长安汽车(000625)2001年年度报告（英文版）

Chongqing Changan Automobile Company Limited 2001 Annual Report B Share Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) Note: The Board of Directors of Chongqing Changan Automobile Co., Ltd. (hereinafter referred to as “the Company”) and the directors guarantee that the information contained in the annual report are free of false records, misguiding statements or significant omissions, and assume individual and joint liabilities for the truthfulness, accuracy and integrity of the annual report. The annual report shall be presented in both Chinese and English, and shall there be any conflicting understanding of the text, the Chinese version shall prevail. Content I. Content 1 II. General Introduction of the Company 2 III. Extracts of Accounting and Operating Data 3 IV. Changes in Shareholdings and Information on Shareholders 6 V. Information on the Directors, Supervisors, Senior Management and the Employees 9 VI. Corporate Governance Structure 11 VII. The Shareholders General Meeting 13 VIII. Report by the Board of directors 16 IX. Report by the Board of Supervisors 26 X. Important Events 27 XI. Financial Reports 32 XII. Documents for Inspection 57 1 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) II. General Introduction of the Company 1. The Company’s legal Chinese name: 重庆长安汽车股份有限公司 The Company’s legal English name: Chongqing Changan Automobile Company Limited 2. Legal representative of the Company: Mr. Yin Jiaxu 3. Secretaries of the Board: Mr. Cui Yunjiang, Mr. Ma Jun Securities Issues Representative: Ms. Li Jun Address: No. 260, Jian Xin East Road, Jiang Bei District, Chongqing Telephone: (023) 67591249, 67591568, 67591349 Fax: (023) 67866055, 67870261 Email address: cazjc@mail.changan.com.cn 4. Registered address: No. 309, Nan Cheng Road, Nan An District, Chongqing Post code: 400060 Office Address: No. 260, Jian Xin East Road, Jiang Bei District, Chongqing Post code: 400023 Website of the Company: http://www.changan.com.cn 5. Publications for information disclosure of the Company: China Securities, Securities Daily, Hong Kong Business Website for information disclosure of the Company: http://www.cninfo.com.cn Annual Report is prepared at: Office of the Board of Directors 6. Place of listing: Shenzhen Stock Exchange Abbreviated name of the stock: Changan Automobile Changan B Stock Code: 000625 200625 7. The Company was first registered on: October 31, 1996 Registered Address: No. 309, Nan Cheng Road, Nan An District, Chongqing Business license number: Yu Jing 5009021800205 Taxation registration number: State Taxation Chong Zi 51021120286320X The name and address of the accounting firm for the reporting year: 2 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) Domestic CPA firm: PricewaterhouseCoopers Zhongtian CPA Address: 12th Floor, Shui On Plaza, 333, Huai Hai Zhong Lu, Shanghai 200021, PRC International CPA firm: PricewaterhouseCoopers Zhongtian CPA Address: 12th Floor, Shui On Plaza, 333, Huai Hai Zhong Lu, Shanghai 200021, PRC III. Extracts of Accounting and Operating Data 1. The Company’s accounting data for the current year (RMB ’000): Profit before tax 260,800 Net profit 206,183 Profit from major business lines 1,432,342 Other income 103,849 Operating profit 289,417 Investment income 12,511 Net non-operating balance - Net cash in-flow from operating activities 986,180 Net increase in cash and cash equivalents 303,153 Note: The above data are consolidated figures incorporating related financial statements of Chongqing Changan Suzuki Automobile Company(“Changan Suzuki”) and other subsidiaries of the Company. 3 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) 2. Reconciliation of the net profits presented under the PRC accounting standards and Internaitonal Accounting Standards (“IAS”) Net Assets Net Profit RMB’000 RMB’000 As reported mode PRC accounting standards: 2,574,311 160,215 1 Staff bonus and welfare fund of Changan Suzuki appropriated from profit after tax - (13,000) 2 Amortization of good will arising on consolidation (18,029) 858 3 Adjustment for amortization of pre-operating expenses of Changan Suzuki 1,227 - 4 Reversal of revaluation surpluses from of long-term assets relating to revaluation made in 1995 (7,877) - 5 Deferred tax assets 69,110 69,110 6 Reversal of dividends declared but by not paid in 2001 49,067 - 7 Equity share of results of associate (11,000) (11,000) As restated in conformity with IAS: 2,656,809 206,183 3. Key accounting data and financial indicators of the previous three years Item 2001 2000 1999 Sales (RMB ’000) 7,331,806 6,703,212 5,446,762 Net profit (RMB ’000) 206,183 134,512 32,742 Total assets (RMB ’000) 6,669,305 7,341,692 7,093,918,000 Shareholders’ equity (RMB ’000) 2,656,809 2,497,239 2,361,857 Earnings per share (yuan/share) 0.17 0.11 0.03 Net assets per share (yuan/share) 2.17 2.04 1.93 Adjusted net assets per share (yuan/share) 2.15 1.85 1.85 Net cash flow from operating activities per share (yuan/share) 0.80 0.72 0.71 Return on net assets (%) 7.7 5.49 1.4 Note: The above data and indicators are listed or calculated using figures from the consolidated accounting statements. 4 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) 4. Other operating data and indicators of the previous three years Item 2001 2000 1999 Sales quantity Including: Automobiles (unit) 199,173 183,886 159,856 Engines (set) 33,219 12,477 57,616 Market share (%) 27.2 27.28 28.31 Notes: The market share figures were quoted from “Report on the Production and Sales of Automobiles in the Automobile Industry of China” published by China Association of Automobile Manufacturers (CAAM) (China Automobiles Industry Association). The number of engines sold in the year 1999 includes engines provided to Changan Suzuki. 5 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) IV. Changes in Shareholdings and Information on Shareholders 1. Change in shareholding Change in share capital of the Company (unit: share) Increase/decrease in the reporting period (+, -) Opening Transfer Closing balance New balance Allotment Bonus from share Others Sub-total issuance premium I. Non-circulated shares 1.Promoter shares 708,666,000 708,666,000 Including: State-owned legal person shares Domestic legal 708,666,000 708,666,000 person shares Foreign legal person shares Others 2.Legal entity shares raised 3.Employee shares 28,200 -7,200 -7,200 21,000 4.Preemptive shares and others Including: transferred rights issue Sub-total of 708,694,200 -7,200 -7,200 708,687,000 non-circulated shares II. Circulated shares 1.Domestic listed RMB 167,971,800 7,200 7,200 167,979,000 shares 2.Domestic listed 350,000,000 350,000,000 foreign shares 3.Overseas listed foreign shares 4.Others Total circulated shares 517,971,800 7,200 7,200 517,979,000 III. Total shares 1,226,666,000 1,226,666,000 Note: “Employee shares” refer to shares held by Directors and Supervisors of the Company. The 7,200 shares under the Others column of “Increase/decrease in the reporting period” are the result of the 11,400 shares of the departed supervisors which were allowed to circulate and the 4,200 shares for new supervisors which are not allowed to circulate. 6 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) 2. Information on the shareholders (1) By the end of the reporting period, the shareholders of the Company totaled 117,777, of which 85,567 were A share shareholders (including 5 employee share shareholders) and 32,210 were B share shareholders. (2) The largest ten shareholders: Shares held at Share Shares held at % of total shares Name of the shareholder the beginning of increase/decrease the year-end the year in the year 1. Changan Automobile Group Limited (“CAC”) 708,666,000 0 708,666,000 57.77 2. Suzuki Motor Corporation 122,500,000 -1,521,900 120,978,100 9.86 3. Bony A/C CMG CH China Investment Ltd 2,600,100 0 2,600,100 0.21 4. Toyo securities Asia Ltd. _A/C 2,533,260 -316,560 2,216,700 0.18 Clients 5. Zhang Xubin 0 1,919,568 1,919,568 0.16 6. Momura TB/Momura ITM 0 1,499,949 1,499,949 0.12 7. Hu Jianwei 0 1,277,900 1,277,900 0.10 8. BSDT/Virginia Retirement System 0 1,194,800 1,194,800 0.10 9. Deng Youde 906,000 128,000 1,034,000 0.08 10. Haitong Securities (Hong Kong) Ltd. 0 920,000 0.08 Note: The shares held by CAC as shown above are state-owned legal person shares. Of the 708,666,000 shares, 354,333,000 shares were pledged and 2,000,000 were frozen by judicial orders. The remaining shareholders are all foreign shareholders, holding B shares of the Company. (3) The largest shareholder of the Company The largest shareholder: Changan Automobile Group Limited Legal representative: Zhao Guohua Date of establishment: October 28, 1996 Business scope and major products: manufacturing, development and sale of Changan series cars and spare parts; manufacturing and sale of firearms for civil use, ammunition, general use machinery, dies, tools etc. Registered capital: RMB 740,000,000 Equity structure: state-owned sole-proprietorship company 7 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) (4) The controlling party of the largest shareholder , CAC The controlling party of CAC: China South Industries Group Legal representative: Wang Dechen Date of establishment: June 29, 1999 Business scope and major products: investment and management of state-owned assets; manufacturing of guns and firearms; engineering prospecting, designing, construction, contracting, construction supervision; equipment installation, etc. Registered capital: RMB 12,645,210,000 Equity structure: ownership by the public 8 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) V. Information on the Directors, Supervisors, Senior Management and the Staff 1. Information on the directors, supervisors and senior management Change of shares held At the Name Sex Age Term of office By the Position beginning of year-end the year Yin Jiaxu M 45 2000.05-2003.05 4200 4200 Chairman Zhao Luchuan M 48 2000.05-2003.05 4200 4200 Deputy Chairman, General Manager Keijin Yamauchi M 58 2000.05-2003.05 0 0 Deputy Chairman Li Shouwu M 35 2000.05-2003.05 0 0 Director Zhang Xinyu M 53 2000.05-2003.05 0 0 Director Chen Qing M 39 2000.05-2003.05 0 0 Director Wang M 43 2000.05-2003.05 4200 4200 Director Chongsheng Guo Xuewu M 45 2000.05-2003.05 0 0 Director Zhang Baolin M 39 2001.05-2003.05 0 0 Director Toshiaki M 53 2000.05-2003.05 0 0 Director Hashimoto Koichiro M 53 2000.05-2003.05 0 0 Director Chikaishi Shi Yubao M 48 2001.05-2003.05 0 0 Organizer of the Board of Supervisors Zhou Xiaying F 52 2000.05-2003.05 0 0 Supervisor Peng Minggeng M 51 2001.05-2003.05 4200 4200 Supervisor Cao Dongping F 48 2001.05-2003.05 0 0 Supervisor Xiong Huilin F 42 2000.05-2003.05 0 0 Supervisor Zhu Zhiping M 39 2001.11-2003.05 0 0 Supervisor Hua Dubiao M 36 2001.11-2003.05 0 0 Supervisor Fu Xiangyu F 46 2001.11-2003.05 0 0 Supervisor Zhu Huarong M 36 2000.4-2003.05 0 0 Deputy General Manager Jia Tingyue M 38 2001.4-2003.05 0 0 Deputy General Manager Cui Xiaomei F 46 2001.4-2003.05 0 0 Deputy General Manager Cui Yunjiang M 38 2000.4-2003.05 0 0 Deputy General Manager, Board Secretary Ma Jun M 42 2000.4-2003.05 0 0 Board Secretary 9 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) Note: The positions of the Directors and Supervisors in their respective shareholder company Term of Name Shareholder company Position office Yin Jiaxu Changan Automobile Group Limited Executive Director, President, 1998.7- Deputy Secretary of the Party Committee Keijin Suzuki Motor Corpporation Participation 1999.4- Yamauchi Wang Changan Automobile Group Limited Director, Vice President, 1996.2- Chongsheng Deputy Secretary of the Party Committee Guo Xuewu Changan Automobile Group Limited Director, Vice President 1999.12- Zhang Baolin Changan Automobile Group Limited Vice President 2001.3- Toshiaki Suzuki Motor Corpporation Director of the China 2000.10- Hashimoto Department of Overseas Automobiles Shi Yubao Changan Automobile Group Limited Chairman of the Worker’s 2000.9- Union, Deputy Secretary of the Party Committee Zhou Changan Automobile Group Limited Secretary to the Planning 1996.1- Xiaying Committee, Deputy Secretary of the Party Committee Peng Changan Automobile Group Limited Vice President 1998.11 Minggeng Cao Changan Automobile Group Limited Director of the Finance 2000.3- Dongping Department 2. Remuneration of the Company for the year In 2001, the annual remuneration for the directors, supervisors and senior management has been duly paid by month according to the relevant policy on management salary and by ranks and grades set by China South Industries Group. During the reporting period, total remuneration for the directors, supervisors and senior management was at RMB 232,686. The total remuneration for the three most highly paid directors (only one director receives remuneration from the Company) was at RMB 31,366, and total remuneration for the three most highly paid senior managers was at RMB 70,226. Of the directors, supervisors and senior managers who receive payment from the Company, three received payment between RMB 17,000 and 20,000, three received payment between 20,000 and 25,000, three received payment 25,000 and 30,000, and one received payment between 30,000 and 35,000. 10 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) During the reporting period, Mr. Yin Jiaxu, Mr. Keijin Yamauchi, Mr. Li Shouwu, Mr. Zhang Xinyu, Mr. Chen Qing, Mr. Wang Chongsheng, Mr. Guo Xuewu, Mr. Zhang Baolin, Mr. Toshiaki Hashimoto, Mr. Koichiro Chikaishi, Mr. Shi Yubao, Ms. Zhou Xiaying, Ms. Cao Dongping and Ms. Xiong Huilin did not receive remuneration from the Company. 