长虹美菱(000521)皖美菱Ｂ2002年年度报告（英文版）

Hefei Meiling Co., Ltd. 2002 Annual Report [Important] The Board of Directors of Hefei Meiling Co., Ltd. (hereinafter referred to as the Company) hereby confirms that there are no important omissions, fictitious statements or serious misleading information carried in this report, and shall take all responsibilities, individually and/or jointly, for the reality, accuracy and completeness of the whole contents. Independent Director Zhuo Wenyan did not attend the Meeting and entrusted Independent Director Wei Wei to attend the Meeting on behalf of her. Hua Zheng Certified Public Accountants and PricewaterhouseCoopers Certified Public Accountants produced standard unqualified auditor’s reports for the Company. Mr.Wang Jiazhang, the Legal Representative, Mr.Li Shijun, the General Manager and Mr. Kong Tansheng, the Chief Accountant hereby guarantee the reality and completeness of the financial report enclosed in this annual report. Section 1 Company Information 1. Legal Name of the Company In Chinese: 合肥美菱股份有限公司 In English: HEFEI MEILING CO.,LTD. Short Form in English: HFML 2. Legal Representative: Wang Jiazhang 3. Secretary of the Board and Securities Affairs Representative Secretary of the Board: Xue Hui Address: No.48, Wuhu Road, Hefei Tel: (0551)2869394 Fax: (0551)2883122 E-mail: wyxuehui@163.com Securities Affairs Representative: Qi Dunwei E-mail: secretary@meiling.com 4. Registered Address: No.48, Wuhu Road, Hefei Office Address: No.48, Wuhu Road, Hefei Post Code: 230001 Internet Web Site: http://www.meiling.com E-mail: info@meiling.com 5. Newspapers Designated for Disclosing the Information: Securities Times, China Securities Journal, Ta Kung Pao nternet Web Site for Publishing the Annual Report: http://www.cninfo.com.cn Place Where the Annual Report is Prepared and Placed: Secretariat of the Board on 2/F of the Office Building of the Company 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form: MEILINGDIANQI Stock Code: 000521 WANMEILING-B Stock Code: 200521 7. Date of First Registration: Dec.31, 1992 Registered with: Hefei Municipal Administration for Industry and Commerce Date of Registration Alteration: Oct.14, 2002 Registered with: Anhui Provincial Administration for Industry and Commerce Legal Person Business License No.: QGWZF Zi No. 001684 Taxation Registration No.: GSW Zi No.34010414918555X Domestic Certified Public Accountants Engaged: Hua Zheng Certified Public Accountants Office Address: 12/F, A Block, Investment Plaza, Finance Street, Xicheng District ,Beijing International Certified Public Accountants Engaged: PricewaterhouseCoopers Certified Public Accountants Office Address: 23/F, Sunning Plaza, Causeway Bay, Hong Kong Section 2 Financial and Business Highlights (I) Total profit and its composition (In RMB) Total profit 8,107,604.25 Net profit 8,107,604.25 Net profit, less the non-recurring gains and losses 6,426,304.50 Profit from principal businesses 274,298,902.08 Profit from other business lines -166,605.38 Operating profit 4,131,122.05 Investment income 338,333.45 Subsidy income 1,956,849.00 Net amount of non-operating income and expenses 1,681,299.75 Net cash flows arising from operating activities 64,391,468.34 Net increase of cash and cash equivalents 64,935,473.57 Items of non-recurring gains/losses: Net amount of non-operating income and expenses 1,681,299.75 Total: 1,681,299.75 II. The net profit was RMB thousand as audited according to the Chinese Accounting Standards and that was RMB thousand as audited by PricewaterhouseCoopers Certified Public Accountants according to the International Accounting Standards. The differences are stated as follows: In RMB’000 Net profit for the Net assets, ended year 2002 Dec.31, 2002 As stated under PRC GAAP 8,107 1,035,388 Adjustments to conform with IAS: --- 14,000 Provision for maintenance expenses Provision for devaluation of accounts 476 268,332 receivable Non-allotted depreciation of real estate, plant 2,561 5,042 and equipment Difference in accrued expenses 3,626 ---- Prior years’ adjustment of Chinese legal 1,573 ---- accounting statements of affiliated companies Donates not recognized ---- 892 Others 187 1,533 As stated under IAS 7,888 745,589 III. Financial Highlights In RMB Items 2002 2001 2000 Income from principal businesses 1,261,882,198.34 1,292,676,068.23 1,339,023,354.59 Net profit 