招商地产(000024)招商局Ｂ2001年年度报告（英文版）

CHINA MERCHANTS SHEKOU HOLDINGS CO., LTD. 2001 ANNUAL REPORT No.: [CMSH] 2002-006 I. IMPORTANT NOTICE AND CONTENTS Important Notice: The Board of Directors of China Merchants Shekou Holdings 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. Hujiangdeqin Certified Public Accountants and Deloitte Touche Tohmatsu Certified Public Accountants audited the Company’s Financial Report for 2001 and presented standard Auditors’ Report without reserved opinion. I. IMPORTANT NOTICE AND CONTENTS II. COMPANY PROFILE III. FINANCIAL HIGHLIGHT AND BUSINESS HIGHLIGHT IV. PARTICULARS ABOUT CHANGES IN SHARE CAPITAL AND SHAREHOLDERS V. PARTICULARS ABOUT DIRECTOR, SUPERVISOR, SENIOR EXECUTIVE AND STAFF VI. ADMINISTRATIVE STRUCTURE VII. BRIEFINGS ON THE SHAREHOLDERS’ GENERAL MEETING VIII. REPORT OF THE BOARD OF DIRECTORS IX. REPORT OF THE SUPERVISORY COMMITTEE X. SIGNIFICANT EVENTS XI. FINANCIAL REPORT XII. DOCUMENTS AVAILABLE FOR REFERENCE II. COMPANY PROFILE 1. Legal Name of the Company: In Chinese: 招商局蛇口控股股份有限公司 Abbr.: 蛇口控股 In English: CHINA MERCHANTS SHEKOU HOLDINGS CO., LTD. Abbr.: CMSH 2. Legal Representative: Ding Keyi 3. Secretary of Board of Directors: Chen Yu Liaison Address: 9/F, New Times Building, Shekou Industrial Zone, Nanshan District, Shenzhen Tel: (86) 755-6819600 Fax: (86) 755-6819680 E-mail: chenyu@cmre.com Authorized Representative in Charge of Securities Affairs: Liu Ning Liaison Address: 9/F, New Times Building, Shekou Industrial Zone, Nanshan District, Shenzhen Tel: (86) 755-6819616 Fax: (86) 755-6819680 E-mail: liuning68@cmre.com 4. Registered Address: 30/F, New Times Building, Shekou Industrial Zone, Nanshan District, Shenzhen Office Address: 9/F, Times Plaza, Shekou Industrial Zone, Nanshan District, Shenzhen Post Code: 518067 E-mail: cmdm@cmre.com 5. Newspaper Chosen for Disclosing the Information of the Company: Securities Times, China Securities and Ta Kung Pao Internet Web Site Designated by China Securities Regulatory Commission for Publishing the Annual Report: http://www.cninfo.com.cn The Place Where the Annual Report is Prepared and Placed: Secretariat of Board of Directors of the Company 6. Stock Exchange Listed with: Shenzhen Stock Exchange The 2nd Stock Exchange Listed with: Singapore Stock Exchange Short Form of the Stock: CHINA MERCHANTS - A, CHINA MERCHANTS - B Stock Code: 000024, 200024 7. Business scope: transportation, port services, water carriage services, industrial manufacture, development and operation of real estate, R&D services, hotel and restaurant business, and bonded warehouse business. 8. Other Relevant Information of the Company (1) Initial registration date: Sep. 19, 1990. (2) Initial registration place: Shenzhen. (3) Registration Number of enterprise juristic person’s business license: QGYSZ Zi No. 101828 (4) Reference Number of taxation: GSSZ 440305618845136 DSDZ 440305618845136 (5) Name and office address of certified public accountants engaged by the Company Domestic: Hujiangdeqin Certified Public Accountants Address: 16/F, Shanghaitan International Mansion, No. 99 Huangpu Rd., Shanghai Overseas: Deloitte Touche Tohmatsu Certified Public Accountants Address: 26/F, Wing on Center, 111 Connaught Rd. Central, Hong Kong 9. Definition: Unless otherwise stated, the following words and expressions have the following meanings: 1. “the Company”: China Merchants Shekou Holdings Co., Ltd. 2. “CMSIZ”: China Merchants Shekou Industrial Zone Co., Ltd. 3. “CMRE”: Shenzhen China Merchants Real Estate Co., Ltd. 4. “CMPS”: Shenzhen China Merchants Power Supply Co., Ltd. 5. “CMWS”: Shenzhen China Merchants Water Supply Co., Ltd. 6. “CMP”: Shenzhen China Merchants Petrochemicals Co., Ltd. Note: The financial data and amount in this report are expressed in RMB (except for otherwise stated) III. FINANCIAL HIGHLIGHT AND BUSINESS HIGHLIGHT (I) Major profit indexes as of the year 2001 No. Indexes Amount 1 Total profit 291,435,832 2 Net profit 174,961,781 3 Net profit after deducting non-recurring gains 189,537,364 and losses 4 Profit from main business lines 516,647,995 5 Profit from other business lines 3,093,865 6 Operating profit 315,232,467 7 Investment income -45,282,864 8 Subsidy income 32,586,084 9 Net income/expenditure from non-operating -11,099,855 10 Net cash flows arising from operating activities 27,055,362 11 Net increase/decrease in cash and cash equivalent -225,345,436 Note: In the report year, the total amount of non-recurring gains and losses is RMB –14,575,583, including RMB –16,159,770 as net income/expenditure from non-operating, RMB 1,249,500 as subsidy income, and RMB 334,687 as disposal of investment gains and losses of affiliated company. (II) Impact of adjustment on profit and net assets under IAS (Unit: In RMB ’000) Net profit Net assets Under Chinese Accounting Standards 174,962 2,250,278 Adjustment under International Accounting Standards: Dividend distribution 52,404 Adjustment of income from assets exchange 22,121 16,838 Adjustment of amortization of goodwill -66,856 -53,723 Adjustment of VAT return as it accrues 13,600 13,600 Adjustment of minority shareholders’ equity 10,208 -22,867 Adjustment of deferred taxes 6,279 -29,738 Adjustment of difference of accounting estimate 2,796 Others 1,600 -2,488 Adjusted value under IAS 164,710 2,224,304 Note: The net profit as of the year 2001 is RMB 164,710,000 as audited by overseas Certified Public Accountants. The main reason for the difference between the results under CAS and IAS is different accounting methods adopted in the treatment of assets exchange, subsidy income and amortization of goodwill. (III) Major accounting data and indexes Statement 1: Return on equity and earnings per share as calculated according to Regulations on the Information Disclosure of Companies Publicly Issuing Shares (No. 9) released by CSRC: Year 2001 2000 1999 Return on equity Earnings per share Return on equity Earnings per share Return on equity Earnings per share (%) (RMB) (%) (RMB) (%) (RMB) Profit indexes Fully Weighted Fully Weighted Fully Weighted Fully Weighted Fully Weighted Fully Weighted diluted average diluted average diluted average diluted average diluted average diluted average Profit from main business lines 22.96 23.28 1.084 1.084 22.93 25.43 1.026 1.071 22.82 23.69 0.749 0.749 Operating profit 14.01 14.21 0.662 0.662 14.33 15.90 0.641 0.669 14.64 15.19 0.480 0.480 Net profit 7.78 7.89 0.367 0.367 9.29 10.30 0.415 0.434 11.81 12.26 0.388 0.388 Net profit after deducting non-recurring gains and losses 8.42 8.54 0.398 0.398 8.58 9.52 0.384 0.401 11.25 11.67 0.369 0.369 Statement 2: Major accounting date and indexes over the recent past three years 2000 1999 Items 2001 (Before adjustment) (After adjustment) (Before adjustment) (After adjustment) Income from main business lines 3,320,820,664 2,917,231,109 2,917,231,110 930,466,427 930,466,427 Total profit 291,435,832 353,718,275 337,064,901 256,014,206 247,674,824 Including: profit from main business 516,647,995 488,727,233 488,727,234 305,718,517 296,982,605 lines Profit from other business lines 3,093,865 2,925,052 2,925,052 4,517,413 4,517,413 Investment income -45,282,864 5,403,822 5,403,821 28,679,695 28,679,695 Subsidy income 32,586,084 33,828,361 22,186,440 20,805,846 20,805,846 Net income / expenditure from -11,099,855 10,190,084 3,947,336 7,752,782 7,752,782 non-operating Net profit 174,961,781 208,910,553 197,927,141 159,811,387 153,691,169 Total assets 4,692,619,143 4,888,827,687 4,845,844,183 3,886,228,397 3,867,820,674 Shareholders’ equity 2,250,277,995 2,148,559,123 2,131,455,493 1,337,352,896 1,301,219,137 Earnings per share fully diluted 0.367 0.439 0.415 0.403 0.388 Earnings per share (weighted average) 0.367 0.458 0.434 0.422 0.388 Net assets per share 4.724 4.510 4.474 3.374 3.283 Return on equity (fully diluted) 7.775 9.72 9.286 11.95 11.811 Return on equity (weighted average) 7.885 10.78 10.300 12.56 12.259 Net assets after adjustment 4.656 4.380 4.411 3.299 3.231 Net cash flows per share arising from 0.057 0.474 0.474 0.381 0.381 operating activities (IV) Particulars about changes in share equity during the report year Items Share Capital public Surplus public Statutory public Retained capital reserve reserve welfare fund profit Amount at the year-begin 476,396,000 1,157,649,670 272,682,796 50,208,998 242,006,193 Increase in this report year ---- 1,008,368 131,734,360 17,801,830 174,961,781 Decrease in this report ---- ----- ----- ----- 184,137,920 year Amount at the year-end 476,396,000 1,158,658,038 404,417,156 68,010,828 232,830,054 Reason for change Note: Reason for changes There is no change during the report year; Increase of capital public reserve is because CMWS received certain donation; Increase of surplus public reserve is because that the Company and its subsidiaries withdraw surplus public reserve; Increase of statutory welfare fund is because that the Company and its subsidiaries withdraw statutory welfare fund; Increase of retained profit is due to the net profit realized in the year 2001, decrease of it is because that the Company and its subsidiaries withdraw surplus public reserve and dividend distribution. IV. PARTICULARS ABOUT CHANGES IN SHARE CAPITAL AND SHAREHOLDERS (I) Statement of changes in share capital (Unit: share) Before the Increase/decrease After the change of this time (+ , - ) change I. Unlisted Shares 1. Promoters’ shares Including: Domestic juristic person’s shares 156,906,750 0 156,906,750 Foreign juristic person’s shares 52,302,250 0 52,302,250 Total unlisted shares 209,209,000 0 209,209,000 II. Listed shares 1. Domestically listed RMB ordinary share 130,965,200 0 130,965,200 2. Domestically listed foreign shares 136,221,800 0 136,221,800 Total listed shares 267,187,000 0 267,187,000 III. Total share 476,396,000 0 476,396,000 (II) Issuance and listing 1. Particular about issuance of share over past three years by the end of the report year On May 4, 1999, 1998 profit distribution plan was approved by 1998 Shareholders’ General Meeting, based on the total share capital of 360,360,000 shares at the end of 1998, the Company distributed to all the shareholders of home and abroad at the rate of 1 bonus share for every 10 shares. On June 22, 1999, the bonus share plan was implemented with the total distribution of 36,036,000 shares. The date for listing fell on June 24, 1999 and the approved listing totaled 17,017,000 shares. Thus the total share capital was increased to 396,396,000 shares after the bonus share distribution. The 3rd Extraordinary Shareholders’ General Meeting of 1999 dated Sep. 18, 1999 approved the proposal on issuing additional 80 million domestically public shares (A-shares). As approved by China Securities Regulatory Commission with ZJZ (1999) No. 149 document, the Company additionally issued 80 million A shares (share for circulation) on Feb. 23, 2000. The additional issuance price was RMB 9.06 per share. The said 80 million shares were listed for trade in Shenzhen Stock Exchange dated May 29, 2000. Thus the total share capital was increase to 476,396,000 shares after additional issuance. There is no change in share capital for the year 2001. 2. The Company has no bonus share or share allotment in the report period. 3. At present, there are no employees’ shares in the Company. There are 105,458 shares held by directors, supervisors and senior executives of the Company. The said shares under the custodian of the Trust Department of Shenzhen Securities Registration Co., Ltd.. (III) About shareholder 1. Ended Dec. 31, 2001, the Company has 76,349 shareholders of A-share and 19,102 shareholders of B-share. 2. About shares held by the top ten shareholders Unit: share Amount of Increase or Amount of Shareholder’s name the beginning decrease in this the end of the Proportion Type of the year year year Domestic 156,906,75 156,906,75 1. Shekou Industril Zone Co., Ltd. 0 32.94% promoter’s juristic 0 0 person’s share 2. Hong Kong Panorama Investment Foreign 52,302,250 0 52,302,250 10.98% promoter’s juristic Ltd. 3 Foxtrol International Ltd. 15,400,000 0 15,400,000 3.23% Foreign public h 4 Orienture Investment Ltd. 14,779,525 0 14,779,525 3.10% Foreign public share 5 Yangbang International Co., Ltd. 7,206,168 -950,000 6,256,168 1.31% Foreign public share 6 CBNY S/A PNC/Skandia Select 0 +2,822,964 2,822,964 0.59% Foreign public share Fund/China Equity AC 7 The Central Depository(PTE) Ltd 3,403,496 -1,903,200 1,500,296 0.31% Foreign public share 8 Hansheng Securities Investment Fund 0 +1,500,108 1,500,108 0.31% Domestic public share 9 Tongzhi Securities Investment Fund 0 +1,181,129 1,181,129 0.25% Domestic public share 10 Hanxing Securities Investment Fund 0 +999,995 999,995 0.21% Domestic public share Note: 99,750,000 shares of the Company held by Shekou Industrial Zone were mortgaged for bank loans. The said shares have carried out registration procedure for freezing with Shenzhen Securities Registration Co., Ltd. dated March 1, 2001. The Company published the relevant notice dated April 5, 2001. Ended Dec. 31, 2001, there were no freeze or mortgage to other juristic person’s share. (Shekou Industrial Zone has carried out the procedure of unfreezing of said shares on March 6, 2002) Note: Hong Kong Panorama Investment Ltd., Foxtrol International Ltd., Orienture Investment Ltd. and Yangbang International Co., Ltd. all are wholly owned subsidiaries of Hong Kong China Merchants International Co., Ltd. Note: The first shareholder, CMSIZ is a wholly-owned subsidiary company of China Merchants Incorporation, who is also the control shareholder of Hong Kong China Merchants International Co., Ltd.. 3. Brief introduction of juristic person shareholders holding no less than 10% of total shares of the Company (1) CMSIZ Legal representative: Fu Yuning Date of foundation: April 1, 1992 Business scope: establishment and management of communication and transportation, industrial manufacturing, finance and insurance, foreign trade, real estate, post and telecommunications, tourism, restaurant, etc.; organization and management of the affiliated enterprises, associated enterprises, foreign-funded enterprises and enterprises in which the Company holds equity interest; dock and warehousing business; overall contracting of water/land construction projects and the related offshore petroleum development projects, and their construction organization and logistics services; product sale of the affiliated enterprises and supply and sale of the required equipment, raw materials and components and parts (where there are state regulations for special operation of special items, handle according to regulations); holding commodity exhibitions, sports games, theatrical performances and cable TV business etc.; and providing technical, operation and legal consultation related to the above business, as well as technology and information services. (2) Hong Kong Panorama Investment Ltd. Legal representative: Du Yongcheng Date of foundation: Aug. 13, 1997 Business scope: investment and share holding (3) About the control shareholder of the Company’s control shareholder China Merchants Incorporation is the control shareholder of CMSIZ; legal representative is Qin Xiao. Business scope: lease and agency of water/land passenger-cargo transportation, water/land conveyance and facilities; dock and warehousing business; salvage, refloatation and tugboat; construction, repairing, checking and marketing of shipping, offshore petroleum drilling equipment; repairing and checking of drilling platform and container; overall contracting of water/land construction projects and the related offshore petroleum development projects, and their construction organization and logistics services; procurement, supply and sale of water/land communication and transportation equipment; establishment of transportation and industry and commerce; organization and management of finance, insurance and the other relevant business; development, management of Shekou Industrial Zone. (4) During the report year, there is no change in the control shareholder of the Company. V. PARTICULARS ABOUT DIRECTOR, SUPERVISOR, SENIOR EXECUTIVE AND STAFF (I) Particulars about director, supervisor and senior executive 1. Resumes of directors, supervisors and senior executives of the Company in office Mr. Ding Keyi, Chairman of the Board of the Company, senior economist, graduated from Peking University. He successively held the positions of Deputy Director General of Qinhuangdao Port Authority; General Manager of China Merchants Zhongyin Zhangzhou Economic Development Zone; General Manager of China Merchants Transportation fundamental Construction Investment Company; General Manager of Hong Kong China Merchants Storage and Port Transportation Co., Ltd.; Secretary of the CPC Committee and concurrent Deputy General Manager of CMSIZ. He now acts as General Manager of CMSIZ. Mr. Fan Jianxiong, Vice Chairman of the Board of the Company, Master degree. He now acts as Deputy General Manager of China Merchants International Co., Ltd.. He successively studied in Foreign Language Dept. of Hubei University and MBA Dept. of Maastricht School Of Management. He once held the following positions: Director and General Manager of China Shenzhen Foreign Shipping Agency; General Manager of Shekou China Merchants Port Service Co., Ltd. (original name of the Company); Assistant General Manager and Deputy General Manager of CMSIZ; Deputy General Manager of China Merchants Transportation Inc. (Hong Kong); Director and General Manager of China Merchants Shipping Enterprise Co., Ltd.. Mr. Lin Shaobin, Director and General Manager of the Company and concurrent General Manager of CMRE, senior architect. He graduated from Tsinghua University. He successively held the position of General Manager of Shekou CMRE; Assistant General Manager and Deputy General Manager of CMSIZ; General Manager of Real Estate Business Department of China Merchants Incorporation. Ms. Wu Zhenqin, Director and Chief Financial Supervisor of the Company, senior accountant. She graduated from Shanghai Maritime University. She successively held the position of Director of Finance Department of Ship Inspection Bureau of the Ministry of Communications and Director of Chief Accountants Office and Manager of Financial Dept. of CMSIZ. Mr. Fu Gangfeng, Director of the Company, held Master degree of economics and professional title of senior accountant. He now acts as Chief Financial Supervisor of CMSIZ. He successively held the position of Vice Director of Shenzhen Shekou Zhonghua Certified Public Accountants; Director of Chief Accountants Office and Deputy Chief Accountant of CMSIZ; Chief Financial Supervisor of the Company. Mr. Hong Xiaoyuan, Director of the Company, held Master degree of economics of Peking University, Master degree of science of Australia State University and Doctor graduate student of economics in Australia State University. He used to work in the State System Restructuring Reform Committee, successively held the position of General Manager of Shenzhen Longfan Company, Assistant General Manager of CMSIZ, and General Manager of the Company. He now acts as Deputy General Manager of CMSIZ and concurrent General Manager of China Merchants Science & Technology Group Co. Mr. Li Yasheng, Director of the Company, senior economist, held Master degree from UN Population Center (Cairo). He successively held the position of Assistant Director of Population Research Institute of Sichuan University; Director of the Planning and Statistics Bureau of Shekou District, Shenzhen; Director of the Planning and Statistics Office of, Director of Economic Development Office of, Assistant General Manager of and Deputy General Manager of CMSIZ; General Manager of Shekou China Merchants Petro-Chemicals Co., Ltd.. He now acts as General Manager of China Merchants Material Exchange Group and concurrent Deputy General Manager of CMSIZ. Mr. Chen Gang, Director of the Company, senior economist, graduated form Tsinghua University and from American New York State University as MBA. He now acts as Deputy Chief Economist of CMSIZ. He formerly held the position of General Manager of Shekou Industrial Zone Investment and Development Co., Ltd.. Mr. Wang Zhengde, Director of the Company, senior accountant, held Master degree from Zhongnan University of Economics and certification for training course in English Investment Bank. He successively held the position of