3. During the reporting period, Mr. Chen Yongqiang resigned as Director as a result of change of position, and Mr. Wang Yang, Mr. Liu Changying and Mr. Liao Mingguang resigned as Supervisors as a result of retirement. During the reporting period, the Board of Directors engaged Mr. Jia Tingyue and Ms. Cui Xiaomei as Deputy General Manager of the Company. 4. The Employees of the Company By the end of the year, total headcount of the Company was at 7,135, including 4,298 production workers, 1,354 salespersons, 694 technicians, 205 finance staff, and 470 administrative staff. Of the total, there were 4 doctors, 23 postgraduates, 982 undergraduates, and 1,019 with college education or above. The number of retired employees (including those who retired as a result of the downsize of the Company) for which the Company is required to bear to their expenses was at 2,001. VI. Corporate Governance Structure 1. Corporate governance The Company has been strictly following the relevant laws and regulations, including the Company Law, the Securities Law and the Regulations for the Governance of Listed Companies by China Securities Regulatory Commission, and continuously improving the corporate governance of the Company, adopting modern best practices and standardizing the management and operations of the Company. The Company has formulated rules and regulations, including the Articles of Association, Rules of Procedures of the Board of Directors, Rules of Procedures of the Board of Supervisors, Rules of Procedures of the Shareholders’ General Meeting, Regulations of the Company on Guarantee Management, Regulations of the Company on Information Disclosure, etc., and these rules and regulations are elaborated as follows: (1) About shareholders and the shareholders’ general meeting: the Company can ensure equal status and treatment to all shareholders, including small and medium shareholders, and ensure that all shareholders are able to fully exercise their rights and enjoy their benefits; the Company has formulated the Rules of Procedures of the Shareholders’ General Meeting, the Company notifies and calls up the shareholders’ general meetings in accordance with the Rules, and all shareholders can fully exercise their voting rights; the Company has been observing open and fair principles in conducting related-party transactions and makes full disclosure of the fairness of the prices. 11 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) (2) About the controlling shareholder and the listed company: the Company and its controlling shareholder are independent of each other in terms of assets, personnel, finance, business and organization, the controlling shareholder exercises its rights and enjoys its benefits through the controlling shareholders’ general meeting, the company’s shareholders’ general meeting, the Board of Director, the Board of Supervisors and the senior management can function independently and effectively, and the controlling shareholder has not directly or indirectly intervene in the decision-making and operational activities of the listed company. Owing to market development and risk control, the sales network of the Company has been dependent of the controlling shareholder to a certain extent, and the Company plans to strengthen the sales network and solve this problem through measures including acquisition. Nanjing Changan Automobile Co., Ltd., a subsidiary of the controlling shareholder, is in the same business with the Company, and the competition has affected the market share of the Company to some extent; the Company plans to solve this problem through acquisition of and participation in the equity of the two companies. (3) About the directors and the Board of Directors: the Company has been strictly following the relevant regulations of the Articles of Association in selecting and engaging directors, and the makeup and the number of directors for the Board has been in conformity with relevant laws and regulations; the Company has developed Rules of Procedures of the Board of Directors, and calls up board meetings accordingly; the directors of the Board have been honest, diligent and industrious in fulfilling their duties, and they have been active in acquiring knowledge in relevant laws and regulations by participating in training to further enhonce their expertise; the Company is seeking proper candidates for independent directors to establish proper independent directorship and special-purpose committees. (4) About supervisors and the Board of Supervisors: the makeup and number of supervisors are in full conformity with relevant laws and regulations, and the supervisors are able to fully fulfill their supervisory functions and obligations. (5) About performance evaluation and incentive and restrictive measures: the Company is now working hard to establish the performance evaluation and restrictive measures for the directors, supervisors and senior managers; the Company has been strictly observing relevant regulations in engaging and appointing management staff. (6) About stakeholders: the Company respect of and safeguard the legal rights and interests of all stakeholders including banks, other creditors, consumers and employees in promoting the continued, rapid and robust development of the Company. 12 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) (7) About information disclosure and transparency: the secretary of the Board is responsible for information disclosure issues and the receiving investors from home and abroad and providing consulting services to the investors; the Company has established the Regulations for Information Disclosure to ensure the timely, accurate and complete information disclosure in accordance of the Listing Regulations of Shenzhen Securities Exchange and other relevant regulations; the Company timely discloses in detail information of large shareholders or the real controller of the Company and the changes in shareholding in accordance with relevant regulations. 2. The independent directors The Board of the Company is now actively drafting and revising relevant regulations and looking for proper independent director candidates in accordance with the requirements of the Guidelines for the Establishment of Independent Directorship in Listed Companies released by China Securities Regulatory Commission to establish the independent directorship before June 30, 2002 according to relevant regulations. 3. With regard to the 5 areas of segregation for the Company and its controlling shareholder, please refer to this section on corporate governance structure. VII. The Shareholders General Meeting During the reporting period, four shareholders general meetings have been held. I. The Board of Directors announced the year 2000 shareholders general meeting on April 11, 2001 through China Securities, Securities Daily and Hong Kong Business. The meeting was held on May 15, 2001 at Chongqing Changan Hotel. Present at the meeting were seven shareholders and shareholder representatives (including one representative for legal person shares, five shareholders for A shares and one representative for B shares), representing 710,229,042 shares (including 708,666,000 legal person shares, 21,800 A shares and 1,541,242 B shares), constituting 57.9% of total shares, meeting the requirements of the Company Law, Articles of Association and other relevant regulations. The meeting debated and passed through voting the following resolutions: 1. Report of the Board of directors 2. Report of the Board of Supervisors 3. Changes in the composition of the Board of Directors Owing to other work arrangements, Mr. Chen Yongqiang resigned as director and vice chairman of the Board of Directors, and Mr. Zhang Baolin was elected director. 13 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) 4. Changes in the composition of the Board of Supervisors Owing to other work arrangements, Mr. Wang Yang, Mr. Liu Changying and Mr. Liao Mingguan resigned as supervisors of the Board of Supervisors, and Mr. Shi Yubao, Mr. Peng Minggeng and Ms. Cao Dongping were elected supervisors. 5. Reappointment of the auditor for the Company 6. The profit allocation scheme for 2000 The above resolutions were announced on May 16, 2001 through China Securities, Securities Daily and Hong Kong Business. II. The Board of Directors gave notification of the first extraordinary shareholders general meeting of 2001 on May 26, 2001 through China Securities, Securities Daily and Hong Kong Business. The meeting was held on June 26, 2001 at Chongqing Changan Hotel. Present at the meeting were six shareholders and shareholder representatives (including one representative for legal person shares, four shareholders for A shares and one representative for B shares), representing 709,919,842 shares (including 708,666,000 legal person shares, 14,600 A shares and 1,239,242 B shares), constituting 57.87% of total shares, meeting the requirements of the Company Law, the Articles of Association and other relevant regulations. The meeting debated and passed through voting the following resolutions: 1. Application for new issuance of no more than 180,000,000 shares of domestic listed foreign shares (B shares) in 2001. 2. Feasibility of the plans for using the funds to be raised through new issuance of B shares. 3. Use of funds raised during the previous share issuance. 4. Sharing of the undistributed profits before the new issuance of B shares between the new shareholders after the issuance of B shares and the shareholders prior to the issuance of B shares. 5. Revision of the Articles of Association. 6. Revision of the Rules of Procedures of the Shareholders General Meeting. 7. Formulation of the Regulations of Guarantee Management of the Company. The above resolutions were announced on June 27, 2001 through China Securities, Securities Daily and Hong Kong Business. 14 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) III. The Board of Directors gave notification of the second extraordinary shareholders general meeting of 2001 on August 11, 2001 through China Securities, Securities Daily and Hong Kong Business. The meeting was held on September 10, 2001 at Chongqing Changan Hotel. Present at the meeting were 9 shareholders and shareholder representative (including one representative for legal person shares, 8 shareholders for A shares and no representative for B shares), representing 708,694,900 shares (including 708,666,000 legal person shares, 28,900 A shares and no B shares), constituting 57.774% of the total shares, meeting the requirements of the Company Law, the Articles of Association and other relevant regulations. The meeting debated and passed through voting the following resolutions: 1. Revision of the Articles of Association 2. The agreement regarding the business and transactional behaviors between related-party enterprises. The above resolutions were announced on September 12, 2001 through China Securities, Securities Daily and Hong Kong Business. IV. The Board of Directors gave notification of the third extraordinary shareholders general meeting of 2001 on October 19, 2001 through China Securities, Securities Daily and Hong Kong Business. The meeting was held on November 19, 2001 at Chongqing Changan Hotel. Present at the meeting were seven shareholders and shareholder representatives (including one shareholder for legal person shares, six shareholders for A shares, and no shareholder nor representative for B shares), representing 708,686,100 shares (including 708,666,000 legal person shares, 20,100 A shares, and no B shares), constituting 57.773% of the total shares meeting the requirements of the Company Law, the Articles of Association and other relevant regulations. The meeting debated and passed through voting the following resolutions: 1. Adjustment of the scheme for issuance of new shares in 2001. 2. Appointment of a new auditor for the Company. The above resolutions were announced on November 30, 2001 through China Securities, Securities Daily and Hong Kong Business. 15 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) VIII. Report by the Board of Directors I. The business operation of the Company 1. The scope of key business lines and a summary of operational activities The Company is mainly engaged in the development, manufacturing and sales of Changan mini cars, Changan Alto mini sedans and Changan Lingyang sedans, and the manufacturing and sales of various types of Jiangling engines for mini car series. In 2001, the Company produced 196,163 automobiles (including 43, 123 Changan Suzukis), sold 199,173 automobiles (including 43,085 Changan Suzukis), and sold 33,129 engines. In 2001, the Company made big efforts in developing the overseas market and exported 2,420 automobiles. The following illustrates the production and sales of the top ten automobile manufacturers in China: Name Production Sales Automobile manufacturers 103 in total 2,334,440 2,363,665 Shanghai Automobile Industry Company 440245 448946 The First Automobile Corporation 419792 407495 Dongfeng Automobile Group Company 262869 265407 Changan Automobile Group Limited 225399 230241 Harbin Hafei Automobile Company 138958 141774 Beijing Automobile Industrial Group Limited 134121 136538 Changhe Airplane Industrial Company 121288 121018 Jinbei Automobile Company Limited 74191 74865 Tianjin Automobile Industrial Group Company Limited 58923 79957 Note: The figures are extracted the “Report on the Production and Sales of Automobiles in the Automobile Industry of China” published by China Association of Automobile Manufacturers (CAAM) The production and sales of Changan Automobile Group Limited are the gross figures of the production and sales of the Company and other automobile factories under the Changan Group. Of the total, the Company has produced 193,163 automobiles and sold 193,173 automobiles. 