万科Ａ(000002)万科Ｂ2001年年度报告（英文版）

2001 Annual Report Important Notice: The Directors individually and collectively accept full responsibility for the truthfulness, accuracy and completeness of the information contained in this report and confirmed that to the best of their knowledge and belief, there are no other facts that the omission of which would make any statement in this announcement misleading. Chairman’s Statement……………………………………………………………………2 Corporate Information……………………………………………………………………4 Accounts and Financial Highlights………………………………………………………6 Change in Share Capital and Share holders...……………………………………………7 Management and Employees.……………………………………………………..……10 Management Structure...………………………………………………………………..14 General Meetings...……………………………………………………………………..17 Directors’ Report………………………………………………………………………..19 Report of Supervisory Committee.……………………………………………………..38 Significant Events..……………………………………………………………………..41 A Chronology of 2001………………………………………………………………….48 Financial Report….……………………………………………………………………..49 Directory of Articles Reviewed……………………………………………………….103 1 1 Chairman’s Statement In 2001, China Vanke Co Ltd (“China Vanke” or the “Company”) and its subsidiaries (the “Group”) recorded steady growth in its results, with turnover and net profit amounted to RMB 4,226 million and RMB 376 million, representing increases of 14.11% and 21.44% over those of the previous year respectively. Earnings per share were RMB0.60, up 20.41% from that of last year. Review During the year, the real estate industry continued to grow, and its position as the driving force for national economic development and as the industry for stimulating continued growth of domestic demand has received full recognition. The residential property market had a prosperous year due to the continued growth in urban income level, involved the replacing of provision of staff accommodation by financial subsidies, and healthy development of the home mortgage business. Besides, the promulgation of regulations on the real estate market and the consumers’ increasing brand awareness have provided the leading industry players a favourable environment for development. In anticipation of the promising development in the real estate industry and to concentrate its resources on its core business, the Group completed the transfer of its equity interest in Shenzhen Vanguard Department Store Co., Ltd. (“Vanguard”) and successfully withdrew from retail operation. As a result, the Group successfully completed its strategic business rationalisation for focused and specialised development. During the year, the Group's property development business experienced a steady and effective expansion. The Group expanded into four cities, namely Wuhan, Nanjing, Changchun and Nanchang, and intensifed its investment in the six existing markets of Shenzhen, Shanghai, Beijing, Shenyang, Chengdu and Tianjin. The property projects in the various markets reported satisfactory progress in development, construction and sales. During the year under review, the Group made effort in expanding its land bank. As at the end of 2001, the Group possesses a land bank of 9.8 million square metres. In respect of financial resources, the Group had substantial amount of internal financial resources and well-established financing channels. These financial resources, together with the land bank, laid a solid foundation for the Group's continued development. With the continued growth in operation scale and multi-regional operation, the Group called on the Internet technology to construct a simplified internal management platform. In addition, the Group also strengthened the management and specialised development capabilities of its subsidiaries through fine-tuning regulatory guidance and its management system. All this would ensure the perpetuation of the Company’s 2 development mode and branding during expansion. The Company had also worked closely with professional firms such as SAP and Hewitt, an international renowned human resources consultancy, to introduce a management system, which met the enterprise’s needs, and as a result succeeded in improving its management. At the same time, the Group appointed Jingxin Advertising Company for the integration and further development of its corporate identity in accordance with the Group's business focus and territorial expansion strategy. During the year, the Group’s management team remained stable. The prosperous outlook of the Company and the continued improvement in its incentive scheme had attracted more talented people to the Group. Meanwhile, the Group expanded its management team via professional and management skills training, to cater to the development and expansion needs. The Group implemented a prudent financial policy and intensified the integrated utilisation of capital. During the year under review, the Group’s operation scale and asset value maintained steady growth, with its financial position remained healthy. Prospects In 2002, the real estate industry will continue to maintain an upward trend due to the enormous market demand. With the gradual improvement in relevant laws and regulations, as well as the continued rise in consumers’ recognition of brandname and their consumer rights, market adjustment according to social demand is becoming an inevitable trend in the industry. Accordingly, mature enterprises’ advantages will become more obvious. The Board of Directors (the “Board”) is determined to be a focused enterprise in property development, and the Board has full confidence in realising the Group’s strategic objectives. In the coming year, the Group will go all out to strengthen its expertise, while achieving continued growth to further consolidate its leading position in the industry. The Group will carry on implementing its steady expansion strategy in developing Shenzhen, Shanghai, Beijing and Shenyang as focal investment region. The Group will at the same time intensify its investment in nexus cities of other investment regions to maintain steady growth, and also seeks the opportunities in other markets under proper conditions. The Group plans to adopt a series of measures to streamline its internal operation process, tighten cost control, increase customers' consciousness and promote its brand name. The Group will also leverage information technology to make its business development platform more professional, matured and efficient. 3 The Group will further provide products and services that will satisfy customer needs. This approach will remain as China Vanke’s principal competitiveness in the long term. The Group’s corporate identity programme and promotional work will also be launched in the coming year. All this helps to promote China Vanke's image as a professional property developer, and to materialise its customer-oriented philosophy. Our market insight, flexibility in adapting to changes and foresight are the major factors that have contributed to the remarkable development of the Group. With China's accession to the World Trade Organisation (“WTO”) and its becoming a preferred region for foreign investments, the Group will continue to actively explore collaboration opportunities with international investors. On behalf of the Board, I would like to take this opportunity to express my sincere gratitude to investors for their faith in the Company, to customers for their support, and to our staff for their aggressiveness and dedication to the Company. Wang Shi Chairman Shenzhen, 15 March 2002 2 Corporate Information The Company was founded in May 1984. It is principally engaged in property development. The Company is one of the first listed enterprises in the People's Republic of China (the "PRC"). Total assets and net assets of the Company amounted to RMB 6,470 million and RMB 3,237 million respectively at the end of 2001. The Company has 5,349 employees and 43 wholly-owned subsidiaries and associated companies. The Company was elected as one of the best 300 and 200 small enterprises worldwide by the authoritative financial magazine “Forbes” in 2000 and 2001. It indicates that the Company’s proven track record, vitality and growth potential are well-recognised. In December 1988, the Company issued 28 million shares to raise RMB28 million and its asset value and scale of operation have since been rapidly expanded. The Company's A shares became listed on the Shenzhen Stock Exchange on 29 January 1991. In June 1991, the Company issued 28.36 million shares to specific subscribers to raise RMB127 million and commenced territorial expansion thereafter. In March 1993, the Company issued 45 million B shares to raise HK$451,350,000, which were listed on the Shenzhen Stock Exchange on 28 May 1993. The proceeds of 4 the B shares offer were mainly used for property development and had laid a solid foundation for the Group's expansion. In June 1997, the Company raised an additional RMB383 million through a rights issue. The proceeds were mainly used in the development of residential property projects in Shenzhen, and had further expanded the Company's core business – property development. In early 2000, the Company raised an additional RMB625 million through a rights issue to further strengthen the capability of the Company. The Company tapped into the property development industry in 1988, and concentrated on residential property development in densely populated cities with strong economic growth, such as Shenzhen, Shanghai, Beijing, Tianjin, Shenyang, Chengdu, Wuhan, Nanjing, Changchun and Nanchang. With innovative approach and expertise in development, the Company successfully established Vanke as a household brand in residential property development and generated favourable earning to the Company. The Company transferred its 72 per cent interest in Vanguard to China Resources National Corporation (“CRNC”) and its subsidiary in 2001, and now focuses on real estate business. 1. Company Name (Chinese) : 万科企业股份有限公司 Company Name (English): China Vanke Co., Ltd. (Vanke) 2. Legal Person Representative: Wang Shi 3. Secretary of the Company’s Board of Directors: Shirley L Xiao E-mail Address: xiaol@vanke.com 4. Contact Address: The Company Office Address 5. Telephone Number: 0755-5606666 Fax Number: 0755-3152041 6. Registered Company Address and Office Address: No 63, Meilin Road, Futian District, Shenzhen, the People’s Republic of China Postal Code: 518049 7. Home Page of the Company: http://www.vanke.com E-mail Address: zb@vanke.com 8. Media for Disclosure of Information “China Security Journal”, “Securities Times” and one Hong Kong English newspaper 5 Website for Annual Report Posting: www.cninfo.com.cn 9. Place for Annual Report Collection: The Company’s Secretarial Office of Board of Directors 10. Stock Exchange on which the Company’s shares are listed: Shenzhen Stock Exchange 11. Company’s Share Abbreviation and Stock Codes on the Stock Exchange: Vanke A, 000002 Vanke B, 200002 12. First registration date of the Company: 30 May 1984 Location: Shenzhen Latest registration date: 24 January 2002 13. Corporate legal person registration no.: 4403011019092 14. Taxation registration code Local taxation registration code: 440304192181490 State taxation registration code: 440301192181490 15. The name and address of the Certified Public Accountants engaged by the Company: Name: KPMG Peat Marwick Huazhen Certified Public Accountants Address:16th Floor, Block 2, China World Trade Centre, 1 Jianguomen Street, Beijing Name: KPMG Certified Public Accountants Address: 8th Floor, Prince Bldg., 10 Charter Road, Central, Hong Kong 3 Accounts and Financial Highlights 1. THREE-YEAR FINANCIAL INFORMATION SUMMARY (Unit: RMB) 2001 2000 1999 After adjustment Before adjustment Revenue 4,226,113,439 3,703,432,859 2,840,188,469 2,840,188,469 Operating profit 499,068,815 398,176,532 318,314,634 307,182,103 Share of losses less (64,850) (2,842,125) (20,251,379) (20,251,379) profits of associated companies 6 Profit before tax 499,003,965 395,334,407 298,063,255 286,930,724 Taxation (114,936,333) (77,611,744) (49,587,201) (49,509,201) Profit after tax 384,067,632 317,722,663 248,476,054 237,421,523 Minority interest (8,268,501) (8,276,578) (9,946,772) (9,946,772) Net profit for the year 375,799,131 309,446,085 238,529,282 227,474,751 Earnings per share 0.60 0.49 0.42 0.40 Dividend 0.20 0.18 0.15 0.15 Note: The annual results were audited in accordance with International Accounting Standards. 3. IMPACT OF IAS ADJUSTMENTS ON NET PROFIT for the year ended 31 December 2001 (Expressed in Renminbi Yuan) Net Profit for the year As determined pursuant to PRC accounting regulation 373,747,218 Adjustments to align with IAS: Recognition and amortisation of negative goodwill 1,950,559 Recognition and amortisation of goodwill 432,095 Gain on disposal of subsidiary 4,420,820 Others (4,751,561) As restated in conformity with IAS 375,799,131 4 Change in Share Capital and Shareholders 4.1 Structure of Share Capital (1) Change in Share Capital Structure of the Company Share Type Balance, Balance, % beginning end of the of the year year 1. Unlisted Shares a) State-owned Shares 52,750,318 52,750,318 8.36 b) Legal Person Shares 57,754,610 57,754,610 9.15 Total Unlisted Shares 110,504,928 110,504,928 17.51 2. Listed Shares a) A Shares 398,711,877 398,711,877 63.19 b) B Shares 121,755,136 121,755,136 19.30 Total Listed Shares 520,467,013 520,467,013 82.49 Total Shares 630,971,941 630,971,941 100.00 Note: The changes in the Company’s total share capital and shareholding structure during the year, were due to the following reason: A total of 72,288(36,144 separately) transferable shares held by Mr. Chen Chujie and Mr. Ma Shen, former Directors of the Company became transferable on March and 7 August, 2001 and thus led to a change in the shareholding structure of the Company. (2) Issue and Listing of Shares in the Last 3 Years The Company conducted 1999 rights issue at the beginning of 2000. Based on a total share capital of 545,537,481 shares after the 1998 bonus share issue, the rights issue was placed on the basis of 2.727 rights shares for every 10 existing shares. The subscription price was set at RMB7.5 per share. The registration period for placing of rights shares was between January 7, 2000 and January 10, 2000 and the payment period for rights shares was from January 11, 2000 to January 24, 2000. Since holders of the Company's State-owned shares, B shares, and major shareholders of legal person shares have undertaken not to exercise the rights to subscribe rights shares and have not transferred their rights, total number of rights shares being placed was 85,434,460 shares, including 85,431,546 public A shares and 2,914 legal person shares. The 85,291,745 transferable shares were listed on the Shenzhen Stock Exchange on February 16, 2000. 4.2 Description of Shareholders (1) As at December 31, 2001, the Company had 216,370 shareholders, including 203,569 A share holders (including 8 members of the Company's senior management) and 12,801 B share holders. (2) As at December 31, 2001, the top ten shareholders of the Company were as follows: Change in number Percentage of shares Number of shares held held as during the at the end of the at June 30, Shareholders reporting period reporting period Share Types 2001 (%) State-owned China Resources National shares, Legal Corporation - 78,075,749 A shares Person shares 12.37 Credit Lyonnais Securities (Asia) Ltd -34,224 17,079,733 B shares Foreign 2.71 Liu Yuansheng -1,100,400 12,158,127 A shares 1.93 Hua’an Securities Co., Ltd. +11,738,587 11,738,587 A shares 1.86 Holy Time Group Limited +6,600,000 6,600,000 B shares Foreign 1.05 Yu Long Securities Investment Fund +6,478,937 6,478,937 A shares 1.03 Charm Yield Investment Limited - 6,421,189 B shares 1.02 8 J & A Proxy Co., Ltd. -12,775 6,164,216 B shares 0.98 Staff Union Committee Legal Person of China Vanke Co., Ltd. - 5,895,078 A shares shares 0.93 Tai He Securities Investment Fund +2,711,386 4,998,747 A shares 0.79 Notes: The 17,073,528 B shares in the Company (2.71 per cent of the Company’s total share capital) held by Credit Lyonnais Securities (Asia) Ltd.-the Company’s second largest shareholder, is beneficially owned by China Resources Beijing Land Limited, which is a connected company of China Resources (Holdings) Co., Ltd. China Resources (Holdings) Co., Ltd. and CRNC are connected companies. (3) Largest Shareholder CRNC is the largest shareholder of the Company. Established in 1986 with a registered capital of RMB9,658 million, its major asset is the 100 per cent equity interest in CRH. CRNC is a state-owned enterprise managed by the Central Enterprise Managing Committee. It is principally engaged in distribution, property development, high technology development and strategic investments. The registered address of CRNC is No.8 Jianguomenwai North Street, Dongcheng District of Beijing, and Mr. Chen Xinhua is the Legal Person Representative. As at the end of the reporting period, CRNC and its related companies owns a total of 95,149,277 shares in the Company, representing 15.08 per cent of the Company’s total share capital. 4.3 Trading in the Company’s Share a) Shenzhen A shares First Highest Lowest Closing Total Total Total transaction price of price of price at the transaction volume in amount in Year price the year the year year end days billion shares billion yuan 1999 8.31 15.80(06/29) 7.40(02/09) 9.75 237 0.8452 8.5474 2000 9.80 16.25(03/01) 9.60(01/04) 13.99 239 1.7737 23.4515 2001 14.00 15.99(09/25) 12.12(10/22) 13.35 236 0.9280 13.4603 b) Shenzhen B shares First Highest Lowest Closing Total Total Total amount transaction price of price of price at the transaction volume in in million Year price the year the year year end days million shares HKD 1999 3.20 5.60(06/29) 1.18(03/10) 3.07 218 158.00 364 2000 3.07 4.88(08/22) 2.99(01/05) 4.8 231 107.39 428 9 2001 4.70 11.36(05/28) 4.20(02/12) 8.87 230 284.66 2788 5 The Company’s Management and Employees 5.1Directors, members of the Supervisory Committee and senior management Brief Introduction on Directors Wang Shi, male, born in 1951, is the founder of the Company. He organized “Shenzhen Exhibition Center of Modern Science and Education Equipment”, the predecessor of Vanke, in 1984, and acted as General Manager. The company was reorganized into China Vanke Co. Ltd., a shareholding company, in 1988, at which time Mr. Wang became Chairman and General Manager as well as Legal Person Representative of the Company. Mr. Wang no longer acted as the General Manager with effect from February, 1999. In June 1999, he was re-appointed as the Chairman of the Company for a three-year term. Ning Gaoning, male, born in 1958. He was appointed as a Director and became the Deputy Chairman of the Company in September, 2000 for a three-year term. Since April 1999, he has been the Deputy Chairman and General Manager of China Resources (Holdings) Co., Ltd. and CRNC the Chairman of China Resources Ent. Ltd. and China Resources Beijing Land Limited. Huang Tieying, male, born in 1955. He was appointed as the Director of the Company in June 1999 for a three-year term. He used to be the Director and General Manager of China Resources Ent. Ltd. from 1995 to 2000, and the Deputy Chairman of 21CN CyberNet Corporation Limited from 2000 to May 2001. Richard L. Yu, male, born in 1965, joined China Vanke in 1990. He was appointed as a Director in 1994 and became the Deputy General Manager in 1996. In September 2000, he was re-appointed as the Director for a three-year term. He became the Executive Deputy General Manager and in charge of finance of the Company in February 1999. He became the General Manager in February 2001. Xue Bo, male, born in 1959, became a Director in September 2000 for a three-year term. He is the Manager of Assets Management Department of Shenzhen Investment Administration Company. Chen Zhiyu, male, born in 1954, became a Director in September 2000 for a three-year term. He is the Director of Jeston International (HK) Limited. 10 Yan Biao, male, born in 1962. He was appointed as a Director of the Company in September 2000 for a three-year term. Since 2001, he has been the Director and Assistant General Manager of China Resources (Holdings) Co., Ltd., the Director and Deputy General Manager of China Resources Ent. Ltd. and Executive Director of China Resources Beijing Land Limited. Zhong Yi, male, born in 1964. He was appointed as a Director of the Company in September 2000 for a three-year term. Since 2000, he has been the Executive Director of China Resources Ent. Ltd. Chen Geng, male, born in 1968, appointed as a Director in September 2000 for a three-year term. He is currently the Deputy General Manager of Guotai Junan Securities Co. Ltd. Song Lin, male, born in 1963. He was appointed as a Director in June 2001 for a three-year term. Since 2000, he has been the Executive Director and Deputy General Manager of China Resources (Holdings) Co., Ltd. and since 2001, the General Manager of China Resources Ent. Ltd. Xu Gang, male, born in 1958. He was appointed as a Director in 1995. In June 2001, he was re-appointed as a Director for a three-year term. Since 1994, he has been the Chairman of Vanguard Department Store Company Limited. Yao Mumin, male, born in 1953, joined China Vanke in 1988 and acted as the Director and Deputy General Manager of the Company since 1995. In June 2001, he was re-appointed as the Director for a three-year term. He was appointed as the General Manager of the Company in February 1999. He has resigned from the position of General Manager in 2001. Brief Introduction on Independent Director Sun Jianyi, male, born in 1953. He was appointed as a Director in 1995 and as a Executive Director of the Company in 1997 and became the Deputy Chairman of the Company in May, 1998. In June 2001, he was appointed as an Independent Director for a three-year term. He is currently the Executive Deputy General Manager of Ping An Insurance Company of China. Brief Introduction on Members of the Supervisory Committee Ding Fuyuan, male, born in 1950, joined China Vanke in 1990. He became a member of the first Supervisory Committee of the Company in 1993. He was appointed as the Chief Supervisor in 1995 and acted as a Convenor of the Supervisory Committee of the Company in June 2001 for a three-year term. He is the Secretary of Communist Party Committee of the Company. 