方大集团(000055)方大Ｂ2002年年度报告（英文版）

CHINA FANGDA GROUP CO., LTD. 2002 ANNUAL REPORT Contents . Company Profile-----------------------------------------------------------------------------1 . Summary of Financial Highlight and Business Highlight---------------------------2 . Changes in Capital Shares and Particulars about Shareholders------------------4 . Particulars about Directors, Supervisors, Senior Executives and Employees---6 . Administrative Structure-------------------------------------------------------------------8 . Brief Introduction to the Shareholders’ General Meeting --------------------------10 . Report of the Board of Directors ----------------------------------- ---------------------11 . Report of the Supervisory Committee---------------------------------------------------22 . Significant Events----------------------------------------------------------------------------24 . Financial Report-----------------------------------------------------------------------------24 . Documents for Reference------------------------------------------------------------------25 IMPORTANT NOTICE: The Board of Directors of China Fangda Group Co., Ltd. and its directors individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirms that there are no material omissions nor errors which would render any statement misleading. 2002 Annual Report was examined and approved by the 7th meeting of the 3rd Board of Directors of the Company. Independent director Wan Jianhua was absent from the Board meeting due to working reason and authorized independent director Shao Hanqing to express independent director’s opinion. This report has been prepared in Chinese version and English version respectively. In the event of difference in interpretation between the two versions, the Chinese report shall prevail. Chairman of the Company Mr. Xiong Jianming and Chief Financial Supervisor Mr. Xiong Zhude hereby confirm that the Financial Report of the Annual Report is true and complete. I. COMPANY PROFILE 1. Company Name Chinese: 方大集团股份有限公司 方大集团 English: China Fangda Group Co., Ltd. (Acronym: CFDC ) 2. Legal Representative: Mr. Xiong Jianming 3. Company Secretary: Mr. Lu Weiwei Representative in charge of Securities Affairs: Ms. Cao Naisi Contact Address: Fangda Town, Xili Longjing, Nanshan District, Shenzhen, and PRC Postcode: 518055 Contact Tel: 86 (755) 26788571 ext. 6622 Facsimile: 86(755) 26788353 Email: zqb@fangda.com 4. Registered Address: Fangda Town, Xili Longjing, Nanshan District, Shenzhen, and PRC Office Address: Technology Building, Fangda Town, Xili Longjing, Nanshan District, Shenzhen, PRC Postcode: 518055 Internet Web Site: http://www.fangda.com E-mail: fd@fangda.com 5. Designated newspapers for information disclosures: China Securities, Securities Times and Ta Kung Pao Annual report available place: Secretary Office of the Company Designated web site by CSRC for annual report publishing: http://www.cninfo.com.cn 6. The abbreviation, code and the listing place of the Company’s shares: A Shares: Fangda A, 000055, Shenzhen Stock Exchange B Shares: Fangda B, 200055, Shenzhen Stock Exchange 7. Other Information about the Company The initial registered date: Dec. 13, 1995 The initial registered place: Administrative Bureau of Industrial and Commercial of Shenzhen Municipal Registered code for business license of corporation: QHYSZ Zi No.: 107938 Registered code of tax: GSS Zi 440301192448580 DSD Zi 440305192448589 Name of the Certified Public Accountants engaged by the Company: Domestic: Shenzhen Dahua Tiancheng Certified Public Accountants (A-share) Address: on the 11th Floor, Tower B, Lianhe Plaza, No. 5022, Binhai Av., Futian District, Shenzhen International: Ho and Ho & Company Certified Pubic Accountans Address: 3rd Floor, Arion Commercial Centre, 2-12 Queen’s Rd. W., Hong Kong 1 II. SUMMARY OF FINANCIAL HIGHLIGHTS AND BUSINESS HIGHLIGHTS 1. Major accounting data as of the year 2002 (Unit: RMB) Total Profit: -177,177,414 Net Profit: -173,382,666 Net Profit after deducting non-recurring gains and losses: -173,510,627 Profit from core business: 47,002,953 Profit from other business: 72,048 Operating profit: -174,113,632 Investment income: -3,191,743 Subsidy income: - Net income/expenditure of non-operating: 127,961 Net cash flow from operating activities: -37,553,669 Net increase in cash and cash equivalents: -241,372,402 Note: total amount of non-recurring earnings is RMB 127,961 with details as follows: dealing of fixed assets, forfeit and other net losses is RMB –1,684,928, net income/expenditure from non-operating caused by the preferential tax policy of exempting added value tax for products with local production and local sale is RMB 9,974,857, appropriated devaluation reserve of fixed assets is RMB 7,524,390, appropriated devaluation reserve of intangible assets is RMB 637,578. 2. Differences in net profit between the PRC Auditor and the International Auditor As audited by Ho and Ho & Company Certified Public Accountants in accordance with International Accounting Standards, the Company’s net profit as of 2002 was RMB -172,398,666. The adjustment of net profits as audited by Shenzhen Dahua Tiancheng Certified Public Accountants in accordance with Chinese Accounting Stantdards and Ho and Ho & Company Certified Public Accountants was as follows: RMB Net profit as audited by Shenzhen Dahua Tiancheng -173,382,666 Certified Public Accountants (1) Adjustment to the amortization of patent revaluation 1,006,430 (2) Adjustment to organization cost 3,585,471 (3) Adjustment to Investment income -3,608,300 Net Profit as audited by Ho and Ho & Company -172,399,065 Certified Public Accountants 2 3. Major accounting data and financial indexes over the past three years Item 2001 年 2001 年 2000 年 2000 年 2002 年 after the befor the after the befor the Adjustment Adjustment Adjustment Adjustment Income from 437,473,890 406,956,626 406,956,626 431,492,778 431,492,778 core business (RMB) Net Profit (RMB) -173,382,666 35,939,821 36,147,639 70,875,638 69,299,888 Total assets (RMB) 1,286,478,610 1,385,678,719 1,393,918,123 1,273,431,404 1,280,868,467 Shareholder’s equity 823,639,835 1,017,770,501 1,029,023,539 1,011,470,680 1,022,515,900 (RMB) Earnings per share -0.58 0.12 0.12 0.24 0.23 (RMB) Net assets per share 2.78 3.43 3.47 3.41 3.45 (Fully diluted) (RMB) Net assets per share after 2.74 3.42 3.45 3.39 3.43 adjustment (RMB) Net cash flows from operating activities per -0.127 0.484 0.484 0.107 0.107 share (RMB) Return on equity (%) -21.05 3.53 3.51 7.01 6.78 4. The Return on Equity (ROE) and Earnings Per Share (EPS) Indicators: 2002 2001 2001 2000 2000 after the Adjustment befor the Adjustment after the Adjustment befor the Adjustment Return on Equity Earnings Per Share Return on Equity Earnings Per Share Return on Equity Earnings Per Share Return on Equity Earnings Per Share Return on Equity Earnings Per Share (%) (RMB Yuan) (%) (RMB Yuan) (%) (RMB Yuan) (%) (RMB Yuan) (%) (RMB Yuan) Fully Weighted Fully Weighted Fully Weighted Fully Weighted Fully Weighted Fully Weighted Fully Weighted Fully Weighted Fully Weighted Fully Weighted diluted average diluted average diluted average diluted average diluted average diluted average diluted average diluted average diluted average diluted average Profit from core 5.71 5.05 0.16 0.16 10.32 10.20 0.35 0.35 10.44 10.32 0.36 0.36 11.92 11.92 0.41 0.41 11.79 11.78 0.41 0.41 business OPERATING -21.14 -18.7 -0.59 -0.59 3.68 3.64 0.13 0.13 3.72 3.68 0.13 0.13 6.99 6.99 0.24 0.24 6.76 6.75 0.23 0.23 PROFIT NET PROFIT -21.05 -18.62 -0.58 -0.58 3.53 3.49 0.12 0.12 3.51 3.47 0.12 0.12 7.01 7.01 0.24 0.24 6.78 6.77 0.23 0.23 Net Profit after deducting -21.07 -18.64 -0.59 -0.59 3.54 3.50 0.12 0.12 3.53 3.49 0.12 0.12 7.01 7.01 0.24 0.24 6.78 6.77 0.23 0.23 non-recurring gains and losses 5. Changes of shareholder’s equity in 2002 (Unit: Share, RMB Yuan) Statutory Total of Capital Surplus Retained Item Share Capital Public Shareholder’s Reserve Reserve Earnings Welfare Fund Equity Amount at the 296,400,000 412,204,879 91,893,172 32,022,212 217,272,450 1,017,770,501 period-begin Increase in the - - - - - - report period Decrease in the - - - - 194,130,666 194,130,666 report period Amount at the 296,400,000 412,204,879 91,893,172 32,022,212 23,141,784 823,639,835 year-end Reason of Loss and Profit Loss and Profit change Aappropriation Aappropriation 3 III. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS 1. Statement of changes in Share Capital Unit: share Changes during the year (+, -) Conversion Before the Allotment Bonus Additional Sub- After the from Capital Others change of share share Issue total change Reserve I. Unlisted Shares 1. Promoters’ shares 109,032,000 109,032,000 Including: State-owned shares Domestic legal 109,032,000 109,032,000 person shares Foreign legal person shares Others: 2. Raised legal person’s shares 3. Employee shares 4. Preferred shares or others Total unlisted shares 109,032,000 109,032,000 II. Listed Shares 1. RMB ordinary shares 42,000,000 42,000,000 2. Domestic listed 145,368,000 145,368,000 foreign shares 3. Oversea listed foreign shares 4. Others Total listed shares 187,368,000 187,368,000 III. Total Shares 296,400,000 296,400,000 2. About Shareholders (1) As of Dec.31, 2002, the Company had totally 43,397 shareholders. (2) Particulars about the top ten shareholders is as follows: (As at December 31, 2002, Unit: Share) 4 Increase / Holding Number of share decrease in shares at the Proportion Type of Nature of Full name of Shareholders pledged/ the report year-end (%) shares shareholders frozen (share) year (share) (share) Shenzhen Banglin Technology Legal person Development Co., Ltd. (Banglin 60,000,000 60,000,000 20.243 60,000,000 - shares Company) Shenzhen Shilihe Investment Co., Legal person 47,112,000 47,112,000 15.895 42,000,000 - Ltd. (Shilihe) shares Onforce International Co., Ltd. B shares in Foreign 21,008,100 21,008,100 7.088 - shareholder (Onforce Company) circulating A shares in Beijing Securities Co., Ltd. 4,141,514 4,141,514 1.397 Unknown - circulating Shenzhen Shekou Yuer Industrial Legal person 1,920,000 1,920,000 0.648 - - Co., Ltd. shares A shares in Beijing Securities Co., Ltd. 1,018,747 1,018,747 0.344 Unknown - circulating B shares in Foreign TOK YEK SENG 874,300 874,300 0.295 Unknown circulating shareholder B shares in Foreign HOWARD JOHN LOEWEN 735,754 735,754 0.248 Unknown circulating shareholder B shares in Foreign Mingmin International Co., Ltd. 710,209 630,809 0.213 Unknown circulating shareholder B shares in Foreign SHEN YING 550,000 500,000 0.169 Unknown circulating shareholder Note: Among the above top ten shareholders, the controlling shareholder of Banglin Company is the same as Onforce International Co., Ltd., and thus they are related parties. For the other shareholders of circulation shares, the Company has no idea on whether there exists any associated relationship among the shareholders of circulating shares or they belong to the concerted actors. (3) Information of shareholder of the Company holding over 10% of the total shares: Name of Percentage of Legal Foundation Registered Business Scope shareholder shareholding representative Date capital Invested in industrial business, technology development and Banglin Xiong June 7, RMB 20.243% consultation of electronic Company Jianming 2001 30,000,000 products, domestic business, material supply and marketing Shilihe June 12, RMB 15.895% Ma Songlin Invested in industrial business Company 2001 19,780,992 5 Investors of Banglin Company, the largest shareholder of the Company, are natural people. Among them, as chairman of the BOD of the Company Mr. Xiong Jianming holds 85% of total share capital. Mr. Xiong Jianming is Chinese nationality, who has not enjoy the residence power in the other country or area. During the past five years, he took the Chairman of the Board and concurrently President of the Company. IV. PARTICULARS ABOUT DIRECTORS, SUPERVISORS, SENIOR EXECUTIVES AND EMPLOYEES 1. Directors, Supervisors, Senior Executives: (1) In the report period, the 2nd Board of Directors and the 2nd Supervisory Committee has expired; as approved by the 2001 shareholders’ general meeting, the Board of Directors and Supervisory Committee were reelected: the 3rd Board of Directors consisted of six directors including Mr. Xiong Jianming etc. and three independent directors including Mr. Wan Jianhua, and Mr. Xiao Kai no longer took the post of independent director of the Company; the 3rd Supervisory Committee consisted of three supervisors including Mr. Li Bangyan, and Ms. Yang Yuhua no longer took the post of supervisor of the Company. The 1st meeting of 3rd Board of Directors elected senior executives such president, vice-president, secretary of the Board, chief financial supervisor, chief technical supervisor and chief marketing supervisor. The details, please refer to the following table: (2) Gender, age, term office and holding share of present directors, supervisors and senior executives 