*ST舜喆B(200168)雷伊Ｂ2002年年度报告（英文版）

GUANGDONG RIEYS COMPANY LTD. 2002 ANNUAL REPORT April 2003 - 1 - GUANGDONG RIEYS COMPANY LTD. 2002 ANNUAL REPORT IMPORTANT NOTES Board of Directors of Guangdong Rieys Company Ltd. and its directors individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions nor errors which would render any statement misleading. Chairman of the Board Mr. Chen Hongcheng and Chief Financial Supervisor Mr. Li Guoqiang hereby confirm that the Financial Report of the Annual Report is true and complete. Shenzhen Pengcheng Certified Public Accountants audited the financial report of the Company and issued standard unqualified Auditor’s Report for the Company. Contents Ⅰ. Company Profile----------------------------------------------------------------------------- Ⅱ. Summary of Financial Highlight and Business Highlight--------------------------- Ⅲ. Changes in Capital Shares and Particulars about Shareholders------------------- Ⅳ. Particulars about Directors, Supervisors, Senior Executives and Employees--- Ⅴ. Administrative Structure------------------------------------------------------------------- Ⅵ. Brief Introduction to the Shareholders’ General Meeting -------------------------- Ⅶ. Report of the Board of Directors ----------------------------------- --------------------- Ⅷ. Report of the Supervisory Committee--------------------------------------------------- Ⅸ. Significant Events---------------------------------------------------------------------------- Ⅹ. Financial Report----------------------------------------------------------------------------- Ⅺ. Documents for Reference------------------------------------------------------------------ I. COMPANY PROFILE 1. Legal Name of the Company In Chinese: 广东雷伊股份有限公司 Abbr. In Chinese: 雷伊 In English: GUANGDONG RIEYS COMPANY LTD. Abbr. in English: Rieys 2. Legal Representative: Mr. Chen Hongcheng 3. Secretary of the Board of Directors: Mr. Zhou Haolin E-mail: zhl@200168.com Authorized Representative in Charge of the Securities Affairs: Mr. Xu Wei E-mail: xw@200168.com Contact Tel: (86) 755-82960823 Fax: (86) 755-82960383 Contact Address: Secretariat of the Board of Directors, 26th Floor of Jiangsu Bldg., Yitian Road, Futian District, Shenzhen 4. Registered Address: Meixin Industrial Park of Jun Bu Town, Puning, Guangdong Office Address: 26th Floor of Jiangsu Bldg., Yitian Road, Futian District, Shenzhen Post Code: 518000 Company’s Internet Website: http://www.rieys.com E-mail of the Company: rieys@200168.com 5. Newspapers Chosen for Disclosing the Information of the Company: Securities Times and Ta Kung Pao Internet Website Designated by CSRC for Publishing the Annual Report: http://www.cninfo.com.cn The Place Where the Annual Report is Prepared and Placed: Secretariat of the Board of Directors, 26th Floor of Jiangsu Bldg., Yitian Road, Futian District, Shenzhen 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: RIEYS-B Stock Code: 200168 7. Other relevant information Initial registered date: Nov. 17, 1997; Initial registered place: Industrial and Commercial Administration Bureau of Guangdong Province Registered code of business license of enterprise legal person: 4400001000088 Registered code of tax: 445281231131833 Domestic Certified Public Accountants Engaged by the Company: Name: Shenzhen Pengcheng Certified Public Accountants Address: No. 1515-1525 of China International Trade Center Bldg., No. 1 of Jianguomenwai Street, Beijing Oversea Certified Public Accountants Engaged by the Company: Name: Hong Kong Glass Radcliffe Chan Certified Public Accountants Address: 12th Floor, China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong II. SUMMARY OF ACCOUNTING DATA AND BUSINESS DATA 1. Major accounting data and financial indexes as of the year 2002 (Unit: RMB) Items 2002 Total profit 49,278,243 Net profit 40,145,854 Net profit after deducting non-recurring gains and losses 32,706,784 Profit from core business 111,664,548 Profit from other business -666,034 Operating profit 50,259,271 Investment income -2,430,575 Subsidy income 2,197,125 Net income/expenditure of non-operating -747,578 Net cash flows arising from operating activities 98,372,310 Net increase in cash and cash equivalent 131,762,259 Note: Items of non-recurring gains and losses and the relevant amount: Income of non-operating 125,445，Inventory profit 162,450，Income from expenses for the use of funds 5,761,672，Subsidy income 2,197,125，Expenditure of non-operating 873,023.49。 The explanation on the difference between the auditing results under CAS and IAS: Profit after taxation of the Company as of the year 2002 as audited by Shenzhen Pengcheng Certified Public Accountants under CAS and by Hong Kong Glass Radcliffe Chan Certified Public Accountants under IAS was RMB 40,145,854 and RMB 41,912,429 respectively. The adjustment for the differences is as follows: (Unit: In RMB) Consolidation statement of 2002 Profit after taxation audited by Shenzhen Pengcheng Certified Public Accountants: Adjustment to conform with IAS: 40,145,854 Write off of goodwill Write off of amortization of goodwill Write off of organization expenses Dividend declared to be distributed after the year-end 1,135,135 Deferred tax 631,440 Profit after taxation audited by Hong Kong Glass Radcliffe Chan Certified Public Accountants: 41,912,429 2. Accounting data and financial indexes over the recent three year at the end of report year (Unit: In RMB) Indexes 2002 2001 2000 Income from core business 476,822,720 401,930,781 599,059,225 Net profit 33,904,005 63,047,333 40,145,854 Total assets 958,492,660 732,757,864 680,123,471 Shareholder’s equity (excluding minority interests) 411,121,036 370,909,443 364,333,137 Earnings per share (RMB/share) 0.23 0.19 0.36 Weighted average earnings per share 0.23 0.19 0.52 Fully diluted earnings per share 0.23 0.19 0.36 Earnings per share after deducting non-recurring gains and 0.18 0.17 0.52 losses Net assets per share (RMB/share) 2.32 2.10 2.06 Net assets per share after adjustment (RMB/share) 2.32 2.09 2.05 Net cash flows per share arising from operating activities 0.56 -0.38 0.16 Return on equity (%) 9.76% 9 17 3. In accordance with Regulations on the Information Disclosure of Companies Publicly Issuing Shares (No. 9) released by CSRC, the Company’s return on equity and earnings per share as of the year 2002 as calculated based on fully diluted method and weighted average method: Return on equity (%) Earnings per share (RMB/share) Profit in the report period Fully Weighted Fully Weighted diluted average diluted average Profit from core business 27.16 28.56 0.63 0.63 Operating profit 12.22 12.85 0.28 0.28 Net profit 9.76 10.27 0.23 0.23 Net profit after deducting non-recurring 7.96 8.37 0.18 0.18 gains and losses 4. Particulars about changes in shareholders' equity at the report period (Unit: RMB) Capital Surplus Statutory Total Retained Items Share capital public public Public shareholder’s profit reserve reserve welfare fund equity Amount at the 177,000,000 92,786,895 51,795,038 8,265,013 49,327,510 370,909,443 year-begin Increase in the report year Decrease in the report 65,739 year Amount at the year-end 177,000,000 92,852,634 67,816,916 10,272,306 73,451,786 411,121,036 Consolidat Withdrawal ed additio Withdrawal in in this Profit Profit as of Causes for change nal subsid this report report distribution 2002 iary comp period period anies III. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS (I) Particulars about the changes in share capital 1. Statement of change in shares (Ended Dec. 31,2002) Statement of change in shares as of the year 2002 Unit: share Increase/decrease of this time (+, - ) Before the After the Items Capitalization change Share Bonus Additional change of public Others Sub- total Allotment shares issuance reserve I. Unlisted Shares 1. Promoters’ shares 108,000,000 91,125,000 Including: State-owned share Domestic legal person’s shares 91,125,000 91,125,000 Foreign legal person’s shares Others 16,875,000 -16,875,000 -16,875,000 2. Raised legal person’s shares 3. Inner employees’ shares 4. Preference shares or others Including: Transferred / allotted shares Total Unlisted shares 108,000,000 91,125,000 II. Listed Shares 1. RMB ordinary shares 2.Domestically listed foreign 69,000,000 +16,875,000 +16,875,000 85,875,000 shares 3. Overseas listed foreign shares 4. Others Total Listed shares III. Total shares 177,000,000 177,000,000 Note: According to ZJGS Zi [2002] No. 6 document on Notice on Approving Non-listing foreign shares of Guangdong Rieys Company Ltd. to Listing for Circulation, 16,875,000 non-listing foreign shares held by Ms. Chen Meixiang, the shareholder of the Company, were transferred as B shares for circulation, and were listed for trand in B share market of Shenzhen Stock Exchange after one year since Mar. 2, 2002. Thus, the promoters’ shares of the Company were 91,125,000 shares, while domestically listed foreign share were 85,875,000 shares. 2. Issuance and listing of the share (1) By the end of the report year, particulars about issuance of the share: The Company is a limited company, which was established by means of reorganization of joint stock system and initiating in 1997, and at the same year, the Company issued 80 million shares to the promoters with issuance price of RMB 1 per share. In April 1999, as approved by Shareholders’ General Meeting, the Company implemented the Dividend Plan at the rate of 3.5 bonus shares for every 10 shares based on the total shares registered at the end of 1998. The total bonus shares amounts to 28 million shares, thus, the total shares of the Company increase to 108 million shares. As approve by CSRC with ZJFX Zi (2000) No. 133 document, the Company issued 60 million domestically listed foreign shares (B shares) from Oct. 17, to Oct. 18, 2000, and the issuance price is HKD 2.38 per share. The said 60 million domestically listed foreign shares were listed with Shenzhen Stock Exchange for trading on Oct. 27, 2000. After initial issuance, the Company authorized the lead underwriter to exercise over-allotment option; and the lead underwriter issued additionally 9 million domestically listed foreign shares with allotment price of RMB 1 per share. The said 9 million shares were listed with Shenzhen Stock Exchange for trading on Nov. 27, 2000. (2) In the report year, both the total share capital and its structure remained unchanged. (3) The Company has no employee’s shares. (II) About Shareholders 1. Ended Dec. 31, 2002, the Company has 15,250 shareholders in total. 2. Particulars about shares held by the top ten shareholders (Ended Dec. 31, 2002) Unit: 0000 share Holding shares Proportion in total No. Shareholders’ name Type of shares at the year-end shares (%) Shenzhen Shenghengchang 65,475,000 36.99% 1 Promoter legal person shares Industrial Co., Ltd. 2 CHEN MEI XIANG 16,875,000 9.53% Foreign shares in circulating 3 Puning Huilong Textile Co., Ltd. 12,150,000 6.86% Promoter legal person shares Shantou Shengping District Lianhua 6,750,000 3.81% 4 Promoter legal person shares Industrial Co., Ltd Shenzhen Zhongshengke Investment 6,750,000 3.81% 5 Promoter legal person shares Co., Ltd. CBNY S/A PNC/SKAND SELECT 6 4,423,646 2.50% Foreign shares in circulating FUND/CHINA EQUITY 7 WEN CAN RONG 928,229 0.52% Foreign shares in circulating 8 CHEN LI QIONG 891,000 0.50% Foreign shares in circulating 9 ZHOU XIAO HUA 500,000 0.28% Foreign shares in circulating 10 WEN HAI GEN 357,071 0.21% Foreign shares in circulating Notes: (1) Shenzhen Shenghengchang Industrial Co., Ltd. (original Puning Haicheng Industrial Co., Ltd.), Shantou Shengping District Lianhua Industrial Co., Ltd. and Shenzhen Zhongshengke Investment Co., Ltd. provided together the guarantee for credit loan with shares of the Company held by the aforesaid three companies, which the Company applied to China Everbright Bank, Shenzhen Chengdong Sub-branch. For details, please refer to the Public Notice published in Securities Times and Ta Kung Pao dated July 18, 2002. (2) Puning Haicheng Industrial Co., Ltd. has been moved to Shenzhen City, meanwhile, its company’s name was changed as Shenzhen Shenghengchang Industrial Co., Ltd.. For details, please refer to the Public Notice published in Securities Times and Ta Kung Pao dated August 7, 2002. (3) In Jan. 2003, Puning Huilong Textile Co., Ltd. transferred 12.15 million shares of the Company held by it to Shenzhen Zhongshengke Investment Co., Ltd.. For details, please refer to the Public Notice published in Securities Times and Ta Kung Pao dated Feb. 11, 2003. (4) In March 2003, Mr. Cai Jihua, the shareholder of Shenzhen Zhongshengke Investment Co., Ltd. transferred the equity of Shenzhen Zhongshengke Investment Co., Ltd. held by him to Ms. Chen Xuewen. Shenzhen Zhongshengke Investment Co., Ltd. changed its company’s name as Shenzhen Risheng Investment Co., Ltd. in March 2003. For details, please refer to the Public Notice published in Securities Times and Ta Kung Pao dated April 1, 2003. (5) Approved by Industrial and Commercial Administration Bureau of Shantou on April 7, 2003, Shantou Shengping District Lianhua Industrial Co., Ltd. changed its company’s name as Shantou Lianhua Industrial Co., Ltd. (6) There existed associated relationship among Shenzhen Shenghengchang Industrial Co., Ltd., Ms. Chen Meixiang, Shantou Lianhua Industrial Co., Ltd. and Shenzhen Risheng Investment Co., Ltd., and they belonged to the consistent actor regulated by the Management Measure of Information Disclosure on Change of Shareholding for Listed Company. 