武锅B退(200770)武锅Ｂ2001年年度报告（英文版）

WUHAN BOILER CO., LTD. 2001 ANNUAL REPORT Important: Board of Directors of Wuhan Boiler 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. This report has been prepared in Chinese version and English version respectively. In the event of difference in interpretation between the two versions, the Chinese report shall prevail. Board of Directors of Wuhan Boiler Co., Ltd. I. COMPANY PROFILE 1. Legal Name of the Company In Chinese: 武汉锅炉股份有限公司 In English: WUHAN BOILER COMPANY LIMITED Abbr.: WBC 2. Legal Representative: Chen Bohu 3. Secretary of the Board of Directors: Liu Chengxiang Liaison Address: No. 586, Wu Luo Road, Wuhan, Hubei Liaison Tel: (86) 27-87655140 Liaison Fax: (86) 27-87655152 E-mail: wbgchw@public.wh.hb.cn Authorized Representative in Charge of Securities Affairs: Xu Youlan Liaison Tel: (86) 27-87657153 Liaison Fax: (86) 27-87655152 E-mail: wbgchw@public.wh.hb.cn 4. Registered Address and Office Address: No. 586, Wu Luo Road, Wuhan, Hubei Post Code: 430070 Internet Website: HTTP://WWW.WBCL.COM.CN E-mail: wbgchw@public.wh.hb.cn 5. Newspapers Chosen for Disclosing the Information of the Company: Securities Times (Domestic), Ta Kung Pao (Overseas) Internet Website for Publishing the Annual Report: http://www.cninfo.com.cn Place Where the Annual Report is Prepared and Placed: Securities Dept. of the Company 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: WUGUO – B Stock Code: 200770 7. Other Information of the Company 1 Initial Registration Date: On Apr. 8, 1998, the Company was formally incorporated. Initial Registration Place: No. 586, Wu Luo Road, Wuhan, Hubei New Registration Date: on Nov. 16, 1998, the Company changed the registration with Hubei Provincial Bureau of Administration for Industry and Commerce as a Sino- foreign joint-stock limited company. New Registration Place: No. 586, Wu Luo Road, Wuhan, Hubei Registration Number of Enterprise Juristic Person’s Business License: QGEZ Zi No. 002591 Registration Number of Taxation: 420106271756432 The Certified Public Accountants Engaged by the Company: Domestic: Wuhan Zhonghuan Certified Public Accountants Address: 16/F, B Block, Wuhan International Building Overseas: Pricewaterhouse Coopers Certified Public Accountants Address: Post Box 1448, New York, U.S.A. II. FINANCIAL HIGHLIGHTS AND BUSINESS HIGHLIGHTS Item and amount of deducting non-recurring gains and losses (Unit: In RMB) Retroactive adjustment on previous year’s net profit 1,115,822.97 due to changing of accounting policy Gains and losses of current assets 1,453,934.37 Capital occupancy fee paid or received 2,080,370.95 Net income /expenditure from non-operation -1,721,946.64 The net profit is RMB 19.063 million as adjusted by Pricewaterhouse Coopers Certified Public Accountants under International Accounting Standards (“IAS”). The impact of IAS and other adjustments on the PRC statutory consolidated financial statements is as follows: 2001 Net profit Net assets RMB’000 RMB’000 As per the PRC statutory consolidated financial statements 18,010 503,010 IAS and other adjustments - Reversal of investment revaluation gain - (2,230) - Others 245 - - Declared cash dividend after balance sheet date - 7,425 - Deferred tax 808 808 As restated after IAS and other adjustments 19,063 509,013 III. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT THE SHAREHOLDER 1. Changes in Share Capital Unit: In Share Increase / decrease in this year (+ / -) Before the After the Share Bonus Capitalization of Sub- change Others change allotment share public reserve total I. Unlisted shares (1) Promoters’ shares 2 Including: State-owned shares Domestic juristic person’s shares 172000000 172000000 Foreign juristic person’s shares Others (2) Raised juristic person’s shares (3) Employees’ shares (4) Preference shares or others Total unlisted shares 172000000 172000000 II. Listed shares (1) RMB ordinary shares (2) Domestically listed foreign shares 125000000 125000000 (3) Overseas listed foreign shares (4) Others Total listed shares 125000000 125000000 III. Total shares 297000000 297000000 2. Issuance and Listing of share (1) On March 20, 1998, the Company placed in total 125,000,000 domestically listed foreign shares (B shares) to foreign investors at the issuance price of HKD 1.496 per share. The shares were listed in Shenzhen Stock Exchange for trading from April 15, 1998 with the stock code as 2770. (2) In the report year, there are no changes in the total number of share and structure of share capital of the Company. (3) On June 27, 2001, the Company distributed cash dividend to all shareholders at the rate of RMB 0. 2 (tax included) for every ten shares and amounted to RMB 5.94 million. 3. About shareholders: (1) Ended Dec. 31, 2001, the Company had totally 21,088 shareholders, including 1 promoter shareholder (Wuhan Boiler Group Co., Ltd); 21,087 shareholders of domestically listed foreign shares. (2) Particulars about shares held by the principal shareholders Ended Dec. 31, the top ten shareholders holding share of the Company are as follows: Number of holding Increase or Proportion No. Shareholders Shares at the year- decrease in total Pledged or frozen Type of share end (share) (+,-) shares (%) 101.4006 million shares Domestic juristic 1 WUHAN BOILER GROUP CO., LTD 172,000,000 0 57.9 were frozen person’s share 2 MULTI-NATIONAL CO., LTD. 2,300,000 0 0.77 Shares in circulation 3 LI BINLI 1,187,353 1,187,353 0.40 Shares in circulation 4 Guomeng Investment Co., Ltd. 695,500 -764,600 0.23 Shares in circulation 5 BEST RELIANCE INVESTMENTS LTD 575,800 575,800 0.19 Shares in circulation 6 CHEN QIAN FEN 517,600 517,600 0.17 Shares in circulation 7 YANG XUE FANG 500,000 500,000 0.17 Shares in circulation 8 Tewei (International) Industrial Co., Ltd. 469,690 469,690 0.16 Shares in circulation 9 WANG YANG GUANG 450,000 450,000 0.15 Shares in circulation 10 CHEN SHU KAI 425,000 425,000 0.14 Shares in circulation Note: Huabao Trust and Investment Co., Ltd. had applied to Shanghai Municipality Higher People’s Court for freezing 155,400,600 shares of the Company held by Wuhan Boiler Group Co., Ltd. with confirmation. Presently, 54,000,000 shares have been unfrozen, while the rest 101,400,600 shares were still frozen. Note: Among the top ten shareholders as listed above, there exists no association relationship. 3 (3) The holding shareholder ① Wuhan Boiler Group Co., Ltd. (“the Group Company”) was established on Aug. 8, 1995. Ended Dec. 31, 2001, the Group Company holds 172 million shares of the Company, taking 57.9% of total shares. Legal representative is Mr. Huang Jiang; registration capital is RMB 90.596; registration number of enterprise juristic person’s business license: 4201001100902; registration place: No. 586 of Wu Luo Road, Wuhan, Hubei. Business scope: invest and operate the state assets based on the authorization for operation and management; development, design and whole set installing of boiler, pressure vessels and related mechanical and electrical products, and the import and export businesses subject to approval of the state; truck transportation; (including the business scope of the subsidiaries) (For the projects as specified by the state, the Company can only do the businesses subject to the authorization). Wuhan Boiler Group Co., Ltd. is wholly-owned subsidiary company of Wuhan Mechanical and Electrical Holding (Group) Company. ② There is no change in holding shareholder of the Company in the report year. ③ The Company has no shareholder holding over 10% shares of the Company except for the holding shareholder. IV. PARTICULARS ABOUT DIRECTOR, SUPERVISOR, SENIOR EXECUTIVE AND STAFF (I) Directors, supervisors and senior executives Number of holding Increase or Number of holding Name Gender Age Title Office term share at the year- decrease in share at the year-end begin (share) this year (share) Chen Bohu Male 38 Chairman of the Board Apr. 2001-Apr. 2004 0 0 0 Xiang Rongwei Male 48 Director, General Manager Apr. 2001-Apr. 2004 0 0 0 Li Jun Male 43 Director Apr. 2001-Apr. 2004 0 0 0 Chen Helin Male 52 Director Apr. 2001-Apr. 2004 0 0 0 Jin Taozhi Female 52 Director Apr. 2001-Apr. 2004 0 0 0 Liu Chengxiang Male 53 Director Apr. 2001-Apr. 2004 0 0 0 Wang Zongjun Male 38 Independent Director Apr. 2001-Apr. 2004 0 0 0 Zhou Maorong Male 56 Independent Director Apr. 2001-Apr. 2004 0 0 0 Li Donghui Male 34 Independent Director Apr. 2001-Apr. 2004 0 0 0 Zhang Haiqing Male 52 Convener of the Supervisor Apr. 2001-Apr. 2004 0 0 0 Committee Wang Haili Male 47 Supervisor Apr. 2001-Apr. 2004 0 0 0 Zeng Xianping Male 52 Supervisor Apr. 2001-Apr. 2004 0 0 0 Bai Xixin Male 38 Deputy General Manager Apr. 2001-Apr. 2004 0 0 0 Hua Lixin Male 37 Deputy General Manager Apr. 2001-Apr. 2004 0 0 0 Jin Zhicheng Male 42 Deputy General Manager Apr. 2001-Apr. 2004 0 0 0 Pei Hanhua Male 42 Deputy General Manager Apr. 2001-Apr. 2004 0 0 0 Chen Xingzhi Male 31 Secretary of the Board Apr. 2001-Feb. 2002 0 0 0 Note: Mr. Chen Xingzhi resigned from the post of Secretary of the Board due to work demand in Feb. 2002. The Company has engaged Director Mr. Liu Chengxiang as the Secretary of the Board. The relevant notice was published in Securities Times dated Feb. 25, 2002. (II) The process of decision-making and determinate basis of the payment received by directors, supervisors and senior executives 1.The Company pays the annual salary to directors, supervisors and senior executives 4 based on the distribution system of wage and the merit system of economic duty. The distribution system of wage implemented in 2001 comprised mainly the position and skill wage, monthly bonus, which was determined according to the merit system of economic duty and the completion of various economic indexes and technical targets monthly, and the annual bonus, which was determined based on the completion of various economic indexes and technical targets yearly. 2. The total amount and range of annual salary The total annual salary received by directors, supervisors and senior executives from the Company is RMB 318,500. The range of annual salary: RMB 30,000 to RMB 40,000 2 persons RMB 20,000 to RMB 30,000 8 persons RMB 10,000 to RMB 20,000 3 persons The total amount of the top three directors’ annual salary is RMB 96,200. The total amount of the top three senior executives’ annual salary is RMB 74,100. 3. Directors, supervisors and senior executives received no pay from the Company Independent Director: Wang Zongjun, Zhou Maorong and Li Donghui Supervisor: Wang Haili 4. Particulars about change in directors, supervisor and senior executives in the report year In the report year, the office term of 1st Board of Directors and 1st Supervisory Committee were expired. The 1st Extraordinary Shareholders’ General Meeting examined and approved the proposal on reelection of the Board of Directors and the proposal on reelection of the Supervisory Committee dated April 4. Mr. Chen Bohu, Mr. Li Jun, Mr. Xiang Rongwei, Mr. Chen Helin, Ms. Jin Taozhi, Mr. Liu Chengxiang, Mr. Zhou Maorong, Mr. Wang Zongjun and Mr. Li Donghui were elected as the member of the 2nd Board of Director; Mr. Zhang Haiqing, Mr. Wang Haili and Mr. Zeng Xianping were elected as the member of the 2nd Supervisory Committee. In the 1st meeting of 2nd Board of Directors, Mr. Chen Bohu was elected as Chairman of the Board; Mr. Xiang Rongwei was engaged as General Manager; Mr. Bai Xixin, Mr. Hua Lixin, Mr. Jin Zhicheng and Mr. Pei Hanhua were engaged as Deputy General Manager respectively; Mr. Chen Xingzhi was engaged as Secretary of the Board. In the 1st meeting of 2nd Supervisory Committee, Mr. Zhang Haiqing was elected as Convener of the Supervisory Committee; Mr. Wang Haili and Mr. Zeng Xianping were engaged as Supervisor respectively. 3. In 2001, of directors, supervisors and senior executives, seven enjoy their annual salary from RMB 50,000 to RMB 80,000 respectively; three enjoy their annual salary under RMB 50,000 respectively. (III) Number of staff and professional composing The Company has totally 2820 employees by the end of the report year: Profession/occupation composition: Items Number (person) Proportion (%) Production personnel 2029 71.9 Engineers and technicians 423 15.0 Management personnel in a specific field 287 10.2 Administration personnel 81 2.9 Total 2820 100 Education Background: 5 Items Number (person) Proportion (%) Undergraduate or above 233 8.3 3-year regular college graduate 611 21.7 Senior high school (including technical 1460 51.8 secondary school and technical school) Junior high school or lower 516 18.2 Total 2820 100 At present, there exists no retiree in the Company. V. COMPANY ADMINISTRATION STRUCTURE (I) Particulars about Company Administration After listing in the Stock Exchange, the Company strictly implements the Securities Law, the Company Law, the Regulation of Listing in Shenzhen Stock Exchange, the Administration Standard of listed Company and other relevant laws and regulations, continuously improves its administration structure of legal person, and has established modern business system. The Company has prepared the administrative rules including Company Rule, the Rules of Procedures of Shareholders’ General Meeting, the Rules of Procedures of Board of Directors, the Rules of Procedures of Supervisory Committee, the Regulations of Information Disclosure, etc. The Company was in conformity with the Administrative Standards for Listed Company issued by the CSRC and implements it ulteriorly during the work procedures, and include following items: 1. Shareholders and Shareholders’ General Meeting The company insures all shareholders, especially the small or medium shareholders, can exert their rights completely. The company has established the Rules of Procedures of Shareholders’ General Meeting, called and held the Shareholders’ General Meeting according to the Standard Opinions of Shareholders’ General Meeting strictly; fully safeguarded the shareholders to implement the rights and interests of shareholders. The related transactions of company were fair and reasonable, and fully disclosed the base of making the price. 