General Manager and Vice Chairman of the Board of Shenzhen Peninsular Management Fund Co., Ltd.; Deputy Chief Accountant of CMSIZ. He now acts as Director, Deputy General Manager and Chief Financial Supervisor of China Merchants International Co., Ltd.. Mr. Yu Zhihan, Director of the Company, senior economist, graduated from Chinese Academy of Social Sciences with Doctor degree of economics. He successively held positions of Assistant of Director of Enterprise Office of CMSIZ; General Manager of Shenzhen Tianyuan Biographical Technology Co., Ltd.; General Manager of Shenzhen Asian Bicycle Co., Ltd.; Deputy General Manager of China Merchants Investment and Development Co., Ltd.; Assistant General Manager of CMRE and concurrent General Manager of Shanghai Xinhe Real Estate Property Development Co., Ltd.. He now holds the position of General Manager of Enterprise Management Dept. of CMSIZ. Mr. Ma Jikai, Director of the Company, senior Political Affair Preventative, graduated from Beijing Aviation Academy. He successively held the position of Secretary of the CPC Committee of China South Industrial Academy; Secretary of the CPC Committee of China Merchants Shekou Industrial Zone Duty-free Company; Section-chief of CPC Committee Cadre Section of CMSIZ; Section-chief of personnel Section of CMSIZ; Vice Secretary of the CPC Committee of CMSIZ. He now acts as Secretary of the CPC Committee of Shekou Port of the Company. Mr. Li Tiancai, Independent Director of the Company, with nationality as Singapore, graduated from Singapore Nanyang Chemical Academy and American Texas A&M University. He used to work in Dept. of Defense of Singapore and then Singapore Port Authority in charge of storage management and port operation. He now works for Singapore Technical Property Management Pte. Co., Ltd. in charge of logistics management and operation relevant to Singapore and China. Mr. Shi Xinping, Independent Director of the Company, with nationality as Hong Kong. He successively studied in study in Management College of England Lancaster University and Commerce College of England Middlesex University and gained MAB and doctorate of management. He used to be docent in Xi’an Northwestern Polytechnic University and docent in Financial Settlement Dept. of Hong Kong Baptist University. From 1995 now on, he acted as assistant professor of Financial Settlement Dept. of Hong Kong Baptist University. From 1999, he also started to take the position as Director of Wangyou International Co., Ltd. dealing with planning of IT commerce for enterprises, appraisal on operation of web site and improvement and management consultants business. Mr. Hu Zheng, Chairman of the Supervisory Committee of the Company, bachelor's degree, senior economist. He used to be Assistant President and concurrent General Manager of Presidential Business Dept. of China Merchants Incorporation and now acts as Assistant President of China Merchants Incorporation and concurrent Secretary of the CPC Committee of, chief Deputy General Manager of CMSIZ. Mr. Li Yaluo, Supervisor of the Company, used to be Chairman of Work Union of CMSIZ and Chairman of the Supervisory Committee of the Company. He now acts as Consultant of Work Union of CMSIZ. Mr. Wen Chongping, Supervisor of the Company, bachelor's degree, senior accountant. He successively held the position of Deputy Director of Chief Accountants Office of CMSDZ; Director of Financial Dept. of, Deputy General Manager of and Deputy General Manager of Auditing Dept. of China Merchants Incorporation. He now acts as General Manager of Auditing Dept. of CMSIZ. Ms. Zhou Meihua, Supervisor of the Company, Political Affair Preventative, graduated from Shanghai Maritime University. She successively held the position of Director of General Manager Office of, Manager of Shipping Dept. of the Company; and General Manager of Shanghai Xinhe Real Estate Company. She now acts as President of Work Union of China Merchants Port Service (Shenzhen) Co., Ltd.. Mr. Zhang Mengkang, Supervisor of the Company, used to be General Manager of Shenzhen Lianda Tugboat Co., Ltd.. He now acts as Deputy General Manager of China Merchants Port Service (Shenzhen) Co., Ltd.. Mr. Zhou Zhiyu, Senior Executives of the Company, graduated from Wuahn Water Engineer Institution. He once worked in Infrastructure Bureau of Ministry of Communications, equipment Dept. and import & export Dept. of China Port Construction General Company, Beijing Branch of China Merchants Incorporation. He once held the position of General Manager of Hong Kong Zhenhua Engineer Company, Deputy General Manager of China Port Construction General Company, Director and General Manager of CMRE Group. He now acts as Deputy General Manager of the Company. Mr. Yang Baiqian, Senior Executives of the Company, graduated from Nankai University. He once worked in Computer Research Institute of Ministry of Communications, Shekou Planning and Statistics Bureau, Economic Development Office of CMSIZ. He once took the position as Deputy General Manager of Shenzhen Peninsula Fund Management Company, Deputy General Manager of enterprise management Dept. of CMSIZ, Deputy General Manager of China Merchants Shekou Holdings Co., Ltd. and planning manager of Reform Center of China Merchants Group. He now acts as Deputy General Manager of the Company. Mr. Li Hongwu, Senior Executives of the Company, senior engineer, graduated from Electrician and Computer Dept. of Wuhan Water Carriage Engineering Academy. He successively held the position of Assistant General Manager and Deputy General Manager of Qingdao Container Company; Assistant General Manager of CMSIZ. He now acts as Deputy General Manager of the Company and concurrent General Manager of China Merchants Port Service (Shenzhen) Co., Ltd.. Mr. Chen Yu, Senior Executives of the Company, He graduated from Architecture Dept. of Chongqing Institute of Architecture and Engineering and MBA Dept. of Guang Hua Colleague, Peking University with MBA successively. He had working experiences as follows: engineer of real estate development dept. of Beijing Zhuzong Group, market manager of Stanley Works, and Assistant of Chairman of the Board of Peking University China Merchants Investment Company. He now acts as Secretary of the Board of Directors of the Company. Mr. Zhu Guohui, Senior Executives of the Company, engineer, graduated from Hydropower Station Dept. of Jiangxi Hydroelectricity College. He successively held the position of Engineer in Technology Dept., Office Director and Deputy General Manager of CMWS. He now acts as General Manager of CMWS. Mr. Li Shuming, Senior Executives of the Company, senior engineer, graduated from Northeast China Institute of Electric Power Engineer. He successively held the position of Manager of Operation Dept., Assistant General Manager and Deputy General Manager of CMPS. He now acts as General Manager of CMPS. 2. Particulars about shares held by director, supervisor and senior executive Number of the Number of Increase / Name Gender Age Office term beginning of the end of decrease the year the year Ding Keyi Male 60 Aug. 4, 2000 – May 6, 2002 0 0 0 Fan Jianxiong Male 46 Nov. 30, 2001 – May 6, 2002 0 0 0 Lin Shaobin Male 42 Jan. 6, 2000 – May 6, 2002 0 0 0 Wu Zhenqin Female 44 Oct. 13, 2000 – May 6, 2002 0 0 0 Hong Xiaoyuan Male 39 Jan. 6, 2000 – May 6, 2002 0 0 0 Li Yasheng Male 49 Jan. 6, 2000 – May 6, 2002 0 0 0 Fu Gangfeng Male 35 May 6, 1999 – May 6, 2002 0 0 0 Chen Gang Male 44 May 6, 1999 – May 6, 2002 0 0 0 Wang Zhengde Male 39 May 6, 1999 – May 6, 2002 0 0 0 Yu Zhihan Male 47 Jan. 6, 2000 – May 6, 2002 0 0 0 Ma Jikai Male 56 Jan. 6, 2000 – May 6, 2002 0 0 0 Li Tiancai Male 53 Aug. 4, 2000 – May 6, 2002 0 0 0 Shi Xinping Male 43 May 18, 2001 – May 6, 2002 0 0 0 Hu Zheng Male 46 Aug. 4, 2000 – May 6, 2002 0 0 0 Li Yaluo Male 61 May 6, 1999 – May 6, 2002 39,325 0 39,325 Wen Chongping Male 51 May 6, 1999 – May 6, 2002 0 0 0 Zhou Meihua Female 55 May 6, 1999 – May 6, 2002 51,745 0 51,745 Zhang Mengkang Male 39 May 6, 1999 – May 6, 2002 0 0 0 Zhou Zhiyu Male 48 From July 6, 2001 0 0 0 Yang Baiqian Male 37 From July 6, 2001 0 0 0 Li Hongwu Male 42 From Aug. 4, 2000 0 0 0 Chen Yu Male 31 From Nov. 30, 2001 0 0 0 Zhu Guohui Male 54 From Dec. 28, 1990 0 0 0 Li Shuming Male 39 From Mar. 1, 2000 10,388 0 10,388 Total 101,458 101,458 Note: Ended Dec. 31, 2001, the total shares held by directors, supervisors and senior executives are 105,458 shares including 101,458 shares as listed above in total and 4,000 shares held by Chen Ken, foemer Secretary of the Board (4,000 shares have been unfrozen dated April 1, 2002.). Decrease of the holding share is because senior executives left their posts, and shares held by them were unfrozen. There is no change in number of shares held by directors, supervisors and senior executives in the office term. Note: Particulars about directors or supervisors holding the position in Shareholding Company: Ding Keyi holds the position of General Manager of CMSIZ; Fan Jianxiong holds the position of Director and Deputy General Manager of China Merchants International Co., Ltd.; Hong Xiaoyuan holds the position of Deputy General Manager of CMSIZ; Li Yashang holds the position of Deputy General Manager of CMSIZ; Fu Gangfeng holds the position of Chief Financial Supervisor of CMSIZ; Chen Gang holds the position of Deputy Chief Economist of CMSIZ; Wang Zhengde holds the position of Director and Deputy General Manager of China Merchants International Co., Ltd.; Yu Zhihan holds the position of General Manager of Enterprise Management Dept. of CMSIZ; He Zheng holds the position of chief Deputy General Manager of CMSIZ; Wen Chongping holds the position of Director of Auditing Dept. of CMSIZ. (II) Particulars about the annual salary of directors, supervisors and senior executives The Company implements a competitive salary system of binding pay with performance and position for the senior executives. Pursuant to Salary Management Regulations approved in the 6th meeting of the 3rd Board of Directors, considering the average salary level in the same industry and based on the Company’s overall operation targets, the Company sets the annual performance targets and total salary amount for the administration group. In addition to the basis position salary, pay to the respective senior executive is decided based on the respective performance and is to be adjusted closely with the changes in market and the Company. In this way, the Company is able to provide the staff with competitive and attractive salary standards in connection with performance. Allowance to the Company’s independent director was proposed by the Board and approved in the Shareholders’ General Meeting. There are 6 persons (directors, supervisors or senior executives of the Company) draw their annual salary from the Company (excluding the independent director). Of them, two persons are directors and concurrent senior executives and the other four persons are senior executives. The total amount of the said 6 persons’ annual salary is RMB 1,574,000. The total amount of the top three senior executives’ annual salary is RMB 1 million. 2 persons enjoy their annual salary over RMB 300,000 respectively; 4 persons enjoy their annual salary under RMB 300,000 respectively. 2 independent directors drew their annual salary RMB 6,000 respectively in 2001. The range of annual salary is as following: Annual salary Persons Proportion (%) RMB 100,000 to RMB 200,000 1 17% RMB 200,000 to RMB 300,000 3 50% Over RMB 300,000 2 33% Chairman of the Board Mr. Ding Keyi, Vice Chairman of the Board Mr. Fan Jianxiong, Director Mr. Hong Xiaoyuan, Mr. Li Yasheng, Mr. Fu Gangfeng, Mr. Chen Gang, Mr. Wang Zhengde, Mr. Yu Zhihan, Mr. Ma Jikai, Chairman of the Supervisory Committee Mr. Hu Zheng, Supervisor Mr. Li Yaluo, Mr. Wen Chongping, Ms. Zhou Meihua, Mr. Zhang Mengkang, Senior Executives Mr. Zhu Guohui and Mr. Li Shuming draw no pay from the Company. The aforesaid persons draw their annual salary from their respective engaging companies. (III) Particulars about changes in directors, supervisors and senior executives 1. Reason for resignation (directors and supervisors): Independent director of the Company Mr. Huang Chengzhi resigned from his post due to over engagement; Vice Chairman of the Board Mr. Du Yongcheng leave his post for work transfer. On May 18, 2001, Mr. Shi Xinping was engaged as independent director of the Company. 2. Particulars about engaging and dismissing of other senior executive: Approved by the Board of Directors of the Company, Mr. Lin Shaobin took over the post of General Manager from Mr. Hong Xiaoyuan dated May 28, 2001; the Board of Directors relieved Mr. Jiang Yanfei of his post as Deputy General Manager due to work alter, and engaged Mr. Zhou Zhiyu and Mr. Yang Baiqian as Deputy General Manager on July 6, 2001; the Board of Directors agreed to the application Mr. Chen Ken for resignation from the post of Secretary of the Board dated Sep. 13, 2001; Mr. Chen Yu was engaged as Secretary of the Board dated Nov. 30, 2001. 3. During the report period, Board of Directors and Supervisory Committee of the Company are the 3rd session without election at expiration of office term. (IV) About employee (of the Company and its wholly owned subsidiaries) At present, the Company had totally 1058 employees including 155 technicians (of them, real estate: 67 persons, petrochemical: 25 persons, power supply and water supply: 63 persons), 285 salespersons (of them, real estate: 67 persons, petrochemical: 190 persons, power supply and water supply: 28 persons), 65 financial personnel, 74 administrative personnel, 479 production personnel and others. The Company has 47 persons with master degree or above, 403 persons graduated with bachelor degree or graduated from 3-years regular college. Both the Company and its wholly owned subsidiaries need not bear the costs of retiree due to the implementation of Shenzhen Social Insurance Regulation. VI. ADMINISTRATIVE STRUCTURE (I) Actual Status of the Company’s Administration Strictly according to relevant laws and regulations, the Company operated in a standardized way and has established a perfect legal person administrative structure since it was listed, and was one of the earliest listed companies that engaged independent directors in China. In 2001, the Company revised the Articles of Association, made the Rules of Procedures of the Board of Directors, the Rules of Procedures of the Supervisory Committee and the Rules of Procedures of the Shareholders’ General Meeting on the basis of the newly issued Guide of Articles of Association for Listed Company so that the Company’s legal person administrative structure and business operation came to be more compliant. With the development and changing of China’s securities market, new regulations and systems came into being in succession, namely, in particular, the Guide Opinions on Establishing System of Independent Director in Listed Companies enacted in August of 2001 and the Administrative Rules of Listed Companies enacted in January of 2002, both of which put forward new requirements regarding administrative issues. The Company will set rigid demands and constantly perfect its administrative structure and standardize business operation. The Company will complete following work in the near future as per relevant documents. 1.The Company will revise the Articles of Association according to the new requirements of Guide Opinions on Establishing System of Independent Director in Listed Companies and the Administrative Rules of Listed Companies, and will also make improvement on the three Rules of Procedures at the same time. 2.Now there are two independent directors in the Board of Directors. According to requirement in the Guide Opinions on Establishing Independent Directors in Listed Companies, the Company will increase independent directors and strive that independent directors make up at least one third of members in the Board of Directors before June 30, 2003. (II) Particulars about Performance of Duties by Independent Directors The independent directors actively attended each board meeting and seriously reviewed each proposal. Especially when they reviewed correlative transactions in the 13th Meeting of the 3rd Board of Directors and reviewed proposals of engaging Certified Public Accountants and new financing preplan of issuing transferable corporation bonds in the 15th Meeting of the 3rd Board of Directors, they could fully express independent opinions, which had important effects on scientificness and reasonableness for the Company to make decisions. (III) Independence of Business, Assets, Personnel, Organization and Finance 1.Independence of Business The main sector in the Company’s operation and management was that the Company wholly enjoyed decision-making power and independence. The subsidiaries of the Company, CMRE, CMP, CMPS and CMWS were engaged in real estate development, storage, transportation and sales of petroleum and gas, power supply and water supply, which were independent form each other in management right, and the Company and its control shareholder didn’t interfere with these subsidiary companies’ operation. In the Company’s operation and management, all significant management decision-making and investment events were discussed as fully as possible and given opinions independently by the Board of Directors. Events that should be decided by the Shareholders’ General Meeting were submitted to the Meeting for review. During these meetings, the large shareholder CMSIZ neither participated directly in the Company’s decision-making nor asked the Company or the Board of Directors to report financial data or other material before public disclosure. The Company was able to adopt opinions from experts and independent directors when making significant management decisions. 2.Independence of Assets Offices and operation place used by the Company were rent form related companies. The Company’s main real estates were obtained through construction by itself. Office buildings were rent form related companies. The Company increased the amount of share equity held in CMRE, CMP, CMPS and CMWS through assets exchanges. At the same time when completing relevant procedures of registering share equity transfer with Industrial and Commercial Administration Bureau, the Company separated clearly the procedures concerning assets from its control shareholder CMSIZ. 3.Independence of Personnel The Company adopted a market-oriented recruiting mechanism, signed labor contracts with all employees, was independent in management of labor, personnel and payroll etc. from its shareholders, and never shared operators or management staffs with its control shareholder. The Company has independent system of labor, personnel and payroll management. Its senior executives like general manager, finance controller, deputy general manager and secretary of the Board of Directors all drew pays in the Company and they all haven’t taken administrative posts in shareholders’ companies. The Company’s directors, supervisors and senior executives complied with relevant regulations in terms of their qualifications, election procedures and performance of duties. Directors, supervisors and senior executives only had power of recommendation for dismissing control shareholder, and dismissal events were submitted to the Board of Directors and the Shareholders’ General Meeting to decide. The large shareholder CMSIZ didn’t participate in and make decision of the Company’s personnel engaging and dismissal. 4.Independence of Finance The Company established an independent finance department, established independent accounting assessment system and financial management system, and independently made financial decisions; the Company has its own account in bank and didn’t share same bank account with control shareholder; it paid taxes independently according to law; there existed no issue as occupation of money funds or other assets by control shareholder. The Company established independent salary management system, and set and managed separate accounts regarding social insurance, payroll and building modification fee, etc. The Board of Directors has passed Financial Management System, based on which the Finance Department made a draft of the Company’s fund management system, and the general manager’s meeting passed Regulations of Fund Management. The Company strictly implemented relevant laws, regulations, policies and the Company’s rules and system regarding using and management of funds, and constantly emphasized standardized operation. 