11 Jiang Wei, male, born in 1963. He was appointed as a member of the Supervisory Committee in June 2001 for a three-year term. Since 2000, he has been the Director and Manager of Financial Department of China Resources (Holdings) Co., Ltd and since January 2002, Director and the Supervisor of Finance. Xie Dong, male, born in 1965, joined China Vanke in 1992. He was representative of the China Vanke staff union. He was elected as a member of the Supervisory Committee in May 1997. He is the Supervisor of Human Resources of the Company. Senior Management For biography regarding Richard L. Yu, please refer to the “Brief Introduction on Directors”. Mo Jun, male, born in 1967, joined China Vanke in 1991. He became the Deputy General Manager of the Company in 2000. Since July 2001, he has been the Executive Deputy General Manager of the Company. Ding Changfeng, male, born in 1970, joined China Vanke in 1992, has been the Deputy General Manager of the Company since February 2001. Chen Zuwang, male, born in 1946, joined China Vanke in 1990. Since 1991, he has been the Deputy General Manager and in charge of audit of the Company. Chen Zhiping, male, born in 1964, joined China Vanke in 1990, has been the Deputy General Manager of the Company since February 2001. Wang Wenjin, male, born in 1966, joined China Vanke in 1993, has been the Supervisor of Finance of the Company since March 2002. Shirley L. Xiao, female, born in 1964, joined China Vanke in 1994. She is currently the secretary of the Board and head of the Company’s Office. Change in Shareholding of Directors, Members of Supervisory Committee and Senior Management No. of Shares Held at No. of Shares Held Name beginning of 2001 at End of 2001 Wang Shi 139,559 139,559 Sun Jianyi 24,096 24,096 Chen Zuwang 36,144 36,144 Richard L. Yu 38,914 38,914 Yao Mumin 24,096 24,096 12 Xu Gang 24,096 24,096 Ding Fuyuan 40,255 40,255 Note: Amongst Mr. Sun Jianyi is an Independent Director. The remuneration of each of the Company’s senior management is determined in accordance with the market standards and the overall operating results of the Company for the year. The Company follows the principle of its remuneration policy, which is "takes into considerations of the market factors to retain and attract high-calibre professionals with competitive salaries". Each year, the Company conducts a survey in collaboration with consultancy firm on the salary levels in the industry, and based on the survey results, determines the overall remuneration range for its staff, including the senior management. The actual remuneration (including bonus) of each employee is calculated according to the above-mentioned factors and individual performance. Performance appraisal benchmarks are based on the implementation results of the Company’s medium to long-term development objectives and the operation targets of the Company for the year. In particular, factors considered include the extent of fulfilment of the operation targets for the year, the contribution to the continued development of the Company, as well as the contribution to the management system development and systematic management. The remuneration of the General Manager (whose performance appraisal is conducted by the Chairman) is also determined in accordance with the aforesaid principles. Remuneration of the Company’s Directors, members of Supervisory Committee and senior management amounted to RMB4.49 million, of which one person received between RMB500,000 and RMB550,000; one person between RMB450,000 and RMB500,000; four persons between RMB400,000 and RMB450,000; three persons between RMB350,000 and RMB400,000; one person between RMB300,000 and RMB350,000; and one between RMB250,000 and RMB300,000. 10 Directors and members of Supervisory Committee had not received any remuneration from the Company, there were: Ning Gaoning, Huang Tieying, Xue Bo, Chen Zhiyu, Yan Biao, Zhong Yi, Chen Geng, Song Lin, Sun Jianyi, Jiang Wei. Each of the companies they represent hold a number of the Company’s shares, except Huang Tieying. The Independent Director, Sun Jianyi had not receive any remuneration or payment from the Company. Reasons for the resignation of Directors, members of the Supervisory Committee and senior management during the reporting period: During the reporting period, due to the change of shareholding in the Company held by the companies they represented, Li Feng, Zhou Xiaoxiong resigned from the positions of directors. Due to the change in the nature of his work, Chen Zuwang resigned from the position of director. Wu Junhua, Feng Jia decided not to stand for re-election after 13 the expiry of their three-year directorships. Zhu Huanliang was absent for three Board meetings without any appointment of proxies, the Thirteenth Annual General Meeting (“AGM”) removed him from the Board according to the Board’s proposal. Tan Renchen decided not to stand for re-election after the expiry of his three-year term in the Supervisory Committee. Yao Mumin resigned from the position of General Manager in February 2001 due to health condition. Appointment of General Manager, Supervisor of Finance and Secretary of the Board of Directors of the Company Richard L Yu was appointed as the General Manager of the Company at the Fourth Meeting of the Eleventh Board of Directors, with effect from 15 February 2001, when Ding Changfeng and Chen Zhiping were appointed as Deputy General Managers. In the Second Meeting of the Twelfth Board of Directors, the Company resolved to appoint Mo Jun as the Executive Deputy General Manager of the Company. In the First Meeting of the Twelfth Board of Directors, the Company resolved to continue to appoint Shirley L. Xiao as the Secretary of the Board of Directors. Subsequent Events Mr. Wang Wenjin, the Chief of Finance Department, was appointed as the Supervisor of Finance of the Company at the Eighth Meeting of the Twelfth Board of Directors, with Effect from March 12, 2002. 5.2 Number and breakdown of staff As at 31 December 2001, there were 5,349 employees (including six retired staff) under the Company’s payroll, of which 35% with tertiary qualifications. The breakdown of staff by job nature was as follows: 252 sales personnel (sales and planning), 947 real estate personnel (engineering, design, cost management, project development and related affairs, and property management), 503 other professional personnel (finance, audit, IT, legal, human resources, customer services and data management), and 3,647 property management and administration supportive staff (security, cleaning, logistics, other property management staff and drivers). The breakdown of staff by age was as follows: 2,996 employees (56%) were below 30; 2,139 employees (40%) were between 30 and 40; and 214 employees (4%) were over 40. The average age of staff was 29. 6 MANAGEMENT STRUCTURE OF THE COMPANY 6.1 Explanations in Accordance with the Regulatory Requirement for Listed Companies The Company has been in compliance with the Company Law, the Securities Law and other laws and regulations in relation to the management of listed companies, with a view to continue to fine-tune the Company's corporate governance structure and standardise its operation procedures. In accordance with the "Regulations on the Management of Listed Companies" promulgated in January 2002, the Company will 14 make the following explanations: (1) Competition with the Company's single largest shareholder CRNC in similar businesses China Resources Land (Beijing) Limited ("CRL Beijing", formerly known as "Beijing Hua Yuan Property Company Limited"), a subsidiary of China Resources Beijing Land Limited (“China Res. Land”) which is an associated company of the Company’s single largest shareholder CRNC, has been in competitive relationship with the Company in residential property business. Thus, risk associated with competition in similar businesses between the Company and the substantial shareholder and its associates may exist. The above-mentioned competition originated from the transfer of the Company’s legal person shares to CRNC in 2000. CRL Beijing was established on 17 April 1993 and was restructured to a joint venture with limited liability in December 1994. With a registered capital of RMB1.3 billion, CRL Beijing’s total assets currently amount to nearly RMB8 billion. Its business scope includes: redevelopment of old towns, development of municipal infrastructure, land development, development and management of industrial, commercial and residential buildings (including the management of properties held for rental, sale and self-owned properties), the manufacturing of construction materials and the sale of self-manufactured products. CRL Beijing is a property developer principally engaged in property development and rental in Beijing. Its sales revenue mainly comes from the sale of properties. Since its establishment more than a decade ago, it has developed over 50 projects, such as Huawei Centre, Huanan Centre, Xidan Cultural Plaza and Dongshengyuan Apartments. In 2000, CRL Beijing has sold a total area of approximately 370,000 square metres, resulting in a sales revenue of approximately RMB1.1 billion. In the first half of 2001, CRL Beijing sold approximately 240,000 square metres of floor area and reported a turnover of approximately RMB1.6 billion. In the next three years, CRL Beijing plans to develop nine new projects in Beijing, including the Huaqing project in the Zhongguancun Science Park, the Huating project near the Olympic Village and the Xidan project in the central business district. Beijing Vanke Enterprise Shareholding Company Limited ("Beijing Vanke") is principally engaged in the development of residential projects in the suburban area of Beijing, and 98% of the completed city garden project have been sold. In 2001, Beijing Vanke sold 108.8 thousand square metres of floor area, with turnover amounting to 600 million. Beijing Vanke has or will have several projects under development, including Beijing Star Garden, Beijing Green Garden and Tianxiu project. In terms of geographical location, market positioning and target customers, among other 15 things, competition may exist between Beijing Vanke and CRL Beijing. At present, such competition between the two companies is only confined to the Beijing market. However, in view of the fact that the property development business of CRNC may grow further or change course, there is the possibility that such competition may gradually expand to other geographical regions in the future. As property development business is one of CRNC’s core businesses and one that has a long established presence in the industry, it has long been a competitor of China Vanke in the market. Thus, such competition has been a complete market phenomenon. To ensure China Vanke’s property business development, CRNC has made an undertaking to the Company that it will provide as much support to China Vanke as it did in the past, and that it will remain impartial in the event of any competition between the investment projects of China Vanke and that of CRNC and its subsidiaries, and in the event of any disagreements or disputes arising from such competition. (2) Service contracts with the Directors To date, the terms of reference, tenure and liabilities for breach, among other things, of the Directors have been laid down in accordance with the applicable laws, regulations and the Articles of Association of the Company. According to the provisions of the "Regulations on the Management of Listed Companies" the Company will draft and enter into a service contract with each of the Directors. 6.2 Performance of the Independent Director At the Thirteenth AGM of the Company held in June 2001, Sun Jianyi was elected as independent director. During the subsequent meetings of the Board of Directors, in which various resolutions were reviewed, Sun Jianyi, having taken into account of the interest of the Company as a whole and particularly that of the minority shareholders, gave independent advice based upon his professional knowledge and working experience. His performance has fulfilled his duties as an independent director in good faith and has exploited the functions of an independent director to the full extent. Upon the connected transaction of transfer of Shareholding in Vanguard, he was in the opinion that the transaction is in compliance with the laws and regulations, and is in line with the Company’s long-term development interests. The transaction has not adversely affected the interests of small and medium shareholders, and is fair and legally effective to all shareholders. 6.3 The independence of business operation, employees, assets, organisation and finance from the Company's controlling shareholder 16 The Company's single largest shareholder is CRNC and its connected companies (which together held 15.08 per cent of the share capital of the Company at the end of the year). The Company's business operation, employees, assets, organisation and finance are completely independent from those of its single largest shareholder. This allows the Company to maintain independence in business integrity and autonomy in operation. 6.4 The establishment and implementation of appraisal and incentive systems for senior management Senior management of the Company are subject to annual review and performance appraisal. Performance benchmarks of the year for the senior management are set according to the objectives of the Company’s medium to long-term development strategies as at the start of the year and according to the objectives for the year’s operation. At the end of the year, the Company’s General Manager will determine the remuneration of the senior management according to their respective operating results for the year, management efficiency, prospects for sustainable growth, and after taking into account of the salary levels in the industry. The operating results of the General Manager will be reviewed by the Chairman of the Company. 7 General Meetings In 2001, three general meetings of the Company were held. 7.1 The Thirteenth Annual General Meeting The Thirteenth AGM was held at the East Lake Hotel in Shenzhen on 25 June 2001. The notice for convening the AGM was published in China Securities Journal, Securities Times and South China Morning Post on 24 May 2001. The last day for verifying the qualification of shareholders was 5 June 2001. A total of 60 proxies and/or shareholders, representing 173,149,903 shares in the Company or 27.44 per cent of the Company’s total share capital, attended the AGM. The following resolutions were approved at the meeting: (1) the amendment of the Company’s Articles of Association; (2) the year 2000 Working Report of the Board of Directors; (3) the year 2000 Audited Financial Report and Auditors’ Report; (4) the year 2000 dividend distribution proposal; (5) the year 2001 profit allocation policy; (6) appointment of auditors for the year 2001; (7) the replacement of Zhu Huanliang by way of poll at the meeting and the election of Song Lin, Xu Gang, Yao Mumin as Directors and Sun Jianyi as Independent Director through accumulated poll to form the Twelfth Board of Directors with the incumbent Directors, namely, Wang Shi, Ning Gaoning, Huang Tieying, Richard L Yu, Xue Bo, Chen Zhiyu, Yan Biao, Zhong Yi and Chen Geng; (8) the year 2000 Working Report of the Supervisory Committee; (9) the election of Ding Fuyuan and Jiang Wei as the members to form the Fourth Supervisory Committee with incumbent member Xie Dong. 17 The above resolutions were published in China Securities Journal, Securities Times and Hong Kong iMail on 26 June 2001. 7.2 The First Special General Meeting of the Year 2001 The First Special General Meeting (“SGM”) of the year 2001 was held at East Lake Hotel in Shenzhen on 15 August 2001. The notice for convening the First SGM was published in China Securities Journal, Securities Times and Hong Kong iMail on 12 July 2001. The day for verifying the qualification of shareholders was 25 July 2001. A total of 58 proxies and/or shareholders, representing 173,827,963 shares in the Company or 27.55 per cent of the Company’s total share capital, attended the First SGM. The following resolutions were considered and approved at the meeting: (1) the issue of convertible bonds for the year 2001; (2) the scale of issue of convertible bonds; (3) the interest of the convertible bonds; (4) the schedule and method of interest payment and repayment of principal of the convertible bonds; (5) the principles of fixing and adjusting the conversion price of the convertible bonds; (6) special downward rectification terms; (7) conversion period of convertible bonds; (8) terms of redemption and sell back of the convertible bonds; (9) issuing methods and arrangement of placing to existing shareholders of the convertible bonds; (10) the valid period of the resolution; (11) request for the Board of Directors to take charge of the issue of convertible bonds and related issues; (12) the feasibility of investment projects to be financed by proceeds from the convertible bonds; (13) the use of proceeds from the previous fund raising exercise and the auditors’ report prepared by accounting firm. The above resolutions were published in China Securities Journal, Securities Times and Hong Kong iMail on 16 August 2001. 7.3 The Second Special General Meeting of the Year 2001 The Second SGM of the year 2001 was held at East Lake Hotel in Shenzhen on 28 September 2001. The notice for convening the Second SGM was published in China Securities Journal, Securities Times and Hong Kong iMail on 28 August 2001. The day for verifying the qualification of shareholders was 14 September 2001. A total of 54 proxies and/or shareholders, representing 163,281,886 shares in the Company or 25.88 per cent of the Company’s total share capital, attended the Second SGM. The following resolutions were considered and approved at the meeting: (1) the transfer of equity interest in Vanguard; (2) the rule governing the proceedings of China Vanke’s general meeting. The above resolutions were published in China Securities Journal, Securities Times and Hong Kong iMail on 29 September 2001. 7.4 Election, Change of Directors and Members of Supervisory Committee Please refer to the above paragraphs for details, namely, “Reasons for the resignation of Directors, Members of the Supervisory Committee and Senior Management during the year under review” and “The Thirteenth Annual General Meeting”. 18 8 Directors’ Report 8.1 Company’s Operations (1) The scope and operations of the Company’s core business The Company's core business is property development. China Vanke has been engaged in the development of properties since 1988. It was among the first developers of residential properties for sale in the PRC. The Company decided to focus on property development in 1992, and has since concentrated its efforts on the development of residential properties. Following the sale of its interests in Vanguard in 2001, the Group has completed its business rationalisation and has transformed into a pure property developer. The Group's property development business in the PRC experienced steady growth in 2001. In addition to its increased investment in six major cities, namely Shenzhen, Shanghai, Beijing, Tianjin, Shenyang and Chengdu, the Group further extended its market reach to Wuhan, Changchun, Nanjing and Nanchang to carry out residential property development. A floor area of 677,000 square metres was booked and an operating income of RMB3.13 billion was reported during the year, representing increases of 25.6% and 32.6% from those of the previous year respectively. The Group enjoyed predominant market shares in Shenzhen, Shenyang, accounting for 4.05% and 8.48% of the local markets respectively, while that in Shanghai, Beijing and Tianjin stood at 1.5%, 1.04% and 0.75%. During the year, the Group enlarged its land bank in Shanghai, Shenzhen, Shenyang, Nanjing and Wuhan by 5,700 thousand square metres. Of which, the land bank laid a solid foundation for the Company’s further expansion. As Tianjin Vanke Real Estate Company Limited, a subsidiary of the Company, incurred a substantial loss, and the Company made an adjustment of the progress of project development in the second half, the net profit of the Company’s property business for the year was RMB219 million, representing a decrease of 10.54% from that of last year. During the period, projects such as Shenzhen Four Seasons Flower City, Shenzhen Metropolitan Apartments, Shanghai Waltz Garden, Shanghai Holiday Town, Beijing Star Garden, Shenyang Garden New Town and Chengdu City Garden, which has been commenced since 2000, have made significant profit contribution to the Group. Meanwhile, there was increased market recognition of China Vanke as a renowned property developer in the PRC. In particular, Shenzhen Four Seasons Flower City was granted the Taiwan’s Golden Stone Award for Architecture under District Planning category, and was named among the Top Ten Model Residential Districts in Shenzhen in 2001 and as the Model 19 Residential District in the Guangdong province for property management. The Shanghai Waltz Garden was given the "Room Design Award", the "Award for District Planning for Residential District" and the "Award for Residential Technology" at the second edition of the Quality Residential Projects Award of Shanghai. Beijing Star Garden and Beijing Green Garden had also won the "Architectural Design Award" and the overall winner for "Classic Residence" of the "Classic Residential District of the New Century" respectively by the Ministry of Construction of the PRC. Shenyang City Garden was named as the “Quality District of Liaoning Province”, while Chengdu City Garden was ranked among the “Top Ten Popular Property Projects” in Chengdu in 2001. For the year 2001, the Company had an additional floor area amounting to 1.15 million square metres. During the year, the Company completed 856,000 square metres of floor area and realised the sale of 672,000 square metres, which represented a growth of 60% and 10% from the previous year. In Shenzhen, the Company launched phases III, IV and V of Four Seasons Flower City, of which all reported robust sales. During the year, 105,000 square metres of floor area or 99% of the total floor area from these projects were sold. During the year, 52,000 square metres or 83% of the phase II of Metropolitan Apartments were sold. Shenzhen Vanke Real Estate Company Limited was ranked number one of the 2000 Shenzhen Property Development Enterprises Annual Assessment for the third successive year. In Shanghai, the total floor area of the Shanghai Waltz Garden project was sold out during the period. Shanghai Holiday Town was launched in September 2001. Since then, a total of 61,000 square metres or 74% of the project have been sold, reflecting a promising prospect in the market. In Beijing, the Group launched phase II of Beijing Star Garden and Beijing Green Garden. 