2. Directors and the Board of Directors The company elected the directors according to the regulations of Company Rules and the structure of members of Board of Directors was in conformity with the laws and regulations. The Board of Directors has established the Rules of Procedures of Board of Directors, every director attended the Shareholders’ General Meeting and the Board of Directors with responsible and serious attitude, participated in related trainings, studied related laws and regulations, knew the rights and liabilities of being a director. The company has established the Rules of Work of Independent Directors according to Guided Opinions about Establishing the Independent Directors in the Listed Company issued by the CSRC. 3. Supervisors and the Supervisory committee The number and structure of the member of Supervisory committee was in accordance with the laws and regulations. The Supervisory committee has established the Rules of Procedure of Supervisory committee; the supervisors implemented their liabilities seriously, and conducted supervision over the finance of the Company and the implementation of the duties of managers and other senior executives. 4. Achievements Assessment and System of Bind and Stimulation The Company was establishing the fair, transparent Standard of Achievements Assessment and System of Bind and Stimulation of directors, supervisors, and managers. 5. Related beneficiaries The Company fully respected and maintained the legal rights and interests of the bank and 6 other creditors, staffs, clients, etc. and promoted the constant, healthy development of the Company. 6. The information disclosure and the transparency The Company appointed the Secretary of Board of Director in charge of the work of information disclosure, and the reception of the visit and inquiry of the shareholders; the Company has established the Regulations of Information Disclosure according to the laws, regulations and Company rules with a view to safeguarding the verity, veracity, integrality, timeliness and insured all the shareholders have the equal chances to acquire the information. (II) Implement duties of the independent directors The Company has elected the Mr. Wang Zongjun and Mr. Zhou Maorong to be the independent directors on the 1998 Annual Shareholders’ General Meeting held on the May18, 1999 according to the Guided Opinions about Establishing the Independent Directors in the Listed Company issued by the CSRC; has elected the Mr.Li Donghui to be the independent director on the 1999 Annual Shareholders’ General Meeting held on the May16, 2000. In the report period, the first term Broad of Director was at the expiration, the Company has elected the Mr. Wang zongjun, Mr. Zhou Maorong and Mr. Li Donghui to be the independent directors on the 1st Extraordinary Shareholder’s General Meeting held on the April 4, 2001. The independent directors were cautious to hold the investment project of raising money, management of the operation of the Company, programming of development and the alternation of strategies. Mr. Li Donghui and Mr. Wang Zongjun participated the training of independent director of listed company jointly held by the Tsinghua University and CSRC. (III) The relationship with the control shareholders in aspects of staff, asset, finance, association and business The Company was completely independent of its control shareholders in terms of personnel, assets, finance, organization and business; independently bears the responsibility and risk in disconnected accounting. In aspect of staff, the Company has established the independent regulations of the labor, personal, and the administration of salary; all senior executives hold the full-time position and draw the salary in the Company, they did not take part-time job in the control shareholders’ company. The employment strictly complies with the Company Law and Articles of Association of the Company. In aspect of assets, the Company keeps the clear property right relationship with the control shareholders; there exist no occupation of the assets, funds and other resources by the control shareholders. In aspect of finance, the Company has set up the independent accounting department, and has established the wholesome, independent Accounting System and Financial Management System; and made the independent decision of accounting according to the strict accounting regulation of listed company. The Company has independent bank account, and paid taxes according laws. In aspect of organization, the establishment of association was independent, integral, and the Company possessed the good efficiency and mechanism of operation; the establishment of administration structure of legal person was strictly in accordance with the Company Rule; the product operation and the administration was completely separate from control shareholders. The Company has established the association in accordance with the demand of self-development. 7 In aspect of business, the Company has the independent, integral business and the ability of self-operation. The Company has the independent system of purchase, sale and production, and can complete the purchase, production, and sale through our own system of purchase, production, and sale. (IV) Particulars of the mechanism of assessment, stimulation and bind for senior executives of the Company in the report period For the purpose of long-term developing, the Company has established the mechanism of assessment for senior executives. The Shareholders’ General Meeting was in charge of the assessment of directors including assessing their achievements of operation of capital, decision-making of investment, and standard operation of company administration based on the maintenance and increase of capital, profile of market and the external assessment of supervisory department. The Board of Director was in charge of the assessing of managers, and assessed the implementation of operation and management and acquirement of business achievements based on the accomplishment of operation objective and calculating plan. VI. BRIEF INTRODUCTION OF SHAREHOLDERS’ GENERAL MEETING (I) 2000 Annual Shareholders’ General Meeting The Company has held the 2000 Annual Shareholders’ General Meeting on May 25, 2001 at the conference room of No.586, Wuluo Road, Wan Han, Hu Bei. There are three directors and authorized representatives attended the meeting, representing 172,000,000 state-owned legal person shares and 20,900 B shares in circulation, taking 57.92% of the company's total share capital, which was in conformity with the Company Law of People Republic of China and the Articles of Association. The resolutions of the meeting were as follows: (1) Reviewed and approved the 2000 Annual Work Report and 2001 Annual Work Plan (2) Reviewed and approved the 2000 Annual Work Report of Board of Director (3) Reviewed and approved the 2000 Annual Work Report of Supervisory Committee (4) Reviewed and approved the 2000 Annual Accounting Report (5) Reviewed and approved the Proposal of 2000 Annual Distribution of Profits The Company distributed cash dividend to all shareholders at the rate of RMB 0. 2 (tax included) for every ten shares and amounted to RMB 5.94 million. (6) Reviewed and approved the Proposal on Reengagement of Wuhan Zhonghuan Certified Public Accountants and Price Waterhouse Coopers Certified Public Accountants respectively as 2001 annual auditors (7) Reviewed and approved the Proposal of Explanation to the Application of Previously- raised Proceeds by Board of Directors (8) Reviewed and approved the proposal of Additional Issuance of RMB Common Shares (9) Reviewed and approved the proposal of Additional Issuance of RMB Common Shares no more than 80,000,000 shares (10) Reviewed and approved the Proposal on Feasibility of Application of Additional Issuance Resolutions of the meeting were published in China Securities and Ta Kung Pao dated May 26, 2001. (II) The 1st Extraordinary Shareholders’ General Meeting 2001 The Company held its 1st Extraordinary Shareholders’ General Meeting 2001 at conference room of No.586, Wu Luo Road, Wuhan, Hubei. There are three directors and authorized 8 representatives attended the meeting, representing the 172,000,000 state-owned legal person shares and 20,900 B shares in circulating, and 57.92% of the company's total share capital, in conformity with the Company Law of People Republic of China and the Company Rule. The resolutions of the meeting as follows: (1) Reviewed and approved the proposal of re-election of Board of Director Elected the Mr. Cheng Bohu, Mr. Li Jun, Mr. Xiang Rongwei, Mr. Chen Helin, Ms. Jin Taozhi, Mr. Liu Chenxiang, Mr. Zhou Maorong, Mr. Wang Zongjun, and Mr. Li Donghui to be the members in the 2nd Board of Director; (2) Reviewed and approved the proposal of re-election of Supervisory Committee; Elected the Mr. Zhang Haiqing, Mr. Wang Haili, and Mr. Zeng Xianping to be the members in the 2nd Supervisory Committee (3) Reviewed and approved the proposal of purchase the Wuhan Boiler Group Special Boiler Equipment Co., Ltd.; Purchased the 90% shares of Wuhan Boiler Group Special Boiler Equipment Co., Ltd., the book net assets is RMB 11,477,400, value of evaluation is RMB 11,683,200; purchased 90% shares and the price of purchase is RMB 10,510,000 (4) Reviewed and approved proposal of purchase all operation assets of Wuhan boiler Group Technology Center subsidiary to Wuhan Boiler Group Co., Ltd. The Company resolved to purchased all operation assets of Wuhan boiler Group Technology Center subsidiary to Wuhan Boiler Co., Ltd., whose carrying amount of net assets was RMB 15,063,500 and appraised value was RMB 19,169,400, at the price of RMB 19,170,000. (5) Reviewed and approved of proposal of purchase parts of shares Wuhan Boiler Group Valve Manufacture Co., Ltd.; The Company planned to purchase 90% equity of the Wuhan boiler Group Valve Manufacture Co., Ltd. from Wuhan Boiler Group; (6) Re viewed and approved of proposal of purchase parts of shares Wuhan Boiler Group Yongtong Co., Ltd. The Company planned to purchase 90% equity of the Wuhan boiler Group Yongtong Co., Ltd. from Wuhan Boiler Group; (7) Reviewed and approved the Complementary Agreement of the Contract of Transfer of Equipment and Technology; The Company purchased the boiler related manufacturing equipments, whole sets engineering, and proprietary technology at the price of RMB 41,217,600. The Wuhan Boiler Group Co., Ltd. is avoided when voted the above (3), (4), (5), (6) and (7) items, other shareholders attended the meeting passed without opposition. Resolutions of the 1st Extraordinary Shareholders’ Meeting were published in Securities Times and Ta Kung Pao dated April 5, 2001. VII. REPORT OF THE BOARD OF DIRECTORS (I) Scope of Main Business Lines and Management The Company is mainly engaged in the development, production and sales of power station boilers, special boilers, desulfurization equipment and other pressure vessels as well as auxiliary equipment. 1. Distribution of the main business lines in 2001 according to industry: Industry Income of main business lines Profit of main business lines Machinery Manufacturing RMB 404,267,135.91 RMB 82,033,984.96 The Company belongs to the industry of machinery manufacturing that provides special equipment for energy and environmental protection industries. 