5.Independence of Organization The company is absolutely independent in productive operation and office organization from its control shareholder. There existed no mixed operation and sharing of same office. The Company has established a perfect legal person administrative structure, revised and improved the Articles of Association based on Guide of Articles of Association for Listed Companies and worked out Rules of Procedures of the Board of Directors, Rules of Procedures of the Supervisory Committee and Rules of Procedures of the Shareholders’ Meeting. The Company’s legal person administrative structure and business operation were in compliance with regulatory requirements. The Company’s organization was set up independently with power of decision-making, and there never existed interference in the setup of the Company’s organization by control shareholder etc. There existed no superior and subordinate relationship between control shareholder and its functional departments and the Company and its functional departments. The Company’s organization was set up as straight-line functional system, and met the demands of business development, and each functional department was responsible to person in charge, deputy general manager or finance controller. (IV) The Company evaluated and assessed the performance of senior executives at the end of report year, and made synthetic appraisal on implementation of the annual plan formulated at the beginning of the year, and encouraged them with bonuses according to the appraisal results. VII. BRIEFINGS ON THE SHAREHOLDERS’ GENERAL MEETING The Company held three Shareholders’ General Meetings in the report year. (I) Shareholders’ General Meeting of 2000 Notification on holding Shareholders’ General Meeting of 2000 was published on Securities Times, China Securities and Hongkong Ta Kung Pao dated April 14, 2001, and the meeting was held in the 30/F conference room of Shenzhen Shekou New Times Building on May 18, 2001. There were 12 of shareholders’ representatives and proxies and 19 of shareholders present at the meeting, who represented totally 254,012,772 shares, constituting 53.32% of the Company’s total shares, in which 162,497,916 were A shares, making up 56.45% of total A shares, and 91,514,856 shares, making up 48.54% of total B shares. Jingtian Lawyers’ Firm provided legal position paper for this Shareholders’ General Meeting. The meeting reviewed and passed the following proposals by voting: (1) 2000 Work Report of the Board of Directors (2) 2000 Work Report of the Supervisory Committee (3) 2000 Financial Report of Actual Budget (4) 2000 Profit Distribution Plan Taking the total capital shares 476,396,000 at the end of 2000 as the base, the Company distributed cash dividends among shareholders at the rate of RMB 1.3 (tax included) every 10 shares. Total distributed cash dividends were equivalent to RMB 61,931,480.00. B share dividends were paid in Hong Kong dollars or Singapore dollars converted at the exchange rate ruling on the first working day after the resolutions of the shareholders’ General Meeting were announced. The undistributed profits RMB 256,544,278.26 at the end of report year were transferred to the next year. (5) Remark on Capital Raised Last Time (6) 2001 Outlines of Business Development Plan (7) Proposal on Reviewing Annual Report of 2000 (8) Proposal on Re-engaging Zhongtianqin Certified Public Accountants and Hong Kong KPMG Certified Public Accountants (9) Proposal on Revising the Articles of Association (10) Proposal on Changing Independent Directors (11) Proposal on Deciding Remuneration of Independent Directors (12) Proposal on Submitting to the Shareholders’ General Meeting for Authorizing the Board of Directors to Handle Investment Increase Issue of CMRE. The resolutions were published in Securities Times, China Securities and Hong Kong Ta Kung Pao dated May 19, 2001. The Shareholders’ General Meeting agreed to Mr. Huang Chengzhi’s resignation as independent director and engaged Mr. Shi Xinping as independent director of the Company. (See Mr. Shi Xinping’s resume in V.) (II) The 1st Extraordinary Shareholders’ General Meeting of 2001 The notification on holding the 1st Extraordinary Shareholders’ General Meeting of 2001 was published in Securities Times, China Securities and Hong Kong Ta Kung Pao dated June 12, 2001. The 1st Extraordinary Shareholders’ General Meeting of 2001 was held in the 30/F conference room of Shenzhen Shekou New Times Building on July 13, 2001. Altogether 22 shareholders’ representatives and proxies attended the meeting who represented 35 shareholders and 256,243,057 shares, making up 53.79% of total shares, in which there were 164,284,636 A shares, taking 57.07% of total A shares; and 91,958,421 B shares, taking 48.78% of total B shares. Jing Tian Lawyers’ Firm issued a legal position paper for the meeting. The following proposals were discussed and passed through voting: (1) Proposal on Exchanging Assets with the Large Shareholder CMSIZ (2) Proposal on Submitting to the Shareholders’ General Meeting for Authorizing the Board of Directors to Perform Related Issues of Assets Exchange The resolutions were published in Securities Times, China Securities and Hong Kong Ta Kung Pao dated July 14, 2001. (III) The 2nd Extraordinary Shareholders’ General Meeting The notification on holding the 2nd Extraordinary Shareholders’ General Meeting of 2001 was published in Securities Times, China Securities and Hong Kong Ta Kung Pao dated October 30, 2001. The 2nd Extraordinary Shareholders’ General Meeting of 2001 was held in the No.3003 conference room of Shenzhen Shekou New Times Building on November 30, 2001. Altogether 14 shareholders’ representatives and proxies attended the meeting who represented 18 shareholders and 252,613,149 shares, making up 53.03% of total shares, in which there were 163,875,206 A shares, taking 56.93% of total A shares; and 88,737,943 B shares, taking 47.07% of total B shares. Jing Tian Lawyers’ Firm issued a legal position paper for the meeting. The following proposals were discussed and passed through voting: (1) Proposal on Dismissing Zhongtianqin Certified Public Accountants (2) Proposal on Dismissing KPMG Certified Public Accountants (3) Proposal on Engaging Deloitte Touche Tohmatsu Certified Public Accountants Agreed to engage Hujiangdeqin Certified Public Accountants as domestic auditor, and engage Deloitte Touche Tohmatsu as international auditor. (4) Proposal on Discussing Draft Rules of Procedures of the Shareholders’ General Meeting (5) Proposal on Issuing Transferable Corporation Bonds (6) Proposal on Feasibility of the Raised Capital Investment Project by Issuing Transferable Corporation Bonds (7) Proposal on Submitting to the Shareholders’ General Meeting for Authorizing the Board of Directors to Deal with Related Events of Issuing the Transferable Corporation Bonds (8) Proposal on Modifying the Articles of Association (9) Proposal on Changing of Directors The resolutions were published in Securities Times, China Securities and Hong Kong Ta Kung Pao dated December 1, 2001. The meeting agreed to Mr. Du Yongcheng’s resignation as director and engaged Mr. Fan Jianxiong as director of the Company. (See Mr. Fan Jiangxiong’s resume in V.) VIII. REPORT OF THE BOARD OF DIRECTORS (I) Operation Highlights 1. Main business scope and the operation As a good-sized share-holding company, the Company is principally engaged in the development and operation of real estate, comprehensive service for industrial zone and the materials logistics business. In the report period, the Company conducted a strategic adjustment on its assets structure for its long-term development. On one hand, the Company stripped off its original assets and business relevant to port service through assets exchange. On the other hand, the Company increased shares of CMRE, CMPS and CMWS by 25% of their respective share capital. As a result of the assets exchange, the Company orients its main business on real estate business and comprehensive service for industrial zone and lays foundation for its continue and rapid development. By the end of report period, major controlled subsidiaries of the Company are CMRE, CMPS, CMWS and CMP. In the year 2001, the Company realized an income of RMB 3,320,820,664 and a profit of RMB 516,647,995 from its main business lines, an increase of 13.83 % and 5.71% over the same period of the previous year. Of which: the income and profit from real estate business was RMB 798,682,386 and RMB 195,924,113 respectively; the income and profit from public utilities was 571,916,462 and RMB 76,604,859 respectively; the income and profit from distribution of petroleum was RMB 1,734,985,923 and RMB 158,976,392 respectively; the income and profit from port service was 225,564,897 and RMB 84,947,102 respectively. In the report period, the Company attracted 167 new recruits with high qualification with its favorable development future and admirable enterprise culture based on people, so its professional and innovative staff sees continue growth. By the end of 2001, the Company had a staff of 1058 persons, meeting the requirement of the business develop within the year and preparing for further business expansion. At the same time, the Company continually perfected its salary and encourage system, improved its training system and implementing the enterprise theory of “personnel base, client first”, so to created a more attractive career environment for its staff. With the Company’s core business transferring into real estate, a batch of professional managers with profound real estate business experiences took part in the Company’s administrative group, supporting effectively the Company’s strategic development. In respect of financial management and capital operation, the Company continues to employ the prudent accounting principal, optimizes the liabilities structure, reinforces the integrated application of funds, and increases the financing ability by verifying the financing channels. In the report period, both the Company and its controlled subsidiaries, CMRE, CMPS and CMP, were granted with AAA Credit Classification and over RMB 4.1 billion credit line. In order to raise proceeds to support the Company’s further development, the Company was also actively preparing for the issuance of 880 million T-bonds in the report period. Segment information about income and profit from main business lines: Revenue from Proportion in the Revenue from Proportion in the main business lines total revenue (%) main business lines total profit (%) Property development 798,682,386 24.05 195,924,113 37.92 Public facilities 571,916,462 17.22 76,604,859 14.83 Sales of petroleum products 1,734,985,923 52.25 158,976,392 30.77 Port service 225,564,897 6.79 84,947,102 16.44 Other business 17,569,096 0.53 195,529 0.04 Internal offset -27,898,100 -0.84 - - Total 3,320,820,664 100 516,647,995 100 2. Operation and achievement of major wholly owned subsidiaries and jointly controlled entities (1) CMRE CMRE, established on May 5, 1984, owned total assets of RMB 1,887,180,000 and net assets of RMB 491,820,000 as at Dec. 31, 2001. In the report period, the company realized a net profit of RMB 149,440,000. As a comprehensive property development enterprise with national first class grade, the Company enjoys an obvious advantage in terms of brand and competition in Shenzhen. It owns profound land reserve in Shekou Industrial Zone and its sales of real property accounts for 10% of total sales in Nanshan Dis. of Shenzhen and 2-3% of total sales in Shenzhen. For consecutive three years, the company ranks among the top three enterprises in terms of comprehensive strength. After years of development, the Company has formed a business structure composing both sales and letting of commercial real property. Property business of the Company enjoys a stable development in the report period. In respect of sales, the company sold property with a calculated area of 108,700 sq. m. in 2001, an increase of8.90% over the previous year, including total of the Garden City (1st phase), 92% of Yong Hua Fu and 49% of Banshan Sea Villa. In respect of letting, the company lent property with a successively area of 3,017,000 sq. m. in 2001, an increase of 13.15% over the previous year; and the rent rate was increased from 81% to 89%. During the Property Fair held in Nov. 2001, Sea Moon Garden developed by the company was introduced as National Top 30 Famous Properties by the major medium and the company was also appraised as National Top 20 Real Property Enterprises with Famous Brand. Major real property projects of CMRE in 2001 Planned Area of property Area of property Accumulated Estimated Name of project construction started in 2001 completed in completed area completion area (sq. m.) (sq. m.) 2001 (sq. m.) (sq. m.) time Spring Square 15,222 15,222 0 0 Oct. 2002 Banshan Sea Villa 25,380 25,380 20,500 20,500 May 2002 Yong Hua Fu 60,213 60,213 60,213 60,213 Dec. 2001 nd Sea Moon Garden (2 phase) 220,369 220,369 0 0 April 2003 st Flower Garden (1 phase) 66,210 66,210 66,210 66,210 Aug. 2001 Brocade Shore 170,000 170,000 0 0 June 2003 Technology Building 47000 47000 0 0 April 2004 (2) CMPS CMPS, Established on Nov. 9, 1980, owned total assets of RMB 220,150,000 and net assets of RMB 196,420,000 as at Dec. 31, 2001. In the report period, the company realized a net profit of RMB 86,570,000. As the only company with power supply certificate in Shekou, the company enjoys an obvious regional advantage. With forward overall structure, advanced technology and management, the company’s power supply network gained the International ISO9001 Qualification Certificate in 2001. Upgrading of the SCADA system increases the power supply liability rate to 99.99%. Maintaining the growth trend in years, the company realized annual electricity sales of 666 million KWh in the report period, an increase of 3.26% over the previous year. (3) CMWS CMWS, established on Oct. 29, 1989, owned total assets of RMB 168,560,000 and net assets of RMB 144,020,000 as at Dec. 31, 2001. In the report period, the company realized a net profit of RMB 5,200,000. As the only company with water supply certificate in Shekou, the company enjoys an obvious regional advantage. Maintaining the growth trend in years, the company realized annual sales of 25,574,500 tons water in the report period, an increase of 5.20% over the previous year. (4) CMP CMP, established on March 7, 1989, owned total assets of RMB 637,180,000 and net assets of RMB 360,170,000 as at Dec. 31, 2001. In the report period, the company realized a net profit of RMB 41,030,000. The company is mainly engaged in the distribution, transportation and storage of light oil, heavy oil and LPG in Shenzhen and its adjacent areas. In Shenzhen market, the company takes an important place in terms of gasoline and diesel oil sales; takes a leading position in terms of fuel oil sales; and ranking the first in terms of LPG sales. In the report period, the company realized sales of 1,159,100 tons of oil and gas including 227,700 tons of LPG, 405,000 tons of light oil and 526,400 tons of heavy oil, similar to its previous annual sales. 3. Major suppliers and customers Since principal business of the Company’s controlled subsidiaries substantially varies, comparing the suppliers and customers among them is not applicable. In respect of real estate business, proportion of purchase amounts to total development costs is quite low and customers are mostly individuals. In respect of power supply business, the accumulated purchase amount to the only supplier accounts for 100% of the total purchase amount; and the accumulated sales amount to the top five customers accounts for 30% of the total sales amount. In respect of water supply, the accumulated purchase amount to the only three water reservoir accounts for 100% of the total purchase amount; and the accumulated sales amount to the top five customers accounts for 18% of the total sales amount. In respect of oil and gas distribution business, the accumulated sales amount to the top five customers accounts for 22% of the total sales amount. 4. Problems and difficulties occurred in the operation and the countermeasures (1) With the consistent growth in investment and development in Shenzhen real estate market, competition became more and more keen, which imposed certain pressure on the Company’s relevant business. Under such environment, China Merchant Real Estate made full use of its advantages in terms of brand, management, service and resources etc; implemented the principal of “person as base, client as first”; carried out the all staff training for service attitude, perfected the distribution system and provided clients with satisfactory commodity, so to keep the leading position in such a competitive market in Shenzhen. Meanwhile, the Company enthusiastically and courteously searched business opportunities in other cities. (2) Due to significant impact of the 9.11 Event on the world economy, international oil price experienced great fluctuation and joint venture customers of the Company reduced its oil and gas assumption as a result of order cut. However, CMP still made positive results by means of purchasing cautiously, distributing speedily, no storage, and expanding terminal market. (II) Investment 1. Application of the raised proceeds All proceeds raised from the additional issuance of 80 million A shares of 2000 has been used up in the year 2000. The actual application was examined in the Company’s Shareholders’ General Meeting for 2000. In the report period, the Company had no proceeds to apply. 2. Material investment projects funded with non-raised proceeds and their progress (1) CMRE principally invested in following real estate projects in the report period: Garden City (1st phase): the company invested RMB 86.8 million in the project in the report period, and all units have been sold. Yong Hua Fu: the company invested RMB 100.19 million in the project in the report period, and most of the units have been sold as at the end of 2001. Banshan Sea Villa: the company invested RMB 151.31 million in the project in the report period, and 49% units have been sold. Sea Moon Garden (2nd phase): the company invested RMB 202.54 million in the project in the report period, whose underground construction was completed by the end of Dec. 2001. Spring Square: the company invested RMB 4.95 million in the project in the report period. Rainbow Share and Brocade Shore: the company invested RMB 245.66 for the land use rights and RMB 54 million in the construction of the project in the report period. (2) In the report period, the Company invested totally RMB 84.82 million in fixed assets, including RMB 20.05 million invested by CMPS for upgrading power supply network; RMB 7.44 million invested by CMWS for upgrading water supply network, RMB 23.49 million invested by China Merchant Petroleum for constructing retail sales network and RMB 31.22 million invested by Port Service for reconstructing port facilities. (III) Financial Status and Operation Achievements as of 2001 In the year 2001, both the revenue and the profit from main business enjoyed a steady development, however net profit was calculated to be decreased over the previous year, due to the non-recurring causes like changes in accounting policy. After active adjustment on liabilities structure, the Company enjoyed a healthy financial status; and the capital flow rate was increased by great margin over the previous year, the short-term loan refunding ability was further strengthened, the assets liabilities rate were optimized, and assets quality was improved. Item Dec. 31, 2001 Dec. 31, 2000 Variation % Total assets 4,692,619,143 4,845,844,183 -3.16% Long-term liabilities 817,866,322 564,407,522 44.91% Shareholders’ equity 2,250,277,995 2,131,455,493 5.57% Profit from main business 516,647,995 488,727,234 5.71% Net profit 174,961,781 197,927,141 -11.60% Note: Main causes of the changes in financial data: 1. Total assets of the Company was decreased by 3.16% comparing with that as of the end of the previous year, which was mainly caused by following material events besides the normal operation: Assignments of subsidiaries, which were engaging in port service, in the assets exchange reduced the Company’s consolidation scope. Balance price settled in cash acquired in the assets exchange was used to repay the bank loans. 