6 Holding shares Holding shares at Name Position Gender Age Term office at the year-begin the year-end (shares) (shares) Xiong Jianming Chairman of the Male 45 Apr. 27, 2002- 31,500 31,500 Board, President Apr. 27, 2005 Zhu Weiping Director, Male 44 Apr. 27, 2002- 4,200 4,200 Vice-president Apr. 27, 2005 Wang Shengguo Director, Male 45 Apr. 27, 2002- 4,200 4,200 Vice-president Apr. 27, 2005 Xiong Zhude Director, Chief Male 36 Apr. 27, 2002- 12,600 12,600 Financial Apr. 27, 2005 Supervisor Lu Weiwei Director, Secretary Male 36 Apr. 27, 2002- 12,600 12,600 of BOD Apr. 27, 2005 Xiong Jianwei Director Male 34 Apr. 27, 2002- 0 0 Apr. 27, 2005 Wan Jianhua Independent Male 46 Apr. 27, 2002- 0 0 Director Apr. 27, 2005 Shao Hanqing Independent Female 64 Apr. 27, 2002- 0 0 Director Apr. 27, 2005 Niu Hanben Independent Male 62 Apr. 27, 2002- 0 0 Director Apr. 27, 2005 Li Bangyan Convener of the Male 38 Apr. 27, 2002- 0 0 Supervisory Apr. 27, 2005 Committee Zhou Zhigang Supervisor Male 41 Apr. 27, 2002- 0 0 Apr. 27, 2005 Ma Songlin Supervisor Male 30 Apr. 27, 2002- 0 0 Apr. 27, 2005 Yu Guoan Chief Technical Male 43 Apr. 27, 2002- 1,400 1,400 Supervisor Apr. 27, 2005 Jin Xugang Chief Marketing Male 37 Apr. 27, 2002- 0 0 Supervisor Apr. 27, 2005 (3) Directors, supervisors and senior executives holding the position in Shareholding Company Drawing the payment Name of Shareholding Title in Shareholding Name Office term from the Shareholding Company Company Company (Yes / No) Xiong Jianming Banglin Company Chairman of the Board Jun. 7, 2001 to now No Xiong Jianming Onforce Company Chairman of the Board Mar. 23, 2001 to now No Ma Songlin Shilihe Company Chairman of the Board Sep. 19, 2001 to now No 7 (4) Remuneration of directors, supervisors and senior executives As approved by 2001 shareholders’ general meeting, the annual allowance of directors and independent directors of the 3rd Board of Directors was RMB 60,000 respectively; the annual allowance of supervisors of the 3rd Supervisory Committee was RMB 30,000 respectively. As examined and approved by the 1st meeting of 3rd Board of Directors, the Company implemented the position stipends and risk wages for senior executives, and authorized the president to establishment and implement specific plan according to Resolution of Annual Remuneration of Senior Executives in 2002 approved by the 13th meeting of 2nd Board of Directors dated Dec. 20, 2001. The total remuneration of present directors, supervisors and senior executives was RMB 2,271,600. Among them, one enjoyed the annual salary over RMB 300,000; five enjoyed the annual salary between RMB 200,000 and RMB 300,000; four enjoyed the annual salary between RMB 100,000 and RMB 200,000; four enjoyed the annual salary under RMB 100,000. The total amount of the top three directors with highest remuneration was RMB 798,500; the total amount of the top three senior executives with highest remuneration was RMB 798,500. Independent Director Shao Hanqing and Niu Hanben drew the allowance of RMB 60,000 respectively, Independent Director Wan Jianhua drew the allowance of RMB 45,000, Supervisor Li Bangyan and Zhou Zhigang drew the allowance of RMB 30,000 respectively, Supervisor Ma Songlin drew the allowance of RMB 22,5000. Except for Director Wan Jianhua, Shao Hanqing, Niu Hanben and Supervisor Li Bangyan, the other directors, supervisors and senior executives received pay from the Company. Directors, supervisors and senior executives received no pay from the shareholding company or associated company of the Company. 2. Employee’s quantity, quality and education level and retirees The Company had 2101 on-the-job employees in total, including 1251 production personnel, 159 salespersons, 463 technicians, 41 financial personnel and 187 administrative personnel. The Company has no retiree. 827 employees of the Company possessed technical secondary school or colleague education or above, taking 39.4% of total employees, of which, there are 10 doctors and 30 masters. V. ADMINISTRATIVE STRUCTURE 1. Company structure The Company launched work according to Administration Rules of Listed Company, Direction of Articles of Association of Listed Companies, Standard Opinion of Shareholders’ General Meeting of Listed Companies promulgated by CSRC, and amended and established new Articles of Association of the Company, Rules of Procedure, Working Rules of the Board of Directors, Working Rules of Independent Directors, Working Rules of the Supervisory Committee and Detailed Rules of Working for the President. The Company carried out 8 self-scrutiny and rectification and reformation on the establishment of modern enterprises system, continually perfected corporation administrative structure strictly according to the aforesaid regulations. At present, there existed no material differences between the actual administrative situation and the said regulations. 2. Performance of Independent Directors: According to the demands of Guidelines Opinion on Establishing Independent Director System in Listed Companies issued by CSRC, the Company elected three independent directors, which have a position qualification, taking one third of the total numbers of directors. During their tenure of office, three independent directors developed work according to Articles of Association of the Company, Working Rules of the Board of Directors and Working Rules of Independent Directors, and seriously fulfilled the duties of independent director, expressed special opinion of independent directors for material matters, help the Company to form scientific decision-making mechanism. 3. Particulars about the Company’s “Five Separations” from the controlling shareholder in respect of Business, Personnel, Assets, Organization and Finance, the Company has independent and integrated business system, and autonomous operation capacity. (1) In respect of business: The Company has independent production, sales and after-sale services system, purchasing, production and sale of raw materials and products were completed through own system purchasing, production and sales. There exists no significant associated relationship between the Company and the controlling shareholder; (2) In the respect of personnel: The Company has independent management system in term of labor, personnel and wages; owns independent labor and personnel department; senior executives of the Company draw the remuneration from the Company without taking concurrent position in Shareholding Company; (3) In the respect of assets: The Company not only possesses independent production system, auxiliary production system and complementary facilities, but also enjoys industrial property right, non-patent technology. The relationship of property right is tangible, and it owns use right of trademark used by the Company; (4) In the respect of organization: The Company is completed independent from its controlling shareholder in terms of production, operation, administration and establishment of organization, and its office address is totally independent from the controlling shareholder. The Company scientifically adjusts organization in accordance with the actual demands, so as to satisfy the requirements of development and administration of the Company; (5) In the respect of finance: The company has established independent financial department and auditing department, independent and complete accounting system and financial management system. The Company owns independent bank account, and independent pays the tax in compliance with laws. 4. Performance valuations, encouragement and binding mechanism for senior executives The Company implemented the wage system combining the position stipend with risk wage 9 for senior executives, fully assessed innovative abilities, base diathesis and working achievement for senior executives according to Detailed Rules of Management on Target Check for Function Department of the Year 2003, and paid risk wages and made the relevant rewards and punishment based on the said rules. VI. Shareholders’ General Meeting In the report period, the Company has held 2001 Shareholders’ General Meeting 1. Notification, convening and holding of Shareholders’ General Meeting The Company published notification of holding 2001 Shareholders’ General Meeting and topic for discussion on China Securities, Securities Times, Shanghai Securities and Hong Kong Ta Kung Pao dated March 25, 2002. This Shareholders’ General Meeting was held in the conference room in 6/F of Technology Building of the Company at 14:00 P.M. of April 27, 2002. Totally 22 shareholders and shareholder’s proxies attended the meeting, representing 138,187,850 shares, which took 46.62% of the total shares in the date of equity registration of the Company, including 8 shareholders of B share, representing 22,102,428 shares and taking 7.44% of the total shares in the date of equity registration. 2. Resolutions of Shareholders’ General Meeting and their publication The meeting examined and approved the following resolutions: (1) 2001 Work Report of President (2) 2001 Work Report of the Board of Directors (3) 2001 Work Report of the Supervisory Committee (4) 2001 Financial Settlement Report (5) 2001 Preplan of Profit Distribution and Converting Public Reserve into Share Capital (6) 2001 Annual Report and its Summary (7) 2001 Preplan of Appropriation of Each Impairment Loss (8) 2002 Profit Distribution Policy (9) 2002 Preplan of Not Converting Public Reserve into Share Capital (10) 2002 Work Plan (11) Preplan of Suspension of Plan of Additionally Issuing A Share (12) Preplan of Election of Change of Term of the Board of Directors (13) Preplan of Election of Change of Term of the Supervisory Committee and Election of Supervisors Nominated by Shareholder’s Proxies (14) Amendment Draft of Articles of Association (15) Draft of Rules of Procedures of Shareholders’ General Meeting, Work Statute of the Board of Directors, Work Statute of Independent Directors, Work Statute of the Supervisory Committee and Work Rules of President (16) Preplan of Amount and Way of Annual Allowance of Directors, Independent Directors and Supervisors (17) Preplan of Change of Short Form of Stock of the Company (18) Preplan of Engagement of 2002 Certified Public Accountants 3. Election and change of directors and supervisors This Shareholders’ General Meeting examined and approved the preplan of election and change of term of the Board of Directors and preplan of election and change of term of the 10 Supervisory Committee, produced the 3rd Board of Directors formed by six directors of Mr. Xiong Jianming etc. and three independent directors of Mr. Wan Jianhua etc. and the 3rd Supervisory Committee formed by three supervisors of Mr. Li Bangyan etc.. VII. Report of the Board of Directors 1. Discussion and analysis of significant events In 2002, the Company incurred a loss for the first time after the listing and drew the attention of numerous investors to the operating status and future development planning. Hereon, the Board of Directors of the Company apologizes to all investors. In the report period, the Company adopted various reply measures, but could not restrict the influence of reasons of continuous decrease of sales price and high price of raw materials etc. In addition, because the balance of account receivable increased, account age rose and part projects was in status of stopping and being dealt due to capital and other reasons, they caused the larger risk of reclaiming account receivable, for it, a large amount of bad debts reserve was appropriated. and organization cost of newly constructed projects was reckoned in the gains and losses of the report period in one time, thus the Company incurred a relatively large loss in the whole year of 2002. The Company has profoundly understood the difficulties arising from the operation and management and has carried out the measures of turning losses, shooting at turning losses into profits in 2003. According to the investigation and analysis of market situation of construction materials industry, the competition of construction materials industry will be more intensified in the future several years. Facing this situation, to reinforce the development of new products and actively cultivate new grow point of profit become a task of top priority of the Company. At the same time the intensification of market competition also brings forward much higher requirement to the internal management of the enterprise, thus the Company carried through the largest reorganization of business flows with the broadest involving aspects from the foundation, reformed the organizations in a comparatively thorough way and made the running mechanism better meet the need of market competition. At present, the Company is still in the matching period after the innovation of management mechanism. All work steps into the right path gradually and the work efficiency after the reorganization of business flows has increased somewhat. 