方大集团(000055)深方大Ｂ2001年年度报告（英文版）

CHINA FANGDA GROUP CO., Ltd. Annual Report 2001 Contents I. Company Profile II. Financial and Operation Highlights III. Changes in Share Capital and Shareholdings IV. Directors, Supervisors, Senior Officers and Employees V. Company Structure VI. Shareholders’ Meeting VII. Directors’ Report VIII. Supervisors’ Report IX. Significant Events X. Financial Statements XI. Documents Available for Inspection IMPORTANT NOTICE: The Board of Directors of the Company individually and collectively accepts responsibility for the correctness, accuracy and completeness of the contents of this report and confirms 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. The independent director Mr. Niu Hanben, being unable to present himself in the 14th meeting of the Second Board of Directors for some reason, has authorized the other independent director Ms. Shao Hanqing to execute the voting power and issue the independent directors’ opinion. . COMPANY PROFILE 1. Company Name Chinese: 方大集团股份有限公司 方大集团 English: China Fangda Group Co., Ltd. (Acronym: CFDC ) 2. Legal Representative: Mr. Xiong Jianming 3. Company Secretary: Mr. Lu Weiwei Address: Fangda Town, Longjing,Xili, Nanshan District, Shenzhen, People’s Republic of China (“PRC”) Postcode: 518055 Telephone: 86 (755) 6788571 ext. 6622 Facsimile: 86(755) 6788353 Email: 2wlu@21cn.com 4. Registered address: Fangda Town, Longjing,Xili, Nanshan District, Shenzhen, PRC. Postcode: 518055 E-mail: fd@fangda.com Web site: http://www.fangda.com/ Office address: Technology Building, Fangda Town, Longjing,Xili, Nanshan District, Shenzhen, PRC. Postcode: 518055 E-mail: fd@fangda.com 5. Designated newspapers for information disclosures: “China Securities”, “Securities Times”, “Shanghai Securities News” and “Hong Kong Ta Kung Pao ” Annual report available place: Company Secretary Office Designated web site by China Securities Regulatory Commission (“CSRC”) for annual report publishing: http://www.cninfo.com.cn 6. The abbreviation, code and the listing place of the Company’s shares: A Shares: Shenzhen Fangda, 000055, Shenzhen Stock Exchange B Shares: Shen Fangda B, 200055, Shenzhen Stock Exchange .FINANCIAL AND OPERATION HIGHLIGHTS 1. Summary of Results (Unit: Renminbi Yuan) Profit before tax and minority interests: 48,632,512 Net Profit: 36,147,639 Net Profit after exceptional items: 36,282,799 Gross profit from main operations: 107,388,371 Profit from other operations: 290,816 Profit from operations: 38,285,650 Loss from investments: -2,202,243 Allowance income: - Non-operating profit: 12,549,105 2 Net cash flow from operating activities: 143,438,700 Increase in cash and cash equivalents: 141,406,992 Note: Non-recurring loss is RMB 135,160, details are as follows: income from disposal of fix assets and penalty of RMB 1,323,281, loss from investment of RMB 2,202,243, income of borrowing interest of RMB 800,000, tax impact from the above items of RMB 56,198. 2. Differences In Net Profit between the PRC Auditor and the International Auditor Based on the audit performed by Arthur Andersen & Co. in accordance with International Auditing Guidelines, the net profit for 2001 was RMB37,201,821. The reconciliation of net profits as audited by Arthur Andersen Huaqiang Certified Public Accountants in accordance with PRC Auditing Guidelines, and Arthur Andersen & Co. was as follows: RMB Net profit as audited by Arthur Andersen Huaqiang Certified Public Accountants 36,147,639 (1) Adjustment to the amortization of patent revaluation 2,266,653 (2) Adjustment to organization cost -3,585,471 (3) Adjustment to interest capitalization 2,373,000 Net Profit as audited by Arthur Andersen & Co. 37,201,821 3. Main Accounting Data and Financial Highlights in the Past 3 Years Item 2001 2000 1999 Turnover(RMB) 406,956,626 431,492,778 453,909,674 Net Profit(RMB) 36,147,639 69,299,888 66,486,812 Total Assets (RMB) 1,393,918,123 1,280,868,467 1,120,541,505 Shareholder’s Equity(RMB) 1,029,023,539 1,022,515,900 988,784,012 Earnings Per Share(RMB) 0.12 0.23 0.22 Net Assets Per Share (Fully Diluted) 3.47 3.45 3.34 (RMB) Net Assets Per Share after 3.45 3.43 3.31 Adjustment(RMB) Net Cash Flows from Operating Activities 0.484 0.107 0.124 Per Share(RMB) Return on Equity % 3.51 6.78 6.72 4. The Return on Equity (ROE) and Earnings Per Share (EPS) Indicators: 2001 2000 1999 Return on Equity Earnings Per Return on Equity Earnings Per Return on Earnings Per (%) (%) Share Share Equity Share (RMB Yuan) (RMB Yuan) (%) (RMB Yuan) Fully Weighted Fully Weighted Fully Weighted Fully Weighted Fully Weighted Fully Weighted diluted average diluted average diluted average diluted average diluted average diluted average 10.44 10.32 0.36 0.36 11.79 11.78 0.41 0.41 11.14 12.79 0.37 0.38 Profit from Main Operations 3.72 3.68 0.13 0.13 6.76 6.75 0.23 0.23 5.96 6.84 0.20 0.20 Operating Profit 3.51 3.47 0.12 0.12 6.78 6.77 0.23 0.23 6.72 7.72 0.22 0.23 Net Profit Net Profit after 3.53 3.49 0.12 0.12 6.78 6.77 0.23 0.23 6.72 7.72 0.22 0.23 Exceptional Items 5. Changes of Shareholder’s Equity in 2001 (Unit: Share, RMB Yuan) Item Share Capital Surplus Statutory Retained Total of 3 Capital Reserve Reserve Public Earnings Shareholder’s Welfare Fund Equity Balance, 296,400,000 412,204,879 86,427,378 30,200,281 227,483,643 1,022,515,900 beginning of year Addition 0 0 5,465,794 1,821,931 36,147,639 6,507,639 during the year Decrease 0 0 0 0 35,105,794 0 during the year Balance, end of 296,400,000 412,204,879 91,893,172 32,022,212 228,525,488 1,029,023,539 year Profit Profit Profit Realization Profit Realization Reason of Appropriation Appropriation and Profit and Profit change Appropriation Appropriation III. CHANGES IN SHARE CAPITAL AND SHAREHOLDERS INFORMATION 1. Changes in Share Capital (1) Changes in share capital were as follows: Unit: share Changes during the year (+, -) Balance, Conversion Balance, beginning of Year Rights Bonus end of year from Capital Others Subtotal Issue Issue Reserve A. Unlisted Shares 1. Promoters’ shares 134,400,000 -25,368,000 -25,368,000 109,032,000 Including: State-own shares Domestic legal 109,032,000 109,032,0000 person shares Foreign legal 25,368,000 -25,368,000 -25,368,000 person shares Others: 2. Non-promoters’ share 3. Employee shares 4. Preferred shares or others Total unlisted shares 134,400,000 -25,368,000 -25,368,000 109,032,000 B. Listed Shares 1. RMB ordinary 42,000,000 42,000,000 shares 2. Domestic listed 120,000,000 +25,368,000 +25,368,000 145,368,000 foreign shares 3. Oversea listed foreign shares 4. Others Total listed shares 162,000,000 +25,368,000 +25,368,000 187,368,000 C. Total Shares 296,400,000 296,400,000 (2) Share issuance and listing a) Share issuance in the past three years ended on Dec. 31, 2001: 4 Number of Descrip- Number of Authorized No. tion of Issuing date Issuing price shares issued Listed date shares to be shares (shares) listed (shares) 1 A shares Sept. 22 – Oct. 12 1999 RMB14.50/share 8,400,000 Nov.5, 1999 8,400,000 b)During the year, the China Securities Regulatory Commission approved the listing of 25,368,000 legal person shares held by Onforce International Ltd, a foreign shareholder. Hence, the number of listed shares of the Company increased from 162,000,000 to 187,368,000. Such shares had been listed on the Shenzhen Stock Exchanges on July 20, 2001. 2.Shareholders’ Information (1) As of Dec.31, 2001, the total number of shareholders of the Company was 42,853. (2) Information of the top ten shareholders is as follows: (As of December 31, 2001, Unit: Share) Number of Number of Percentage of shares, Nature of No. Name of shareholders shares, end of total share beginning shares year capital (%) of year Shenzhen Banglin Technology Legal person 1 Development Co., Ltd. (Banglin 0 60,000,000 20.243 shares Company) Shenzhen Shilihe Investment Legal person 2 0 47,112,000 15.895 Co., Ltd. (Shilihe) shares 3 Onforce International Ltd. 25,368,000 21,082,400 7.113 Listed B shares Beijing Securities Co., Ltd., 4 2,576,325 2,576,325 0.869 Listed A shares Tiantan Branch Shenzhen Shekou Yuer Legal person 5 1,920,000 1,920,000 0.648 Industrial Co., Ltd. shares Beijing Securities Co., Ltd., 6 1,186,170 1,186,170 0.400 Listed A shares Shanghai Branch Jingfu Securities Investment 7 1,020,155 1,055,151 0.356 Listed A shares Fund Beijing Finance & Securities 8 292,985 1,018,747 0.344 Listed A shares Company 9 TOY YEK SENG 0 879,498 0.297 Listed B shares Saige Storage & Transportation 10 0 800,000 0.270 Listed B shares (HK) Co., Ltd. Note: a) Among the above top ten shareholders, the controlling shareholder of Banglin Company is the same as Onforce International Ltd., and thus they are related parties. b) During the year, the largest shareholder of the Company took mortgage loans from the bank by 56,400,000 legal person shares of the Company; The second largest shareholder Shilihe Company mortgaged 42,000,000 legal person shares of the Company to the bank for loans. (3) Information of shareholder of the Company: Name of Percentage of Legal Foundation Registered Business Scope shareholder shareholding representative Date capital Banglin Mr. Xiong June 7, RMB Invested in industrial business, 20.243% Company Jianming 2001 30,000,000 technology development and 5 consultation of electronic products, domestic business, material supply and marketing (4) Registered capital investors of Banglin Company, the largest shareholder of the Company, are natural people. Among them, as chairman of the BOD of the Company Mr. Xiong Jianming holds 85% of total share capital. (5) During the year, Shenzhen Fangda Economic Development Co., Ltd (Fangda Economic Development Company), the former largest shareholder of the Company, transferred 107,112,000 legal person shares held by itself to Banglin Company and Shilihe Company through agreement. All the parties have finished relative transfer issues. Related announcement was published on China Securities Daily, Securities Times, Shanghai Securities Daily and Hong Kong Ta Kung Pao on June 28,2001 and Sept.29, 2001. IV. DIRECTORS, SUPERVISORS, SENIOR EXECUTIVES AND EMPLOYEES 1. Directors, Supervisors, Senior Executives: a) Gender, age, tenure and shareholding of present directors, supervisors and senior executives Number of Number of shares Reason of shares held held at shareholdi Name Position Gender Age Tenure at end of beginning ng year of year changes (shares) (shares) Xiong Chairman of Male 44 April 16, 1999 – 31,500 31,500 Jianming BOD, President April 16,2002 Zhu