16 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) (1) Turnover of the Company by product for the year ended 31 December 2001. Product types Turnover (RMB thousands) % Mini-lorry 706505 9.64% Mini-van 1771447 24.16% SC6350 (Changan Star) 2380043 32.46% Special purpose vehicle 75393 1.03% Changan Lingyang 766936 10.46% Alto sedan 1361436 18.57% JL368Q 99227 1.35% JL462Q series 100143 1.37% JL465Q series 47413 0.65% JL472Q series 97 0.00% JL474Q series 487 0.01% Others 22679 0.31% Total 7331806 100.00% In 2001, the margins for products which accounted for more than 10% of the total revenue are: SC6331 van, 12%, SC6350 standard van, 25%, SC7080 sedan, 17%, and SC7100 sedan, 12%. (2) Sales volume of the Company by product for the year ended December 31, 2001. Type Number sold % Mini-lorry 37,185 18.67% Mini-van 73,679 36.99% SC6350 (Changan Star) 43,615 21.90% Special purpose vehicle 1,609 0.81% Changan Lingyang 9,869 4.95% Alto sedan 33,216 16.68% Total 199,173 100.00% JL368Q 9,864 29.69% JL462Q series 16,505 49.69% JL465Q series 6,829 20.56% JL472Q series 4 0.01% JL474Q series 17 0.05% Total 33,219 100.00% 17 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) 2. Operations and performance of the subsidiaries of the Company Registered Shares Total assets Net profit Name Major business lines capital held (RMB ’000) (RMB ’000) Chongqing Changan Production and sales of Alto Suzuki Automobile Co., US$ 70M 51% 1,445,149 181,926 series and the parts Ltd. Chongqing Changan Export, wholesale and retail Automobile Import and RMB 100M 100% 320,544 10,250 of automobiles and parts Export Company Chongqing Jiangling RMB 9.34M 100% Wholesale and retail of 12,571 119 Electro-mechanical automobiles and parts Company Chongqing Changan 1,941 Sales of automobiles, engines Automobile Sales RMB 485M 100% 102,514 and parts Company 3. Major suppliers and clients In 2001, gross purchase by the Company from the top five suppliers accounted for 16.39% of total purchase of the year; gross sales turnover to the top five clients accounted for 13.2% of the total turnover of the Company. 4. Difficulties encountered during operation and solutions (1) Difficulties encountered during operation The existence of local protectionism in automobile consumption, as demonstrated by the restriction in the usage and registration of mini automobiles, affected the fair competition in the automobile market and made it difficult to the Company to develop and expand the market share. The slow down of world economy in 2002 makes the market environment more grim and the outlook of foreign trade and automobile export of PRC is not optimistic. Following the accession of China into WTO, consumers adopt waiting attitude than make purchase. Competition in pricing and new products are more intense. The price competition between domestically manufactured automobiles and imported automobiles is intensified; the cycles for developing new products are becoming shorter. 18 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) (2) Solutions In 2001, the Company focused on “enhancing the capability in six major areas, adjusting product structure and achieving seven breakthroughs”, to enhance the overall strength of the Company. Enhancing the capability of the Company in six major areas. In order to strengthen the market control capability, the Company has established the new market philosophy of “profits to the distributors, satisfaction to the consumers and development of Changan” to bring the best enthusiasm of both the manufacturer and distributors into play. The Company also adjusted its marketing strategy, integrated the marketing network and the service network, and the focus on key markets driving forward the marketing activities of the Company. In the area of financial management, the Company strengthened fund management and contractual price review management and implemented full budget management. For the improvement of basic management capabilities, the Company continued to implement the 3SC management and MLDQ management, the latter of which won the State’s Award for Innovation in Management. The Company engaged Sinotrust Group and Roland Berger Strategy Consultants to streamline the procurement and sales resources. The Company also laid great emphasis on onsite management, promote innovative awareness and encouraged recommendations for the rationalization of the Company. Efforts were also seen in optimizing the resources, as the resources were integrated to raise the competitiveness of the Company. In improving service capability, the Company launched a campaign to enhance the brand image. The set up of service network were improved, and the relationship and the cooperation with distributors and maintenance stations were further strengthened. The Company attached great importance in improving the service and expertise through training, set up user database and implemented follow-up services. To improve the technological innovative capability, the company enhanced the development thus raising its capability in design and development of the technology center, the Company is moving towards joint product development and design with foreign companies, and implemented the 2MM project and increased efforts in the area of intellectual properties. Adjustment of the product structure. With the introduction in large scale launch of the SC1016 and SC6336 series, especially the usage of the new welding production line, the Company now has three major series of products, namely SC1016, SC6336 and SC6350. The migration from carburetor cars to electric fuel injection cars has been completed, and the production is now shifting from SC6331 cars to SC6350 cars. 19 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) The Company has made seven major breakthroughs in the past year. The first breakthrough was seen in the new products The “eight-car and two-engine” research program has been carried out, and the development of new products has completed the shifts from 2D to 3D, aiming to be in line with international standards. The second breakthrough was achieved in product quality, in which the idea that the quality of the products is determined by the quality of men has been widely promoted. The Company reformed the quality control system and proposed the quality improvement through the devotion of heart, efforts and wisdom of the people. Significant efforts have also been made in the basic management of quality information, strengthening process control and restructuring the supporting systems. As a result of these efforts, the Company successfully passed the automobile quality supervision and examination and won the honor of Quality and Effective Company of the State. In the breakthrough in cost control, the Company implemented full budget management, and streamlined the purchase process by establishing the quantity-price purchase platform. Stricter economic indicators and 3SC management performance evaluation have also been applied. The breakthrough in marketing saw the strengthening of marketing management and performance evaluation through the four major tasks of “management, sales, cash return, and service”. The breakthrough in People was seen in human resources needs analysis and training analysis, increased training of senior technicians and managers and public recruitment of medium level managers. Incentive measures were improved, the incentive programmes regarding the reward of technical achievements were introduced, salary system reform was launched and the postdoctoral secondment centers were established. The sixth breakthrough was in the area of information construction, in which information technology has been widely applied in the product research and development and production management. Office automation, network construction, and financial informatization were all targeted areas. The ERP program, centering on the integration of finance management, marketing management and information resources, was launched. The seventh breakthrough was achieved in the building of corporate culture of the Company, in which the Changan Corporate Culture Manual and more were completed to build a healthy and conducive environment. 5. Explanation of variance to the plans of the Company Due to the state’s restriction on the manufacturing and sales of carburetor cars, the consumers’ attitude of waiting rather than buying after the entry into WTO and the liberation of prices of home made cars, the prices of the automobile market had been lowered and the achievement of the annual revenue of the Company had thus been affected. In 2001, the revenue of the Company reached RMB 7.3 billion, 18% less than what was planned for. 20 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) 6. The investments of the Company in the past year (1) Analysis of the investments of the Company By December 31, 2001, the long-term equity investment were at RMB 240,624,716, at on increase of RMB 171,737,490 from the previous year as a result of investment Changan Ford Automobile Co., Ltd., Chongqing Baoteman Biotech Co., Ltd., Chongqing Changan Information Technology Co., Ltd., and Chongqing Certification Authority Co., Ltd. The details are shown below: Name Major business lines Investment Equity % Changan Ford Automobile Manufacturing and sales of automobiles and US$ 25.48 26% Co., Ltd. parts million Chongqing Baoteman Research, development, manufacturing and RMB 3 10% Biotech Co., Ltd. sales of bio and pharmaceutical products million Chongqing Changan Development, manufacturing and sales of RMB 4.5 21.43% Information Technology Co., computer software and hardware products million Ltd. Chongqing Certification Digital certification RMB 1 11.11% Authority Co., Ltd. million (2) The use of proceeds from the funds raised Investment project No. Actual investment Investment Project stage Earnings projection committed 1. Automobile production Automobile production 46027 In progress line line upgrade 2. Engine production line Engine production line 85519 In progress upgrade 3. Technology Construction of the 3855 In progress Included in the Development Center Technology overall earnings of construction Development Center the Company 4. Additions to working Additions to working 0 capital and repayment capital and repayment of loans of loans Total 135401 By December 31, 2001, share issue proceeds not utilized stood at RMB 213,826,000, which has been placed in banks as current or time deposits. The use of these proceeds shall be in line with its development needs. 21 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) (3) The use of funds not derive from the proceeds from shares issued No. Investment project Funds injected Project stage Earnings projection 1. Automobile production 37983 In progress Included in the overall earnings of the line Company 2. Engine production line 27700 In progress 3. Others 14626 Total 80309 7. Financial status of the Company By December 31, 2001, the total assets, long-term liabilities and shareholder equity of the Company in comparison to the previous year. Item 2001 2000 Variance from the previous year Total assets 6,669,305 7,341,692 -9.2% Long-term liabilities 207,000 155,250 33.33% Shareholder equity 2,656,809 2,497,239 6.37% Profits from major business lines 1,432,342 998,602 43.43% Net profits 206,183 134,512 53.73% The decrease of total assets has been a result of repayment of short-term loans; the increase of long-term liabilities has been caused by the increase of loans and provision for welfare and benefits for the retired employees; the increase in shareholders’ equity was mainly due to the profits of the year; and the increase of profits from major business lines and net profits was achieved by the increase in sales of SC6350 products which have a higher margin in the product portfolio of the Company. 8. The impact of significant changes in the productive and operating environment and macro policies and laws and regulations on the Company (1) The past year has seen a quickened pace of alliance and restructuring in the international automobile industry. The union of strong players in the business gives a more distinguished demonstration of the internationalization of automobile technology, products and enterprises, and the lean production, economies of scale, platform strategy, global procurement, module supply and brand competition have made large automobile manufacturers more powerful and competitive. (2) The State Planning Commission made the decision in May to liberalize prices in the domestic automobile market. The consumers’ anticipation of the drop in price of automobiles had led to overall decline in the domestic automobile market. 22 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) (3) At the end of June, four state bureaus and ministries, led by the State Bureau of Environmental Protection, jointly issued the “Notice regarding the bon on Production and Sales of Carburetor Type Automobiles and Five-Seat Passenger Vehicles by the Prescribed Date”, and this policy had considerable impact on Changan Suzuki, a subsidiary of the Company. By April 2001, Changan Suzuki had stopped production of carburetor type Alto sedans. (4) In the Tenth Five Year period, the country has laid the emphasis on the development of economic automobiles with exhaust volume of under 1.3 liter the fuel consumption per hundred kilometers has reached the advanced level of the country at price of around RMB 80,000 and meeting all the safety, energy saving and discharge requirements of the state regulations and needs for personal consumers. This provides a good policy environment for the development of economic automobiles of the Company. 