2. Operation of the Company (1) The Company is mainly engaged in development, design, manufacture, construction, sale and after service of new construction materials, compound materials, metal products, environmental protection facilities and equipments, safety and guard equipments, metallurgy equipments, optical, mechanical and electronic integration products, macromolecule materials and products, precision chemical products, mechanical equipments, photoelectric materials and equipments, photoelectric equipments, electronic display equipments, audiovisual and means of transportation etc.. In the report period, the Company had a certain growth in the production and sales volume of main products compared with the previous year and totally received and gained the purchase order of RMB 560.10 million, an increase of 31.66% than that of the last year, which reached the plan that the sales grows by 10% at the beginning of 11 the report year. Including: curtain wall products increased by 34.78%, aluminum molding compound boards and monolayer aluminum boards increased by 25.05%, fireproof and burglaproof doors increased by 24.35% and aluminum materials increased by 33.62%. However, due to the increasingly incandescence of market competition, factors of continuous decrease of price of products and increase of price of partial raw materials etc. resulted in the decline of profitability capability of main products. In the report period, the Company realized an income from core business of 437,473,890 RMB, a decline of 7.50 % compared with the corresponding period of the previous year and realized a net profit of -173,382,666 RMB, a decline of 582.43% compared with the corresponding period of the previous year. The particulars about formation of income from core business and profit from core business were as follows: Items Revenue Operating cost Gross profit Sales income of 217,617,159 207,058,001 4.85% commodities Income from construction and 316,475,267 268,590,806 15.13% installation engineering Elimination 96,618,536 95,411,800 - Total 437,473,890 380,237,007 13.08% In the report period, the products taking over 10% of the total amount of income from core business and profit from core business of the Company were: curtain walls, compound aluminum boards and monolayer molding aluminum boards, aluminum materials and color board materials. The particulars about sales income, sales cost and gross profit ratio were as follows: Items Sales income Sales cost Gross profit ratio curtain walls 301,416,088 265,703,153 11.85% Compound aluminum boards and monolayer 128,513,681 103,986,998 19.08% molding aluminum boards Aluminum materials and 48,894,643 46,129,604 5.66% color board materials GaN-IC project invested by the Company has realized the product sales successfully. Shenzhen Fangda Guoke Optoelectronic Co., Ltd. (hereinafter referred to as Fangda Guoke Company) and Jiangxi Fuke Information Co., Ltd. (hereinafter referred to as Fangda Fuke Company) realized sales income of RMB 2.11 million and RMB 2.77 million respectively and took on a good growth trend. (2) The Company carried through significant reform to the enterprise management system from the second half year of 2002 and fully integrated the internal resources of marketing, manufacture, engineering, purchase, technology and finance etc. of the Company through reorganization of business flows. The business departments of marketing center, manufacture 12 center, engineering center, purchase center, technology center and finance center etc. established after the reform and management organizations of administration and human resources etc. adjusted accordingly undertook all managerial business of the Company and tried hard to realize the pursuit of high economic benefits with high efficiency centralizing on customers with the marketing center as the lead, surrounding the signing and implementation of sales contracts and making the links of manufacture, purchase and engineering etc. in series. This kind of thoroughly flat organizational framework and linear management mode with few levels shall raise the running efficiency and management level of the enterprise by a big margin. (3) In the report period, the Company fully pushed the system of internal market chain, summed up all the behaviors among each business department into supply and demand relationships between customers and suppliers and introduced this kind of relationship into the internal management of the enterprise. After study, promotion and implementation for nearly a year, all relevant centers and departments are establishing internal market chain system after the reorganization of business flows, which made the service consciousness be blent into the work of management personnel of each level and also made the objectives of raising efficiency be carried out to the work links of each level. (4) In the report period, the Company started to implement the system of engineering and project principal and made the plan management of projects smoother through the engineering and project managers’ disposal of each work in the engineering construction in full rights and obligations, which has better coordinated the relationships in the aspects of design, manufacture and construction etc., raised the management efficiency of engineering projects and completion rate of project plans and intensified the risk controls and management of engineering projects. The Company continued to reinforce the work of “Three Rations, Two Examinations”, which tamped the fundamental work of the enterprise’s management. (5) The year of 2002 was the “Innovation Year” of the Company. The Company continued to attach importance to the technology creation to heavens around the enterprise tenet of “ Base on Science and Technology, Root in Innovation” and continuously strengthened the development of new products and technology reconstruction. In the report period, the Company totally accomplished 13 items of new products and new technology development projects. Fireproof aluminum molding compound boards was awarded Third Class of Science and Technology Advancement Award of Shenzhen in 2001 and Copper-aluminum Composite Radiator and Aluminum Beehive Composite Panel has gained the department authentication and technology authentication of Shenzhen Science and Technology Bureau respectively. The 18 items of new technology and new products of installation structure of photoelectric curtain walls and Integrative Irradiance Diode Traffic Signal Lamp were awarded Practical New Patent or Appearance Design Patent. There were 12 items that have been declared and accepted for patent and 18 items that have been accomplished in technology reconstruction. The technology center of the Company has passed the examination of Shenzhen Economy & Trade Bureau and Finance Bureau successfully and its comprehensive grade ranked the first in the City Technology Center. (6) In the report period, matching with the management system reform, the Company reconstructed financial management framework and made the calculation way clear, directly 13 brought the gathering, budget and settlement and warehouse management into the financial management scope and continued to strengthen and improve the finance budget and plan system. Besides, the Company set up corresponding project expense cost budget to the constructions in progress in order to increase the plan of cost calculation and control effect and cleared and reinforced the management to fixed assets, inventory and the current accounts, which made the effect of stock clearing and fixed assets management remarkable, the stock volume and stock structure be improved distinctly and raised the assets turnover rate. Based on well doing the financial auditing with efforts, to continue to probe into the new supervision field, improve the auditing supervision system and gradually bring each link of production and operation into the auditing supervision system. (7) In the report period, the Company brought the window function of American Company into full play, actively exploited the overseas market and realized the leading products’ export to North America. The feedback of market of leading products exported to Mexico was good. (8) In the report period, Shenzhen Fangda Decoration Engineering Co., Ltd. (hereinafter referred to as “Fangda Decoration Company”), a wholly owned subsidiary of the Company, took the lead in passing ISO14000 Environment Administration System and OHSAS Occupation and Health Safety Administration System in the same industry and all other affiliated enterprises also have passed the authentication of ISO90001: 2000 Quality Administration System and successfully completed the conversion replacement work of ISO9000. (9) Fangda Building constructed by the Company in the Shenzhen Hi-tech Industrial Zone has been completed. Shenzhen Student Abroad Pioneering Garden signed agreement with the Company and rent 21,000 sq. m. of Fangda Building from April 2003 and moved the its headquarter to Fanda Building. (10) In the report period, to the invested and constructed GaN-IC project, the Company successfully realized the transformation from trial production and small batch production, accomplished the equipments import and debugging input in the early stage and cultivated a staff team with professional skills, gradually established marketing mode and marketing network compliance with the product characteristics and has realized product sales. After market investigation and research and analysis, the Company has started the 2nd stage construction of input projects. GaN-IC and parts was listed into the 2002 Significant Construction Project of Shenzhen again. (11) In the report period, the Company was awarded Shenzhen Top-hundred Enterprises of Industry and Commerce, the 6th Civilized Enterprise of Shenzhen, 2001 China Top-hundred Enterprise of Construction Materials and 2001 National Double Excellent Enterprise of Foreign Investment and again created four new records of China enterprises, which became one enterprise that broke the most records in the same industry. Beijing Training Base of China Public Accountants and Shanghai Jinling Haixin Building Curtain Walls constructed by the Company were awarded 2001 Excellent Sample Engineering of Shenzhen Decoration Engineering and Shanghai Jinling Haixin Building was awarded Baiyulan Award of Shanghai. 3. Summary of operating achievements of wholly owned affiliated enterprises and holding subsidiaries Ended Dec.31, 2002, the Company had eight wholly owned affiliated enterprises, namely 14 Fangda Decoration Company, Jiangxi Fangda New Aluminum Industrial Co., Ltd. (hereinafter referred to as Fangda Aluminum Industrial Company), Fangda Safety and Guard Company, Shenzhen Fangda Special Structure Co., Ltd. (hereinafter referred to as Fangda Special Structure Company), Fangda Guoke Company, Hong Kong Junjia Group Co., Ltd. (hereinafter referred to as Junjia Company), Shenzhen Fangda Logistics Co., Ltd. (hereinafter referred to as Fangda Logistics Company) and Fangda America Science and Technology Company (hereinafter referred to as Fangda America Company) and also held two holding subsidiaries, namely Shenzhen Fangda Yide New Materials Co., Ltd. (hereinafter referred to as Fangda Yide Company) and Fangda Fuke Company. (1) Fangda Decoration Company, one of the largest production enterprises of curtain walls with scale in our country at present, is mainly engaged in the design production and construction of various kinds of construction curtain walls, doors and windows, decoration indoor and outdoor and furniture with a registered capital of RMB 50 million and total assets of RMB 763.49 million. In the report period, this company realized a net profit of RMB -102.72 million. (2) Fangda Aluminum Industrial Company, one of the largest production enterprises of aluminum materials in our country, is mainly engaged in the development, production and sales of various kinds of aluminum materials series products with a registered capital of RMB 20 million and total assets of RMB 131.13 million. In the report period, this company realized a net profit of RMB -17.81 million. (3) Fangda Safety and Guard Company is mainly engaged in the design, production, sales and installation of fireproof doors, burglaproof safety doors, rolling curtains doors, fireproof glass and special doors etc. with a registered capital of RMB 8 million and total assets of RMB 142.12 million. In the report period, this company realized a net profit of RMB -12.84 million. (4) Fangda Special Structure Company is mainly engaged in the design, production and sales of removable house and special structure with a registered capital of RMB 8 million and total assets of RMB 25.26 million. In the report period, this company realized a net profit of RMB -5.51 million. (5) Fangda Guoke Company is mainly engaged in the development, production and sales of GaN-IC and its parts middle-chained products with a registered capital of RMB 18 million and total assets of RMB 53.31 million. In the report period, this company realized profit of RMB -2.8 million. (6) Junjia Company is mainly engaged in the investment and organization of industry with a registered capital of HKD 10,000 and total assets of RMB 5 million. In the report period, this company did not realize the sales. (7) Fangda Logistics Company is mainly engaged in the purchase of materials with a registered capital of RMB 30 million and total assets of RMB 29.98 million. In the report period this company did not realized the sales. (8) Fangda America Company is mainly engaged in the scientific research and development and expansion of overseas markets with a registered capital of USD 486,300 and total assets of RMB 2.21 million. In the report period, this company did not realize the sales. (9) Fangda Yide Company, one of the largest production enterprises of modernized aluminum 15 molding compound boards and monolayer molding aluminum boards with scale in our country at present, is mainly engaged in the research, development, production and operation of products of new compound materials etc. with a registered capital of USD 3.2 million and total assets of RMB 235.87 million. In the report period, this company realized a net profit of RMB -14.80 million. (10) Fangda Fuke Company is mainly engaged in the development, production and sales of GaN-IC and its parts of up-chained products with a registered capital of RMB 20 million and total assets of RMB 23.79 million. In the report period, this company realized a net profit of RMB -2.95 million. 