Director, Vice- 43 April 16, 1999 – 4,200 4,200 Weiping president Male April 16, 2002 Wang Director, Vice 44 April 16, 1999 – 4,200 4,200 Shengguo president Male April 16, 2002 Xiong Director, 35 April 16, 1999 – 12,600 12,600 Zhude Financial Male April 16, 2002 Controller Lu Director, 35 April 16, 1999 – 12,600 12,600 Weiwei Secretary of Male April 16, 2002 BOD Xiong Director 33 April 16, 1999 – 0 0 Jianwei Male April 16, 2002 Xiao Kai Independent 40 April 16, 1999 – 0 0 Director Male April 16, 2002 Shao Independent Female 63 March 28, 2001 0 0 Hanqing Director – March 28, 2002 Niu Independent Male 61 March 28, 2001 0 0 Hanben Director –March 28, 2002 Li Collector of Male 37 April 16, 1999 – 0 0 Bangyan BOS April 16, 2002 Zhou Supervisor Male 40 April 16, 1999 – 0 0 Zhigang April 16, 2002 Yang Supervisor Female 47 April 16, 1999 – 12,600 12,600 Yuhua April 16, 2002 6 Yu Guoan Vice-president Male 42 Sept. 21, 1999 – 0 1,400 Gaoguan Sept. 21, 2002 Shares Liu Chief Engineer Male 59 April 16, 1999 – 0 0 Mingde April 16, 2002 b) During the year, according to the requirements of company’s long-run strategic development and further improving legal person framework, with the approval of annual general meeting of shareholders in 2000,Ms Shao Hanqing and Mr. Niu Hanben were elected as Independent Directors of the 2nd Board of Director. c) Emoluments of present directors, supervisors and senior executives: The total emoluments of present directors, supervisors and senior executives is RMB2,397,700, 1 persons’ annual emoluments is above RMB300, 000; 5persons whose emoluments are between RMB 200,000 and 300,000; 4persons whose emoluments are between RMB 100,000 and 200,000. The total amount of three directors with highest emoluments is RMB 831,000. The total amount of three senior executives with highest emoluments is RMB 831,000. Three independent directors, among which, Xiao Kai get compensation from company is 60,000;Shao Hanqing and Niu Hanben get 45,000 and 45,000 respectively. Supervisor Li Bangyan get compensation is 30,000. 2. Employee quantity, quality, education level and retired employee information The Company has 2029 employees, including 1127 workers, 243 salesmen, 455 technicians, 31 accounting staffs and 173 administrative staffs. The Company has no retired staffs. 735 employees of the Company possessed technical secondary school or colleague education or above, accountings for 36.2% of total employees, of which, there are 12 doctors and 32 masters. V. COMPANY STRUCTURE 1. Company structure Under The Regulation Rules Of The Stock Company, Directions For The Articles of Association Of The Stock Company, Regulation Opinions For Shareholders Meeting Of The Stock Company, the regulation structure of the company does not have significant difference to meet with requirements of the above rules. The company will revise the Articles of Association of the company, the Provisional Rules For The Directors, the Discussion Rules For The Supervisory Committee, the Detailed Rules For The President and perfect the company’s regulation structure according to the newly published Regulation Rules Of The Stock Company, 2. Independent director responsibilities In 1996, the company has established the position of independent director. In 2001, Ms. Shao Hanqing, Mr. Niu Hanben was elected as the independent directors of the Second Board of Directors. The rights and obligations of independent directors will be strictly regulated by the Articles of Association and Regulation Guides For The Independent Director System Of The Stock Company. They will express their independent opinions on the regulation and operation of the Company. Ms. Shao Hanqing has already received the training for the independent directors by the China Security Regulation Committee. VI. SHAREHOLDERS’ MEETING 7 Annual Shareholders’ Meeting for 2000 and one provisional Shareholders’meeting was held in 2001. 1. Annual Shareholders’ Meeting for 2000: The Annual Shareholders’ Meeting for 2000 was held at 9:30 on March 23, 2001 in the Nestle Hall of the Nan Hai Hotel in She Kou, Shenzhen. The Meeting has passed ten draft resolutions such as, The Company’s Annual Report And Summary, Revision Draft Of The Articles Of Association, Draft Resolution Of Adding Independent Directors, etc. The resolution of this Meeting was published in the China Securities Daily, Securities Times, Shanghai Securities Daily, And Hong Kong Ta Kung Pao on March 29, 2001. 2. Provisional Shareholders’ Meeting The provisional Shareholders’ Meeting was held at Conference Room on the Sixth Floor of the Company’s Technology Building at 9:30 on March 8, 2001. The Meeting has passed six draft resolutions as resolutions of applying for the public offer of additional no more than 60 million shares of RMB Common Shares( A shares). The Resolutions of the Meeting was published in China Securities Daily, Securities Times and Hong Kong Ta Kung Po on March 8, 2001. VII. DIRECTORS’ REPORT 1. Business Review (1) The Company is principally engaged in the development, design, manufacture, installation, sale and after-sales service of new construction materials, compound materials, metal products, environmental protection equipment and devices, safety equipment, photo-electronic and machinery integrated products, high polymer materials and products, machinery equipment, photoelectric materials and equipment, electric display equipment, AV equipment, construction facility products, etc. In 2001, the revenue has increased compared with the same period last year. Curtain walls increased by 11%, one-layer formed aluminum boards and compound boards increased by 30.66%, aluminum frame materials decreased by 13.19%. Due to the increasingly hard market competition, the prices of the products decreased a lot. In 2001, the company’s main business revenue amounted to RMB 406,956,626, decreased by 5.69%, and the net profit amounted to RMB 36,147,639, decreased by 47.84%. In 2001, the company’s revenue mainly comes from high-tech products of the new construction materials, as: energy saving and environmental protection curtain walls, one-layer formed and compound aluminum boards, fire-proof doors and anti-theft doors, aluminum frame materials, new multifunctional double ladders, clolorful frame materials, special frames and mental frame accessories. Those products which accounts for more than 10% of the Group’s revenue include energy saving and environmental protection curtain walls, aluminum-plastic boards, one-layer formed aluminum boards, fire-proof doors and anti-theft doors, aluminum frame materials and colorful materials, which are mainly sold to the principal cities and coastal cities in the PRC. (2) In 2001, the company constantly advocate the stable operation principles, to use the cash flow reasonably based on the solid and steady investment, reclaim the loans, ensure the highly efficient operation capital cycling, realize the maximization of capital value. In 2001, the company will further perfect the internal budget and planning system, adapting the preliminary budget control, active supervision and follow-up systems for all the elements in the business operation and management flow, as sales, purchasing, cost fees, loans reclamation. Thus it ensures to optimize the daily capital allocation and active balance, improve the planning and activeness of the financial management work, decrease 8 of the capital occupation volume and play an active role in the risk prevention; on the other hand, the company will further strengthen the management of the receivables, make classification management of the funds on account in accordance with the properties and account ages, which ensures that while accepting the project schedule funds, the company will strengthen the clearing powers , shorten the project clearing time and focus on drawing the finished project funds. Also the company has already cleared the current account with the relative companies. The above methods make the net volume of the operation cash flow of the activities maintain at a good level, which establishes a good financial foundation for competition. (3) China has become one member of WTO, and the domestic and overseas market will be integrated into one whole market. The play games for domestic and overseas enterprises will be untied into one, thus becoming a threat to the weak industries in China. To the point of this, the Company makes in-depth analysis and study on the competition and development tendency of the construction and semi-conductor industry, prepare strategically for the chances and challenges ahead, pay attention to the “comprehensive strength” training while cultivated for the strength of the core competition strength. In 2001, the company will effectively allocate the internal resources of the company and display the professional advantage to develop two industries. At the same time, the Company constantly perfected the market structure of the market, and focused on two markets, that is to strengthen the position in the domestic market and expand the overseas market. The new multifunctional double ladder and new compound materials as aluminum-plastic boards are sold far to the America, Russia and countries in Middle Asia. Currently the Company is in discussion with some countries in South and North America, the exported products will be enriched and market will be expanded, making a solid basis for the international competition of the company. (4) Under the guide of the “ Technology is the principle, Renovation is the foundation”, the company has quickened the pace of new product development and industrialization. In 2001, the company has finished 12 new products and new technology development projects, declared and accepted cases of 27 patents. The main operation products of the products increased compared with last year. Many technologies are industrialized at the same year. The percentage of the new product revenue reached 15%. Shenzhen FangDa Decoration Engineering Company (“Fangda Decoration Company”) has expanded the application of the energy saving and environment protection curtain walls and made great improvements in the development of the photoelectric curtains. The photoelectric curtains used solar energy battery technology in the transparent rosin curtain walls in the photoelectric board to realize the energy transformation and eliminate the light pollution, which has highly environmental protection capability; Shenzhen Fangda Yide New Materials Company