58,000 square metres of floor area or 63% of Beijing Star Garden were sold. In November 2001, Beijing Green Garden was launched and was well received by the market. 29,000 square metres of floor area or 50% of the project had been sold. The satisfactory results indicated an optimistic prospect. In Shenyang, phase II of Garden New Town was completed for sale. A total of 77,000 square metres of floor area or 68% of the project were sold. With such remarkable sales performance, the Group was able to maintain its leading position in the market. In Chengdu, the launch of phase I of City Garden had attracted the attention of the local property market. Sales of the project continued to remain high, with a total of 77,000 square metres or 76% of the project sold during the year. 20 During the year, the projects of the Wuhan Four Seasons Flower City, the Nanjing Metropolitan Apartments, the Changchun City Garden and the Nanchang Four Seasons Flower City commenced construction and their progress were on schedule. In Tianjin, in order to maintain the Group’s brand image, "Refinement of Projects" were undertaken by the Group’s Tianjin subsidiary. Such work aimed at further improving the environment and facilities of the Companies projects in Tianjin, as well as solving the problems arisen from previous planning and design, construction and insufficient rules and regulations. A provision for expenses amounting to 29 million had been made. During the year, the Tianjin subsidiary will make provisions for diminution in value of RMB 17.5 million for the projects of the City Trade Centre, the Central Garden, and City Garden. Besides, the slow progress in the approval procedures has given rise to factors including Tianjin subsidiary’s insufficient amount of floor area booked, which caused loss of the company. The Group attributed the aforesaid factors to the loss of RMB86.20 million it made in its operation in Tianjin . Turnover RMB ‘000 % Property 3,249,733 76.90 Retail 960,952 22.74 Others 15,428 0.36 Net Profit RMB ‘000 % Property 219,335 58.36 Retail 21,282 5.66 Others 135,182 35.98 Breakdown of turnover (RMB 3,249 million) and net profit (RMB 219 million) of property development by regions Turnover RMB ‘000 % Shenzhen 1,233,970 37.97 Shanghai 852,531 26.23 Shenyeng 340,890 10.49 Beijing 533,031 16.40 Tianjin 84,316 2.59 Chengdu 197,683 6.08 Others 7,312 0.24 Net Profit 21 RMB ‘000 % Shenzhen 138,275 42.35 Shanghai 78,466 24.03 Shenyeng 61,004 18.69 Beijing 16,304 4.99 Tianjin -86,198 - Chengdu 32,428 9.94 Others -20,944 - The turnover, cost, gross profit margin of major products After the disposal of Vanguard in the year, the Group specializes in property development business with transferable residential properties as its major products. In 2001, the booked turnover and booked cost amounting to RMB3.13 billion and RMB2.52 billion. The gross profit margin for the year was 19.5%. (2) Operating Results of the Wholly-owned Subsidiaries and Holding Companies (Unit: RMB ‘000) Company Name Percenta Commerci Net profit Total Asset Major operating ge of al sales in in 2001 at the end project equity 2001 of 2001 in 2001 held Shenzhen Vanke 100 1,152,427 140,108 1,626,276 Four Seasons Flower Real Estate City, The Metropolitan Company Limited Apartments, Forest Hill Shanghai Vanke 100 831,325 78,516 949,922 Holiday City Garden Town(Chunshen City), Development Waltz Garden Company Limited Beijing Vanke 100 527,499 26,453 1,224,293 Star Garden, Green Enterprise Garden Shareholding Company Limited Chengdu Vanks 100 196,347 32,865 373,138 City Garden Real Estate 22 Company Limited Tianjin Vanke 100 84,316 -86,198 915,366 Garden New Town, Real Estate People Tree Company Limited Shenyang Vanke 100 336,032 60,964 546,890 Garden New Town Real Estate Development Company Limited Shenzhen 72 960,952 21,282 Vanguard Department Store Company Limited Note: As for the registered capital of the above subsidiaries, please refer to note 15. Commenced and Completed Construction of Property Projects in 2001 (unit: square metre) Area under Accumulated Total planned construction Completed completed Project Name Location area in 2001 area in 2001 area Shenzhen Four Seasons Longgang 324,973 42,575 111,410 308,794 Flower City(first district) Shenzhen Four Seasons Longgang 178,506 85,707 - - Flower City(second district) Shenzhen Four Seasons Longgang 52,055 52,055 - - Flower City(third district) Shenzhen Metropolitan Apartments Futian 183,200 46,726 60,123 124,646 Shenzhen Forest Hill Futian 58,006 - 58,006 58,006 Shenzhen Paradiso(Xiasha) Futian 229,653 83,511 - - Shanghai Holiday Town(Chunshen) Minhang 488,649 109,600 82,000 82,000 Shanghai City Garden New Minhang 135,443 18,579 - - Area(south part) Shanghai Waltz Garden Xuhui 108,000 - 101,701 101,701 Beijing Star Garden Chaoyang 314,294 64,809 96,179 134,697 Beijing Green Garden Chaoyang 300,050 105,922 58,023 58,023 Tianjin Garden New Town Beichen 493,000 90,952 19,265 278,365 Tianjin People Tree(Hongqi Farmland) Beichen 112,981 63,739 - - Shenyang Garden New Town Dongling 253,374 55,250 168,290 253,374 Changchun City Garden Erdao 376,349 61,138 - - Chengdu City Garden Jinjiang 576,000 112,181 101,427 101,427 Wuhan Four Seasons Dongxihu 263,618 94,932 - - Flower City 23 Nanjing Metropolitan Jianye 148,488 64,624 - - Apartments Total: 1,152,300 856,424 (3) Major Suppliers and Customers A. The Company's 5 largest suppliers and aggregate purchase from these suppliers as a percentage of the total purchase for the year Property development is the Company’s core business. Development projects are contracted out to construction companies by means of tendering. As such, most of the building materials are supplied by subcontractors. The products the Company directly procured from suppliers included mechanical equipment such as power supply and heating facilities, escalator, etc, and external and internal decoration materials such as curtain wall, doors and windows. Such equipment and materials are purchased through centralised procurement on the Internet. For this procurement method, the Company has formed a strategic network of suppliers. In 2001, purchases from the five largest suppliers were RMB51.99 million, accounting for 27.48% of the total direct purchases of the Company. B. The Company's major customers and sales to the 5 largest customers as a percentage of the total sales for the year The Company's property development mainly focuses on transferable properties in residential markets. Most of its customers are individual consumers, buying properties from the Company’ projects across different cities. Only a few of them are institutional buyers or bulk purchasers. As a result, sales to major customers only account for a small proportion of the year’s turnover. The net sales of the Company for year 2001 amounted to RMB4.226 billion, of which RMB3.13 billion came from the sale of transferable residential properties. Sales to the five largest customers amounted to RMB142 million, representing 3.36% of the total turnover of the year. (4) Issues and challenges encountered in operation and solutions to the issues As the market becomes more regulated and consumers become more mature, the property market gets more susceptible to macroeconomic trends, fluctuations in the securities market and changes in consumer confidence. In view of this, the Group will closely monitor the changes and development in the external environment and keep itself abreast of market trends by intensifying its research on the macroeconomic environment, government policies and the land market, in order to minimise its exposure to various potential risks. During the past year, the market recorded robust growth in the first three quarters, but 24 then slowed down since October. Market selling prices also fell slightly in the second half of the year after substantial rise in the first half; prices now remain at a stable level. The flow of domestic and foreign investments into the PRC’s real estate sector and the significant growth in the total floor area under construction and completed floor area further intensified the already drastic market competition. In the face of this market development, the Company will pay close attention to the market trends and make predictions on any potential market adjustments in the coming year, in a bid to expedite the sales of its projects and make flexible adjustments to any possible market changes. In operation, with the increasing scale of its operation, the land bank and construction projects of the Group were expanded significantly. The total inventory and property value increased to RMB4.482 billion at the end of the year. As a result of the increase in the number of projects and the delay of several projects’ sale as a result of the problem of procedures for permits, the value of Group’s total stock of completed units amounted to RMB1.173 billion, representing a growth of 53.31% over that of the corresponding period of the previous year. The Company is therefore subject to greater operation risks. In the coming year, the Group will exercise effective paces in the development of its land bank and commencement of construction. At the same time, it will also place great emphasis on its sales operation by stepping up effort in sales promotion and by implementing a variety of flexible sales and marketing strategies, with a view to achieve rapid growth in sales. On the management front, the Company has been constantly seeking to address the issue of increasing pressure on the use of management resources as the Company keeps on expanding its operation across the PRC. To this, management approach of strengthening teamwork was proposed. Looking ahead, the Company will further integrate its resources in strategic planning, design, sales and marketing as well as customer services, so as to capitalise on the economy of scale of the Group to enhance its overall competitiveness. With respect to customer relations, the increasing awareness of consumer rights will raise the demand for more quality customer-relations management of the Group. While the market becomes mature and degree of professionalism continues to be fine-tuned, customers may become mature at a faster pace than enterprises. Against this new development trend, together with the deepening of specialisation and socialisation in the industry, the Company faces new issues and challenges. Such changes lead to new demand for management skill and quality control of the Company. China Vanke has declared the year 2002 as the "Year of Smiling Customers" with an aim to enhance the competitiveness of its products and services based on customers’ needs. As such, customer-oriented initiatives will be incorporated across the overall project development. (5) Explanation on changes in the business plan for the year 25 The Company has not disclosed any profit forecast for 2001, nor any plans related to income or cost and expenditure. In 2001, as a result of the change in the policies on the real estate industry, certain projects could not get approval as scheduled. In response to this, the Board of Directors of the Company made a decision in principle in the second half of 2001 to amend the business plan for the second half of the year. As a result, there were discrepancies between the actual floor area being developed and completed in 2001 and that planned at the beginning of the year, which were due to the adjustments in Tianjin People Tree and Beijing Green Garden projects. Such decision was made at the Fifth Meeting of the Twelfth Board of Directors. The related resolutions were disclosed in the China Securities Journal, Securities Times and Hong Kong iMail on 28 August 2001. 8.2 Investment of the Company During the year under review, the Group increased its net long-term investment by RMB2,588,896, representing a increase of 3.47% from that of the previous year. Please refer to notes 15 and 16 for name of investments, principal operating activities and percentage of equity investments held by the Group. (1) Use of proceeds In 2001, the Company did not raise fund or use fund from the capital market. (2) Use of capital not from the capital market Equity investment A. In December 2000, the Board has resolved to increase investment in its wholly-owned subsidiary – Shenyang Vanke Real Estate Co Ltd, from RMB30 million to RMB100 million. The additional investment has been paid up during the year under review. B. The Company established, during the year under review, a new wholly-owned subsidiary – Shanghai Vanke Minhang Property Co Ltd, with a registered capital of RMB15 million. It is principally engaged in the development and operation of Jinfeng City project (a tentative name). C. The Company established, during the year under review, a new wholly-owned subsidiary – Shanghai Vanke Pudong Property Co Ltd, with a registered capital of RMB15 million. It is principally engaged in the development and operation of Pudong Caolu project (a tentative name). D. The Company established, during the year under review, a new wholly-owned subsidiary – Nanjing Vanke Property Co Ltd, with a registered capital of RMB50 million. It is principally engaged in the development and operation of the Metropolitan Apartments project (a tentative name). 26 E. The Company established, during the year under review, a new joint venture holding company – Beijing Vanke Haitian Real Estate Development Co Ltd, with a registered capital of RMB10 million. The Company has an 80 per cent interest in this new company, which is principally engaged in the development and operation of the Tianxiu project (a tentative name). F. The Company established, during the year under review, a new wholly-owned subsidiary – Changchun Vanke Real Estate Co Ltd, with a registered capital of RMB50 million. It is principally engaged in the development and operation of Changchun Vanke City Garden project. G. The Company established, during the year under review, a new wholly-owned subsidiary –Shenzhen Vanke Property Management Development Co Ltd, with a registered capital of RMB5 million. It is principally engaged in the management of public properties. H. During the year under review, the Company increased its shareholding in Shenzhen A-housing Co Ltd from 33 per cent to 100 per cent. I. During the year under review, the Company has resolved to change the name of a wholly-owned subsidiary – Wuhan Wanrui Property Development Co Ltd (“Wuhan Wanrui”) to Wuhan Vanke Real Estate Co Ltd (“Wuhan Vanke”) and to increase its registered capital from RMB10 million to RMB50 million. The additional investment has been paid up during the year under review. J. The Company established, during the year under review, a new wholly-owned subsidiary – Shanghai Vanke Baoshan Property Co Ltd, with a registered capital of RMB50 million. It is principally engaged in the development and operation of Shanghai Baoshan Vanke New Town Project (a tentative name). K. During the year under review, the Company established a 50-50 joint venture - Jiangxi Vanke Yida Real Estate Co Ltd in collaboration with Jiangxi Yida Investment Development Co Ltd for the development of the Aixi Lake project in the Nanchang’s Gaoxin district. As at the end of the reporting period, the equity investment has been paid up and the relevant statutory procedures were completed. Other investments During the reported year, the Company’s property development business added the following 15 new projects. The total site area and planned construction area were 5.7 million square metres and 5.66 million square metres respectively. Region New projects District Site area Construction Progress status (sq. area metres) (sq. metres) Shenzhen Dameisha Dameisha 269,000 215,000 Pre-construction Four Seasons Longgang 37,000 52,000 Under construction Flower City (District 3) Shanghai Jinfeng Minhang 356,000 168,000 Pre-construction 27 Pudong Caolu Pudong 488,000 337,000 Pre-construction Baoshan Baoshan 1,000,000 1,000,000 Pre-construction Beijing Tianxiu Haidian 121,000 110,000 Pre-construction Shenyang Xijiangjie Yuhong 447,000 543,000 Pre-construction Dadong Dadong 83,000 163,000 Pre-construction Tianjin Glass Factory Hexi 350,000 310,000 Pre-construction Chengdu City Garden Jinjiang 900,000 900,000 Pre-construction Phase II Wuhan East district of Dongxi 162,000 194,000 Phase I construction Four Seasons Lake commenced Flower City 933,000 999,000 West district of Dongxi Pre-construction Four Seasons Lake Flower City Nanjing Mochou Lake Mochou 51,000 148,000 Phase I construction Lake commenced Changchun Linhejie Erdao 232,000 274,000 Phase I construction commenced Nanchang Four Seasons Gaoxin 274,000 247,000 Phase I construction Flower City commenced Total 5,703,000 5,660,000 Remark: By the end of 2001, the Company had paid RMB1,189,380,000 land premium for the above land bank. 8.3 Financial Position of the Company During the reporting period, the Company maintained steady growth in its operations with asset quality improving. The Company's financial position remained healthy, and its land bank acquired in the year established a solid base for the continued development for the Company. (Unit: RMB’000) Financial Status 12/31/2001 12/31/2000 +/- % Reason for Change Total Assets 6,469,799 6,121,652 5.69 Expansion of operation scale Fixed Assets 524,929 717,200 -26.81 Exclusion of the fixed assets of Vanguard upon its disposal Non-current Liabilities 261,000 80,250 225.23 Increase in long term borrowings Shareholders’ equity 3,237,172 2,974,930 8.82 Increase in profit during the reporting period Gross Profit 824,167 856,001 9.63 Expansion of the property business Operating Profit 499,069 398,177 25.34 Gain on disposal of Vanguard 28 Net Profit 375,799 309,446 21.44 Gain on disposal of Vanguard 8.4 The impact of changes in operating environment, policies and regulations In 2001, the government continued to implement numerous measures with an aim to regulate the market and protect the legitimate rights of all parties, thereby establishing a more comprehensive and healthy market mechanism. During the year, the "Notice regarding the Elimination of Part of the Charges under the Comprehensive Reform of the Levies on Residential Property Development" was approved by the State Council and promulgated by the State Planning Commission and the Ministry of Finance. The notice stipulates that 47 illegitimate and unreasonable charges should be revoked. The introduction of this regulation has a positive effect on regulating the residential property market and enhancing its transparency and efficiency, while reflecting the government's determination to promote development of the residential property sector and to create a favourable regulated environment for the industry through adjustments to taxation and levies policy, which help lower the development costs of property developers. As for the land market, the State Council promulgated the "Notice Regarding the Strengthening of State-Owned Land Assets Management" in April 2001, while the Ministry of Land Resources promulgated the "Notice Regarding the Reform and Regulation of the Land Market" in June 2001. Both notices aim to exercise stringent control on land supply and to promote the tender and auction system for the land use rights to state-owned land. Subsequently, new regulations on land transfer and management were introduced across the country, particularly in the economically developed regions, and thus accelerated the commercialisation of land transfer. The tightened regulation on the land market along with greater transparency in land transfer transactions provides developers with a platform for fair competition, which is favourable to the development of the real estate industry. On the other hand, although the aforesaid regulatory measures were introduced, the enforcement details in different regions were yet to be finalised. As a result, land supply dropped accordingly, and the Company’s land acquisition schedule was affected. In addition, this situation also gave rise to the fact that certain land assets secured by the Company did not have all the necessary permits, leading to uncertainty to the development plans of the Company. With respect to financial policies, the ‘Notice Regarding the Regulation of Residential Property Financial Business’ was promulgated by the People's Bank of China in June 2001. It stipulates that only property developers with sound capability for property development and high credit ratings are eligible for application for residential property development loan, and that the portion of self-financed capital of the developer shall not be less than 30% of the total investment of the development project concerned. In 29 addition, the development project must have obtained all the four permits required under the applicable regulations. Meanwhile, the mortgage requirements for residential property developers were also tightened. The introduction of these regulations had a positive impact on the creation of a fair environment for competition and the promotion of regulated residential property financial services. However, the tightened mortgage requirements will, to some degree, affect the presale schedule of projects, leading to certain impact on the presale revenue of the Group. 