3. About controlling shareholder of the Company (1) The controlling shareholder of the Company is Shenzhen Shenghengchang Industrial Co., Ltd. (“Shenghengchang Industrial’), who holds 65.475 million shares of the Company, taking 36.99% of the total shares of the Company; its registered capital: RMB 98 million, registered place: 5th Floor, Hubei Baofeng Building, Bao’an South Road, Shenzhen; legal representative: Chen Honghai. Mr. Chen Honghai held 30% share equity of Shenghengchang Industrial, while Mr. Chen Hongcheng held 70% share equity of Shenghengchang Industrial. The business scope of Shenghengchang Industrial: sales of hardware, AC parts, building material, electronic products and car fittings. (2) Mr. Cheng Hongcheng is actual controller of Shenghengchang Industrial. Mr. Chen Hongcheng was engaged in operation and management of the enterprise for 20 years. He was ever in charge of Chairman of the Board and concurrently President of Puning Hongxin Weaving and Clothing Co., Ltd., and executive director of Puning Haicheng Industrial Co., Ltd.. Mr. Chen Hongcheng is the standing commissar of political consultative conference of Puning, Guangdong and the deputy to the National People’s Congress of Jieyang, Guangdong. In 1998, Mr. Chen was awarded as the excellent village and township entrepreneur of Guangdong province, the advanced member of Guangdong Industry and Commerce Union, and the advanced member of Guangdong Chamber of Commerce. In 1999, Jieyang municipality People’s Government awarded him as the advanced individual of splendor undertaking; Vice Chairman of Costume Association of Guangdong Province; Vice Chairman of Costume Association of Shenzhen City. IV. PARTICULARS ABOUT DIRECTORS, SUPERVISORS, SENIOR EXECUTIVES AND EMPLOYEES (I) Directors, supervisors and senior executives 1. Basic information Number of Number of Name Gender Age Title Office term holding shares at holding shares the year-begin at the year-end Chen Chairman of the Board and Male 45 Mar. 2000 – Mar. 2003 0 0 Hongcheng concurrently President Zheng Yujian Male 38 Vice Chairman of the Board Mar. 2000 – Mar. 2003 0 0 Chen Honghai Male 49 Director Mar. 2000 – Mar. 2003 0 0 Yan Mingfei Male 35 Director Mar. 2000 – Mar. 2003 0 0 Ding Lihong Male 32 Director Mar. 2000 – Mar. 2003 0 0 Fang Meidi Male 56 Independent Director May 2002 – Mar. 2003 0 0 Cai Shaohe Male 42 Independent Director May 2002 – Mar. 2003 0 0 Zhang Jinjian Male 54 Chairman of the Mar. 2000 – Mar. 2003 0 0 Supervisory Committee Zeng Lin Male 30 Supervisor Mar. 2000 – Mar. 2003 0 0 Li Ning Male 34 Supervisor Mar. 2000 – Mar. 2003 0 0 Zhang Bin Male 31 Vice-president Mar. 2000 – Mar. 2003 0 0 Li Guoqiang Male 33 Chief Financial Supervisor May 2001 – Mar. 2003 0 0 Zhou Haolin Male 33 Secretary of the Board May 2001 – Mar. 2003 0 0 Frances Male 57 Chief Designer Mar. 2000 – Mar. 2003 0 0 Jiang Yanxiang Male 68 Chief Engineer Mar. 2000 – Mar. 2003 0 0 Note: Particulars about directors or supervisors holding the position in Shareholding Company Director Mr. Chen Honghai took the post of Chairman of the Board of Shenzhen Shenghengchang Industrial Co., Ltd. for a term of three years; Mr. Cheng Hongcheng took the post of Director of Shenzhen Shenghengchang Industrial Co., Ltd. for a term of three years. 2. Particulars about the annual remuneration The Board of Directors determined the remuneration of directors, supervisors and senior executives based on the Articles of Association of the Company. The total amount of annual salary drew by directors, supervisors and senior executives in office at present from the Company was RMB 716,440. Of them, (1) one enjoyed the annual salary over RMB 100,000; (2) four enjoyed the annual salary between RMB 50,000 and RMB 100,000 respectively; (3) five enjoyed the annual salary under RMB 50,000. The total remuneration of the top three directors drawing the highest payment was RMB 90,000. The total remuneration of the top three senior executives drawing the highest payment was RMB 360,000. Ms. Fang Meidi and Mr. Cai Shaohe, Independent Director of the Company, drew their annual allowance of RMB 30,000 respectively from the Company. The Company reimbursed the reasonable charges according to the actual situation which independent directors attended the meeting of the Board, shareholders’ general meeting or exercise their functions and powers in accordance with the relevant laws and regulations and Articles of Association. Directors received no pay from the Company are as follows: Director Zheng Yujian, Director Chen Honghai and Director Yan Mingfei received no pay from the Company. Of them, Director Chen Honghai draw the annual remuneration from Shenzhen Shenghengchang Industrial Co., Ltd. 3. Directors, supervisors and senior executives leaving the office and the reason in the report year Director Ms. Wang Jingfeng and Dirctor Mr. Cheng Yuezhong resigned from the post of Director respectively due to individual reason; Ms. Fang Meidi and Mr. Cai Shaohe was elected as Independent Director of the Company respectively. The Company engaged Mr. Ding Lihong and Mr. Zhou Haolin as Vice-president of the Company. The other senior executives of the Company remained unchanged. (II) About employees Ended Dec. 31, 2002, the Company and his subsidiary company have totally 2216 employees in office. The composing of P and background of education and the retiree are as follows: 1. Composing of professional: 1708 production personnel, 150 salespersons, 75 technicians, 44 personnel of quality inspection, 38 financial personnel, and 201 administrative personnel. 2. Background of education: high-grand titles: 6 persons; secondary-grand titles: 36 persons; primary titles: 58 persons. 3. The Company has no retirees. VI. ADMINISTRATIVE STRUCTURE (I) Administration of the Company Strictly according to the PRC Company Law, Securities Law and requirements of relevant laws and regulations, the Company consistently consummated legal person administrative structure of the Company and standardized the Company’s operation. The Board of Directors connected the Company’s actual situation, amended Articles of Association, established Rules of Procedure of the Shareholders’ General Meeting, Rules of Procedure of the Board of Directors, Rules of Procedure of the Supervisory Committee, Detailed Rules of Work of President, Information Disclosure System and so on. The administration of the Company shows as follows: 1.Concerning shareholders and the Shareholders’ General Meeting: The present administrative structure of the Company can ensure that all shareholders especially the medium and small shareholders held equal status and fully executed their rights. The Company patiently received the calling in and consultation by telephone of the shareholders and let the shareholders acquaint with the operation of the Company in maximal limit. The Company established Rules of Procedure of the Shareholders’ General Meeting, convened and held according to the procedure stipulated in Articles of Association of the Company in the actual work. 2.Concerning the control shareholder and the listed company: the Company was separated with the control shareholder in personal, assets, financing, organization and business. The Board of Directors, the Supervisory Committee and the internal organizations independently operated. 3.Concerning directors and the Board of Directors: The Company engaged directors strictly according to the procedure stipulated in Articles of Association of the Company and Rules of Procedure of the Board of Directors. The number and personnel composing of the Board of Directors of the Company was in conformity with the requirement of laws and regulations. The directors of the Company could attend the Board of Directors and the Shareholders’ General Meeting in patient and responsible attitude, were familiar with relevant laws and regulations and knew the right and liabilities of directors. The Company has established independent directors system and planed to make the number of independent directors reach one third of the number of directors before June 30, 2003. 4.Concerning supervisors and the Supervisory Committee: The number and personnel composing of the Supervisory Committee of the Company was in conformity with the requirement of laws and regulations. The Supervisory Committee of the Company has established Rules of Procedure of the Supervisory Committee. Strictly according to Articles of Association of the Company and Rules of Procedure of the Supervisory Committee, the supervisors of the Company patiently performed their duties and supervised over the validity of implementation of duties of the directors, president and senior executives of the Company in a spirit of being responsible for the shareholders. 5.The Company could actually, accurately, completely disclose relevant information in time according to laws, regulations and Articles of Association of the Company. The Board of Directors has studied out relevant Information Disclosure System. The Company could disclose the detailed information of the principal shareholders and change of shares in time according to relevant regulations. 6.In November 2002, CSRC Guangzhou Office made a circling inspection on the Company for over one week, examined and approved every system of the Company after serious circling inspection, checked the Company’s running, acquainted with the Company’s operation, discussed the experience of the Company in establishing modern enterprise system with the senior executives, gave affirmation on the construction of modern enterprise system of the Company and meanwhile, put forward to the disadvantage in respect of establishing modern enterprise system. According to the opinion of the circling inspection of Guangzhou Office, the Company amended relevant system and management procedure. The Company will consistently consummate administrative structure of the Company according to the requirement of Administrative Structure in Listed Companies. (II) Implementation of duties of independent directors According to the requirement of Guide Opinion of Establishing Independent Directors System in Listed Companies promulgated by CSRC, the Company elected two independent directors in 2001 Annual Shareholders’ General Meeting. Among of them, one is the expert engaging in fashions’ export for many years and the other is financing and auditing expert. The Company has studied out new candidate of independent directors at present to make independent directors reach one third of the Board of Directors. Since the two independent directors engaged by the Company took the posts, they actively attended the Board of Directors and the Shareholders’ General Meeting, patiently executed duties of independent directors, expressed opinions on some significant events of the Company, played an active role in the scientific decision and normative operation of the Company, further perfected modern enterprise system of the Company and protected the rights and interests of the medium and small shareholders in an diligent and responsible way. (II) The Company was separated with the control shareholder Shenzhen Shenghengchang Industrial Co., Ltd. in personal, assets, financing, organization and business 1. In respect of business, the Company’s production and operation was completely independent the control shareholder. The activities of production and operation such as production, supply and sale were made decision by the Company. The Company need not depend on the control shareholder to conduct the activities of production and operation. The Company has independent systems of purchase, sale and production as well as independent and complete business and self-operation ability. 2. In respect of personal, the Company established special human resources and administration department and independently managed the work of labor, personnel and salary. Chairman of the Board, President, Vice President, person in charge of financing, secretary of the Board of Directors an other senior executives did not take management posts and receive remuneration in the control shareholder. 3. In respect of assets, the Company had independent and complete system of production, management and sale. The trademark and real estate were independently held by the Company and there existed no situation that the principal shareholder or related parties occupies the assets of the Company. 4.In respect of organization, the Company established perfect organization system and had independent financial center, human resources and administration department, capital’s operation department, office of secretary of the Board of Directors and other administration and functional department. The Board of Directors and the Supervisory Committee independently operated and were separated from the control shareholders. 5. In respect of financing, the Company established independent financing, accounting department and financial settlement system and financial management system. The Company independently opened account in bank and paid tax. There existed situation of sharing bank account with the control shareholders. VII. BRIEF INTRODUCTION OF SHAREHOLDERS’ GENERAL MEETING In the report period, the Company held 2001 Annual Shareholders’ General Meeting On Apr.18, 2002, the 1st meeting in 2002 of the 2nd Board of Directors examined and approved proposal on holding 2001 Annual Shareholders’ General Meeting and the Company published notification of meeting on Securities Times and Ta Kung Pao dated Apr.19, 2002. 2001 Annual Shareholders’ General Meeting was held in the meeting room of the Company, Meixin Industry Zone, Junpu Town, Puning City in the morning of May 20, 2002. 5 shareholders and shareholders’ proxies attended the meeting, representing 108,000,000 shares of the Company, taking 61% of the total share capital (91,125,000 domestic RMB shares, taking 51.48% of the total share capital, 16,875,000 foreign shares, taking 9.53% of the total share capital) in accordance with Company Law and Articles of Association of the Company. The directors, supervisors, senior executives and engaged lawyer attended the meeting. The meeting approved the following resolutions by signed voting. 1.2001 Work Report of the Board of Directors; 2. 