Limited (“Fangda Yide Co.”), has successfully developed the plane speaker audio board, which is made of cellar compound material, and has advantages of clearliness, high-fidelity, delicate and wonderfully shaping. It is potential new material used in the visual communication and automation field; Shenzhen Fangda Safety Technology Co., Ltd. (“Fangda Safety”) has successfully developed inorganic fireproof curtains, and made the time limit against the fire last 4 hours, thus it greatly improved the fireproof properties. In 2001, the company signed a letter of intent with US Standley Company. The company will provide the half completed materials and flower door partly for the production of hardware. Now it is in the test supply phrase, and has a bright cooperation future. The copper underlayed heat insulation aluminum frames produced by Jiangxi Fangda New Aluminum Co., Ltd. (“Fangda Aluminum”), which will be put into 9 batch production, are new energy saving and environmental protection products. The product used special technology to combine the aluminum with copper pipes, so the heat medium only touches the copper pipes. It has the advantage of anticorrosive, high efficent heat emission, long longevity, water saving, good shaping, and is the newest tendency for the commercial building and household heating technology development. Currently the product has passed the certification of the Construction Ministry. In 2001, the technology center was honored as enterprise technology center of Shenzhen. The company has set up four “China Enterprise Records”and was awarded as the fifth among the top 100 Enterprises in 2001 shenzhen Enterprise Evaluation Committee, the execellent profitable enterprise in Guangdong Province and the Second JinPeng Prize of Shenzhen Excellent Enterprise. (5) In 2001, the Company conducted MBO (Management Buyout). It is helpful to strengthen the inherent original power for further development and widened the thoughts of China Capital market development and renovation (6) 2001 is the company’s “year of corporate culture”. During the reporting period, we greatly promote advanced corporate culture and advocate internal competition in an effort to nurture an innovative, progressive and efficient working environment and build a cohesive and steady management of high quality. The company invites open competition for some critical position within the group, as a result, the quality and efficiency of the management team is greatly enhanced. Meanwhile, in an effort to simplify working procedures and to streamline institutional organization, the company designed a “five-fix” approach (fixed institution, fixed position, fixed role, fixed personnel and fixed salary), aiming to provide incentives and excite the employees’ working enthusiasm. These reforming initiatives greatly improved the company’s management efficiency. In cost control, a “3 rations, 2 performance assessment” is implemented, i.e., develop and implement rationed material, rationed number of people and rationed energy consumption in a scientific manner, assess cost control of each engineering project, product, workshop, working team and each individual. With the in-depth implementation of this approach, the employee’s cost awareness is greatly improved and the cost calculation becomes more accurate and cost control more effective. Furthermore, the company introduced some advanced management approaches like “5S”to reduce material overstock and waste, which have had visible impact on reducing cost and capital occupation. (7) During the reporting period, the GaN semi-conductor material as well as GaN apparatus has been put to trial production. This project is listed as one of the 10 important projects of the “10th 5-year”plan of Shenzhen, also is one of the “national torch projects 2001”. As optoelectronic semiconductor display apparatus is widely used in display facilities, communication and information transmission etc., the prophase establishment of display and information transmission facilities for the 2008 Olympics will be a great development opportunity for the company. We believe that in the next few years, optoelectronic semiconductor products will develop at a very rapid speed and make great contribution to our operational performance. In June 2001, optoelectronic material and apparatus research center of the National Department Of Education (which is the only engineering research center that the Department of Education has established in the field of optoelectronic material and apparatus) settled at Jiangxi Fangda Fuke information material co. ltd.(hereafter is referred to as “Fangda Fuke”), Fangda’s controlling company. This will further strengthen the company’s capability of technical innovation and speed up the industrialization process of China’s optoelectronic research achievements. The building of science and technology center to house the company’s R & D and information center has basically finished at the end of 2001 and is expected to be put into use at the second half of 2002. This will definitely help to enhance the 10 company’ s technical innovation abilities and development of the new industry. In a word, we have been engaged in adjustment, regulation and solidification in 2001. Although the overall performance is not as good as last year, the production management, risk management and administrative management has been further regulated, which provides support in terms of both organization and management for our second-time fly. In capital operation, we made efforts to eliminate our relationship with related parties and remove the channels of related transactions and, as a result, protected our image in the capital market. 2. Performance Summary of Subsidiaries As of December 31,2001, the company have 6 fully owned subsidiaries, i.e. Fangda Decoration, Fangda Aluminum, Fangda Safety, Shenzhen Fangda Guoke optoelectronic co. ltd.(hereinafter called Fangda Guoke)Fangda Special Framework and Fangda America SCI- Tech. Besides, it has two controlled subsidiaries, i.e., Fangda Yide And Fangda Fuke. 1). Fangda Decoration is mainly engaged in the design, manufacture and installation of doors and windows, curtain walls, exterior and interior decoration and furniture etc. In 2000, Fangda Decoration had a turnover of RMB227, 354,200 with a net profit of RMB30, 063,000. 2). Fangda Aluminum is one of the largest aluminum frame manufactures in PRC, which mainly engaged in the development, manufacturing and sales of various types of aluminum frame. During the reporting period, the turnover of Fangda Aluminum amounted to RMB41, 503,800 with a net profit of RMB-1, 240,300. 3). Fangda Safety is mainly engaged in the design, manufacturing, sales and installation of fireproof doors, anti-theft doors, rolling curtains and special construction doors. During the reporting period, it realized a turnover of RMB43, 953,100with a net profit of RMB5, 417,600. 4). Fangda Special Structure is mainly engaged in the design, manufacturing, and sales of movable houses and special structure products. For the reporting period, Fangda Special Structure had a turnover of RMB7, 446,300with a net profit of RMB 206,700. 5). Fangda America Sci-tech, a fully owned company set up in U.S. in 2001, is mainly engaged in scientific research and development of overseas market. There are no sales during the reporting period. 6). Fangda Yide is one of the largest scale modern manufacturers of aluminum-plastic compound board and one layer aluminum board in China at present. It is mainly engaged in development and manufacture of new compound materials. In 2001, Fangda Yide realized a turnover of RMB113, 587,500with a net profit of RMB12, 402,700. 7). Fangda Guoke is mainly engaged in the development, production and sales of medium- priced GaN semiconductor material and apparatus. There are no sales during the reporting period. 8). Fangda Fuke is mainly engaged in the development, production and sales of high-priced GaN semiconductor material and apparatus. There are no sales during the reporting period 11 3. Main Suppliers and Customers The purchasing amount from the top 5 suppliers account for 35% of the total, and the sales amount incurred by the top 5 customers account for 32% of the total sales volume. 4. Financial Status During the reporting period, the company has healthy financial position. The specific financial index is as follows: Balance Sheet Information Unit :RMB December, December, Increase Item Primary reason 31,2001 31,2000 percentage (%) Total assets 1,393,918,123 1,280,868,467 8.83 Profits and liability increase Shareholder’s equity 1,029,023,539 1,022,515,900 0.64 Profits Total liability 341,224,864 247,783,530 37.71 Incurred by increased bank loans Dividend distribution Items in the Income Statement Unit: RMB Change Item 2001 2000 Primary reason percentage (%) Revenue 406,956,626 431,492,778 -5.69 The decrease in the selling price of some products Gross profit from 107,388,371 120,588,910 -10.95 Decrease in gross profit due to fierce main operations competition Net profits 36,147,639 69,299,888 -47.84 1. Increased allocation of accounts receivable, long-term investment. 2. Decrease in price of some products as well as the gross profits caused a fall in the primary business pro fits 3. The favored taxation period of some subsidiaries are expired, hence bigger taxation burden 4. Increased employee’s salary and benefits in order to attract talents 5 Problems and solutions In 2001, the company is focused on main business in an effort to assure the leading position in the industry, however, the disorderly competition in the industry is the primary reason caused the continuous decrease in the profit rate, which is still the main reason that is troubling us. Besides, accounts receivable is also a priority. In the long run, the company should enhance internal management in order to assure the return of capital, shorten the development and application cycle of new products so as to sharpen the competitive edge. The company should also enhance communication with counterparts overseas and research of domestic market to secure a share in the international market. The company has named 2002 as “innovation year”, directing all the efforts to promote innovation mechanism at different levels of operation so as to move the progress of the technical. 