8.5 Business development plan for the year 2002 The Group's completion of its business concentration and expansion into new markets in 2001 helped pave the way for the rapid development of its property development business. The Group will further expand its business of residential property development in 2002. The Group has 21 projects under development in 2002. It is estimated that total floor areas under construction and completed will amount to 1.62 million square metres and 1.14 million square metres respectively, representing substantial increases from those of 2001. A remarkable growth is also expected in total sales floor area and booked floor area, forecasting at over 1 million square metres respectively for the year 2002. The Group will continue to expand its land bank in existing market and selectively enter new markets in order to satisfy the needs of the Group’s property business expansion and continued development. Major Projects in 2002 (unit: square metre) Planned Planned Planned Site construction Kick-off commenced completed Project Name Location area area plan in 2001 area in 2002 area in 2002 Shenzhen Four Seasons Flower City(second district) Longgang 119,000 178,506 89,929 89,929 175,636 Shenzhen Four Seasons Flower City(third district) Longgang 37,182 52,055 - - 52055 Shenzhen Metropolitan Apartments Futian 28,627 183,200 - - 46,726 Shenzhen Paradiso(Xiasha) Futian 40,234 229,653 146,460 72,414 - Shenzhen Dameisha Project(a tentative name) Yantian 268,484 214,800 214,800 60,000 - Shanghai Jinfeng Project(a tentative name) Minhang 356,200 167,500 167,500 60,000 - Shanghai Holiday Town(Chunshen) Minhang 599,647 488,649 379,049 148,000 52,000 Shanghai Baoshan Project(a tentative name) Baoshan 1,000,000 1,000,000 1,000,000 - - 30 Shanghai Pudong Project(a tentative name) Pudong 488,000 337,214 337,214 80,000 - Shanghai City Garden New Area(south part) Minhang 167,627 135,443 116,443 64,800 48,800 Beijing Star Garden Chaoyang 107,000 314,294 113,498 84,330 53,378 Beijing Tianxiu Project(a tentative name) Haidian 115,060 109,416 109,416 - - Beijing Green Garden Chaoyang 325,000 300,050 194,129 106,390 62,352 Tianjin Garden New Town Beichen 530,000 493,000 70,263 17,580 21,874 Tianjin People Tree (Hongqi farmland) Beichen 210,600 112,981 49,242 44,318 97,346 Tianjin Glass Factory Project(a tentative name) Hexi 350,200 316,000 316,000 70,000 42,000 Tianjin Dongli Lake Project (a tentative name) Dongli 2,730,000 1,365,000 1,365,000 - - Shenyang Four Seasons Flower City Yuhong 446,900 566,157 566,157 113,680 57,680 Shenyang Metropolitan Apartments Dadong 83,300 164,335 164,335 80,123 31,504 Changchun City Garden Erdao 302,000 376,349 315,211 91,023 64,001 Chengdu City Garden(phase 1) Jinjiang 507,000 576,000 463,819 148,337 79,968 Chengdu City Garden(phase 2) Jinjiang 900,000 900,000 900,000 - - Wuhan Four Seasons Flower City(east district) Dongxihu 272,780 263,618 168,686 146,520 162,763 Wuhan Four Seasons Flower City(west district) Dongxihu 933,338 998,672 998,672 - - Wuhan Juno Tower JIangan 6,943 48,300 48,300 - - Nanjing Metropolitan Apartments Jianye 51,568 148,488 83,864 67,091 51,699 Nanchang Four Seasons Flower City Gaoxin 224,668 218,286 218,286 72,246 41,446 Total: 11,201,358 10,257,966 8,596,273 1,616,781 1,141,228 Special Remark: (1) The above project schedule may be adjusted due to the following factors: A. change in real estate market and the sales progress of the relevant projects; B. further specification and change of the policy on transfer of land use rights may present uncertainties to the Company’s projects held for development; C. approval requirements may be tightened by new rules and regulations such that the application progress for permits will be slowed down, and thereby affect the schedule of projects development; and D. unfavourable weather conditions may delay the progress of projects and affect the booked value of completed floor area. (2) As at the date of this announcement, among the projects of which collaboration agreements had been entered into or tenders had been approved and pending for development at the end of 2001, the Group has completed land transfer agreements for a 31 construction area of 2.30 million square metres; and 3.25 million square metres are either state-owned property or have completed the procedure of government appropriation. 8.6 Work Report of the Board of Directors (1) During 2001, the Board of Directors held 10 board meetings. A. On 15 February 2001, the Fourth Meeting of the Eleventh Board of Directors was held to consider and approve the following resolutions: the resignation of Yao Mumin and appointment of Richard L Yu as General Manager; the appointment of Ding Chang Feng and Chen Zhi Ping as Deputy General Managers; the disposal of the entire interest in the gift manufacturing company; the change of name and increase of registered capital of the company in Wuhan. The related resolutions were published in China Securities Journal, Securities Times and South China Morning Post on 16 February 2001. B. On 16 March 2001, the Fifth Meeting of the Eleventh Board of Directors was held to consider and approve the following resolutions: the year 2000 Auditors’ Report (not finalised yet); the appropriation and handling of the assets diminution provision for the year 2000; the proposal for the distribution of profits and dividends for the year 2000, the proposal for the profit distribution policy for the year 2001; the 2000 Annual Report for disclosure; the notice for convening general meeting; the working plan of General Manager for the year 2001; the change of shareholding structure in Wuhan Vanke Real Estate Co Ltd and Wuhan Property Management Co. The related resolutions were published in China Securities Journal, Securities Times and South China Morning Post on 20 March 2001. C. On 23 May 2001, the Sixth Meeting of the Eleventh Board of Directors was held to consider and approve the following resolutions: the re-appointment of auditors for the year 2001, the amendment of the Company’s Articles of Association; the re-election of Board of Directors; the convention of the Thirteenth AGM; the increased investment in Vanguard in proportion to the capital enlargement of Vanguard; the establishment of the Shanghai Baoshan Vanke New Town project; the establishment of a company for Shanghai Caolu project. The related resolutions were published in China Securities Journal, Securities Times and South China Morning Post on 24 May 2001. D. On 25 June 2001, the First Meeting of the Twelfth Board of Directors was held to consider and approve the following resolutions: the election of the Chairman for the Twelfth Board of Directors; the election of the Deputy Chairman for the Twelfth Board of Directors; the election of the Secretary for the Twelfth Board of Directors; the remuneration of auditors for the year 2001; the grant of the general mandate to the Chairman on behalf of the Board of Directors for negotiating banking facilities and surety. 32 The related resolutions were published in China Securities Journal, Securities Times and Hong Kong iMail on 26 June 2001. E. On 11 July 2001, the Second Meeting of the Twelfth Board of Directors was held to consider and approve the following resolutions: the appointment of Mo Jun as the Executive Deputy General Manager of the Group; the liquidation of Shenzhen Vanke Trading Co Ltd; the proposal of salary adjustment; the improvement of the incentive system; land bank in Beijing Heizhuanghuxiang; the participation in the tender of the plot J402-0066 in Shenzhen Dameisha; the issue of convertible bonds; the feasibility of invested projects to be financed by proceeds from the convertible bonds; the use of proceeds from the previous fund raising exercise and the Auditors’ Report prepared by accounting firm; the convention of the First SGM of the year 2001. The related resolutions were published in China Securities Journal, Securities Times and Hong Kong iMail on 12 July 2001. F. On 10 August 2001, the Third Meeting of the Twelfth Board of Directors was held to consider and approve the following resolutions: the 2001 Interim Report and Financial Report; no profit distribution and transfer of capital surplus reserve to share capital for the six months ended 30 June 2001; the amendment of the internal control system regarding assets diminution provision and handling of loss; the confirmation of institution to stand surety for the issue of convertible bonds; the establishment of the Nanchang Aixi Lake Project; the investment in Jiangxi Wanjia Property Development Co Ltd. The related resolutions were published in China Securities Journal, Securities Times and Hong Kong iMail on 14 August 2001. G. On 15 August 2001, the Fourth Meeting of the Twelfth Board of Directors was held to consider and approve the following resolutions: the rules governing the proceedings of the Company’s shareholders meetings; the rules governing the proceedings of the Company’s board meetings; work regulation for General Manager. The related resolutions were published in China Securities Journal, Securities Times and Hong Kong iMail on 16 August 2001. H. On 24 August 2001, the Fifth Meeting of the Twelfth Board of Directors was held to consider and approve the following resolutions: the transfer of Vanguard’s registered trademark; the increase in the registered capital of Beijing Vanke Haitian Real Estate Development Co Ltd; the transfer of equity interest in Vanguard; the announcement of the transfer of equity interest in Vanguard; the application of a “back-to-back” guarantee to Industrial and Commercial Bank of China (“ICBC”) against the bank’s guarantee to Vanguard of the fulfilment of an agreement; the convention of the Second SGM of Year 2001; the adjustment of the property business plan for the second half of year 2001; the authorisation of the Chairman for undertaking the procedures of the shareholding transfer and related issues. 33 The related resolutions were published in China Securities Journal, Securities Times and Hong Kong iMail on 28 August 2001. I. On 28 September 2001, the Sixth Meeting of the Twelfth Board of Directors was held to consider and approve the following resolutions: the termination of the appointment of Zhong Tian Qin Certified Public Accountants and the appointment of KPMG Peat Marwick Huazhen Certified Public Accountants (“KPMG Huazhen”) as the auditors of the Company for the year 2001; the establishment of a Beijing branch office of Shenzhen Vanke Property Development Co Ltd; the establishment of the Shenzhen Bantian Weihong Project; the establishment of Shenzhen Longgang Xichong Project; the resignation of Xu Gang as Deputy General Manager of the Company. The related resolutions were published in China Securities Journal, Securities Times and Hong Kong iMail on 29 September 2001. J. On 26 November 2001, the Seventh Meeting of the Twelfth Board of Directors was held to consider and approve the following resolutions: the change of the institution to stand surety for the issue of convertible bonds; to aid Guandu Co Ltd against lawsuit; the participation in the tender of the first phase of the reclamation area of the Shenzhen Bay; the successful bid for the plot of land of the Shenyang Dadong gymnasium and the proposal for the establishment of the project. The related resolutions were published in China Securities Journal, Securities Times and Hong Kong iMail on 27 November 2001. (2) The Board of Directors considered and approved the following resolutions through 10 votings by communication means: A. On 16 January 2001, the resolution regarding the establishment of Shanghai Minhang Jinfeng International Residential Community Project was submitted for the Board of Directors’ approval and the establishment of Tianjin Hongqi Farmland Project through voting by communication means. The related resolutions were published in China Securities Journal, Securities Times and South China Morning Post (or Hong Kong iMail) on 24 May 2001 and 14 August 2001. B. On 22 February 2001, the resolution regarding the establishment of Shenzhen Four Seasons Flower City phase V project was submitted for the Board of Directors’ approval through voting by communication means. The related resolution was published in China Securities Journal, Securities Times and Hong Kong iMail on 14 August 2001. C. On 28 February 2001, the resolution regarding the provision of guarantee to Vanguard’s application for the credit line borrowing for working capital with the Shenzhen branch of ICBC and the Luohu branch of Agricultural Bank of China (“Agricultural Bank”) was submitted for the Board of Directors’ approval through voting by communication means. 34 D. On 28 March 2001, the following resolutions were submitted for the Board of Directors’ approval through voting by communication means: regarding the application for the establishment of Changchun Vanke Real Estate Development Co Ltd; the application for the establishment of Nanjing Vanke Real Estate Co Ltd; the establishment of Wuhan Jinyin Lake project; the establishment of Tianjin Huayuan New Town project; the establishment of Changchun Vanke City Garden project. The related resolutions were published in China Securities Journal, Securities Times and South China Morning Post (or Hong Kong iMail) on 4 April 2001, 24 May 2001 and 14 August 2001. E. On 25 April 2001, the following resolutions were submitted for the Board of Directors’ approval through voting by communication means: regarding the establishment of Beijing Tianxiu Project; the establishment of Shanghai Caolu Project; the change of shareholding in Shenzhen A-housing Co Ltd; the registration and establishment of the company for the Shanghai Baoshan Vanke New Town project; the establishment of the company for Shanghai Minhang Jinfeng Project. The related resolutions were published in China Securities Journal, Securities Times and South China Morning Post on 24 May 2001. F. On 9 May 2001, resolution regarding the establishment of the company for Beijing Tianxiu Project was submitted for the Board of Directors’ approval through voting by communication means. G. On 7 September 2001, resolution regarding the establishment of Tianjin Glass Factory Project was submitted for the Board of Directors’ approval through voting by communication means. The related resolution was published in China Securities Journal, Securities Times and Hong Kong iMail on 29 September 2001. H. On 9 November 2001, resolution regarding the registration and establishment of Shenzhen Xindi Vanke (Bantian) Co Ltd. was submitted for the Board of Directors’ approval through voting by communication means. I. On 15 November 2001, resolution regarding the report for the Company’s management structure was submitted for the Board of Directors’ approval through voting by communication means. J. On 26 December 2001, resolution regarding the change of business address was submitted for the Board of Directors’ approval through voting by communication means. The related resolution was published in China Securities Journal, Securities Times and Hong Kong iMail on 21 January 2002. 35 (3) The directors’ implementation of the resolutions approved at general meetings In accordance with the authorisation by the Thirteenth AGM, the Board had organised the 2000 dividend distribution. The distribution plan was as follows: RMB1.8 (including tax) cash dividend was paid for every 10 existing shares held. The registration trading day for entitlement to dividend distribution was 20 August 2001, while the ex-rights date was 21 August 2001. After tax dividend in cash for holders of public A share was RMB1.44 for every 10 shares held. The exchange rate for B share cash dividend was HK$1.00 = RMB1.0608. The First SGM of the year 2001 held on 15 August 2001 authorised the Board of Directors to take charge of the issue of convertible bonds and related issues : the authorization of the Board of Directors to determine the issue plan, the timing and scale of issue, the interest rate, the schedule and method of interest payment and repayment of principal, conversion price, and issuing methods according to the actual circumstances in accordance with the relevant law, regulations and the proposal for the implementation of the issue; the authorisation of the Board of Directors to amend the Company’s Articles of Association in accordance with the situation of the issue and conversion of the convertible bonds; the authorisation of the Board to determine other matters related to the issue of convertible bonds in accordance with relevant law and policy. The application for issue of convertible bonds has been examined by the China Securities Regulatory Commission. 8.7 Profit and Dividend distribution proposal Net profit of the Company in 2001 prepared in accordance with PRC accounting regulations and IAS were RMB373,747,218 and RMB375,799,131 respectively, profit available for appropriation were RMB 355,586,938 and RMB 386,122,854 respectively. The upper limit of profit available for appropriation was based on the lower of the unappropriated profit calculated in accordance with PRC accounting regulations and that calculated in accordance with IAS. Therefore, the Company’s profit available for appropriation in 2001 was RMB355,586,937.74, which was the profit prepared in accordance with PRC accounting regulations. According to relevant rules and regulations, the Board of Directors proposed the following appropriation proposal: (1) to appropriate 10% of the 2001 net profit calculated in accordance with the PRC accounting regulations to statutory surplus reserve; (2) to appropriate 5% of the 2001 net profit calculated in accordance with the PRC accounting regulations to statutory public welfare fund; 36 (3) to appropriate 50% of the 2001 net profit calculated in accordance with the PRC accounting regulations to discretionary surplus reserve; and to compensate for the deficit in unappropriated profit at the beginning of the period derived from adjustments in accounting policies and for the balance of transfer of working capital for housing allowance. (4) to appropriate for dividend distribution from the net profit for the year, basing on the Company’s total share capital and a dividend of RMB0.20 per share; (5) the balance of the unappropriated profit will be brought forward to the following financial year and reserved for dividend distribution. The allocation of the profit available for appropriation of RMB355,586,937.74 is as follows: RMB (Yuan) % share of profit available for appropriation statutory surplus reserve 37,374,721.77 10.5% statutory public welfare fund 18,687,360.89 5.3% discretionary surplus reserve 168,713,328.88 47.4% dividend distribution for the year 126,194,388.20 35.5% the unappropriated profit prepared in 4,617,138.00 1.3% accordance with PRC accounting regulations brought forward to the following financial year the unappropriated profit prepared in 35,153,055.00 accordance with IAS brought forward to the following financial year Based on a total share capital of 630,971,941 shares as at the end of 2001, the total dividend for the year 2001 was RMB0.20 per share (including tax). The dividend will be paid in cash on the basis of RMB2.0 (including tax) for every 10 existing shares held. Dividend of B shares will be paid, based on the benchmark exchange rate of Renminbi for Hong Kong Dollars, published by the People’s Bank of China on the first working day after the approval of profit and dividend distribution proposal at the Company’s forthcoming General Meeting. The directors resolved not to transfer capital surplus reserve to share capital during the year. The distribution proposal is subject to the shareholders’ approval at the General Meeting. 37 8.8 Anticipated 2002 profit appropriation policy (1) In 2002, the Company will only have one distribution with no interim dividend distribution; (2) In 2002, the Company's dividend distribution will be accounted for 30-40% of the net profit of the Company in 2001. The unappropriated profit in 2001 will be brought forward for appropriation in 2001. (3) In 2002, the Company's dividend distribution will be paid in cash, and cash dividend will be accounted for 100% of the Company's profit distribution. (4) In 2002, the Company will not transfer capital surplus reserve to its share capital. (5) The distribution proposal is subject to the shareholders’ approval at the general meeting. 