes shared same account, towards which the Company made the following promise: According to requirements of the Notification of Rectification and on the original basis, the Company will further reinforce financial management work, perfect financial system and internal control system, prevent risks, and safeguard the interests of the Company and all shareholders. (VI) In the report year, the Company relieved Shenzhen Hua Peng Certified Public Accountants and engaged Lianda Xinlong Certified Public Accountants as its domestic accountants. The Company relieved Hua Li Xin Certified Public Accountants Hong Kong, and engaged Glass Radcliffe Chan Certified Public Accountants Hong Kong as its overseas accountants. In 2001, the Company paid RMB 450,000 in total to Certified Public Accountants, among which RMB 200,000 was paid to Lianda Xinlong Certified Public Accountants and RMB 250,000 to Glass Radcliffe Chan Certified Public Accountants. (VII) In the report year, Shenzhen Securities Superintending and Administration Office of CSRC made tour inspection from June 25 to June 29, 2001, and issued SZBFZ [2001] No.304 Document on Notification of Demanding Shenzhen International Enterprise Holding Co., Ltd to Make Rectification and Reform in the Stated Period. In light of listed problems in the Notification of Rectification and Reform, the Company organized directors, supervisors and senior executives to carry out study and discussion and made the Rectification of Report towards Problems Found in the Tour Inspection by Shenzhen Securities Superintending and Administration Office of CSRC. The Company is implementing the rectification measures step by step in its practical work. The Rectification Report was published in Securities Times and Wen Wei Po dated August 29, 2001. (VIII) Impact of China’s Entry into WTO on the Company’s Future Management Since the local commercial market in Shenzhen opened rather early to a fairly wide extent, and foreign retail tycoons entered Shenzhen with great dimensions, in the short run, China’s enter into WTO hasn’t brought much impact on the Company. In the long run, however, it will still bring impact to certain extent, but will offer fair market environment and much more opportunities for the Company at the same. As a result, the Company will get a clear understanding of the situation, make reasonable handling measures, grasp opportunities, and further enhance the Company’s overall competitiveness. (IX) In the report year, there were no significant events happened as listed in Article 62 of Securities Law and in Clause 17 of Detailed Implementation Rules of Information Disclosure for Companies Publicly Issuing Stocks as well as significant events judged by the Board of Directors. XI. FINANCIAL REPORT (I) Auditors’ Report (please refer to the attachment) (II) Consolidated Financial Statements (please refer to the attachment) (III) Notes to the Consolidated Financial Statements (please refer to the attachment) XII. DOCUMENTS AVALIABLE FOR REFERENCE 1. The financial statements carried with signatures and seals of the Company’s legal representative, chief accountants and person in charge of accounting. - 19 - 2. Original of the Auditors’ Report carried with the seals of Lianda Xinlong Certified Public Accounts as well as the signatures and seals of individual certified public accountants; original of the Auditors’ Report carried with the seals of Glass Radcliffe Chan Certified Public Accountants as well as the signatures and seals of individual certified public accounts. 3. Originals of all documents and manuscripts of all public notices disclosed in Securities Times and Wen Wei Po designated by CSRC in the report year. This annual report is prepared in both Chinese and English. Should there be any difference in interpretation between the two versions, the Chinese version shall prevail. Board of Directors of Shenzhen International Enterprise Co., Ltd. April 15, 2002 Attachment: AUDITORS REPORT TO THE SHAREHOLDERS OF SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD. (Incorporated in the Peoples’ Republic of China with limited liability) We have audited the consolidated accounts on pages 2 to 16 of Shenzhen International Enterprise Co., Ltd. (the “Company”) and its subsidiaries (together with the Company referred to as the “Group”) for the year ended 31 December 2001. These consolidated accounts are the responsibility of the Group’s directors. Our responsibility is to express an opinion on these consolidated accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing as promulgated by the International Federation of Accountants. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the accounts are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the accounts. An audit also includes assessing the accounting principles used and significant estimates made by directors, as well as evaluating the overall accounts presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated accounts give a true and fair view of the state of affairs of the Group as at 31 December 2001, and of the profit and its cash flows of the Group for the year then ended in accordance with International Accounting Standards as promulgated by the International Accounting Standards Committee. GLASS RADCLIFFE CHAN Certified Public Accountants Hong Kong, 11 April 2002 - 20 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2001 Notes 2001 2000 RMB’000 RMB’000 Turnover 4 291,824 666,489 Cost of sales (217,293 ) (506,398 ) Gross profit 74,531 160,091 Other revenue less other expenses (76,810 ) (56,300 ) (2,279 ) 103,791 Gain on disposals of subsidiaries 5 47,280 - Impairment in value of land and buildings 6 (24,231 ) - Net finance costs 7 (13,279 ) (16,482 ) Profit before taxation 8 7,491 87,309 Taxation 9 (6,282 ) (14,736 ) Profit after taxation 1,209 72,573 Minority interests (738 ) (39,186 ) Profit attributable to shareholders 471 33,387 Earnings per share 10 Basic RMB0.002 RMB0.151 Diluted RMB0.002 RMB0.151 As the only component of recognized gains and losses is the net profit for the year, a separate statement in this respect is not provided. - 21 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2001 Notes 2001 2000 RMB’000 RMB’000 ASSETS Non-current assets Fixed assets 11 345,294 340,461 Construction in progress 12 42,054 29,315 Long term investments 13 10,000 18,081 Goodwill 14 4,976 - 402,324 387,857 Current assets Inventories 15 370,632 223,037 Properties under development - 256,289 Accounts receivable 55,416 101,824 Prepayments and other receivables 193,097 93,887 Deferred expenses 461 219 Tax recoverable - 1,430 Cash and bank balances 153,571 176,382 773,177 853,068 Current liabilities Bank loans 16 534,440 521,658 Bills payable - 5,000 Amounts due to a shareholder 47,824 - Accounts payable 59,998 90,202 Receipts in advance and other payables 62,494 84,623 Dividends payable 5,271 13,735 Taxes payable 34,963 74,132 Accruals 11,511 7,548 756,501 796,898 Net current assets 16,676 56,170 Total assets less current liabilities 419,000 444,027 Non-current liabilities 17 2,700 2,830 Minority interests 35,629 56,033 NET ASSETS 380,671 385,164 CAPITAL AND RESERVES Issued capital 18 220,901 220,901 Reserves 19 159,770 164,263 380,671 385,164 - 22 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2001 Notes 2001 2000 RMB’000 RMB’000 Net cash inflow/(outflow) from operating activities 20(a) 95,424 (42,398) Returns on investments and servicing of finance Interest paid (24,269) (21,827 ) Interest income 11,781 7,317 Dividend paid (383) (6,409 ) Net cash outflow from returns on investment and (12,871) (20,919 ) servicing of finance Taxation Tax paid (45.451 ) - Tax refund 1,430 19,256 Net cash inflow/(outflow) from taxation (44,021 ) 19,256 Investment activities Proceeds on disposal of fixed assets 883 4,240 Acquisition of fixed assets (48,107 ) (1,997 ) Acquisition of construction in progress (21,617 ) (6,721 ) Additions of intangible assets - (500 ) Additions of goodwill (5,284) - Acquisition of long term investments - (7,667 ) Net cash outflow from investment activities (74,125) (12,645 ) Net cash outflow before financing (35,593 ) (56,706 ) Financing Bank loans 20(b) 12,782 76,163 Net cash inflow from financing activities 12,782 76,163 (Decrease)/Increase in cash and cash equivalents (22,811) 19,457 (Increase)/Decrease in bank balances pledged as securities (38,647) 22,934 to loans Cash and cash equivalents at the beginning of the year 105,382 62,991 Cash and cash equivalents at the end of the year 20(c) 43,924 105,382 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2001 