9 2. Distribution of the main business lines in 2001 according to regions: Region Income of main Percentage in the income Profit of main Percentage in the profit business lines of main business lines business lines of main business lines North region 262,318,316.07 64.9% 69,725,467.26 85% South region 141,948,819.84 31.1% 12,308,517.70 15% Total 404,267,135.91 100% 82,033,984.96 100% 3. Distribution of the main business lines in 2001 according to products: Product Income of main Percentage in the income of Profit of main Percentage in the profit business lines main business lines business lines of main business lines Boilers 404,267,135.91 100% 82,033,984.96 100% 4. Basic situations of main products: Product Market ratio Sales income Sales costs Gross profit Boilers 12% 404,267,135.91 322,233,150.95 20.3% The Company realized RMB 404,267,135.91 of income from main business lines in 2001, 60.9% more than the corresponding period of 2000. The profit of main business lines amounted to RMB 82,033,984.96, 73.4% more than the corresponding period of 2000. (II) Management and Achievements of the Main Control Company and Company that Purchases Shares The control company - Wuhan Special Boiler Whole Set Equipment Co., Ltd. was purchased by the Company in 2001 as its subsidiary, which is mainly engaged in contracting various construction projects and sales of whole set equipment and various boiler auxiliary equipment. The subsidiary registered capital of RMB 11.68 million, and the Company held 90% of its equity rights. The total assets the subsidiary held in 2001 amounted to RMB 55.44 million, sales incomes amounted to RMB 23.8 million, and net profit realized amounted to RMB 0.83 million. The Company has no branch, partially controlled subsidiary, or other jointly operated company. (III) Main Suppliers and Customers The first five suppliers shared 65.81% of the Company’s annual purchase amount, and the first five customers shared 66.03% of the total sales amount. (IV) Problems and Difficulties that Occurred in Management and Their Solutions In order to ensure regular electricity demand of the development of national economy, the country set about some of planned power station projects in the initial stage of the “10th Five-year Plan” one after another, which aroused great demand for power station boilers so that contract orders increased in 2001 by a wide range. Meanwhile, since the company grasped the opportunities in the electricity generating equipment market provided by the significant strategies such as “Development in the West” of the nation’s “10th Five-year Plan” and “Western power sent to the east” etc., and relied on its traditional competition advantage in the west market, it won great market share. During the period of the “10th Five Year Plan”, the Company further invested money in protecting and administrating of environmental pollution. Correspondingly, the Company stressed on production of environmental protection and energy-saving boilers as another emphasis of adjustment of products structure, reinforce the research, production and market developing of environmental protection and energy-saving boilers, and obtained effects continuously so that sales of environmental protection and energy-saving boilers 10 increased rapidly. Generally speaking, in 2001, demand for power station boilers rebounded, orders of power station boilers increased, and sales of environmental protection and energy-saving boilers increased. The Company achieved better management than last year, however, it also faced some difficulties: First, since the Company’s traditional products with advantages were pounded by its counterparts in competition, and its own current funds and bank loans could not satisfy the urgent need for a great deal of funds for technical reform and products structure adjustment, there existed a temporary shortage in the investment of technical reform and products structure adjustment in the initial stage, which directly led to difficulties of investment decision-making, slowing down of projects as well as development of market of new products, and losses in expected benefits; Secondly, suppliers of boiler raw materials changed marketing strategies while most of boiler consumers still pursued 1-8-1 payment mode, the Company had to purchase materials with loans, which resulted in difficulty in running of funds and increased financial costs; Thirdly, since the period of orders by boiler consumers shortened, in order to fulfill customers’ needs, the Company, on one hand, increased shifts and efficiency internally, which raised costs of work time, on the other hand, gave contracts of some spare parts to other companies, which also raised costs. In view of the above difficulties, the Company will do the following work well: 1. To reinforce coordination in production, formulate even more detailed production work plan and fund allotment plan, reinforce cooperation among various departments and production units, raise output level, and achieve production and management goals in an all-round way. 2. To strengthen management of finance, cost, goods and materials, plans and purchase, especially in purchasing of raw material, to purchase in batches comparing prices, to deliver products in batches, to reduce occupation of current funds, to control purchase cost of raw materials and to further enhance management benefits; 3. To try to issue additional A shares as soon as possible so as to lay firm foundation for adjustment of products structure and grading of technologies. (V) About Investment in the Report Year 1. Application and results of raised funds Approved by the Securities Committee of State Council with No.9 Document (1998), the Company raised its last funds in March of 1998, publicly issuing 125 million shares of domestic listed foreign shares (B shares), and actually raised HK$ 170,461,000.00, namely, RMB 182,512,592.00, which were all money funds. Unit: RMB Capital Promised Actual Actual No. raising Promised investment projects investment Actual investment projects investment investment mode amount amount period Technical renovation of large Technical renovation of large power station boiler, large Fr. April of power station boiler, large 1 B share circulating fluidized-bed 110,000,000.00 101,584,800.00 1998 to March circulating fluidized-bed boiler boiler and large alkali of 2001 and large alkali recovery boiler recovery boiler Fr. April of Technical renovation of Technical renovation of 2 B share 70,000,000.00 72,088,800.00 1998 to March desulfurization equipment desulfurization equipment of 2001 11 Total 180,000,000.00 173,673,600.00 The actual funds used for the above projects amounted to RMB 173,673,600.00, which was audited specially by Wuhan Zhonghua Certified Public Accountants, namely, WZK (2001) No. 218 Document on the Special Report on Application of Funds Raised Last Time by Wuhuan Boiler Co., Ltd., which was published in Securities Times dated April 24, 2001. (VI) Significant Impact on the Company’s Future Management of Changes in Macro- environment, Policies and Legislations 1. The implementation of significant developing strategies such as “Development in the West” and “Western power sent to the east” of the nation’s “10th Five-year Plan” provided a rare opportunity for the Company. In view of the regional feature of domestic demand, the economic development of the central-west regions will show a rapid growth trend in the near future, and the region at the same time possess abundant natural resources for developing thermal power generation. The “Mass Development in the West” provided great commercial opportunities for mechanical and electrical products. The western region market is a traditional market where the Company held clear superiority of its products. In view of features of the western coal resources that are of low quality and don’t burn easily, the Company invested a great deal of human force and materials to carry out research and development. Since the Company adopted international advanced technologies to produce boilers that can effectively burn poor quality coals, the Company gave full play to its boiler products in the west region, and obtained a fairly large market share. 2. The competition of domestic boiler industry will get drastic since China’s entry into WTO, for foreign boiler manufacturing technologies and technology developing capabilities are superior than domestic ones. In the short-term view, China’s entry into WTO slightly impacted the domestic boiler industry, but in the long-run view, opportunities are greater than risks. The domestic boiler manufacturing industry now based itself on the domestic market. Foreign boiler manufacturing technologies and technology developing capabilities are superior than domestic ones, however, domestic boiler industry held great advantages in production costs and freights. Boiler manufacturing industry being labor-intensive industry, domestic manufacturers can produce boilers that are of fair quality but much cheaper by introducing foreign advanced technologies. China’s entry into WTO enables domestic boiler manufacturers to carry out more comprehensive technical communication and project cooperation with foreign advanced boilermakers and to promote their advantages of achievements to overseas market and obtain high quality raw materials more cheaply. (VII) Management Plan of 2002 The Company’s management concept is “to seek existence with quality, to seek development by producing environmental protection products, and to regard energy market development as its duty; “to regard market as direction and customers’ demands as the base”; and “to regard human-beings as the base and to make innovation constantly”. In 2002, the Company will fully excavate and use internal resources, expand production and sales dimensions, raise market shares of current products, and increase income. In order to achieve the above goals, the Company will adopt the following measures: 1.To reinforce internal management Scientific research and development: To reinforce the construction of technical center, establish and improve an effective enterprise science and technology innovation system 12 and operation mechanism, and to create good working environment for technology developing personnel; Financial administration: to expedite establishing of the financial management system called “Vertical Leadership and Double Assessment”. To strengthen capital management and investment decision-making management, strictly control budget, and establish and perfect the financial management system. Production administration: To focus closely on market, continuously narrow down costs, vitalize stock assets, seek maximum production capability and benefits, and to strengthen management of fundamental work including quality and security etc. Administration of public relations: To pursue “humanity-oriented” management. To center in “Starting a Second Time Undertaking”, make publicity widely, establish brand-new enterprise culture, reinforce employees’ sense of recognition and sense of responsibility, and bring a good enterprise image to the public. Information administration: To push the Company’s information construction, implement data administration system in an all-round way, realize share of products data and promote optimization of management; To expedite work automation and raise work efficiency; To reinforce analysis and utilization of information, and increase practicality, efficiency and promptness of information. 