8.9 Media for Disclosure of information The Company has chosen China Securities Journal, Securities Times and a Hong Kong English publication for placing notices and announcements of the Company. 9 Report of Supervisory Committee On behalf of the Supervisory Committee, I hereby present the activity report of the Committee for the year 2001 as follows: A total of nine meetings were held by the Supervisory Committee during the reporting period: (1) The Twelfth Meeting of the Third Supervisory Committee was held on 15 February 2001. At the meeting, the health condition of Mr. Yao Mumin and the performance of Mr. Richard L Yu’s management were reported. In addition, the disposal of Shenzhen Vanke Gift Manufacturing Co., Ltd. (“Vanke Gift Manufacturing”) was discussed. The meeting also reviewed and confirmed the resolution to change the name and increase the registered capital of Wuhan Wanrui. (2) The Thirteenth Meeting of the Third Supervisory Committee was held on 16 March 2001. The meeting reviewed and confirmed the Company’s audit report for the year 2000, the appropriation and handling of the assets diminution provision for the year 2000, the proposal for the distribution of profits and dividends for the year 2000, the proposal for the profit distribution policy for the 38 year 2001. (3) The Fourteenth Meeting of the Third Supervisory Committee was held on 23 May 2001. The meeting reviewed and confirmed the resolution for convening the Thirteenth General Meeting, and other resolutions regarding the re-appointment of the auditor for the year 2001, the amendment of the Company’s Articles of Association, the re-election of the Board of Directors, the capital enlargement and the change of name of Vanguard, the re-election of the Supervisory Committee, as well as the nomination of candidates for the Fourth Supervisory Committee. (4) The First Meeting of the Fourth Supervisory Committee was held on 25 June 2001, and Mr. Ding Fuyuan was elected as the Convenor of the Fourth Supervisory Committee. (5) The Second Meeting of the Fourth Supervisory Committee was held on 11 July 2001. The meeting reviewed and confirmed the resolutions regarding the salary adjustment and incentive scheme, and the issuance of convertible bonds of the Company. (6) The Third Meeting of the Fourth Supervisory Committee was held on 10 August 2001. The meeting reviewed and confirmed the interim report of 2001 and highlights for the year 2001, and the resolution that no profit distribution and no transfer of surplus reserve fund be made for interim 2001. The meeting also reviewed the operation results and business decisions during the first half of 2001. (7) The Fourth Meeting of the Fourth Supervisory Committee was held on 15 August 2001. The meeting reviewed and approved the “Rules of Procedure of the Supervisory Committee Meeting of China Vanke Co. Ltd”. (8) The Fifth Meeting of the Fourth Supervisory Committee was held on 24 August 2001. The meeting reviewed and confirmed the resolutions regarding the proposal to transfer the Company's interests in Vanguard, the announcement of the transfer of the Company's interests in Vanguard, and the convening of the Second SGM in the year 2001. (9) The Sixth Meeting of the Fourth Supervisory Committee was held on 28 September 2001. The meeting reviewed and confirmed the resolution regarding the appointment of KPMG Huazhen for preparing the financial report for the January to September 2001 period. Independent opinion of the Supervisory Committee for the following events: (1) Regulatory compliance: Members of Supervisory Committee were present at all 39 meetings of the Board during the year and monitored the decision making process and business operation of the Company. In the opinion of the Supervisory Committee, all the decisions of the Company for the year were in compliance with the applicable laws and the internal control system was robust throughout the year. In addition, the Directors and operation managers of the Company were in compliance with the laws, rules and the Company’s Articles of Association. They did not exercise their duties against the interest of the Company, nor did they abuse their power in any way to endanger the interest of the shareholders and employees. (2) Financial monitoring: During the year, the Supervisory Committee monitored the Company’s business operation and financial position, and reviewed the financial report and other documents submitted by the Board of Directors. In the opinion of the Supervisory Committee, the audit opinions from KPMG Huazhen and KPMG are non-biased and their reports provide a true and fair view of the actual financial position and operating results of the Company. (3) Use of proceeds from the latest fund raising exercise: The proceeds from the Company’s rights issue in 1999 were received in January 2000. The actual investments in various projects were in line with the amount proposed in the prospectus, and the progress of the investment projects was satisfactory. (4) Sale of Assets and Connected Transactions: The Company sold its 100 per cent interests in Vanke Gift Manufacturing in February 2001. Upon the approval of the Second SGM in the year 2001, the Company sold outright its 72 per cent direct and indirect interests in Vanguard to CRNC and its subsidiaries in September. In the opinion of the Supervisory Committee, the Board of Directors of the Company diligently complied with the rules and procedures in conducting the aforesaid transactions, and the relevant assets were acquired or sold at fair and reasonable considerations. The Supervisory Committee is not aware of any insider trading, nor any actions that might jeopardise the interest of certain shareholders or of the Company or that might result in any loss of the Company's assets. The Supervisory Committee also noted that the Company had provided sureties for a total credit line of RMB500 million and a back-to-back guarantee of RMB30 million for Vanguard. Up till now, although Vanguard had not utilized the credit lines of RMB500 million, the Company is still subject to undertake the responsibility for the sureties, which may expose the Company to certain risks. Furthermore, the procedures for transferring the RMB30 million back-to-back guarantee to CRNC have not been completed. The Supervisory Committee made special request to the Board to pay attention to the aforesaid matters. (5) Provisions: The Board of Directors has appropriated and handled the provision of assets diminution for 2001 in accordance with the requirements of “Notice 40 Regarding the Formulation of ‘Corporate Accounting Principles’”(Cai Kuai [2000] No 25), the “Notice Regarding the Requirement for Implementation of 'Corporate Accounting Policies'” (Cai Kuai [2001] No 17) promulgated by the Ministry of Finance, the “Notice Regarding the Disclosure Requirement in Relation to the Adoption of New Accounting Principles and Policies by Listed Companies and Prospective Listed Companies” (Zheng Jian Kuai Ji [2001] No 14) and the Company’s “regulation of internal control system regarding appropriation for assets diminution provision and handling of loss”(revised in 2001). The treatment has complied with relevant regulation and the Company’s internal control system, and redressed the Company’s actual situation, which is beneficial to the Company’s long-term development. (6) Business operation of the Company: In 2001, the Company successfully disposed of its interests in Vanguard and completed its business rationalisation. During the year, the Company experienced steady growth in operating results, while continuing to expand its businesses. In addition, the development strategies in new markets have been gradually implemented with sufficient land bank, forming a solid foundation for the Company to maintain continued development. However, the Company’s subsidiary, Tianjin Vanke Real Estate Co. Ltd., reported a loss due to a large provision for solving the problems arisen from previous planning and design, construction and insufficient rules and regulations, as well as insufficient amount of floor area booked because of slow progress in the approval procedures. The Supervisory Committee considers that the Company should strengthen the management and control of its subsidiaries, give advice on enhancing operation efficiency through the development of new projects, increasing the size of floor area booked. During the process, the subsidiary should solve the problem of assets with low efficiency and return to profitability at the earliest possible time. (7) Inspections: During the year, the Supervisory Committee paid visits to the subsidiaries of the Company in Shenzhen, Shanghai, Beijing, Shenyang, Tianjin, etc., and was satisfied with the normalized operation of the subsidiaries. Ding Fuyuan Convenor of the Supervisory Committee 15 March 2002 10 Significant Events 10.1 Litigation or Arbitration of Material Significance The lawsuit disclosed in 2001 interim report, lodged by Singaporean citizens Chen Mengzhe and Chen Jinfeng against Tianjin Vanke Shine (Group) Co., Ltd. and its subsidiary, Tianjin Vanke Shine Development Co., Ltd. and Tianjin Wanxing Property 41 Management Co., Ltd., is still proceeding in court. 10.2 Acquisition And Disposal Of Assets During The Period Under Review Details on the disposal of Vanguard were set out in the following section headed “Material Connected Transactions”. The Company disposed of its subsidiary Vanke Gift Manufacturing in February 2001, and the consideration has been received in full. Details of such disposal were disclosed in the section headed “Subsequent Events” in the 2000 Annual Report and in the 2001 Interim Report. 10.3 Material Connected Transaction (1) After negotiation with CRNC, the Company exercised one-off transfer of its 72% direct and indirect interests in Vanguard (including 0.4% held by Shenzhen Vanke Trading Company Limited (“Vanke Trading”) and 0.7% held by Shenzhen Vanke Financial Consultancy Company Limited (“Vanke Financial”). China Vanke currently holds 100% equity interest in Vanke Financial, and has 95% direct interest and 5% indirect interest in Vanke Trading: hereinafter together known as “China Vanke”) to CRNC and its wholly-owned subsidiary, China Resources Domestic Trading Co Ltd (together known as “CRNC”). After negotiation, Vanguard’s market capitalisation was valued at RMB635,220,000, based on Vanguard’s audited net profit of RMB35,290,000 for the year 2000 according to PRC accounting regulations at the PE ratio of 18 times. The consideration for the 72% equity interest in Vanguard held by China Vanke and its subsidiaries amounted to RMB457,358,400. “An Agreement on the Transfer of Shareholding in Vanguard Department Company Limited” (“Transfer Agreement”) was signed between China Vanke and CRNC on 24 August, and was approved by the 2001 Second SGM on 28 September 2001. As of 19 December 2001, change in business registration had been completed, and China Vanke had received the consideration in full from CRNC. The relevant gains have been included in China Vanke’s income for the year 2001. By transferring the shareholding in Vanguard, the Company had withdrawn from retail operations. The transfer had lowered China Vanke’s 2001 turnover by about RMB680 million. However, as at the end of August 2001, after deducting the book value of Vanguard of RMB226.36 million and related taxes or fees, the shareholding transfer had brought to China Vanke an investment gain of RMB216.95 million, which accounted for 43.5% of its operating profit; at the same time, the Company also had a cash inflow of RMB420 million for investment in its property development. The shareholding transfer 42 had no impact on the stability of the Company’s management. The Independent Director of the Board has carefully reviewed the connected transaction. He is in the opinion that the connected transaction is in compliance with the laws and regulations, and is in line with the Company’s long-term development interests. The transaction has not adversely affected the interests of small and medium shareholders, and is fair and legally effective to all shareholders. In the opinion of China Eagle Securities Co Ltd, the independent financial advisers, the aforesaid consideration fully reflected the major shareholder’s support to the Company, and was determined after taking into account of Vanguard’s actual profitability and the interest of all shareholders. The independent financial advisers believe that the pricing principles, which had made full reference to the IPO price earnings ratio of listed commercial companies and the growth nature of Vanguard. The principles were determined according to scientific valuation basing upon prudent forecast of Vanguard’s future development, and were therefore fair, just and reasonable. (2)Please refer to the following section “Major surety” for the three sureties with Vanguard. (3) Leasing Arrangement with Vanguard In April 1998, Shenzhen Vanke Real Estate Company Limited (“Shenzhen Vanke”), a subsidiary of the Company, and Vanguard entered into an agreement on the leasing of Shenzhen Vanke’s commercial podium of Fujing Garden(“agreement”), pursuant to which Shenzhen Vanke agreed to lease it to Vanguard from 15 April 1999 to 15 April 2019. The Company continued to fulfil the agreement after the transfer of Vanguard, and totally received RMB4.35 million in 2001. 10.4 Major contracts and their implementation (1) Superintending, handling, renting other companies’ assets or other companies superintending, handling, renting the listed company’s assets Please refer to the above section “Leasing Arrangement with Vanguard”. (2) Major surety In March 2001, pursuant to the Board of Directors’ approval through voting by communication means, the Company offered to the Agricultural Bank, Shenzhen Luohu Branch (“Agricultural Bank”), a surety for a credit line of RMB200 million for Vanguard’s working capital. The expiry date for the aforesaid surety is 16 April 2002. The Company also provides a surety for a credit line of RMB300 million for working capital to the Shenzhen branch of ICBC, of which the expiry date is 19 June 2002. In August 2001, pursuant to the resolutions approved at the Fifth Meeting of the Twelfth Board of Directors, the Company has undertaken a back-to-back guarantee with ICBC 43 for its role as a guarantor to Vanguard for its fulfilment of the agreement regarding a RMB30 million property purposed built for Vanguard. As listed companies are not allowed to provide surety to their shareholders’ subsidiaries, and Vanguard had not utilised any of the credit lines of RMB200 million and RMB300 million with the Agricultural Bank and ICBC respectively at the time when the transfer agreement was entered into, the Company has submitted the “application letter for a revocation of the guarantee”. The Company’s applications have not been confirmed by the two banks as of the date of announcement. To reduce the guarantee risk and protect the investors’ interest, according to the Transfer Agreement signed with CRNC on 24 August 2001, to Vanke CRNC will undertake the back-to-back surety for the above-mentioned sureties of a total credit line of RMB500 million. As of the date of announcement, Vanguard has not utilised any of the credit lines of a total of RBM500 million. Meanwhile, the Company is working on transferring the RMB30 million back-to-back guarantee to CRNC. The Shenzhen branch of ICBC has accepted the application, which as of the date of announcement is still proceeding. (3) Cash asset management The Company had not appointed any third party to undertake cash asset management. (4) Other major contracts The Company had entered into a “General Agreement on the provision of RMB1 billion credit line” (“the Agreement”) with the Bank of China (“BOC”) in Shenzhen on 25 June 2001. The Agreement is a detailed implementation agreement under the framework of the Bank and Enterprise Cooperation Agreement signed between BOC and the Company in 2000. Under the Agreement, BOC will provide a credit line of RMB1 billion to the Company. The Company and the head office of the Agricultural Bank entered into a “Bank and Enterprise Cooperation Agreement” in Beijing on 2 July 2001. The Agricultural Bank will provide an integrated credit line of RMB1 billion and a mortgage credit line of RMB800 million to the Company. The Company entered into a “Bank and Enterprise Cooperation Agreement” with the headquarters of China Merchants Bank in Shenzhen on 27 September 2001 to obtain an integrated credit line of RMB600 million. The above cooperation agreements between the related banks and the Company had been implemented smoothly. During the year, the Group had entered into agreements on the Shanghai Minhang Jinfeng Project, Baoshan New Town Project, Pudong Caolu Project, Shenzhen Four Seasons Flower City Project (third district), Beijing Haidian Tianxiu Project, Chengdu City Garden phase II Project, Wuhan Four Seasons Flower City Project, Changchun City Garden Project, Nanjing Metropolitan Apartments Project, Tianjin Hongqi 44 Farmland Project, Shenzhen Dameisha Project, Nanchang Four Seasons Flower City Project, Tianjin Glass Factory Project, Shenyang Dadong Gymnasium Project, Xijiangjie Project. For details, please refer to “Project investments” under the section “Use of capital not from the capital market”. 10.5 Implementation of Company’s undertaking The following profit distribution policy for the year 2001 was announced in the 2000 Annual Report: (1) Number of profit distribution: In the year 2001, the Company conducted one dividend distribution but did not declare an interim dividend; (2) Proportion of profit distribution: In the year 2001, the Company’s dividend distribution accounted for 30 per cent to 40 per cent of the realised net profit of the Company for the year 2001. The Company’s 2000 unappropriated profit will be carried forward for appropriation in the following year; (3) Method of profit distribution: Dividend distribution for the year 2001 will be paid in cash, with cash payment accounted for 100 per cent of the dividend distribution. The Company has fulfilled its undertaking. For details of the profit distribution, which will be considered at the AGM, please refer to the above section of “Profit and Dividend Distribution Proposal and Transfer of Capital Surplus Reserve to Share Capital Proposal”. 10.6 Appointment and Termination of the service of Certified Public Accountants At the Thirteenth AGM, the Group re-appointed Zhong Tian Qin Certified Public Accountants and KPMG as auditors to audit the Group’s 2001 accounts in accordance with the PRC accounting regulations and International Accounting Standards (“IAS”) respectively. The Board of Directors was authorised to determine the auditors’ remuneration. On 28 September 2001, the Sixth Meeting of the Twelfth Board of Directors resolved to terminate the appointment of Zhong Tian Qin Certified Public Accountants and to appoint KPMG Huazhen as the auditors of the Company to audit the Company’s 2001 accounts and the accounts for the first nine months of 2001 in accordance with the PRC accounting regulations. The appointment was agreed by the Independent Director Sun Jianyi. In accordance with the relevant regulations, the above-mentioned issue will be submitted to the next shareholders meeting for confirmation. The appointment of accounting firms for Company and its subsidiaries are as follows: For the year 2001 For the year 2000 Audit Project Remarks Auditors Audit fee Auditors Audit fee 45 The Company- A share Subsidiaries in KPMG Zhong Tian Beijing, Tianjin, Huazhen RMB700,000.00 Qin CPA RMB680,000.00 Shanghai, Shenzhen The Company- B share KPMG HKD1,260,000.00 KPMG HKD1,200,000.00 Yuehua Shenyang Subsidiaries in the Certified Hualun CPA RMB35,000.00 The subsidiary in Changchun Northeast of Public RMB75,000.00 established in China Dalian Accountants 2001 Zhengyuan RMB20,000.00 Co. Ltd. CPA The establishment of Deloitte subsidiaries in Touche Nanjing and Subsidiaries in Zhong Tian Wuhan, the Wuhan, Chengdu, Tohmatsu RMB140,000.00 RMB14,000.00 portfolio growth Nanjing Qin CPA Shanghai in Chengdu CPA caused the increase in Audit fee Subsidiaries in Fan, Chan & HKD31,500.00 Fan, Chan Hongkong Co. CPA & Co. CPA HKD22,000.00 （estimated） Remarks: (1) The above-mentioned audit fee included the travel expenditure incurred during the auditing period. (2) The Company had paid RMB650,000 to KPMG Huazhen for auditing the Company’s accounts for the first nine months of 2001 for issue of the convertible bonds. 10.7 No disciplinary action was taken against the Company's Directors, members of Supervisory Committee and senior management during the reporting period. 10.8 Changes in Members of Board of Directors Please refer to the sections, “Reasons for the resignation of Directors, Members of the Supervisory Committee and Senior Management during the year under review” and “The Thirteenth Annual General Meeting”. 46 10.9 The impact of income tax policy change on Company’s result Certain of the Company’s subsidiaries incorporated outside of the Shenzhen special economic zone were subject to certain investment incentives under the income tax preferential policy from local governments, thus reducing part of the development cost of projects. According to Caishui [2000] No 99 “Notice regarding further implementation in a stringent manner of the State Council’s ‘Notice regarding redress of the policies on financial rebate of taxable income received formulated by local authorities’” issued by the Ministry of Finance, the investment incentives policy that certain of the Company’s subsidiaries enjoyed from the local governments may be affected, which in turn will have certain impact on the Company’s profit for 2002 and the years after. 