2. Long-term liabilities as of the year was increased by 44.91% comparing with that as of the end of the previous year, which was because the Company transferred part short-term loan to long-term loan in order to improve its short-term loan refunding ability and considering the capital demand of real estate industry. 3. Shareholders’ equity as of the year was increased by 5.57% comparing with that as of the end of the previous year, which was mainly due to profit realized in this year. 4. Profit from main business lines as of the year was increased by 5.71% over the previous year, which was mainly due to stable business growth. 5. Net profit as of the year was decreased by 11.6% over the previous year, which was mainly due to substantial reduction in non-recurring gains and losses. (IV) Significant Changes in Production and Operation Environment and Macro Policy on the Company 1. On one hand, China’s WTO entrance will promote its economy in a long term with national effective demand increased and assumption structure upgraded, eternally result in more demand for real estate property; in addition, promotion in housing reform and relevant financing policy as well as consistent development in both construction materials and technology bring new opportunities for the Company. On the other hand, continually increasing investments and developments in the real estate market as well as participate of overseas property developers further ignite the competition, which introduces new challenges for the Company. 2. As regulated in JMW [1999] No. 637 Document “Opinion on Regulating Sales of Product Oil and Operation of Relevant Enterprises, only China National Petroleum Corporation and SINOPEC CORP. are entitled to conduct the wholesale of gasoline, coal oil, diesel oil, which limits the purchase resources and fixes the price for the Company to certain extend. To counter with the problem, the Company adjusts its proportion of storage and sales, attaching great importance on terminal distribution on one hand; on the other hand, actively expands its oil resource channels through establishing long-term cooperation with overseas oil supplier under the situation of gradually open oil market after the WTO entrance. 3. Industrial structure of Shekou Industrial Zone is to be adjusted gradually from processing-trade-oriented to hi-tech-oriented and the Zone is developing towards the residence-oriented service model. As a result, proportion of industry power and water assumption will be lessened while service business and residential power and water assumption will gradually increased. All these provide the comprehensive service business of the Company with challenges as well as opportunities. (V) Hujingdeeqin Certified Public Accountants and Deloitte Touche Tohmatsu Certified Public Accountants audited the Company’s accounting statements for 2001 and presented standard Auditors’ Report without reserved opinion. (VI) Development Scheme for the New Year In the report period, the Company successively transformed its main business to development and operation of real estate as well as comprehensive service for industrial zone. The Company set its working principal in 2002 as: to further integrate the resources with clear emphasis; promote the main business in consistent development; provide the customers with better commodities and services; generate more profits for the shareholders and lay solid foundation for the Company’s future development. 1. Operation scheme Real estate business: In the year 2002, the Company will start the development in projects of Rainbow Shore and Brocade Shore located in Shenzhen Hi-tech Park, Sea Moon Garden (2nd phase), Banshan Sea Villa, Banshan Sea Garden and Garden City (2nd and 3rd phase) located in Nanshan Dis. of Shenzhen. It plans to accomplish a sales target at property with area over 140,000 sq. m. and an accumulative letting target at property with area over 3.09 million sq. m. Sticking to the operative theory of “operation stable, client first and market sensitive”, the Company will cautiously and appropriately seek for development opportunities in Shenzhen and other cities. Major real property projects in 2002 Planned Area of property Area of property Estimated Name of project Location construction started in 2002 completed in completion area (sq. m.) (sq. m.) 2002 (sq. m.) time Spring Square Shekou, Shenzhen 15,222 - 15,222 02.10 nd Sea Moon Garden (2 phase) Shekou, Shenzhen 220,369 0 110,000 03.04 nd rd Garden City (2 and 3 phase) Shekou, Shenzhen 228,500 95,000 - 04.12 Rainbow Shore Hi-tech Park, Shenzhen 159,500 159,500 - 04.03 Brocade Shore Hi-tech Park, Shenzhen 170,000 - - 03.06 Technology Building Shekou, Shenzhen 47,000 0 47,000 02.04 Power supply business: The Company plans to accomplish annual sales of 678BWh in the year 2002, keeping the steady growth in business. To meet the increasing demand of power in Shekou district, the Company plans to start the establishment of the third power transformer plant in 2002. Water supply business: The Company plans to accomplish annual sales of 25 million tons water in the year 2002 and continue the restructure of water supply network. Oil and gas distribution business: The Company plans to accomplish annual sales of 141,000 tons of LPG, 298,000 tons of light oil and 371,000 tons of heavy oil in 2002. Also, the Company will try to expand its retail network besides furthers perfecting the gas station network and LPG retailer network. 2. Perfection on the administrative structure In order to regulate and optimize the Company’s administrative structure, assure the Company’s operation in compliance with the standards and actually safeguard the shareholders’ interest, the Company will continually improve its administrative structure in line with guiding opinions of the securities regulatory department, further modify its Articles of Association, increase the proportion of independent directors to the Board of Directors, reinforce the function of the Supervisory Committee and succeed in the election at expiration of office term of the Board and Committee. (VII) Daily Work of the Board of Directors 1. Particulars about the Meeting of the Board of Directors and its Resolutions In the report year, the Board of Directors held altogether 9 meetings including 5 formal meetings and 4 extraordinary meetings, details of which are as follows: Meeting One: The 12th Meeting of the 3rd Board of Directors was held on April 11, 2001, which discussed and passed the following proposals: (1) 2000 Work Report of General Manager (2) 2000 Financial Report of Actual Budget (Draft) (3) 2000 Profit Distribution Preplan (4) Estimated Profit Distribution Policies of 2001 (5) Remarks on Application of Capital Raised Last Time (6) 2001 Summary of Business Development Plan (Draft) (7) 2000 Annual Report and its Summary (Draft) (8) Proposal on Re-engaging Zhongtianqin Certified Public Accountants and Hong Kong KPMG Certified Public Accountants (9) Proposal on Modifying the Articles of Association (10) Proposal on Changing Independent Directors (See Mr. Shi Xinping’s resume in Part Seven.) (11) Proposal on Deciding on Independent Directors’ Salaries (12) Proposal on Discussing the Rules of Procedures of the Board of Directors (Revision) (13) Proposal on Increasing Capital of Merchants’ Real Estate and on Submitting to the Shareholders’ General Meeting to Authorizing the Board of Directors to Perform this Issue (14) Proposal on Holding 2000 Shareholders’ General Meeting The resolutions were published in Securities Times, China Securities and Hong Kong Ta Kung Pao dated April 14, 2001. Meeting Two: The Extraordinary Meeting of the 3rd Board of Directors was held on May 9, 2001, which agreed to exchange of assets with the large shareholder CMSIZ. The Public Notice on Exchanging Assets with the Large Shareholder CMSIZ was published in Securities Times, China Securities and Hong Kong Ta Kung Pao dated May 12, 2001. Meeting Three: The Extraordinary Meeting of the 3rd Board of Directors was held on May 28, 2001, which agreed to Mr. Hong Xiaoyuan’s resignation as general manager due to work change and engaged Mr. Lin Shaobin as the Company’s general manager. The Public Notice on Resolution of Engaging Mr. Lin Shaobin as the Company’s General Manager was published in Securities Times, China Securities and Hong Kong Ta Kung Pao dated May 30, 2001. Meeting Four: The 13th Meeting of the 3rd Board of Directors was held on June 11, 2001, which discussed and passed the following proposals: (1) Proposal on Exchanging Assets with the Large Shareholder CMSIZ (2) Proposal on Submitting to the Shareholders’ General Meeting for Authorizing the Board of Directors to Perform Assets Exchange (3) Proposal on Holding the 1st Extraordinary Shareholders’ General Meeting of 2001 The public notice of the resolutions was published in Securities Times, China Securities and Hong Kong Ta Kung Pao dated June 12, 2001. Meeting Five: The Extraordinary Meeting of the 3rd Board of Directors was held on July 6, 2001, which agreed to dismissing Mr. Jiang Yanfei as vice general manager due to work change and engaged Mr. Zhou Zhiyu and Mr. Yang Baiqian as the Company’s vice general manager. (See Mr. Zhou Zhiyu’s and Mr. Yang Baiqian’s resumes in Part Five.) The public notice of the resolution was published in Securities Times, China Securities and Hong Kong Ta Kung Pao dated July 7, 2001. Meeting Six: The 14th Meeting of the 3rd Board of Directors was held on August 17, 2001, which discussed and passed the following proposals: (1) 2001 Interim Report and its Summary (2) 2001 Interim Profit Distribution Preplan With the Company realizing the net profit of RMB 69,941,067.31 in the first half of year 2001 plus the retained profit RMB 246,713,938.84 accumulated from last year, the actual profits for distribution amounted to RMB 316,655,006.15. Since the Company had distributed cash dividends in 2000, the Board of Directors decided neither to make interim profits distribution in 2001 nor to transfer capital public reserves to share capital in view of current capital demand. (3) Proposal on Changing Director (See Mr. Fan Jianxiong’s resume) The public notice of the resolution was published in Securities Times, China Securities and Hong Kong Ta Kung Pao dated August 21, 2001. Meeting Seven: The Extraordinary Meeting of the 3rd Board of Directors was held on September 13, 2001, which agreed to Mr. Chen Ken’s resignation as secretary of the Board of Directors due to work change. The Public Notice of Resolution on Agreeing to Mr. Chen Ken’s Resignation as Secretary of the Board of Directors was published in Securities Times, China Securities and Hong Kong Ta Kung Pao dated September 13, 2001. Meeting Eight: The 15th Meeting of 3rd Board of Directors was held on October 26, 2001, which discussed and passed the following proposals: (1) Proposal on Dismissing Zhongtianqin Certified Public Accountants (2) Proposal on Dismissing KPMG Certified Public Accountants (3) Proposal on Engaging Deqin Certified Public Accountants (4) Proposal on Discussing the Rules of Procedures of the Shareholders’ General Meeting (Undecided Version) (5) Proposal on Issuing Transferable Corporation Bonds (6) Proposal on Feasibility of the Raised Capital Investment Project by Issuing Transferable Corporation Bonds (7) Proposal on Submitting to the Shareholders’ General Meeting for Authorizing the Board of Directors to Handle Issuing Transferable Corporation Bonds (8) Proposal on Moving of the Company’s Headquarter It was agreed by the Board of Directors to move the Company’s headquarter to the 9th floor of New Times Building, Shekou Industrial Zone, Nanshan District, Shenzhen, Guangdong Province, China. (9) Proposal on Modifying the Articles of Association (10) Proposal on Holding the 2nd Extraordinary Shareholders’ General Meeting of 2001 The public notice of the resolutions was published in Securities Times, China Securities and Hong Kong Ta Kung Pao dated October 30, 2001. Meeting Nine: The 16th Meeting of the 3rd Board of Directors was held on November 30, 2001, which elected the new director Mr. Fan Jianxiong as vice chairman of the Board of Directors by voting and discussed and passed the Proposal on Engaging Mr. Chen Yu as Secretary of the Board of Directors. (See Mr. Chen Yu’s resume in Part Five.) The public notice of the resolution was published in Securities Times, China Securities and Hong Kong Ta Kung Pao dated December 1, 2001. 2. Implementation of Resolutions of the Shareholders’ General Meeting by the Board of Directors (1) The Board of Directors’ Implementation of Authorization by the Shareholders’ General Meeting In the report year, the Board of Directors has strictly implemented various resolutions of the Shareholders’ General Meeting, and there occurred no significant deviation and errors. The Board of Directors has strictly implemented the authorization by the Shareholders’ General Meeting on handling assets exchange with the large shareholder CMSIZ and issuing transferable corporation bonds. Meanwhile, the Board of Directors is making implementation plan according to the authorization by the Shareholders’ General Meeting on increasing capital of Merchants’ Real Estate. (2) Implementation of Profit Distribution Plan The 2000 profit distribution plan was passed in the Shareholders’ General Meeting of 2000. Taking the Company’s total capital share of 476,396,000 shares as of 2000 as the base, the Company distributed the cash dividend at the rate of RMB 1.30 for every 10 shares (tax included). Total distributed cash dividends amounted to RMB 61,931,480. B share dividends were paid in Hong Kong or Singapore dollars converted at the exchange rate released by China People’s Bank on the first working day after publishing of resolutions of the Shareholders’ General Meeting. The undistributed profits of RMB 256,544,278.26 as of year-end were transferred to the next year. The Company wouldn’t conduct transferring of public reserves to share capital in 2000. The Public Notice on Distribution of Bonuses and Dividends of 2000 was published on June 28, 2001, and it was decided that equity rights registration date (equity rights registration date for B share was the last trading date) was July 9, 2001 and ex-dividend date was July 10, 2001. The Company finished distributing bonuses and dividends by July 22, 2001. (VIII) Profit Distribution Preplan or Preplan of Transferring Capital Public Reserves to Share Capital of Year 2001 As audited by Deloitte Touche Tohmatsu Certified Public Accountants, the Company realized a net profit of RMB 174,961,781 in 2001. Based on the Principal of taking the lower amount of the auditing results under IAS and CAS as the base for profit distribution, distributable profit as of 2001 amounted to RMB 227,592,211. According to Company Law and the Articles of Association, the profit distribution preplan of 2001 is as follows: 10% of the net profit calculated under CAS amounting to RMB 17,496,178 was allotted as statutory public reserves; 5% of the net profit calculated under CAS amounting to RMB 8,748,089 was allotted as statutory public welfare funds; By paying cash dividends to all shareholders at the rate of RMB1.10 (tax included) for every 10 shares based on the total 476,396,000 shares issued, the Company paid altogether RMB 52,403,560 of cash dividends. The rest of undistributed profits as of 2001 were transferred to discretional surplus public reserves; The Company would not transfer capital public reserves to share capital. (IX) 2002 Distribution Policies 1. The Company plans to distribute profit once upon the end of year 2002; 2. No less than 15% of the net profit realized in 2002 should be distributed; 3. No less than 10% of the retained profit accumulated from previous years should be distributed in 2002; 4. The profits will be distributed in cash or in cash together with bonus stocks, in which cash dividends should be no less than 50% of total dividends for distribution. 5. The Board of Directors reserves the right to adjust the profit distribution policies according to actual conditions. The detailed distribution plan will be discussed by the Board of Directors based on the Company’s actual conditions in 2002 and be submitted to the Shareholders’ General Meeting for approval. IX. REPORT OF THE SUPERVISORY COMMITTEE (I) Work of the Supervisory Committee The Supervisory Committee held altogether three meetings in the report year. Meeting One: The 8th Meeting of the 3rd Supervisory Committee was held on April 9, 2001, in which topics were discussed as follows: (1) Draft of the 2000 Annual Report and its Summary (2) Remarks on Application of Capital Raised Last Time (3) Proposal on Change of Independent Directors The Supervisory Committee has examined Mr. Shi Xinping’s qualification and independence for holding the post as independent director and believes that Mr. Shi Xinping is absolutely up to the requirement for being a qualified independent director as stated in the Implementation Guide of Independent Director System for Listed Company. Meeting Two: The 9th Meeting of the 3rd Supervisory Committee was held on June 11, 2001, which discussed and passed the Proposal on Exchanging Assets with the Large Shareholder CMSIZ. The Supervisory Committee believes that assets exchange is beneficial to strengthen the Company’s core competitiveness in business of real estate and development of industrial zone, to enhance the Company’s growing capability, and is in conformity to the interests of the Company and numerous shareholders. Meeting Three: The 10th Meeting of the 3rd Supervisory Committee was held on August 17, 2001, which discussed and passed the 2001 Interim Report and its Summary as well as the 2001 Preplan of Interim Profit Distribution. The aforesaid resolutions were published in Securities Times, China Securities and Hong Kong Ta Kung Pao on April 14, June 12 and August 21, 2001 respectively. (II) Operation according to Law In the report year, the Supervisory Committee has attended all meetings of the Board of Directors as non-voting delegates and fully expressed opinion during the examination for material proposals including T-bond issuance and material decision. It also supervised the holding and decision-making procedures of shareholders’ general meetings and meetings of the Board of Directors, the Board’s performance of resolutions of shareholders’ general meetings, and duty performance by senior executives as well as their performance of administration system according to relevant laws and regulations. The Committee believes that the Board of Directors has seriously and responsibly implemented its work, made decisions in a scientific and reasonable manner, and the Company’s various administration systems are sound, practical and feasible. The Board of Directors, management team and all senior executives has neither violated the national laws, regulations and the Articles of Association nor damaged the Company’s interests and shareholders’ interests and rights. (III) Financial Inspection The 2001 interim auditor’s report is a standard non-reservation report, which has factually reflected the financial status of the Company as of June 30, 2001 and the business results reaped from January to June of 2001. The 2001 annual auditor’s report is also a standard non-reservation one, which has factually reflected the financial status as of December 31, 2001 and the business results gained from January to December of 2001. (IV) Application of Raised Funds The last funds were raised from issuing additional 80 million A circulating shares by the Company in 2000. The Supervisory Committee has supervised the complete process in terms of collecting, using and effects of using. All the raised funds amounting to RMB703.2 million were used strictly according to the arrangement as stated in the Additional Issuance Memorandum, and the effects of using were good. (V) Purchase or Sales of Assets and Correlative Transactions In the report year, the trading prices for purchase or sales of assets were reasonable. Neither inside trading has been found, nor there occurred damage of the interests and rights of some shareholders or runoff of the