2001 Work Report of the Supervisory Committee; 3.2001 Financial Settlement Report; 4.2001 Profit Distribution Proposal; 5.2002 Profit Distribution Policy; 6.Agreed to amend Articles of Association of the Company; 7.Agreed to establish Rules of Procedure of the Shareholders’ General Meeting; 8.Agreed to establish Rules of Procedure of the Board of Directors, 9.Agreed to establish Rules of Procedure of the Supervisory Committee; 10.Agreed to establish special committee of the Board of Directors; 11.Agreed to establish Detailed Rules of Implementation of Special Committee of the Board of Directors; 12.Agreed to establish Fund of the Board of Directors; 13. Agreed to establish Management Method of Fund of the Board of Directors; 14.Agreed Mr. Chen Yuezhong and Ms. Wang Jinfeng to resign directors; 15.Agreed to elect Ms. Fang Meidi as independent directors; 16.Agreed to elect Mr. Cai Shaohe as independent directors; 17.Agreed to establish standard of allowance of independent directors; 18. Agreed to establish remuneration of senior executives. The public notice on resolutions of the meeting was published on Securities Times and Ta Kung Pao dated May 21, 2002. (III) Election and change of directors and supervisors in the report period 2001 Annual Shareholders’ General Meeting held on May 20, 2002 examined and agreed Mr. Chen Yuezhong and Ms. Wang Jinfeng to resign directors due to personal reason and agreed to elect Ms. Fang Meidi and Mr. Cai Shaohe as independent directors of the 2nd Board of Directors. VII. REPORT OF THE BOARD OF DIRECTORS I. Discussion and analysis of operation in the report period In the report period, the Company kept a good development trend and the achievements increased by a comparatively big margin compared with the year of 2001. In 2002, the Company realized an income from core business of RMB 477 million, an increase of 18.95% compared with the corresponding period of the last year, realized a profit from core business of RMB 112 million, an increase of 43.59% compared with the corresponding period of the last year and realized a net profit of RMB 40.15, an increase of 18.43% compared with the corresponding period of the last year. The main reasons were: (1) In the report period, the Company reinforced the management, on the one hand strictly control the cost and on the other hand tried hard to raise the production efficiency and further raised the competitive force of the Company’s products. (2) In the report period, the international economic situation was improved compared with the year of 2001 and the purchase orders of main customers increased. (3) In the report period, the Company has controlled five enterprises that surrogate “SANTA BARBARA POLO & RACQUET CLUB” and “MISSK” brand at home through the means of merger and purchase etc. and the scope of consolidated statements of the Company increased. While experiencing the depressed international market in 2001, the Company deeply knew the hard and difficulties that the production business of simple processing of garments with supplied brands must face in the future. In order to raise the anti-risks capability of the Company, realize the strategic objectives of both focusing on garments production and brand marketing and create lengthways integration of industries, in the report period, the Company has rapidly established its own marketing network, sales teams and customers’ resources through a series of capital operation and changed the simple mode of core business, which has founded a solid foundation for the Company to develop its own brand in the future. To seek new growth point of profit and profitability mode so as to realize the diversified development objectives. While reinforcing the development of garments industry, the Company also actively looked for to involve in other fields. After investigating and demonstrating for a long time, the Company has accomplished the investment increase to Shanxi Chuanglian Information Network Technology Co., Ltd., which is mainly engaged in the information consultation of computer network and development of network communications and has a very bright development prospects, with its own capital of RMB 25 million. II. Operation (I) Scope of core business and its operation 1. Scope of core business: The Company is mainly engaged in the self-operation and agency of import and export business of all commodities and technology except for 16 kinds of export commodities operated jointly by the national organizations and 14 kinds of import commodities whose operations in the companies are checked and ratified by the country, operation of business of counter trade, carrying trade, processing with importing materials and “ processing raw materials on clients’ demands, assembling parts for the clients and processing according to the clients’ samples or engaging in compensation trade”, production, processing and sales of garments, knitting and textiles, sales of industrial production materials (excluding gold, silver, automobiles, dangerous goods and mobile communication terminal equipments), hardware, chemicals, general merchandise, household appliances, products of industrial arts (excluding gold and silver jewelry), grain and oil products, agricultural and byproducts (excluding grain and cotton) and planting and storage of crops. 2. Operation: (1) Classified according to Income from core business Gross profit of operation industries (RMB) (RMB) Textile industry 476,822,720 112,040,528 (2) Classified according to areas Income from core business Gross profit of operation (RMB) Sales of export sales 411,958,663 73,742,655 Sales of domestic garments 64,864,057 38,297,873 (II) Operation and achievements of main holding companies and share-holding companies 1. Puning Tianhe Textile Manufactory is mainly engaged in the production of garments, knitting yarn-dyed fabric and rubber bands, 70% of which is exported and 30% of which is sold at home. The registered capital is HKD 50 million and legal representative is Mr. Chen Hongcheng. In 2002, this company realized a net profit of RMB 37.08 million. 2. Shenzhen Chuanger Fashion Co., Ltd. is mainly engaged in the purchase and sales of garments, sewing products, accouterments of garments and daily-used general merchandise (excluding products of special operation, special sales and special control) with registered capital of RMB 12 million and Mr. Zhou Haolin as the legal representative. This company realized a net profit of RMB 550,000 from the date of purchase by the Company to the end of year 2002. 3. Shenzhen Rieys Industrial Co., Ltd. is mainly engaged in the development of industries (the detailed projects to be applied later), domestic commerce and supply and marketing industry of materials (excluding commodities of special operation, special control and special sales) and operation of import and export business with registered capital of RMB 20 million and Mr. Lin Keyue as the legal representative. 4. Shanghai Baowei Apparel Co., Ltd., which is a limited company registered in Shanghai Industrial and Commercial Administration Bureau and is established on April 5, 1999, is mainly engaged in the sales of apparel garments, knitting products, daily general merchandise, leather products, cultural and educational products, shoes and caps, electric instruments, tableware, automobile and motor fittings and chemical materials (excluding dangerous products) and additionally establishment of one branch ( those operations involved in the license operation are transacted as per license) with registered capital of RMB 1 million and Mr. Chen Hongcheng as the legal representative. 5. Guangdong Liwei Fashion Manufacture Co., Ltd., which is a limited company registered in Guangdong Industrial and Commercial Administration Bureau and is established on Mar.25, 1999, is mainly engaged in the design, sales and agency of garments, shoes and caps and leather with registered capital of RMB 500,000 and Mr. Chen Hongcheng as the legal representative. 6. Guangdong Gangwei Apparel Co., Ltd., which is limited company registered in Guangdong Industrial and Commercial Administration Bureau and is established on Mar.25, 1999, is mainly engaged in the design and sales of garments, shoes and caps and leather and sales of knitting products and cultural and educational products with registered capital of RMB 5 million and Mr. Chen Hongcheng as the legal representative. 7. Beijing Baowei Apparel Co., Ltd., which is a limited company registered in Beijing Industrial and Commercial Administration Bureau and is established on Nov.11, 1998, is mainly engaged in the sales of hardware, knitting products, cultural and educational products, garments and shoes and caps, leather, decoration materials, construction materials, electric instruments, kitchenware, household appliance, automobile fittings, motor fittings and chemical materials. (excluding those projects that has not gained the special license) with registered capital of RMB 500,000 and Mr. Chen Hongcheng as the legal representative. Shanghai Baowei Apparel Co., Ltd., Guangdong Liwei Fashion Manufacture Co., Ltd., Guangdong Gangwei Apparel Co., Ltd. and Beijing Baowei Apparel Co., Ltd. realized net profit of RMB 17 million from the date of purchase by the Company to end of end of year 2002. (III) Main suppliers and customers The total amount of purchase of the top five suppliers took 35% of the total annual amount of purchase. The total amount of sales of the top five customers took 62% of the total annual amount of sales. (IV) Problem and difficulties arising from the operation and solutions 1.In the report period, the Company caught the opportunity and has rapidly realized the strategic objectives of transforming from simple production of garments to both focusing on production of garments and brand marketing. The Company tightly caught the two biggest markets of America and China in the operation. The production base is mainly engaged in the production of purchase orders exporting to American market and the brand marketing is mainly focused on the market of Mainland of China. Along with the gradual recovery of American economy and continuous rapid growth of Chinese economy, the Company believed that the development space is still large. Since the listing of the Company, there has been no any new direct financing channel, especially to those enterprises that earn foreign currency through export, the situation of overstock capital of export drawback is still serious. The Company shall actively conduct the work of direct financing and indirect financing in order to improve the running capital status. 2. In order to realize the planned strategic objectives and make the scale of the Company strengthen rapidly, the Company faced a certain problem in the aspect of talents reserve, especially in the aspect of middle-level management personnel. The relevant departments of the Company has established detailed plan at present, set about solving this problem, planned to elevate internal staffs through examination and training and solve the problem that the reserve of talents in support is not enough gradually by means of investigating in multi-side and engaging external professionals. III. Investment In the report period, the long-term equity investment increased by RMB 48,573,202, which was mainly because that in the report period, the Company jointly held Shanxi Chuanglian Information Network Technology Co., Ltd., purchased 70% equity of Shanghai Baowei Apparel Co., Ltd., Guangdong Liwei Fashion Manufacture Co., Ltd., Guangdong Gangwei Apparel Co., Ltd. and Beijing Baowei Apparel Co., Ltd. respectively and increased the investment in Shenzhen Chuanger Fashion Co., Ltd.. (I) Investment of proceeds raised through share offering in the report period In the report period, the Company had no raised proceeds. The Company continued to put the proceeds raised through previous share offering into use and totally put into raised proceeds amounting to RMB 159 million ended the end of report period, taking 100% of the raised proceeds. In the report period, the Company continuously invested in the sweater production line project, which is continued to the report period, with the planned investment amounting to RMB 29 million and the Company has invested RMB 29 million accumulatively. In the report period, the Company invested RMB 8.7 million into this project, which is mainly used in the purchase of raw materials and as the circulating funds for the running of this project. (II) Investment of proceeds not raised through share offering in the report period 1. On Sept.27, 2002, the Company signed contract of acceptance of equity transfer with shareholders of Guangdong Liwei Fashion Manufacture Co., Ltd., Guangdong Gangwei Apparel Co., Ltd., Shanghai Baowei Apparel Co., Ltd. and Beijing Baowei Apparel Co., Ltd. and purchased 70% equity respectively of the aforesaid four companies with self-owned capital amounting to RMB 60 million. For the details, please refer to the public notice in Securities Times and Ta Kung Pao dated Sept.28, 2002. 2. The Company and Hong Kong Xingli Trade Company jointly invested HKD 50 million to establish Puning Tianhe Textile Manufactory, among which the Company provided production equipments equivalent to HKD 37.03 million and cash HKD 467,000, which totally amounted to HKD 37.5 million, taking 75% equity of the joint venture and Hong Kong Xingli Trade Company invested HKD 12.5 million, taking 25% equity of the joint venture. Puning Tianhe Textile Manufactory has been established upon the approval of Puning Industrial and Commercial Administration Bureau. 