9. Planning for the fiscal year 2002 2002 is the first year for the Company to meet the challenges after China’s entry into WTO. The Company shall stick to its motto of “innovation, pragmatism, effectiveness and efficiency” to further build the managerial, technological and marketing innovation systems. The Company is aiming to achieve new progress in the five projects aforementioned to enhance the overall competitiveness of the Company. It has also set targets in the internationalization strategy, brand strategy, information construction and corporate culture building of the Company. Through thorough study and analysis of the market, the production targets for the Company are: production of 212,500 automobiles (including Changan Suzuki), sales of engines 67,000 engines, and revenue of more than RMB 8 billion. 10. The work of the Board of Directors (1) The meetings of the Board and the resolutions in the year In the reporting period, four board meetings had been held: The Third Meeting of the Second Board of Directors was held on April 9, 2001 at Chongqing Changan Hotel. Present at the meeting were 9 out of 11 directors, 1 authorized director and 15 attendees without voting rights. The following resolutions were debated and passed : i. 2000 annual report. ii. Use of proceeds from the issuance of shares. iii. Final settlement of financial accounts of 2000 and the financial budgets for 2001. iv. Change of composition of the Board of Directors. v. Selection of deputy chairman of the Board. vi. Selection and appointment of deputy general manager of the Company. 23 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) vii. Reappointment of the auditor for the Company. viii. Preliminary profit allocation plan for 2000 and the profit allocation policy for 2001. ix. Investment in Changan Ford Automobile Co., Ltd. x. On the notification of holding the year 2000 annual shareholders general meeting. The Fourth Meeting of the Second Board of Directors was held on May 25, 2001 at Chongqing Changan Hotel. Present at the meeting were 6 out of 11 directors, 1 authorized director and 10 attendees with no voting rights. The following resolutions were debated and passed: i. Application for new issuance of no more than 180,000,000 shares of domestic listed foreign shares (B shares) in 2001. ii. Feasibility of the plan for using the proceeds from the new issuance of B shares. iii. Use of proceeds raised from the previous issuance of shares. iv. On the sharing of undistributed profits before the new issuance of B shares between shareholders prior to the new issuance and the new shareholders after the new issuance. v. Revision of the Articles of Association. vi. Revision of the Rules of Procedures of the Shareholders General Meeting. vii. Revision of the Rules of Procedures of the Board of Directors. viii. Rules of the General Manager. ix. Regulations of Guarantee Management of the Company. x. Regulations of Information Disclosure of the Company. xi. Investors Service Plans of the Company. xii. The First Extraordinary Shareholders General Meeting of 2001. The Fifth Meeting of the Second Board of Directors was held on August 9, 2001 at Chongqing Changan Hotel. Present at the meeting were 7 out of 11 directors, 0 authorized directors and 10 attendees with no voting rights. The following resolutions were debated and passed: i. The rectification report concerning the problems identified in the inspection by the Chongqing Securities Regulatory Office of China Securities Regulatory Commission. ii. 2001 interim report and extracts to the interim report. iii. Use of proceeds from the issuance of shares in the mid 2001. iv. Interim profit allocation scheme for 2001. v. Revision of the Articles of Association. vi. Second Extraordinary Shareholders General Meeting of 2001. 24 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) The Sixth Meeting of the Second Board of Directors was held on October 18, 2001 at Chongqing Changan Hotel. Present at the meeting were 6 out of 11 directors, 2 authorized directors and 10 attendees with no voting rights. The following resolutions were debated and passed: i. Development of CM8 mini-auto. ii. Adjustment of the plan for new issuance of shares for 2001. iii. Engagement of new auditor for the Company. iv. Statement on the change of accounting policy. v. Third Extraordinary Shareholders General Meeting of 2001. (2) The execution of the resolutions of the shareholders general meetings by the Board during the reporting period. In 2001, the Board strictly carried out all the resolutions of the shareholders general meetings. Based on the profit allocation scheme passed on May 15, 2001 in the shareholders general meeting, the board announced and carried out the dividend allocation and payment plan through China Securities, Securities Daily and Hong Kong Business. The Company had planned to issue new B shares according to the resolution of the First Extraordinary Shareholders General Meeting. However, due to changes in the market conditions, the Third Extraordinary Shareholders General Meeting resolved the resolution to modify the issuance plan from issuance of B shares to A shares, and the Board is now working earnestly to carry out the resolution. (3) The draft scheme for the profit allocation of 2001 Net profit of 2001 stood at RMB 160,215,482 (RMB 206,183,269 under International Accounting Standards). RMB 16,855,098 was to be appropriated to the statutory surplus reserve, RMB 16,855,098 to be appropriated to the statutory public welfare reserve, RMB 13,000,000 to be appropriated to the staff and workers’ bonus and welfare fund of Changan Suzuki, RMB 43,860,000 to be appropriated to the voluntary reserve fund, and RMB 22,950,000 to be appropriate to the enterprise expansion fund. The distributable profit to shareholders should be the lower of the two in the profit statements prepared by PRC accounting standards and International Accounting Standards respectively, or RMB 161,335,070 (including undistributed profit of RMB 114,639,784 carried forward at the beginning of the period). A dividend of RMB 0.40 per every 10 shares shall be distributed to all the shareholders amounting to RMB 49,066,640. The remaining RMB 112,268,430 shall be carried forward to the next fiscal year. This profit distribution plan need be discussed in the 2001 Shareholders General Meeting. 25 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) (4) The policy for annual profit distribution in 2002 The Company has planned one profit distribution during 2002. The profit to be distributed, after the appropriation of statutory surplus reserve and public welfare reserve, shall not be higher than 30% of the total profit. The payment of dividends shall be made in the form of cash. The Company reserves the right to make adjustments to the profit distribution plans at the best of their judgment and discretion. . Report by the Board of Supervisors 1. In the reporting period,Three meetings of the Board of Supervisors had been held. (1) The meeting of the Board of Shareholders was held on April 9, 2001 at Chongqing Changan Hotel. Present at the meeting were 4 out of the 5 supervisors. The meeting debated and passed the following resolution. Year 2000 Report by the Board of Supervisors On the change of the make-up of the Board of Supervisors The above resolutions were announced on April 11, 2001 through China Securities, Securities Daily and Hong Kong Business. (2) The meeting of the Board of Shareholders was held on May 25, 2001 at Chongqing Changan Hotel. Present at the meeting were 5 out of the 5 supervisors. The meeting debated and passed the following resolution. Vote the Chairman of the Board of Supervisors the Rule of the Board of Supervisors The above resolutions were announced on May 26, 2001 through China Securities, Securities Daily and Hong Kong Business. (3) The Fifth Meeting of the Second Board of Directors was held on August 9, 2001 at Chongqing Changan Hotel. Present at the meeting were all of the 5 supervisors. The meeting debated and passed the year 2001 interim report and extracts. The above resolution was announced on August 11, 2001 through China Securities, Securities Daily and Hong Kong Business. 2. The supervisors attended all the meetings of the Board of Directors, and expressed their independent opinions in the meetings and exercised their supervisory rights. The Board of Supervisors carried out the following supervisory functions according to the Company Law and the Articles of Association. 26 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) Supervision of the compliance issues of the Company in its operation and management The Board of Supervisors performed its supervisory duties through attending the meetings of the Board of Directors. The Board of Supervisors was of the view that the decision-making procedures of the Company had been in compliance with the Company Law and the Articles of Association, a relatively proper internal control system had been established, and there had been no violations to the laws, regulations and the Articles of Association and acts harmful to the interests of the Company by the directors, supervisors and senior managers in fulfilling their duties. Review of the financial status of the Company Through review of the Board of Supervisors, the Board was of the view that the financial statements of the Company had been in compliance with relevant standards and regulations and truly reflected the financial status and operational performance of the Company. The auditor of the Company, PricewaterhouseCoopers Zhong Tian Certified Public Accountants, issued an unqualified audit report. Supervision of the use of proceeds from issuance of shares Through the review of the Board of Supervisors, the Board was of the view that the proceeds from issuance of shares had been properly used in line with the commitments of the prospectus. Supervision of the acquisition and disposal of assets There had been no acquisition nor disposal of assets in the reporting period. Supervision on the related party transactions Through review of the Board of Supervisors, the Board was of the view that all related party transactions had been conducted fairly with pricing based on the market prices and there had been no harm done to the interests of the Company. X. Important Issues 1. Major litigations and arbitrations of the year In November 2000, Changan Automobile Co., Ltd. of the Company sued Guangdong Food Indutry Co., Ltd. at Chaozhou Intermediate People’s Court over disputes on RMB 6,480,000. Conciliation was reached in February 2001 for the outstanding money to be paid by installment. In November 2000, the Company sued China Yanxing Dongbei Company at Chongqing No. 1 Intermediate People’s Court for disputes over RMB 10,040,000. The case is yet to reach settlement. In October 2001, the Company sued Chongqing Huazheng Materials Company Limited for disputes over RMB 5,524,548. Conciliation was reached in November 2001 for the outstanding money to be 27 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) paid in the form of land. 2. There was no acquisition or disposal of asset, nor merger and acquisition in the year. 3. Major related party transactions For details please refer to the disclosure regarding related parties and related party transactions contained in the notes to the financial statements. 4. Major contracts and the fulfillment of the contracts (1) There were no major entrustment, contracting and leasing by the Company of the assets of other companies and there were no major entrustment, contracting and leasing of the Company’s assets by other companies. (2) Major guarantees: the company provided loan guarantee for Chongqing Entry-Exit Inspection and Quarantine Bureau for a total of RMB 10,000,000. The guarantee was joint liabilities guarantee with a term from November 23, 1999 to December 10, 2003. The loan had been paid back in December 2001. (3) Entrusted assets management: during the reporting period, the Company entrusted to the care of the Chongqing Branch of Huaxia Securities RMB 30,000,000 for 12 months from June 2000 to June 2001. The Company has claimed the assets on June 26, 2001, with an earning of RMB 2,970,000. The Company entrusted to the care of the Chongqing Branch of Huaxia Securities RMB 60,000,000 for 12 months from April 3, 2000 to April 3, 2001. The Company has claimed the assets on May 25, 2001, with an earning of RMB 755,000. The Company entrusted to the care of Guotai Junan Securities RMB 50,000,000 for a term of 6 months from February 5, 2001 to August 4, 2001. The company had claimed the assets in advance on June 28, 2001, with an earning of RMB 1,835,927.13. The Company entrusted to the care of the Office of Shenyin & Wanguo Securities Chongqing at Chongqing Zhongshan No. 1 Street assets of RMB 5 million for a term of 12 month from September 8, 2000 to September 8, 2001. The assets entrustment term has been extended upon maturity for one more year. In 2002, apart from the RMB 5 million assets entrustment, there is no new asset entrustment plans for the Company. (4) Other major contracts: On April 16, 2001, the Company entered into “Joint-Capital Business Contract” with Changan Automobile Group Limited, Ford Motors and Changan Ford Automobile Company Limited. This event was disclosed on April 26, 2001 through China Securities, Securities Daily and Hong Kong Business. 