1. CORPORATE INFORMATION Shenzhen International Enterprise Co., Ltd. (“the Company”) was incorporated in 1983 in the People’s of Republic China and was restructured as a stock limited company in 1993. The Company issued A and B shares in 1994 and 1995 respectively in the Shenzhen Stock Exchange. The principal activities of the Company and its subsidiaries (together with the Company referred to as the “Group”) are chain departmental stores, property development, management and trading. - 23 - 2. BASIS OF PREPARATION The financial statements of the Group have been prepared in accordance with the International Accounting Standards (“IAS”) issued by the International Accounting Standard Committee. This basis of accounting differs from that used in the management accounts of the Group companies which were prepared in accordance with generally accepted accounting principles and relevant financial regulations in the PRC (“PRC GAAP”). Adjustments have been made for compliance with IAS but will not be taken up in the accounting books of the companies in the Group. 3. PRINCIPAL ACCOUNTING POLICIES The following principal accounting policies are adopted by the Group in preparing the financial statements to comply with IAS: (a) Basis of consolidation The group accounts comprise the accounts of the Company and its subsidiaries made up to 31 December 2001. All significant inter-company transactions and balances within the Group have been eliminated on consolidation. Minority interests represent the interests of outside shareholders in the operation results and net assets of subsidiaries. The results of subsidiaries acquired or disposed of during the year are included in the consolidated profit and loss account from the effective date of acquisition or up to the effective date of disposal, as appropriate. The group accounts also include the Group’s share of post acquisition profits less losses, and reserves of its associated companies. (b) Subsidiaries A subsidiary is a company in which the Company, directly or indirectly, controls more than half of the voting power or issued share capital or controls the composition of the board of directors. - 24 - 3. PRINCIPAL ACCOUNTING POLICIES – (continued) (c) Fixed assets and depreciation Fixed assets are stated at cost less accumulated depreciation and any provisions for impairment losses required to reflect recoverable amounts. Costs represent the purchase price and any directly attributable costs of bringing the asset to working condition for its intended use. Subsequent expenditure is capitalized when it is probable that future economic benefits, in excess of the originally assessed standard of performance of the existing asset, will flow to the enterprise. All other subsequent expenditure, such as repairs and maintenance and overhaul costs, is recognized as an expense in the period in which it is incurred. Depreciation is provided to write off the cost of fixed assets less their estimated residual values over their anticipated useful lives, on the straight-line method. Estimated useful lives are summarized as follows: - Buildings and land use rights 30 years Office equipment 5 years Motor vehicles 5 years Others 5 years Leasehold improvement 5 years (d) Construction in progress Construction-in-progress represents plant and properties under construction and includes the costs of construction plus interest charges arising from borrowings used to finance the construction during the construction period. (e) Properties held for sale Properties held for sale are stated at the lower of the cost and net realisable value. Cost includes property cost, interest, finance charges and other direct expenses incidental to the construction or acquisition of the properties. Net realisable value is the estimated selling price less related expenses in the normal course of business. (f) Inventories Inventories are stated the lower of cost and net realisable value. Costs, which comprise all costs of purchase, are calculated using the weighted average method. Net realisable value represents the estimated selling prices less all estimated costs of completion and selling expenses. (g) Long term investments Long term investments are stated at cost less provision for permanent diminution in