Company’s assets. In the report year, the Company fully adopted the opinions of medium and small shareholders in the correlative transactions, which was in line with the interests of numerous shareholders, and it strictly performed the avoidance policy when voting on the correlative transactions in the Shareholders’ General Meeting and conducted transactions completely according to the legal procedures required by the governing authority. X. SIGNIFICANT EVENTS (I) Material Lawsuits and Arbitration 1. April 3, 2000, Shenzhen Zhongnongshen Materials Production Co., Ltd. (Zhongnongshen) pleaded against the Company demanding the Company to settle the payment for 4.31 thousand tons of product (carbamide), equivalent to RMB 6.64 million. The first trial of the case was implemented ended Dec. 31, 2001 demanding the Company to pay RMB 7.545 million to the accuser. The Company has pleaded to higher court and the higher curt has put it on record. This case is under trial now. 2. March 27, 2000, Guangdong Conghua Agricultural Production Materials Co. (Conghua Materials) pleaded to Shenzhen Municipal Medium People’s Court against the Company and its subsidiary Hong Kong Ruijia Investment Industrial Co., Ltd. (Hong Kong Ruijia) demanding the Company and its subsidiary Hong Kong Ruijia and China Chemical Industry Import and Export General Company to return the 18,000 tons of products (carbamide) at the price of RMB 15.465 million and compensate for the losses of RMB 696 thousand. Meanwhile, Hong Kong Ruijia counterclaimed Conghua Materials demanding Conghua Materials to settle the payment for commodity amounting at RMB 7.9258 million. This case is under trial now. Taking into consideration the uncertainty of above lawsuits, the Company allotted RMB 11,800,000 provisions for estimated liabilities in the year based on the prudent principal. The Company had no other material lawsuit or arbitration except the above issues. (II) Sales and Purchase of Assets, Consolidation and Merger in 2001 In the report period, the Company conducted neither sales and purchase of assets nor consolidation and merge, except for the item stated in (III) 1. (III) Related Transaction 1. Material related transaction In the 1st Extraordinary Shareholders’ General Meeting of 2001, Proposal on Assets Exchange with the Control shareholder CMSIZ was approved. This assets exchange was related transaction, details of which is as follows: (1) Object of the Transaction Assets to be exchanged out: the Company’s legally held assets relevant to the Shekou Port business. Assets to be exchanged in: 25% equity of CMRE, 25% equity of CMPS and 25% equity of CMWS, which were all legally held by CMSIZ. (2) Brief Introduction to the Transaction The Company exchanges its legally-held assets relevant to the Shekou Port business for 25% equity of CMRE, 25% equity of CMPS and 25% equity of CMWS with CMSIZ. (3) Pricing Policy and the Price of the Transaction Via friendly negotiation between the two parties of the transaction, price of this transaction was based on the appraised value of the said transaction target on the appraisal base date, Dec. 31, 2000 (the appraisal results has been confirmed by the Ministry of Finance of the People’s Republic of China with CBQ [2001] No. 458 Document on June 27, 2001); and on the amount nine times of the estimated net profit realized in 2000 by the assets exchanged out and eights times of net profit realized in 2000 by the assets exchanged in. Based on the auditing results, estimated net profit realized in 2000 by the port assets exchanged out is RMB 69,987,800, nine times of which is RMB 629,890,200; net profit realized in 2000 by CMRE, CMPS and CMWS is respectively RMB 179,063,000, 85,719,700 and 3,330,600, eights times of 25% of which is respectively RMB 358,126,000, RMB 171,439,400 and RMB 6,661,200, RMB 536,226,600 in total. (4) Settlement for the above transaction is in cash. (5) Purpose of the Transaction After this assets exchange, the Company will withdraw from port transport business to focus on the real estate and comprehensive development for industrial zone, so the main business line will be more clearly specified. CMRE ranks top three in the real estate field in Shenzhen, enjoying good profit-making potential and growth space. CMPS and CMWS are important integrity in the Company’s zone development business, playing positive role in real estate development. In the opinion of the Board of Directors, the assets exchange is beneficiary for the Company to further strengthen its core competitiveness in the business of real estate and comprehensive development for industrial zone and promote its growth, therefore conforming to the Company’s largest benefit. This replacement will not damage the interest of non-related shareholders. It can be guaranteed that the Company and shareholders controlling the share will be independent in the aspects of personnel, finance and assets. The Company’s Board of Directors will undertake honest and diligent responsibility to insist on the principle of equality, fairness and openness, fully protecting the benefits of all the shareholders, medium and small shareholders in particular. With the entrustment of the Shareholders’ General Meeting, the Board of Directors completed the assets exchange on Oct. 31, 2001, and published the Notice on Assets Exchange in Securities Times, China Securities and Ta Kung Pao dated Nov. 3, 2001. From Nov. 1, 2001, the Company held legally 95% of CMRE, 95% of CMPS (4.75% held indirectly) and 95% of CMWS (4.75% held indirectly) and no longer held the rights and interest corresponding to the assets exchanged out. 2. Other related transaction (1) CMWS started to provide the Company’s control shareholder, CMSIZ, and its subsidiaries with water for living and production as early as its establishment before being the subsidiary of the Company. All water supplies in Shekou Industrial Zone were undertaken by the company at the absolute public market price. (2) CMPS started to provide the Company’s control shareholder, CMSIZ, and its subsidiaries with power for living and production as early as its establishment before being the subsidiary of the Company. All power supplies in Shekou Industrial Zone were undertaken by the company at the absolute public market price. (3) Related transaction of land lease Facilities, equipments and offices of the Company’s power and water supply business as well as most rented property of the Company were located in Shekou, major bases of the oil and gas business were also within the Shekou Industrial Zone, so the Company and its subsidiaries above-mentioned started to lease the land from CMSIZ since their establishment. In the year 2001, land use fee of the Company and its controlled subsidiaries totaled RMB 61,904,855. (4) Related transaction of assets lease Nov. 1, 2001, the Company signed Assets Lease Contract with China Merchants Port Service (Shenzhen) Co., Ltd. (“Port Service”) to lease its partial assets located in Shekou Port at the rental of RMB 884,156.56 per month for ten months. The leased assets including 92 items including office building, warehouse, dormitory, road, construction-in-progress and port facilities like leading marks. The trading price was determined comprehensively considering factors of cost of leased assets, market demand, market prices, idol rate, discount on long-term lease, etc. as well as depreciation of assets and relevant taxes. Relevant land use fees, estate management fees, maintenance fees, labor fees were born by China Merchants Port Service. 4. Current payment and guarantee between the Company and its subsidiaries (including those out of the consolidation scope) (1) Ended Dec. 31, 2001, CMSIZ provided the Company with guarantee for loan of RMB 485 million; (2) Ended Dec. 31, 2001, the Company owned due payment of RMB 54,011,900 to China Merchants Innovation (Shenzhen) Co., Ltd.; (3) Ended Dec. 31, 2001, the Company together with its subsidiaries provided Shenzhen Keluo Storage Industrial Co., Ltd. with guarantee for bank loan of USD 4.74 million. The above issues imposed no significant impact on the Company. (IV) Material contract and the implementation 1. The Company did not entrust, contract or lease assets of other companies in the report period. 2. The Company provided no material guarantee to others in the report period. 3. The Company had no entrusted financing in the report period. 4. Other material contract (1) CMRE, a subsidiary of the Company, singed Credit Extension Contract with Bank of China for RMB 400 million commencing from Sep. 26, 2001 to Sep. 26, 2002. (2) CMRE, a subsidiary of the Company, singed Credit Extension Contract with China Merchants Bank for RMB 400 million commencing from Sep. 5, 2001 to Sep. 5, 2002. (3) CMRE, a subsidiary of the Company, singed Credit Extension Contract with Industrial and Commercial Bank for RMB 1 billion commencing from June 25, 2001 to June 25, 2002. (4) CMRE, a subsidiary of the Company, plans to sign Credit Extension Contract with Fujian Industrial Bank for RMB 300 million. Except above contracts, the Company had no contracts involving amount over 10% of net assets of the Company. (V) Commitment 1. Commitment of the shareholder CMSIZ, control shareholder of the Company, promised not to engage in any business or activities possibly competing with the Company in terms of business, new commodities and new technology in any forms (including but not limited to direct operation, indirect operation, joint investment). It also promised to urge its wholly or partially (over 50% equity) owned subsidiaries and actually controlled affiliates to follow the promise. In the report period, the control shareholder strictly implemented such commitment. 2. Implementation of profit distribution policy for 2001 Profit distribution preplan for 2001 was in compliance with profit distribution policy for 2001 as disclosed in 2000 annual report. 3. Payment of related parties Ended Dec. 31, 2001, the Company had no unsettled account receivable from related parties. (VI) Engagement of Certified Public Accountants In the 2nd Extraordinary Shareholders’ General Meeting, three proposals were approved including Proposal on Disengaging Zhongtianqin Certified Public Accountants, Proposal on Disengaging KPMG Certified Public Accountants, Proposal on Engaging Deloitte Touche Tohmatsu Certified Public Accountants. It was approved to engage Hujiangdeqin Certified Public Accountants and Deloitte Touche Tohmatsu Certified Public Accountants as domestic and overseas auditors for the Company in 2001. In the report period, the Company paid RMB 1.17 million to Hujiangdeqin Certified Public Accountants (for 2001 annual and interim auditing, as well as other report necessary for T-bond issuance) and HKD 1.6 million to Deloitte Touche Tohmatsu Certified Public Accountants (for auditing on 2001 annual report). (VII) Neither the Company, nor its Board or directors were criticized or punished by relevant securities authorities in the report period. (VIII) Other significant matters 1. Oct. 26, 2001, the Company held its 15th meeting of the 3rd Board of Directors, in which Proposal on Headquarter Relocation was approved. Office address of the Company’s headquarter was changed to “9/F, New Times Building, Shekou Industrial Zone, Nanshan Dis., Shenzhen, Guangdong, PRC.” Relevant registration procedure for changes has no implemented. 2. Nov. 30, 2001, the Company held the 2nd Extraordinary Shareholders’ General Meeting 2001, in which Proposal on Issuing T-bonds was examined and approved. The Company planned to issue 880 million T-bond in 2002, details of which was published in Securities Times, China Securities and Ta Kung Pao dated Dec. 1. 2001. By the end of Dec. 31, 2001, the Company completed the preparation of application materials for T-bond issuance and submitted formal application to the CSRC. XI. FINANCIAL REPORT (I) The Company prepared its accounting statements for the year 2000 and the previous years under the Accounting Regulation for Joint Stock Enterprises. Pursuant to rules made by the Ministry of Finance, the Company started to implement the Accounting Regulations for Enterprises from Jan. 1, 2001 and made adjustments in its accounting as required in Rules concerning Policy Cohesive Problem in Implementation of the Accounting Regulation for Enterprise released by the Ministry of Finance with CK (2001) No. 17 Document. Meanwhile, the Company made correction to the accounting method in treatment of the income tax return in 2000, which was recognized upon the actual reception as it occurs, when preparing the accounting statements for 2001. Effect of above-mentioned changes in accounting regulation and policies as well as accounting mistake on the accounting statements for the previous years are set out as follows: Item 2000 Before 2000 Total RMB RMB RMB Increase (decrease) in net profit (10,983,411) (6,120,218) (17,103,629) Including: Increase (decrease) in distributed profit (1,647,512) (918,033) (2,565,545) Increase (decrease) in retained profit (9,335,899) (5,202,185) (14,538,084) Increase (decrease) in total assets (16,653,374) (8,339,382) (24,992,756) Including: receivable subsidy income (11,641,921) - (11,641,921) Fixed assets (5,847,039) - (5,847,039) Construction in progress (395,710) - (395,710) Organization expenses 1,231,296 (8,339,382) (7,108,086) Increase (decrease) in total liabilities (1,746,288) - (1,746,288) Including: payable tax (1,746,288) - (1,746,288) Increase (decrease) in minority interests (3,923,675) (2,219,164) (6,142,839) Due to above-mentioned changes in accounting policy, organization amortization as of 2001 was decreased and net profit as of 2001 was increased by RMB 581,167. (II) Changes in Consolidation Scope Because the Company conducted assets exchange with CMSIZ in 2001, equity holding of the Company experienced following changes: Invested company Proportion of Equity held directly Proportion of Equity held before assets exchange directly after changes CMRE 70% 95% CMPS 70% 95% CMWS 70% 95% Meanwhile, following companies was excluded from the Company’s consolidation since the Company no longer held any shares of them: Name Proportion of shares originally held Directly Indirectly Shenzhen Shekou China Merchants Tongli Cargo Transportation Agency Co., Ltd. 100% Shenzhen China Merchants Industrial Development Co., Ltd. 100% Shekou China Merchants Cargo Transportation Industrial Co., Ltd. 100% Shenzhen Shekou International Cargo Transportation Co., Ltd. 51% Hainan China Merchants Port Transportation Co., Ltd. 100% (III) Auditors’ Report (Please refer to the attachment) XII. DOCUMENTS AVAILABLE FOR REFERENCE 1. Financial Statements with signatures and seals of the legal representative, Chief Accountant and person in charge of accounting affairs. 2. Original of the Auditors’ Report with seal of Certified Public Accountant and signatures of certified public accountants. 3. Original of all documents and announcements publicly disclosed in the newspapers designated by CSRC Committee within the period of the Report. 4. 2001 Annual Report in English. Board of Directors of CHINA MERCHANTS SHEKOU HOLDINGS CO., LTD. April 8, 2002 Attachment: AUDITORS' REPORT TO THE SHAREHOLDERS OF CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 (A joint stock company with limited liability established in The People's Republic of China) We have audited the accompanying balance sheet of China Merchants Shekou Holdings Company, Limited as of December 31, 2001 and the related statements of income, cash flows and changes in equity for the year then ended. These financial statements are the responsibility of the Group's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2001 and the results of its operations and its cash flows for the year then ended, in accordance with International Accounting Standards. Deloitte Touche Tohmatsu April 4, 2002 -1- CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2001 NOTES 2001 2000 Rmb Rmb Revenue 5 3,268,184,561 2,840,242,990 Cost of sales (2,727,960,031) ____________ (2,358,748,816) ____________ Gross profit 540,224,530 481,494,174 Other operating income 7 13,154,749 40,606,902 Distribution costs (20,260,195) (11,487,818) Administrative expenses (169,222,548) (120,167,951) Other operating expenses 8 (55,833,884) (63,825,624) Impairment loss on goodwill (47,050,728) ____________ - ____________ Profit from operations 9 261,011,924 326,619,683 Net financing costs 10 (27,455,732) (56,839,998) Share of results of associates 6,661,070 14,965,131 Share of profit of a jointly controlled entity 429,737 492,364 Profit on disposal of discontinuing operations 11 22,121,370 ____________ - ____________ Profit before tax 262,768,369 285,237,180 Income tax expense 12 (50,842,446) ____________ (57,783,545) ____________ Profit after tax 211,925,923 227,453,635 Minority interests (47,215,390) ____________ (73,405,241) ____________ Net profit for the year 164,710,533 ____________ 154,048,394 ____________ Basic earnings per share - including discontinuing operations 14 0.35 cents ________________________ 0.33 cents ________________________ - excluding discontinuing operations 14 0.15 cents 0.25 cents ________________________ ________________________ -2- CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 2001 NOTES 2001 2000 Rmb Rmb ASSETS Non-current assets Property, plant and equipment 15 646,653,064 1,222,076,181 Construction in progress 16 28,932,259 64,049,266 Investment properties 17 669,169,423 699,458,844 Goodwill 18 857,251,991 624,185,431 Negative goodwill 19 (70,631,593) (38,074,205) Land use rights 20 17,628,417 18,077,221 Investments in associates 22 75,844,309 93,836,613 Investment in a jointly controlled entity 23 - 2,489,656 Investments in securities 24 33,151,680 ____________ 52,108,922 ____________ 2,257,999,550 ____________ 2,738,207,929 ____________ Current assets Inventories 25 73,844,130 68,703,753 Completed properties for sales 110,957,905 69,772,197 Properties under development 26 1,411,532,624 922,458,191 Trade and other receivables 27 333,964,772 485,563,697 Investments in securities 24 - 41,241,376 Bank balances and cash 476,000,070 ____________ 701,222,965 ____________ 2,406,299,501 ____________ 2,288,962,179 ____________ Total assets 4,664,299,051 ____________ 5,027,170,108 ____________ -3- NOTES 2001 2000 Rmb Rmb EQUITY AND LIABILITIES Capital and reserves Share capital 28 476,396,000 476,396,000 Reserves 29 1,747,907,586 ____________ 1,649,872,620 ____________ 2,224,303,586 ____________ 2,126,268,620 ____________ Minority interests 150,585,258 ____________ 472,854,160 ____________ Non-current liabilities Bank loans - due after one year 30 806,645,522 507,642,074 Rental received in advance 31 8,770,800 54,315,448 Deferred tax liabilities 32 29,737,867 ____________ 36,017,213 ____________ 845,154,189 ____________ 597,974,735 ____________ Current liabilities Trade and other payables 33 807,666,861 768,061,996 Receipts in advance and deposit received 139,645,266 194,666,728 Staff bonus and welfare payable 1,725,953 5,694,950 Tax liabilities 21,051,157 44,696,232 Amounts due to associates 13,954,461 4,573,438 Amount due to a jointly controlled entity - 846,108 Bank loans - due within one year 30 460,212,320 ____________ 811,533,141 ____________ 1,444,256,018 ____________ 1,830,072,593 ____________ Total equity and liabilities 4,664,299,051 ____________ 5,027,170,108 ____________ -4- CONSOLIDATED STATEMENT OF RECOGNISED GAINS AND LOSSES FOR THE YEAR ENDED DECEMBER 31, 2001 2001 2000 Rmb Rmb Losses not recognised in the consolidated income statement - Exchange differences arising on translation of Hong Kong and overseas operations (4,744,087) (3,045,006) Net profit for the year 164,710,533 ___________ 154,048,394 ___________ Total recognised gains and losses 159,966,446 ___________ 151,003,388 ___________ -5- CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2001 NOTES 2001 2000 Rmb Rmb OPERATING ACTIVITIES Cash generated from operations 34 99,648,891 763,737,321 Income taxes paid (78,391,818) (66,512,593) Interest paid (86,052,979) ___________ (88,340,923) ___________ NET CASH (USED IN) FROM OPERATING ACTIVITIES (64,795,906) ___________ 608,883,805 ___________ INVESTING ACTIVITIES Interest received 15,276,022 13,276,013 Dividends received from associates 7,043,625 4,215,757 Proceeds on disposal of associates 11,118,120 - Proceeds on disposal of trading