6 Investment (1) Use of proceeds from previous rights issue 12 During the reporting period the company did not collect capital. the capital collected the previous time has been used up in year 2000. (2) Use of non-proceeds In 2001, the company invested RMB 112,413,400with sources from the company itself and loans. 1) The company establish a R & D base at Shenzhen Hi-tech industrial park with a total investment of RMB150,000,000. During the reporting period the company invested RMB57,465,300, which is loan capital. As of December 31,2001, the total investment of the project is RMB82,951,500and the project has finished 70%. As this project is still under construction, it has no contribution to the company’s performance. 2) The Company cooperated with the Semiconductor Institute of Chinese Academy of Sciences and Nanchang University to invest in one the National 863 Plan project in photo- eletronic industry – GaN project with an initial investment of RMB80 million. During the reporting period the company invested RMB38,263,400, which is the company’s own capital. As of December 31,2001, the total investment of the project is RMB83, 185,200 and the project has finished 98%. As this project is still under construction, it has no contribution to the company’s performance. 3) The company invested RMB15,028,700 during the reporting period on the reconstruction of existing equipment and production lines, among which some projects including the CAD center of Fangda Aluminum is finished by June 2001. 4) During the reporting period the company invested UDS200,000 to found Fangda America which is founded to expand north American and South American market. 7. Business Plan 2002 Year 2002 is the company’s “year of innovation”. The focus of the company’s task is to continue to deepen industry upgrade and restructure of product construction so as to solidify the leading role in the industry. The specific objectives are to take advantage of the 2008 Olympics and the West Development to increase the technological level of energy-saving & environmentally friendly building material and organic glass walls; to cooperate with overseas enterprises to perfect the design of iron doors; extend compound boards from traditional material concept to consumer material and home appliance products; increase the performance of aluminum products and decrease costs; direct safety products to intelligent and automotive abilities; meanwhile, speed up the development of semiconductor IT industry, keep the cooperation with well-known colleges and research institutes. In internal management, highlight the urgency of information management and emphasize the office automation management, enhance the efficiency of CIMS and OA; continuously perfect internal managemnt approaches such as “5-fixes”and “5S”; keep developing Fangda-specific culture. Make efforts to gain ISO 4000 certificate and actively expand market in Southeast Asia, Russia and South America. In financial management, enhance cost estimation and speed the establishemnt of unit independent calculation. Enhance risk control and prevention through strengthening the 3 steps of planing, designing and purchase. Further reinforce the implementation results of “3 fixes and 2 checks”. Develop a long-term and regulated auditing system. We firmly believe that we are able to overcome difficulties and improve overall position , to realize an increase of turnover by 10%, and to give satisfactory performance to our shareholders. 13 8.proposed profit appropriation plan In accordiance with the Accounting Standards of PRC and International Accounting Standards, the company has dispensable profit of RMB 263,631,282 and RMB 314,483,820 respectively. In accordance with the Implementation Details for Overseas Shares listed in Domestic Market for Stock Companies and the Articles of Association of the Company, the company will use the lower one accounted respectively by the Accounting Standards of PRC and International Accounting Standards. In accordance with the Accounting Standars of PRC, the company will appropriate 10% of the net profit (RMB 3,643,863) to statutory revenue reserves and appropriated 5% of the net profit (RMB 1,821,931) to statutory common welfare fund. The total amount available for distribution for the year 2001 is RMB 258,165,488. The company proposed to pay cash dividend of RMB 1.0 (tax inclusive) based on the total shares of 296, 400,000 for every ten shares and the total distribution amounts to RMB29,640,000. Other retaining earning amount of RMB 228,525,488 will be distributed in future period. The dividends distributed to B shareholders shall be paid by HK Dollars based on the closing quotation exchange rate one week before the appropriation day. No revenue reserves will be transferred to shares. VIII. SUPERVISORS’ REPORT (1) The fifth Meeting of the Second Supervisory Committee was held on Jan. 15 2001 in the conference room of the company, in which Mr. Zhou Zhigang has resigned the position of Coordinator of Supervisory Committee and Mr. LI Bangyan was elected as Coordinator of Supervisory Committee. (2) The sixth Meeting of the Second Supervisory Committee was held on Feb. 23 2001 in the conference room of the company, in which the following resolutions was resolved: 1) Discussed and passed the Supervisors’ Report of 2000. 2) Discussed and passed the Annual Report and Summary of 2000. 3) Discussed and passed the Financial Budget Report and Profit Distribution Plan of 2000. 4) Discussed and passed the Profit Distribution Policy of 2001. 5) The Board of Directors and Management Team have implemented every resolution in the Shareholders’ Meeting. The operation is fundamentally in accordance with the Company Law and regulation of the Articles of Association of the Company; no director or manager has conducted any activities that violates the law or regulations, the Articles of Association or activities, which damages the interests of the Company. 6) The proceeds raised have been put into use according to the usage by the prospectus. Arthur Andersen Huaqiang Certified Public Accountants has issued a special review report to verify the use of the proceeds. 7) Shenzhen Securities Regulatory Office (“SSRO”) under China Securities Regulatory Commission (“CSRC”) made an inspection tour to the Company in October 2000 and found some irregularities in the Company’s operations. In this regard, the supervisors committee and the board of directors have convened special meetings to review and discuss the above issues and formulated change measures for the approval of SSRO. The supervisory committee shall enhance its supervision over and communication with the management to ensure the Company’s successful operation and mitigate business risks. 8) The unqualified auditors’ reports for year 2000 issued by Arthur Andersen Huaqiang Certified Public Accountants and Arthur Andersen & Co. respectively presents fairly, in all 14 material respects, the financial position and the results of the operations of the Group. (3) The seventh meeting of the Second Supervisors Committee, held on August 6, 2001 in the company’s conference room, reached the following decisions: i. Reviewed and approved the company’s interim report 2001 as well as the summary; ii. Reviewed and approved the company’s interim profits distribution plan 2001 iii. Approved the proposal Devaluation Calculation & Allocation of 4 Items of Assets (Including Fixed Assets). All the supervisors agreed that the proposal conforms to relevant national regulation and it contributes to the company’s steady operation and long-term development. iv. The committee of supervisors reviewed the company’s operational activities of the first half of 2001 with the findings that the operation of the first half of 2001 is normal, valid and compliant to related laws and regulations. IX. SIGNIFICANT EVENTS 1. During the reporting period, the Company has no significant litigation or arbitration events. 2. The company has no asset selling or purchasing event, nor any mergers. 3. Significant related party transactions (1) As of Dec.31, 2001, Fangda Economy Development Co. Ltd. (“Fangda Development”) guaranteed short- term loan of RMB 200,000,000 for the Company. (2) As of Dec.31, 2001, all the amounts due from Fangda Development has already been cleared and RMB 800, 000 interest charge based on a 5% rate per annum was received for this reporting period The related party transactions above were all conducted at normal commercial terms and made no harm to the Company’s interest. 4. Important Contracts and Their Status The engineering contracted that Fangda had singed in 2000, including Chengdu Shuangliu Airport, Lanzhou Zhongchuan International Airport, Scientific Research Building at Guangzhou Medical University, Shenzhen Huangpu Yayuan (1st Phase) And Shenzhen City Plaza etc, have basically been finished. 5. The Company continues to retain Arthur Andersen Huaqiang Certified Public Accountants as the statutory auditor and Arthur Andersen & Co as the international auditors. The paudit fees paid to Arthur Andersen Huaqiang Certified Public Accountants and Arthur Andersen & Co for this reporting year was RMB250,000 and HKD680,000 respectively. 6. Shenzhen Securities Regulatory Office (SSRO) under China Securities Regulatory Commission (CSRC) issued a notice on December 28,2000 mandating the Company to correct irregularities within a certain period of time. The board of directors and the company has been working accordingly and the regulating efforts have successfully gained the approval of SSRO in September 2001. X. FINANCIAL STATEMENTS i. Auditors’ Report 15 AUDITORS’ REPORT TO THE SHAREHOLDERS OF CHINA FANGDA GROUP CO., LTD. We have audited the accompanying consolidated balance sheet of China Fangda Group Co., Ltd. (the “Company”) and its subsidiaries (the “Group”) as of December 31, 2001 and the related consolidated statements of income, changes in equity and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion the consolidated financial statements give a true and fair view of the financial position of the Group as of December 31, 2001 and of the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards, as published by the International Accounting Standards Board. ARTHUR ANDERSEN & CO Certified Public Accountants Hong Kong, March 22, 2002 ii. Financial Statements (see appendix) iii. Notes to Financial Statements(see appendix) XI. Documents Available for Inspection 1. The original copy of the 2001 Interim Report with signature of the Chairman. 