3. The Company increased the investment in Shenzhen Chuanger Fashion Co., Ltd. with its own capital. After the investment increase, the registered capital of Shenzhen Chuanger Fashion Co., Ltd. was RMB 12 million and the Company invested with monetary funds amounting to RMB 6.12 million, taking 51% equity of Shenzhen Chuanger Fashion Co., Ltd.. 4. The Company purchased 27.78% equity of Shanxi Chuangxian Information Network Technology Co., Ltd. with its own capital of RMB 25 million and Shanxi Yongxin Certified Public Accountants produced the report of capital examination. IV. Financial status and operating results in the report period Items Amount at the end of Amount at the end of Increased and 2002 (RMB) 2001 (RMB) decrease rate (%) Total assets 958,492,660 732,757,864 +30.81 Long-term liabilities 0 60,000,000 -100 Shareholders’ equity 411,121,037 370,909,443 +10.84 Profit from core 111,664,548 77,846,512 +43.44 business Net profit 40,145,855 33,904,005 +18.41 Net increase of cash 131,762,259 -164,351,597 +180.17 and cash equivalents Main reason of change: Total assets: The annual profitability and liabilities increased. Long-term liabilities: Due to the refunding the long-term loans. Shareholders’ equity: It is the profitability in the report period. Profit from core business: The sales increased. Net profit: The sales increased. Net increase of cash and cash equivalents: The cash flow arising from the operating activities increased. V. In the report period, the production and operation environment, macro-policies and regulations experienced no material change and had no material impact on the financial status and operating results of the Company. VI. Routine work of the Board of Directors (I) Meetings and resolutions of the Board of Directors in the report period In the report period, the Board of Directors totally held 12 meetings. 1. The 1st meeting of the 2nd Board of Directors in 2002 was held in the conference room of the Company in Puning Junbu Meixin Industrial Park at 10:00 A.M. on April 16, 2002 and the meeting examined and approved the following resolutions: 1) 2001 Work Report of the Board of Directors 2) 2001 Financial Settlement Report 3) 2001 Profit Distribution Preplan 4) 2002 Profit Distribution Policy 5) 2001 Annual Report and its Summary 6) Amendment of Articles of Association 7) Rules of Procedures of Shareholders’ General Meeting 8) Rules of Procedures of the Board of Directors 9) Work Rules of President of the Company 10) Decision of Establishment of Special Committee of the Board of Directors 11) Management Measure of Funds of the Board of Directors 12) Decision of Establishment of Special Committee of the Board of Directors 13) Implementation Rules of Special Committee of the Board of Directors 14) Information Disclosure System 15) Agreement of Mr. Chen Yuezhong and Ms. Wang Jinfeng’s Resignation from the Post of Directors 16) Agreement of Nominating Ms. Fang Meidi as the Candidate of Independent Director 17) Agreement of Nominating Mr. Cai Shaohe as the Candidate of Independent Director 19) Agreement of Engaging Mr. Ding Lihong and Mr. Zhou Haolin as Vice-president of the Company 20) Confirming the Salary and Remuneration of Senior Executives of the Company 21) Adjusting the Setting of Organizations 22) Decision of Holding 2001 Shareholders’ General Meeting 2. The 2nd meeting of the 2nd Board of Directors of 2002 was held in the conference room of the Company in Puning Junbu Meixin Industrial Park at 10:00 A.M. on April 25, 2002 and the meeting examined and approved the following resolutions: The First Quarterly Report of 2002 3. The 3rd meeting of the 2nd Board of Directors of 2002 was held in the conference room of the Company in 26/F, Jiangsu Building, Yitian Road, Futian District, Shenzhen on June 11, 2002 and the meeting examined and approved the following resolutions: Agreeing to provide guarantee for Shenzhen Rieys Industrial Co., Ltd to apply for the loan no more than RMB 35 million from Shenzhen Branch of China Construction Bank. 4. The 4th meeting of the 2nd Board of Directors of 2002 was held in the conference room of the Company in 26/F, Jiangsu Building, Yitian Road, Futian District, Shenzhen on June 25, 2002 and the meeting examined and approved the following resolutions: Agreement on Self-inspection Report of Establishment of Modern Enterprise System of the Company 5. The 5th meeting of the 2nd Board of Directors of 2002 was held in the conference room of the Company in 26/F, Jiangsu Building, Yitian Road, Futian District, Shenzhen on July 26, 2002 and the meeting examined and approved the following resolutions: Agreeing the Company to apply for credit line of RMB 120 million from Shenzhen Chengdong Sub-branch of China Everbright Bank 6. The 6th meeting of the 2nd Board of Directors of Guangdong Rieys Company Ltd. in 2002 was held in the conference room of the Company in 26/F, Jiangsu Building, Yitian Road, Futian District, Shenzhen on the morning of Aug.26, 2002 and the meeting examined and approved the following resolutions: 1) 2002 Semi-annual Report and its Summary 2) 2002 Semi-annual Profit Distribution Plan 7. The 7th meeting of the 2nd Board of Directors in 2002 was held in the conference room of the Company in 26/F, Jiangsu Building, Yitian Road, Futian District, Shenzhen on Sept.20, 2002 and the meeting examined and formed the following resolutions: Agreeing to provide guarantee for Hebei Xiabancheng Knit Wears Co., Ltd. 8. The 8th meeting of the 2nd Board of Directors of 2002 was held in the conference room of the Company in 26/F, Jiangsu Building, Yitian Road, Futian District, Shenzhen on Sept.23, 2002 and the meeting examined and approved the following resolutions: Agreeing to provide loan for Chengde Dixian Textile Co., Ltd. 9. The 9th meeting of the 2nd Board of Directors of 2002 was held in the conference room of the Company in 26/F, Jiangsu Building, Yitian Road, Futian District, Shenzhen on Sept.26, 2002 and the meeting examined and approved the following resolutions: Agreeing the Company to purchase 70% equity of Shanghai Baowei Apparel Co., Ltd., Guangdong Liwei Fashion Manufacture Co., Ltd., Guangdong Gangwei Apparel Co., Ltd. and Beijing Baowei Apparel Co., Ltd. respectively with self-owned capital totally amounting to RMB 60 million 10. The 10th meeting of the 2nd Board of Directors of 2002 was held in the conference room of the Company in 26/F, Tower A, Jiangsu Building, Yitian Road, Futian District, Shenzhen at 10:00 A.M. on Oct.28, 2002 and examined and approved the following resolutions: The Third Quarterly Report of 2002 11. The 11th meeting of the 2nd Board of Directors of 2002 was held in the conference room of the Company in 26/F, Jiangsu Building, Yitian Road, Futian District, Shenzhen on Dec.20, 2002 and the meeting examined and approved the following resolutions: Agreeing the Report on Opinion of Traveling Examination of CSRC Guangzhou Securities Regulatory Office 12. The 12th meeting of the 2nd Board of Directors of 2002 was held in the conference room of the Company in 26/F, Tower A, Jiangsu Building, Yitian Road, Futian District, Shenzhen at 10:00 A.M. on Dec.24, 2002 and the meeting examined and approved the following resolutions: 1) Agreeing to newly set up middle-class women’s underwear production line with its self-raised funds approximately amounting to RMB 55 million 2) Agreeing to newly set up weaving production line with its self-raised funds approximately amounting to RMB 24 million (II) Implementation of resolutions of Shareholders’ General Meeting by the Board of Directors in the report period 2001 Shareholders’ General Meeting held on May 20, 2002 examined and approved 2001 Profit Distribution Plan as follows: Ended Dec.31, 2001, the annual profit confirmed by Andersen· Huaqiang Certified Public Accountants as per Chinese Accounting Standards was RMB 33,904,005 and the annual profit after taxation audited and confirmed by Arthur Andersen & Co. as per International Accounting Standards was RMB 36,326,005. According to the principle of taking the lower amount for profit distribution, based on the profit after taxation of 2001 amounting to RMB 33,904,005 as audited by Andersen· Huaqiang Certified Public Accountants, after appropriating 10% of the profit as statutory surplus public reserve amounting to RMB 3,390,400.5, appropriating 5% of the profit as public welfare fund amounting to RMB 1,695,200.25, appropriating discretionary surplus public reserve amounting to RMB 12,000,000 and adding the undistributed profit carried forward from the end of 2000 amounting to RMB 59,836,805, the total profit available for distribution to shareholders was RMB 76,655,209.25. The Company decided to distribute cash dividends to shareholders at the rate of cash RMB 1.5 (including tax) for every 10 shares, which totally amounted to RMB 26,550,000. The Board of Directors of the Company published Public Notice on 2001 Dividend Distribution on Securities Times and Hong Kong Ta Kung Pao dated July 18, 2002 and confirmed July 23 as the last trading date, July 24, 2002 as the date of ex-dividend and July 29 as the date of bonus distribution. To the bonus of circulating shares, the Company entrusted Shenzhen Branch of China Securities Settlement Registration Co., Ltd. to distribute to shareholders registered in book in the last trading date through its capital clearing system and to the bonus of legal person’s shares, the Company distribute directly. The 2001 profit distribution plan has been implemented up now. VII. Profit distribution preplan of the report year Ended Dec.31, 2002, the annual profit after taxation audited and confirmed by Shenzhen Pengcheng Certified Public Accountants as per Chinese Accounting Standards was RMB 40,145,854 and the annual profit after taxation adjusted and confirmed by Hong Kong Glass Radcliffe Chan Certified Public Accountants was RMB 41,912,429. According to the principle of taking the lower amount for profit distribution, based on the 2002 annual profit after taxation audited by Shenzhen Pengcheng Certified Public Accountants amounting to RMB 40,145,854, appropriating 10% of the profit as statutory surplus public reserve amounting to RMB 4,014,585.4, appropriating 5% of the profit as public welfare fund amounting to RMB 2,007,292.7, adding the undistributed profit carried forward from the end of 2001 amounting to RMB 49,327,510, the total profit available for distribution to shareholders was RMB 83,451,487. According to the 2002 distribution policy confirmed by 2001 Shareholders’ General Meeting, the 2002 profit distribution preplan was: to distribute bonus at the rate of 2 shares for every 10 shares with the undistributed profit of 2002, to distribute bonus at the rate of 2 shares for every 10 shares with the undistributed profit of the previous years and to convert capital public reserve into share capital at the rate of 1 share for every 10 shares, which totally amounted to capitalize and distribute 5 shares for every 10 shares, at the same time to appropriate discretionary surplus public reserve amounting to RMB 10 million. After the implementation of this plan, the total share capital of the Company was expanded to 26,550 shares. VIII. Analysis of the change of accounting estimation of the Board of Directors In order to appropriate reserve for bad debts in a more steady way, in the report year the Company has changed the way and standard of appropriation of reserve for bad debts. Since the change of accounting estimation made the Company appropriate reserve for bad debts excessive by RMB 1,868,354, it impacted on the profit of the report year less by RMB 1,868,454. VIII. REPORT OF THE SUPERVISORY COMMITTEE I. Work of the Supervisory Committee in the Report Year The Supervisory Committee held two meetings besides attending the Board meetings as non-voting delegates: 1. The Company held the 1st Meeting of the 2nd Supervisory Committee of 2002 on April 16, 2002, which reviewed and passed the following resolutions: (1) 2001 Work Report of the Supervisory Committee; (2) 2001 Settlement Report; (3) 2001 Annual Report and Summary; (4) 2001 Profit Distribution Preplan; (5) Rules of Procedure of the Supervisory Committee; (6) Affirmation of remuneration of the senior executives of the Company. The public notice on resolutions of the meeting was published on Securities Times and Ta Kung Pao dated Apr.19, 2002. 2. The Company held the 2nd Meeting of the 2nd Supervisory Committee of 2002 on Aug.26, 2002, which reviewed and passed the following resolutions: (1) 2002 Semi Annual Report and Summary (2) Resolution of 2002 Semi Annual Profit Distribution Proposal. The Company never distributed dividend and interest nor transferred capital public reserve to share capital in the intermediate period of 2001. The public notice on resolutions of the meeting was published on Securities Times and Ta Kung Pao dated Aug.27, 2002. II. Independent Opinions on the Company’s Operation by the Supervisory Committee In 2002 the Supervisory Committee was strictly in compliance with the regulations of Company Law and Articles of Association and conducted full examination and supervision on the operation, financial status and duty performance and compliance with laws of senior executives of the Company from the point of really safeguarding the interests of the Company and numerous shareholders. The Supervisory Committee thought: (I) Operation of the Company according to the law In 2002, the Company strictly complied with Articles of Association and other relevant laws and regulations and the procedures of decision-making were legitimate. Based on the principle of cautious operation and effective avoidance and settlement of risks, the Company has established comparatively perfect internal control system and did not discover that the senior executives of directors etc. ever violated the laws, regulations and Articles of Association or damaged the interests of the Company and shareholders while implementing the duty of the Company. (II) Financial situation of the Company Through the examination of the financial status and accounting records, the Supervisory Committee did not discover any behavior of disobeying the Company Law, Articles of Association of the Company and other laws and regulations. The 2002 Financial Report reflected the financial status and operating results in a true way and the standard Auditors’ Report with no reserved opinion provided by Shenzhen Pengcheng Certified Public Accountants and Hong Kong Glass Radcliffe Chan Certified Public Accountants was objective and fair. (III) In the report period, the actual input projects and committed input projects of raised proceeds were the same. (IV) The purchase and sales of assets of the Company in the report period In the report period, the transaction price of purchase and sales of assets was reasonable and there was no insider transaction or never involved in any situation of damaging the rights and interests of partial shareholders or resulting in the loss of asserts of the Company. (V) Related transactions in the report period In the report period, the related transaction was fair, which did not harm the interests of the Company and shareholders. IX. SIGNIFICANT EVENTS I. Material lawsuits and arbitration In the report period, the Company had no material lawsuits and arbitration II. Brief status and progress of events of purchase and sales of assets and merger and explanation of the influence of the aforesaid events on the financial status and operating results of the Company: 1. In the report period, the Company purchased 70% equity of Guangdong Liwei Fashion Manufacture Co., Ltd., Guangdong Gangwei Apparel Co., Ltd., Shanghai Baowei Apparel Co., Ltd. and Beijing Baowei Apparel Co., Ltd. respectively. (For details, please refer to the 1, (II), III, Section VII of this report) 2. In the report period, the Company established Sino-foreign joint venture Puning Tianhe Textile Manufactory. (For details, please refer to 2, (II), III, Section VII of this report) 3. In the report period, the Company increased investment in Shenzhen Chuanger Fashion Co., Ltd..