investments 27,282,859 217,444,460 Proceeds on disposal of available-for-sale investments 4,279,482 2,499,281 Proceeds on disposal of property, plant and equipment 7,371,037 4,229,767 Proceeds on disposal of investment properties 4,724,001 3,271,328 Purchases of property, plant and equipment (69,595,282) (98,399,045) Purchases of investment properties (17,347,384) (147,103,689) Purchases of land use rights (110,000) - Acquisition of trading investments - (232,293,861) Acquisition of investments in associates (5,481,200) (14,291,300) Acquisition of available-for-sale investments - (15,050,013) Cash outflow in respect of acquisition of a subsidiary 35 - (170,601,429) Net cash inflow from asset restructuring 36 38,134,208 ___________ - ___________ NET CASH FROM (USED IN) INVESTING ACTIVITIES 22,695,488 ___________ (432,802,731) ___________ FINANCING Proceeds from issue of shares - 703,199,997 Dividends paid (61,931,480) (47,639,600) Repayments of bank loans (2,852,996,552) (3,142,587,136) New bank loans raised 2,800,679,179 2,875,583,000 Dividends paid to minority shareholders (68,873,624) ___________ (226,632,618) ___________ NET CASH (USED IN) FROM FINANCING ACTIVITIES (183,122,477) ___________ 161,923,643 ___________ NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (225,222,895) 338,004,717 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 701,222,965 ___________ 363,218,248 ___________ CASH AND CASH EQUIVALENTS AT END OF YEAR Bank balances and cash 476,000,070 ___________ 701,222,965 ___________ -6- NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2001 GENERAL China Merchants Shekou Holdings Company, Limited is a limited liability company established in the People's Republic of China (the "PRC"). The Company is an investment holding company. The principal activities of its principal subsidiaries are set out in note 21. Pursuant to a resolution passed on a shareholders' meeting held on November 30, 2001, the Company is authorised to issue convertible notes at face value of RMB880 million in aggregate. No convertible notes have yet been issued as of December 31, 2001. PRESENTATION OF FINANCIAL STATEMENTS The financial statements have been prepared in accordance with International Accounting Standards ("IAS") issued by the International Accounting Standards Committee ("IASC"). These financial statements are presented in Renminbi (Rmb) since that is the currency in which the majority of the Group's transactions are denominated. ADOPTION OF INTERNATIONAL ACCOUNTING STANDARDS In the current year, the Group has adopted the following International Accounting Standards for the first time: IAS 39 Financial Instruments: Recognition and Measurement IAS 40 Investment Property Revisions to a number of other IAS also took effect in 2001. Those revisions concerned matters of detailed application which have no significant effect on amounts reported for the current or prior accounting periods. IAS 39 has introduced a comprehensive framework for accounting for all financial instruments. The Group's detailed accounting policies in respect of such instruments are set out below. The principal effects of the adoption of IAS 39 have been that the majority of the Group's investments in securities are now carried at fair value. There is no effect on the amounts reported for the current or prior accounting periods on the adoption of this standard. Under IAS 40, the Group has elected to choose the cost model to measure all of its investment properties at cost less depreciation and accumulated impairment losses. The adoption of this standard has no effect on amounts reported for the current or prior accounting periods. -7- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments. The principal accounting policies adopted are set out below. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and enterprises controlled by the Company (its subsidiaries) made up to December 31 each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee enterprise so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the Group. All significant intercompany transactions and balances between group enterprises are eliminated on consolidation. Investments in associates An associate is an enterprise over which the Group is in a position to exercise significant influence, through participation in financial and operating policy decisions of the investee. The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. The carrying amount of such investments is reduced to recognise any impairment in the value of individual investments. Where a group enterprise transacts with an associate of the Group, unrealised profits and losses are eliminated to the extent of the Group's interest in the relevant associate, except where unrealised losses provide evidence of an impairment of the asset transferred. Investment in a jointly controlled entity A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity which is subject to joint control. Joint venture arrangements which involve the establishment of a separate entity in which each venturer has an interest are referred to as jointly controlled entities. The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. The carrying amount of such investments is reduced to recognise any impairment in the value of individual investments. When the Group transacts with its jointly controlled entities, unrealised profits and losses are eliminated to the extent of the Group's interest in the joint venture, except where unrealised losses provide evidence of an impairment of the asset transferred. -8- 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Property, plant and equipment Property, plant and equipment are stated at cost less depreciation and accumulated impairment losses. Properties in the course of construction for production, rental or administrative purposes, or for purposes not yet determined, are carried at cost, less any identified impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Group's accounting policy. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use. Depreciation is charged so as to write off the cost of property, plant and equipment, other than properties under construction, over their estimated useful lives, using the straight-line method, on the following bases: Plant and machinery, furniture, fixtures and office equipment 5 - 18 years Buildings, open yards and warehouses 10 - 50 years Ships and motor vehicles 6 - 18 years Water pipes 20 years The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement. Construction in progress Construction in progress represents properties under construction and equipment purchased prior to installation and is stated at cost including borrowing costs capitalised in accordance with Group's accounting policy. Investment property Investment property, which is property held to earn rentals and/or for capital appreciation, is stated at cost less depreciation and accumulated impairment losses at the balance sheet date. Depreciation is charged so as to write off the cost of investment properties over their estimated useful lives, using the straight-line method, over a period of 20 years. Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of a subsidiary, associate or jointly controlled entity at the date of acquisition. Goodwill is recognised as an asset and amortised on a straight-line basis over its estimated useful life not exceeding twenty years. The unamortised balance of goodwill is reviewed annually. Where the balance exceeds the value of expected benefits, the difference is charged to consolidated income statement immediately. Goodwill arising on the acquisition of an associate or a jointly controlled entity is included within the carrying amount of the associate or jointly controlled entity. Goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet. On disposal of a subsidiary, associate or jointly controlled entity, the attributable amount of unamortised goodwill is included in the determination of the profit or loss on disposal. -9- 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Negative goodwill Negative goodwill represents the excess of the Group's interest in the fair value of the identifiable assets and liabilities of a subsidiary, associate or jointly controlled entity at the date of acquisition over the cost of acquisition. Negative goodwill is released to income based on an analysis of the circumstances from which the balance resulted. To the extent that the negative goodwill is attributable to losses or expenses anticipated at the date of acquisition, it is released to income in the period in which those losses or expenses arise. The remaining negative goodwill is recognised as income on a straight-line basis over the remaining average useful life of the identifiable acquired depreciable assets. To the extent that such negative goodwill exceeds the aggregate fair value of the acquired identifiable non-monetary assets, it is recognised in income immediately. Negative goodwill arising on the acquisition of an associate or a jointly controlled entity is deducted from the carrying value of that associate or jointly controlled entity. Negative goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet as a deduction from assets. Land use rights Land use rights are stated at cost less depreciation and accumulated impairment losses. Depreciation is charged so as to write off the cost of land use rights, using the straight-line method, over the respective periods of the grants. Investments in securities Investments in securities are recognised on a trade-date basis and are initially measured at cost. At subsequent reporting dates, debt securities that the Group has the expressed intention and ability to hold to maturity (held-to-maturity debt securities) are measured at amortised cost, less any impairment loss recognised to reflect irrecoverable amounts. The annual amortisation of any discount or premium on the acquisition of a held-to-maturity security is aggregated with other investment income receivable over the term of the instrument so that the revenue recognised in each period represents a constant yield on the investment. Investments other than held-to-maturity debt securities are classified as either held for trading or available-for-sale and are measured at subsequent reporting dates at fair value. Where securities are held for trading purposes, unrealised gains and losses are included in net profit or loss for the period. For available-for-sale investments, unrealised gains and losses are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised is included in net profit or loss for the period. Inventories Inventories are stated at the lower of cost and net realisable value. Cost, which comprises all costs of purchase and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Costs is calculated using the weighted average method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. - 10 - 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Completed properties for sale Completed properties for sale are stated at the lower of cost and net realisable value. Cost is determined by apportionment of the total land and development costs attributable to unsold properties. Net realisable value is determined by reference to management estimates based on prevailing market conditions. Properties under development Properties under development are stated at cost less provision for anticipated loss where appropriate. Trade receivables Trade receivables are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts. Trade payables Trade payables are stated at their nominal value. Retirement benefit costs Payments to defined contribution retirement benefit plans are charged as an expense as they fall due. Payments made to state-managed retirement benefit schemes are dealt with as payments to defined contribution plans where the Group's obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit plan. Taxation The charge for current tax is based on the results for the year as adjusted for items which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill (or negative goodwill) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction which affects neither the tax profit nor the accounting profit. - 11 - 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Taxation - continued Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Provisions Provisions are recognised when the Group has a present obligation as a result of a past event which it is probable will result in the outflow of economic benefits that can be reasonably estimated. Rental received in advance Rental received in advance comprises fee received for granting of operating leases for the use of the Group's properties. The fees received are recognised as revenue over the period of the leases on a straight-line basis from the date of commencement of the leases. Bank borrowings Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption, are accounted for on an accrual basis and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Impairment At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. - 12 - 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Impairment - continued If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the cost of those assets. All other borrowing costs are recognised in the net profit or loss in the period in which they are incurred. Government grants Value added tax refund of imported electricity charges and government grants on water charges are recognised as income over the periods necessary to match them with the related costs and are deducted in reporting the related expense. Operating leases Rentals payable under operating leases are charged to income on a straight line basis over the term of the relevant lease. Foreign currencies Transactions in currencies other than Renminbi are initially recorded at the rates of exchange prevailing on dates of the transactions. Monetary assets and liabilities denominated in such currencies are retranslated at the rates prevailing on the balance sheet date. Profits and losses arising on exchange are included in net profit or loss for the year. On consolidation the assets and liabilities of the Group's Hong Kong and overseas operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the year. Exchange differences arising, if any, are classified as equity and transferred to the Group's exchange reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of. - 13 - 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Revenue recognition Sales of goods are recognised when goods are delivered and title has passed. Rental income from investment properties is recognised on a straight-line basis over the terms of the relevant leases. Revenue arising from the development properties for sale is recognised upon the sale of properties or the issuance of the completion certificate by the relevant government authority, whichever is later. Deposits received on properties sold prior to the date of revenue of recognition are included in the balance sheet under current liabilities. Revenue arising from the provision of port services, loading, unloading and warehousing of cargo's inland freights, water supply and electricity supply is recognised on delivery of the services to customers. Interest income is accrued on a time basis, by reference to the principal outstanding and at the interest rate applicable. Dividend income from investments is recognised when the shareholders' rights to receive payment have been established. REVENUE An analysis of the Group's revenue is as follows: 2001 2000 Rmb Rmb Continuing operations: Property development 756,021,153 648,691,184 Sales of petrochemical products and merchandise 1,723,396,546 1,379,789,723 Provision of electricity supply 499,238,994 475,071,389 Provision of water supply 54,559,034 ____________ 45,401,412 ____________ 3,033,215,727 2,548,953,708 Discontinuing operations: Provision of port services 234,968,834 ____________ 291,289,282 ____________ 3,268,184,561 ____________ 2,840,242,990 ____________ - 14 - SEGMENT REPORTING Segment information is presented in respect of the Group's business segments. The primary format, business segments, is based on the Group's management and internal reporting structure. The Group's activities are principally performed in the PRC (including Hong Kong) and the directors consider overseas segment does not have continuing significance to the Group's revenue, results and assets. Inter-segment pricing is determined on prices renegotiated and agreed by both parties. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items mainly comprise corporate assets and expenses. Segment capital expenditure is the total cost incurred during the year to acquire segment assets that are expected to be used for more than one year. Business segments The Group comprises the following main business segments: Port services: The provision of port services, loading, unloading and warehousing of cargo, and inland freights. Property development: The construction and development of properties for sales and rental. Trading: Sales of petrochemical products and merchandise. Electricity supply: The provision of electric power supply. Water supply: The provision of water supply. The operation of port services was discontinued upon the completion of the asset restructuring arrangement as of October 31, 2001 (note 11). The average number of employees for each of the Group's business segments was as follows: 2001 2000 Rmb Rmb Port services 600 1,159 Property development 168 136 Trading 756 661 Electricity supply 93 93 Water supply 110 110 Head office and administration 15 _________ 30 _________ 1,742 _________ 2,189 _________ Segment information about these business is presented below. - 15 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 6. SEGMENT REPORTING - continued Property Electricity Port services development Trading supply Water supply 2001 2000 2001 2000 2001 2000 2001 2000 2001 200 Rmb Rmb Rmb Rmb Rmb Rmb Rmb Rmb Rmb Rm Revenue External - sales 234,968,834 291,289,282 616,028,103 533,158,055 1,723,396,546 1,379,789,723 499,238,994 475,071,389 54,559,034 45,4 - rental - - 139,993,050 115,533,129 - - - - - Inter- segment sales - ____________ - ____________ 2,847,071 ____________ ____________ 2,847,060 ____________ 7,760,499 ____________ 6,601,400 ____________ 16,508,364 ____________ 16,809,488 ____________ 782,166 ______8 Total revenue 234,968,834 ____________ ____________ 291,289,282 ____________ 758,868,224 ____________ 651,538,244 ____________ 1,731,157,045 ____________ 1,386,391,123 ____________ 515,747,358 ____________ 491,880,877 ____________ 55,341,200 ______ 46,2 Results Segment results 70,437,297 ____________ ____________ 40,076,641 ____________ 144,196,564 ____________ 142,875,388 ____________ (14,010,277) ____________ 53,816,497 ____________ 100,011,166 ____________ 98,696,203 ____________ 4,908,421 ______ Unallocated income Unallocated expenses Profit from operations Net financing costs - - - - - - - - - Share of results of associates (207,627) 4,392,927 4,087,820 5,500,943 2,780,877 5,071,261 - - - Share of profit of a jointly controlled entity 429,737 492,364 - - - - - - - Income tax - - - - - - - - - Profit on disposal of discontinuing operations - - - - - - - - - Minority interests - - - - - - - - - Net profit for the year Other information Segment assets - 1,099,618,954 3,003,952,798 2,071,512,008 751,647,695 615,843,235 414,803,036 310,966,912 84,767,644 132,5 Investments in associates - 22,549,611 57,716,329 45,818,543 18,127,980 25,468,459 - - - Investment in a jointly controlled entity - 2,489,656 - - - - - - - Unallocated assets - - - - - - - - - Consolidated total assets Segment liabilities - 185,920,844 1,435,289,430 532,944,730 268,749,370 268,468,808 29,414,587 16,862,451 24,687,349 23,9 Unallocated liabilities - - - - - - - - - Consolidated total liabilities Capital expenditure 30,275,056 ____________ ____________ 22,346,667 ____________ 12,433,761 ____________ 174,570,533 ____________ 18,398,949 ____________ 29,211,908 ____________ 20,052,253 ____________ 8,691,161 ____________ 5,892,647 ______ 12,6 Depreciation and amortisation 44,851,009 ____________ ____________ 52,667,632 ____________ 44,314,824 ____________ 30,797,552 ____________ 12,694,977 ____________ 9,168,408 ____________ 9,918,171 ____________ 10,571,410 ____________ 11,584,246 ______ 17,1 Amortisation of goodwill - ____________ - ____________ 15,156,192 ____________ ____________ 13,370,265 ____________ 13,276,590 ____________ 9,388,729 ____________ 10,413,734 ____________ 9,154,416 ____________ ______ Impairment losses 5,471,976 ____________ ____________ - - ____________ - ____________ 57,328,803 ____________ ____________ 5,600,000 ____________ - - ____________ - ____________ ______ CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 OTHER OPERATING INCOME 2001 2000 Rmb Rmb Release of negative goodwill 2,193,297 2,066,259 Profit on disposal of property, plant and equipment 1,625,021 1,488 Profit on disposal of an associate 525,000 - Other sundry income 8,811,431 9,683,122 Profit on disposal of trading investments - 22,194,957 Profit on disposal of subsidiaries - 3,678,472 Gain on revaluation of trading investments - 1,870,007 Constructive service income - 1,112,597 __________ __________ 13,154,749 40,606,902 __________ __________ __________ __________ OTHER OPERATING EXPENSES 2001 2000 Rmb Rmb Amortisation of goodwill 38,846,516 31,913,410 Impairment loss on property, plant and equipment 10,278,075 5,600,000 Impairment loss on available-for-sale investments 5,471,976 - Loss on disposal of trading investments 535,600 - Other sundry expenses 701,717 - Customs duty and value added tax relating to prior years - 26,312,214 __________ __________ 55,833,884 63,825,624 __________ __________ __________ __________ Because of technical obsolescence of certain plant and equipment, the directors consider that there has been an impairment loss on property, plant and equipment in respect of the trading segment. These assets were scrapped and an impairment loss in the amount of their previous carrying amount of Rmb 10,278,075 was recognised in 2001. Because of unsatisfactory financial performance of some investee companies, the directors consider that there has been an impairment loss on available-for-sale investments in respect of the port services segment. These assets were scrapped and an impairment loss in the amount of their previous carrying amount of Rmb 5,471,976 was recognised in 2001. - 17 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 PROFIT FROM OPERATIONS 2001 2000 Rmb Rmb Profit from operations has been arrived at after charging (crediting): Depreciation 123,363,227 115,940,975 Provision for litigation costs (note 33) 11,800,000 - Value added tax refund of imported electricity charges (34,944,163) (33,828,360) Government grants on water charges (2,000,000) - ___________ ___________ ___________ ___________ Staff costs - Wages and salaries 99,863,047 91,085,701 - Retirement costs 6,593,405 8,193,988 - Other staff costs 11,162,556 8,953,458 ___________ ___________ 117,619,008 108,233,147 ___________ ___________ ___________ ___________ NET FINANCING COSTS 2001 2000 Rmb Rmb Interest income 15,276,022 13,276,013 Foreign exchange gains 148,554 363,006 __________ __________ Total financial income 15,424,576 13,639,019 __________ __________ Interest on bank loans and other borrowings 85,827,661 87,803,159 Less: interest capitalised in the cost of qualifying assets (43,940,498) (19,451,437) __________ __________ Interest expenses 41,887,163 68,351,722 Foreign exchange losses 767,827 1,589,531 Other financial costs 225,318 537,764 __________ __________ Total financial costs 42,880,308 70,479,017 __________ __________ - 18 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 Net financing costs 27,455,732 56,839,998 __________ __________ __________ __________ Interest capitalised in the cost of qualifying assets during the year arose on specific borrowing for expenditure on such assets. DISCONTINUING OPERATIONS During 2001, the Group entered into an asset restructuring agreement with its major shareholder, China Merchants Skekou Industrial Zone Co., Ltd. ("SIZ"). Under the agreement, the Group acquired an additional 25% interest from SIZ in each of its subsidiaries, 深圳招商供水有限公司 ("Water Co."), 深圳招商供電有限公司 ("Electricity Co.”) and 深圳招商房地 有限公司 (“Real Estate Co.") by exchanging with SIZ all of its assets engaged in provision of port services business ("Shekou Port Business"). This asset restructuring was completed on October 31, 2001, on which date control of the exchanged companies and assets passed to the acquirers. As a result of this asset restructuring, the Group discontinued its business of provision of port services. - 19 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 11. DISCONTINUING OPERATIONS - continued The results of the provision of port services for the period from January 1, 2001 to October 31, 2001, which have been included in the consolidated financial statements, were as follows: 1.1.2001 to 1.1.2000 to 10.31.2001 12.31.2000 Rmb Rmb Revenue 234,968,834 291,289,282 Operating costs (164,531,537) (251,212,641) Net financing income (costs) 1,770,237 (3,191,642) Share of results of associates (207,627) 4,392,927 Share of profit of a jointly controlled entity 429,737 492,364 ___________ ___________ Profit before tax 72,429,644 41,770,290 Income tax expense (1,380,505) (2,968,779) ___________ ___________ Profit from ordinary activities after tax 71,049,139 38,801,511 ___________ ___________ ___________ ___________ During the year, Shekou Port Business contributed Rmb 73 million (2000: paid Rmb 21 million) to the Group's net operating cash flows, paid Rmb 39 million (2000: Rmb 4 million) in respect of investing activities and paid 54 million (2000: Nil) in respect of financing activities. The carrying amounts of the assets and liabilities of Shekou Port Business at the date of disposal are disclosed in note 36. A profit of Rmb 22,121,370 arose on the disposal of Shekou Port Business, being the aggregate fair value of the 25% interests in Water Co., Electricity Co., Real Estate Co. and the balance payment received less the carrying amount of net assets of Shekou Port Business (note 36). No tax charge or credit arose from the transaction. INCOME TAX EXPENSE 2001 2000 Rmb Rmb Current tax: - PRC 55,852,793 55,489,825 - Hong Kong - (14,702) - Overseas - 663,982 __________ __________ - 20 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 55,852,793 56,139,105 Deferred tax (note 30) - Current year (6,279,346) (613,157) __________ __________ 49,573,447 55,525,948 __________ __________ Income tax attributable to the Company and its subsidiaries 49,573,447 55,525,948 Share of income tax attributable to associates 1,205,613 2,183,742 Share of income tax attributable to a jointly controlled entity 63,386 73,855 __________ __________ 50,842,446 57,783,545 __________ __________ __________ __________ - 21 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 12. INCOME TAX EXPENSE - continued The income tax rates applicable to the entities in the Group are as follows: The Company and its subsidiaries in PRC (note) 15% A subsidiary in Hong Kong 16% A subsidiary in Singapore 26% Note: A preferential tax rate of 7.5% was approved by the Shenzhen Tax Bureau for the Company and one of its subsidiary and was applicable up to December 31, 2000. The following is a reconciliation of income tax calculated at the applicable tax rates: 2001 2000 Rmb Rmb Profit before tax 262,768,369 285,237,180 ___________ ___________ ___________ ___________ Income tax computed by applying tax rate of 15% 39,415,255 42,785,577 Effect of non-deductible expenses 14,792,002 18,709,526 Effect of non-taxable income (3,318,206) (2,741,660) Effect of different tax rates in other jurisdictions (46,605) (969,898) ___________ __________ Income tax expense 50,842,446 57,783,545 ___________ __________ ___________ __________ DIVIDENDS During 2001, a dividend of 13 cents (2000: 10 cents) per share was paid to shareholders. In respect of the current year, the directors propose that a dividend of 11 cents per share will be paid to shareholders. This dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. The total estimated dividend to be paid is Rmb 52 million. - 22 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 BASIC EARNINGS PER SHARE Including discontinuing operations: The calculation of basic earnings per share is based on net profit for the year of Rmb 164,710,533 (2000: Rmb 154,048,394). Excluding discontinuing operations: The additional basic earnings per share present earnings data after elimination of the effects of operations discontinued in the period. Earnings figures are calculated as follows: 2001 2000 Rmb Rmb Net profit for the year 164,710,533 154,048,394 Adjustment for: Profit after tax from discontinuing operations (71,049,139) (38,801,511) Profit on disposal of discontinuing operations (22,121,370) - ___________ ___________ Earnings for the purposes of basic earnings per share excluding discontinuing operations 71,540,024 115,246,883 ___________ ___________ ___________ ___________ The weighted average number of 476,396,000 shares (2000: 462,149,425 shares) in issue during the year is used as denominator for the purposes of calculating basic earnings per share. No diluted earnings per share is presented since there are no dilutive potential ordinary shares in existence during the years ended December 31, 2001 and December 31, 2000. - 23 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 PROPERTY, PLANT AND EQUIPMENT Plant and machinery, furniture, Buildings, fixtures open yards Ships and and office and motor Water equipment warehouses vehicles pipes Total Rmb Rmb Rmb Rmb Rmb COST At January 1, 2001 441,959,377 1,137,333,054 130,344,130 166,220,294 1,875,856,855 Additions 8,678,679 17,677,034 2,914,270 363,562 29,633,545 Transfer from construction in progress 38,561,074 22,934,841 736,000 3,682,198 65,914,113 Disposals (13,196,220) (2,496,195) (1,816,297) (5,723,239) (23,231,951) Disposed of upon asset restructuring (274,509,630) (647,434,468) (82,500,335) - (1,004,444,433) ___________ ___________ ___________ ___________ ____________ At December 31, 2001 201,493,280 528,014,266 49,677,768 164,542,815 943,728,129 ___________ ___________ ___________ ___________ ____________ AGGREGATE DEPRECIATION At January 1, 2001 194,035,154 327,800,503 77,674,144 54,270,873 653,780,674 Charge for the year 36,041,646 26,225,002 11,148,173 6,476,798 79,891,619 Impairment losses 1,299,521 5,158,872 3,819,682 - 10,278,075 Eliminated on disposals (11,427,044) (649,726) (1,459,841) (3,949,324) (17,485,935) Disposed of upon asset restructuring (137,036,950) (235,080,803) (57,271,615) - (429,389,368) ___________ ___________ ___________ ___________ ____________ At December 31, 2001 82,912,327 123,453,848 33,910,543 56,798,347 297,075,065 ___________ ___________ ___________ ___________ ____________ CARRYING AMOUNT At December 31, 2001 118,580,953 404,560,418 15,767,225 107,744,468 646,653,064 ___________ ___________ ___________ ___________ ____________ ___________ ___________ ___________ ___________ ____________ At December 31, 2000 247,924,223 809,532,551 52,669,986 111,949,421 1,222,076,181 ___________ ___________ ___________ ___________ ____________ ___________ ___________ ___________ ___________ ____________ The Group has pledged certain of its properties with an aggregate net book value of approximately Rmb 6 million (2000: Rmb 13 million) to banks as security for bank loans. - 24 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 As part of the process of establishing the Company as a joint stock company in 1992, property, plant and equipment was valued by Zhong Hua (Shekou) Certified Public Accountants as at April 30, 1992. Pursuant to the approval document being issued by the Shenzhen Municipal Government Office on January 27, 1993, this valuation has been reflected in these financial statements as the deemed cost base of the assets of the Company upon its formation. Buildings, open yards and warehouses of Rmb 252 million are under the process of obtaining land use right certificate as of December 31, 2001. - 25 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 CONSTRUCTION IN PROGRESS 2001 2000 Rmb Rmb Buildings and warehouses 13,481,371 23,617,729 Water pipes 1,782,991 2,768,669 Plant and machinery 13,667,897 12,643,061 Properties - 24,735,632 Harbour work - 284,175 __________ __________ 28,932,259 64,049,266 __________ __________ __________ __________ There is no significant amount of interest capitalised for both years. INVESTMENT PROPERTIES Rmb COST At January 1, 2001 916,526,165 Additions 17,347,384 Disposals (6,379,658) ___________ At December 31, 2001 927,493,891 ___________ AGGREGATE DEPRECIATION At January 1, 2001 217,067,321 Charge for the year 42,912,804 Eliminated on disposals (1,655,657) ___________ At December 31, 2001 258,324,468 ___________ CARRYING AMOUNT At December 31, 2001 669,169,423 ___________ ___________ At December 31, 2000 699,458,844 ___________ ___________ - 26 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 The property rental income earned by the Group from its investment properties, all of which is leased out under operating leases, amounted to approximately Rmb 139 million (2000: Rmb 115 million). Direct operating expenses arising on the investment properties in the period amounted to approximately Rmb 80 million (2000: Rmb 67 million). Investment properties of Rmb 201 million are under the process of obtaining land use right certificate as of December 31, 2001. As a result of the inability to estimate reliably the value of the buildings component within leasehold land and buildings, no disclosure of fair value of investment properties as at December 31, 2001 is made. - 27 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 GOODWILL Rmb COST At January 1, 2001 662,467,108 Arising on acquisition of additional interest in subsidiaries 318,714,067 ___________ At December 31, 2001 981,181,175 ___________ AMORTISATION At January 1, 2001 38,281,677 Charge for the year 38,596,779 Provision for impairment loss 47,050,728 ___________ At December 31, 2001 123,929,184 ___________ CARRYING AMOUNT At December 31, 2001 857,251,991 ___________ ___________ At December 31, 2000 624,185,431 ___________ ___________ Because of the unsatisfactory financial performance of one of the Group's subsidiaries, the directors considered that an impairment loss should be recognised in respect of goodwill relating to a subsidiary within the trading segment. The directors estimate that the recoverable amount of this subsidiary is its estimated net selling price in the current market. Accordingly, a provision of Rmb 47,050,728 was made in 2001. Goodwill is amortised over its estimated useful life. The foreseeable life of the goodwill arising on past acquisitions ranges from 12 to 20 years. NEGATIVE GOODWILL Rmb GROSS AMOUNT At January 1, 2001 41,292,609 Arising on an acquisition of additional interest in subsidiaries 34,750,685 __________ At December 31, 2001 76,043,294 __________ - 28 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 RELEASED TO INCOME At January 1, 2001 3,218,404 Release in the year 2,193,297 __________ At December 31, 2001 5,411,701 __________ CARRYING AMOUNT At December 31, 2001 70,631,593 __________ __________ At December 31, 2000 38,074,205 __________ __________ The negative goodwill is released to income on a straight-line basis over the remaining weighted average useful life of 20 years of the depreciable assets acquired. - 29 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 LAND USE RIGHTS Rmb COST At January 1, 2001 21,235,464 Additions 110,000 __________ At December 31, 2001 21,345,464 __________ AGGREGATE DEPRECIATION At January 1, 2001 3,158,243 Charge for the year 558,804 __________ At December 31, 2001 3,717,047 __________ CARRYING AMOUNT At December 31, 2001 17,628,417 __________ __________ At December 31, 2000 18,077,221 __________ __________ SUBSIDIARIES Details of the Company's principal subsidiaries at December 31, 2001 are as follows: Place of incorporation Proportion (or registration) of ownership Name of subsidiary and operation interest Principal activity % 深圳招商房地 有限公司 PRC 95 Property development and investment 深圳招商石化有限公司 PRC 75 Trading of petrochemical products 深圳招商供電有限公司 PRC 99.75 Supply of electricity - 30 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 深圳招商供水有限公司 PRC 99.75 Supply of water 招商港務(新加坡)有限公司 Singapore 100 Trading 深圳 金台實業有限公司 PRC 90 General trading 香港瑞嘉投資實業有限公司 * Hong Kong 100 Trading ("Eureka Investment Co., Ltd.") * In accordance with PRC regulation, the Company's subsidiaries established in Hong Kong or outside the PRC should be approved by the Ministry of Foreign Trade and Economic Cooperation ("MOFTEC"). As at December 31, 2001, the establishment of Eureka Investment Co., Ltd. has not yet been approved by the MOFTEC. - 31 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 INVESTMENTS IN ASSOCIATES 2001 2000 Rmb Rmb Share of net assets other than goodwill 74,096,151 91,838,718 __________ __________ Goodwill, net of amortisation Carrying amount at January 1 1,997,895 2,247,632 Charge for the year (249,737) (249,737) __________ __________ Carrying amount at December 31 1,748,158 1,997,895 __________ __________ 75,844,309 93,836,613 __________ __________ __________ __________ Details of the Group's principal associates at December 31, 2001 are as follows: Place of registration Proportion of Name of associate and operation ownership interest Principal activity % 蛇口酒店咨詢培訓服務公司 PRC 45 Hotel management and training services 蛇口興華實業股份有限公司 PRC 40 Leasing properties 華南液化氣船務公司 PRC 20 Shipping of petrochemical gas products INVESTMENT IN A JOINTLY CONTROLLED ENTITY At December 31, 2000, the investment in a jointly controlled entity represented the Group’s 50% interest in 萬通貨運代理公司, which was established in the PRC and was engaged in provision of transportation services. This jointly controlled entity has been disposed of as a result of the asset restructuring during 2001. - 32 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 INVESTMENTS IN SECURITIES Rmb Available-for-sale investments: At January 1, 2001 52,108,922 Additions during the year - Disposals during the year (13,485,266) Provision for impairment losses (note 8) (5,471,976) ___________ At December 31, 2001 33,151,680 ___________ ___________ The available-for-sale investments are unquoted investments in the PRC. The management considers the carrying value approximates their fair values as of the balance sheet date. Trading investments: 2001 2000 Rmb Rmb Fair value at December 31 - 41,241,376 ________ __________ ________ __________ As of December 31, 2000, the trading investments represented investments in listed equity securities which presented the Group with opportunity for return through dividend income and trading gains. All trading investments were either listed on the Shenzhen Stock Exchange of the PRC or the Stock Exchange of Singapore. The fair values of these securities were based on quoted market prices. They have been disposed of during 2001. INVENTORIES 2001 2000 Rmb Rmb Raw materials 2,494,249 5,632,192 Finished goods 71,183,568 60,682,922 Spare parts and consumerables 166,313 2,388,639 __________ __________ 73,844,130 68,703,753 __________ __________ __________ __________ All inventories are carried at cost. - 33 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 PROPERTIES UNDER DEVELOPMENT 2001 2000 Rmb Rmb COST At January 1 922,458,191 598,191,288 Additions during the year 976,383,761 682,362,023 Interest capitalised 43,940,498 19,451,437 Transfer to completed properties for sales (531,249,826) (577,546,557) ____________ ___________ At December 31 1,411,532,624 922,458,191 ____________ ___________ ____________ ___________ Interest expenses of Rmb 43,940,498 were capitalised during the year ended December 31, 2001 (2000: Rmb 19,451,437). OTHER FINANCIAL ASSETS Trade and other receivables comprise: 2001 2000 Rmb Rmb Trade receivables 225,268,514 309,452,627 Other receivables and prepayments 108,696,258 162,343,465 Amount due from an associate - 11,962,947 Amount due from a shareholder - 1,804,658 ___________ ___________ 333,964,772 485,563,697 ___________ ___________ ___________ ___________ The average credit period is 30 days. An allowance has been made for estimated irrecoverable receivable of Rmb 14 million (2000: Rmb 13 million). This allowance has been determined by reference to past default experience. The directors consider that the carrying amount of trade and other receivables approximates their fair value. Bank balances and cash comprises cash and short-term deposits held by the group treasury function. The carrying amount