2. The original copy of audited financial statements with the Company chop and signatures of the Company’s legal representative, financial controller and chief accountant 3. The original documents and announcements publicly disclosed in newspapers designated by China Securities Regulatory Commission. 4. The Article of Association of the Company approved by the latest general meeting of shareholders. 16 17 Appendix: CHINA FANGDA GROUP CO., LTD. AND ITS SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2001 (Expressed in thousands of Renminbi) Note 2001 2000 ASSETS Current assets Cash and bank deposits 21(b) 416,193 274,786 Trade receivables, net 3 341,073 261,629 Due from related parties 22(b) - 70,369 Inventories, net 4 90,181 83,342 Prepayments 26,076 30,104 Other receivables 26,394 28,178 899,917 748,408 Non-current assets Long-term investments 5 12,457 11,121 Prepayments for property, plant and equipment 4,089 115,891 Property, plant and equipment, net 7 379,871 311,358 Land use rights 8 73,753 75,973 Intangible assets 9 11,189 2,621 Other non-current assets 2,497 1,358 483,856 518,322 1,383,773 1,266,730 Total assets EQUITY AND LIABILITIES Current liabilities Trade payables 63,241 66,675 Accruals and other payables 21,422 24,563 Tax payable 3,656 6,772 Short-term borrowings 10(a) 212,500 100,500 10(b) 9,000 - Current portion of long-term borrowing 309,819 198,510 18 Non-current liabilities Long-term borrowing - 9,000 23,669 10,569 Minority interests Equity Share capital 11 296,400 296,400 Reserves 12 480,435 474,969 Retained earnings 273,450 277,282 1,050,285 1,048,651 1,383,773 1,266,730 Total equity and liabilities 19 CHINA FANGDA GROUP CO., LTD. AND ITS SUBSIDIARIES CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2001 (Expressed in thousands of Renminbi except earnings per share data) Note 2001 2000 Revenue 13, 22(a) 429,404 454,819 Business tax (7,136) (7,245) Cost of revenue 14, 22(a) (305,269) (316,667) Gross profit 116,999 130,907 Other operating income 15 11,408 8,795 Distribution expenses (17,105) (14,305) Administrative expenses (52,887) (32,770) Investment loss (2,053) - Profit from operations 56,362 92,627 Finance costs (6,675) (9,856) Profit before tax 17 49,687 82,771 Income tax expense 18 (9,384) (7,948) Profit after tax 40,303 74,823 Minority interests (3,101) (3,248) Net profit for the year 37,202 71,575 Dividends 19 35,568 - Earnings per share - Basic 20 RMB 0.13 RMB 0.24 - Diluted 20 N/A N/A 20 CHINA FANGDA GROUP CO., LTD. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2001 (Expressed in thousands of Renminbi) Reserves Share Capital Statutory Retained Note capital surplus reserves Sub-total earnings Total Balance at January 1, 2000 296,400 388,542 76,032 464,574 216,102 977,076 Net profit for the year - - - - 71,575 71,575 Appropriation from retained earnings 12 - - 10,395 10,395 (10,395) - Balance at January 1, 2001 296,400 388,542 86,427 474,969 277,282 1,048,651 Net profit for the year - - - - 37,202 37,202 Appropriation from retained earnings 12 - - 5,466 5,466 (5,466) - Dividends 20 - - - - (35,568) (35,568) Balance at December 31, 2001 296,400 388,542 91,893 480,435 273,450 1,050,285 21 CHINA FANGDA GROUP CO., LTD. AND ITS SUBSIDIARIES CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2001 (Expressed in thousands of Renminbi) Note 2001 2000 CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES: Cash generated from operations 22(a) 61,460 14,217 Interest paid (9,781) (9,616) Income taxes paid (11,054) (4,835) Net cash from (used in) operating activities 40,625 (234) CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES: Purchase of property, plant and equipment (4,955) (64,106) Proceeds from disposal of property, plant and equipment 695 - Decrease (increase) in prepayments for property, plant and equipment 24,000 (25,411) Addition in long-term investments (3,389) 17,301 Interest received 8,179 7,090 Addition of intangible assets (9,040) (176) (Increase) decrease in other non-current assets (1,139) 1,089 Net cash from (used in) investing activities 14,351 (64,213) CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES: Proceeds from long-term borrowings - 9,000 Proceeds from short-term borrowings 250,000 195,000 Repayment of short-term borrowings (138,000) (94,500) Dividends paid (35,568) - Increase (decrease) in minority interests 9,999 (6,162) Net cash from financing activities 86,431 103,338 Net increase in cash and cash equivalents 141,407 38,891 Cash and cash equivalents at beginning of year 274,786 235,895 Cash and cash equivalents at end of year 22(b) 416,193 274,786 22 CHINA FANGDA GROUP CO., LTD. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 (Amounts expressed in Renminbi (“RMB”) unless otherwise stated) 1. ORGANISATION AND OPERATIONS China Fangda Group Co., Ltd. (the “Company”) was established as a joint stock limited company in the People’s Republic of China (the “PRC”) in October 1995. Its domestically listed foreign shares (“B shares”) and domestically listed RMB ordinary shares (“A shares”) have been listed on the Shenzhen Stock Exchange since November 1995 and April 1996 respectively. The Company and its subsidiaries (hereinafter collectively referred to as the “Group”) are principally engaged in the design, manufacture, sale and installation of curtain walls, doors and windows, various kinds of new construction materials, and photoelectric materials, parts, equipment and electron display equipment. The registered office of the Company is located at Fangda City, Xili Longjing, Nanshan Region, Shenzhen, PRC. The total number of employees of the Group as of December 31, 2001 was approximately 2,029 (2000: approximately 2,000). 2. PRINCIPAL ACCOUNTING POLICIES The principal accounting policies adopted in preparing the consolidated financial statements of the Group are as follows: (a) Basis of presentation The accompanying consolidated financial statements of the Group are prepared in accordance with International Financial Reporting Standards (“IFRS”), as published by the International Accounting Standards Board, effective as of December 31, 2001. They are prepared under the historical cost convention, except that available-for-sale investments are stated at their fair value. (b) Principles of consolidation The consolidated financial statements include those of the Company and its subsidiary. All intercompany balances and transactions, including intercompany profits and unrealised profits and losses are eliminated on consolidation. The equity and net income attributable to minority shareholders’ interests are shown separately in the consolidated balance sheet and consolidated income statement respectively. Consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. 23 - PRINCIPAL ACCOUNTING POLICIES (Cont’d) (c) Subsidiaries A subsidiary is a company in which the Company controls. Control exists when the Company has the power to govern the financial and operating policies of the subsidiary so as to obtain benefits from its activities. (d) Cash and cash equivalents Cash represents cash on hand and deposits with banks which are repayable on demand. Cash equivalents represent short-term, highly liquid investments which are readily convertible into known amounts of cash with original maturities of three months or less and that are subject to an insignificant risk of change in value. (e) Receivables Receivables are stated at fair value of the consideration given, after provision for doubtful accounts. (f) Inventories Inventories are stated at the lower of cost and net realisable value, after provision for obsolete items. Cost, calculated on the first-in first-out basis, comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs. (g) Long-term investments Available-for-sale investment are subsequently carried at fair value without any deduction for transaction costs by reference to their quoted market price at the balance sheet date. Gains or losses on measurement to fair value of available-for-sale investments are recognised directly in the fair value reserve in shareholders equity, until the investment is sold or otherwise disposed of, or until it is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the consolidate income statement. 24 - PRINCIPAL ACCOUNTING POLICIES (Cont’d) (h) Intangible assets Intangible assets are measured initially at cost. Intangible assets are recognised if it is probable that the future economic benefits that are attributable to the asset will flow to the enterprise; and the cost of the asset can be measured reliably. After initial recognition, intangible assets are measured at cost less accumulated amortisation and any accumulated impairment losses. Intangible assets are amortised on a straight-line basis over the best estimate of their useful lives. The amortisation period and the amortisation method are reviewed annually at each financial year-end. Amounts paid for patents, know-how, trademarks and licenses are capitalised and then amortised on a straight-line basis over the expected useful lives. The expected useful lives of patents, know- how, trademarks and licenses vary from 5 to 10 years. (i) Property, plant and equipment and depreciation Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment loss. The initial cost of property, plant and equipment comprises its purchase price, including import duties and non-refundable purchase taxes and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after the property, plant and equipment have been put into operation, such as repairs and maintenance and overhauls costs, are recognised as expense in the period in which they are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of the asset beyond its originally assessed standard of performance, the expenditures are capitalised as an additional cost of the asset. Depreciation is calculated using the straight-line method to write off the cost, after taking into account the estimated residual value (10% of cost), of each asset over its expected useful life. The expected useful lives are as follows: Buildings 20 years Machinery and equipment 10 years Motor vehicles and other equipment 5 years The useful lives of assets and depreciation method are reviewed periodically to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefits from items of property, plant and equipment. When assets are sold or retired, their cost and accumulated depreciation and accumulated impairment loss are eliminated from the accounts and any gain or loss resulting from their disposal is included in the consolidated income statement. 