value, if any. (h) Retirement benefit cost The Group participates in retirement schemes operated by local authorities and the annual cost of providing retirement benefits is charged to the consolidated profit and loss account according to the contribution determined by the relevant schemes. - 25 - 3. PRINCIPAL ACCOUNTING POLICIES – (continued) (i) Revenue recognition Revenue from sale of property is recognised when the sales agreements are signed between the Group and the customers and the sales proceeds can be collected with reasonably assurance. Revenue from the sale of goods is recognised upon the transfer of risks and rewards of ownership. Interest income is recognised on a time proportion basis taking into account the principal amounts outstanding and the interest rates applicable. Rental income under operating leases is recognised on a straight line basis over the term of the relevant lease. Service income is recognised when services are rendered. Dividend income from investments is recognised when the right to receive payment has been established. (j) Taxation The charge for taxation is based on the result for the year as adjusted for items, which are non-assessable or disallowable. Timing difference arises from the recognition for tax purposes of certain items of income and expense in a different accounting period from that in which they are recognised in the accounts. The tax effect of timing difference, computed using the liability method, is recognised in accounts to the extent it is probable a liability or an asset will crystallise in the foreseeable future. (k) Goodwill Goodwill represents the excess of purchase consideration over the fair values ascribed to the net assets of subsidiaries acquired and is amortised using the straight-line life method over its estimated useful life. Any impairment of the goodwill will be charged as an expense in the profit and loss account in the period when it is incurred. (l) Foreign currency translation The Company and its subsidiaries maintain their books and records in Renminbi (‘Rmb’) Transactions in foreign currencies are translated at exchange rates quoted by the People’s Bank of China at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into Rmb at the exchange rate quoted by the People’s Bank of China at the balance sheet date. All exchange differences are dealt with in the profit and loss account. - 26 - 3. PRINCIPAL ACCOUNTING POLICIES – (continued) (m) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalized as part of the cost of those assets. Capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs capitalized. All other borrowing costs are recognised as an expense in the period in which they are incurred. (n) Operating leases Leases where substantially all the rewards and risk of ownership of assets remain with the lessors are accounted for as operating leases. Rentals income and expenses under operating leases are credited and charged respectively to the consolidated profit and loss account on a straight-line basis over the term of the relevant lease. (o) Cash and cash equivalents Cash and cash equivalents comprise short term highly liquid investments which are readily convertible into known amounts of cash and which were within three months of maturity when acquired, less advances from banks repayable within three months from the date of the advances. (p) Deferred taxation Deferred taxation is accounted for at the current taxation rate in respect of timing differences between profit as computed for taxation purposes and profit as stated in the accounts to the extent that an asset or liability is expected to be payable or receivable in the foreseeable future. 