2. To reinforce adjustment of products structure In 2002, depending on its original advantages, the Company decided to further increase input in technical renovation of superior products among traditional products and realize upgrading and replacing of its traditional superior products so as to seize hold of high- grade products market of power station boilers and further consolidate the leading position in its traditional superior products; Meanwhile, according to market development trend and its own conditions, the Company will adjust its products structure appropriately, increase input in the production of new type environmental protection and energy saving boilers, and develop new energy equipment that are low energy consuming and pollution free. To continuously implement the marketing policies adapt to the “West Development Strategy” and the project of “Western power sent to the east” so as to further develop the west market. (VIII) Daily Work of the Board of Directors 1. The Company held four Board meetings in the report year, details and resolutions of which are as follows: The 13th Meeting of the 1st Board of Directors was held in the meeting room of the Company in No. 586, Wuluo Road, Wuhan, Hubei on February 26, 2001. There should be nine directors attended the meeting while there were actually eight. The one absent director entrusted other director to perform voting for him with full powers. Members of the Supervisory Committee and senior executives attended this Board meeting as non-voting delegates, which was in line with stipulations of the PRC Company Law and the Articles of Association. The resolutions as voted and passed in the meeting are as follows: (1) Proposal on Election of the Next Board of Directors; (2) Proposal on Purchasing Part Equity Rights of Wuhan Special Boiler Whole Set Equipment and Engineering Company; (3) Proposal on Transferring Part Equity Rights of Wuhan Boiler Group Valve Co., Ltd.; (4) Proposal on Transferring Part Equity Rights of Wuhan Boiler Group Yuntong Co., Ltd.; (5) Proposal on Purchasing All the Operational Assets of Wuhan Boiler Group Co., Ltd’s Subsidiary – Wuhan Boiler Group Technical Center; (6) Supplement Agreement on Transferring of Equipment and Technologies; 13 (7) Decision on holding the 1st Provisional Shareholders’ General Meeting of 2001 in April 4, 2001. The above proposals from No. (2) to No. (6) were voted and passed by the independent directors Wang Zongjun, Zhou Maorong and Li Donghui. The 1st Meeting of the 2nd Board of Directors was held in the meeting room of the Company in No. 586, Wuluo Road, Wuhan, Hubei on April 4, 2001. There should be nine directors attended the meeting while there were actually seven. The one absent director entrusted other director to perform voting for him with full powers, and the other one was on a business trip abroad. Members of the Supervisory Committee and senior executives attended this Board meeting as non-voting delegates, which was in line with stipulations of the PRC Company Law and the Articles of Association. The resolutions as voted and passed in the meeting are as follows: (1) Elected Mr. Chen Bohu chairman of the Board of Director; (2) According to Mr. Chen Bohu’s nomination, agreed to engage Mr. Xiang Rongwei to be the Company’s general manager and Mr. Chen Xingzhi to be secretary of the Board of Directors; (3) According to Mr. Xiang Rongwei’s nomination, agreed to engage Mr. Bai Xixin to be vice general manager and chief economist concurrently, Mr. Hua Lixin to be vice general manager and chief engineer, Mr. Jin Zhicheng to be vice general manager and Mr. Fei Hanhua to be vice general manager. (4) Reviewed and passed the 2000 Work Report and 2001 Work Plan; (5) Reviewed and passed the 2000 Work Report of the Board of Directors; (6) Reviewed and passed the 2000 Financial Report; (7) Reviewed and passed the 2000 Profit Distribution Preplan; (8) Reviewed and passed the 2001 Profit Distribution Policies; (9) Reviewed and passed the 2000 Annual Report and Report Summary; (10) Reviewed and passed the proposal on re-engaging of Wuhan Zhonghua Certified Public Accountants and Pricewaterhouse Coopers China Co., Ltd. as the Company’s auditors in 2001, which was subject to discussion in the Shareholders’ General Meeting; (11) The date of holding 2000 Shareholders’ General Meeting will be notified by the Board later. The 2nd Meeting of the 2nd Board of Directors was held in the meeting room of the Company in No. 586, Wuluo Road, Wuhan, Hubei on April 21, 2001. There should be nine directors attended the meeting while there were actually seven. The one absent director entrusted other director to perform voting for him with full powers, and the other one was on a business trip abroad. Members of the Supervisory Committee and senior executives attended this Board meeting as non-voting delegates, which was in line with stipulations of the PRC Company Law and the Articles of Association. The resolutions as voted and passed in the meeting are as follows: (1) Remarks on application of funds raised last time and benefits; (2) Reviewed and passed the proposal on applying of raising funds publicly by issuing Renminbi ordinary shares in 2001; (3) Reviewed and passed the proposal on applying of raising funds publicly by issuing additional Renminbi ordinary shares of no more than 80 million in 2001; (4) Reviewed and passed the proposal on feasibility of the planned investment projects with additional publicly raised funds in 2001; (5) Decided to hold 2000 Shareholders’ General Meeting on May 25, 2001. 14 The 3rd Meeting of the 2nd Board of Directors was held in the meeting room of the Company in No. 586, Wuluo Road, Wuhan, Hubei on February 26, 2001. There should be nine directors attended the meeting while there were actually eight. The one absent director entrusted other director to perform voting for him with full powers. Members of the Supervisory Committee and senior executives attended this Board meeting as non-voting delegates, which was in line with stipulations of the PRC Company Law and the Articles of Association. The resolution as voted and passed in the meeting is as follows: (1) Reviewed and passed the 2001 Interim Report and Summary. 2. The Board’s performance of resolutions of the Shareholders’ General Meeting In the report year, the Board of Directors implemented the 2000 profit distribution plan according to the resolutions and authorization of the Shareholders’ General Meeting. The 2000 Dividend Distribution Announcement Letter of Wuhan Boiler Co., Ltd. was published respectively in Securities Times and Hong Kong Ta Kung Pao dated June 19, 2001. The plan was finished on June 27, 2001. The 1st Provisional Shareholders’ General Meeting held on April 4, 2001 reviewed and passed the Proposal on Purchasing Part Equity Rights of Wuhan Special Boiler Whole Set Equipment and Engineering Company and the Proposal on Purchasing All the Operational Assets of Wuhan Boiler Group Co., Ltd.’s Subsidiary – Wuhan Boiler Group Technical Center, and the Company had completed the above two purchasing projects in the report year; In addition, the Meeting reviewed and passed the Proposal on Transferring Part Equity Rights of Wuhan Boiler Group Valve Manufacture Co., Ltd. and the Proposal on Transferring Part Equity Rights of Wuhan Boiler Group Yuntong Co., Ltd.; Since Wuhan Boiler Co., Ltd. failed to carve up property rights and process transferring of ownership in the period as stated by the 2001 Shareholders’ General Meeting, the Board of Directors, according to the authorization of the Meeting, terminated transferring of equity rights of Wuhan Boiler Group Valve Manufacture Co., Ltd. and Wuhan Boiler Group Yuntong Co., Ltd. The financing plan of the proposal on applying of raising funds publicly by issuing additional Renminbi ordinary shares of no more than 80 million in 2001 as reviewed and passed in the 2000 Shareholders’ General Meeting was still in the process of application. (IX) 2001 Profit Distribution Plan and 2002 Estimated Profit Distribution Policies 1. 2001 Profit Distribution Plan According to the financial statements of Wuhan Boiler Co., Ltd. audited by Wuhan Zhonghuan Certified Public Accountants Co., Ltd. according to the Chinese Accounting Standards and Pricewaterhouse Coopers China Certified Public Accountants according to the International Accounting Standards, the net profit of the Company in the year 2001 was RMB 18,010,499.03 and RMB 19,063,000.00 respectively. The Company is to allot its statutory public reserve based on 10% of the total net profit amounting to RMB 1,875,969.86 and its statutory public welfare fund based on 10% of the total net profit amounting to RMB 1,875,969.86. The retained profit in the year 2001 was RMB 33,835,375.89, and the total profit available for distribution in the report year was RMB 47,964,982.98. The Company plans to distribute the cash dividends to the whole shareholders at the rate of RMB 0.25 for every 10 shares (including tax) based on the total share capital of 297 million shares ended December 31, 2001, with the total amount of RMB 7,425,000.00 to be distributed. The retained profit RMB 40,668,935.20 shall be carried down to the next year for further distribution. In the report year, the Company shall 15 not convert the capital public reserve into share capital. This proposal was subject to discussion in the 2001 Shareholders’ General Meeting. 2. 2002 Estimated Profit Distribution Policy The Company is to distribute cash dividends to all the shareholders at the rate of no less than 18% of the profits available for distribution accumulated in the year. When it’s time for implementation, the Board of Directors should submitted the policy as distribution preplan to the Shareholders’ General Meeting for discussion and approval. The Board of Directors retains the right of making adjustment on this policy according to the Company’s actual situations. VIII. REPORT OF THE SUPERVISORY COMMITTEE (I) Work of the supervisory committee During the 2001, the Supervisory Committee strictly implements the Company Law, Security Law, and the Company Rule; with the attitude of being responsible for all shareholders, the Supervisory Committee conducted the supervision seriously in compliance with related laws and regulations. The Supervisory Committee called and held the routine meeting of Supervisory Committee and working meeting, studied the related laws, regulations, documents of policy, studied the particulars of work, settled the problems of the work, developed work collaborating with related departments, inspected the financial report routinely. (II) Meeting of the Supervisory Committee The 9th Meeting of 1st Supervisory Committee held at the conference room No.586, Wuluo Road, Wuhan, Hubei on the Feb 26, 2001. There should be 3 supervisors attending the meeting, the actual supervisors attending the meeting was 2, the other one was on evection. The meeting was in compliance with the Company Law and Company Rule. Resolutions of this meeting as follows: (1) Reviewed and approved re-election of the Supervisory Committee; (2) Reviewed and approved the proposal of purchase parts of the shares of Wuhan Boiler Group Special Boiler Equipment Company; (3) Reviewed and approved the proposal of receiving the transfer of parts of the shares of Wuhan Boiler Group Valve Manufacture Co., Ltd. (4) Reviewed and approved the proposal of receiving the transfer of parts of the shares of Wuhan Boiler Group Yuntong Co., Ltd. (5) Reviewed and approved the proposal of purchase all operation assets of Wuhan Boiler Group Techology Center subsidiary to Wuhan Boiler Co., Ltd. (6) Reviewed and approved the Complementary Agreement of the Contract of Transfer of Equipment and Techology The 1st Meeting of 2nd Supervisory Committee held at the conference room of No.586, Wuluo Road Wuhan, Hubei on the April 4,2001. There should be 3 supervisors attending the meeting, the actual supervisors attending the meeting was 2, the other one was on evection. The meeting was in compliance with the Company Laws and Company Rules. Resolutions of this meeting as follows: (1) Elected the Mr. Zhang Haiqing to be the caller of the Supervisory Committee (2) Reviewed and approved the 2000 Annual Work Report of the Supervisory Committee (3) 2000 Annual Financial Report (4) 2000 Annual report and the Summary 16 (III) Operation in compliance with laws The Supervisory Committee conducted the supervision over the calling procedures of the Shareholders’ General Meeting, resolutions of proceeding, the implementation of the resolutions of the Shareholders’ General Meeting and the implementation of the duties of the senior executives. The Supervisory Committee considered that the Board of the Director can operate in an standard way in strictly compliance with Company Law, Company Rule, Security Law, Standard of Listing Copmany, and other related laws and regulations. The working attitude is serious, the decisions is reasonable, and further perfected the system of internal administration and control. There exist no behaviors of damaging the benefit of the Company and the disobedience of the laws, regulations and the Company Rule within the chairmen of the board, directors, managers and senior executives. (IV) Inspecting the finance of the Company The Supervisory Committee conducted routine inspecting on the system of the finance of the Company and particulars of the finance, and considered that the 2001 Annual Financial Report reflected the truth of the finance status and the achievements of the Company. The audit opinions and the assessments of related proceedings presented by the Zhong Huan Public Audit Firm and Price Water House Coopers China Limited were fair and objective. (V) Related Transactions of purchase, sale of assets The Company signed the agreement of purchase all operation assets of Wuhan Boiler Group Technology Center subsidiary to Wuhan Boiler Co., Ltd. with Wuhan boiler Group Co., Ltd. and parts of shares of Wuhan Boiler Group Special Boiler Equipment Company. With Wuhan Boiler Group Co., Ltd. Approved by the Extraordinary Shareholders’ General Meeting held on April 4,2001, related shareholders is avoided. The principle of making price followed the principle of fairness, openness, and justness; in principle of mutual benefit, honesty and credit; in compliance with demand of the Company and all shareholders. Above two transactions have completed in the report period, relate transactions is fair, there exist no behavior of damaging the benefit of listed company. IX. IMPORTANT EVENTS (I) The Company didn’t get involved in any material lawsuit or arbitration in the report period (II) Important acquisition or sale of the assets, assets absorption or merger in the report period On Feb 14, 2001, the Company