25 - PRINCIPAL ACCOUNTING POLICIES (Cont’d) (j) Construction-in-progress Construction-in-progress represents factory building and equipment under construction and is stated at cost. This includes the costs of construction, buildings, plant and equipment and other direct costs plus borrowing costs which include interest charges and exchange differences arising from foreign currency borrowings used to finance these projects during the construction period, to the extent these are regarded as an adjustment to interest costs. Construction-in-progress is not depreciated until such time as the assets are completed and ready for use. (k) Land use right Land use right is stated at cost less accumulated amortisation and accumulated impairment loss. Amortisation is calculated using the straight-line method to write off the cost over its useful life of 30 years. (l) Borrowings Borrowings are initially recognized at cost, being the fair value of the consideration received and including transaction costs. After initial recognition, all interest-bearing borrowings are stated at amortised cost using the effective yield method. (m) Operating leases Leases are classified as operating leases whenever substantially all the risks and rewards incidental to ownership of the leased assets remain with the lessor. Lease payments under operating leases are recognized as an expense in the consolidated income statement on a straight-line basis over the lease term. (n) Provisions A provision is recognised when, and only when, an enterprise has a present obligation (legal or constructive) as a result of a past event and it is probable (i.e. more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditures expected to be required to settle the obligation. 26 - PRINCIPAL ACCOUNTING POLICIES (Cont’d) (o) Turnover and revenue recognition Turnover represents proceeds from sales of goods and revenue from contracts of production and installation, net of value added tax. Provided it is probable that the economic benefits associated with a transaction will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised on the following bases: - Sale of goods Revenue is recognised when the significant risks and rewards of ownership of the goods have been transferred to the buyer. - Contract revenue When the outcome of a contract can be estimated reliably, revenue is recognised using the percentage of completion method, measured by reference to the percentage of contract costs incurred to date to estimated total contract costs for the contract. When the outcome of a contract cannot be estimated reliably, revenue is recognised only to the extent of contract costs incurred that it is probable will be recoverable. - Interest income Interest income from bank deposits is recognised on a time proportion basis that takes into account the effective yield on the assets. - Dividend Dividends are recognised when the shareholder’s right to receive payment is established. 27 - PRINCIPAL ACCOUNTING POLICIES (Cont’d) (p) Taxation The income tax charge is based on profit for the year and considers deferred taxation. Deferred taxes are calculated using the balance sheet liability method. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled based on tax rates enacted or substantially enacted at the balance sheet date. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the enterprise expects, at the balance sheet date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are recognised regardless of when the timing difference is likely to reverse. Deferred tax assets and liabilities are not discounted and are classified as non-current assets (liabilities) in the balance sheet. Deferred tax assets are recognised when it is probable that sufficient taxable profits will be available against which the deferred tax assets can be utilised. At each balance sheet date, the Company re-assesses unrecognised deferred tax assets and the carrying amount of deferred tax assets. The enterprise recognises a previously unrecognised deferred tax assets to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. The Company conversely reduces the carrying amount of a deferred tax asset to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilised. Current tax and deferred tax are charged or credited directly to equity if the tax relates to items that are credited or charged, in the same or a different period, directly to equity. A deferred tax liability is recognised for all taxable temporary differences, unless the deferred tax liability arises from goodwill for which amortisation is not deductible for tax purposes. Other taxation is provided on the basis of the relevant Chinese tax regulations. 28 - PRINCIPAL ACCOUNTING POLICIES (Cont’d) (q) Foreign currency transactions Except for the foreign subsidiary which maintains its books and records in US dollars (“USD”), the Company and its subsidiaries in the PRC maintain their books and records in RMB, the measurement currency. Each entity within the group translates its foreign currency transactions and balances into its measurement currency by applying to the foreign currency amount the exchange rate between the measurement currency and the foreign currency at the date of the transaction. Exchange rate differences arising on the settlement of monetary items or on reporting monetary items at rates different from those at which they were initially recorded during the period or reported in previous financial statements are recognised in the consolidated income statement in the period in which they arise, with the exception of exchange differences arising on items forming in substance part of or hedging the Company’s net investment in a foreign entity. (r) Borrowing costs Borrowing costs include interest charges and other costs incurred in connection with the borrowing of funds, including amortisation of discounts or premiums relating to borrowings, amortisation of ancillary costs incurred in connection with arranging borrowings and exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs. Borrowing costs are expensed as incurred, except when they are directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use in which case they are capitalised as part of the cost of that asset. Capitalisation of borrowing costs commences when expenditures for the asset and borrowing costs are being incurred and the activities to prepare the asset for its intended use are in progress. Borrowing costs are capitalised at the weighted average cost of the related borrowings until the asset is substantially ready for its intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recorded. (s) Pension scheme Pursuant to the PRC laws and regulations, contributions to the basic old age insurance for the Group’s local staff are to be made monthly to a government agency based on 9%~17% of the standard salary set by the provincial government, of which 7%~12% is borne by the Group and the remainder is borne by the staff. The government agency is responsible for the pension liabilities relating to such staff on their retirement. The Group accounts for these contributions on an accrual basis. 29 - PRINCIPAL ACCOUNTING POLICIES (Cont’d) (t) Financial instruments Financial assets and financial liabilities carried on the balance sheet include cash and cash equivalents, trade and other receivables, payables, balances with related party and borrowings. The accounting policies on recognition and measurement of these items are disclosed in the respective accounting policies found in Note 2. Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement on initial recognition. Interest, dividends, gains, and losses relating to a financial instrument classified as a liability are reported as expense or income. Distributions to holders of financial instruments classified as equity are charged directly to equity. When the rights and obligations regarding the manner of settlement of financial instruments depend on the occurrence or non-occurrence of uncertain future events or on the outcome of uncertain circumstances that are beyond the control of both the issuer and the holder, the financial instruments is classified as a liability unless the possibility of the issuer being required to settle in cash or another financial asset is remote at the time of issuance, in which case the instrument is classified as equity. (u) Impairment of assets - Financial instruments Financial instruments are reviewed for impairment at each balance sheet date. For financial assets carried at amortised cost, whenever it is probable that the Group will not collect all amounts due according to the contractual terms of loans or receivables, an impairment or bad debt loss is recognised in the consolidated income statement. Reversal of impairment losses previously recognised is recorded when the decrease in impairment loss can be objectively related to an event occurring after the write-down. Such reversal is recorded in income. However, the increased carrying amount is only recognised to the extent it does not exceed what amortised cost would have been had the impairment not been recognised. - Other assets Other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognised in the consolidated income statement. The recoverable amount is the higher of an asset’s net selling price and value in use. The net selling price is the amount obtainable from the sale of an asset in an arm’s length transaction less the cost of disposal while value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Recoverable amounts are estimated for individual assets or, if it is not possible, for the cash-generating unit to which the asset belongs. 30 - PRINCIPAL ACCOUNTING POLICIES (Cont’d) - Impairment of assets (Cont’d) - Other assets (Cont’d) Reversal of impairment losses recognised in prior years is recorded when the impairment losses recognised for the asset no longer exist or have decreased. The reversal is recorded in the consolidated income statement. However, the increased carrying amount of an asset due to a reversal of an impairment loss is recognised to the extent it does not exceed the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for that asset in prior years. (v) Construction contracts The accounting policy for recognition of contract revenue is set out at Note (o)(ii) above. When the outcome of a construction contract can be estimated reliably, contract costs are recognized as expenses by reference to the stage of completion of the contract activity at the balance sheet date. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognized as an expense immediately. When the outcome of a construction contract cannot be estimated reliably, contract costs are recognized as an expense in the period in which they are incurred. At the balance sheet date, contract costs incurred to date are jointly assessed by the Group and the customers. The net amount of costs incurred plus recognized profits less recognized losses are billed to the customers. Amounts billed, but not yet paid by the customers, for work performed on a contract are included in the balance sheet under trade receivables. (w) Contingencies Contingent liabilities are not recognised in the consolidated financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognised in the consolidated financial statements but disclosed when an inflow of economic benefits is probable. (x) Subsequent events Post-year-end events that provide additional information about a company’s position at the balance sheet date or those that indicate the going concern assumption is not appropriate are reflected in the financial statements. Post-year-end events that are not adjusting events are disclosed in the notes when material. 31 3. TRADE RECEIVABLES, NET 2001 2000 RMB’000 RMB’000 Due from customers for goods sold 75,186 60,039 Due from customers for contract work 289,695 214,095 Less: provision for doubtful debts (23,808) (12,505) 341,073 261,629 4. INVENTORIES, NET 2001 2000 RMB’000 RMB’000 Finished goods - at net realisable value 2,309 - - at cost 25,697 19,744 Sub-total 28,006 19,744 Work-in-progress, at cost 38,604 36,488 Raw materials, at cost 23,571 27,110 90,181 83,342 5. LONG-TERM INVESTMENTS 2001 2000 RMB’000 RMB’000 Investment in unlisted shares, at cost 14,510 11,121 Less: provision for impairment (See Note 17) (2,053) - 12,457 11,121 As the above investments do not have a quoted market price in an active market and for which other methods of reasonably estimating fair value are clearly inappropriate or unworkable, so they are stated at cost, less any impairment in value. 32 6. INVESTMENT IN SUBSIDIARIES During current year, Fangda Guoke Photo Electricity Technology Co., Ltd. (“Fangda Guoke”) was incorporated pursuant to an equity agreement between the Company and its wholly owned subsidiary, Shenzhen Fangda Safety Technology Co., Ltd. (“Fangda Safety”). The Company and Fangda Safety hold 77% and 23% equity interests in Fangda Guoke respectively. In addition, Jiangxi Fangda Focus Information Material Co., Ltd. (“Fangda Focus”) was incorporated pursuant to an equity agreement among the Company and SMART Winner Holdings Limited, a company incorporated in Hong Kong, Jiangxi Changda Enterprise Group Company and Jiangxi Jiangnan Material Factory. The Company holds a 50% equity interest in Fangda Focus. As of December 31, 2001, the Company had the following principle subsidiaries: Percentage of Place of equity interest held Registered Name incorporation Direct Indirect Capital Principal Activities Shenzhen Fangda Decoration Works Shenzhen 95% 5% RMB50,000,000 Design and installation of building Co., Ltd materials (“Fangda Decoration”) Jiangxi Fangda New Nanchang 99% 1% RMB20,000,000 Design, manufacture, sale and Aluminium Co., Ltd. installation of curtain walls, doors (“Jiangxi Fangda”) and windows Shenzhen Fangda Yide New Shenzhen 75% - USD3,200,000 Design, manufacture and sale of Materials Co., Ltd. new materials (“Fangda Yide”) Fangda Safety Shenzhen 25% 75% RMB8,000,000 Design, manufacture and sale of security equipment and environmental protection equipment Shenzhen Fangda Special Shenzhen 51% 49% RMB8,000,000 Production of new building Structure Co., Ltd. materials (“Fangda Special Structure”) Fangda Guoke Shenzhen 77% 23% RMB18,000,000 Design, manufacture, sale and installation of photoelectric materials, parts and equipment. Fangda Focus * Nanchang 50% - RMB20,000,000 Design, manufacture, sale and installation of photoelectric materials, parts and equipment. Fangda Technology USA, INC. United States 100% - USD200,000 Trading − The Company holds more than 50% voting power in the Board of Directors of Fangda Focus, hence, Fangda Focus is a subsidiary of the Company. 33 7. PROPERTY, PLANT AND EQUIPMENT, NET 2001 Motor vehicles Machinery and and other Construction- Buildings equipment equipment in-progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Cost Beginning of year 136,662 131,276 31,132 82,572 381,642 Additions 20 3,624 2,189 86,919 86,919 Transfers 45,962 7,582 2,862 (56,406) - Disposals - (1,375) (3,497) - (4,872) End of year 182,644 141,107 32,686 113,085 469,522 Accumulated depreciation Beginning of year 23,819 35,445 11,020 - 70,284 Charge for the year 6,394 12,516 4,979 - 23,889 Disposals - (1,286) (3,236) - (4,522) End of year 30,213 46,675 12,763 - 89,651 Net book value End of year 152,431 94,432 19,923 113,085 379,871 Beginning of year 112,843 95,831 20,112 82,572 311,358 2001 2000 RMB’000 RMB’000 Borrowing costs capitalized (see Note 16) 3,360 - Average capitalization rate 5.60% N/A 8. LAND USE RIGHTS 2001 2000 RMB’000 RMB’000 Cost 80,074 80,069 Less: accumulated amoritzation (6,321) (4,096) Net book value 73,753 75,973 Land use rights comprise land use fees paid to the land administration authorities for the right to use the land where the Group companies’ factory buildings in Shenzhen and Nanchang are located. 34 9. INTANGIBLE ASSETS 2001 2000 RMB’000 RMB’000 Cost 13,397 4,357 Less: accumulated amoritzation (2,208) (1,736) Net book value 11,189 2,621 Intangible assets mainly represent amounts paid for patents and know-how relating to the design and manufacture of new building material in Fangda Yide and photoelectric materials, part and equipment in Fangda Guoke and Fangda Focus. 10. BORROWINGS (a) Short-term borrowings As of December 31, 2001, the Group had short-term bank borrowings granted by various banks amounting to RMB212, 500,000 (2000: RMB100, 500,000), of which RMB200, 000,000 (2000: RMB97, 500,000) was guaranteed by its related company, Shenzhen Fangda Economy Development Co., Ltd. (“Fangda Development”) (see Note 22(a)). These loans bear interest at rates ranging from 5.58% to 5.85% (2000: from 5.85% to 6.44%) per annum. (b) Current portion of long-term borrowing The long-term bank borrowing bears interest at a rate of approximately 7.23% per annum and is unsecured. 11. SHARE CAPITAL As of December 31, 2001, the outstanding share capital represented legal person shares, A shares and B shares. The details of share capital were as follows: 2001 2000 2001 2000 Number of shares RMB’000 RMB’000 (in thousands) Registered, issued and fully paid: Listed A shares of RMB1 each 42,000 42,000 42,000 42,000 B shares of RMB1 each 145,368 120,000 145,368 120,000 187,368 162,000 187,368 162,000 Unlisted Legal person shares of RMB1 each 109,032 134,400 109,032 134,400 35 296,400 296,400 296,400 296,400 36 11. SHARE CAPITAL (Cont’d) On July 20, 2001 the China Securities Regulatory Commission approved the listing of 25,368,000 legal person shares held by Onforce International Co., Ltd, a foreign shareholder. Hence, the number of listed shares of the Company increased from 162,000,000 to 187,368,000. Fangda Development, previously the major shareholder of the Company, signed Share Transfer Agreements with Shenzhen Banglin Technology Development Co., Ltd. (“Banglin”) and Shenzhen Shilihe Investment Co., Ltd. (“Shilihe”) on June 20 and September 17, 2001 respectively. Pursuant to the agreements, Fangda Development transferred 20.243% and 15.895% legal person shares in the Company to Banglin and Shilihe respectively (the “Share Transfer”). The consideration to the Share Transfer amounted to RMB199,797,000 and RMB145,105,000 respectively. After the Share Transfer, Fandga Development holds no share in the Company and Banglin and Shilihe became the first and second biggest shareholders of the Company. The owners of Banglin and Shilihe are directors and senior management staff of the Company. 12. RESERVES According to the Company Law of the PRC and Articles of Association of the Company, the Company is required to provide certain statutory reserves which are appropriated from the net profit as reported in the statutory financial statements prepared in accordance with PRC accounting standards and relevant accounting regulations (“PRC GAAP”). Accordingly, the Company shall set aside 10% of its net profit for a statutory revenue reserve fund (except where the fund has reached 50% of the Company’s registered capital) and 5% for the statutory common welfare fund. The Company may make appropriations from its net profit to the discretionary revenue reserve fund upon approval by shareholders. These reserves cannot be used for purposes other than those for which they are created and are not distributable as cash dividends without the prior approval of shareholders under certain conditions. The directors have resolved that the statutory common welfare fund is to be utilised to build or acquire capital items, such as dormitories and other facilities for the Group’s employees, and cannot be used to pay for staff welfare expenses. Title to these capital items will remain with the Group. For the year ended December 31, 2001, the directors proposed that 10% and 5% (2000: 10% and 5%) of the net profit as reported in the statutory accounts be appropriated to the statutory revenue reserve fund and statutory common welfare fund, totalling approximately RMB5,466,000 (2000: approximately RMB10,395,000). The resolution is subject to approval by shareholders in the annual general meeting. 