4. SEGMENT INFORMATION An analysis of the Group’s turnover by principal activities for the year ended 31 December 2001 is as follows: 2001 2000 RMB’000 RMB’ 000 By activities: Property sales 88,737 393,591 Department store sales 194,295 264,508 Rental 1,357 2,721 Rendering of services 7,435 5,669 291,824 666,489 All sales were made in the PRC during the year. 5. GAIN ON DISPOSALS OF SUBSIDIARIES During the year, the Group disposed of two of its subsidiaries to third parties at the consideration - 27 - totalling RMB82,190,000. As the net asset values of these subsidiaries amounted to RMB34,910,000, the gain on disposals of subsidiaries amounting to RMB47,280,000 is recognised in the profit and loss account during the year. 6. IMPAIRMENT IN VALUE OF LAND AND BUILDINGS Certain land and buildings were revalued during the year on an open market value by Shenzhen Zhongpei Real Estate Valuation and Exchange Co. Ltd., an independent local property valuers. As the revalued amounts are RMB77,028,000 whilst the net book values of these land and buildings are RMB101,259,000. The impairment in the value amounting to RMB24,231,000 is charged to the profit and loss account during the year. 7. NET FINANCE COSTS 2001 2000 RMB’000 RMB’000 Interest income (11,781 ) (7,317 ) Net foreign exchange (gain)/loss (1,176 ) 623 Interest expenses - Bank borrowings (exclusive of capitalized interest) 24,269 21,827 - Others 1,280 - Others 687 1,349 13,279 16,482 8. PROFIT BEFORE TAXATION Profit before taxation is stated after charging and crediting the following: 2001 2000 RMB’000 RMB’000 After charging: Depreciation 22,283 14,769 Amortisation of goodwill 308 - Amortisation of intangible assets - 7,519 Rental under operating leases 4,638 1,636 Interest expenses 25,549 21,827 Provision for bad debts 17,980 1,745 Provision for diminution in value of inventories 944 345 And after crediting: Interest income 11,781 7,317 Rental income 17,308 12,430 Gain on disposal of fixed assets 209 2,687 - 28 - 9. TAXATION 2001 2000 RMB’000 RMB’000 Current taxation 6,282 12,036 Deferred taxation - 2,700 6,282 14,736 The Group provided for income tax on the estimated assessable profit for the year at a rate of 15% (2000:15%), the prevailing income tax for all PRC enterprise in Shenzhen. 10. EARNING PER SHARE The calculation of basic and diluted earning per share is based on the consolidated profit for the year of RMB471,000 (2000: RMB33,387,000) and the 220,901,184 shares (2000: 220,901,184 shares) in issue. 11. FIXED ASSETS Buildings and Motor Office Leasehold land use rights vehicles equipment improvement Others Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Cost or valuation At 1 January 2001 412,329 7,817 5,405 120 6,267 431,938 Prior year adjustment (6,020 ) - - - - (6,020 ) As restated 406,309 7,817 5,405 120 6,267 425,918 Additions 42,767 1,485 9,699 3,013 21 56,985 Impairments (Note 6) (24,231) - - - - (24,231 ) Disposals - (1,908 ) (56 ) (119 ) (656 ) (2,739 ) At 31 December 2001 424,845 7,394 15,048 3,014 5,632 455,933 Accumulated depreciation At 1 January 2001 79,279 4,284 4,821 24 3,069 91,477 Prior year adjustment (1,056 ) - - - - (1,056 ) As restated 78,223 4,284 4,821 24 3,069 90,421 Charge for the year 18,902 833 1,960 318 270 22,283 Written back - (1,550 ) (32 ) (21) (462 ) (2,065 ) At 31 December 2001 97,125 3,567 6,749 321 2,877 110,639 Net book value At 31 December 2001 327,720 3,827 8,299 2,693 2,755 345,294 At 31 December 2000 333,050 3,533 584 96 3,198 340,461 As at 31 December 2001, land and buildings with net book values of RMB232,395,000 (2000: RMB421,308,000) have been mortgaged to the banks to secure general banking facilities for the Company and its subsidiaries (Note 25). As at 31 December 2001, accumulated interest capitalized in fixed assets amounted to RMB3,602,000. - 29 - 12. CONSTRUCTION IN PROGRESS Grace Huizhou IBM Mansion International Mainframe Club house Enterprise System Others Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 At 1 January 2001 - 20,437 2,422 6,456 29,315 Additions 16,800 4,817 - - 21,617 Transferred to fixed assets - - (2,422 ) (6,456 ) (8,878 ) At 31 December 2001 16,800 25,254 - - 42,054 At 31 December 2000 - 20,437 2,422 6,456 29,315 13. LONG TERM INVESTMENTS 2001 2000 RMB’000 RMB’000 Unlisted shares in PRC 10,000 10,000 Investment in construction project - 8,081 10,000 18,081 During the year, the investment in construction project with a carrying value of Rmb8,081,000 was used to settle the dividends outstanding due to a shareholder of a subsidiary company. 14. GOODWILL 2001 2000 RMB’000 RMB’000 Cost 5,284 - Amortisation for the year (308 ) - Net book value 4,976 - During the year, the Company acquired a further 10% equity interest in a subsidiary at a cost higher than the 10% of the fair value of the subsidiary. Accordingly, goodwill of Rmb5,284,000 is generated, and the balance is capitalised. 