10.10 The impact of the PRC's accession to the World Trade Organisation on the Company’s future operation Property development, the major business of the Company, is strongly regional, and is relatively open to competition. Since 1992, foreign property developers who have an interest in the PRC market have already established a local presence. As such, PRC’s entry to the World Trade Organisation (“WTO”) will have a relatively small impact on Mainland China’s property business in the short run. Nevertheless, the proportion of foreign-invested properties to the total property investment of the PRC will become larger. In addition, after the PRC’s accession to the WTO, the tariff for imported building materials and construction equipment will drop significantly. As a result, the product prices of the domestic industries of building materials, construction, decoration and renovation may fall, which will help lower the cost of property development. In a nutshell, the Company will actively pursue cooperation opportunities with international investors to gain access to global financing channels. On the other hand, the Company will leverage on existing market opportunities to conduct cost-effective operation expansion, through which the Company could enhance its overall strength to prepare itself for intensified market competition and to maintain steady growth. 10.11 Other Significant Events (1) Change of Articles of Association The amendment of the Company’s Articles of Association was approved at the Thirteenth AGM. The Company amended Article 93 of the Company’s Articles of Association such that the Board comprises 13 Directors with one Chairman and one to two Vice Chairmen. (2) Change of business address Pursuant to the Board of Directors’ approval, the business address of the Company was changed on January 21, 2002 to No 63, Meilin Road, Futian District, Shenzhen, the PRC, postal code of 518049. The Company’s registered address had been changed accordingly. 47 11 A Chronology of 2001 In February, the Company sold its 100% interest in Vanke Gift Manufacturing. During the year, the Group continued to expand its land bank. The Group entered into the four cities of Nanjing, Wuhan, Changchun and Nanchang for property development through signing the agreements on the Shanghai Minhang Jinfeng Project, Baoshan New Town Project, Pudong Caolu Project, Shenzhen Four Seasons Flower City Third District Project, Beijing Haidian Tianxiu Project, Chengdu City Garden Phase II Project, Wuhan Four Seasons Flower City Project, Changchun City Garden Project, Nanjing Metropolitan Apartments Project, Tianjin Hongqi Farmland Project, Shenzhen Dameisha Project, Nanchang Four Seasons Flower City Project, Tianjin Glass Factory Project, Shenyang Dadong Gymnasium Project, and Xijiangjie Project. During the year, the credit line of the Group was further strengthened. In June, the Group entered into the “General agreement on the provision of RMB1 billion credit line” with the BOC. In July, the Group also entered into a “Bank and Enterprise Cooperation Agreement” with the headquarters of the Agricultural Bank to obtain an integrated credit line of RMB1 billion and a mortgage credit line of RMB800 million. In September, the Group entered into a “Bank and Enterprise Cooperation Agreement” with the headquarters of China Merchants Bank to obtain an integrated credit line of RMB600 million. Since March, the human resources department of the Group had been working closely with international renowned human resources consultancy firm, Hewitt, to fully evaluate the Group’s salary structure. Based on the report, the Company had made adjustment to the salary structure. In June, the Thirteenth AGM was held at the East Lake Hotel in Shenzhen. The meeting considered and approved the resolutions regarding the work report of the Board of Directors, the work report of the Supervisory Committee, the bonus and dividend distribution policy, the appointment of auditors. Replacement of Zhu Huanliang by way of poll at the meeting and the election of Song Lin, Xu Gang, Yao Mumin as Directors and Sun Jianyi as Independent Director through accumulated poll to form the Twelfth Board of Directors with the incumbent Directors, namely, Wang Shi, Ning Gaoning, Huang Tieying, Richard L Yu, Xue Bo, Chen Zhiyu, Yan Biao, Zhong Yi and Chen Geng; election of Ding Fuyuan and Jiang Wei as the members to form the Fourth Supervisory Committee with incumbent member Xie Dong. In August, the First SGM of 2001 was held at East Lake Hotel in Shenzhen. The Board considered and approved the resolutions regarding the issue of convertible bonds. 48 In September, the Second SGM of 2001 was held at East Lake Hotel in Shenzhen. The following resolutions were considered and approved at the meeting: (1) the transfer of equity interest in Vanguard; (2) the rules governing the proceedings of the Company’s shareholder meeting. To this day, the Company had became total professional in its business. 12 Report of the Auditors 49 China Vanke Co., Ltd. 审计报告 31 December 2001 50 kpmg Report of the independent auditors to the shareholders of China Vanke Co., Ltd. (Established as a joint stock company in the People’s Republic of China with limited liability) We have audited the consolidated balance sheet of China Vanke Co., Ltd. (the “Company”) and its subsidiaries (together with the Company referred to as the “Group”) as of 31 December 2001 and the related consolidated statement of income and cash flows for the year then ended, set out on pages 2 to 37. These consolidated accounts are the responsibility of the Group’s directors. Our responsibility is to express an opinion on these consolidated accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing as promulgated by the International Federation of Accountants. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the accounts are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the accounts. An audit also includes assessing the accounting principles used and significant estimates made by the directors, as well as evaluating the overall accounts presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated accounts give a true and fair view of the financial position of the Group as of 31 December 2001, and of the results of its operations and its cash flows for the year then ended in accordance with International Accounting Standards adopted by the International Accounting Standards Board. Certified Public Accountants Hong Kong, 51 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 (Expressed in Renminbi Yuan) Consolidated income statement for the year ended 31 December 2001 Note 2001 2000 RMB RMB Revenue 2 4,226,113,439 3,703,432,859 Cost of sales (3,401,946,882) (2,847,432,246) Gross profit 824,166,557 856,000,613 Gain on sales of discontinuing operation 3 216,568,750 - Other operating income 5 19,848,636 43,099,881 Distribution costs (286,039,287) (296,323,133) Administrative expenses (272,344,032) (174,440,145) Other operating expenses 6 (10,771,682) (7,782,331) Profit from operations 2 491,428,942 420,554,885 Net financing income/(expenses) 8 7,639,873 (22,378,353) Operating profit 499,068,815 398,176,532 Share of losses less profits of associated companies (64,850) (2,842,125) Profit before tax 499,003,965 395,334,407 Taxation 9(a) (114,936,333) (77,611,744) Profit after tax 384,067,632 317,722,663 Minority interests (8,268,501) (8,276,578) Net profit for the year 23 375,799,131 309,446,085 =========== =========== Earnings per share 10 0.60 0.49 === === 52 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 The notes on pages 7 to 37 form part of these accounts. 53 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 (Expressed in Renminbi Yuan) Consolidated statement of recognised gains and losses for the year ended 31 December 2001 Note 2001 2000 RMB RMB Exchange differences on translation of the accounts of foreign entities 23 17,528 127,049 Net gains not recognised in the consolidated income statement 17,528 127,049 Net profit for the year 375,799,131 309,446,085 Total recognised gains and losses 375,816,659 309,573,134 ========== ========== The notes on pages 7 to 37 form part of these accounts. 54 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 (Expressed in Renminbi Yuan) Consolidated balance sheet at 31 December 2001 Note 2001 2000 RMB RMB ASSETS Non-current assets Fixed assets 12 524,929,176 717,199,972 Construction in progress 21,622,103 - Intangible assets 13 66,119 2,182,652 Investments in associates 15 31,078,933 27,797,119 Other investments 16 46,211,347 46,904,265 Deferred tax assets 17 7,564,523 7,564,523 Properties held for development 2,114,962,363 895,270,844 2,746,434,564 1,696,919,375 ------------------- ------------------- Current assets Inventories 18 4,980,641 310,142,050 Completed properties for sale 1,172,668,914 764,881,405 Properties under development 1,188,992,111 1,766,609,099 Trade and other receivables 19 551,343,223 580,924,621 Marketable securities 20 - 602,499 Cash and cash equivalents 21 805,379,673 1,001,572,943 3,723,364,562 4,424,732,617 ------------------- ------------------- Total assets 6,469,799,126 6,121,651,992 =========== =========== EQUITY AND LIABILITIES Capital and reserves Share capital 22 630,971,941 630,971,941 Reserves 23 2,606,199,903 2,343,958,193 3,237,171,844 2,974,930,134 55 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 ------------------- ------------------- Minority interests 1,992,330 54,249,756 ------------------- ------------------- 56 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 (Expressed in Renminbi Yuan) Consolidated balance sheet at 31 December 2001 (continued) Note 2001 2000 RMB RMB Non-current liabilities Interest-bearing loans and borrowings 24 261,000,000 80,000,000 Deferred tax liabilities 17 - 250,000 261,000,000 80,250,000 ------------------- ------------------- Current liabilities Interest-bearing loans and borrowings 24 1,353,000,000 566,000,000 Trade and other payables 25 1,519,098,261 2,338,876,641 Taxation 9(b) 97,536,691 107,345,461 2,969,634,952 3,012,222,102 ------------------- ------------------- Total equity and liabilities 6,469,799,126 6,121,651,992 =========== =========== Approved by the Board of Directors on ) ) ) Directors ) ) The notes on pages 7 to 37 form part of these accounts. 57 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 (Expressed in Renminbi Yuan) Consolidated cash flow statement for the year ended 31 December 2001 Note 2001 2000 RMB RMB OPERATING ACTIVITIES Net cash (outflow)/inflow from operating activities 29 31,173,392 (1,441,849,965) ------------------- ------------------- INVESTING ACTIVITIES Proceed of capital injection from minority interest 31,400,000 - Disposal of a subsidiary, net of cash disposed of 4(c) 435,892,374 649,161 Acquisition of subsidiary, net of cash acquired 4(c) (1,348,563) - Acquisition of interest in associates (10,000,000) (3,300,000) Disposal of fixed assets 162,854,759 114,849,781 Acquisition of fixed assets (220,589,472) (169,059,689) Addition of construction in progress (21,622,103) - Proceeds from disposal of marketable securities 1,836,500 1,598,281 Proceeds from disposal of other investments 1,018,918 36,330,761 Interest received 15,130,978 19,972,138 Dividend received 420,725 447,800 Net cash inflow from investing activities 394,994,116 1,488,233 ------------------- ------------------- FINANCING ACTIVITIES Right issue of shares - 625,384,885 Net increase in borrowings 3,162,000,000 1,853,000,000 Repayment of borrowings (2,194,000,000) (2,157,234,400) Dividend paid to minority interest (3,780,000) (3,780,000) Dividend paid (113,574,949) (94,645,791) Net cash inflow from financing activities 850,645,051 222,724,694 ------------------- ------------------- Net (decrease)/increase in cash and cash equivalents (196,210,798) 255,386,319 Effect of foreign exchange rates 17,528 127,049 58 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 Cash and cash equivalents at 1 January 21 1,001,572,943 746,059,575 Cash and cash equivalents at 31 December 21 805,379,673 1,001,572,943 =========== =========== The notes on pages 7 to 37 form part of these accounts. 59 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 (Expressed in Renminbi Yuan) Notes on the accounts 1 Significant accounting policies China Vanke Co., Ltd is a company domiciled in the People’s Republic of China (“PRC”). The consolidated accounts of the Company for the year ended 31 December 2001 comprise the Company and its subsidiaries (together referred to as the “Group”) and the Group’s interest in associates. The consolidated accounts of the Group were authorised for issue by the Directors on 12 March 2002. (a) Statement of compliance The consolidated accounts of the Group have been prepared in accordance with the International Accounting Standards (“IAS”) issued by the International Accounting Standards Board (“IASB”) and interpretations issued by the Standing Interpretation Committee of the IASB. (b) Basis of preparation The measurement basis used is historical cost except that marketable securities are stated at lower of cost and market value as explained in the relevant accounting policy set out below. The accounting policies have been consistently applied by the Group and, except for the change in accounting policy (note 31), are consistent with those of the previous year. (c) Basis of consolidation (i) Subsidiaries Subsidiaries are those enterprises controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. The accounts of subsidiaries are included in the consolidated accounts of the Group from the date that control effectively commences until the date that control effectively ceases. A list of the Group’s principal subsidiaries is set out in note 14. (ii) Associates Associates are those enterprises in which the Group has significant influence, but not control, over the financial and operating policies. The consolidated accounts of the Group include the Group’s share of the total recognised gains and losses of associates on an equity accounted basis, from the date that significant influence effectively commences until the date that significant influence effectively ceases. When the Group’s share of losses exceeds the carrying amount of the associates, the carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred obligations in respect of the associates. A list of the Group’s principal associates is set out in note 15. 60 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 1 Significant accounting policies (continued) (c) Basis of consolidation (continued) (iii) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised gains arising from intra-group transactions, are eliminated in preparing the consolidated accounts of the Group. Unrealised gains arising from transactions with associates are eliminated to the extent of the Group’s interest in the enterprise against the investment in associates. Unrealised losses are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment. (d) Translation of foreign currencies Foreign currency transactions during the year are translated into Renminbi Yuan at the exchange rates ruling at the transaction dates. Monetary assets and liabilities in foreign currencies are translated into Renminbi Yuan at the exchange rates ruling at the balance sheet date. Exchange gains and losses on foreign currency translation are dealt with in the consolidated income statement. Non-monetary assets and liabilities denominated in foreign currencies, which are stated at historical cost, are translated to Renminbi at the foreign exchange rate ruling at the date of transaction. The assets and liabilities of foreign subsidiaries are translated into Renminbi Yuan at the exchange rates ruling at the balance sheet date while items of income and expense are translated at rates approximating the exchange rates at the dates of the transactions. Exchange differences are dealt with in reserves. (e) Fixed assets and depreciation (i) Fixed assets are stated at purchase price or production cost less accumulated depreciation and impairment losses (note 1(x)). Production cost for self-constructed assets includes the cost of materials; direct labour and an appropriate proportion of production overheads and borrowing costs. Where an item of fixed assets comprises major components having different useful lives, they are accounted for as separate items of fixed assets. (ii) Subsequent expenditure Subsequent expenditure incurred to replace a component of an item of fixed assets including inspection and overhaul expenditure is capitalised. Other subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the fixed assets. All other expenditure is recognised in the consolidated income statement as an expenses as incurred. 61 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 1 Significant accounting policies (continued) (e)Fixed assets and depreciation (continued) (iii) Depreciation is calculated to write off the cost of fixed assets less their estimated residual values over their anticipated useful lives on a straight-line basis as follows: Estimated residual value as a percentage Year of costs Buildings 12.5 - 25 4% Investment properties 25 4% Improvements to premises 5 years or over terms of leases - Plant and machinery 5 - 10 4% Furniture, fixtures and equipment 5 - 10 4% Motor vehicles 5 4% Investment properties are interests in properties in respect of which construction work and development have been completed and which are held for their investment potential. (f) Construction in progress Construction in progress is stated at cost. No depreciation is provided for. Construction in progress will be classified as fixed assets once construction work has been completed and the asset is in use. (g) Intangible assets (i) Goodwill Goodwill arising on an acquisition represents the excess of the cost of the acquisition over the fair value of the net identifiable assets acquired. Goodwill is stated at cost less accumulated amortisation and impairment losses (note 1(x)). In respect of associates, the carrying amount of goodwill is included in the carrying amount of the investments in associates. Goodwill is amortised from the date of initial recognition on a straight-line basis to the consolidated income statement over its estimated useful life not exceeding five years. The unamortised balance of goodwill is reviewed at least annually. Where the balance exceeds the value of expected future benefits, the difference is charged to the consolidated income statement immediately. 62 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 1 Significant accounting policies (continued) (g) Intangible assets (continued) (ii) Negative goodwill Negative goodwill arising on an acquisition represents the excess of the fair value of the net identifiable assets acquired over the cost of acquisition. To the extent that negative goodwill relates to an expectation of future losses and expenses that are identified in the plan of acquisition and can be measured reliably, but which have not yet been recognised, it is recognised in the consolidated income statement when the future losses and expenses are recognised. Any remaining negative goodwill, but not exceeding the fair values of the non-monetary assets acquired, is recognised in the consolidated income statement over the weighted average useful life of those assets that are depreciation/amortisable. Negative goodwill in excess of the fair values of the non-monetary assets acquired is recognised immediately in the consolidated income statement. (h) Pre-operating expenses Pre-operating expenses represent costs incurred by subsidiaries prior to the commencement of their businesses and are expensed as incurred. (i) Other investments Other investments represent investments in unquoted shares of various companies in which the Group neither holds, directly or indirectly, 20% or more of the voting powers nor exercises significant influence. The investments are carried at cost less any - impairment losses (note 1(x)). On disposal of an investment, the difference between the net disposal proceeds and the carrying amount is recognised in the consolidated income statement. (j) Taxation Taxation in the consolidated income statement comprises current tax and the change in deferred tax. Income tax is recognised in the consolidated income statement except to the extent that it relates to items recognised directly to equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using the tax rates enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. 