4. Major suppliers and customers In the report period, the purchase amount of the top five suppliers took 29.88 % of the total annual amount of purchase and the sales amount of the top five customers took 28.22% of the total amount of sales. 5. Problems arising from the operation and planned measures of 2003 (1) The decline of profitability capability was the most urgent problem that should be solved. Aiming at the reality that the whole operation in 2002 incurred a loss, the Company is positively adopting corresponding measures to cultivate the new growth point of profit: 1) Beijing Olympic Games and Shanghai Work Exhibition shall be the significant opportunity of development for the Company. The Company has set up the leading thought of focusing the efforts on Beijing and Shanghai markets and driving other markets all over the country and better made use of brand resources and favorable geographical position of Fangda to raise the quality of purchase order of curtain walls products. 2) To energetically develop new products. Auto door products including new energy saving and environmental protecting Copper-aluminum Composite Radiator and Metro Screen Door are two kinds of products that the Company cultivates with emphasis. Aiming at these two kinds of products, the Company has established special project department, expanded the scale of industrialization and emphasized to well do the market investigation and research and promotion of prophase in 2003 in order to establish the foundation for the sales of year of 2004. Based on supplying to Hong Kong Metro in the last year, the Company had won Shanghai Metro,to strive for supplying materials for the metro engineering to important cities at home in terms of Metro Screen Door. In terms of new energy saving and environmental protecting Copper-aluminum Composite Radiator, to form independent sales network in all provinces and cities in the north of Yellow River and realize both prosperous production and sales. In terms of new energy saving and environmental protecting curtain walls, to continue the promotion all over the country and make it become the material with top priority in the large and high grade constructions. 3) To continue to bring the window function of America Company into play, expand the export of steel doors, aluminum molding compound boards and two-double ladders, positively adjust the structure of door products. 4) Along with the increasingly paying attention to the safety problems of people, especially since the Fire Event of Korean Daqiu Metro, all cities had higher and higher requirements on 16 the fireproofing of infrastructures, which brought broad space for the application and development of fireproof materials of fireproof compound aluminum boards and special fireproof rolling curtains etc.. The Company shall reinforce the marketing of fireproof materials and make it become another growth point of profit of the Company. 5) Fangda Building has been put into use formally, of which partial building floors leased by Shenzhen Overseas Student Pioneering Garden will bring partial and relatively stable lease income for the Company. 6) GaN-IC project still is not able to become the important support of the profit of the Company at present due to the large input, long construction period and just starting of sales. On the one hand, to strengthen the safeguard capability of equipments and materials and raise the production volume and rate of finished goods of the products, on the other hand, to reinforce the sales and marketing. After the 2nd stage input, the Company shall improve the current sales layout as soon as possible and raise the market shares. (2) The reorganization of business flows started in 2002 by the Company made the management flat and has preliminarily gained effects. It not only has shortened the development period of new products and new technology, but also has reduced the waste of efficiency, cut down the staffs and decreased the cost. The Company shall arrange a series of plans especially in the problem of controlling risks and reinforce the stock management, locale management and budget management etc. to shooting at making the engineering management expense decline by over 10%. The Company shall continue to construct internal organizational structure in compliance with the requirements of modern enterprise systems, standardize the accounting system and improve the internal control system and control the potential risks in the operation and management to the scope as small as possible. On the one hand, the Company shall continue to improve and push the financial budget and planning work, on the other hand, to gradually establish risk warning system of market risk and operating risk that reflects the possible credit risk and price risk etc. encountering in the course of enterprises’ participating in the market competition and control the risks to the minimum scope. (3) Though the Company reinforced the clearing of accounts receivable in the report period, the effect was still not obvious. The gathering situation still existed comparatively large gap with the objective plan and the growth margin of accounts receivable was even larger than the growth margin of sales. The Company has been amending and improving the corresponding gathering system so as to avoid and control the financial risks. (4) In order to solve the difficulty of limited production ground at present, the Company planned expand partial production manufacture base to areas with low cost, thus made the decision of constructing Fangda New Material Technology Garden in Jiangxi Nanchang National Hi-tech Industrial Zone. The planned occupation area of this technology garden was 300 Mu with planned investment of RMB 500 million in the 1st stage of the engineering and after the construction, the production base of new construction materials of the Company shall be in Nanchang while the base of IT industry shall be in Shenzhen, which help substantially to reduce the cost, reinforce the management and formed scientific layout of industry. In 2003, the Company will continue to deepen the innovation and reform according to the guidance thought of “With the market as the lead, with the customers as the center, as the 17 efficiency as the premise and with the economic benefits as the objectives” so as to make the enterprise keep hearty life force in the intensified competition. 6.Investment in the report period (1) Use of raised capital In the report period, the Company did not raise capital. The previous raised capital was used completely in 2000. (2) Use of non-raised capital In the report period, the Company totally invested RMB 92.88 million, decreasing RMB 19.53 million and by 17.37%. It was mainly used in the following respects: 1) The total investment of the project of Fangda Building established in Shenzhen High-tech Industry Zone by the Company was RMB 150 million. In the report period, the Company totally invested RMB 51.01 million. Ended as of Dec.31, 2002, the accumulated investment of the project was RMB 133.96 million and the progress of completion was 89.31%. Because the project is not completed, it has no contribution on the operation performance of the Company in the report period. 2) In the report period, the Company purchased 20% equity of Fangda Fuke Company as the price of RMB 4.5 million, thus directly held 70% equity of Fangda Fuke. 3) In the report period, the Company purchased 100% equity of Junjia Company as the price of RMB 5 million, thus indirectly held 25% equity of Fangda Fuke Company. 4) In the report period, the Company added USD 286,300 investment to Fangda America Company. 5) In the report period, the Company and Fangda Decoration Company together invested RMB 30 million to establish Fangda Logistics Company, whose establishment was in favor of centralized purchase and transportation and reduction of purchase cost and logistics cost. 7.Financial status of the Company: In the report period, the detail financial indexes of the Company were as follows: Unit: RMB December December 31, 2001 Increase/decrease Items 31, 2002 after the % Adjustment Total assets 1,286,478,610 1,385,678,719 -7.16% Shareholders’ equity 823,639,835 1,017,770,501 -19.07% 2001 Increase/decrease Items 2002 after the Adjustment % income from main business 437,473,890 406,956,626 7.50% profit from main business 47,002,953 105,010,280 -55.24% management expenditure 194,511,478 49,992,814 289.08% net profit -173,382,666 35,939,821 -582.42% net increase amount of -241,372,402 141,406,992 -270.69% cash and equivalent 18 The main reason of the change of the aforesaid projects: (1) The increase of income from main business is caused that the sale of constructional curtain walls, aluminum-plastics composite panels, aluminum extrusions, single aluminum panels and fireproof doors and anti-burglary doors increased compared with the same period last year. (2) The reason of the decrease of profit from main business is: Under the pressure of consistent depression of market sale price on the Company’s operation, the profit/sale ratio of products showed the trend of dropping; Although the project quantum the Company carried on had a clear rising, the area of the projects were disperse and the amount of the contract of the single project dropped, the construction cost increased instead of decrease; part contracts were appointed supplier of raw materials by customers and were adopted much more export raw materials, it caused the rising of the cost of the raw material in larger degrees. (3) The main reason of the more increase of management expenditure is: In addition, because the balance of account receivable increased, account age rose and part projects was in status of stopping and being dealt due to capital and other reasons, they caused the larger risk of reclaiming account receivable, for it, a large amount of bad debts reserve was appropriated amounting to RMB 95,328,100 (the appropriated bad debt reserve in 2001 was RMB 11,302,400; Fangda Fuke Company and Fangda Guoke Company established in 2001 has operated normally, among of them, Fangda Fuke Company and Fangda Guoke Company has stated to put into a little production in the report period. According to the regulations of the new accounting system, its launching fee amounting to RMB 7,859,100 was amortized into the gains or losses in the report period one time; To ensure the consistent development of the Company and receiving the challenge caused by entering WTO, the Company enhanced the train and introduction of personnel and improved the salary level of staffs and expenditure of social insurance; The Company reinforced gathering and the corresponding management expenditure increased a little; The Company reinforced research and development of new products and the research expenditure increased a little; Because part projects were in status of stopping and being dealt, the Company appropriated RMB 17,415,200 devaluation reserve of inventories for materials with special use. (4) The decrease of net profit was caused by the dropping of gross-profit ratio of products, the more increase of period expenditure compared with the last period, appropriation of RMB 7,524,400 devaluation reserve of fixed assets and RMB 3,000,000 devaluation reserve of long-term investment. (5) The much decrease of net increase amount of cash and equivalent compared with the last period was caused that the Company implemented 2001 profit distribution proposal to distribute dividend for the shareholders, repaid all mature debts and invested and established Technology Center Building of the Company locating in High-tech Industry Zone. (6) The decrease of the total assets and shareholders’equity is caused by the losses and dividend distribution in the report period. 