15. INVENTORIES 2001 2000 RMB’000 RMB’000 Inventories at department store 7,594 11,027 Completed properties for sale 363,038 212,010 370,632 223,037 As at 31 December 2001, accumulated interest capitalized in completed properties for sale amounted to RMB76,018,000 (2000: RMB78,246,000). As at 31 December 2001, completed properties for sale with a carrying value of RMB172,857,000 (2000: RMB138,744,000) have been mortgaged to the banks to secure general banking facilities for the Company and its subsidiaries. (Note 25) 16. BANK LOANS 2001 2000 - 30 - RMB’000 RMB’000 Mortgaged loans 287,800 360,008 Guaranteed loans 236,460 154,850 Credit loans 10,180 6,800 534,440 521,658 Guaranteed loans of RMB11,674,000 (2000: Nil) have been overdue since July 2001. Management of the Company is in the process of negotiating with the banks to extend the repayment due date. 17. NON-CURRENT LIABILITIES 2001 2000 RMB’000 RMB’000 Deferred taxation 2,700 2,700 Residential funds - 130 2,700 2,830 During the year, the Company does not have significant timing difference arising from sale of property under development. 18. SHARE CAPITAL 2001 2000 RMB’000 RMB’000 Registered, issued and paid-up: 148,901,184 ‘A’ shares 148,901 148,901 72,000,000 ‘B’ shares 72,000 72,000 220,901 220,901 ‘A’ and ‘B’ shares have a par value of RMB 1 per share and rank pari passu. 19. RESERVES Discretionary Statutory public Statutory Capital surplus Surplus welfare earnings/ reserve reserve reserve fund (loss) Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 At 1 January 2001 51,110 39,225 40,402 16,125 17,401 164,263 Transferred 21,316 10,658 (31,974) - Prior year adjustment - - - - (4,964 ) (4,964 ) Profit for the year - - - - 471 471 At 31 December 2001 51,110 39,225 61,718 26,783 (19,066) 159,770 - 31 - 20. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (a) Reconciliation of profit before taxation to net cash inflow from operating activities 2001 2000 RMB’000 RMB’000 Profit before taxation 7,491 87,309 Minority interests (21,142 ) (6,835 ) Interest expenses 24,269 21,827 Interest income (11,781 ) (7,317 ) Depreciation 22,283 14,769 Amortization 308 7,519 Gain on disposals of fixed assets (209 ) (2,687 ) Impairments in fixed assets 24,231 - Decrease/(Increase) in inventories 108,694 (108,403 ) Decrease/(Increase) in accounts receivable 46,408 (77,240 ) (Increase)/Decrease in prepayments and other receivables (99,210 ) 68,798 Increase in deferred expenses (242 ) (9) Decrease in bills payable (5,000 ) (15,000) Increase in amount due to a shareholder 47,824 - Decrease in accounts payable (30,204 ) (5,085 ) Decrease in receipts in advance and other payables (22,129 ) (21,647) Increase in accruals 3,963 1,603 Decrease in non-current liabilities (130) - Net cash inflow/(outflow) from operating activities 95,424 (42,398) (b) Analysis of change in financing during the year Bank loan RMB’000 Balance as at 1 January 2001 521,658 Additions during the year 752,544 Repayments during the year (739,762 ) Balance as at 31 December 2001 534,440 (c) Analysis of cash and cash equivalents 2001 2000 RMB’000 RMB’000 Cash and bank balances 153,571 176,382 Less: Fixed deposits pledged as securities to bank loans (109,647) (71,000) Cash and cash equivalents 43,924 105,382 - 32 - 21 PRIOR YEAR ADJUSTMENTS Increase/(Decrease) Increase/(Decrease) in the retained Increase/(Decrease) in the retained profits at in the profit for profit at 31 December 2001 the year 31 December 2000 RMB’000 RMB’000 RMB’000 Correction of fundamental errors: - Fixed assets overstated (6,020 ) - (6,020 ) - Accumulated depreciation overstated 1,975 1,455 520 (4,045 ) 1,455 (5,500 ) This relates to rectification of the error in calculating the 2000 prior year adjustment arising from the inter-group sale of properties in 1997. 