13. REVENUE 2001 2000 RMB’000 RMB’000 Sale of goods 202,050 208,119 Contract revenue 227,354 232,210 429,404 440,329 37 14. COST OF REVENUE 2001 2000 RMB’000 RMB’000 Cost of sales 144,737 158,693 Contract costs 160,532 157,974 305,269 316,667 15. OTHER OPERATING INCOME 2001 2000 RMB’000 RMB’000 Interest income on bank deposits 8,179 7,090 Others 3,229 1,705 11,408 8,795 16. FINANCE COSTS 2001 2000 RMB’000 RMB’000 Interest on bank borrowings 9,781 9,616 Others 254 240 Less: borrowing costs capitalised (See Note 7) (3,360) - 6,675 9,856 38 17. PROFIT BEFORE TAX Profit before tax was determined after charging (crediting) the following: 2001 2000 RMB’000 RMB’000 Staff costs - salaries and wages 46,253 30,932 - provision for staff and workers’ bonus and welfare fund 2,135 1,631 - contribution to defined contribution pension schemes 1,905 1,472 Depreciation of property, plant and equipment 23,889 19,078 Amortization of land use right 2,225 1,560 Amortization of intangible assets 472 329 Cost of inventories 248,943 292,540 Provision for doubtful debts (charged to administrative expenses) 11,303 1,505 Provision for obsolescence (charged to administrative expenses) 400 - Provision for impairment of long-term investments (See Note 5) (charged to administrative expenses) 2,053 - (Gain) loss on disposal of property, plant and equipment (345) - 39 18. TAXATION (a) Income Tax Pursuant to the relevant enterprise income tax ("EIT") laws of the PRC, the Company and its subsidiaries established in the Shenzhen Special Economic Zone are subject to EIT at a rate of 15%; and the other subsidiary, Jiangxi Fangda is also entitled to a preferential tax rate of 15% as it has been classified by the relevant authorities of Jiangxi Province as a high and new technology enterprise. Fangda Focus and Fangda Guoke did not provide income tax since they were dormant during the year. Further, pursuant to approvals from the relevant tax authorities, all group companies, except for Fangda Focus and Fangda Guoke, are entitled to preferential tax treatment, with full exemption from EIT for two years and 50% reduction in the next three years starting from the first profit-making year after offsetting available tax losses carried forward from prior years. In 2001, the effective EIT rates of the group companies were as follows: Effective Name of entity Year of preferential tax treatment EIT rate The Company Expired 15% Fangda Decoration Expired 15% Fangda Special Structure Expired 15% Fangda Safety Technology The third year 7.5% Fangda Yide The fourth year 7.5% Jiangxi Fangda The fourth year 7.5% Fangda Focus N/A - Fnagda Guoke N/A - The reconciliation of the statutory tax rate to the effective tax rate is as follows: 2001 2000 RMB’000 RMB’000 Accounting profit 49,687 100% 82,771 100% Tax at the statutory tax rate of 15% 7,453 15.0% 12,416 15.0% Tax effect of expenses that are not deductible in determining taxable profit 3,398 6.8% 463 0.6% Effect of tax holidays (1,467) (3.0%) (4,931) (6.0%) Income tax expense 9,384 18.5% 7,948 9.6% There was no significant unprovided deferred taxation as of December 31, 2001 (2000: Nil). 40 18. TAXATION (Cont’d) (b) Turnover Tax Pursuant to the “Provisional Regulations on VAT of the PRC”, the Company is subject to VAT at the rate of 17%. An input credit is available whereby VAT previously paid on purchases of semi-finished products or raw materials etc. can be used to offset the VAT on sales to determine the net VAT payable. Pursuant to the “Provisional Regulations on Business Tax (“BT”) of the PRC”, the Company is subject to business tax (“BT”) at the rate of 3% based on contract revenue. In addition, the Group is subject to City Maintenance and Construction Tax at the rate of 1% based on tax payments of VAT and BT. 19. DIVIDENDS 2001 2000 RMB’000 RMB’000 Dividends proposed before year end 35,568 - Dividends proposed after year end but before the financial statements were authorised for issue (see Note 27) 29,640 35,568 In accordance with relevant regulations of the PRC and the Articles of Association of the Company, the Company declares dividends based on the lower of retained earnings as reported in the statutory financial statements and the financial statements prepared in accordance with IFRS. As the statutory financial statements have been prepared in accordance with PRC GAAP, the retained earnings as reported therein will be different from the amount reported in the accompanying consolidated financial statements. As of December 31, 2001, the retained earnings before final dividends reported in the Company’s statutory accounts were approximately RMB258,165,000 (2000: RMB263,052,000). 20. EARNINGS PER SHARE The calculation of basic earnings per share is based on the consolidated net profit for the year ended December 31, 2001 attributable to shareholders of approximately RMB37,202,000 (2000: RMB71,575,000), divided by the weighted average number of shares outstanding during the year of 296,400,000 shares (2000: 296,400,000 shares). No diluted earnings per share are presented as there were no dilutive potential ordinary shares as of year-end. 41 21. NOTES TO THE CASH FLOW STATEMENTS (a) Reconciliation from profit before tax to cash generated from operations: 2001 2000 RMB’000 RMB’000 CASH FLOWS FROM OPERATING ACTIVITIES: Profit before tax 49,687 82,771 Adjustments for: Provision for doubtful debt 11,303 1,505 Provision for inventory 400 - Provision for impairment of long term investment 2,053 - Depreciation of property, plant and equipment 23,889 19,078 Amortization of land use rights 2,225 1,560 Amortization of intangible assets 472 329 (Gain) loss on disposal of property, plant and equipment (345) - Interest expense 9,781 9,616 Interest income (8,179) (7,090) Operating profit before working capital changes 91,286 107,769 Increase in inventories (7,239) (24,214) Increase in trade receivables (90,747) (154,621) Decrease (increase) in prepayments 4,028 (11,171) Decrease (increase) in other receivable 1,784 (1,932) Decrease in amounts due from related parties 70,369 52,216 (Decrease) increase in trade payables (3,434) 31,531 (Decrease) increase in accruals and other payables (4,587) 14,639 Cash generated from operations 61,460 14,217 (b) Analysis of the balances of cash and cash equivalents 2001 2000 RMB’000 RMB’000 Cash and bank deposits 416,193 274,786 42 22. RELATED PARTY TRANSACTIONS Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party, or exercise significant influence over the party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. (a) During the year, the Group had the following transactions with related parties: (1) Sale and purchase of inventory 2001 2000 RMB’000 RMB’000 Sales of goods to subsidiaries of Fangda Development - 26,828 Purchase of materials from a subsidiary of Fangda Development - 4,274 Interest received from Fangda Development 800 1,000 (2) As of December 31, 2001, the Group had short-term loans of RMB200,000,000 (2000: RMB97,500,000) that were guaranteed by Fangda Development (see Note 10). (b) Emolument of the Board of Directors (1) Director’s total remuneration approximated RMB420,000 in 2001 (2000: RMB420,000). (2) As of December 31, 2001, shares held by member of the Board of Directors approximated 65,100 shares (2000: 65,100 shares). (c) As of December 31, 2001, the Group had the following balances with related parties: 2001 2000 RMB’000 RMB’000 Due from related parties: - Fangda Development - 19,412 - Subsidiaries of Fangda Development - 46,529 - 65,941 The balances with related parties, except for the amount due from Fangda Development which bore interest at a rate of approximately 5% per annum (2000: 5% per annum), were unsecured, interest free and had no fixed terms of repayment. 43 23. CONTINGENT LIABILITIES As of December 31, 2001, the Group had no significant contingent liabilities. 24. FINANCIAL INSTRUMENTS (a) Fair values The carrying amounts of the Group’s cash and cash equivalents, trade and other receivables, payables, due to (from) related parties and borrowings approximate their fair values because of the short maturity of these instruments. (b) Credit risk The carrying amounts of cash and cash equivalents, trade and other receivables, amounts due from related parties represented the Group’s maximum exposure to credit risk in relation to financial assets. Cash is placed with reputable banks and the weighted average effective interest rate on deposits was 5.7% per annum. The majority of the Group’s trade receivables relate to sales of goods and contract revenue from third party customers. The Group performs ongoing credit evaluations of its customers’ financial condition and generally does not require collateral on trade receivables. The Group maintains a provision for doubtful debts and actual losses have been within management’s expectations. As of December 31, 2001, no single customer accounted for greater than 10% of total revenue and total trade receivables. No other financial assets carry a significant exposure to credit risk. (c) Interest rate risk The directors believe that Group’s the exposure to interest rate risk of financial assets and liabilities as of 31 December 2001 was minimal since their deviation from their respective fair values was not significant. (d) Liquidity risk The Group policy is to maintain sufficient cash and cash equivalents or have available funding through an adequate amount of committed credit facilities to meet its current use in operations. (e) Foreign currency risk There is no material risk due to exchange rate fluctuations due to the limited foreign currency business of the group. 25. SEGMENT INFORMATION No segment information is presented as the Group operates in one industry and one segment. 44 26. COMMITMENTS As of December 31, 2001, the Group had capital commitments for construction of a technology centre amounting to approximately RMB50,000,000 (2000: approximately RMB50,000,000). 27. SUBSEQUENT EVENTS Pursuant to the resolution of the board of directors’ meeting dated March 21, 2002, the Company proposed final dividends to all shareholders in the ratio of RMB0.1 for each B share. The total amount of cash dividends proposed was RMB29,640,000 (2000: RMB35,568,000). The resolution is subject to approval by shareholders in the annual general meeting. 28. IMPACT OF IFRS ADJUSTMENTS ON NET PROFIT/NET ASSETS The Group’s consolidated financial statements were prepared in conformity with IFRS as if these standards had been applied consistently throughout the years. This basis of accounting differs from that used in the statutory accounts of the Group prepared in accordance with PRC GAAP. The principal adjustments made to conform to IFRS are as follows: Net profit for the year ended Net assets December 31, as of December 31, 2001 2000 2001 2000 RMB’000 RMB’000 RMB’000 RMB’000 As reported in the statutory accounts 36,148 69,300 1,029,024 1,022,516 Impact of adjustments: Reversal of revaluation gain on patent and related amortization 2,267 2,275 (7,166) (9,433) Write-off of pre-operating expenses (3,586) - (3,586) - Under capitalization of borrowing costs 2,373 - 2,373 - Dividends declared after year end - - 29,640 35,568 As restated in the IFRS financial statements 37,202 71,575 1,050,285 1,048,651 29. APPROVAL OF FINANCIAL STATEMENTS The consolidated financial statements were approved by the board of directors March 21, 2002. 45 46