63 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 1 Significant accounting policies (continued) (j) Taxation (continued) Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amounts of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. (k) Properties held for development Properties held for development are stated at cost less provision for anticipated losses, where appropriate. (l) Inventories Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Work in progress and manufactured finished goods are valued at production cost including direct production costs (cost of materials and labour) and an appropriate proportion of production overheads. The cost of raw materials is computed using the weighted average cost method. (m) 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 represents the estimated selling price less the estimated costs necessary to make the sale. 64 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 1 Significant accounting policies (continued) (n) Properties under development Properties under development held for sale are stated at the lower of cost and net realisable value. Cost includes cost of land use rights acquired, construction costs and interest charges during the period of construction. Net realisable value represents the estimated selling price less the estimated costs of completion and the estimated costs necessary to make the sale. (o) Trade and other receivables Trade and other receivables are stated at their cost, less impairment losses (note 1(x)). (p) Marketable securities Marketable securities are quoted shares which are intended to be held for dealing purposes. The marketable securities are stated at the lower of cost and market value on an individual investment basis. All increases or decreases in provision are recognised in the consolidated income statement. (q) Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. For the purpose of the consolidated cash flow statement, cash and cash equivalents are presented net of bank overdrafts. (r)Interest-bearing loans and borrowings Interest-bearing loans and borrowings are recognised initially at cost, less attributable transaction costs. Subsequent to initial recognition, interest-bearing loans and borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the consolidated income statement over the period of the borrowings on an effective interest basis. (s) Trade and other payables Trade and other payables are stated at their cost. 65 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 1 Significant accounting policies (continued) (t) Segment reporting A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. (u) Revenue (i) Revenue from the sale of completed properties is recognised upon signing of the sale and purchase agreement when the significant risks and rewards of ownership have been transferred to the buyer. Deposits and instalments received on properties sold prior to the date of revenue recognised are included in balance sheet under deposits received in advance. (ii) Revenue from the sale of goods is recognised when the significant risks and rewards of ownership have been transferred to customers. (iii) Revenue from services is recognised when services are rendered. (iv) Rental income from investment property is recognised on a straight-line basis over the terms of the respective leases. (v) No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods. (v) Expenses (i) Operating lease payments Payments made under operating leases are recognised in the consolidated income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised in the consolidated income statement as an integral part of the total lease payments made. (ii) Net financing costs Net financing costs comprise interest payable on borrowings, interest receivable on funds invested, dividend income and foreign exchange gains and losses that are recognised in the consolidated income statement (note 1(d)). Interest income is recognised in the consolidated income statement as it accrues, taking into account the effective yield on the asset. Dividend income is recognised in the consolidated income statement on the date that the dividend is declared. All interest and other costs incurred in connection with borrowings are expensed as incurred as part of net financing costs, except amounts capitalised as stipulated in note 1(w). 66 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 1 Significant accounting policies (continued) (w) Borrowing costs Borrowing costs are expensed in the consolidated income statement for the period in which they are incurred, except to the extent that they are capitalised as being directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale. (x) Impairment The carrying amounts of the Group’s assets, other than inventories (note 1(l)) and deferred tax assets (note 1(j)), are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. For intangible assets that are not yet available for use, the recoverable amount is estimated at each balance sheet date. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. All impairment losses are recognised in the consolidated income statement. (i) Reversals of impairment An impairment loss in respect of the Group’s assets is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed unless the loss was caused by a specific external event of an exceptional nature that is not expected to recur, and the increase in recoverable amount relates clearly to the reversal of the effect of that specific event. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation and amortisation, if no impairment loss had been recognised. (ii) Calculation of recoverable amount The recoverable amount of the Group’s asset is the greater of their selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash generating unit to which the asset belongs. 67 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 1 Significant accounting policies (continued) (y) Provisions A provision is recognised in the consolidated balance sheet when the Group has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. (z) Dividends Dividends on ordinary shares are recognised as a liability in the period in which they are declared. (aa) Retirement benefits The Group participates in retirement schemes operated by local authorities and the annual cost of providing retirement benefits is charged to the consolidated income statement according to the contribution determined by the relevant schemes. The Group has no further liability to the retirement schemes operated by the local authorities. (ab) Discontinuing operation A discontinuing operation is a clearly distinguishable component of the Group’s business that is abandoned or terminated pursuant to a single plan, and which represents a separate major line of business or geographical area of operations. 68 Accounts for the year end 2 Se Segment information is presented in respect of the Group’s business and geographical segments. The primary format, business segments, is based management and internal reporting structure. Inter-segment pricing is determined on an arm’s length basis. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unalloca comprise income-earning assets and revenue, interest-bearing loans, borrowings and expenses, and corporate assets and expenses. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period. Business segments The Group comprises the following main business segments: Property development : The construction and development of properties for sale and rental. Retailing : The operation of department stores and related distribution activities. Other operations : Other operations comprise trading activities and manufacturing activities. The retailing segment was disposed of in August 2001 (refer notes 3 and 4). Property development Retailing Other operations Co 2001 2000 2001 2000 2001 2000 2001 RMB RMB RMB RMB RMB RMB RMB Revenue External - sales 3,244,707,871 2,353,976,898 957,377,704 1,285,305,459 9,019,559 47,033,435 4,211,105,134 Rentals 5,025,927 6,221,017 3,574,263 10,896,050 6,408,115 - 15,008,305 Total revenue 3,249,733,798 2,360,197,915 960,951,967 1,296,201,509 15,427,674 47,033,435 4,226,113,439 =========== ========== ========== ========== ========== ========== ========== Result Segment result 300,360,716 370,861,496 33,627,587 36,732,311 9,017,766 24,542,915 343,006,069 =========== ========== ========== ========== ========== ========== Gain on sales of discontinuing operation 216,568,750 Unallocated expenses (68,145,877) Profit from operations 491,428,942 Net financing income/(expenses) 7,639,873 Share of losses less profits of associated companies (64,850) Taxation (114,936,333) 69 Accounts for the year end Minority interests (8,268,501) Net profit for the year 375,799,131 ========== 70 Property development Retailing 2001 2000 2001 2000 RMB RMB RMB RMB Other information Segment assets 5,889,949,960 4,872,107,679 - 784,820,361 205 Associated companies 34,975,949 25,040,799 - - Unallocated assets Consolidated total assets Segment liabilities 3,168,569,275 2,455,449,189 - 569,996,311 6 Unallocated liabilities Consolidated total liabilities Capital expenditure 112,493,342 269,980,896 94,066,141 95,665,886 14 ========== ========== ========== ========== ==== Depreciation and amortisation 65,795,290 46,241,984 15,867,845 27,160,146 9 ========== ========== ========== ========== ==== Impairment losses 11,012,500 - - - 7 ========== ========== ========== ========== ==== Geographical segments In addition to the information on business segments based on the structure of the Group, the figures below present information for geographical segments. Th The property development division mainly operates in Shenzhen, Tianjin, Beijing, Shanghai and Shenyang whilst the retailing and other divisions mainly oper Shenzhen Tianjin Beijing Shanghai Shenyang 2001 2000 2001 2000 2001 2000 2001 2000 2001 RMB RMB RMB RMB RMB RMB RMB RMB RMB Revenue External - sales 2,203,780,860 2,340,411,676 81,919,923 368,628,989 533,006,005 356,130,306 850,542,527 323,612,326 340,881,615 280,23 Rental 10,505,376 16,112,302 2,396,141 1,004,765 25,200 - 1,988,447 - 8,150 Total revenue 2,214,286,236 2,356,523,978 84,316,064 369,633,754 533,031,205 356,130,306 852,530,974 323,612,326 340,889,765 280,23 =========== =========== ========== ========== ========== ========== ========== ========== ========== ====== Segment assets 2,340,085,928 2,206,244,419 794,469,676 990,035,406 1,268,757,825 1,296,428,432 1,086,583,276 840,684,198 652,613,912 372,16 =========== =========== ========== ========== ========== ========== ========== ========== ========== ====== Capital 71 expenditure 125,316,552 186,797,738 23,487,595 76,967,123 8,363,727 55,071,563 38,208,814 58,847,475 11,638,574 4,00 =========== =========== ========== ========== ========== ========== ========== ========== ========== ====== Segment revenue is based on the geographical location of the customers. Segment assets and capital expenditures are disclosed by the geographical location 72 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 3 Discontinuing operation In August 2001, the Group entered into a binding agreement for disposal of its subsidiary in its Retailing Segment, a separate business segment (refer to note 2). The disposal is consistent with the Group’s long-term strategy to focus its activities on property development. The control of the subsidiary effectively ceased at 31 August 2001. The results of the discontinuing operations are as follows: Discontinuing operation 2001 2000 RMB RMB Revenue 960,951,967 1,285,305,459 Cost of sales (762,609,687) (1,051,063,710) Gross profit 198,342,280 234,241,749 Gain on sales of discontinuing operation 216,568,750 - Other operating income 8,347,694 9,214,986 Distribution costs (146,567,650) (171,060,145) Administrative expenses (26,391,178) (37,984,403) Other operating (expenses)/income (103,557) 167,684 Profit from operations 250,196,339 34,579,871 Net financing income 510,843 2,010,663 Profit before tax 250,707,182 36,590,534 Taxation (36,963,223) (7,009,047) Profit after tax 213,743,959 29,581,487 Minority interests (8,276,171) (8,276,578) 73 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 Net profit for the year 205,467,788 21,304,909 =========== =========== 74 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 3 Discontinuing operation (continued) At 31 December 2000, the Retailing Segment had net assets of RMB214,824,050, comprising assets of RMB784,820,361 less liabilities of RMB569,996,311. At 31 August 2001, the Retailing Segment had shared net assets of RMB240,789,650. The Segment was sold for RMB457,358,400 cash and a pre-tax gain of RMB216,568,750 was recorded. The attributable income tax was RMB32,485,313, leaving a gain after tax of RMB184,083,437. Note 4 shows the effect of the disposal on individual assets and liabilities of the Group. During 2001, the Retailing had cash outflows from operating activities of RMB69,339,615 (2000: cash inflows of RMB146,835,663), cash outflows from investing activities of RMB121,946,823 (2000: RMB38,535,502), and no cash flow from financing activities (2000: cash outflow of RMB14,600,798). 4 Effect of acquisition and disposal of subsidiaries (a) Acquisition On 29 May 2001, the Group acquired the remaining interest in Shenzhen A-Housing Company Limited (“A-Housing”), satisfied in cash. A-Housing provides e-business services. The acquisition was accounted for using the purchase method of consolidation. In the seven months to 31 December 2001, A-Housing contributed net profit of RMB1,625,802 to the consolidated net profit for the year. (b) Disposal During the year, the Group disposed of a subsidiary of its retailing division (refer note 3). The subsidiary contributed RMB21,304,909 to the consolidated net profit for the year ended 31 December 2000 and RMB237,295,791, after taking into account of the gain on the dipsoal, for the eight months ended 31 August 2001. In addition, the Group disposed of another subsidiary during the year. The result of the subsidiary is not material. 75 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 4 Effect of acquisition and disposal of subsidiaries (continued) (c)Cash flow on acquisition and disposal of subsidiaries The assets and liabilities disposed of, and the cash flows arising, can be analysed as follows: 2001 2000 Acquisition Disposal Disposal RMB RMB RMB Fixed assets 646,707 (208,077,135) (6,139) Other investments - (100,000) - Properties held for development - - - Completed properties for sale - - - Properties under development - - - Inventories - (245,103,470) (594,495) Trade and other receivables 3,592,040 (191,942,284) (84,799) Cash 5,351,437 (21,466,026) (412,087) Current interest bearing loans and borrowings - - - Trade and other payables (133,864) 383,640,355 17,694 Taxation - (45,887,017) (41,262) Net identifiable assets and liabilities 9,456,320 (328,935,577) (1,121,088) Less: Minority interests - 88,145,927 - Interest in an associate (2,756,320) - - (Profit)/loss on disposals - 59,840 (216,568,750) Consideration received, satisfied in cash 6,700,000 (457,358,400) (1,061,248) Cash (acquired)/disposed of (5,351,437) 21,466,026 412,087 Cash outflow/(inflow) 1,348,563 (435,892,374) (649,161) ========== ========== ========= 5 Other operating income 2001 2000 RMB RMB Amortisation of negative goodwill (note 13) 2,729,242 2,392,854 Profit on disposal of other investments (note 16) 426,000 15,465,495 Profit on disposal of marketable securities 1,234,001 1,387,370 Gain on disposal of fixed assets 488,917 3,208,488 Forfeited deposits from customers and compensation from customers 10,166,015 11,405,694 Other sundry income 4,804,461 9,239,980 19,848,636 43,099,881 76 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 ========= ========= 77 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 6 Other operating expenses 2001 2000 RMB RMB Amortisation of goodwill (note 13) 4,845,775 4,711,500 Penalties to government 2,570,295 - Compensation to customers 1,437,347 Loss on disposal of a subsidiary (note 4(c)) - 59,840 Other sundry expenses 1,918,265 3,010,991 10,771,682 7,782,331 ========= ========= 7 Personnel expenses 2001 2000 RMB RMB Wages, salaries and other staff costs 230,329,724 184,226,177 ========= ========= Including retirement costs 14,564,035 14,698,442 ========= ========= The average number of employees during 2001 was 5,349 (2000: 6,616). 8 Net financing income/(expenses) 2001 2000 RMB RMB Interest income 15,130,978 19,972,138 Dividends 420,725 447,800 Total financial income 15,551,703 20,419,938 ========= ========= Interest expense 78,742,229 52,959,409 Less: Interest capitalised (70,103,368) (10,378,006) 8,638,861 42,581,403 Foreign exchange (gain)/losses (727,031) 216,888 Total financial expenses 7,911,830 42,798,291 ========= ========= Net financing income/(expenses) 7,639,873 (22,378,353) ========= ========= 78 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 Interest expense has been capitalised at a rate of 5.6% - 6.6% (2000: 7.8% - 9%) per annum. 79 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 9 Taxation (a)Taxation in the consolidated income statement comprises: 2001 2000 RMB RMB PRC income tax 113,083,613 74,964,551 Underprovision in respect of prior years 2,102,720 1,314,466 Share of taxation of associates - 333,832 115,186,333 76,612,849 Change in deferred taxes (note 17) (250,000) 998,895 114,936,333 77,611,744 ========= ========= The provision for PRC income tax is based on the estimated taxable income at the rates applicable to each company in the Group. The Group’s applicable tax rate represents the weighted average of the PRC income tax rates, which range between 15% and 33%. The following is a reconciliation of income taxes calculated at the applicable tax rate with income tax expense: 2001 2000 RMB RMB Accounting profit before tax 499,003,965 395,334,407 ========= ========= Income tax computed by applying tax rate of 15% 74,850,595 59,300,161 Effect of tax rates in various PRC locations 40,289,018 20,918,117 Non-taxable income - (843,000) Non-deductible expenses 864,000 549,000 Effect of tax losses utilised (3,170,000) (3,627,000) Underprovision in respect of prior years 2,102,720 1,314,466 Income tax expense 114,936,333 77,611,744 ========= ========= 80 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 9 Taxation (continued) (b)Taxation in the consolidated balance sheet represents: 2001 2000 RMB RMB Balance of PRC income tax relating to prior years 51,064,909 25,871,718 Provision for PRC income tax for the year 113,083,613 74,964,551 PRC income tax paid (122,363,939) (51,074,765) 41,784,583 49,761,504 Provision for PRC business tax 54,732,316 55,508,703 PRC value added tax provision 107,743 65,087 Other PRC taxation 912,049 2,010,167 97,536,691 107,345,461 ========== ========= 10 Earnings per share The calculation of earnings per share is based on the net profit for the year attributable to shareholders of RMB375,799,131 (2000: RMB309,446,085) and on the weighted average number of ordinary shares outstanding during the year of 630,971,941 shares (2000: 625,618,163 shares). 11 Dividend A dividend of RMB0.18 per share, resulting in a total dividend payment of RMB113,574,949, in respect of the year ended 31 December 2000 was declared and paid during the year ended 31 December 2001 (note 23). A dividend of RMB0.2 per share, resulting in a total dividend payment of RMB126,194,388, in respect of the year ended 31 December 2001 is to be proposed at the Company’s forthcoming annual general meeting. The dividends have not been provided for. 81 China Vanke Co., L Accounts for the year ended 31 December 20 12 Fixed asse Furniture, Investment Improvements Plant and fixtures and Motor Buildings properties to premises machinery equipment vehicles Tot RMB RMB RMB RMB RMB RMB RM Cost: At 1 January 2001 340,307,330 172,483,279 219,767,656 23,373,503 137,096,962 48,894,754 941,923,484 Additions 159,549,376 14,104,414 14,438,096 3,526,524 19,566,569 10,051,200 221,236,179 Reclassification - Transfer to investment properties (27,479,827) 27,479,827 - - - - - - Transfer from completed properties for sale 27,817,830 34,349,798 - - - - 62,167,628 Disposals (6,181,271) (192,988,241) (92,113,810) (17,001,098) (520,016,71 (192,874,807) (18,857,486) At 31 December 2001 307,319,902 242,236,047 41,217,511 8,042,541 64,549,721 41,944,856 705,310,578 ----------------- --------------- ---------------- --------------- --------------- --------------- -------------- Aggregate amortisation and depreciation: At 1 January 2001 49,971,029 13,835,134 63,075,727 13,937,683 52,674,759 31,229,180 224,723,512 Charge for the year 40,824,936 11,042,660 10,057,087 2,886,782 14,375,403 7,190,119 86,376,987 Provision for impairment 12,154,639 6,700,000 - - - - 18,854,639 Reclassification - Transfer to investment properties (4,326,323) 4,326,323 - - - - - Write back on disposals (29,344,748) (3,534,702) (58,666,455) (35,979,574) (11,041,191) (149,573,73 (11,007,066) At 31 December 2001 69,279,533 32,369,415 14,466,359 5,817,399 31,070,588 27,378,108 180,381,402 ----------------- --------------- ---------------- --------------- --------------- --------------- -------------- Net book value: At 31 December 2001 238,040,369 209,866,632 26,751,152 2,225,142 33,479,133 14,566,748 524,929,176 ========== ========= ========= ========= ======== ========= ========= At 1 January 2001 290,336,301 158,648,145 156,691,929 9,435,820 84,422,203 17,665,574 717,199,972 ========== ========= ========= ========= ======== ========= ========= No buildings of the Group (2000: RMB53.1 million) are pledged to secure banking facilities (note 24). Investment properties are accounted for as fixed assets. It comprises certain commercial properties that are leased to external parties. The directors valu the investment properties at RMB231,097,000. The value is determined having regard to recent market transactions for similar properties in the same locatio as the Group’s investment properties. 13 Intangible asse Negative goodwill Goodwill Total RMB RMB RMB Cost: At 1 January 2001 and 31 December 2001 (23,619,665) 26,071,422 2,451,757 --------------- --------------- --------------- Aggregate amortisation: At 1 January 2001 (16,441,103) 16,710,208 269,105 Charge for the year (2,729,242) 4,845,775 2,116,533 At 31 December 2001 (19,170,345) 21,555,983 2,385,638 --------------- --------------- --------------- Net book value: At 31 December 2001 (4,449,320) 4,515,439 66,119 82 China Vanke Co., L Accounts for the year ended 31 December 20 ========= ========= ========= At 1 January 2001 (7,178,562) 9,361,214 2,182,652 ========= ========= ========= Amortisation charge of negative goodwill and goodwill for the year is included in “other operating income” (note 5) and “other operating expenses” (note 6) respectively. The negative goodwill is being recognised in the consolidated income statement over a five year period. 