signed the Agreement of purchase parts of shares of the Wuhan Boiler Group Special Boiler Equipment Company and the agreement of purchase all operation assets of Wuhan boiler Group Technology Center subsidiary to Wuhan Boiler Co., Ltd. with Wuhan Boiler Group Co., Ltd, and approved by the Extraordinary Shareholders’ General Meeting. After completing above two transactions, the Company holds the 90% shares of the Wuhan Boiler Group Special Boiler Equipment Company; Wuhan boiler Group Technology Center subsidiary to Wuhan Boiler Co., Ltd. was fully controlled by the Company. (III) Important related events 1. According to the resolution of the 2001 1st Extraordinary Shareholders’ General Meeting held on April 5, 2001, the Company acquired 90% shares of the Wuhan Boiler Group Special Boiler Equipment Company and all assets of the Technology Center of the Wuhan Boiler Group Co., Ltd. 17 Related purchase price as follow: Objective of Purchase Book net assets/ Assessment Way of Purchase Purchase Price Assets Value Value Wuhan Boiler Group Special 11,477,400 11,683,200 90% share equity 10,510,000 Boiler Equipment Company Technology Center of the Wuhan 15,063,500 19,169,400 All assets 19,170,000 Boiler Group Co., Ltd. Total 26,540,900 30,852,600 29,680,000 This transaction is in principle with following principles: (a) The principle of openness, fairness, justness (b) The principle of mutual benefit, honesty and credit (c) The principle of in compliance with demand of the Company and all shareholders (d) Based on the evaluating price, decided the price of transfer in the way of agreement. The way of payment is within sixty days after the agreement take effect. The shareholders of the Wuhan Boiler Group Special Boiler Equipment Co. and the proportion of holding share was: The Company holds 90% share equity, Wuhan Boiler Group Co., Ltd. holds 10% share equity. The Technology Center of Wuhan Boiler Group is wholly-owned subsidiary company of the Company. 2. Related parties and related transaction 1) Related parties with control relationship Name of company Registered Business Relationship Company type Legal place scope with the representative Company Wuhan Boiler Group No. 586, Wuluo Parent company State sole Huang Jiang Co., Ltd. Road of Wuhan corporation 2) Registration capital and the changes of related party with control relationship Name of company Amount at the Increase in this Decrease in this Amount at the year-begin year year year-end Wuhan Boiler Group 90,596,000.00 90,596,000.00 Co., Ltd. 3) Shares (equity) held by related party with control relationship and the change Name of Amount at the year-begin Increase in this Decrease in this year Amount at the year-end enterprise year Amount % Amount % Amount % Amount % Wuhan Boiler 172,000,000.00 57.91 172,000,000.00 57.91 Group Co., Ltd. 4) Related Parties with no Control Relationship Name of companies Relationship with the Company Wuhan Boiler Group Valve Manufacture Co., Ltd. controlled by Wuhan Boiler Group Wuhan Boiler Group Boyu Complementary Mechanism of controlled by Wuhan Boiler Group Electronic Station Co., Ltd. Wuhan Boiler Group Yuntong Co., Ltd. controlled by Wuhan Boiler Group Wuhan Boiler Group Boiler Installation Co. controlled by Wuhan Boiler Group Wuhan Boiler Group Accessory Manufacture Co., Ltd. controlled by Wuhan Boiler Group 5) Related Transaction (1) Purchasing of goods The details of acquirement of the components and accessories from following related parties based on the cost price (Unit: In RMB) 18 Name of Company Amounts of 2001 Amounts of 2000 Wuhan Boiler Group Accessory Manufacture Co., Ltd. 7,945,600 4,685,400 Wuhan Boiler Group Valve Manufacture Co., Ltd 1,609,900 7,297,700 Wuhan Boiler Group Boyu Complementary 3,550,000 Mechanism of Electronic Station Co., Ltd. Total 9,555,500 15,533,100 (2) Sale of goods Details of sale of goods to related parties in 2000 and 2001 (Unit: In RMB) 2001 2000 (%) Name of Company Amounts Proportion in the Amounts Proportion in the sale of goods (%) sale of goods (%) Wuhan Boiler Group Co., Ltd. 25,779,276.54 6.58 33,885,982.90 13.49 Total 25779,276.54 6.58 33,885,982.90 13.49 (3) The balance of receivable and payable of related parties Amount Items 2001 2000 Accounts receivable: Wuhan Boiler Group Co., Ltd. 3,581,600.00 9,251,600.00 Other receivable: Wuhan Boiler Group Co., Ltd. 115,230,359.57 Accounts payable: Wuhan Boiler Group Boyu Complementary 120,453.77 Mechanism of Electronic Station Co., Ltd. Wuhan Boiler Group Yongtong Co., Ltd. 42,843.00 Wuhan Boiler Group Boiler Installation Co. 4,941.50 4,941.50 Other payable: Wuhan Boiler Group Co., Ltd. 10,328,703.98 Wuhan Boiler Group Valve Manufacture Co., Ltd. 322,455.00 6,414,564.38 Wuhan Boiler Group Yuntong Co., Ltd. 3,081,053.38 7,078,949.20 Total 17,439,207.63 138,023,257.65 (4) The Guarantee of the Company offered by the related parties Wuhan Boiler Co., Ltd. offered the guarantee for the short-term loans of RMB 83,148,454.00 of the Company. Wuhan Boiler Group Co., Ltd. offered the pawn for the short-term of RMB 44,000,000.00 of the Company. (IV) Important contract and implementation 1. The company did not trust, contract for or lease the assets of other companies nor did other companies trust, contract of or lease the assets of the Company. 2. There is no contract of guarantee for others in the report period. 3. There are no authorizations to others of management of cash assets in the report period. 4. In the report year, there is no other important contract. (V) In the report period, the Company and the shareholder who hold the shares above 5% did not promise any event on the appointed Newspaper and Web. 19 (VI) The engagement and dismiss audit firm In the report period, the Company continued reengaged the Wuhan Zhong Huan Certified Public Accountants and Pricewaterhouse Coopers China Certified Public Accountants respectively as annual auditors, the payment for audit service as follows: The expense of annual auditing 2001 2000 Oversea: Pricewaterhouse Coopers (China) Certified USD 75,000 USD70,000 Public Accountants Domestic: Wuhan Zhong Huan Certified Public RMB 50,000 RMB 450,000 Accountants The expense of room and board, traveling, telecom, and copy when auditing was assumed by the Wuhan Zhong Huan Public Audit Firm and the Price Water House Coopers China Limited. There are no payables for auditing firm at the end of the year. (VII) Being checked and punishment In the report period, there was no administration punishment, public criticism, public condemn of the Exchange Stock by the CSRC within the Company, Board of Director, Directors, senior executives. (VIII) In the report year, the Company had never changed name of the Company or short form of the stock. (IX) Other important events in the report period Release of important guarantee The payable of RMB 102,000,000 of the first large shareholder Wuhan Boiler Group Co., Ltd. for the Baoshan Steel Group Co., Ltd. was released. On June 22,1999, the Baoshan Steel Group Co., Ltd transfer this payment into short-term loan the Wuhan Boiler Co., Ltd. should pay for, amounts is RMB 129,014,900. The Company offered guarantee for this short-term loan of RMB 129,014,900. On April 18,2001 Huabao Trust and Investment Co., Ltd, Wuhan Boiler Group Co., Ltd. and the Company agree on releasing this guarantee for Wuhan Boiler Group Co., Ltd. X. FINANCIAL REPORT 1. Auditor Report International Auditors’ Report To the members of Wuhan Boiler Company Limited (Incorporated in the People’s Republic of China with limited liability) We have audited the accompanying balance sheet of Wuhan Boiler Company Limited (the “Company”) and its subsidiary (the “Group”) as at 31 December 2001 and the related income and cash flow statements for the year then ended. These financial statements set out on pages 2 to 29 are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also 20 includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion the financial statements give a true and fair view of the financial position of the Group as at 31 December 2001 and of the results of its operations and its cash flows for the year then ended in accordance with International Accounting Standards. PricewaterhouseCoopers 7 April 2002 2. Financial Report and annotations (attach back) XI. DOCUMENTS FOR REFERENCE 1. Accounting statement carried with personal signature and seal of legal representative, person in charge of financial affairs and person in charge of the accounting affairs. 2. As audited by Wuhan Zhong Huan Certified Public Accountants, original of Auditor’s Report carried with seal of Certified Public Accountants and signature and seal of certified public accountant. 3. Original of all documents and manuscripts of Public Notices of Company disclosed in public on Securities Times and Ta kung Pao. 4. Original of 2001 Annual Report. The depositary of documents: Securities Dept. of the Company Chairman of the Board: Chen Bohu WUHAN BOILER CO., LTD. April 10, 2002 WUHAN BOILER COMPANY LIMITED (Incorporated in the People’s Republic of China with limited liability) FINANCIAL STATEMENTS AND INTERNATIONAL AUDITORS’ REPORT FOR THE YEAR ENDED 31 DECEMBER 2001 WUHAN BOILER COMPANY LIMITED (Incorporated in the People’s Republic of China with limited liability) FINANCIAL STATEMENTS AND INTERNATIONAL AUDITORS’ REPORT FOR THE YEAR ENDED 31 DECEMBER 2001 Contents Pages 21 International auditors’ report 1 Consolidated income statement 2 Consolidated balance sheet 3 Consolidated statement of changes in equity 4 Consolidated cash flow statement 5 Notes to the financial statements 6 to 29 Supplementary information 30 22 WUHAN BOILER COMPANY LIMITED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2001 2001 2000 Notes RMB’000 RMB’000 Sales 3 404,268 251,210 Cost of sales (322,182) (208,014) Gross profit 82,086 43,196 Other operating expenses (436) (1,516) Selling expenses (12,482) (5,130) Administrative expenses (41,021) (37,075) Operating profit/(loss) 4 28,147 (525) Net finance (expenses)/income 6 (4,835) 10,008 Profit before tax 23,312 9,483 Tax 7 (4,161) (1,322) Profit from ordinary activities 19,151 8,161 Minority interest (88) - Net profit 19,063 8,161 Basic and diluted earnings per share 8 Rmb0.064 Rmb0.027 The notes on pages 6 to 29 form an integral part of these financial statements. 23 WUHAN BOILER COMPANY LIMITED CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2001 2001 2000 Notes RMB’000 RMB’000 ASSETS Non-current assets Property, plant and equipment 9 185,942 154,912 Construction in progress 10 3,100 7,296 Investments 11 32,337 32,337 Intangible assets 12 26,211 28,028 Deferred tax asset 13 808 1,138 248,398 223,711 Current assets Inventories 14 111,648 83,765 Accounts receivable 15 123,181 163,948 Due from contract customers 333,498 137,302 Amount due from the parent company - 123,982 Amounts due from fellow subsidiaries 16 13,589 10,749 Other receivables, deposits and 17 118,844 45,385 prepayments Prepaid income tax 362 - Cash and bank balances 18 192,781 151,664 893,903 716,795 Total assets 1,142,301 940,506 EQUITY AND LIABILITIES Capital and reserves Share capital 19 297,000 297,000 Reserves 20 212,013 198,890 509,013 495,890 Minority interest 21 1,069 - Current liabilities Bills payable 96,839 13,300 Accounts payable 225,383 153,846 Amount due to parent company 22 6,747 - Amounts due to fellow subsidiaries 23 4,714 18,473 Deposits received from customers 27,670 12,163 Other payables and accrued charges 24 58,636 41,693 Borrowings 25 212,230 202,681 Income tax payable - 2,460 Total liabilities 632,219 444,616 Total equity and liabilities 1,142,301 940,506 The notes on pages 6 to 29 form an integral part of these financial statements. 24 WUHAN BOILER COMPANY LIMITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2001 Reserves Statutory Statutory Share Capital Share surplus public Retained capital reserve premium reserve funds welfare funds earnings Total (Note19) (Note 20(a)) (Note20(a)) (Note20(b)) (Note20(b)) (Note 20(c)) RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Year ended 31 December 2000 Balance at 1 January 2000 297,000 89,890 54,741 4,830 4,830 36,438 487,729 Net profit - - - - - 8,161 8,161 Transfer from retained earnings to other reserves - - - 1,258 1,258 (2,516) - Balance at 31 December 2000 297,000 89,890 54,741 6,088 6,088 42,083 495,890 Year ended 31 December 2001 Balance at 1 January 2001 297,000 89,890 54,741 6,088 6,088 42,083 495,890 Adjustment arising from restatement of retained earnings of statutory book * (131) (131) 262 - Restated balance at 1 January 2001 297,000 89,890 54,741 5,957 5,957 42,345 495,890 Net profit - - - - - 19,063 19,063 Dividends (Note 20 (d)) - - - - - (5,940) (5,940) Transfer from retained earnings to other reserves - - - 1,876 1,876 (3,752) - Balance at 31 December 2001 297,000 89,890 54,741 7,833 7,833 51,716 509,013 * Due to the adoption of the Accounting Regulations for Business Enterprises of the People’s Republic of China promulgated by Ministry of Finance with effect from 1 January 2001, a prior year adjustment to write off the pre-operating expenses of RMB1,312,000 has been made in the PRC statutory financial statements. The adjustment has the after-tax effects of decreasing statutory surplus reserve fund and statutory public welfare reserve fund as at 31 December 2000 by approximately RMB131,000 each and increasing retained earnings as at that date by approximately RMB262,000. The notes on pages 6 to 29 form an integral part of these financial statements. 