28 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) On November 6, 2001, the Company entered into “Cooperation Agreement for Technical Improvement of 150,000 Changan Alto Sedans” with the Chongqing Branch of China Construction Bank. According to the agreement, the bank shall provide by instalment loans of RMB 1.2 billion to the Company for the technical improvement of 150,000 Changan Alto sedans. Total term of the loans is 8.5 years. The event was disclosed on November 8, 2001 through China Securities, Securities Daily and Hong Kong Business. 5. Commitments (1) The issuance of A shares in 2001. The Company had been preparing and finalizing the issuance materials and plans to complete the issuance of A shares in 2002. (2) The preliminary profit allocation plan of 2001. For details of this commitment, please refer to the resolution announcements of the Board of Directors and the shareholders general meeting of the Company. (3) For details of the rectification measures, please refer to seventh section of the annual report. 6. During the reporting period, former auditor of the Company, Shenzhen Zhong Tian Qin Certified Public Accounts, was disqualified and had its business license revoked. The Company engaged PricewaterhouseCoopers Zhongtian CPA to be its auditor for 2001. The auditors remunerations are shown below: Year Auditor Audit fees Other fees Note 2001 PricewaterhouseCoopers RMB 1,080,000 Nil The Company provided accommodation, Zhongtian CPA but did not bear traveling expenses 2000 Shenzhen Zhong Tian Qin RMB 800,000 Nil The Company provided accommodation, CPA but did not bear traveling expenses The Company had no audit fees payable by the end of the year. The auditors remuneration of Changan Suzuki, a subsidiary of the Company, paid to the auditors are shown below: Year Auditor Audit fees Other fees Note 2001 KPMG CPA RMB 183,366 RMB 7,000 The Company bore traveling expenses 2000 KPMG CPA RMB 109,655 Nil The Company bore traveling expenses The RMB 7,000 under Other fees were tax consulting fees the Company paid to the auditor and did not affect the CPAs to give their independent opinions. There was no audit fees payable by the end of the year. 29 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) 7. During the reporting period, the Company, its directors, supervisors and senior managers did not received any audit and investigation, disciplinary punishment, public criticism from China Securities Regulatory Commission nor public censure from the stock exchange. From June 26, 2001 to June 29, 2001, the Chongqing Securities Regulatory Office of China Securities Regulatory Commission conducted routine inspection on the Company and was of the opinion that the minutes of the meetings of the Company were too simple, the Company had been taking advantage of the sales channel of the Group, the debt restructuring and litigations had not been disclosed in the regular reports and there were inappropriate handlings of investment earnings. Rectification advice had been issued to require the Company to improve. Upon receiving the rectification advice, the Company was very concerned and immediately gave notice of the issues to all the directors, supervisors and senior manager. The areas to be rectified were analyzed carefully one and practical rectification measures had been developed and implemented according to the requirements of the regulatory bodies. On August 11, 2001, the Company published the rectification report on China Securities, Securities Daily and Hong Kong Business. 8. In the past year, the Company had been subject to a income tax rate of 15%. In line with the favorable tax policies of the state for the development of the western regions, the income tax rate of the Company shall remain at 15% in 2002. 9. The impact of China’s entry into WTO on the future operational activities of the Company: according to the WTO accession legal documents released by the Ministry of Foreign Trade and Economic Cooperation, there are three challenges facing the automobile industry: first, in 2006, the tariffs for imported automobiles shall be lowered from present levels of 70% to 80% to 25%, and tariffs for automobile parts down to 10%; and import quota shall be abolished in 2005. Secondly, the domestic automobile investment policies shall be liberalized. Thirdly, foreign capital shall be allowed into the automobile service and trade field of China. These terms shall lead to significant inflow of imported cars, and reducing automobile prices, which will have a significant impact on the domestic automobile industry. As the Company has been focusing on producing mini vehicles suitable to the needs of the domestic market and after twenty years of development, significant achievements of the Company has been made in the areas of production equipment, manufacturing, production organization, designing and marketing. The mini vehicles of the Company are competitive in terms of price relative to foreign products of the same type and have been exported in batches. With the entry into WTO, the Company can take advantage of the good opportunity of significant decrease in tariffs for parts and make purchase of automobile parts throughout the globe to lower the cost of the products, improve product quality and strengthen the competitiveness of the Company. The entry into WTO shall also expose the Company to the best practices and advanced technologies of international automobile industry, and the Company aims to narrow the gap it has with international standards through all means possible in an effort to improve the comprehensive management quality and competitiveness of the Company. Both the subsidiary Changan Suzuki and Changan Ford in which the Company has investment produce economic cars, and they shall face great impact from imported cars. The Company, fully aware of the problem, shall put in more efforts in reforming and updating 30 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) the technologies, improving product quality and lowering costs to heighten their competitiveness and minimize the impact. 10. With the resolution of the Third Meeting of the Second Board of Directors, the Company entered into equity joint rapture with Changan Automobile Group Limited, Ford Motors, Ford Motors (China) Company Limited to establish Changan Ford Automobile Company Limited. Changan Ford has a registered capital of US$ 98 million, and the Company contributed 26% of the total. The event was disclosed on April 11, 2001 through China Securities, Securities Daily and Hong Kong Business. On April 25, 2001, Chang Ford had its opening ceremony and it was disclosed on April 26 , 2001 through China Securities, Securities Daily and Hong Kong Business. 11. On June 26, 2001, with the resolution of the First Extraordinary Shareholders General Meeting of 2001, the Company planned to issue no more than 180,000,000 B shares. It was disclosed on June 27, 2001 through China Securities, Securities Daily and Hong Kong Business. On November 19, 2001, after the Third Extraordinary Shareholders General Meeting of 2001 and as a result of the changing market conditions, the Company decided to modify the B share issuance plan to issue no more than 160,000,000 ordinary Renminbi shares. It was disclosed on November 30, 2001 through China Securities, Securities Times and Hong Kong Business. 12. The controlling shareholder, Changan Automobile Group Limited entered into equity mortgage agreement with State Development Bank of China on December 28, 2001 and place in mortgage 354,333,000 legal person shares of the Company (28.88% of the total) in return for guarantee of RMB 578,200,000 loans for technology improvement the Group has borrowed from the bank. The term for the mortgage is from December 28, 2001 to November 20, 2007. This undertaking was has been disclosed on December 30, 2001 through China Securities, Securities Daily and Hong Kong Business 31 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) XI. Financial statements I. Audit report Report of the auditors To the Members of Chongqing Changan Automobile Co., Ltd. We have audited the accompanying consolidated balance sheet of Chongqing Changan Automobile Co., Ltd. (the Company) and its subsidiaries (the Group) as of 31 December 2001 and the related consolidated income and cash flow statements for the year then ended. These consolidated financial statements set out on pages 2 to 24 are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion the consolidated financial statements present fairly in all material respects 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. PricewaterhouseCoopers China Limited 8March 2002 32 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) II. Financial report Consolidated income statement Year ended 31 December (all amounts in RMB thousands) Notes 2001 2000 Sales 1 7,331,806 6,703,212 Sales tax and surcharge (233,388) (195,779) Net sales 7,098,418 6,311,654 Cost of sales (5,666,076) (5,508,831) Gross profit 1,432,342 998,602 Distribution costs (793,989) (516,661) Administrative expenses (452,785) (269,105) Other operating income and expenses 103,849 23,853 Operating profit 2 289,417 236,689 Finance costs – net 3 (17,617) (1,966) Group profit before tax 271,800 234,723 Share of result of associates 10 (11,000) - Profit before tax 260,800 234,723 Tax 5 28,157 (25,667) Group profit before minority interest 288,957 209,056 Minority interest (82,774) (74,544) Net profit 206,183 134,512 Basic earnings per share (RMB per share) 6 0.17 0.11 33 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) Consolidated balance sheet 31 December 31 December (all amounts in RMB thousands) Notes 2001 2000 ASSETS Non-current assets Property, plant and equipment 9 2,333,257 2,375,383 Investments in associated undertakings 10 157,589 - Other investments 11 54,000 50,000 Other non-current assets 12 29,753 23,724 Deferred tax assets 19 4,950 - 2,579,549 2,449,107 Current assets Inventories 13 709,521 844,967 Receivables and prepayments 14 1,511,231 2,025,435 Short term investment 15 5,450 30,000 Deferred tax assets 19 64,160 - Amount due from holding company 26 - 495,942 Cash and cash equivalents 16 1,799,394 1,496,241 4,089,756 4,892,585 Total assets 6,669,305 7,341,692 EQUITY AND LIABILITIES Capital and reserves Share capital 23 1,226,666 1,226,666 Share premium 23 833,438 833,438 Reserves 25 348,142 247,622 Retained earnings 248,563 189,513 2,656,809 2,497,239 Minority interest 24 522,797 471,879 Non-current liabilities Borrowings 18 180,000 155,250 Retirement benefits 4 27,000 - 207,000 155,250 Current liabilities Trade and other payables 17 2,405,777 2,909,182 Current tax liabilities 355,172 376,892 Borrowings 18 521,750 931,250 3,282,699 4,217,324 Total liabilities 3,489,699 4,372,574 Total equity and liabilities 6,669,305 7,341,692 On 8 March 2002, Chongqing Changan Automobile Company Limited’s Board of Directors authorised these financial statements for issue. 34 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) Consolidated statement of changes in shareholders’ equity (all amounts in RMB thousands) IV. Share Share Other Retained capital premium reserves earnings Total V. ote Year ended 31 December 2000 Balance at 1 January 2000 1,226,666 833,438 172,222 130,401 2,362,727 Net profit - - 75,400 59,112 134,512 Recognised gains or losses - - - - - Balance at 31 December 2000 1,226,666 833,438 247,622 189,513 2,497,239 (Restated) Year ended 31 December 2001 Balance at 1 January 2001 1,226,666 833,438 247,622 142,900 2,450,626 Prior year adjustment 7 46,613 46,613 As restated 1,226,666 833,438 247,622 189,513 2,497,239 Dividend relating to 2000 - - (46,613) (46,613) Net profit - - 100,520 105,663 206,183 Recognised gains or losses - - - - - Balance at 31 December 2001 1,226,666 833,438 348,142 248,563 2,656,809 35 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) Consolidated cash flow statement Year ended 31 December (all amounts in RMB thousands) Notes 2001 2000 CASHFLOW FROM OPERATING ACTIVITIES Cash received from sales of goods or rendering of services 9,434,039 7,362,932 Refund of tax 23,864 3,466 Other cash received relating to operating activities 516,840 90,607 Sub-total of cash inflow 9,974,743 7,457,005 _________ _________ Cash paid for goods and services (7,228,979) (5,127,334) Cash paid to and on behalf of employees (300,767) (176,956) Payments of all types of taxes (783,918) (821,436) Other cash paid relating to operating activities (674,899) (452,905) _________ _________ Sub-total of cash outflow (8,988,563) (6,578,631) _________ _________ Net cashflow from operating activities (a) 986,180 878,374 –––––––—– –––––––— CASHFLOW FROM INVESTING ACTIVITIES Net cash received from disposal of property, plant and equipment 785 254 Cash received from return on investments 12,511 Sub-total of cash inflow 13,296 254 _________ _________ Cash paid to acquire property, plant and equipment and construction in progress (218,206) (264,621) Cash paid to acquire investment (168,096) - _________ _________ Sub-total of cash outflow (386,302) (264,621) _________ _________ Net cashflow from investing activities (373,006) (264,367) –––––––—– ––––––––— CASHFLOW FROM FINANCING ACTIVITIES Proceeds from borrowings 1,190,254 1,125,870 Cash received relating to other financing activities 206,577 ________ ________ Sub-total of cash inflow 1,396,831 1,125,870 ________ _________ Cash repayment of amounts borrowed (1,575,004) (1,342,641) Cash payments for interest expenses (84,901) (123,680) Cash payments for distribution of dividends or profits 8 (46,613) - Other cash paid relating to investing activities (334) (906) ________ ________ Sub-total of cash outflow (1,706,852) (1,467,227) _________ _______ Net cashflow from financing activities (310,021) (341,357) –––––––—– ––––––––— Net