83 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 14 Principal subsidiaries Details of principal subsidiaries at 31 December 2001 are as follows: Percentage of equity held by the Group Principal Name of company 2001 2000 activities Shenzhen Vanke Real Estate 100% 100% Property Company Limited development Shenzhen Poseidon Properties 100% 100% Property Company Limited development Shenzhen Vanguard Department - 72% Retailing Company Limited Shenzhen Vanke Financial 100% 100% Investment Consultancy Company Limited trading & consultancy services Shenzhen Vanke Trading 100% 100% Trading Company Limited Shenzhen Vanke Cultural 100% 100% Production of Communications Company Limited video and films Tianjin Vanke Shine (Group) 100% 100% Property Company Limited development Tianjin Vanke Property 100% 100% Property Management Company Limited development Beijing Vanke Enterprises 100% 100% Property Shareholding Company Limited development Shanghai Vanke Real Estate 100% 100% Property Company Limited development Shanghai Vanke City Garden Property 100% 100% Property Development Company Limited development Shanghai Vanke Xuhui Property 100% 100% Property Company Limited development Shenyang Vanke Real Estate 100% 100% Property Company Limited development Dalian Vanlin Properties 100% 100% Property Development Company Limited development Chengdu Vanke Xingye 100% 100% Property Company Limited development 84 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 Chang Chun Vanke Real Estate 100% - Property Company Limited development 85 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 14 Principal subsidiaries (continued) Percentage of equity held by the Group Principal Name of company 2001 2000 activities Shanghai Vanke Minhang 100% - Property Property Company Limited development Shanghai Vanke Pudong 100% - Property Property Company Limited development Shanghai Vanke Baoshan 100% - Property Property Company Limited development Beijing Vanke Haitan Real 80% - Property Estate Development Co Ltd development Tianjin Vanke Shine Development 100% 100% Property development Shenzhen A-Housing Company 100% - E-business Limited All the above companies’ country of establishment and operation is the PRC. 15 Investments in associates Details of principal associated companies at 31 December 2001 are as follows: Percentage of interest held by the Group Principal Name of company 2001 2000 activities Shenzhen Color Splendor 40% 40% Production of Graphics Limited colour graphic products Shanghai Vansheng Real Estate 50% 50% Property Company Limited development Beihai Vanda Real Estate 40% 40% Property Company Limited development Beihai Vanda Property - 40% Property Management Company Limited development Anshan Vanshan Properties 35% 35% Property Development Company development Limited Jiangxi Vanke-Yida Real Estate 50% - Property 86 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 Development Company Limited development All the above companies’ country of establishment and operation is the PRC. 87 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 16 Other investments 2001 2000 RMB RMB Investments, at cost 46,211,347 46,904,265 ========= ========= Investments represent investments in unquoted shares of various companies during the year. The Group sold certain of its investments. The disposal resulted in a profit of RMB0.4 million (2000: RMB15.5 million). This is included in other operating income as disclosed in note 5. 17 Deferred tax assets/(liabilities) Deferred tax assets and deferred tax liabilities at 31 December 2001 and 2000 are attributable to the items detailed as follows: 2001 2000 RMB RMB Deferred tax assets: Reversal of profit recognised from sale of properties - 583,880 Reversal of income from other investments - 935,430 Provisions for accounting purposes 7,564,523 900,000 Write off of pre-operating expenses - 2,268,965 Others - 2,876,248 Total deferred tax assets 7,564,523 7,564,523 ------------- ------------- Deferred tax liabilities: Profit recognised from sale of properties under development - 250,000 ------------- ------------- Net deferred tax assets 7,564,523 7,314,523 ======== ======== Movement in net deferred tax assets/(liabilities): 2001 2000 RMB RMB Balance at 1 January 7,314,523 8,313,418 Transferred to/(from) consolidated income statement (note 9(a)) 250,000 (998,895) Balance at 31 December 7,564,523 7,314,523 ======== ======== 88 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 17 Deferred tax assets/(liabilities) (continued) Deferred tax assets have not been recognised in respect of the following items: 2001 2000 RMB RMB Deductible temporary differences 48,700,000 22,000,000 Tax losses 122,000,000 93,687,000 170,700,000 115,687,000 ========= ========= The tax losses will expire between 2002 to 2006. The deductible temporary differences will not expire under current tax legislation. The above deferred tax assets have not been recognised because it is not probable that future taxable profit will be available against which the Group can utilise the benefits therefrom. 18 Inventories 2001 2000 RMB RMB Raw materials 861,740 2,862,130 Work in progress 803,316 1,167,794 Finished goods 3,315,585 306,112,126 4,980,641 310,142,050 ========== ========== Inventories recognised as cost of sales for the year 786,071,439 1,133,326,681 ========== ========== In respect of finished goods, a general provision of RMB259,687 (2000: RMB3,803,126) has been made to the accounts to state the inventories at the lower of cost and net realisable value. 19 Trade and other receivables 2001 2000 RMB RMB Debtors, prepayments and other receivables 533,042,397 569,428,971 Amounts due from associates 18,299,082 11,488,433 Deposit with a security broker firm 1,744 7,217 551,343,223 580,924,621 ========= ========= 89 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 20 Marketable securities 2001 2000 RMB RMB Equity securities - 602,499 ======== ======== Market value of equity securities - 602,499 ======== ======== All equity securities held in 2000 are listed on stock exchanges in the PRC. 21 Cash and cash equivalents Cash and cash equivalents consist of cash on hand and balances with banks. 22 Share capital Registered, issued and fully paid up capital consisted of A and B shares of RMB1 each. The holders of A and B shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at annual and general meetings of the Company. A share B share Total RMB RMB RMB At 1 January 2000 423,782,344 121,755,137 545,537,481 Right issue (note 23) 85,434,460 - 85,434,460 At 31 December 2000 509,216,804 121,755,137 630,971,941 ========= ========= ========= At 1 January 2001 and 31 December 2001 509,216,804 121,755,137 630,971,941 ========= ========= ========= On 26 February 2000, 85,434,460 shares of RMB1 were issued at RMB7.5 in the proportion of three for every ten shares held. 90 China Vanke Co., L Accounts for the year ended 31 December 20 23 Reserv Foreign Share premium exchange reserve Statutory reserves Retained profits Tot RMB RMB RMB RMB RM (Note (a)) (Note (b)) At 1 January 2000 871,604,205 10,725,559 586,790,232 119,960,429 1,589,080,42 Right issue (note 22) 539,950,425 - - - 539,950,42 Profit for the year - - - 309,446,085 309,446,08 Adjustment on translation of foreign subsidiaries - 127,049 - - 127,04 Proposed transfer from retained profits - - 210,862,050 (210,862,050) Dividend paid - 1999 (note 11) - - - (94,645,791) (94,645,79 At 31 December 2000 1,411,554,630 10,852,608 797,652,282 123,898,673 2,343,958,19 ========== ========== ======== ========== ======== At 1 January 2001 1,411,554,630 10,852,608 797,652,282 123,898,673 2,343,958,19 Profit for the year - - - 375,799,131 375,799,13 Adjustment on translation of foreign subsidiaries - 17,528 - - 17,52 Proposed transfer from retained profits - - 224,775,412 (224,775,412) Dividend paid - 2000 (note 11) - - - (113,574,949) (113,574,949 At 31 December 2001 1,411,554,630 10,870,136 1,022,427,694 161,347,443 2,606,199,90 ========== ========== ======== ========== ======== Notes: (a) Statutory reserves Statutory reserves include the following items: (i) Statutory surplus reserve According to the PRC company law, the Company is required to transfer 10% of its profit after taxation, as determined under PRC Accountin Regulations, to statutory surplus reserve until the reserve balance reaches 50% of the registered capital. The transfer to this reserve must be mad before distribution of a dividend to shareholders. Statutory surplus reserve can be used to make good previous years’ losses, if any, and may be converted into share capital by the issue of new shar to shareholders in proportion to their existing shareholdings or by increasing the par value of the shares currently held by them, provided that t balance after such issue is not less than 25% of the registered capital. (ii) Statutory public welfare fund According to the PRC company law, the Company is required to transfer 5% to 10% of its profit after taxation, as determined under PR Accounting Regulations, to the statutory public welfare fund. This fund can only be utilised on capital items for the collective benefits of th 91 China Vanke Co., L Accounts for the year ended 31 December 20 Company’s employees such as the construction of dormitories, canteen and other staff welfare facilities. This fund is non-distributable other th in liquidation. The transfer to this reserve must be made before distribution of a dividend to shareholders. The Directors have resolved to transf 5% of the current year’s profit after taxation to the fund. (iii) Discretionary surplus reserve The transfer to this reserve from the consolidated income statement and its usage are subject to the approval of shareholders at general meetings. 92 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 23 Reserves (continued) Notes: (continued) (b) Retained profits According to the PRC company law, the reserve available for distribution is the lower of the amount determined under PRC Accounting Regulations and the amount determined under IAS. As of 31 December 2001 the reserve available for distribution was RMB4,617,138 (2000: RMB11,518,860), after taking into account the current year’s proposed final dividend. 24 Interest-bearing loans and borrowings This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings. For more information about the Group’s exposure to interest rate and foreign exchange risk, please refer to note 30. 2001 2000 RMB RMB Non-current Unsecured bank loans 261,000,000 80,000,000 ========= ========= At 31 December 2001, the bank loans were repayable as follows: 2001 2000 RMB RMB More than one year, less than two years 101,000,000 - More than two year, less than three years 160,000,000 80,000,000 261,000,000 80,000,000 =========== ========== Current Secured bank loans - 61,000,000 Unsecured bank loans 1,353,000,000 505,000,000 1,353,000,000 566,000,000 =========== ========== No bank loan (2000: RMB61 million) is secured on the Group’s fixed assets. The Group’s total loans and borrowings outstanding at the end of 2000 and 2001 are denominated RMB. The average nominal interest rate is 5.87% (2000: 6.03%). 93 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 24 Interest-bearing loans and borrowings (continued) Type Currency/face value Carrying amount Effective interest rate Fixed/floating Maturity 2001 2000 2001 2000 2001 2000 2001 and 2000 Bank loan RMB 423,000,000 385,000,000 5.73% 5.87% Fixed Fixed 1 to 6 months Bank loan RMB 930,000,000 181,000,000 5.73% 6.10% Fixed Fixed 7 to 12 months Bank loan RMB 261,000,000 80,000,000 6.63% 6.03% Fixed Fixed 2 to 5 years 1,614,000,000 646,000,000 ========== ========= 25 Trade and other payables 2001 2000 RMB RMB Accounts payable - trade 489,986,267 891,270,767 Amounts due to associates 6,005,324 2,308,073 Deposits received in advance 179,250,981 453,712,579 Other payables and accrued expenses 843,855,689 991,585,222 1,519,098,261 2,338,876,641 ========== ========== 26 Related parties Reference should be made to the following notes regarding related parties: Associates (notes 15, 19, 25, 28(b)) During the year, the Group disposed of its subsidiary to a major shareholder (notes 3 and 28(b)). The Group leases certain properties to this former subsidiary. The rental income amounted to RMB4.35 million for the year. The directors are of the opinion that these transactions were conducted on normal commercial terms. 94 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 27 Operating leases (a) Leases as lessee Non-cancellable operating leases are payable as follows: 2001 2000 RMB RMB Not later than one year 3,608,579 53,027,000 Between one and five years 4,551,387 369,503,000 Later than five years - 1,824,180,000 8,159,966 2,246,710,000 =========== =========== Total rental expenses for all operating leases were RMB48 million for the year (2000: RMB49 million). The operating leases relate to the rental payments for offices and retail outlets space. The total non-cancellable operating leases decreased significantly when compared to 31 December 2000 as a result of the disposal of a subsidiary during the year (refer to note 3). (b) Leases as lessor The Group leases out certain properties under non-cancellable operating leases. Rentals are receivable as follows: 2001 2000 RMB RMB Not later than one year 7,008,794 11,841,000 Between one and five years 26,905,263 24,794,000 Later than five years 129,383,781 7,469,000 163,297,838 44,104,000 ========= ========= Total rental income for all operating leases was RMB15 million (2000: RMB17 million) which has been included in revenue and RMB8 million (2000: RMB14 million) expenses were recognised in the consolidated income statement relating to investment property. 95 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 28 Capital commitments and contingent liabilities (a) Capital commitments Capital commitments outstanding at 31 December 2001 not provided for in the accounts were as follows: 2001 2000 RMB RMB Contracted for 3,005,209,802 1,189,699,545 Authorised but not contracted 68,264,300 - 3,073,474,102 1,189,699,545 =========== ========== (b) Contingent liabilities (i) As at 31 December 2001, there were contingent liabilities in respect of guarantees given by the Group to banks to secure banking facilities granted to an associate. As at 31 December 2001, the balances due from the associate to banks amounted to RMB5 million (2000: RMB6.5 million). The guarantees given were approximately RMB5 million (2000: RMB6.5 million). (ii) As at 31 December 2001, there were contingent liabilities in respect of guarantees given by the Group to banks to secure the mortgage arrangement of properties buyers. As at 31 December 2001, the outstanding guarantees to banks amounted to RMB3,068 million (2000: RMB454 million), including guarantees of RMB1,056 million which will be terminated upon the completion of the transfer procedures with the buyers in respect of the legal title of the properties. (iii) As at 31 December 2001, there were contingent liabilities given by the Group to a bank in respect of a performance guarantee granted to a third party for Shenzhen Vanguard Development Company Limited (“Vanguard”) which was disposed of during the year. The amount of such guarantee is RMB30 million. This guarantee is counter-guaranteed by the buyer of Vanguard. 96 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 29 Note to cash flow statement Cash flows from operating activities 2001 2000 RMB RMB RMB RMB Operating profit 499,068,815 398,176,532 Adjustments for: Depreciation 86,376,987 77,072,999 Profit on disposal of marketable securities (1,234,001) (1,387,370) Profit on disposal of other investments (426,000) (15,465,495) Profit on disposal of fixed assets (488,917) (3,208,488) (Profit)/loss on disposal of a subsidiary (216,568,750) 59,840 Increase/(decrease) in provision for debt and doubtful debts 513,191 (8,652,109) Provision for inventories losses and obsolescence - 914,656 Provision for impairment of fixed assets 18,854,639 - Write back of provision for inventories losses and obsolescence (3,543,439) - Provision for completed properties for sale 17,076,237 7,004,065 Provision for properties under development - 14,000,000 Write back of provision for properties held for development (1,933,984) - Recognition of negative goodwill (2,729,242) (2,392,854) Amortisation of goodwill 4,845,775 4,711,500 Interest income (15,130,978) (19,972,138) Interest expense 78,742,229 52,959,409 Dividend income (420,725) (447,800) (36,066,978) 105,196,215 Operating profit before 97 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 working capital changes carried forward 463,001,837 503,372,747 98 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 29 Note to cash flow statement (continued) Cash flows from operating activities (continued) 2001 2000 RMB RMB RMB RMB Operating profit before working capital changes brought forward 463,001,837 503,372,747 (Increase)/decrease in amount due from associates (6,810,649) 12,807,519 (Increase)/decrease in trade and other receivables (148,574,372) 77,301,032 Decrease/(increase) in inventories 63,601,378 (26,930,518) Decrease/(increase) in properties under development 577,616,988 (443,425,139) Increase in completed properties for sale (487,031,374) (63,795,911) Increase in properties held for development (1,217,757,535) (793,985,406) (Decrease)/increase in trade and other payables (439,969,140) 872,355,116 Increase in amount due to associates 3,697,251 1,000,000 Decrease in other tax payable included in taxation (48,518,181) (3,491,874) (1,703,745,634) (368,165,181) Cash (outflow)/inflow from operations (1,240,743,797) 135,207,566 Interest paid (78,742,229) (52,959,409) Income tax paid (122,363,939) (51,074,765) (201,106,168) (104,034,174) Net cash (outflow)/inflow from operating activities (1,441,849,965) 31,173,392 =========== ========== 99 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 30 Financial instruments Financial assets of the Group include cash, listed and unlisted investments, and trade receivables. Financial liabilities of the Group include loans, borrowings and trade payables. 100 China Vanke Co., Ltd. Accounts for the year ended 31 December 2001 30 Financial instruments (continued) (a) Interest rate risk The interest rates and terms of repayment of bank loans of the Group are disclosed in note 24 to the accounts. (b) Credit risk Credit risk represents the accounting loss that would be recognised at the reporting date if counter-parties failed completely to perform as contracted. At balance sheet date there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet. (c) Foreign exchange risk Foreign exchange risk is defined as transaction risk, i.e. the risk of the Group’s commercial cash flows being adversely affected by a change in exchange rates for foreign currencies against RMB, and balance sheet risk, i.e. the risk of net monetary assets in foreign currencies acquiring a lower value when translated into RMB as a result of currency movements. Substantially all the Group’s cash flows are denominated in RMB. The Group has no material balance sheet exposure in respect of the subsidiaries’ net monetary assets denominated in foreign currencies. (d) Fair value The fair values of cash, trade receivables, trade payables, loans and borrowings are not materially different from their carrying amounts. 31 Change in accounting policy In prior years, revenue from pre-sale of properties under development is recognised over the course of development. With effect from 1 January 2001, the Group adopts an accounting policy of recognising revenue from sale of properties upon completion of properties and signing of the sale and purchase agreement as set out in note 1(u)(i). This change in accounting policy does not have any material effect on the Group’s results for the years ended 31 December 2000 and 2001. Accordingly, this new accounting policy has not been adopted retrospectively and no adjustment for the comparative information has been made. 101 18/3/2001 3:00 a.m. (Expressed in Renminbi Yuan) Net Impact of IAS Adjustments on the Results and Net Assets for the year ended 31 December 2001 Net profit year ended Net assets as at 31 December 31 December 2001 2001 RMB RMB As determined pursuant to PRC accounting regulations 373,747,218 3,124,089,960 Adjustments to align with IAS: Recognition and amortisation of negative goodwill 1,950,559 1,644,315 Recognition and amortisation of goodwill 432,095 (5,175,214) Dividend declared after year end - 126,194,388 Gain on disposal of subsidiary 4,420,820 - Deferred tax assets - 7,564,523 Difference in revaluation of asset - (17,146,128) Others (4,751,561) - As restated in conformity with IAS 375,799,131 3,237,171,844 ========= ========== 102 18/3/2001 3:00 a.m. 13 Directory of the Articles Reviewed 1. The Accounts Report with stamp and signatures of the Company’s legal person representative, financial controller and finance manager. 2. Original Auditors’ Report with the stamp of the accounting firm, stamp and signature of the Certified Public Accountants. 3. Original announcements and documents of the Company disclosed during the period in newspapers designated by the China Securities Regulatory Commission. 4. Annual report in PRC Accounting Standards. The Company’s Annual Report is edited in Chinese and English, should there be any differences in understanding between the two versions(except the differences due to the discrepancy between PRC accounting regulations and IAS), please refer to the Chinese one. 103