8.Routine work of the Board of Directors (1) Meetings and resolutions of the Board of Directors in the report period 1) The 14th meeting of the 2nd Board of Directors was held in 5F meeting room of Technology 19 Building of the Company in the afternoon of Mar.21, 2002, examined and approved the following resolutions: Examined and approved 2001 Work Report of President of the Company; Examined and approved 2001 Work Report of the Board of Directors; Examined and approved 2001 Financial Settlement Report; Examined and approved Preplan of 2001 Profit Distribution and Transferring Public Capital Reserve to Share Capital; Examined and approved 2001 Annual Report and Summary; Examined and approved Preplan of Appropriating Devaluation Reserve in 2001; Examined and approved 2002 Profit Distribution Policy; Examined and approved Preplan of Not Transferring Public Capital Reserve to Share Capital in 2002; Examined and approved 2002 Work Plan; Examined and approved Preplan of Pausing Plan of Reissuing A Share; Examined and approved Preplan of Election at Expiration of Office Terms of the Board of Directors; Examined and approved Amendment Draft of Articles of Association of the Company; (Attachment) Examined and approved Rules of Procedure of the Shareholders’ General Meeting, Work Byelaw of the Board of Directors, Work Byelaw of Independent Directors, Detailed Rules of President (Draft); (Draft was attached) Examined and approved Preplan of Amount and Means of Annual Allowance of Directors and Independent Directors of the Company; Examined and approved Preplan of Changing Short Form of Stock of the Company; Examined and approved Preplan of Engaging Certified Public Accountants of 2002; Examined and approved Proposal on Adjusting Organizations and Purchasing Equity of Other Companies; Examined and approved Proposal on Applying for Integrative Line of Credit of Bank; Examined and approved Proposal on Holding 2001 Annual Shareholders’ General Meeting. The public notice of the meeting was published on China Securities, Securities Times, Shanghai Securities and Ta Kung Pao dated Mar.25, 2002. 2) The 1st meeting of the 3rd Board of Directors was held in 5F meeting room of Technology Building of the Company in the afternoon of Apr.27, 2002, examined and approved the following resolutions: Elected Mr. Xiong Jianming as Chairman of the 3rd Board of Directors of the Company; Engaged Mr. Xiong Jianming as President of the Company; Engaged Lu Weiwei as Secretary of the Board of Directors of the Company; Nominated by President, Mr. Xiong Jianming, the meeting agreed to engage Mr. Zhu Weiping, Mr. Wang Shengguo as Vice President of the Company, Mr. Xiong Zhude as Chief Supervisor of Financing, Mr. Jin Xugang as Chief Supervisor of Sale and Mr. Yu Guoan as Chief Supervisor of Technology. 20 The senior executives of the Company applied to the method of connection of position salary and risk wage and the detail proposal authorized President to organized establishment and implementation according to Resolution on Annual Salary of Senior Executives in 2002 of 13th meeting of 2nd Board of Directors held on Dec.20, 2001; Examined and approved Proposal on Adjustment of Institutions of the Company; Examined and approved the 1st Quarterly Report and Appendix of 2002. The public notice of the meeting was published on China Securities, Securities Times, Shanghai Securities and Ta Kung Pao dated Apr. 30, 2002. 3) The 2nd meeting of the 3rd Board of Directors was held in 5F meeting room of Technology Building of the Company in the afternoon of Apr.27, 2002, examined and approved the following resolutions: Studied the spirit of the document of SZBFZ [2002] No.114 promulgated by Shenzhen Securities Management Office; Examined Self-inspection Report of the Company; Examined Purchasing 25% Equity of Shenzhen Fangda Yide New Material Co., Ltd. held by Shenlian Enterprise Co., Ltd. The aforesaid resolution was not disclosed. 4) The 3rd meeting of the 3rd Board of Directors was held in 5F meeting room of Technology Building of the Company in the afternoon of Apr.27, 2002, examined and approved the following resolutions: Examined and approved 2002 Semi Annual Report and Summary; Examined and approved 2002 Semi Annual Profit Distribution Proposal. The public notice of the meeting was published on China Securities, Securities Times, Shanghai Securities and Ta Kung Pao dated Aug.9, 2002. 5) The 4th meeting of the 3rd Board of Directors was held in 5F meeting room of Technology Building of the Company in the afternoon of Apr.27, 2002, examined and approved the following resolutions: Approved the 3rd Quarterly Report and Appendix of 2002 The public notice of the meeting was published on China Securities, Securities Times, Shanghai Securities and Ta Kung Pao dated Oct.24, 2002. (2) Implementation of resolutions of the Shareholders’ General Meeting by the Board of Directors Authorized by the Shareholders’ General Meeting, the Board of Directors conducted the following events in the report period: 1) Amended Articles of Association of the Company; 2) Implemented 2001 profit distribution proposal, namely distributed RMB 1.0 dividend per shares (including tax) and distributed dividend of B share in HKD as 100:106.04 exchange rate of HKD against RMB. 3) Changed the industrial and commercial register. 9. Preplan of profit distribution and transferring capital public reserve to share capital The Company affirmed respectively RMB -173,382,666 and RMB -172,399,065 net profit according to Chinese accounting standards and international accounting standards in 2002. Plus non-distributed profit at the year-beginning, distributable profit of 2002 was respectively 21 RMB 43,889,784 and RMB 69,628,000. According to Detailed Rules for Implementation of Domestically Listed Foreign Shares of Limited Liability Company and Articles of Association, based on the lower of distributable profit affirmed respectively according to Chinese accounting standards and international accounting standards when the Company distributed dividend, the distributable profit for shareholders in 2002 was RMB 43,889,784. The Company suggested to distribute RMB 0.7 (including tax) cash dividend per 10 shares to all shareholders on the basis of the share capital of 296,400,000 shares by the end of 2002 and the distributed cash was RMB 20,748,000. The left non-distributed profit, RMB 23,141,784, was transferred to the later years for distribution. The dividend of B share was paid in HKD as the middle price of HKD against RMB promulgated by the People’s Bank of China on the first working day since the date of the public notice on resolution of the Shareholders’ General Meeting for 2002. The Company did not transfer public capital reserve to share capital in 2002. 10.Others (1) The 7th Meeting of the 3rd Board of Directors of the Company examined and approved the proposal on newspaper of information disclosure of the Company and designed China Securities, Securities Times and Ta Kung Pao as the newspaper of information disclosure of the Company; (2) Explanation on change of accounting assessment of the Company in 2002 1) Change of depreciation years of houses and architectures The initial depreciation years of houses and architectures of the Company and its subsidiaries was 20 years. Because the initial houses and architecture had better construction technology and maintenance, it was estimated the actual use years would prolong to 35 years. In addition, the Company’s newly established Fangda Building locating in High-tech Industry Zone adopted advanced architecture and fixing technology, so the actual use years exceeded 20 years, it was estimated 45 years. Because the initial assessed depreciation years of houses and architecture was not in conformity with the present actual situation, the Company changed the depreciation years of houses and architectures into 35 years to 45 years and the change date of accounting assessment started from Jan.1, 2002. 2) Change of amortization years of land use right The initial amortization years of the Company and its subsidiaries was 30 years. Because the actual use years of the land use right purchased was 50 years and it occurred no phenomenon that the reclaimed amount of land use right was lower than the value on account, the Company changed the depreciation years of land use right from 30 years to 50 years and the change date of accounting assessment started from Jan.1, 2002. VIII.REPORT OF THE SUPERVISORY COMMITTEE 1.The Supervisory Committee totally held 4 meetings in the report period (1) The 8th meeting of the 2nd Supervisory Committee was held in the meeting room of the Company on Mar.31, 2002, examined and approved the following resolutions: Examined and approved 2001 Work Report of the Supervisory Committee and expressed opinion on the work of the Board of Directors and management in 2001; Examined and approved Election at Expiration of Office Terms of the Supervisory 22 Committee; Examined and approved 2001 Financial Settlement Report and Profit Distribution Preplan; Examined and approved 2001 Annual Report and Summary; Examined and approved Draft of Work Byelaw of the Company The public notice of the meeting was published on China Securities, Securities Times, Shanghai Securities and Ta Kung Pao dated Mar.25, 2002. (2) The 1st meeting of the 3rd Supervisory Committee was held in the meeting room of the Company on Apr.27, 2002, examined and approved the following resolutions: Elected Mr. Li Bangyan as the caller of the 3rd Supervisory Committee of the Company; Examined and approved the 1st Quarterly Report and Appendix of 2002. The public notice of the meeting was published on China Securities, Securities Times, Shanghai Securities and Ta Kung Pao dated Apr.30, 2002. (3) The 2nd meeting of the 3rd Supervisory Committee was held in the meeting room of the Company on Apr.27, 2002, examined and approved the following resolutions: Examined and approved 2002 Semi Annual Report and Summary; Examined and approved 2002 Semi Annual Profit Distribution Proposal; The Board of Directors and the management patiently implemented every resolutions of the Shareholders’ General Meeting in conformity with relevant regulations of Company Law and Articles of Association. The directors and senior executives had no actions of breaking national laws and regulations and Articles of Association or damaging the interest of the Company when they performed their duties. Because the Company occurred the first losses since listed, the Supervisory Committee suggested the management to control operation risk and make effort to change losses to gains. The public notice of the meeting was published on China Securities, Securities Times, Shanghai Securities and Ta Kung Pao dated Aug.9, 2002. (4) The 3rd meeting of the 3rd Supervisory Committee was held in the meeting room of the Company on Oct.23, 2002, examined and approved the 3rd Quarterly Report and appendix of 2002. The public notice of the meeting was published on China Securities, Securities Times, Shanghai Securities and Ta Kung Pao dated Oct.24, 2002. 