25 WUHAN BOILER COMPANY LIMITED CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2001 2001 2000 Note RMB’000 RMB’000 Operating activities Cash generated from operations 26 97,752 16,184 Interest received 3,532 6,902 Interest paid (14,330) (12,565) Tax paid (6,851) (339) Net cash generated from operating activities 80,103 10,182 Investing activities Acquisition of subsidiary, net of cash acquired 27 (2,263) - Decrease/(increase) in short term bank deposits (41,627) 27,951 Purchase of property, plant and equipment (20,544) (13,441) Purchase of proprietary technology and patent - (28,300) Payments for construction in progress (21,095) (2,219) Proceeds from disposal of property, plant 106 17 and equipment Investment income 1,201 1,138 Net cash used in investing activities (84,222) (14,854) Financing activities Borrowings raised 9,549 42,657 Payment of dividends (5,940) - Net cash generated from financing activities 3,609 42,657 Increase/(decrease) in cash and cash equivalents (510) 37,985 Movement in cash and cash equivalents At start of year 45,744 7,759 Increase/(decrease) during the year (510) 37,985 At end of year 18 45,234 45,744 The notes on pages 6 to 29 form an integral part of these financial statements. 26 WUHAN BOILER COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2001 1. General Wuhan Boiler Company Limited (the “Company”) is a joint stock limited company incorporated in the People’s Republic of China (“PRC”) on 8 April 1998. The Company and its subsidiary (the "Group") are mainly engaged in the manufacture and sale of boilers. The Company is listed on the Shenzhen Stock Exchange. 2. Accounting policies (a) Basis of preparation of financial statements The consolidated financial statements have been prepared in accordance with International Accounting Standards (“IAS”). This basis of accounting differs from that used in the preparation of the Company's statutory financial statements (“PRC statutory financial statements”). The PRC statutory financial statements of the Company and its subsidiary comprising the Group have been prepared in accordance with the relevant accounting principles and regulations applicable to them, as appropriate in the PRC. Appropriate adjustments have been made to the PRC statutory financial statements to conform with IAS. Differences arising from the restatement have not been incorporated in the statutory accounting records of the Group. The consolidated financial statements have been prepared under the historical cost convention, exception as disclosed in the accounting policies below. (b) Consolidation Subsidiary undertakings, which are those entities in which the Group, directly or indirectly, has an interest of more than one half of the voting rights or otherwise has power to exercise control over the operations, have been consolidated. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. All intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Separate disclosure is made for minority interests. Details of the Group’s subsidiary are set out in Note 32. (c) Foreign currencies The Group maintains its books and records in Renminbi (“RMB”). Transactions denominated in foreign currencies are translated into RMB at the exchange rates stipulated by the People’s Bank of China prevailing on the first day of the month in which the transactions took place. Monetary assets and liabilities denominated in foreign currencies are translated into RMB at the exchange rates quoted by the People’s Bank of China ruling at the balance sheet date. Exchange differences are included in the income statement. 27 WUHAN BOILER COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2001 2. Accounting policies (Cont’d) (d) Financial assets and financial liabilities Financial assets and financial liabilities carried on the balance sheet include cash and bank balances, investments, receivables, prepayments, payables and borrowings. Investments and accounts receivable are stated at carrying amounts determined in accordance with Note 2(e) and Note 2(k) respectively. Other financial assets and financial liabilities are stated at cost which approximates to their fair values. Disclosures about financial assets and financial liabilities are provided in Note 28. (e) Non-current investments Investments other than those in subsidiaries, intended to be held for the long-term, are stated at cost less provision for any permanent diminution in value. (f) Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is calculated to write off the cost of each asset on a straight-line basis over its expected useful life, taking into account its estimated residual value. The principal annual rates used for this purpose are: Plant and office premises 3 – 6.5% Production equipment and machinery 3 – 14% Motor vehicles 16% Furniture, fixtures and office equipment 19 – 24% The carrying amounts of property, plant and equipment and construction in progress are reviewed regularly to assess whether their recoverable amounts have declined below their carrying amounts. Recoverable amount is the higher of the value in use or the estimated net selling prices. When a decline in value has occurred, their carrying amount is reduced to their recoverable amount. The amount of reduction to recoverable amount is charged to the income statement. The gain or loss on disposal of property, plant and equipment is the difference between the net sales proceeds and the carrying amount of the relevant asset, and is recognised in the income statement. Major costs incurred in restoring property, plant and equipment to its normal working condition are charged to the income statement. Improvements to property, plant and equipment are capitalised and depreciated over their expected useful lives to the Group. 28 WUHAN BOILER COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2001 2. Accounting policies (Cont’d) (g) Intangible assets (1) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net assets of the acquired subsidiary at the date of acquisition. Goodwill is amortised using the straight-light method over its estimated useful life of not more than 20 years. The carrying amount of goodwill is reviewed annually and adjusted for permanent impairment when it is considered necessary. (2) Proprietary technology and patent Expenditure on acquired proprietary technology and patent is capitalised and amortised using the straight-line method over their useful lives of not more than 10 years. The carrying amount of each proprietary technology and patent is reviewed annually and adjusted for permanent impairment when it is considered necessary. (h) Construction in progress Construction in progress represents premises under construction and production plants, machinery and other equipment under installation and is stated at cost. Cost includes the cost of construction, purchase cost of plant and machinery as well as interest expenses arising from borrowings used to finance the construction during the construction period. (i) Inventories Inventories are stated at the lower of cost and net realisable value. Cost of raw materials represents invoiced price calculated using the weighted average costing method. Net realisable value is the estimate of the selling price in the ordinary course of business, less the costs of completion and selling expenses. (j) Construction contract When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that it is probable will be recoverable; and contract costs are recognised when incurred. When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs are recognised over the period of the contract, respectively, as revenue and expenses. The Group uses the percentage of completion method to determine the appropriate amount of revenue and costs to recognise in a given period; the stage of completion is measured by reference to the proportion that contract costs incurred for work performed to date bear to the estimated total costs for the contract. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. 29 WUHAN BOILER COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2001 2. Accounting policies (Cont’d) (j) Construction contract (Cont’d) Construction contract cost includes direct materials, subcontracting cost, direct labor and an appropriate proportion of variable and fixed production overheads. In determining costs incurred up to the year end, any costs relating to future activity on a contract are excluded and shown as contract work in progress. The aggregate of the costs incurred plus the profit less loss recognised on each contract is compared against the progress billings up to the balance sheet date. When the contract costs incurred plus recognised profits less recognised losses exceed progress billings, the balance is shown as due from contract customers. When the progress billings exceed the contract cost plus recognised profit less recognised loss, the balance is stated as deposits received from customers. (k) Accounts receivable Accounts receivable include progress billings in accordance with the contracts terms and retention monies receivable. Accounts receivable are carried at anticipated realisable value. An estimate is made for doubtful receivables based on a review of all outstanding amounts at the year end. Bad debts are written off during the year in which they are identified. (l) Cash and cash equivalents For the purpose of the cash flow statement, cash and cash equivalents comprise cash on hand and deposits held at banks net of fixed deposits. (m) Retirement scheme The Group has to make defined contributions to a staff retirement scheme in accordance with the rules and regulations set by the local government. Contributions to the retirement scheme are charged to the income statement in the period to which the contributions are related. (n) Research and development costs Research and development expenditure is charged to the income statement as and when incurred. (o) Borrowing costs Borrowing costs that are directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of that asset. All other borrowing costs are charged to the income statement in the year in which they are incurred. 30 WUHAN BOILER COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2001 2. Accounting policies (Cont’d) (p) Taxation PRC income taxes are provided for based on the estimated assessable profits and tax rates applicable to the Company and the subsidiary comprising the Group. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Tax rates substantively enacted by the balance sheet date are used to determine deferred income tax. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. (q) Warranty The Group recognises the estimated liability to repair or replace products still under warranty at the balance sheet date. This provision is calculated based on 2% of the completed contract cost which is determined by reference to past history of the level of repairs and replacements. (r) Revenue recognition Sales relating to construction contracts – see Note 2(j). Interest income is recognised on a time proportion basis, taking into account the principal amount outstanding and the interest rate applicable. Investment income is recognised when the right to receive dividends or other payments is established. 