22. PRINCIPAL SUBSIDIARIES Place of equity establishment/ Registered Principal Interest Subsidiaries incorporation capital activities held Shenzhen Rongfa Property Shenzhen RMB7,000,000 Property Management 61.00% Management Co., Ltd. Shenzhen Rongfa Investment Co., Shenzhen USD5,000,000 Property construction and 60.00% Ltd. trading Shenzhen Chunhua Shenzhen RMB3,000,000 Medical drugs and 75.00% Pharmaceutical Co., Ltd. equipment Shenzhen International Enterprise Shenzhen RMB3,000,000 Medical drugs and 98.00% Pharmaceutical Co., Ltd. equipment Shenzhen International Enterprise Shenzhen RMB5,600,000 International trading 98.75% Trading Co., Ltd. Shenzhen International Arcade Shenzhen RMB10,000,000 Dormant 100.00% Chain Store Shenzhen Longgang International Shenzhen RMB15,000,000 Department store operation 100.00% Arcade Enterprise Co., Ltd. Shenzhen International Arcade Shenzhen RMB10,000,000 Department store operation 98% Co. Ltd. 23. LEGAL LITIGATIONS (1) In a court case for a claim amounting to RMB10,000,000 in respect of the guarantee given to Shenzhen Development Bank Co. Ltd, it is held at 31 May 2001 that the Company is responsible for the outstanding loans. As the Company now lodged an appeal to the High Court of Guangdong Province and the beneficiary is in the course of re-structuring, the Directors are of the opinion that no provision is required in 2001. (2) The Company was held as a defendant in a court case raised by the People’s Bank of China for the guarantee given to a third party of RMB6,000,000. As the litigation is still in progress, the Directors are of the opinion that no provision is required in 2001. 24. CONTINGENT LIABILITIES (1) During the year, a subsidiary provided guarantee to mortgagees for the mortgage loans for the purchases of residential properties in Grace Mansion for the period from - 33 - the year 2000 to 2020 to the extent of RMB450million. (2) The Company provided a counter guarantee to a third party for a bank loan of RMB6 million. This party is unable to meet the repayment when the loan falls due on 14 February 2000. The Company is now in the process of negotiating with the bank for the settlement of the counter guarantee given to the third party. (c) During the year, a subsidiary is unable to meet the repayment for the bank loans of RMB10 million when they fall due on 13 August 2001. The subsidiary is now negotiating with the bankers for the new banking facilities. 25. PLEDGE OF ASSETS As at 31 December 2001, bank fixed deposits of RMB109,647,000 (2000: RMB71,000,000), properties under development of RMB172,857,000 (2000: RMB138,744,000) and land and buildings with a net book value of RMB232,395,000 (2000: RMB421,308,000) have been pledged to the banks for the general banking facilities granted to the Group. 26. OPERATING LEASES (a) Leases as leasee Non-cancellable operating leases are payable as follows: 2001 2000 RMB’000 RMB’000 Land and buildings - expiring in the first year 681 42 - expiring in the second to fifth years inclusive 7 - - expiring after the fifth year 37,995 36,299 38,683 36,341 (b)Leases as lessor The Group leases out certain properties under non-cancellable operating leases. Rental income to be received as follows: 2001 2000 RMB’000 RMB’000 Land and buildings - expiring in the first year 1,947 - - expiring in the second to fifth years inclusive 8,016 - - expiring after the fifth year - - 9,963 - - 34 - 27. IMPACT OF IAS ADJUSTMENTS ON PROFIT/LOSS Profit for the year ended 2001 2000 RMB’000 RMB’000 As reported in financial statements prepared in accordance with PRC GAAP 19,706 36,123 Adjustment to conform with IAS: Write off of intangible assets (162 ) (2,333 ) Provision for doubtful debts (264 ) - Provision for obsolete stock (843 ) (345 ) Taxation paid (212 ) (34 ) Additional depreciation charge (1,618 ) (24 ) Leasehold improvement capitalised 655 - Net profit of long term assets written off in the previous years disposed of during the year 5,406 - Minority interest 2,647 - Sales of property under development (3,781 ) - “A share” Prior year adjustments (21,063 ) - 471 33,387 28. IAS IMPACT ON CONSOLIDATED NET ASSETS 31 December Consolidated net assets 2001 2000 RMB’000 RMB’000 As reported in financial statement prepared in accordance with PRC GAAP 372,76 424,66 3 2 Adjustments to conform to IAS: Written off of intangible assets (162 ) (2,213 ) Provision for bad debts and doubtful debts (264 ) - Write back of the assets written off in the previous - years 5,406 - Provision for obsolete stock (843 ) (345 ) Provision for depreciation (1,618 ) - Leasehold improvement capitalized 655 - Adjustment on current assets - (120 ) Adjustment on fixed assets - 1,551 Consolidate adjustments 4,734 (10,877 ) - 35 - Prior year adjustments - (27,494 ) 380,67 385,16 1 4 - 36 -