(For details, please refer to 3, (II), III, Section VII of this report) 4. In the report period, the Company increased investment in Shanxi Chuanglian Information Network Technology Co., Ltd.. (For details, please refer to 4, (II), III, Section VII of this report) 5. In the report period, the Company transferred 33% equity of Shenzhen Weisikang Communication Co., Ltd. with RMB 10 million and gained earnings of equity transfer amounting to RMB 760,000. III. Particulars about related transactions. (For details, please refer to relationships of related parties and their transactions of Auditors’ Report) IV. Material guarantee in the report period: The Company provided joint responsibility guarantee for its holding subsidiary Shenzhen Rieys Industrial Co., Ltd. to get loan of RMB 20 million from Shenzhen Branch of China Construction Bank with guarantee term of two years. The Company published public notice on Securities Times and Hong Kong Ta Kung Pao dated June 12, 2002. On Sept.20, 2002, the Company signed the contract of provision of irrevocable credit guarantee in Guangzhou for Hebei Xibancheng Knit Wears Co., Ltd. to apply for one- year term of credit line amounting to RMB 30 million from Guangzhou Branch of Citic Industrial Bank. At the same time, Chengde Dixian Textile Co., Ltd. provided irrevocable credit guarantee for the Company to apply for one-year term of credit line amounting to RMB 30 million from Guangzhou Branch of Citic Industrial Bank. For details, please refer to public notices published on Securities Times and Hong Kong Ta Kung Pao dated Sept.25, 2002. On Sept.23, 2002, the Company signed the contract of provision of joint responsibility guarantee in Guangzhou for Chengde Dixian Textile Co., Ltd. to apply for one-year term of commercial draft line amounting to RMB 30 million from Guangzhou Branch of Shanghai Pudong Development Bank. Simultaneously, Chengde Dixian Textile Co., Ltd. provided guarantee for the Company to apply for one-year term of short-term loan amounting to RMB 30 million from Dongshan Sub-branch of Guangzhou Branch of Shanghai Pudong Development Bank. For details, please refer to public notice published on Securities Times and Hong Kong Ta Kung Pao dated Sept.26, 2002. V. The Company and shareholders holding over 5% of the shares had no committed issue in the report period or continuing to the report period. VI. Since the main body qualification of the former domestic and overseas auditors Andersen· Huaqiang Certified Public Accountants and Arthur Andersen & Co. engaged by the Company disappeared, the Board of Directors decided to engage Shenzhen Pengcheng Certified Public Accountants as the domestic auditor and engaged Hong Kong Glass Radcliffe Chan Certified Public Accountants as the overseas auditor. The total amount of remuneration paid to Certified Public Accountants in 2002 was RMB 660,000. Remuneration paid to Certified Public Accountants: (Unit: RMB’0000) Shenzhen Pengcheng Certified Hong Kong Glass Radcliffe Chan Public Accountants Certified Public Accountants Total remuneration in 2002 33 33 VII. In the report period, the Board of Directors, the Supervisory Committee and directors, supervisors and other senior executives have not been checked, punished and criticized by CSRC nor blasted by Shenzhen Securities Exchange. CSRC Guangzhou Securities Regulatory Office conducted round inspection to the Company from Nov.18 to Nov.22, 2002 and issued Letter on Inspection Situation and Normative Opinion of Rieys Co., Ltd. on Dec.20, 2002. The Company held the meeting and rectified the problems put forward by the notice timely. X. FINANCIAL REPORT I. Auditors’ Report (attached) II. Financial Statements (attached) III. Notes to Accounting Statements (attached) XI. DOCUMENTS AVAILABLE FOR REFERENCE I. Accounting statements carried with signature and seal of legal representative, financial governor and accounting principal. II. Origin of Auditors’ Report carried with the seal of Certified Public Accountants and signature and seal of Public Accountants. III. Origin of all documents and manuscripts of public notice ever disclosed in Securities Times and Hong Kong Ta Kung Pao designated by CSRC. This report is prepared both in Chinese and English and Chinese Text shall prevail in the event of interpretations of these two versions. The Board of Directors of Guangdong Rieys Company Ltd. Apr. 29, 2003 AUDITORS’ REPORT TO THE SHAREHOLDERS OF GUANGDONG RIEYS COMPANY LIMITED: (Incorporated in the People’s Republic of China with limited liability) We have audited the accompanying consolidated balance sheet of Guangdong Rieys Company Limited (the “Company”) and its subsidiaries (the “Group”) as of December 31, 2002, and the related consolidated statements set out on pages 2 to 29 of income, changes in equity and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as of December 31, 2002 and of the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards, as published by the International Accounting Standards Board. GLASS RADCLIFFE CHAN Certified Public Accountants Hong Kong April 27, 2003 GUANGDONG RIEYS COMPANY LIMITED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2002 (Expressed in thousands of Renminbi) Note 2002 2001 ASSETS Current assets Cash and cash equivalents 23(b) 237,330 105,567 Marketable securities 4 1,053 - Trade and other receivables, net 5 184,002 147,721 Inventories, net 6 89,241 40,843 Prepayments 1,183 - Advances to suppliers 132,484 137,353 Taxes recoverable 7(a) 49,490 16,816 694,783 448,300 Non-current assets Prepayments for property, plant and equipment - 35,600 Prepayments for long-term investments - 51,500 Investment in an associate 9 12,787 20,886 Property, plant and equipment, net 10 211,023 165,017 Land use rights, net 11 13,263 10,803 Deferred tax assets 7(b) 1,837 1,206 Goodwill 12 45,026 3,042 Computer software and other deferred assets 1,526 1,915 285,462 289,969 Total assets 980,245 738,269 LIABILITIES AND EQUITY Current liabilities Trade payables 130,656 46,000 Accruals and other payables 25,803 17,079 Short-term bank loans 13 321,800 198,700 Long-term bank loans due within 1 year 14 60,000 - Taxes payable 7(c) 1,529 17,715 539,788 279,494 Non current liabilities Long-term bank loans 14 - 60,000 Minority interests 28,146 1,893 Equity Share capital 15 177,000 177,000 Reserves 16 150,671 132,582 Retained earnings 84,640 87,300 412,311 396,882 Total liabilities and equity 980,245 738,269 The accompanying notes are an integral part of these financial statements. - 22 - GUANGDONG RIEYS COMPANY LIMITED AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2002 (Expressed in thousands of Renminbi except earnings per share) Note 2002 2001 Sales 476,823 401,619 Cost of sales (365,158) (323,772) Gross profit 111,665 77,847 Other operating income, net 17 784 5,111 Distribution costs (22,796) (7,766) General and administrative expenses (29,177) (20,381) Profit from operations 60,476 54,811 Finance costs, net 18 (10,448) (2,397) Share of loss of an associate 9 (375) (402) Gains on disposals of subsidiaries - 1,903 Gains on disposals of an associate 9 760 - Profit before tax 19 50,413 53,915 Income tax refund/(expenses) 20 310 (17,693) Profit after tax 50,723 36,222 Minority interests (8,811) 104 Net profit for the year 41,912 36,326 Dividends 21 26,550 8,850 Earnings per share - Basic and diluted 22 RMB0.23 RMB0.21 The accompanying notes are an integral part of these financial statements. - 23 - GUANGDONG RIEYS COMPANY LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2002 (Expressed in thousands of Renminbi) Reserves Statutory Share revenue Discretionary Retained Note Share capital premium reserves reserve earnings Total Balances at January 1, 2001 177,000 92,787 19,709 - 79,910 369,406 Net profit for the year - - - - 36,326 36,326 Dividends 21 - - - - (8,850) (8,850) Appropriation from retained earnings - statutory reserves 16 - - 5,086 - (5,086) - - discretionary reserve 16 - - - 15,000 (15,000) - Balances at January 1, 2002 177,000 92,787 24,795 15,000 87,300 396,882 Net profit for the year - - - - 41,912 41,912 Dividends 21 - - - - (26,550) (26,550) Surplus of capital contribution made by a minority shareholder of a subsidiary - 67 - - - 67 Appropriation from retained earnings - statutory reserves 16 - - 6,022 - (6,022) - - discretionary reserve 16 - - - 12,000 (12,000) - Balances at December 31, 2002 177,000 92,854 30,817 27,000 84,640 412,311 The accompanying notes are an integral part of these financial statements. - 24 - GUANGDONG RIEYS COMPANY LIMITED AND SUBSIDIARIES CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2002 (Expressed in thousands of Renminbi) Note 2002 2001 CASH FLOWS GENERATED FROM(USED IN) OPERATING ACTIVITIES: Cash flows generated from (used in) operations 23(a) 68,855 (29,595) Interest paid (19,277) (17,144) Income taxes paid (31,293) (35,583) Net cash flow generated from (used in) operating activities 18,285 (82,322) CASH FLOWS USED IN INVESTING ACTIVITIES: Purchase of property, plant and equipment (11,052) (91,722) Increase in land use rights (2,757) (981) Increase in marketable securities (1,182) - Increase in investment in an associate (9,000) (24,408) Increase in investment in subsidiaries (309) - Increase in prepayments for property, plant and equipment - (12,064) Increase in prepayments for long-term investment - (35,500) Net proceeds from disposals of subsidiaries - 3,630 Net proceeds from disposals of an associate 5,000 Interest received 9,570 11,856 Net proceeds from disposals of short-term investments - 3,000 Decrease in other deferred assets 405 679 Net cash used in investing activities (9,325) (145,510) CASH FLOWS GENERATED FROM FINANCING ACTIVITIES: Increase (decrease) in short-term bank loans 123,100 (4,170) Increase in long-term bank loan - 60,000 Increase in minority interests 26,253 - Dividends paid (26,550) (8,850) Net cash flows generated from financing activities 122,803 46,980 Net increase (decrease) in cash and cash equivalents 131,763 (180,852) Cash and cash equivalents, beginning of year 105,567 286,419 Cash and cash equivalents, end of year 23(b) 237,330 105,567 The accompanying notes are an integral part of these financial statements. - 25 - GUANGDONG RIEYS COMPANY LIMITED AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002 (Expressed in Renminbi (“RMB”) unless otherwise stated) 1. ORGANIZATION AND OPERATIONS Guangdong Rieys Company Limited (the “Company”) was incorporated as a joint stock limited company in the People’s Republic of China (the “PRC”) on November 17, 1997. Pursuant to the approval document No. [2000] 133 issued by the China Securities Regulatory Commission on September 29, 2000, the Company issued 69,000,000 domestically listed foreign shares (“B shares”) with a par value of RMB1 each which were listed on the Shenzhen Stock Exchange on October 17, 2000. The Company and its subsidiaries (hereinafter referred to as the “Group”) are principally engaged in the production and sale of clothes. 2. PRINCIPAL ACCOUNTING POLICIES The principal accounting policies adopted in preparing the consolidated financial statements of the Group are as follows: Basis of presentation The accompanying consolidated financial statements of the Group are prepared in accordance with International Financial Reporting Standards (“IFRS”) as published by the International Accounting Standards Board. These are prepared under the historical cost convention. Principles of consolidation The consolidated financial statements include the Company and its subsidiaries and also incorporate the Group’s interest in an associate on the basis as set out in Note 2(h) below. The purchase method of accounting is used for acquired businesses. Results of subsidiaries and associates acquired or disposed of during the year are included in the consolidated financial statements from the date of acquisition or to the date of disposal. The equity and net income attributable to minority shareholders’ interests are shown separately in the balance sheet and statement of income, respectively. All significant intercompany balances and transactions, including intercompany profits and unrealized profits and losses, are eliminated on consolidation. Consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. 