Increase / (Decrease) in Cash and Cash Equivalents (b) 303,153 272,650 –––––––—– ––––––––— 36 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) Notes to the statement of cashflows (a) Reconciliation of Profit Before Tax to Cashflows from Operating Activities Year ended 31 December 2001 2000 Profit before tax 260,800 234,723 Provision for bad debt or bad debt written off 92,031 5,925 Provision for stocks (952) - Depreciation of property, plant and equipment 285,819 206,672 Amortization of other non-current assets 3,988 56,981 Loss on disposal of property, plant and equipment 4,972 6,689 Financial expenses 17,617 74,680 Investment income (12,511) (753) Share of results of associates 11,000 - (Increase) / Decrease in stocks 193,884 (211,252) (Increase) / Decrease in operating receivables 707,687 (473,437) Increase / (Decrease) in operating payables (578,155) 978,146 ________ ________ Net cashflow from operating activities 986,180 878,374 ———— ———— (b) Net Increase in Cash and Cash Equivalents Cash at the end of the year 1,799,394 1,496,241 Less: Cash at the beginning of the year 1,496,241 1,223,591 ________ ________ Net Increase / (Decrease) in Cash and Cash Equivalents 303,153 272,650 ———— ———— (c) Cash and cash equivalents Cash and cash equivalents consist of cash at bank and in hand. Cash and cash equivalents included in the consolidated statement of cash flows comprise the following consolidated balance sheet amounts: Cash at bank and in hand 1,799,394 1,496,241 –––––––– –––––––– 37 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) Company Information The financial statements are presented in Renminbi (“RMB”) rounded to nearest thousands. Chongqing Changan Automobile Company Limited (hereafter referred to as “the Company”) was established in the People’s Republic of China (“PRC”) under the Company Law of the PRC on 31 October 1996. As a joint stock limited company, the company issued 506,190,000 shares to its sole sponsor Changan Automobile Group Company Limited (hereafter referred to as “CAC”) in exchange for mini-automobile and engine manufacturing equipment and related assets; the company also issued 250,000,000 B shares to overseas investors, the total share capital was RMB 756,190 on the date of establishment. The Legal Representative’s Operating License issued by Chongqing Industrial and Commercial Administrative Bureau is Yu-Jin No. 28546236-3. On 19 May 1997, with the approval of China Securities Regulatory Commission, the company issued 120,000,000 A shares to domestic public investors, thereby increasing the total share capital to RMB 876,190. On 26 June 1998, the Company issued bonus shares on the basis of 4 shares for each 10 shares to the existing 876,190,000 shares in issue as at 31 December 1997. The bonus shares were issued as a distribution from the share premium account within shareholders’ equity. As a result, RMB 350,476 was from transferred from the share premium account to share capital increasing share capital to RMB 1,226,666. The business scope of the company includes the development, manufacture and sale of automobiles, engines and automobile related parts, dies and tools. The Company is also involved in the import-export business, mechanical installation projects and technological consulting services. Accounting policies The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below: A Basis of preparation The financial statements are presented in Renminbi (“RMB”) rounded to nearest thousands. The consolidated financial statements have been prepared in accordance with International Accounting Standards. The consolidated financial statements have been prepared under the historical cost convention except as disclosed in the accounting policies below. The accounting policies have been consistently applied by the Group and are consistent with those used in the previous year. B Group accounting (1) Subsidiary undertakings Subsidiary undertakings, which are those entities controlled by the Group. Control exists when the Group 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 financial statements of the subsidiaries are included in the consolidated financial statements from the date that control effectively commences until the date that 38 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) control effectively ceases. All intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless cost cannot be recovered. Where necessary, accounting policies for subsidiaries have been changed to ensure consistency with the policies adopted by the Group. B Group accounting (continued) (2) Associated undertakings Investments in associated undertakings are accounted for by the equity method of accounting. These are undertakings over which the Group has between 20% and 50% of the voting rights, or over which the Group has significant influence, but which it does not control. Unrealised gains on transactions between the Group and its associated undertakings are eliminated to the extent of the Group ‘s interest in the associated undertakings; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the assets transferred. Equity accounting is discontinued when the carrying amount of the investment in an associated undertaking reaches zero, unless the Group has incurred obligations or guaranteed obligations in respect of the associated undertaking. (3) Foreign currency translation Foreign currency transactions are accounted for at the exchange rates, as quoted by the People’s Bank of China, prevailing at the transaction dates; gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies, are recognised in the income statement, with the exception of the gains and losses relating to transactions referred to below. Exchange differences directly relating to the purchase or construction of property, plant and equipment before they are put in use are capitalized as part of the cost of the assets. C Property, plant and equipment (1) Owned assets Property, plant and equipment are stated at cost or 1995 valuation (see note 9) less accumulated depreciation. The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of production overheads. Where an item of property, plant and equipment comprises major components having different useful lives, they are accounted for as separate items of property, plant and equipment. All direct and indirect costs relating to the acquisition or construction of property, plant and equipment including interest costs on related borrowed funds during the construction period are capitalized as property, plant and equipment. (2) Subsequent expenditure Expenditure incurred to replace a component of an item of property, plant and equipment that is accounted for separately, is capitalized with the carrying amount of the component being written off. Other subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the item of property, plant and equipment. All other expenditure is recognized in the statement of income as an expense as incurred. 39 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) (3) Depreciation Depreciation is calculated on the straight-line method to write off the cost of each asset, or the revalued amounts, to their residual values over their estimated useful life as follows: Land 48-60 years Buildings 20-40 years Plant and machinery 12-20 years Equipment and motor vehicles 8 years Others 5-22 years C Property, plant and equipment (continued) (3) Depreciation Amortization of the land use right owned by Changan Suzuki is calculated on a straight-line basis to write off the cost over the useful life of 30 years. (4) Construction in progress Construction of a building or plant is considered to be completed on the date when substantially all the activities necessary to prepare the asset for its intended use are complete notwithstanding any delays in the issue of the relevant commissioning certificate by the appropriate PRC authorities. Interest costs on borrowings to finance the construction of property, plant and equipment are capitalised, during the period of time that is required to complete and prepare the asset for its intended use. All other borrowing costs are expensed. (5) Disposal and impairment Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in operating profit. D Investments (1) Short term investment Short term investments are bought with the intention of disposal within 12 months. There are stated at fair value. Realised gains and losses arising from disposal are included in the income statement in the period in which they arise. (2) Other investment Other investment comprises participation in a company in which the Group neither holds, directly or indirectly, 20% or more of the voting powers nor exercises significant influence. The investment is carried at cost less any amounts written off to recognize other than temporary declines in the value of the investment. On disposal of an investment, the difference between the net disposal proceeds and the carrying amount is charged or credited to the statement of income. E Other non-current assets Other non-current assets include industrial property rights and proprietary technology. Industrial property rights and proprietary technology are stated at cost and amortized on a straight- line 40 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) basis over a 10 year expected beneficial period starting from the date of use or over the actual production output. F Leases (1) A group company is the lessee Leases of land and buildings where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. F Leases (continued) (2) A group company is the lesser Assets leased out under operating leases are included in property, plant and equipment in the balance sheet. They are depreciated over their expected useful lives on a basis consistent with similar owned property, plant and equipment. Rental income (net of any incentives given to lessees) is recognised on a straight-line basis over the lease term. G Inventories Inventories are stated at the lower of cost or net realisable value. Cost is determined by the weighted average method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity) but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses. H Trade receivables Trade receivables are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts at the year end. Bad debts are written off when identified. I Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost and comprise cash on hand and deposits in banks. J Share capital (1) Share capital consists of A and B shares. (2) External costs directly attributable to the issue of new shares, other than on a business combination, are shown as a deduction, net of tax, in equity from the proceeds. Share issue costs incurred directly in connection with a business combination are included in the cost of acquisition. K Interest-bearing loans and borrowings Interest-bearing loans and borrowings are recognized initially at cost, net of any transaction costs incurred. Subsequent to initial recognition, interest-bearing loans and borrowings are stated at amortized cost with any difference between cost and redemption value being 41 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) recognized in the statement of income over the period of the borrowings. When borrowings are repurchased or settled before maturity, any difference between the amount repaid and the carrying amount is recognized immediately in the statement of income. L Income tax Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognized in the statement of income except to the extent that it relates to items recognized directly to equity, in which case it is recognized in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. L Income tax (continued) Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. The principal temporary differences arise from provisions for receivables, price reduction compensations and other post retirement benefits. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date. A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the unused tax losses and credits can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized. M Employee benefits Contributions to retirement schemes are recognized as an expense in the statement of income as incurred. The Group is required to make contributions for its employees to various retirement schemes run by the Chongqing Municipal Government in accordance with the rules and regulations thereof. The Group’s liability with regard to this retirement scheme is limited to its contribution that is calculated based on the amount of total salaries and wages incurred during the year. The pension obligation not covered by the abovementioned retirement scheme is estimated based on the present value of the estimated future cash outflows discounted using interest rates typically available to the company through bank deposit accounts. N Warranty A provision for warranties is recognized when the underlying products or services are sold. The provision is based on past history of the level of repairs, service and replacements. O Revenue recognition Sales are recognised upon delivery of products and customer acceptance, if any, or on the performance of 42 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) services. Sales are shown net of sales taxes and discounts, and after eliminating sales within the Group. Other revenues earned by the Group are recognised on the following bases: Royalty and rental income − on an accrual basis. Interest income − on an accrual basis. Dividend income − when the Group’s right to receive payment is established. P Dividends payable Dividends are recognized in the period in which they are approved by the shareholders. Q Net finance costs Net finance costs comprise interest payable on short-term loans, interest receivable on deposits, and foreign exchange gains and losses. Interest income is recognized in the statement of income as it incurred, taking into account the effective yield on the assets. All interest and other costs incurred in connection with borrowings are expensed as incurred as part of net financing costs. R Research and development Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognized in the statement of income as an expense as incurred. Expenditure on development is recognized in the statement of income as an expense as incurred S Financial instrument Financial instruments carried on the balance sheet include cash and cash equivalents, investments, receivables, payables and borrowings. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. The Group adopted IAS39 at 1 January 2001 with no resulting material effect on the Group consolidated financial position, income statement or cash flow. Notes to the consolidated financial statements (In the notes all amounts are shown in RMB thousands unless otherwise stated) 1 Analysis of sales by category 2001 2000 Automobiles 7,030,870 6,562,895 Engines 202,280 - Industrial activities 42,960 64,388 Automobile parts 55,696 75,929 7,331,806 6,703,212 The group is engaged in the development, manufacturing and sale of automobiles, engines and automobile related parts within the definitions of financial statement presentation, as a single segment. Sales are made principally in the PRC. 2 Operating profit The following items have been included in arriving at operating profit : 2001 2000 Depreciation on property, plant and equipment (Note 9) 285,819 250,879 Impairment of property, plant and equipment (Note 9) 10,064 - 43 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) Loss on disposal of property, plant and equipment 4,972 6,582 Repairs and maintenance expenditure on property, plant 56,821 67,084 and equipment Amortisation of other non-current assets (Note 12) 3,660 5,913 Research and development expenditure 123,579 82,435 Operating lease rentals payable − property 9,317 9,317 Inventory − provision for loss 27,585 - − reversal of inventory provision (28,537) - Trade receivables −impairment charge for bad and 93,673 5,925 doubtful debts Staff costs (Note 4) 302,076 210,328 Investment Income 12,511 753 3 Finance costs – net 2001 2000 Interest expense (56,817) (76,323) Interest income 42,924 81,087 Net foreign exchange losses (96) (3,147) Others (3,628) (3,583) (17,617) (1,966) 4 Staff costs 2001 2000 Wages and salaries 234,821 176,162 Social security costs 10,004 10,027 Pension costs − defined contribution plans 24,251 24,139 Other retirement benefits 33,000 - 302,076 210,328 The average number of employees in 2001 was 8,360 (2000: 9,055), 434 of whom (2000: 977) were part-time. The employees of the Group participate in various retirement benefit plans organized by the relevant municipal and provincial governments under which the Group was required to make monthly defined contributions to this plan. Obligation in respect of retirement benefits of RMB 33,000 not covered by the abovementioned retirement scheme is the present value of the unfunded obligations include non current portion of RMB 27,000(2000: nil). The current portion of RMB 6,000 (2000: nil) have been included under other payables. This obligation is effective from 31 December 2001. 5 Tax 2001 2000 Current tax 40,953 25,667 Deferred tax (Note 19) (69,110) - (28,157) 25,667 The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the tax rate of the Company as follows: 44 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) 2001 2000 Profit before tax 260,800 234,723 Tax calculated at a tax rate of 15% and 7.5% (2000 : 15% 42,825 25,667 and 7.5%) Income not subject to tax (13,310) - Deductible capital expenditure (22,730) - Expenses not deductible for tax purposes (34,942) - Tax (credit)/ charge (28,157) 25,667 The income tax rate applicable to the Company and its subsidiaries is 15%. As approved by the local tax authorities, the Company and its subsidiaries, other than Chongqing Changan Suzuki Automobile Company (“Changan Suzuki”), file a consolidated income tax return. No provision for income tax has been made as the Company and its subsidiaries, other than Changan Suzuki, sustained a combined loss for the year prior to the share in the profits of Changan Suzuki. The income tax rate applicable to Changan Suzuki is 15%. Changan Suzuki is fully exempted from income tax for two years starting from the first profitable year, after utilisation of tax loss carry forwords, followed by a 50% exemption for the following three years. This is the second year of 50% tax reduction and the corporate income tax has been provided at the rate of 7.5% based on the taxable income for the year. 6 Earnings per share Basic earnings per share is calculated by dividing the net profit attributable to shareholders by the weighted average number of ordinary shares in issue during the year. 2001 2000 Net profit attributable to shareholders (RMB’000) 206,183 134,512 Weighted average number of ordinary shares in issue 1,226,666 1,226,666 (thousands) Basic earnings per share (RMB per share) 0.17 0.11 7 Prior year adjustment Pursuant to a resolution of the company’s board of directors on 9 April 2001, dividend of RMB 0.38 (tax included) for every share is proposed in respect of the year ended 31 December 2000. The company has recorded the liability of RMB 46,613 as at 31 December 2000. The PRC regulations requires that the appropriation of the net profit of a period depends on the decision of the shareholders. The proposed appropriation by the board of directors did not meet the definition of a provision in IAS 37, in that it is not a “present obligation” of the company. Hence, the proposed appropriation for dividend payments should not be accrued in the year in which the net profit arose. A prior year adjustment was made to record the dividend of RMB 46,613 in 2001. 8 Dividend per share 45 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) At the Annual General Meeting on 8 March 2002, a dividend in respect of 2001 of RMB 0.40 per share amounting to a total dividend of RMB 49,067 is to be proposed. These financial statements do not reflect this dividend payable, which will be accounted for in shareholders’ equity as an appropriation of retained earnings in the year ending 31 December 2002. The dividends declared in respect of 2000 and 1999 was RMB 46,613 and nil, respectively. 9 Property, plant and equipment Construction in Land & Plant & Vehicles Others Total progress buildings machinery Year ended 31 December 2000 Opening net book amount 430,965 502,601 1,506,563 13,844 8,178 2,462,151 Additions 282,495 37,916 263,848 3,913 10,136 598,308 Transfers (419,695) - - - - (419,695) Disposals - - (13,035) (1,236) (231) (14,502) Depreciation charge (Note - (18,599) (224,733) (1,959) (5,588) (250,879) 2) Closing net book amount 293,765 521,918 1,532,643 14,562 12,495 2,375,383 At 31 December 2000 Cost or valuation 293,765 619,349 2,313,766 24,949 27,192 3,279,021 Accumulated depreciation - (97,431) (781,123) (10,387) (14,697) (903,638) Net book amount 293,765 521,918 1,532,643 14,562 12,495 2,375,383 9 Property, plant and equipment (continued) Construction in Land & Plant & Vehicles Others Total progress buildings machinery Year ended 31 December 2001 Opening net book 293,765 521,918 1,532,643 14,562 12,495 2,375,383 amount Additions 246,056 40,316 113,034 6,424 12,313 418,143 Transfers (152,637) - - - - (152,637) Disposals - (3,579) (6,788) (1,289) (93) (11,749) Impairment charge (Note - - (10,050) (14) - (10,064) 2) Depreciation charge - (15,824) (261,247) (2,506) (6,242) (285,819) (Note 2) Closing net book amount 387,184 542,831 1,367,592 17,177 18,473 2,333,257 At 31 December 2001 Cost or valuation 387,184 656,086 2,420,012 30,084 39,412 3,532,777 Accumulated - (113,255) (1,052,420) (12,907) (20,939) (1,199,520) depreciation Net book amount 387,184 542,831 1,367,592 17,177 18,473 2,333,257 During 2001, interest expenses of RMB4,806 (2000: RMB31,856) were capitalised in the cost of construction in progress. 46 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) All of the Group’s buildings are located in PRC. The title to buildings of net book value RMB 106,501 are in the process of being transferred to Changan Suzuki. Except for the land use right owned by Changan Suzuki with a period of 30 years, the Chongqing Municipal Government transferred the land use rights of the land on which the Group’s buildings are situated to CAC. The Company has entered into a leasing agreement with CAC for the land use rights upon the establishment of the Company for 50 years. As at 31 December 2001, equipment with a net book value of RMB 493,384 has been pledged as securities for short-term loans (see note 18). As at 31 December 2000, buildings with a net book value of RMB 213,277 and equipment with a net value of RMB 634,062 have been pledged as securities for long-term loans (see note 18) and short-term loans (see note 18) respectively. The Company was established in PRC on 31 October 1996 as a joint stock limited company as part of the restructuring of CAC that was a state-owned enterprise. On the same date, the principal business undertakings of CAC together with the relevant assets and liabilities were taken over by the Company. As required by the relevant PRC rules and regulations a valuation of the assets and liabilities to be injected into the Company was carried out at 31 December 1995 and approved by the State-owned Assets Administration Bureau and the injected assets and liabilities were reflected in the accounts on this basis. The 1995 valuation was a one-off exercise that established the deemed cost of the property, plant and equipment injected on the formation of the Company. As a result, the directors consider that the requirements of International Accounting Standard Number 16 “Property, Plant and Equipment” with respect to assets at carrying amounts other than cost less accumulated depreciation are not applicable. 10 Investments in associated undertakings 2001 2000 At the beginning of year - - Acquisition 168,589 - Share of results (11,000) - At end of year 157,589 - The principal associated undertakings, both of which are unlisted, are: Country of % interest held incorporation Changan Ford Automobile Corporation.,Ltd. China 26% Chongqing Changan Information Technology Co.,Ltd. China 21.43% The abovementioned associated undertakings are still in preoperating stage. 11 Other investments 2001 2000 Southwestern Securities Co., Ltd. 50,000 50,000 Others 4,000 - Total 54,000 50,000 47 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) Southwestern Securities Co., Ltd.(“Southwestern Securities”), is a limited liability company established in PRC as approved by the China Securities Regulatory Committee. The business of Southwestern Securities includes securities purchases and sales, securities underwriting, and investment consulting. The Group holds an equity interest of 4.43% in Southwestern Securities. 12 Other non-current assets Year ended 31 December 2000 Opening net book amount 28,074 Additions 1,563 Amortisation charge (Note 2) (5,913) Closing net book amount 23,724 At 31 December 2000 Cost 33,181 Accumulated amortisation (9,457) Net book amount 23,724 Year ended 31 December 2001 Opening net book amount 23,724 Additions 9,689 Amortisation charge (Note 2) (3,660) Closing net book amount 29,753 At 31 December 2001 Cost 42,870 Accumulated amortisation (13,117) Net book amount 29,753 The above represents production technology for the advanced model of the Alto mini-sedan and “Changan Star” automobiles transferred from Suzuki Motor Corporation. 13 Inventories 2001 2000 Raw materials (at net realisable value) 284,458 301,024 Work in progress (at cost) 36,147 42,936 Finished goods (at net realisable value) 384,174 494,999 Consumables (at cost) 4,742 6,008 709,521 844,967 14 Receivables and prepayments 2001 2000 Trade receivables 1,219,148 1,565,924 Less : Provision for bad and doubtful debts (90,664) (106,818) Trade receivables – net 1,128,484 1,459,106 Notes receivables 267,784 170,371 Advances to suppliers 22,759 122,366 Other receivables 92,204 273,592 1,511,231 2,025,435 15 Short term investments As of 31 December 2001, short term investment comprise principally marketable equity securities of RMB 450 (2000:nil) and funds placed with investment companies of RMB 5,000 (2000: RMB 30,000) 48 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) 16 Cash and cash equivalents 2001 2000 Cash at bank and in hand 1,799,394 1,496,241 As of 31 December 2001, cash balances of RMB83,581 were held as the guaranteed deposits for the notes payable and cash balances of RMB 272,195 can only be used for specific projects. As of 31 December 2000, cash balances of RMB150,000 were held as security for the short term bank loans. 