2.The Supervisory Committee expressed independent opinions on the following events: (1) In 2002, according to relevant regulations, laws and Articles of Association, the Supervisory Committee supervised over the procedure of holding, discussion and decision of the Board of Directors, the implementation of the resolutions of the shareholders’ General Meeting and the management system by the Board of Directors and the management teams and believed that the Board of Directors and the management teams worked in an honest, diligent and active way, actually and effectively implemented every resolution and authorization of the Shareholders’ General Meeting. The procedure of decision-making was in conformity with Company Law and Articles of Association of the Company. The Company established more perfect internal control system. The directors and senior executives had no actions of breaking national laws and regulations and Articles of Association or damaging the interest of the Company when they performed their duties. (2) In 2002, the Company’s operation occurred larger losses and the reason was the influence 23 of the drastic competition and dropping of products’ price in the construction material market and the active adjustment and releasing of risk that the Company appropriated a large amount of bad debts and amortized the launching expense of the newly established item into the gains or losses in the report period. At present, the production and operation were normal. The Supervisory Committee suggested the management team to pay attention to risk, carry out the measure against the problems existed in the operation, enhance the internal management, dropping of cost, increasing of performance and change the loss of the Company as soon as possible. The Supervisory Committee will further enhance the function of supervisory (3) 2002 auditor’s report issued by Shenzhen Dahua Tiancheng Certified Public Accountants and Hong Kong Ho & Ho and Company truly reflected the actual financial status and operation result of the Company. (4) The net amount of the raised capital from shares allotment in 1999 was RMB 112,878,400 and the raised capital was put into use according to the use plan of the raised capital disclosed in Share Allotment Prospectus. (5) The trading price of purchase and sale of assets was reasonable and there found no internal transactions. The transactions did not damage the interest of part shareholders and assets run off. (6) The related transaction of the Company was fair and reasonable and did not damage the interest of the listed company. IX. SIGNIFICANT EVENTS 1.The Company had no significant lawsuits and arbitrations in the report period. The Company’s subsidiary, Fangda Decoration Corporation applied for arbitration to Dalian Arbitration Committee in Nov.2002 and required Dalian Hongjin World Trade Co., Ltd. to pay RMB 25.01 million engineering expense and indicted to Guangzhou Intermediate People’s Court in Dec.2002 and required to Guangzhou Donghe Real Estate Co., Ltd. and Zhonghai Development (Guangzhou) Co., Ltd. to pay RMB 18.30 million engineering expense. 2.Purchase and sale of assets, consolidation and merge of the Company in the report period: In the report period, the Company purchased 20% equity of Fangda Fuke Company as the price of RMB 4.5 million, the Company purchased 100% equity of Junjia Company as the price of RMB 5 million and indirectly hold 20% equity of Fangda Fuke. The events had no influence on the consistency of business, stability of the management, financial status and operation result. In the report period, the Company had no purchase and sale of assets. 3. In the report period, the Company had no significant related transactions. 4. Significant contract and implementation: (1) In the report period, the Company had not kept as custodian, contracted and leased other companies’ assets and vice visa. (2) In the report period, the Company had no significant guarantee. (3) In the report period, the Company did not entrust others to manage cash assets or entrust loan. 5.The Company’s domestic and overseas audit in 2002 were finished by Shenzhen Dahua 24 Tiancheng Certified Public Accountants with payment of auditing expense of RMB 330,000 and Hong Kong Ho & Ho and Company with payment of auditing expense of RMB 350,000. X. FINANCIAL REPORT 1.Auditor’s report CPA, X of Shenzhen Dahua Tiancheng Certified Public Accountants audited 2002 financial and accounting statements of the Company and issued standard auditor’s report with non-reservation opinion. (Attachment) 2.Accounting statement (attachment) 3.Note of accounting statement (attachment) XI. DOCUMETNS FOR REFERRENCE 1. Original of 2002 Annual Report carried with the signature of Chairman of the Board (Chinese and English version); 2. Accounting statements carried with the signature and seal of legal representative, chief supervisor of financing. 3. Original of auditor’s report carried with the seal of Certified Public Accountants as well as signature and seal of CPA. 4. Originals of all documents and manuscripts of public notice disclosed publicly on the newspaper designed by CSRC in the report period. 5.Articles of Association of the Company approved the latest Shareholders’ General Meeting. Chairman of the Board: Board of Directors of Fangda Group Co, Ltd. Apr. 26, 2003 25 CHINA FANGDA GROUP COMPANY LIMITED 方大集團股份有限公司 REPORT AND CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED 31ST DECEMBER 2002 CONTENTS PAGES Report of the auditors 1 Consolidated income statement 2 Consolidated balance sheet 3 Consolidated statement of changes in equity 4 Consolidated cash flow statement 5 Notes to the consolidated financial statements 6 - 29 26 REPORT OF THE AUDITORS To the shareholders of B shares of China Fangda Group Co., Ltd. 方大集團股份有限公司 (incorporated in the People’s Republic of China with limited liability) We have audited the accompanying consolidated balance sheet of China Fangda Group Co., Ltd, (“the Group”) as at 31st December 2002 and the related consolidated statements of income, cash flows and changes in equity for the year then ended. These financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. These 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, the evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall presentation of financial statements. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements presents fairly, in all material aspects, the financial position of the Group as at 31st December 2002 and the results of its operations and its cash flows for the year then ended, in accordance with International Financial Reporting Standards. Ho and Ho & Company Certified Public Accountants 23rd April 2003 Hong Kong 1 CHINA FANGDA GROUP COMPANY LIMITED 方大集團股份有限公司 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31ST DECEMBER 2002 NOTES 2002 2001 RMB’000 RMB’000 (Restated) Revenue (5) 437,474 429,404 Cost of sales (390,470) (314,784) Gross profit 47,004 114,620 Other operating income (7) 33,529 11,408 Selling expenses (22,208) (17,105) Administrative expenses (219,165) (52,682) (Loss) profit from operations (8) (160,840) 56,241 Finance costs (9) (12,167) (6,675) Loss from investments (10) (3,192) (2,258) (Loss) profit before tax (176,199) 47,308 Income tax expense (11) (46) (9,384) (Loss) profit after tax (176,245) 37,924 Minority interests 3,847 (2,506) Net (loss) profit for the year (172,398) 35,418 (Loss) earning per share - basic (13) (RMB0.58) RMB0.12 - diluted N/A N/A 2 CHINA FANGDA GROUP COMPANY LINITED 方大集團股份有限公司 CONSOLIDATED BALANCE SHEET AT 31ST DECEMBER 2002 NOTES 2002 2001 RMB’000 RMB’000 (Restated) Assets Non-current assets Property, plant and equipment (14) 346,358 340,539 Prepayments for property, plant and equipment - 4,089 Construction in progress (15) 139,940 113,085 Intangible assets (16) 9,684 11,189 Goodwill (17) 1,911 1,641 Other investments (18) 10,774 12,457 Other non-current assets 667 856 509,334 483,856 Current assets Inventories (19) 120,098 87,802 Trade receivables (20) 362,420 341,073 Other receivable 24,250 26,394 Other investments (18) 400 - Prepayments 11,570 26,076 Bank balances and cash 260,482 416,193 779,220 897,538 1,288,554 1,381,394 Total assets Equity and Liabilities Capital and reserves Share capital (22) 296,400 296,400 Reserves (23) 550,063 752,101 846,463 1,048,501 4,513 23,074 Minority interests 850,976 1,071,575 3 Non-current liabilities (24) 20,000 - Bank loans – due after one year Current liabilities Trade payables 189,323 63,241 Other payables 28,186 21,422 Tax payable 7,569 3,656 Bank loans - due within one year (24) 192,500 221,500 417,578 309,819 1,288,554 1,381,394 Total equity and liabilities The financial statements on pages 2 to 29 were approved and authorised for issue by the Board of Directors on 23rd April 2003 and are signed on its behalf by: Director Director 4 CHINA FANGDA GROUP COMPANY LIMITED 方大集团股份有限公司 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31ST DECEMBER 2002 Capital Statutory Share capital surplus reserves welf RMB’000 RMB’000 RMB’000 R Balance at 1st January 2001 296,400 388,542 56,227 Net profit for the year - As previously stated - - - - Prior period adjustment (note 3) - - - - As restated - - - Transfer to statutory reserves and public welfare fund from accumulated profits - - 3,644 Dividends for 2001 - - - Balance at 1st January 2002 (Restated) 296,400 388,542 59,871 Net loss for the year - - - Dividends for 2002 - - - Balance at 31st December 2002 296,400 338,542 59,871 5 CHINA FANGDA GROUP COMPANY LIMITED 方大集团股份有限公司 CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST DECEMBER 2002 NOTE 2002 2001 RMB’000 RMB’000 (Restated) (Loss) profit from operations (176,199) 47,308 Adjustments for: Amortisation of goodwill 230 205 Amortisation of intangible assets 918 472 Depreciation on property, plant and equipment 27,123 26,114 Interest expenses 12,167 9,781 Interest income (7,698) (8,179) Loss (gain) on disposal of property, plant and equipment 141 (345) Provision for bad debts 95,328 11,303 Provision for impairment loss on intangible assets 637 - Provision for impairment loss on property, plant and equipment 7,525 - Provision for impairment loss on other investments 3,000 2,053 Provision for obsolete inventories 17,815 400 Operating cash flows before movements in working capital (19,013) 89,112 Increase in inventories (50,111) (4,860) Increase in trade receivables (97,426) (90,747) Decrease in other receivables (15,456) 5,812 Decrease in amounts due from related parties - 70,369 Decrease in prepayments 14,506 - Increase (decrease) in trade payables 126,082 (3,434) Increase decrease in other payables 6,559 (4,587) Cash (used in) generated from operations (34,859) 61,665 Income tax paid (3,291) (11,054) Interest paid (12,167) (9,781) Net cash (used in) from operating activities (50,317) 40,830 6 CHINA FANGDA GROUP COMPANY LIMITED 方大集团股份有限公司 CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST DECEMBER 2002 NOTE 2002 2001 RMB’000 RMB’000 (Restated) Net cash (used in) from operating activities (50,317) 40,830 Investing activities Interest received 7,698 8,179 Proceeds on disposal of property, plant and equipment 61 695 Purchases of property, plant and equipment (3,047) (4,955) Purchases of intangible assets (50) (9,040) Acquisition of additional interest of subsidiary (9,500) - Decrease (increase) of other non-current assets 189 (1,344) (Increase) in purchases of other investments (1,717) (3,389) Decrease in prepayment for property, plant and equipment - 24,000 Increase in construction in progress (60,388) - Decrease in fixed deposit (85,661) - Net cash (used in) from investing activities (152,415) 14,146 Financing activities Capital injection from minority shareholders - 9,999 Dividend paid (29,640) (35,568) New bank loans raised 637,000 250,000 Repayments of bank loans (646,000) (138,000) Net cash (used in) from financing activities (38,640) 86,431 Net (decrease) increase in cash and cash equivalents (241,372) 141,407 Cash and cash equivalents at beginning of year 416,193 274,786 Cash and cash equivalents at end of year (30) 174,821 416,193 7 CHINA FANGDA GROUP COMPANY LIMITED 方大集团股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 1. CORPORATE INFORMATION China Fangda Group Company Limited (the “Company”) is a joint stock company registered in the People’s Republic of China (the “PRC”) in 1995. Its “A shares and “B shares are listed on the Shenzhen Stock Exchange in November 1995 and April 1996 respectively. The Company and its subsidiaries (together referred to as the “Group”) are principally engaged in the design, manufacture, sale and installation of curtain walls, doors and windows and various kinds of construction materials. The largest shareholder of the Company is Shenzhen Banglin Technology Development Company Limited, a limited company incorporated in the PRC. 2. PRESENTATION OF FINANCIAL STATEMENTS The consolidated financial statements have been prepared in Renminbi (“RMB”), the currency in which the majority of the Group’s transactions are denominated. The Group maintains its accounting records and prepares its statutory financial statements in accordance with the accounting principles and the relevant financial regulations applicable to foreign investment enterprises in the PRC. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). The accounting policies and basis adapted to the preparation of the statutory financial statements differ in certain respects from IFRS. The differences arising from the restatement of the results of operations and the net assets for compliance with IFRS are adjusted in financial statements but will not be taken up in the accounting records of the Group. 3. PRIOR PERIOD ADJUSTMENT During the year, the Group found that the cost of sales for 2001 was understated by RMB2,378,000. The correction of such accounting error was applied retrospectively which resulted in the decrease in shareholders’ fund, net of minority interests, as at 31st December 2001 and the net profit for 2001 by RMB1,784,000. The comparative figures have been corrected and restated. 8 CHINA FANGDA GROUP COMPANY LIMITED 方大集团股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Except for certain financial instruments which are stated at their fair value, the financial statements have been prepared on the historical basis. The principal accounting policies adopted are set out below: (a) Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and enterprises controlled by the Company (“its subsidiaries”) made up to 31st December each year. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the Group. All significant inter-company transactions and balances between group enterprises are eliminated on consolidation. (b) Subsidiaries Subsidiaries are enterprises controlled by the Company. Control is achieved where the Company has the power to govern its financial and operating policies of an investee enterprise so as to obtain benefits from its activities. (c) Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary or associate at the date of acquisition. Goodwill is recognized as an asset and amortised on a straight-line basis over its estimated useful life. Goodwill arising on the acquisition of an associate is included within the carrying amount of the associate. Goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet. On disposal of a subsidiary or an associate, the attributable amount of unamortised goodwill is included in the determination of the profit or loss on disposal. 9 CHINA FANGDA GROUP COMPANY LIMITED 方大集团股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued (d) Revenue recognition i) Construction contract income Where the outcome of a construction contract can be estimated reliably, revenue is recognised by reference to the stage of completion of the contract activity, as measured by the proportion that contract costs incurred for work performed to date to the estimated total contract costs. Variations in contract work, claims and incentive payments are included to the extent that they have been agreed with the customer. Where the outcome of a construction contract cannot be estimated reliably, contract revenue is only recognised to the extent of contract costs incurred that it is probable will be recoverable. ii) Sales of goods Sales of goods are recognised when goods are delivered and title has passed to customers. iii) Interest income Interest income is accrued on a time basis, by reference to the principal outstanding and at the interest rate applicable. iv) Dividend income Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established. (e) Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date 10 CHINA FANGDA GROUP COMPANY LIMITED 方大集团股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued (e) Taxation - continued Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no larger probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. (f) Foreign currencies Transactions in currencies other than RMB are initially recorded at the rates of exchange prevailing on the dates of the transactions. Monetary assets and liabilities denominated in such currencies are re-translated at the rates prevailing on the balance sheet date. Profits and losses arising on exchange are included in net profit or loss for the year. On consolidation, the assets and liabilities of the Group’s overseas operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the year. Exchange differences arising, if any, are classified as equity and transferred to the Group’s translation reserve. Such translation differences are recognised as income or as expenses in the year in which the operation is disposed of. 11 CHINA FANGDA GROUP COMPANY LIMITED 方大集团股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued (f) Foreign currencies - continued Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. (g) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from borrowing costs eligible for capitalisation. All other borrowing costs are recognised as expenses in the period in which they are incurred. (h) Retirement benefit costs Payments to defined contribution retirement benefit plans are charged as an expense as they fall due. Payments made to state-managed retirement benefit schemes are dealt with as payments to defined contribution plans where the Group’s obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit plan. (i) Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Rentals payable under operating leases are charged to income statement on a straight-line basis over the term of the relevant lease. 12 CHINA FANGDA GROUP COMPANY LIMITED 方大集团股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued (j) Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss. Depreciation is charged so as to write off the cost of assets over their estimated useful lives after taking into account the estimated residual value, using the straight-line method, on the following rates per annum: Leasehold land Over the unexpired lease period Buildings 2%-2.57% Machinery and electronic equipment 9% Transport and other equipment 10% The gain or loss arising from disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement. (k) Construction in progress Construction in progress represents properties under construction for production, rental or administrative purposes, or for purposes not yet determined and equipment purchased prior to installation and is stated at cost less any recognised impairment loss. Cost comprises direct costs and, where applicable, professional fees and borrowing costs capitalised in accordance with the Group’s accounting policy. Costs on completed construction works are transferred to the appropriate asset category. Costs incurred on construction in progress are recognised as an expense immediately when the work is terminated. No depreciation is provided on construction in progress until it is completed and put into commercial operation. (l) Intangible assets – Patents, know-how and trademarks Patents, know-how and trademarks are measured initially at purchase cost and amortised on a straight-line basis over their estimated useful lives, which is average 10 years. (m) Impairment At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. 13 CHINA FANGDA GROUP COMPANY LIMITED 方大集团股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued (m) Impairment - continued Recoverable amount is the greater of net selling price and value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to the assets. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined as no impairment loss had been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately. (n) Construction contracts Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the balance sheet date, as measured by the proportion that contract costs incurred for work performed to date to the estimated total contract costs. Variations in contract work, claims and incentive payments are included to the extent that they have been agreed with the customer. Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that it is probable will be recoverable. Contract costs are recognised as expenses in the period in which they are incurred. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. (o) Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the firs-in-first-out basis. Net realisable value represents the estimated selling prices less all estimated costs to completion and costs to be incurred in marketing, selling and distribution. 14 CHINA FANGDA GROUP COMPANY LIMITED 方大集团股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued (p) Financial instruments Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument. i) Trade receivables Trade receivables are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts. ii) Investments Investments are recognised on a trade-date basis and are initially measured at cost. Investments other than held-to-maturity debt securities are classified as either held-for-trading or available-for-sale, and are measured at subsequent reporting dates at fair value. Where securities are held for trading purposes, gains and losses arising from changes in fair value are included in net profit or loss for the period. For available-for-sale investments, gains and losses arising from changes in fair value are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the net profit or loss for the period. (iii) Bank borrowings Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption, are accounted for on an accrual basis and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. (iv) Trade payables Trade payables are stated at their nominal value. (q) Provisions Provisions are recognised when the Group has a present obligation as a result of a past event which it is probable will result in an outflow of economic benefits that can be reasonably estimated. (r) Cash equivalents Cash equivalents represent short-term, highly liquid investments that are readily convertible to a known amount of cash and subject to an insignificant risk of changes in value. 15 CHINA FANGDA GROUP COMPANY LIMITED 方大集团股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 5. REVENUE 2002 2001 RMB’000 RMB’000 Sales of goods 161,724 202,050 Contract revenue 275,750 227,354 437,474 429,404 6. SEGEMENTAL INFORMATION BUSINESS SEGMENTS For management purposes, the Group’s currently organized into two operating divisions -contract and manufacturing. These divisions are the leases on which the Group’s its primary segment information. The principal activities are as follows :- Contract work – Installation of curtain walls, doors and windows. Manufacturing – Design, manufacturing and sales of constriction materials. Income statement for the year ended 31st December 2002 Contract works Manufacturing Elimination Consolidated RMB’000 RMB’000 RMB’000 RMB’000 Revenue External sales 279,548 157,926 - 437,474 Inter-segment sales 36,927 59,691 (96,618) - 316,475 217,617 (96,618) 437,474 Inter-segment sales are charged at prevailing market rates. Contract works Manufacturing Elimination Consolidated RMB’000 RMB’000 RMB’000 RMB’000 Results Segment result (106,037) (45,041) (1,207) (152,285) Unallocated corporate expenses (8,555) Loss from operations (160,840) Finance costs (12,167) Loss from investments (3,192) Loss before tax (176,199) Income tax expenses (46) Loss after tax (176,245) 16 CHINA FANGDA GROUP COMPANY LIMITED 方大集团股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 6. SEGEMENTAL INFORMATION - continued Other information for the year ended 31st December 2002 Contract works Manufacturing Unallocated Consolidated RMB’000 RMB’000 RMB’000 RMB’000 Additions of property, plant and equipment 1,740 5,396 - 7,136 Depreciation on property, plant and equipment 2,810 24,313 - 27,123 Amortisation on intangible assets 66 852 - 918 Balance sheet as at 31st December 2002 Contract works Manufacturing Unallocated Consolidated RMB’000 RMB’000 RMB’000 RMB’000 Assets Segment assets 435,026 580,661 272,867 1,288,554 Liabilities Segment liabilities 145,397 85,003 207,178 437,578 Income statement for the year ended 31st December 2001 Contract works Manufacturing Unallocated Consolidated RMB’000 RMB’000 RMB’000 RMB’000 Revenue External sales 202,050 227,354 - 429,404 Inter-segment sales - 35,198 (35,198) - 202,050 262,552 (35,198) 429,404 Inter-segment sales are charged at prevailing market rates 17 CHINA FANGDA GROUP COMPANY LIMITED 方大集团股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 6. SEGEMENTAL INFORMATION - continued Contract works Manufacturing Elimination Consolidated RMB’000 RMB’000 RMB’000 RMB’000 Results Segment result 28,823 33,793 (290) 62,326 Unallocated corporate expenses (6,085) Profit from operations 56,241 Finance costs (6,675) Loss from investments (2,258) Profit before tax 47,308 Income tax expenses (9,384) Profit after tax 37,924 Other information for the year ended 31st December 2001 Contract works Manufacturing Unallocated Consolidated RMB’000 RMB’000 RMB’000 RMB’000 Additions of property, plant and equipment 1,735 4,103 - 5,838 Depreciation on property, plant and equipment 1,927 24,187 - 26,114 Amortisation on intangible assets 23 449 - 472 Balance sheet as at 31st December 2001 Contract works Manufacturing Unallocated Consolidated RMB’000 RMB’000 RMB’000 RMB’000 Assets Segment assets 365,691 619,953 395,750 1,381,394 Liabilities Segment liabilities 53,813 198,296 57,710 309,819 As the Group’s carrying out its activities principally in the PRC, no geographic segmental information is presented. 18 CHINA FANGDA GROUP COMPANY LIMITED 方大集团股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 7. OTHER OPERATING INCOME 2002 2001 RMB’000 RMB’000 Bank interest income 7,698 8,179 Other income 25,831 3,229 33,529 11,408 8. (LOSS) PROFIT FROM OPERATIONS (Loss) profit from operations has been arrived as after charging / (crediting) :- 2002 2001 RMB’000 RMB’000 Depreciation of property, plant and equipment 27,123 26,114 Impairment loss on property, plant and equipment 7,525 - Amortisation of intangible assets 918 472 Impairment loss on intangible assets 637 - Loss (profit) on disposal of property, plant and equipment 141 (345) Staff costs 62,468 50,293 Provision for bad debts 95,328 11,303 Provision for obsolete inventories 17,415 400 9. FINANCE COSTS 2002 2001 RMB’000 RMB’000 Interest on bank loans 11,511 9,781 Others interest 656 254 Less : Amounts included in the cost of qualifying assets - (3,360) 12,167 6,675 10. LOSS FROM INVESTMENTS 2002 2001 RMB’000 RMB’000 Provision for impairment loss of other investments 3,000 2,053 Amortisation of goodwill 230 205 Other (38) - 3,192 2,258 . 