2. PRINCIPAL ACCOUNTING POLICIES (Cont’d) Cash and cash equivalents - 26 - Cash represents cash on hand and deposits with banks which are repayable on demand. Cash equivalents represent short-term, highly liquid investments which are readily convertible into known amounts of cash and which were within three month or less of maturity when acquired and are subject to an insignificant risk of change in value. Marketable securities Marketable securities are intended to be held for an identified long term purposes on a continuing basis and are stated at cost less any provision for diminution in value. The carrying amounts of individual investments are reviewed at each balance sheet date to assess whether the fair values have declined below the carrying amounts. The amount of the reduction is recognized as an expense in the income statements. Accounts receivable and other receivables Provision is made against accounts receivable and other receivables to the extent they are considered to be doubtful. Accounts receivable and other receivables in the balance sheet are stated net of such provision. Inventories Inventories are stated at the lower of cost and net realizable value. Cost, calculated on the weighted average basis, comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present locations and conditions. Net realizable value is determined based on the anticipated sales proceeds less estimated costs of completion and selling expenses. When inventories are sold, the carrying amount of those inventories is recognized as an expense in the period in which the related revenue is recognized. The amounts of any write-down and any losses of inventories to net realizable value is recognized as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realizable value, is recognized as a reduction in the amount of inventories recognized as an expense in the period in which the reversal occurs. Subsidiaries A subsidiary is a company in which the Company controls. Control exists when the Company has the power to govern the financial and operating policies of the subsidiary so as to obtain benefits from its activities. 2. PRINCIPAL ACCOUNTING POLICIES (Cont’d) Associates An associate is a company, not being a subsidiary or a joint venture, in which the Company has significant influence. Significant influence exists when the Company has the power to participate in, but not control, the financial and operating decisions of the associate. Investments in associates are accounted for using the equity method. An assessment of investments in associates is performed when there is an indication that the asset has been impaired or the impairment losses recognized in prior years no longer exist. Property, plant and equipment and depreciation Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment loss. The initial cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after the property, plant and equipment have been ready for its intended use, such as repairs and maintenance and overhaul costs, are recognized as expense in the period in which they are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of the asset beyond its originally assessed standard of performance, the expenditures are capitalized as an additional cost of the asset. Depreciation is calculated using the straight-line method to write off the cost, after taking into account the estimated residual value (5% of the initial cost), of each asset over its expected useful life. The expected useful lives are as follows: Buildings 35 years Machinery and equipment 10 years Motor vehicles and office equipment 5-8 years Leasehold improvements Over the lease terms The useful life and depreciation method are reviewed periodically to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefits from items of property, plant and equipment. When assets are sold or retired, their cost and accumulated depreciation and accumulated impairment loss are eliminated from the accounts and any gains or losses resulting from their disposal is included in the consolidated income statement. Construction-in-progress represents plant and properties under construction and is stated at cost. This includes cost of construction, plant and equipment and other direct costs plus borrowing costs which include interest charges and exchange differences arising from foreign currency borrowings used to finance these projects during the construction period, to the extent that they are regarded as adjustment to interest costs. Construction-in-progress is not depreciated until such time as the relevant assets are completed and ready for use. 2. PRINCIPAL ACCOUNTING POLICIES (Cont’d) Land use rights Land use rights are stated at cost less accumulated amortization and accumulated impairment loss. Amortization is calculated using the straight-line method to write off the cost over the terms of the leases. Goodwill The excess of the cost of an acquisition over the Company’s interest in the fair value of the net identifiable assets and liabilities acquired as at the date of the exchange transaction is recorded as goodwill and recognized as an asset in the balance sheet. With respect to investments in associates, goodwill is included in the carrying amount of the investment. The identifiable assets and liabilities recognized upon acquisition are measured at their fair values as at that date. Any minority interest is stated at the minority’s proportion of the fair values. Goodwill is carried at cost less accumulated amortization and accumulated impairment losses. Goodwill is amortized on a straight-line basis over a period not more than 10 years. Amortization of goodwill is included in operating profit. The unamortized balances are reviewed at each balance sheet date to assess the probability of continuing future benefits. If there is an indication that goodwill may be impaired, the recoverable amount is determined for the cash-generating unit to which the goodwill belongs. If the carrying amount is more than the recoverable amount, an impairment loss is recognized. Operating leases Leases of assets under which substantially all the risks and rewards of ownership are effectively retained by the lessor are classified as operating leases. Leases payments under operating leases are recognized as an expense on a straight-line basis over the lease term. Aggregate benefit of incentives provided by the lessor is recognized as a reduction of rental expense over the lease term on a straight-line basis. Provisions A provision is recognized when, and only when an enterprise has a present obligation (legal or constructive) as a result of a past event and it is probable (i.e. more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditures expected to be required to settle the obligation. Minority interests Minority interests include their proportion of the fair values of identifiable assets and liabilities recognized upon acquisition of a subsidiary. 2. PRINCIPAL ACCOUNTING POLICIES (Cont’d) Revenue recognition Provided it is probable that the economic benefits associated with a transaction will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognized on the following bases: (i) Sale of goods Revenue is recognized when the significant risks and rewards of ownership of the goods have been transferred to the buyer. (ii) Interest income Interest income from bank deposits is recognized on a time proportion basis that takes into account the effective yield on the assets. Taxation The income tax charge is based on profit for the year and considers deferred taxation. Deferred taxes are calculated using the liability method. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled based on tax rates enacted or substantially enacted at the balance sheet date. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Group expects, at the balance sheet date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are recognized regardless of when the timing difference is likely to reverse. Deferred tax assets and liabilities are not discounted and are classified as non-current assets (liabilities) in the balance sheet. Deferred tax assets are recognized when it is probable that sufficient taxable profits will be available against which the deferred tax assets can be utilized. At each balance sheet date, the Group re-assesses unrecognized deferred tax assets and the carrying amount of deferred tax assets. The Group recognizes a previously unrecognized deferred tax assets to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. The Group conversely reduces the carrying amount of a deferred tax asset to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized. Current tax and deferred tax are charged or credited directly to equity if the tax relates to items that are credited or charged, in the same or a different period, directly to equity. A deferred tax liability is recognized for all taxable temporary differences, unless the deferred tax liability arises from goodwill for which amortization is not deductible for tax purposes. Other taxation is provided on the basis of the relevant PRC tax regulations. - 30 - 2. PRINCIPAL ACCOUNTING POLICIES (Cont’d) (q) Subsidy income Subsidy income from government is recognized only when there is reasonable assurance that the company has complied with the conditions attaching to them and the subsidy income will be received. (r) Foreign currency translation Each entity within the Group maintains its books and records in RMB, which is not freely convertible. The measurement currency of each entity within the Group is considered to be RMB. Transactions in other currencies are translated into RMB at exchange rates prevailing at the time of transactions. Monetary assets and liabilities denominated in other currencies at the balance sheet date are re-translated at exchange rates prevailing at that date. Non-monetary assets and liabilities in other currencies are translated at historical rates. Exchange differences arising on the settlement of monetary items at rates different from those at which they were initially recorded during the periods are recognized in the statement of income in the period in which they arise. (s) Borrowing costs Borrowing costs include interest charges and other costs incurred in connection with the borrowing of funds, including amortization of discounts or premiums relating to borrowings, amortization of ancillary costs incurred in connection with arranging borrowings and exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs. Borrowing costs are expensed as incurred, except when they are directly attributable to the acquisition, construction or production of a qualifying asset that necessarily takes a substantial period of time to get ready for its intended use in which case they are capitalized as part of the cost of that asset. Capitalization of borrowing costs commences when expenditures for the asset and borrowing costs are being incurred and the activities to prepare the asset for its intended use are in progress. Borrowing costs are capitalized at the weighted average cost of the related borrowings until the asset is substantially ready for its intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recorded. (t) Pension scheme Pursuant to the PRC laws and regulations, contributions to the basic old age insurance for the Group’s local staff are to be made monthly to a government agency based on 10%~25% of the standard salary set by the provincial government, of which 7%~19% is borne by the Group and the remainder is borne by the staff. The pension scheme meets the criteria of a defined contribution in accordance with IAS 19, “Employee Benefits”. The government agency is responsible for the pension liabilities relating to such staff upon their retirement. The Group accounts for these contributions on an accrual basis. - 31 - 2. PRINCIPAL ACCOUNTING POLICIES (Cont’d) (u) Financial instruments Financial assets and financial liabilities carried on the balance sheet include cash and cash equivalents, trade and other receivables, long-term investments, investment in an associate, payables, balances with related party and borrowings. The accounting policies on recognition and measurement of these items are disclosed in the respective accounting policies mentioned in Note 2. Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement on initial recognition. Interest, dividends, gains, and losses relating to a financial instrument classified as a liability are reported as expense or income. Distributions to holders of financial instruments classified as equity are charged directly to equity. When the rights and obligations regarding the manner of settlement of financial instruments depend on the occurrence or non-occurrence of uncertain future events or on the outcome of uncertain circumstances that are beyond the control of both the issuer and the holder, the financial instruments is classified as a liability unless the possibility of the issuer being required to settle in cash or another financial asset is remote at the time of issuance, in which case the instrument is classified as equity. (v) Impairment of assets (i) Financial instruments Financial instruments are reviewed for impairment at each balance sheet date. For financial assets carried at amortized cost, whenever it is probable that the company will not collect all amounts due according to the contractual terms of loans, receivables or held-to-maturity investments, an impairment or bad debt loss is recognized in the consolidated income statement. Reversal of impairment losses previously recognized is recorded when the decrease in impairment loss can be objectively related to an event occurring after the writedown. Such reversal is recorded in income. However, the increased carrying amount is only recognized to the extent it does not exceed what amortized cost would have been had the impairment not been recognized. For available-for-sale financial assets, an impairment is recognized in the statement of income when there is objective evidence that the asset is impaired. The recoverable amount of a debt instrument remeasured to fair value is the present value of expected future cash flows discounted at the current market interest rates for a similar financial assets. A reversal of an impairment loss is recorded when the decrease in the impairment loss can be objectively related to an event occurring after the write down. Such reversal is recorded in income. - 32 - 2. PRINCIPAL ACCOUNTING POLICIES (Cont’d) (v) Impairment of assets (Cont’d) (ii) Other assets Other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognized in income or treated as a revaluation decrease for an asset that is carried at revalued amount to the extent that the impairment loss does not exceed the amount held in the revaluation surplus for that same asset. The recoverable amount is the higher of an asset’s net selling price and value in use. The net selling price is the amount obtainable from the sale of an asset in an arm’s length transaction less the costs of disposal while value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Recoverable amounts are estimated for individual assets or, if it is not possible, for the cash-generating unit to which the asset belongs. Reversal of impairment losses recognized in prior years is recorded when there is an indication that the impairment losses recognized for the asset no longer exist or has decreased. The reversal is recorded in income or as a revaluation increase. However, the increased carrying amount of an asset due to a reversal of an impairment loss is recognized to the extent it does not exceed the carrying amount that would have been determined (net of amortization and depreciation) had no impairment loss been recognized for that asset in prior years. (w) Segment reporting The Group is organized on a worldwide basis into one major operating business. The divisions are the basis upon which the Group reports its primary segment information. Financial information on business and geographical segments is presented in Note 27. (x) Contingencies Contingent liabilities are not recognized in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognized in the financial statements but disclosed when an inflow of economic benefits is probable. (y) Subsequent events Post-year-end events that provide additional information about a company’s position at the balance sheet date or those that indicate the going concern assumption is not appropriate are reflected in the financial statements. Post-year-end events that are not adjusting events are disclosed in the notes when material. - 33 - 3. CHANGES IN GROUP’S ORGANIZATION During the year ended December 31, 2002, the Company acquired and sold the following associate and subsidiaries and all incorporated in the PRC: Original Dates of Dates of attributable Name disposals acquisition equity interests Principal activities Shenzhen Wis Communication 3 December 33% Development, manufacturing Co., Ltd 2002 and sales of communication products and provision of technical services Shanxi Chuanglian Information 1 October 27.7% Development of software Network Technology Co., Ltd. 2002 Puning Tianhe Garment 1 May 2002 75% Manufacturing of garment Manufacturing Factory Co., Ltd. Shenzhen Chuanger Garment 1 September 51% Manufacturing and trading of Co., Ltd. 2002 garment Guangdong Leader Way Co., 1 May 2002 70% Manufacturing and trading of Ltd. garment Guangdong Gang Wei Fashion 1 May 2002 70% Trading of garment Co., Ltd. Beijing Boldway Fashion Co., 1 May 2002 70% Trading of garment Ltd. Shanghai Boldway Fashion Co., 1 May 2002 70% Trading of garment Ltd. 4. MARKETABLE SECURITIES 2002 2001 RMB’000 RMB’000 Listed securities, at market value at year end 779 - Listed funds, at market value at year end 274 - 1,053 - 5. TRADE AND OTHER RECEIVABLES, NET 2002 2001 RMB’000 RMB’000 Trade receivables 71,527 134,244 Other receivables 77,928 16,131 Amounts due from related companies 38,219 - Less : provision for doubtful debts (3,672) (2,654) 184,002 147,721 6. INVENTORIES, NET - 34 - 2002 2001 RMB’000 RMB’000 Raw materials 17,953 3,206 Work-in-progress 8,215 20,466 Finished goods 63,791 18,171 Sub-contracting materials 1,177 - 91,136 41,843 Less: Provision for obsolete stocks - Raw materials (115) (200) - Finished goods (1,780) (800) (1,895) (1,000) 89,241 40,843 7. TAXATION Puning Tianhe Garment Manufacturing Factory Co., Ltd., one of the subsidiary, is a Sino-foreign company. In accordance with rule 8 of the “Policy on Profits Tax on Foreign Investment and Enterprises in the PRC”, any profit tax liabilities arising from the taxable profit of this company for the first and second profit making years will be waived. Any profits tax liabilities arising from the third to fifth years thereafter will be subject to a discount of 50%. Accordingly, this company has not made any provision for taxation for the year ended 31st December 2002. In accordance with the “Provisional Regulation on Profits Tax in the PRC “ and according to the agreed taxable rate stipulated by the Tax Bureau in Jinshan, Shanghai, the profits tax of Shanghai Boldway Fashion Co., Ltd., one of the subsidiary, is accessed based on 0.5% of the monthly sales revenue. Other than these two companies, Shenzhen Rieys Industrial Co., Ltd. and the remaining companies within the Group are subject to income tax at the rates of 15% and 33% respectively. The Group is subject to Value Added Tax (VAT). The applicable tax rate for domestic sales is 17% while that for export sales is 0%. Input VAT from purchases of raw materials and other production imports can be netted off against output VAT from sales. Input VAT on purchases of raw materials used to produce goods for export sales is refundable. VAT payable or receivable is the net difference between periodic output and input VAT. (a) Taxes recoverable 2002 2001 RMB’000 RMB’000 Prepaid enterprise income tax 1,977 - VAT recoverable, net 47,513 16,816 49,490 16,816 (b) Deferred tax assets 2002 2001 RMB’000 RMB’000 Deferred tax relating to provision for doubtful debts 1,212 876 Deferred tax relating to provision for obsolete stocks 625 330 1,837 1,206 (c) Taxes payable 2002 2001 RMB’000 RMB’000 Enterprise income tax - 16,399 City construction tax 759 665 Others 770 651 1,529 17,715 8. INVESTMENTS IN SUBSIDIARIES As of December 31, 2002, the Company directly owned equity interests in the following subsidiaries, which were incorporated in the PRC: Attributable Date of equity Name incorporation Registered capital interests Principal activities RMB’000 HKD’000 Shenzhen Rieys Industrial December 7, 20,000 90% Investment and liaison of Co., Ltd. 2000 export business Puning Tianhe Garment December 28, 50,000 75% Manufacturing of garmen Manufacturing Factory Co., 2001 t Ltd. Shenzhen Chuanger Garment February 8, 2001 12,000 51% Manufacturing of garment Co., Ltd Guangdong Leader Way Co., March 25, 1999 500 70% Manufacturing and trading Ltd. of garment Guangdong Gang Wei March 25, 1999 5,000 70% Trading of garment Fashion Co., Ltd. Beijing Boldway Fashion Co., November 11, 500 70% Trading of garment Ltd. 1998 Shanghai Boldway Fashion April 5, 1999 1,000 70% Trading of garment Co., Ltd. 9. INVESTMENT IN AN ASSOCIATE As of December 31, 2002, the Company directly owned equity interests in the following associate which was incorporated in the PRC: Date of Register Attributa incorporati ed ble equity Name on capital interest Principal activities RMB’0 00 Shanxi Chuanglian May 7, 45,000 27.7% Development, Information Network 1999 manufacturing and Technology Co., Ltd. sales of communication products and provision of technical services As of December 31, 2002, investment in the associate comprised: 2002 2001 RMB’000 RMB’000 Unlisted shares, at cost 13,162 6,600 Due from an associate - 14,688 Less: share of post-acquisition loss (375) (402) 12,787 20,886 The directors of the Company are of the opinion that the underlying value of the associate was not less than its carrying value as of December 31, 2002. During the year, the disposals of an associate is as below: 2002 2001 RMB’000 RMB’000 Sales proceeds 10,000 - Unlisted shares, at cost 6,600 - Goodwill arising from acquisition 3,120 - Less: accumulated amortization (78) - Less : Share of loss of post-acquisition loss (402) - 9,240 - Gains on disposals of an associate 760 - 10. PROPERTY, PLANT AND EQUIPMENT, NET Motor Machinery vehicles and Construction and office Leasehold in Buildings equipment equipment improvements progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Cost As at 31 Jan 2002 77,306 95,303 12,454 - 4,279 189,342 Addition as a result of acquisition of subsidiaries - 7 2,674 - - 2,681 Additions 242 40,816 2,724 1,764 16,600 62,146 Transfer between categories 1,683 (1,683) - Transfers to land use rights - - - - (2,741) (2,741) As at 31 Dec 2002 77,548 136,126 17,852 3,447 16,455 251,428 Accumulated depreciation As at 31 Jan 2002 2,847 18,694 2,784 - - 24,325 Addition as a result of acquisition of subsidiaries 85 2 346 - - 433 Charged for the year 2,130 10,255 2,446 816 - 15,647 As at 31 Dec 2002 5,062 28,951 5,576 816 - 40,405 Net book value As at 31 Dec 2002 72,486 107,175 12,276 2,631 16,455 211,023 As at 31 Dec 2001 74,459 76,609 9,670 - 4,279 165,017 As of December 31, 2002 and 2001, the amount of property, plant and equipment did not have any capitalized borrowing costs. As of December 31, 2002, buildings of the Company with net book value of approximately RMB31,000,000 (2001: RMB22,530,000) have been pledged as collaterals for the Group’s short-term bank loans (see Note 13). The directors are of the opinion that the underlying values of property, plant and equipment as of December 31, 2002 are not less than their carrying values. 11. LAND USE RIGHTS, NET 2002 2001 RMB’000 RMB’000 Cost Beginning of year 11,385 10,404 Additions 2,741 981 End of year 14,126 11,385 Accumulated amortization Beginning of year 582 513 Charges for the year 281 69 End of year 863 582 Net book value End of year 13,263 10,803 Beginning of year 10,803 9,891 11. LAND USE RIGHTS, NET (Cont’d) Land use rights comprise land use fees paid to the land administration authorities for the rights to use the lands where the Group companies’ factory buildings in Punning are located. As of December 31, 2002, land use rights with a net book value of approximately RMB2,740,000 (2001: RMB4,050,000) have been pledged as collaterals for the Group’s short-term bank loans (see Note 13). 12. GOODWILL 2002 2001 RMB’000 RMB’000 Shenzhen Wis Communication Co., Ltd 3,120 - Shanxi Chuanglian Information Network Technology Co., Ltd. 11,838 - Guangdong Leader Way Co., Ltd. 4,426 - Guangdong Gang Wei Fashion Co., Ltd. 2,995 - Beijing Boldway Fashion Co., Ltd. 25,940 - Shanghai Boldway Fashion Co., Ltd. 2,514 - 47,713 Less: Accumulated amortization (2,687) (78) 45,026 3,042 13. SHORT-TERM BANK LOANS 2002 2001 RMB’000 RMB’000 Secured 321,800 198,700 As of December 31, 2002, the Group had short-term bank loans bearing interests ranging from 4.779% to 8.775% (2001: from 5.265% to 8.775%) per annum. Among these bank loans, RMB46,600,000 (2001: RMB19,100,000) were secured by certain buildings and land use rights of the Group (see Note 10 and Note 11), RMB60,000,000 (2001: RMB114,000,000) were guaranteed by independent third parties and RMB215,200,000 (2001: RMB69,200,000) were guaranteed by Shenzhen Sheng Heng Chang Enterprise Co., Ltd. (“Sheng Heng Chang”), one of the shareholders of the Company. 14. LONG-TERM BANK LOANS DUE WITHIN 1 YEAR As of December 31, 2002, long-term bank loans are due in 2003 and are guaranteed by an independent third party. Interest is charged at 5.94% per annum on the outstanding balances. 15. SHARE CAPITAL As of December 31, 2002, the share capital included promoters’ shares and B shares, which ranked pari passu. The details of share capital were as follows: 2002 2001 2002 2001 Number of shares RMB’000 RMB’000 (in thousands) Registered, issued and fully paid: Unlisted – Promoters’ shares of RMB1 each 91,125 108,000 91,125 108,000 Listed – B shares of RMB1 each 85,875 69,000 85,875 69,000 177,000 177,000 177,000 177,000 There are no movements in share capital in total during the year. 16. RESERVES According to the Company Laws of the PRC and Articles of Association of the Company, the Company is required to provide certain statutory reserves which are appropriated from the net profit as reported in the statutory accounts prepared in accordance with the PRC accounting standards and the relevant accounting regulations (“PRC GAAP”). Accordingly, the Company shall set aside 10% of its net profit for statutory revenue reserve fund (except where the fund has reached 50% of the Company’s registered capital) and 5% for the statutory common welfare fund. The Company may make appropriations from its net profit to the discretionary revenue reserve fund upon approval by shareholders. These reserves cannot be used for purposes other than those of which they are created and are not distributed as cash dividends without the prior approval by shareholders under certain conditions. The directors have resolved that the statutory common welfare fund is to be utilized to build or acquire capital items, such as dormitories and other facilities for the Group’s employees, and cannot be used to pay for staff welfare expenses. Title to these capital items will remain with the Group. For the year ended December 31, 2002, the directors proposed that 10% and 5% (2001: 10% and 5%) of the net profit as reported in the statutory accounts be appropriated to statutory revenue reserve fund and statutory common welfare fund, totaling approximately RMB6,022,000 (2001: approximately RMB5,086,000). The resolution is subject to approval by shareholders in the annual general meeting. Pursuant to the resolution of the board of directors’ meeting dated April 16, 2002, the Company made appropriation of RMB12,000,000 (2001: RMB15,000,000) from its net profit to the discretionary reserve. 