of these assets approximates their fair value. Credit risk - 34 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 The Group's credit risk is primarily attributable to its trade and other receivables. The amounts presented in the balance sheet are net of allowances for doubtful receivables, estimated by the Group's management based on prior experience and the current economic environment. The Group generally does not require collateral from its customers and is exposed to credit-related losses in the event of non-performance by customers. However, the Group has no significant concentration of credit risk to individual customers, with exposure spread over a large number of counterparties and customers. The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings. - 35 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 SHARE CAPITAL Registered, issued and fully paid up capital consisted of A and B shares of Rmb 1 each. A share B share Total Rmb Rmb Rmb At January 1, 2000 207,871,950 188,524,050 396,396,000 Issue for shares 80,000,000 - 80,000,000 ___________ ___________ ___________ At December 31, 2000 and 2001 287,871,950 188,524,050 476,396,000 ___________ ___________ ___________ ___________ ___________ ___________ There were no movement in the share capital of the Company for the year ended December 31, 2001. RESERVES Statutory Discretionary Statutory Share surplus surplus public Capital Other Exchange Retained premium reserve reserve welfare fund surplus reserves reserve profits Total Rmb Rmb Rmb Rmb Rmb Rmb Rmb Rmb Rmb At January 1, 2000 451,950,686 159,487,022 43,346,882 40,618,652 66,373,525 4,244,819 (3,825,845) 161,113,094 923,308,835 Issue of shares 623,199,997 - - - - - - - 623,199,997 Total recognised gains and losses - - - - - - (3,045,006) 154,048,394 151,003,388 Transfer to (from) reserves 42,133,272 72,898,227 21,066,637 - - - (136,098,136) - Dividend paid - 1999 - - - - - - - (47,639,600) (47,639,600) ____________ ___________ ___________ __________ ___________ _________ _________ ___________ ____________ At December 31, 2000 1,075,150,683 201,620,294 116,245,109 61,685,289 66,373,525 4,244,819 (6,870,851) 131,423,752 1,649,872,620 Total recognised gains and losses - - - - - - (4,744,087) 164,710,533 159,966,446 Transfer to (from) reserves - 15,908,213 96,313,954 16,946,648 - - - (129,168,815) - Dividend paid - 2000 - - - - - - - (61,931,480) (61,931,480) ____________ ___________ ___________ __________ ___________ _________ _________ ___________ ____________ At December 31, 2001 1,075,150,683 217,528,507 212,559,063 78,631,937 66,373,525 4,244,819 (11,614,938) 105,033,990 1,747,907,586 ____________ ___________ ___________ __________ ___________ _________ _________ ___________ ____________ ____________ ___________ ___________ __________ ___________ _________ _________ ___________ ____________ (a) Statutory surplus reserve - 36 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 According to the current PRC company law and the Company's articles of association, the Company is required to transfer between 10% to 50% of its profit after taxation to statutory surplus reserve until the surplus reserve balance reaches 50% of the registered capital. For the purpose of calculating the transfer to this reserve, the profit after taxation shall be the amount determined under PRC accounting standards. The transfer to this reserve must be made before the distribution of dividends to shareholders. Statutory surplus reserve can be used to make good previous years' losses, if any, and for capitalisation issues provided that the balance after such issue is not less than 25% of the registered capital. (b) Discretionary surplus reserve The transfer to this reserve is subject to the approval by shareholders at general meetings. Its usage is similar to that of statutory surplus reserve. - 37 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 29. RESERVES - continued (c) Statutory public welfare fund According to the current PRC company law and the Company's articles of association, the Company is required to transfer 5% to 10% of its profit after taxation to the statutory public welfare fund. For the purpose of calculating the transfer to this reserve, the profit after taxation shall be the amount determined under PRC accounting standards. The transfer to this reserve must be made before the distribution of dividends to shareholders. The statutory public welfare fund can only be used for the collective welfare of the Company's employees such as the construction of staff quarters. The reserve forms part of the shareholders' equity as individual employees can only use these facilities, the titles of which will remain with the Company. (d) The amounts to be transferred to the statutory surplus reserve and statutory public welfare public welfare fund for the year ended December 31, 2001 are to be proposed and approved at the Company's annual general meeting to be held in April 2002. (e) Capital surplus As stated in note 15, property, plant and equipment were valued on April 30, 1992 for the purpose of establishing of the Company as a joint stock company. Capital surplus represents the corresponding surplus arising from this valuation which has been reflected as the deemed cost base of the assets of the Company upon its formation. (f) In accordance with its Articles of Association, the net income for the purpose of appropriation will be deemed to be the lesser of the amounts determined in accordance with (i) PRC accounting standards and regulations and (ii) IAS. (g) The Company's distributable reserve as at December 31, 2001 is the retained earnings computed under IAS which amounted to approximately Rmb 105 million. BANK LOANS 2001 2000 Rmb Rmb Bank loans - unsecured 1,259,363,400 1,311,000,000 - secured 7,494,442 8,175,215 ____________ ____________ 1,266,857,842 1,319,175,215 ____________ ____________ ____________ ____________ - 38 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 The borrowings are repayable as follows: On demand or within one year 460,212,320 811,533,141 In the second year 500,848,920 300,533,141 In the third to fifth years inclusive 305,796,602 201,599,423 After five years - 5,509,510 ____________ ____________ 1,266,857,842 1,319,175,215 Less: Amount due for settlement within 12 months (shown under current liabilities) (460,212,320) (811,533,141) ____________ ____________ Amount due for settlement after 12 months 806,645,522 507,642,074 ____________ ____________ ____________ ____________ - 39 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 30. BANK LOANS - continued Unsecured bank loans of Rmb 1,259,363,400 bear interest at 2.7875% to 6.435% per annum. Secured bank loans bear interest at the bank prevailing prime rate plus 1% per annum and are repayable in equal monthly instalments by June 2006. It is secured by a legal mortgage over the leasehold properties of a subsidiary with a carrying amount of approximately Rmb 6 million (2000: Rmb 13 million). The carrying amounts of secured bank loans approximate fair value because they bear interest at floating rates. The carrying amounts of unsecured bank loans approximate fair value with reference to the prevailing market rates as of December 31, 2001. The Group's total bank loans outstanding at December 31 are denominated in the following currencies: 2001 2000 Renminbi 96% 99% Hong Kong dollars 3% - Singapore dollars 1% 1% _______ _______ Total 100% 100% _______ _______ _______ _______ RENTAL RECEIVED IN ADVANCE 2001 2000 Rmb Rmb At January 1 54,315,448 53,681,377 Additions during the year 440,800 9,000,000 Amortisation (7,641,607) (8,365,929) Released upon asset restructuring (38,343,841) - __________ __________ At December 31 8,770,800 54,315,448 __________ __________ __________ __________ DEFERRED TAX The movement for the year in the Group's deferred tax liabilities was as follows: 2001 2000 Rmb Rmb - 40 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 At January 1 36,017,213 36,630,370 Write back during the year (6,279,346) (613,157) __________ _________ At December 31 29,737,867 36,017,213 __________ _________ __________ _________ Deferred tax liabilities recognised by the Group are mainly attributable to the temporary differences on property, plant and equipment. There is no significant unprovided deferred taxation for the year or at the balance sheet date. - 41 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 OTHER FINANCIAL LIABILITIES Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period is 61 days. During 2000, claims for compensation have been brought by third parties against the Group relating to certain fertilizer materials, which have been confiscated by the Customs in Shekou, PRC, amounting to Rmb 23 million in total. The Group has lost one of these cases and is now appealing to the High Court. The outcome of the litigations have yet to be finalised. The Group, after seeking advices from solicitors, has made a provision of Rmb 11.8 million which is included in trade and other payables account. The directors have indicated that they would pursue these cases vigorously. The directors consider that the carrying amount of trade payables approximates to their fair value. RECONCILIATION OF PROFIT FROM OPERATIONS TO CASH GENERATED FROM OPERATIONS 2001 2000 Rmb Rmb Profit from operations 261,011,924 326,619,683 Adjustments for: Depreciation of property, plant and equipment 79,891,619 83,742,700 Depreciation of investment properties 42,912,804 31,886,419 Depreciation of land use rights 558,804 311,856 Amortisation of goodwill 38,846,516 31,913,410 Impairment loss on goodwill 47,050,728 - Impairment loss on property, plant and equipment 10,278,075 5,600,000 Impairment loss on available-for-sale investments 5,471,976 - Loss (profit) on disposal of trading investments 535,600 (22,194,957) Release of negative goodwill (2,193,297) (2,066,259) Recognition of deferred income (7,641,607) (8,365,929) Profit on disposal of property, plant and equipment (1,625,021) (1,488) Profit on disposal of investments in associates (525,000) - Profit on disposal of subsidiaries - (3,678,472) Profit on disposal of available-for-sale investments - (509,281) Gain on revaluation of trading investments - (1,870,007) ___________ ___________ Operating profit before working capital changes 474,573,121 441,387,675 (Increase) decrease in inventories (11,132,994) 16,514,432 Decrease (increase) in completed properties for sale 490,064,118 (49,920,510) (Increase) decrease in trade and other receivables (25,583,523) 443,446,438 Increase in properties under development (976,383,761) (255,954,544) - 42 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 Decrease in amount due from a shareholder 1,804,658 156,243,895 Decrease in amounts due from associates 11,962,947 682,494 Increase in rental received in advance 440,800 9,000,000 Increase in trade and other payables 184,256,765 38,158,500 (Decrease) increase in receipts in advance and deposits received (55,021,462) 83,165,683 Decrease in staff bonus and welfare payable (3,866,693) (6,689,337) Increase (decrease) in amounts due to associates 9,381,023 (132,186,562) Decrease in amount due to a jointly controlled entity (846,108) (248,157) Decrease in dividend receivables - 23,868,048 Exchange difference - (3,730,734) ___________ ___________ Cash generated from operations 99,648,891 763,737,321 ___________ ___________ ___________ ___________ - 43 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 ACQUISITION OF A SUBSIDIARY On March 3, 2000, the Company acquired an additional 50% interest in an associate, China Merchants Petrochemical Co., Ltd. ("Petrochemical Co.") from SIZ. The Company adopted March 31, 2000 as the acquisition date on which the net assets and operations of Petrochemical Co. were effectively transferred. The acquisition was accounted for using the purchase method of accounting. For the period from April 1, 2000 to December 31, 2000, Petrochemical Co. contributed net profit after tax of approximately Rmb 35 million, to the consolidated results of the Group for the year ended December 31, 2000. Net assets acquired: 2000 Rmb Property, plant and equipment 112,962,525 Construction in progress 13,783,917 Investments in securities 3,301,500 Inventories 76,720,621 Trade and other receivables 328,556,956 Bank balances and cash 94,398,571 Bank loans (215,000,000) Trade and other payables (211,788,983) Tax liabilities (3,502,914) Minority interests (86,312,873) ___________ 113,119,320 Goodwill arising on acquisition 225,848,468 ___________ Total consideration 338,967,788 ___________ ___________ Satisfied by: Cash 265,000,000 Investments in associates 73,967,788 ___________ 338,967,788 ___________ ___________ Net cash outflow arising on acquisition: Cash consideration (265,000,000) Bank balance and cash acquired 94,398,571 ___________ Net cash outflow (170,601,429) ___________ ___________ - 44 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 NET CASH INFLOW FROM ASSET RESTRUCTURING As referred to in note 11, the Group discontinued its provision of port services by disposing Shekou Port Business, as a result of the asset restructuring completed on October 31, 2001. The net assets of Shekou Port Business at October 31, 2001 and December 31, 2000 were as follows: 10.31.2001 12.31.2000 Rmb Rmb Property, plant and equipment 575,055,065 583,976,953 Construction in progress 9,164,631 9,775,435 Investments in associates 11,042,479 12,297,750 Investment in a jointly controlled entity 2,856,007 2,489,656 Investments in securities 22,628,701 10,846,116 Inventories 5,992,617 5,592,363 Trade and other receivables 158,051,483 174,362,779 Bank balances and cash 12,239,543 31,701,859 Trade and other payables (144,651,900) (173,999,968) Tax liabilities (1,106,050) (4,550,923) Staff bonus and welfare payable (102,304) (11,728,010) Rental received in advance (38,343,841) (45,315,448) Minority interest (2,667,185) (2,583,950) ___________ ___________ 610,159,246 592,864,612 ___________ ___________ Profit on disposal of discontinuing operations 22,121,370 ___________ Total consideration 632,280,616 ___________ ___________ Satisfied by: Bank balances and cash 50,373,751 Goodwill 318,714,067 Negative goodwill (34,750,685) Minority interests 297,943,483 ___________ 632,280,616 ___________ ___________ Net cash inflow from asset restructuring: - 45 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 Cash consideration 50,373,751 Bank balances and cash disposed of (12,239,543) ___________ 38,134,208 ___________ ___________ The impact of the discontinuing operation on the Group's results in the current and prior periods is disclosed in note 11. - 46 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 NON-CASH TRANSACTIONS As referred to in note 36, the Group entered into an asset restructuring during 2001. On January 4, 2000, two minor subsidiaries of the Company were disposed of. The results of the subsidiaries had no significant impact to the consolidated results of the Group for the period ended January 4, 2000. The net assets of the two minor subsidiaries at the date of disposal were as follows: 2000 Rmb Property, plant and equipment 3,506,354 Goodwill 980,620 Inventories 4,607,597 Trade and other receivables 5,494,130 Bank loans (2,610,608) Trade and other payables (15,656,565) __________ (3,678,472) Profit on disposal of subsidiaries 3,678,472 __________ - __________ __________ CONTINGENT LIABILITIES 2001 2000 Rmb Rmb Bills of exchange discounted with recourse 191,528,000 86,900,000 Guarantees given to banks in respect of: - mortgages entered by customers 617,838,979 318,988,979 - banking facilities utilised by an investee company 39,212,598 46,244,393 ___________ ___________ 848,579,577 452,133,372 ___________ ___________ ___________ ___________ As referred to in note 33, there are claims for compensation brought by third parties in 2000 against the Group relating to certain fertilizer materials. The outcome of the litigations have yet to be finalised. - 47 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 CAPITAL COMMITMENTS 2001 2000 Rmb Rmb Contracted for but not provided in the financial statements in respect of: - acquisition of property, plant and equipment 2,542,210 - - construction of properties under development 327,063,810 539,312,000 ___________ ____________ 329,606,020 539,312,000 ___________ ____________ ___________ ____________ OPERATING LEASE ARRANGEMENTS 2001 2000 Rmb Rmb Minimum lease payments under operating leases recognised in income for the year 29,115,827 28,489,727 __________ __________ __________ __________ At the balance sheet date, the Group had outstanding commitments under non-cancellable operating leases, which fall due as follows: 2001 2000 Rmb Rmb Within one year 33,087,727 28,489,727 In the second to fifth years inclusive 9,137,355 29,367,947 After five years 7,652,246 7,969,381 __________ ___________ 49,877,328 65,827,055 __________ ___________ __________ ___________ Operating lease payments represent rentals payable by the Group for certain of its office properties. Leases are negotiated for a range of 3 to 18 years and rentals are fixed for an average of 3 years. Property rental income earned during the year was approximately Rmb 139 million (2000: Rmb 115 million). The Group’s properties held for rental purposes are expected to generate rental yields of 15 per cent on an ongoing basis. All of the properties held have committed tenants for a range of 1 to 7 years. - 48 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 At the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments: 2001 2000 Rmb Rmb Within one year 94,295,221 61,099,852 In the second to fifth years inclusive 74,657,766 85,850,931 After five years 84,618,712 95,450,695 ___________ ___________ 253,571,699 242,401,478 ___________ ___________ ___________ ___________ - 49 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 RETIREMENT BENEFITS PLANS Defined contribution plans The employees of the Group in PRC are members of state-managed retirement benefit schemes operated by the PRC government. The Group is required to contribute a specified percentage of their payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the Group with respect to the retirement benefit scheme is to make the specified contributions. The total cost charged to income of Rmb 6,593,405 (2000: Rmb 8,193,988) represents contributions payable to these schemes by the Group at rates specified in the rules of the schemes. RELATED PARTY TRANSACTIONS Parties considered to be related to the Company include parties that have the ability, directly or indirectly through one or more intermediaries, to control or exercise significant influence over the financial and operating policies of the Company, or vice versa, or where the Company and the parties are subject to common control or common significant influence. Details of the related parties identified and their relationship with the Company are as follows: Name of Company Relationship with the Company SIZ Major shareholder Full Space Investment Co., Ltd. ("FSI") Shareholder a) During 2001 and 2000, there were no transactions between the Group and FSI. b) The Group entered into an asset restructuring agreement with SIZ during 2001 (Note 11). The Group also acquired an additional 50% interest in Petrochemical Co. during 2000 (Note 35). c) During 2001, a guarantee of Rmb 485 million (2000: Rmb 775 million) has been given by SIZ to secure bank loans of the Group. d) During 2001, the Group has paid Rmb 62 million (2000: Rmb 24 million) rental expenses to a subsidiary of SIZ. e) During 2001, the Group received Rmb 2 million (2000: Nil) rental income from a subsidiary of SIZ. f) At December 31, 2001, there are amounts due to subsidiaries of SIZ of Rmb 55 million, which are included in trade and other payables account. These amounts are unsecured, interest free and have no fixed repayment terms. - 50 - CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 g) At December 31, 2000, there was an amount due from a shareholder of Rmb 2 million. This amount was unsecured, interest free and had been repaid in full during the year. The directors are of the opinion that these transactions were concluded based on terms negotiated and agreed with both parties and were entered into in accordance with the relevant agreements. Remuneration paid to directors during the year was Rmb 0.6 million (2000: Rmb 0.6 million). - 51 -