19 CHINA FANGDA GROUP COMPANY LIMITED 方大集团股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 11. INCOME TAX EXPENSE 2002 2001 RMB’000 RMB’000 PRC income tax - current year - 9,384 - under-provision for prior years 46 - 46 9,384 The basis tax rate applicable to the Group is 15%. According to the relevant tax policies of PRC Shenzhen Fangda Safety Technology Co, Ltd, Shenzhen Fangda Yide New Materials Co, Ltd and Jiangxi Fangda New Aluminium Co, Ltd were approved to entitle the preferential tax treatment, with full exemption from income tax for two years and 50% reduction in the next three years starting from the first profit-making year after offsetting forward from prior years their estimated assessable profit. The tax rate applicable to them is 7.5%. No PRC income tax has been provided as the Group did not have any assessable profits for the year. As the tax effect on temporary timing difference is insignificant, no deferred taxation is provided 12. DIVIDENDS 2002 2001 RMB’000 RMB’000 Dividends declared before balance sheet date - 35,568 Dividends declared after balance sheet date 20,748 29,640 The directors do not propose to declare any dividend of RMB0.07 per share for the year. 13. (LOSS) EARNING PER SHARE The calculation of (loss) earning per share is based on the Group’s (loss) earning attributable to shareholders of RMB172,398,000 (2001: Profit RMB3,541,800, as restated) and 296,400,000 shares (2001: 296,400,000 shares) in issue during the year. As the Group does not have diluting instrument in issue, no diluted earning per share information is presented . 20 CHINA FANGDA GROUP COMPANY LIMITED 方大集团股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 14. PROPERTY, PLANT AND EQUIPMENT Machinery and Leasehold land Buildings electronic equipment RMB’000 RMB’000 RMB’000 COST At 1st January 2002 80,074 182,644 141,107 Additions - 178 4,660 Transfer from construction in progress - 2,826 29,891 Disposals - - (192) At 31st December 2002 80,074 185,648 175,466 ACCUMULATED DEPRECIATION At 1st January 2002 6,321 30,213 46,675 Charge for the year 1,766 4,246 16,192 Recognised impairment loss - - - Eliminated on disposals - - (89) At 31st December 2002 8,087 34,459 62,778 CARRYING AMOUNT At 31st December 2002 71,987 151,189 112,688 At 31st December 2001 73,753 152,431 94,432 21 CHINA FANGDA GROUP COMPANY LIMITED 方大集团股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 15. CONSTRUCTION IN PROGRESS 2002 2001 RMB’000 RMB’000 COST At 1st January 113,085 82,572 Additions 60,388 83,559 Interest capitalized - 3,360 Transfer to property, plant and equipment (33,533) (56,406) At 31st December 2002 139,940 113,085 As at 31st December 2002, the construction in progress included capitalised interest of RMB3,360,000 (2001:RMB 3,360,000). 16. INTANGIBLE ASSETS RMB’000 COST At 1st January 2002 13,397 Additions 50 At 31st December 2002 13,447 AMORTISATION At 1st January 2002 2,208 Charge for the year 918 Recognised impairment loss 637 At 31st December 2002 3,763 CARRYING AMOUNT At 31st December 2002 9,684 At 31st December 2001 11,189 At 31st December 2002, intangible assets represent costs for acquisition of technical patents, know-how and trademarks. 22 CHINA FANGDA GROUP COMPANY LIMITED 方大集团股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 17. GOODWILL RMB’000 COST At 1st January 2002 2,051 Acquisition of additional interests in a subsidiary 500 At 31st December 2002 2,551 AMORTISATION At 1st January 2002 410 Charge for the year 230 At 31st December 2002 640 CARRYING AMOUNT At 31st December 2002 1,911 At 31st December 2001 1,641 Goodwill arising from acquisition of subsidiaries is to be amortised over its economic useful life which is estimated to be 10 years. 18. OTHER INVESTMENTS 2002 2001 RMB’000 RMB’000 NON-CURRENT INVESTMENTS Listed shares, at cost 6,270 6,270 Unlisted shares, at cost 9,557 8,240 15,827 14,510 Less: Provision for impairment loss (5,053) (2,053) 10,774 12,457 CURRENT INVESTMENTS Equity fund, at cost 400 - As the above investments do not have a quoted market price in an active market and for which other methods of reasonably estimating fair value are clearly inappropriate or unworkable, so they are stated at cost less impairment in value. 23 CHINA FANGDA GROUP COMPANY LIMITED 方大集团股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 19. INVENTORIES 2002 2001 RMB’000 RMB’000 (Restated) Finished goods - At cost 22,107 23,318 - At realisable value 9,523 2,309 31,630 25,627 Raw materials 27,722 23,571 Work in progress 60,746 38,604 120,098 87,802 20. TRADE RECEIVABLES 2002 2001 RMB’000 RMB’000 Due from customers for goods sold and contract works 462,307 364,881 Less : Provision for bad debts (99,887) (23,808) 362,420 341,073 21. OTHER FINANCIAL ASSETS The directors consider that the other receivables after deducting the estimated irrecoverable amount of RMB19,249,000 (2001: NIL) approximates their fair value. Bank balances and cash comprise cash held by the Group and bank deposits. The carrying amount of these assets approximates their fair value. The Group’s credit risk is primarily attributable to its trade receivables. The amounts presented in the balance sheet are net of allowances for doubtful receivables, estimated by the Group’s management based on prior experience and the current economic environment. 24 CHINA FANGDA GROUP COMPANY LIMITED 方大集团股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 21. OTHER FINANCIAL ASSETS - continued The Group has no significant concentration of credit risk, with exposure spread over a large number of enterprises and customers. 22. SHARE CAPITAL 2002 2001 No. of No. of shares shares ’000 RMB’000 ’000 RMB’000 Registered, issued and fully paid : Listed:- “A” shares of RMB 1 each 42,000 42,000 42,000 42,000 “B” shares of RMB 1 each 145,368 145,368 145,368 145,368 187,368 187,368 187,368 187,368 Unlisted:- Legal person shares of RMB 1 each 109,032 109,032 109,032 109,032 296,400 296,400 296,400 296,400 There were no movements in the share capital of the Company during the both years. 23. RESERVES Notes 2002 2001 RMB’000 RMB’000 (Restated) Capital surplus 388,542 388,542 Statutory reserve (a) 59,871 59,871 Public welfare fund (b) 32,022 32,022 Accumulated profits 69,628 271,666 550,063 752,101 According to the PRC companies law, the reserve available for distribution is the lower of the amount determined under PRC Accounting Regulations and the amount determined under IFRS. As at 31st December 2002, the reserve available for distribution was RMB46,805,000 (2001:RMB269,141,000) after taking into accounts of the current year’s proposed dividend of RMB20,748,000 (2001: RMB29,640,000). 25 CHINA FANGDA GROUP COMPANY LIMITED 方大集团股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 23. RESERVES - continued Notes: (a) Statutory reserve The Company is required under the laws and regulations of the PRC to transfer an amount of 10% of its profit for the year, determined under PRC accounting regulations for companies limited by shares, to the statutory reserve, until the balance of the statutory reserve is equal to 50% of the Company’s issued share capital. In accordance with the laws and regulations, the statutory reserves can be utilized as follows : (i) To make up losses of the Company; and (ii) To distribute to shareholders in the form of a bonus issue. Which is subject to approval in the general meeting. The balance of the statutory reserve after such distribution is not less than 25% of the issued share capital of the Company. (b) Public welfare fund According to the law and regulations of the PRC, the Company is required to transfer 5% of its profit after tax calculated under PRC accounting regulations for companies limited by shares to the public welfare fund. The public welfare fund can only be used for the collective benefits of the Group’s employees. 24. BANK LOANS 2002 2001 RMB’000 RMB’000 Bank loans 212,500 221,500 As at 31st December 2001, the Group has bank loans amounting to RMB212,500,000 (2001: RMB221,500,000), of which RMB50,000,000 (2001: Nil) was secured by the Group’s fixed bank deposits of RMB38,500,000, and RMB50,000,000 (2001: 200,000,000) was guaranteed by its former shareholder, Shenzhen Fangda Economy Development Co., Limited. 26 CHINA FANGDA GROUP COMPANY LIMITED 方大集团股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 24. BANK LOANS - continued 2002 2001 RMB’000 RMB’000 The borrowings are all denominated in RMB and repayable as follows : On demand or within one year 192,500 221,500 In the second year 20,000 - 212,500 221,500 Less: Amount due from settlement within one year (shown under current liabilities) 192,500 221,500 Amount due for settlement after one year 20,000 - At 31st December 2002, all the bank loans of the Group were arranged at fixed interest rates ranging from 4.54% to 5.85% (2001: 5.58% to 7.23%). The directors estimate that carrying value of the Group’s borrowings approximates to the fair value. 25. OTHER FINANCIAL LIABILITIES Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. The directors consider that their carrying amount approximates to their fair value. 26. CAPITAL COMMITMENTS 2002 2001 RMB’000 RMB’000 Capital expenditure contracted for but not provided in respect of :- Purchase of property, plant and equipment and construction in progress 38,217 50,000 27 CHINA FANGDA GROUP COMPANY LIMITED 方大集团股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 27. OPERATING LEASE COMMITMENTS At the balance sheet date, the Group had outstanding commitments under non-cancelable operating leases, which fall due as follows :- 2002 2001 RMB’000 RMB’000 Within one year 172 - In the second to fifth years inclusive 689 - 861 - Operating lease payments represent rentals payable by the Group for certain of its office properties. 28. CONTINGENT LIABILITIES 2002 2001 RMB’000 RMB’000 Negotiated bills 1,994 - 29. RETIREMENT BENEFIT PLANS 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 on 9%-17% of the standard salary set by the provincial government, of which 7%-12% is borne by the Group and the remainder is borne by the staff. The government agency is responsible for the pension liabilities relating to such staff on their retirement. The Group accounts for these contributions on an accrual basis. The total cost charged to income of RMB2,054,000 (2001:RMB1,997,000) represents contributions payable to these plans by the Group at rates specified in the rules of the plans. As at 31 December 2002, there was no outstanding contributions. 28 CHINA FANGDA GROUP CONPANY LIMITED 方大集团股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 30. CASH AND CASH EQUIVALENTS 2002 2001 RMB’000 RMB’000 Cash and bank balance 206,482 416,193 Less: Fixed deposit with maturity term over 3 months (85,661) - 174,821 416,193 31. ACCOUNTING TREATMENT The Group has prepared a separate set of accounts for the year ended 31st December 2002 in accordance with the PRC accounting standards. The major differences between the accounts prepared under the PRC Accounting Standards and those under IFRS are summarised as follows: Net loss for the year Net assets RMB’000 RMB’000 Under PRC accounting standards 173,382 823,640 Adjustments: Interest capitalised for construction in progress - 2,373 Written off of pre-operating expenses (3,585) - Amortisation of intangible assets (1,007) (298) Adjustment to investment income 3,608 - Dividend proposed after balance sheet date - 20,748 (984) 22,823 Under IFRS 172,398 846,463 29 CHINA FANGDA GROUP COMPANY LIMITED 方大集团股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 32. SUBSIDIARIES Details of the Company’s subsidiaries at 31st December 2002 are as follows :- Place of Percentage of incorporation equity interests Principal Name of subsidiary and operation held Activity Direct Indirect Fangda Focus Information Material Nanchang, 70 25 Design, manufacture, sale and Co., Limited PRC installation of photoelectric materials, parts and equipment. Fangda Guoke Photo Electricity Shenzhen, 77 23 Design, manufacture, sale and Technology Co., Limited PRC installation of photoelectric materials, parts and equipment. Fangda Technology USA.INC. United States 100 - Trading Jiangxi Fangda New Aluminium Nanchang, 99 1 Design, manufacture, sale and Co., Limited PRC installation of curtain walls, doors and windows Shenzhen Fangda Decoration Work Shenzhen, 95 5 Design and installation of building Co., Limited PRC materials Shenzhen Fangda Logistic Co., Shenzhen, 25 75 Transportation and storage Limited PRC Shenzhen Fangda Safety Shenzhen, 25 75 Design, manufacture and sale of Technology Co., Limited PRC security equipment and environmental protection equipment Shenzhen Fangda Special Structure Shenzhen, 51 49 Production of building materials Work Co., Limited PRC Shenzhen Fangda Yide New Shenzhen, 75 - Design, manufacture and sale of new Materials Co., Limited PRC materials Smart Winner Holdings Limited Hong Kong, 100 - Investment holding PRC 30