3. Sales Sales recognised in 2001 and 2000 mainly arise from the sale of boilers to third party customers within the PRC. 31 WUHAN BOILER COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2001 4. Operating profit/(loss) The following items have been charged in arriving at operating profit/(loss): 2001 2000 RMB’000 RMB’000 Depreciation of property, plant and equipment 19,957 19,411 Amortisation of intangible assets 3,500 272 Loss on disposal of property, plant and equipment 158 489 Repair and maintenance expenditure 5,450 5,391 Research and development expenditure 7,025 22 Operating lease rentals in respect of property 1,320 1,671 Provision for bad and doubtful debts 2,545 7,586 Provision for inventory losses 124 481 Warranty 4,572 2,311 Staff costs (Note 5) 30,649 23,259 5. Staff costs 2001 2000 RMB’000 RMB’000 Wages and salaries 22,497 16,560 Social security cost 3,608 2,980 Retirement benefits (Note 29) 4,544 3,719 30,649 23,259 Average number of persons employed by the Group 2,770 2,827 during the year 32 WUHAN BOILER COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2001 6. Net finance (expenses)/income 2001 2000 RMB’000 RMB’000 Penalty charged to the parent company 788 8,640 Interest income in - bank deposits 6,282 6,461 - amount due from the parent company 1,660 8,718 7,942 15,179 Investments - dividend income 1,201 1,138 Net foreign exchange transaction profit/(loss) 4 (489) Interest expenses - interest on bank borrowings (12,907) (12,141) - others (1,537) (2,244) (14,444) (14,385) Bank charges (326) (75) (4,835) 10,008 33 WUHAN BOILER COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2001 7. Tax 2001 2000 RMB’000 RMB’000 Current tax 4,969 2,460 Deferred tax (Note 13) (808) (1,138) Tax charge 4,161 1,322 Income tax has been calculated based on the estimated assessable profits using the tax rates applicable to the Company and its subsidiary respectively. According to the “PRC Income Tax Law”, the Company is subject to a unified income tax rate of 33% for the year ended 31 December 2001. Pursuant to a document “Ezhenghan [1998] No.17” issued by the Hubei Provincial Government, the Company is entitled to a tax refund equivalent to 18% of the assessable profits. The refund has been used to reduce the provision for income tax, accordingly, the effective tax rate for the year ended 31 December 2001 is 15%. Pursuant to a document “Cai Shui [2000] No.99” jointly issued by the Ministry of Finance and the State Administration of Taxation on 13 October 2000, income tax refund incentives granted by the local authorities will be valid until 31 December 2001. Unless there are any other legal and administrative regulations, corporate income tax shall be levied on the official rate of 33% effective from 1 January 2002. Pursuant to a document “Shui Shou Erzi [1998] No.12” issued by the Wuhan Local Tax Bureau regarding collective payment of income tax, income tax of the Company is collectively paid through Wuhan Boiler (Group) Company Limited. The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the effective tax rate of the Company is analysed as follows: 2001 2000 Rmb’000 Rmb’000 Profit before tax 23,312 9,483 Tax calculated at the effective rate of 15% 3,497 1,422 Effect of different tax rate in the subsidiary 232 - Dividend income not subject to tax (180) (171) Expenses not deductible for tax purposes 1,053 71 Effect of increase in tax rate (441) - Tax charge 4,161 1,322 34 WUHAN BOILER COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2001 8. Earnings per share The calculation of earnings per share is based on the consolidated profit after tax and after minority interest for the year of RMB19,063,000 (2000: RMB8,161,000) and the weighted average number of shares in issue during the year of 297,000,000 (2000: 297,000,000). The Company has no dilutive ordinary shares and as a result basic and diluted earnings per share are the same. 9. Property, plant and equipment Production Furniture, Plant and equipment fixtures and office and Motor office premises machinery vehicles equipment Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Year ended 31 December 2001 Opening net book value 60,115 90,519 1,522 2,756 154,912 Acquisition of subsidiary 4,565 - 904 102 5,571 Transfer from construction in progress 19,679 5,612 - - 25,291 Additions 18,297 1,165 949 133 20,544 Disposals - (244) (3) (17) (264) Impairment charge - (155) - - (155) Depreciation charge (4,901) (13,553) (760) (743) (19,957) Closing net book value 97,755 83,344 2,612 2,231 185,942 At 31 December 2001 Cost 162,989 216,750 10,236 7,139 397,114 Accumulated depreciation (65,234) (133,251) (7,624) (4,908) (211,017) Impairment charge - (155) - - (155) Net book value 97,755 83,344 2,612 2,231 185,942 At 31 December 2000 Cost 120,141 211,559 8,328 7,335 347,363 Accumulated depreciation (60,026) (121,040) (6,806) (4,579) (192,451) Net book value 60,115 90,519 1,522 2,756 154,912 The Company's plant and office premises are located in Wuhan city, Hubei Province, the PRC. The land where the properties are situated is leased from Wuhan Boiler (Group) Company Limited for a period of 50 years at an annual rental of RMB1,320,000 payable during the period from the date of incorporation of the Company to 2001. Thereafter, the rental charge is subject to an upward review of 10% every 5 years. Plant and office premises of the Company have been pledged to a bank for securing loan facilities granted totalling RMB57,000,000. Impairment charge relates to an idle production equipment not used by the Company in the foreseeable future and is calculated based on its estimated recoverable amount. 35 WUHAN BOILER COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2001 10. Construction in progress 2001 2000 RMB’000 RMB’000 Opening net book value 7,296 7,664 Additions 21,095 2,219 Transfer to property, plant and equipment (25,291) (2,587) Closing net book value 3,100 7,296 Construction in progress represents production equipment under installation and is stated at cost. Construction in progress at the year end includes accumulated interest expenses capitalised of approximately RMB121,000 (2000: RMB 1,355,000). No interest expenses were capitalised in the current year (2000: nil). 11. Investments 2001 2000 RMB’000 RMB’000 Unlisted investment (at cost) 32,337 32,337 As at 31 December 2001, the Company held certain legal person shares, representing approximately 6% equity interest, in Haibowan Joint Stock Company Limited, a company established in Inner Mongolia Autonomous Region of the PRC. This company is engaged in the operation of power plants. The Directors of the Company are of the opinion that the underlying fair value of the unlisted investment was not less than its carrying amount as at 31 December 2001. 36 WUHAN BOILER COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2001 12. Intangible assets Proprietary technology Goodwill and patent Total RMB’000 RMB’000 RMB’000 Year ended 31 December 2001 Opening net book value - 28,028 28,028 Acquisition of a subsidiary (Note 27) 1,683 - 1,683 Amortisation charges (250) (3,250) (3,500) Closing net book value 1,433 24,778 26,211 Cost 1,683 28,300 29,983 Amortisation (250) (3,522) (3,772) Net book value 1,433 24,778 26,211 The directors of the Company are of the opinion that the underlying fair value of the intangible assets was not less than its carrying amount as at 31 December 2001. 13. Deferred tax assets Deferred taxation is calculated on all temporary differences under the liability method using an enacted tax rate of 33% (2000:15%). The movement on the deferred taxation account is as follows: 2001 2000 Rmb’000 Rmb’000 At beginning of year 1,138 - Transfer to income tax payable (1,138) - Income statement credit (Note 7) 808 1,138 At end of year 808 1,138 37 WUHAN BOILER COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2001 13. Deferred tax assets (Cont’d) Deferred income tax assets are mainly recognised for the deductible temporary differences in respect of general provision on receivable balances. Deferred tax assets and deferred tax credit in the income statement are attributable to the following items: Transfer to Credit to income tax incom 2000 paya stateme 2001 Rmb’000 Rmb’00 Rmb’000 Deferred income tax assets Deductible temporary differences in respect of provision for impairment loss of fixed assets - (5 (52) Deductible temporary differences in respect of provision for inventories - (4 (41) Deductible temporary differences in respect of provision for bad and doubtful debts (1,138) 1,1 (71 (7 (1,138) 1,1 (80 (8 14. Inventories 2001 2000 RMB’000 RMB’000 Raw materials (at cost) 102,879 76,579 Raw materials (at net realisable value) 8,769 7,186 111,648 83,765 Certain raw materials have been written down by RMB1,542,000 (2000: RMB1,418,000) to their estimated recoverable amounts. 15. Accounts receivable 2001 2000 Rmb’000 Rmb’000 Trade receivables 137,709 175,931 Less: Provision for bad and doubtful debts (14,528) (11,983) 123,181 163,948 38 WUHAN BOILER COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2001 16. Amounts due from fellow subsidiaries 2001 2000 RMB’000 RMB’000 Wuhan Special Boiler Complete Equipment Engineering Company Limited - 10,744 Wuhan Boiler (Group) Valve Company Limited 6,753 - Wuhan Boiler (Group) Boiler Accessories 6,809 - Manufacturing Company Limited Others 27 5 13,589 10,749 Amounts due from fellow subsidiaries are unsecured, non-interest bearing and with no fixed repayment terms. 17. Other receivables, deposits and prepayments 2001 2000 RMB’000 RMB’000 Other receivables 11,856 4,484 Deposits * 18,380 - Prepayments 88,608 40,901 118,844 45,385 * Represent deposits with an insurance company totalling Rmb18,380,000, which were pledged to a bank to guarantee notes payable issued by the Company. The deposits can be withdrawn within one year and bear interest at 1% to 2.5% per annum. 18. Cash and bank balances 2001 2000 RMB’000 RMB’000 Cash at bank and on hand 45,234 45,744 Short term bank deposits 147,547 105,920 192,781 151,664 The weighted average effective interest rate on short term deposits was 4% (2000: 5%); short term deposits have an average maturity of 304 days. 18. Cash and bank balances (Cont’d) 39 WUHAN BOILER COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2001 Short term bank deposits totalling RMB79,729,000 have been pledged to banks to guarantee notes payable issued by the Company and to secure loans totalling RMB4,000,000 provided to the Company. For the purpose of the cash flow statement, cash and cash equivalents comprise the following: 2001 2000 RMB’000 RMB’000 Cash and bank balances 192,781 151,664 Short term bank deposits (147,547) (105,920) 45,234 45,744 19. Share capital 2001 2000 RMB’000 RMB’000 Registered, issued and fully paid of RMB1 each Domestic legal person shares 172,000 172,000 B shares, listed 125,000 125,000 297,000 297,000 Pursuant to Articles 31 and 35 of the Company's Articles of Association, domestic legal person shares and B shares are registered ordinary shares carrying equal rights. Domestic legal person shares are not listed and not freely transferable, unless specifically approved by the relevant government authorities. 20. Reserves (a) Capital reserve and share premium Capital reserve comprises surplus arising on the difference between the nominal value of state shares issued to the parent company in exchange for the value of the transfer of boiler business related assets and liabilities to the Company. Share premium represents the premium on the issue of B shares to the foreign investors. Pursuant to the relevant PRC regulations, capital reserve and share premium can only be used to increase share capital. 20. Reserves (Cont’d) 40 WUHAN BOILER COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2001 (b) Reserve funds (i) Statutory surplus reserve funds The Group is required each year to transfer 10% of the profit after tax as reported under the PRC statutory financial statements to the statutory surplus reserve funds until the balance reaches 50% of the registered share capital. This reserve can be used to make up any losses incurred or to increase share capital. Except for the reduction of losses incurred, any other usage should not result in this reserve balance falling below 25% of the registered capital. (ii) Statutory public welfare funds The Group is required each year to transfer 10% of the profit after taxation as reported under the PRC statutory financial statements to the statutory public welfare funds. This reserve is restricted to capital expenditure for employees' collective welfare facilities that are owned by the Group. The statutory public welfare funds is not available for distribution to shareholders (except on liquidation). (c) Profit distributable to shareholders Pursuant to a document issued by the Ministry of Finance, the profit after appropriation to reserves and available for distribution as dividend shall be the lower of the amount as stated in the PRC statutory financial statements and the financial statements prepared under IAS. At 31 December 2001, the Group's retained earnings according to the PRC statutory financial statements amounted to RMB40,669,000 (2000: RMB33,835,000) after taking into account for the cash dividend detailed in Note 20 (d). Pursuant to a board resolution of the parent company on 27 November 1997, the profits generated from 1 October 1997 and onwards are distributable to all shareholders and profits generated before 1 October 1997 are distributable to its parent company, Wuhan Boiler (Group) Company Limited, only. Retained earnings as at 31 December 2001 include RMB28,515,000 of profits generated before 1 October 1997. (d) Dividend Pursuant to a board resolution on 20 March 2001, a cash dividend of RMB0.02 per share for the fiscal year 2000, amounting to a total dividend of RMB5,940,000, was declared and paid during the year. (2000: nil) Pursuant to a board resolution on 7 April 2002, a cash dividend of RMB0.025 per share for the fiscal year 2001, amounting to a total dividend of RMB7,425,000, was declared. The financial statements have not reflected this dividend payable, which will be accounted for in shareholders’ equity as an appropriation of retained earnings in 2002. 