17. OTHER OPERATING INCOME, NET 2002 2001 RMB’000 RMB’000 Financial subsidy income 1853 5,032 Export tax refund 344 - Others - 79 Less : donation and others (1,413) - 784 5,111 Financial subsidy income was granted by and received from the Puning Finance Bureau in Puning in 2002 for the purpose of supporting the local enterprises. 18. FINANCE COSTS, NET 2002 2001 RMB’000 RMB’000 Interest income from bank deposits and outstandings due from third parties (9,570) (11,856) Interest expenses on bank loans 19,277 17,144 Gains on disposals of short-term investments - (3,000) Others 741 109 10,448 2,397 Interest is charged on the outstandings due from third parties at a rate of 6% per annum. 19. PROFIT BEFORE TAX Profit before tax was determined after charging (crediting) the following: 2002 2001 RMB’000 RMB’000 Staff costs - salaries and wages 342,789 23,786 - provision for staff and workers’ bonus and welfare fund 4,381 2,802 - contribution to defined contribution pension schemes 838 850 Depreciation of property, plant and equipment 15,647 6,703 Loss on disposals of property, plant and equipment - 190 Amortization of land use rights 281 69 Amortization of goodwill 2,687 78 Cost of sales 365,158 323,772 Rentals of office buildings under operating leases 1,787 105 Provision for obsolete stocks 895 - Provision for doubtful debts 1,018 1,177 Exchange losses (gains), net 571 (65) 20. TAXATION Details of income tax expense charged during the year are as follows: 2002 2001 RMB’000 RMB’000 Current income tax expense 322 18,899 Deferred tax relating to the origination of temporary differences (632) (1,206) (310) 17,693 21. DIVIDENDS 2002 2001 RMB’000 RMB’000 Dividends declared before year end 26,550 8,850 Dividends declared after year end (See Note 29) 70,800 26,550 In accordance with the relevant regulations in the PRC and the Articles of Association of the Company, the Company declares dividends based on the lower of retained profits as reported in the statutory accounts and the financial statements prepared in accordance with IFRS. As the statutory accounts have been prepared in accordance with PRC GAAP, the retained profits as reported in the statutory accounts will be different from the amount reported in the accompanying consolidated financial statements. As of December 31, 2002, the retained profits before final dividends reported in the statutory accounts were approximately RMB83,452,000 (2001: approximately RMB87,878,000). 22. EARNINGS PER SHARE The calculation of basic earnings per share was based on the consolidated net profit attributable to shareholders for the year ended December 31, 2002 of approximately RMB41,912,000 (2001: approximately RMB36,326,000), divided by the weighted average number of shares in issue during the year of 177,000,000 shares (2001: 177,000,000 shares). Diluted earnings per share do not differ from basic earnings per share as there were no dilutive potential ordinary shares as of year end. 23. NOTES TO THE CASH FLOW STATEMENT Reconciliation from profit before tax to cash flow generated from (used in) operations: 2002 2001 RMB’000 RMB’000 CASH FLOWS GENERATED FROM (USED IN) OPERATING ACTIVITIES: Profit before tax 41,912 53,915 Adjustments for: Provision for doubtful debts 1,018 1,177 Provision for obsolete stocks 895 - Provision for marketable securities 129 - Depreciation of property, plant and equipment 15,647 6,703 Amortization of land use rights 281 69 Loss on disposals of property, plant and equipment - 190 Amortization of goodwill 2,687 78 Share of loss of an associate 375 402 Gains on disposals of subsidiaries - (1,903) Gains on disposals of an associate (760) - Interest expenses 19,277 17,144 Interest income (9,570) (11,856) Gains on disposals of short-term investments - (3,000) Operating profit before working capital changes 71,891 62,919 (Increase)/Decrease in inventories (49,293) 2,511 Increase in trade and other receivables (51,993) (55,789) Decrease/(Increase) in prepayments 4,869 (61,353) Increase in trade payables 84,657 14,654 Increase in accruals and other payables 8,724 11,257 Decrease in due to related company - (3,794) Cash flows generated from (used in) operations 68,855 (29,595) Analysis of the balances of cash and cash equivalents 2002 2001 RMB’000 RMB’000 Cash on hand 8,034 2,175 Bank current deposits 104,296 103,392 Bank time deposits 125,000 - 237,330 105,567 24. RELATED PARTY TRANSACTIONS Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party, or exercise significant influence over the party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. (a) Relationship - 43 - Name Relationship Hong Kong Hing Lee Trading Minority shareholder holding 25% equity Company (“Hing Lee”) interest of a subsidiary Sheng Heng Chang Major shareholder holding 37% equity interest of the Company Shenzhen Zhong Sheng Ke Shareholder holding 3.81% equity interest of Investment Co., Ltd. the Company (b) Transactions 2002 2001 RMB’000 RMB’000 Sales of goods to Hing Lee 46,425 - Purchase of goods from Hing Lee 3,250 - The above sales and purchase transactions were made at prices comparable to those offered to other third parties. 2002 2001 RMB’000 RMB’000 Guaranteed provided by Sheng Heng Chang to secure short-term bank loans 215,200 69,200 (c) Balances with related parties 2002 2001 RMB’000 RMB’000 Amounts due from Hing Lee (repayment in accordance with the sales contracts) 36,379 - Amounts due from Shenzhen Zhong Sheng Ke Investment Co., Ltd. (no fixed term of repayments) 1,840 - The above balances are all unsecured and interest free. 25. CONTINGENT LIABILITIES As of December 31, 2002, the Company provided a guarantee to an independent third parties for a short-term bank loan amounting to RMB60,000,000 (2001: RMB30,000,000). 26. FINANCIAL INSTRUMENTS (a) Financial risk management The Group’s activities expose it to a variety of financial risks, including credit risk, interest rate risk, liquidity risk and foreign exchange risk. Financial risk management is carried out by the Finance Department under policies approved by the Board of Directors. (i) Credit risk The carrying amounts of cash and cash equivalents, trade and other receivables represent the Group’s maximum exposure to credit risk in relation to financial assets. Cash is placed with reputable banks. The majority of the Group’s trade receivables related to sales of goods from third party customers. The Group performs ongoing credit evaluations of its customers’ financial condition and generally does not require collateral on trade receivables. The Group maintains a provision for doubtful debts and actual losses have been within management’s expectations. For the year ended December 31, 2002, approximately 62% of the Group’s turnover was made to top five customers (2001: approximately 70%). As of December 31, 2002, no single customer accounted for greater than 21% of total trade receivables. No other financial assets carry a significant exposure to credit risk. (ii) Interest rate risk The directors believe that the Group’s exposure to interest rate risk of financial assets and liabilities as of December 31, 2002 was minimal since their deviation from their respective fair values was not significant. (iii) Liquidity risk The Group policy is to maintain sufficient cash and cash equivalents or have available funding through an adequate amount of committed credit facilities to meet its current use in operations. (iv) Foreign exchange risk The foreign exchange risks of the Group occur due to the fact that the Group has business activities denominated in foreign currencies. The Group did not enter into any foreign exchange forward contracts to hedge against foreign currency fluctuations. However, the directors believe that the Group’s exposure to foreign exchange risk was minimal since most of the Group’s foreign currency transactions are denominated in HKD and USD and, over the past five years, there has been no significant fluctuation in the exchange rates between RMB and USD and HKD. (b) Fair value estimation In assessing the fair value of other financial instruments, the Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date as follows: (i) Cash and cash equivalents and short-term bank loans The carrying amount of cash and cash equivalents and short-term bank loans approximates their fair value due to the short-term maturity of these financial instruments. (ii) Receivables and payables The carrying amount of receivables and payables, which are all subject to normal trade credit terms, approximates their fair values. (iii) Balances with related parties No disclosure of fair values is made for balances with related parties as it is not practicable to determine their fair values with sufficient reliability since these balances are non-interest bearing and have no fixed repayment terms. (iv) Long-term investment and investment in an associate The fair value of long-term investment and investment in an associate cannot be reliably estimated and disclosed because these investments do not have quoted market price in an active market and other methods for estimating fair value for these investments are clearly inappropriate or unworkable. (v) Long-term bank loans The fair value of long-term bank loans is based on the current rates available for debt with the same maturity and credit-rating risk profile. As of December 31, 2002, the difference between the fair values and carrying amounts of the Group’s long-term bank loans was minimal since the difference between the current rates and the historical rates of such long-term bank loans was not significant. 27. SEGMENT INFORMATION (a) Business segment The Group conducts its business within one business segment - the business of production and sales of clothes. (b) Geographical segments The Group’s activities are mainly conducted in Mainland China and Hong Kong and Overseas outside China. The geographical segments are primary reporting segments of the Group. An analysis by geographical segments is as follows: Hong Kong and Mainland China Overseas Unallocated Total 2002 2001 2002 2001 2002 2001 2002 2001 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Revenue from external customers 64,864 81,089 411,959 320,530 - - 476,823 401,619 Segment result 38,246 17,977 73,419 59,870 - - 111,665 77,847 Other operating income 784 5,111 - - - - 784 5,111 Unallocated expenses - - - - (51,973) (28,147) (51,973) (28,147) Profit from operations 39,030 23,088 73,419 59,870 (51,973) (28,147) 60,476 54,811 Finance costs, net - - - - (10,448) (2,397) (10,448) (2,397) Share of loss of an associate (375) (402) - - - - (375) (402) Gains on disposals of subsidiaries - 1,903 - - - - - 1,903 Gains on disposals of associate 760 - - - - - 760 - Income tax refund/(expense) - - - - 310 (17,693) 310 (17,693) Minority interest - - - - (8,811) 104 (8,811) 104 Net profit (loss) for the year 39,415 24,589 73,419 59,870 (70,922) (48,133) 41,912 36,326 Segment assets 48,956 41,182 62,346 88,747 - - 111,302 129,929 Investment in an associate 24,329 23,928 - - - - 24,329 23,928 Unallocated assets - - - - 844,614 584,412 844,614 584,412 Total assets 73,285 65,110 62,346 88,747 844,614 584,412 980,245 738,269 Total liabilities - - - - 539,788 396,882 539,788 396,882 Substantially all the capital expenditures of the Group are in Mainland China. 28. COMMITMENTS (a) Capital commitments - As of December 31, 2002, the Group did not have any capital commitments (2001: RMB6,120,000). (b) Operating lease commitments Total future minimum lease payments under non-cancelable operating leases are as follows: 2002 2001 RMB’000 RMB’000 Office buildings and shops - within one year 1,346 189 - within two to five years 2,280 - - over five years - - 29. SUBSEQUENT EVENTS Pursuant to the resolution of the Board of Directors’ meeting dated April 27, 2003, the Company declared final dividends to all shareholders by issuing 4 shares (2001: RMB1.5) for every 10 shares, based on the total number of shares of 177,000,000 shares as of December 31, 2002. There is no cash dividends proposed in 2002 (2001: RMB26,550,000). In addition, the Company made appropriation of RMB10,000,000 (2001: RMB12,000,000) from its net profit to the discretionary revenue reserve fund and prepared RMB17,700,000 from share premium to share capital by issuing 1 share for every 10 shares (2001: Nil). The resolutions are subject to the approvals by the shareholders in the annual general meeting. 30. IMPACT OF IFRS ADJUSTMENTS ON NET PROFIT/NET ASSETS The Group’s consolidated financial statements were prepared in conformity with IFRS as if those standards had been applied consistently throughout the years. This basis of accounting differs from that used in the statutory accounts of the Group prepared in accordance with PRC GAAP. The principal adjustments made to conform to IFRS are as follows: Net profit for the year ended Net assets as of December 31, December 31, 2002 2001 2002 2001 RMB’000 RMB’000 RMB’000 RMB’000 As reported in the statutory accounts 40,146 33,904 411,122 370,909 Impact of adjustments: - Reversal of recognition and amortization of trademark 1,135 1,135 (648) (1,783) - Reversal of pre-operating expenses - 81 - - - Deferred tax 631 1,206 1,837 1,206 - Dividends proposed after year end - - - 26,550 As restated in the Group’s IFRS financial statements 41,912 36,326 412,311 396,882 31. COMPARATIVE FIGURES Certain comparative figures have been reclassified to conform with the presentation of the financial statements in the current year. 32. APPROVAL OF FINANCIAL STATEMENTS The financial statements were approved by the board of directors on April 27, 2002.