17 Trade and other payables 2001 2000 Trade payables 1,124,129 1,297,364 Notes payable 552,794 1,172,834 Other payables 152,388 133,616 Accrued expenses 112,755 85,473 Accrued sales compensation 322,710 67,800 Accrued payroll and welfare 72,278 76,397 Advances from customers 68,723 75,698 2,405,777 2,909,182 18 Borrowings 2001 2000 Current Bank borrowings - unsecured 265,000 296,500 - secured 256,750 634,750 521,750 931,250 Non-current Bank borrowings - secured 180,000 155,250 Total borrowings 701,750 1,086,500 18 Borrowings (continued) Current bank loans as at 31 December 2001 bear interest at rates ranging from 5.58% to 5.85% per annum (2000: 4.65% to 5.36%). Of these loans, RMB120,000 (2000: RMB484,750) were secured by production equipment with net book value of RMB493,384 (2000:RMB 634,062) and RMB 60,000 were guaranteed by Southwest Ordnance Industries corp. Other bank loans were guaranteed by Letter of Credit. Non-current bank loans bear interest at rate 6.03% (2000: 6.03-6.21%) and were guaranteed by Southwest Ordnance Industries corp. At 31 December 2000, non-current bank loans of RMB 150,000 were secured by buildings with net book value of RMB213,277. Maturity of non-current borrowings: 2001 2000 Between 1 and 2 years - 75,250 Between 2 and 5 years 80,000 80,000 Over 5 years 100,000 - 180,000 155,250 19 Deferred income taxes 49 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) Deferred income taxes are calculated in full on temporary differences under the liability method using a principal tax rate of 15%. The movement on the deferred income tax account is as follows: 2001 2000 At beginning of year - - Income statement charge (Note 5) 69,110 - At end of year 69,110 - Current 64,160 - Non-current 4,950 - 69,110 - Deferred income tax arose from temporary differences from provisions (RMB 49,785) and impairment of assets (RMB 19,325). 20 Financial assets and liabilities Financial assets of the Group include cash at bank and in hand, accounts receivable and notes receivable, short term investments and amounts due from holding company. Financial liabilities of the Group include interest bearing loans and borrowings, accounts payable and notes payable. The Group and the Company do not hold or issue financial instruments for trading purposes. (i) Credit risk Cash is placed with a group of banks with good credit ratings. Credit risk on accounts receivable, notes receivable and amount due from holding company have already been accounted for in the financial statements as they are shown net of provisions for bad and doubtful debts. (ii) Interest risk The company’s income and operating cash flows are substantially independent of changes in market interest rates. The interest rates and terms of repayment of the interest bearing loans and borrowings of the Group are disclosed in Notes 18. The interest rates of the amount due from holding company are disclosed in Note 26 (v). 20 Financial assets and liabilities (continued) (iii) Fair value The fair values of cash at bank and in hand, accounts receivables, notes receivable, short term investments, amounts due from holding company, loans and borrowings, accounts payable and notes payable are not materially different from their carrying amounts. 21 Contingencies Contingent liabilities At 31 December 2001, the company did not have any significant contingent liabilities. 22 Commitments Capital commitments 50 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) Capital expenditure for purchase of property, plant and equipment at the balance sheet date but not recognised in the financial statements is as follows: 2001 2000 Contracted 610,520 20,420 Authorised but not contracted 2,070,190 1,819,820 2,680,710 1,840,240 Operating lease commitments – where a group company is the lessee The future aggregate minimum contracted for at the balance sheet date but not recognised in the financial statements is as follows: 2001 2000 Not later than 1 year 37,267 - Later than 1 year and not later than 5 years 69,290 - 106,557 - 23 Share capital and share premium 2001 2000 Share capital 876,666,000 A shares of par value RMB1 876,666 876,666 each 350,000,000 B shares of par value RMB1 350,000 350,000 each At 31 December 2001 1,226,666 1,226,666 Share premium Balance at 1 January and at 31 December 833,438 833,438 All the “A” and “B” shares rank pari passu in all respects. 24 Minority interests 2001 2000 At beginning of year 471,879 446,335 Share of net profit of subsidiaries 82,774 74,544 Dividend paid (31,856) (49,000) At end of year 522,797 471,879 25 Reserves Retained by the Company Retained by Changan Total Suzuki 51 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) Statutory Statutory Reserve Enterprise reserve common fund expansion reserve fund fund Year ended 31 December 2000 Balance at 1 January 2000 47,351 47,351 54,060 23,460 172,222 Transfers from statement of 12,710 12,710 35,190 14,790 75,400 income Balance at 31 December 60,061 60,061 89,250 38,250 247,622 2000 Year ended 31 December 2001 Balance at 1 January 2001 60,061 60,061 89,250 38,250 247,622 Transfers from statement of 16,855 16,855 43,860 22,950 100,520 income Balance at 31 December 76,916 76,916 133,110 61,200 348,142 2001 Transfers from the statement of income to statutory reserve and statutory public welfare fund were made in accordance with the relevant statutory rules and regulations and the Articles of Association of the Company and Changan Suzuki. Statutory reserve According to the Company’s Articles of Association, the Company is required to transfer 10% of its profit after taxation, as determined under PRC accounting regulations, to the statutory reserve until the reserve balance reaches 50% of the registered capital. The statutory reserve can be used to make good previous years’ losses, if any, and may be converted into share capital by the issuance of new shares to shareholders in proportion to their existing shareholdings. The transfer to this reserve must be made before the distribution of dividends to shareholders. No cash distribution is allowed other than in liquidation of the Company. Statutory common reserve fund According to the Company’s Articles of Association, the Company is required to transfer 5% to 10% of its profit after taxation, as determined under PRC accounting regulations, to the statutory common reserve fund. 25 Reserves (continued) Statutory common reserve fund (continued) The statutory public welfare fund can only be utilized on capital items for the collective benefits of the Company’s employees such as the construction of dormitories, canteen and other staff welfare facilities. The transfer to this reserve must be made before distribution of dividends to shareholders. This reserve is non-distributable other than in liquidation of the Company. Reserve fund According to the resolution of the Board of Directors of Changan Suzuki for the 2001 profit 52 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) appropriation, the amount of RMB86,000 was transferred to reserve fund from the distributable profits at 31 December 2001. The reserve fund can be used for Changan Suzuki’s working capital purposes and to make good losses incurred. The reserve fund can also be used to increase capital of Changan Suzuki. The transfer to this reserve must be made before the distribution of dividends to investors of Changan Suzuki. No cash distribution is allowed other than in liquidation of Changan Suzuki. Enterprise expansion fund According to the resolution of the Board of Directors of Changan Suzuki for the 2001 profit appropriation, the amount of RMB 45,000 was transferred to enterprise expansion fund from the distributable profits at 31 December 2001. The enterprise expansion fund can be used for Changan Suzuki’s business development purposes and for working capital purposes. The enterprise expansion fund can also be used to increase capital of Changan Suzuki. The transfer to this reserve must be made before the distribution of dividends to investors of Changan Suzuki. No cash distribution is allowed is other than in liquidation of Changan Suzuki. 26 Related party transactions The directors of the Company consider CAC is the holding company. The following transactions were carried out with related parties: i) Sales of goods and services 2001 2000 Sales of goods: Nanjing Changan Automobile Co.,Ltd. 123,971 42,037 Related companies of CAC 2,459,030 2,201,596 2,583,001 2,243,633 ii) Purchases of goods and services 2001 2000 Purchases of goods: Chongqing Lier Changan Automobile Decorating Co.,Ltd 114,753 96,843 Chongqing Changan Kuayue Automobile Co.,Ltd 42,615 40,246 Changan Automobile Manufacturing Factory 52,059 50,423 Related companies of CAC 257,837 399,276 Chongqing Jiangli Machinery Factory 44,294 29,970 Chongqing Jiangchuan Machinery Factory 27,348 29,268 Chongqing Jiangchao Engine Industry Corp. 8,883 8,795 Suzuki Motor Corporation 215,297 175,974 763,086 830,795 26 Related party transactions (continued) ii) Purchases of goods and services (continued) 2001 2000 Purchases of services: CAC Trademark fee 9,182 8,414 Land use right fee 9,317 9,317 Management services 115,515 111,105 53 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) Information gathering fee 6,800 - 140,814 128,836 iii) Year-end balances arising from sales/purchases of goods/services 2001 2000 Receivables from related parties: Related companies of CAC 883,744 1,328,186 Nanjing Changan Automobile Co.,Ltd. 405 23,150 884,149 1,351,336 iii) Year-end balances arising from sales/purchases of goods/services Payables to related parties: Chongqing Lier Changan Automobile Decorating co.,Ltd 41,493 36,055 Chongqing Changan Kuayue Automobile Co.,Ltd 16,523 15,029 Changan Automobile Manufacturing Factory 345 4,546 Chongqing Jiangli Machinery Factory 6,689 3,122 Chongqing Jiangchuan Machinery Factory 3,018 629 Chongqing Jiangchao Engine Industry Corporation 1,032 1,666 Suzuki Motor Corporation 10,107 6,689 79,207 67,736 iv) Directors’ remuneration In 2001 the total remuneration of the directors was RMB31 (2000 : RMB65). v) Amount due from holding company As at 31 December 2001, there was no loan receivable from CAC (2000:RMB495,942). Interest was payable by CAC on loans due at 6% (2000:6%), the interest charged was RMB11,812 (2000: RMB43,495). 27 Principal subsidiary undertakings Entity Country of Principal activities incorporation Chongqing Changan Import and Export Company (100%) China Import and export of automobiles wholesale and retail of automobile spare parts Chongqing Changan Automobile Sales China Sale of automobiles, engines and spare Company (100%) parts Jiangling Electro-mechanical Company China Wholesale and retail of automobile spare (100%) parts Chongqing Changan Suzuki Automobile China Manufacture and sale of automobiles and Company (51%) engines 28 Post balance sheet events On 8 March 2002, approval was given by the Board of Directors for an agreement to be made between the company and CAC for the acquisition of 13 sales companies at a consideration of RMB 4,040. 54 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) On 8 March 2002, approval was given by the Board of Directors for a new management services agreement to be made between the company and CAC. Under the terms of this agreement annual amounts payable to CAC for annual building rental, land use, road maintenance are RMB16,618, RMB 2,824 and RMB1,000 respectively. All other expenses covered under this agreement will be payable as reimbursements of actual expenses incurred by CAC. 29 Classification of comparative figures (i) Inventories Inventories increased by RMB 95,661 due to materials received but not booked thereby decreasing advance payments by RMB 47,475 to suppliers and increasing trade payables by RMB 48,184. Inventories of RMB 217,851 were overstated and adjusted against trade creditors. (ii) Short term investment Short term investment of RMB 30,000 were included in receivables and prepayments and reclassified to short term investment. (iii) Current tax liabilities Input value added taxes of RMB 33,910 were included in receivables and prepayments and reclassified to current tax liabilities. (iv) Construction in progress Materials for installation of RMB 48,186 were included as advance payments to suppliers and reclassified to fixed assets. (v) Accumulated depreciation Fixed assets accumulated depreciation of RMB 6,124 was included under other non-current assets and reclassified Fixed assets accumulated depreciation. (vi) Amount due from holding company RMB 495,942 due from holding company was reclassified from trade and other payables. (vii) Minority interest Minority interest of RMB 871 was reclassified to share premium. (viii) Other non-current assets Fixed assets of RMB 12,248 included under other non-current assets was reclassified to fixed assets. 55 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) Impact of IAS adjustments on the consolidated profit after taxation and shareholders’ fund   Net assets Net profit As reported in the accounts of the Group under PRC 2,574,311 160,215 8 Staff and worker’s bonus and welfare fund of Changan Suzuki charged against profit after taxation - (13,000) 9 Amortisation of goodwill arising on consolidation (18,029) 858 10 Adjustment of amortisation of pre-operating expenses in Changan Suzuki 1,227 - 11 Reversal of revaluation surpluses of long term assets relating to the revaluation made in 1995 (7,877) - 12 Deferred tax assets 69,110 69,110 13 Dividend declared 49,067 - 14 Equity share of results of associate (11,000) (11,000) As restated in conformity with IAS 2,656,809 206,183 56 Chongqing Changan Automobile Company Limited 2001 Annual Report (B Share) XII. Documents for inspection I. Accounting statements with signatures and stamps of the legal representative, the leader in charge of the accounting and the leader of accounting departments. II. The original audit report with the stamp of the CPA firm and the signature and stamp of the Certified Public Accountant. III. All the original documents and manuscripts of the Company which has been disclosed in the reporting period in the newspapers designated by China Securities Regulatory Commission. IV. Annual reports published in other securities markets. Chairman of the Board of Directors: General Manager: Chongqing Changan Automobile Company Limited March 8, 2002 57