41 WUHAN BOILER COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2001 21. Minority interest RMB’000 Acquisition (Note 27) 981 Share of net profit of the subsidiary 88 At end of year 1,069 22. Amount due to parent company The amount due to the parent company, Wuhan Boiler (Group) Company Limited, was derived from the transactions as set out in Note 31. The amount is unsecured, non-interest bearing and with no fixed repayment terms. 23. Amounts due to fellow subsidiaries These represent current account balances arising on transactions entered into in the normal course of business. The amounts are unsecured, non-interest bearing and with no fixed repayment terms. 2001 2000 RMB’000 RMB’000 Wuhan Boiler Automatic Control Equipment Manufacturing Company - 2,358 Wuhan Jiangxia Real Estate Company 700 1,400 Wuhan Boiler (Group) Valve Company Limited - 6,395 Wuhan Boiler (Group) Transportation Company 3,081 7,079 Limited Others 933 1,241 4,714 18,473 42 WUHAN BOILER COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2001 24. Other payables and accrued charges 2001 2000 RMB’000 RMB’000 Other payables 50,362 34,822 Warranty provision * 3,686 3,686 Accrued charges 4,588 3,185 58,636 41,693 * The Company provides one to three years’ warranties in respect of the sale of boilers and undertakes to repair or replace items that fail to perform satisfactorily. The provision was estimated by reference to the expected warranty claims calculated at 2% of the completed construction contract cost, after taking into account the past experience of the level of repairs and returns. 25. Borrowings 2001 2000 RMB’000 RMB’000 Bank borrowings - Secured bank borrowings 61,000 33,381 - Unsecured bank borrowings 151,230 169,300 Total borrowings 212,230 202,681 The unsecured bank borrowings are supported by guarantees provided by the following parties: 2001 2000 RMB’000 RMB’000 Parent company Wuhan Boiler (Group) Company Limited 131,230 157,300 Third parties Nan Shan Group 20,000 - Wuhan Heavy Machinery Company - 10,000 Fellow subsidiary Wuhan Jiangxia Real Estate Company - 2,000 Total guaranteed borrowings 151,230 169,300 43 WUHAN BOILER COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2001 25. Borrowings (Cont’d) The interest rate exposure of the borrowings of the Company is as follows: 2001 2000 RMB’000 RMB’000 Total borrowings - at fixed rates 212,230 202,681 Weighted average effective interest rate - bank borrowings 6.08% 6.3% There are no material differences between the fair value and carrying amount of the Group’s borrowings. The fair values are based on discounted cash flows using a discount rate similar to the borrowing rate that the directors believe would be available to the Group at the balance sheet date. The borrowings have an average maturity of 141 days. 26. Cash generated from operations 44 WUHAN BOILER COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2001 2001 2000 RMB’000 RMB’000 Net profit 19,063 8,161 Adjustments: Minority interest 88 - Taxation 4,161 1,322 Depreciation 19,957 19,411 Amortisation of propriety technology and patent 3,500 272 Bad debt provision 2,545 7,586 Loss on disposal of property, plant and equipment 158 489 Impairment loss of property, plant and equipment 155 - Investment income (1,201) (1,138) Interest expenses 14,444 14,385 Interest income and penalty (8,730) (23,819) Changes in working capital: (Increase)/decrease in inventories (2,200) 14,615 Decrease in deferred VAT recoverable - 8,288 Increase in accounts receivable, due from contract customers, amount due from the parent company, amounts due from fellow subsidiaries, other receivables, deposits and prepayments (87,563) (7,660) Increase / (decrease) in bills payable, accounts payable, deposits received from customers, amounts due to fellow subsidiaries, other payables and accrued charges 133,375 (25,728) Cash generated from operations 97,752 16,184 45 WUHAN BOILER COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2001 27. Acquisition On 31 March 2001, the Company acquired 90% of the equity interest in Wuhan Special Boiler Complete Equipment Engineering Company Limited, a company principally engaged in the manufacture and sale of special boilers. The acquired business contributed revenues of RMB23,800,000 and operating profit of RMB879,000 to the Group for the period from 1 April 2001 to 31 December 2001, and its assets and liabilities at 31 December 2001 were RMB44,944,000 and RMB34,255,000 respectively. Details of net assets acquired and goodwill are as follows: Rmb’000 Purchase consideration: − Cash paid 10,512 Fair value of net assets acquired (8,829) Goodwill 1,683 The fair value of the net assets approximated to the book value of the net assets acquired, and no plant closure provisions or other restructuring provisions were established. The assets and liabilities arising from the acquisition are as follows: Rmb’000 Cash and cash equivalents 8,249 Property, plant and equipment (Note 9) 5,571 Inventories 25,682 Receivables 10,805 Taxes payable (198) Payables (40,299) Minority interest (Note 21) (981) Fair value of net assets acquired 8,829 Goodwill 1,683 Total purchase consideration 10,512 Less: Cash and cash equivalents in subsidiary acquired 8,249 Cash outflow on acquisition 2,263 46 WUHAN BOILER COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2001 28. Financial assets and financial liabilities (a) Interest rate risk The interest rates and repayment terms of bank borrowings are disclosed in Note 25. Other financial assets and financial liabilities do not have material interest rate risk. (b) Credit risk Amounts due from contract customers and accounts receivable of the Group are spread among a number of customers in the PRC and cash is deposited with registered banks in the PRC. The carrying amounts of the financial assets after deducting the provision for bad and doubtful debts best represent their maximum credit risk exposure as at 31 December 2001. (c) Foreign currency risk Transactions of the Group are mainly settled in Renminbi. In the opinion of the Directors of the Company, the Group does not have significant foreign currency risk exposure. (d) Fair value The carrying amounts of the following financial assets and financial liabilities approximate to their fair values: cash and bank balances, receivables, payables, prepayment and borrowings. Information on the fair value of borrowings and interest rate exposure is included in Note 25. 29. Retirement scheme The Group participates in a defined contribution retirement scheme organised by the Wuhan Municipal Government for all employees. The Group's contribution to the scheme is provided at 20% (2000: 20%) of the total salary for permanent employees. The contribution to the retirement scheme for the year ended 31 December 2001 amounted to RMB4,544,000 (2000: RMB3,719,000). Other than the above, the Group has no other retirement benefit obligations. 30. Commitments Capital commitments Capital expenditure contracted for at the balance sheet date but not recognised in the financial statements is as follows: 2001 2000 RMB’000 RMB’000 Construction in progress 948 1,908 47 WUHAN BOILER COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2001 30. Commitments (Cont’d) Operating lease commitments The future total minimum lease payments under non-cancellable operating leases in respect of the leasing arrangement as mentioned in Note 9 are as follows: 2001 2000 RMB’000 RMB’000 Not later than 1 year 1,452 1,320 Later than 1 year and not later than 5 years 5,808 5,808 Later than 5 years 91,327 92,779 98,587 99,907 31. Related party transactions and relationships (a) Apart from those related party transactions disclosed in other notes above, the Group had the following material transactions with its related parties during the year: Wuhan Boiler (Group) Company Limited 2001 2000 RMB’000 RMB’000 - Sale of boilers * 25,779 57,219 - Purchase of proprietary technology and patent - 28,300 - Purchase of property, plant and equipment * 19,169 12,910 - Interest receivable according to prevailing bank lending interest rate 1,660 8,718 - Penalty charge 788 8,640 - Operating lease payment * 1,320 1,671 - Acquisition of subsidiary – Wuhan Special Boiler Complete Equipment Engineering Company Limited 10,512 - - Assignment of debts to Wuhan Boiler (Group) Company Limited 10,445 - - Payments of income tax through Wuhan (Group) Company Limited 6,851 339 - Payments by Wuhan Boiler (Group) Company Limited on behalf of the Company 8,502 - - Payments on behalf of Wuhan Boiler (Group) Company Limited - 92,270 Subsidiaries of Wuhan Boiler (Group) Company Limited - Purchases of boiler parts and sub-contracting charges paid * 12,556 21,233 - Sales of boilers, raw materials and boiler parts * 1,022 19,040 - Payments for installation service * 2,355 - 48 WUHAN BOILER COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2001 31. Related party transactions and relationships (Cont’d) * In the opinion of the Directors of the Company, these transactions were carried out on normal commercial terms and conditions at market prices. (b) Relationships In the opinion of the Directors of the Company, the ultimate parent company of the Company is Wuhan Boiler (Group) Company Limited, a state-owned enterprise incorporated in the PRC. (c) Directors’ remuneration A listing of the members of the Board of Directors is shown in the Annual Report. The total remuneration of the Directors approximated RMB169,000 (2000: RMB130,000) for the year. (d) Litigation Pursuant to a verdict issued by the Shanghai Second Intermediate People’s Court on 21 November 2000, the Company was obliged to settle the outstanding amount due to Shanghai Steel Tube Company Limited (“SHSTCL”) of approximately RMB59,319,000, the related penalty charge thereon of approximately RMB5,467,000, interest of approximately RMB479,000 and handling fee charged by the court of approximately RMB646,000 by 30 June 2001. Pursuant to an agreement entered into between SHSTCL, Wuhan Boiler (Group) Company Limited and the Company on 27 March 2001, Wuhan Boiler (Group) Company Limited has agreed to assume the payment of interest, penalty charge and handling fee. As at 31 December 2001, the amount due to SHSTCL was RMB36,747,000. A supplementary agreement was entered into between the Company and SHSTCL on 26 March 2002 whereby the Company agreed to settle the outstanding amount before 31 December 2002. The Directors of the Company are of the opinion that the Company has sufficient financial resources to settle the amount due to SHSTCL on or before 31 December 2002. (e) Contingencies On 18 April 2001, an agreement was entered into between Huabao Trust and Investment Company Limited (“HTICL”), Wuhan Boiler (Group) Company Limited and the Company to waive the Company’s obligation to guarantee the repayment of the loan of RMB129,014,900 provided by HTICL to Wuhan Boiler (Group) Company Limited. During the year, Wuhan Boiler (Group) Company Limited settled RMB53,900,000 of the amount due to HTICL. 101,400,500 legal person shares of the Company held by Wuhan Boiler (Group) Company Limited as well as the associated dividends have been frozen by court as security for the loan. 49 WUHAN BOILER COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2001 32. Subsidiary company As at the balance sheet date, the Company directly held equity interests in the following PRC established subsidiary: Attributable Name equity interest Principal activities 2001 2000 % % Wuhan Special Boiler Complete Equipment 90 0 Manufacture and sale of Engineering Company Limited special boilers 33. Post balance sheet events Pursuant to a board resolution on 10 February 2002, the Company and other companies and individuals will jointly set up a subsidiary named Wuhan Lan Xiang Power Environmental Protection Technology Company Limited, which will be engaged in consultancy, research and design of boilers and environmental projects. The total registered capital of this company is Rmb20,000,000 and the Company shall contribute capital of RMB14,000,000, accounting for 70% of its registered capital. The above acquisition transaction is subject to the approval by the shareholders of the Company. 34. Approval of financial statements The financial statements were approved by the Board of Directors on 7 April 2002. 50 WUHAN BOILER COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2001 The impact of IAS and other adjustments on the PRC statutory consolidated financial statements is as follows: Net profit Net assets RMB’000 RMB’000 As per the PRC statutory consolidated financial statements 18,010 503,010 IAS and other adjustments - Reversal of investment revaluation gain - (2,230) - Others 245 - - Declared cash dividend after balance sheet date - 7,425 - Deferred tax 808 808 As restated after IAS and other adjustments 19,063 509,013 51