8,107,604.25 -349,549,858.61 5,526,274.24 Total assets 2,300,035,010.32 2,257,483,622.77 2,526,682,141.54 Shareholders’ equity 1,035,388,019.73 1,027,960,658.86 1,377,510,517.47 Earnings per share (Weighted) 0.1960 -0.85 0.013 Earnings per share (Diluted) 0.1960 -0.85 0.013 Earnings per share (less 0.0155 -0.66 0.0127 non-recurring gains/losses) Net asset per share 2.5031 2.49 3.33 Net asset per share after the 1.658 2.36 3.33 adjustment Net cash flows per share arising 0.156 -0.06 0.14 from operating activities Net asset-income ratio % (Diluted) 0.78 -34.00 0.40 Net asset-income ratio % (Weighted) 0.79 -26.49 0.40 IV. Attachment to Statement of Profit Distribution: Net asset-income ratio(%) Earnings per share (In RMB) Profit as of the report period Weighted Weighted Fully Diluted Fully Diluted Average Average Profit from principal businesses 26.49 26.58 0.6631 0.6631 Operating profit 0.40 0.40 0.1000 0.1000 Net profit 0.78 0.79 0.1960 0.1960 Net profit after deducting 0.62 0.62 0.0155 0.0155 non-recurring gains and losses Total number of common shares at the end of 2002 and 2001 was 413,642,949 shares. Note: Calculation formula of major financial indexes: Earnings per share = net profit / total number of common shares at the year end Net assets per share = shareholders’ equity at the year end / total number of common shares at the year end Net assets–income ratio = net profit / shareholders’ equity at the year end 100% Net asset per share after adjustment = (shareholders’ equity at the year end – accounts receivable over three years – deferred expenses - long term deferred expenses) / total number of ordinary shares at the year end Net cash flow per share arising from operating activities = Net cash flow arising from operating activities / Total number of ordinary shares at end of the report period V. Changes in Shareholders’ Equity in the Report Period and Reasons In RMB/shares Capital Public Surplus Public Legal Public Undistributed Items Share Capital Total Reserve Reserve Welfare Fund Profit At period beginning 219246331.19 65643217.32 -243574144.31 1026387831.92 Increase in the report period --- 892,583.56 --- --- 8,107,604.25 9,000,187.81 Decrease in the report period --- --- --- --- --- --- At period end 413642949.00 572322062.28 219246331.19 65643217.32 -235466540.06 1035388019.73 Reason for Earnings in the --- Donation --- --- --- change report year Section 3 Changes in Share Capital & Particulars about Shareholders 1. Changes in Shares (Ended Dec.31, 2002, in shares) Increase/Decrease Of the Change +, - At Period ITEMS Shares Bonus Shares converted At Period End Beginning Others Subtotal placed shares from public reserve . Non-listed Circulating Shares 1. Promoters’ shares 126,982,650 126,982,650 Including: State-owned shares 123,396,375 123,396,375 Domestic legal person shares 3,586,275 3,586,275 Foreign legal person shares Others 2. Legal person shares placed 22,029,973 22,029,973 3. Employees’ shares 4. Preference shares or others Total Non-listed Circulating 149,012,623 149,012,623 Shares . Circulating Shares 1. RMB common shares listed 151,530,326 151,530,326 domestically 2. Foreign shares listed 113,100,000 113,100,000 domestically 3. Foreign shares listed abroad 4. Others Total Circulating Shares 264,630,326 264,630,326 . Total shares 413,642,949 413,642,949 Note: In the report period, there was no change in the share capital arising form distribution of bonus shares, converting capital reserve into shares or share allotment, etc. 2. Issuing and Listing In 1996, through approval by China Securities Regulatory Commission, the Company issued 100 million shares of domestically listed foreign capital shares (B-shares) at the price of RMB 3.30 per share, which were listed with Shenzhen Stock Exchange for trading on August 28, 1996. In June, 1997, the Company implemented the dividend distribution plan by distributing bonus shares at the rate of 3.5 shares for every 10 shares. As a result, the share capital increased by 82.3549 million shares, up to 380,226,255 shares. From July 29 to August 11, 1997, the Company conducted allotment for A-shares (at the rate of 2.22 shares for every 10 shares) at the price of RMB 4.80 per share. Totally 33.4167 million shares were placed and were listed on August 23, 1997. Up to then, the Company’s share capital increased to 413,642,949 shares. 3. Shareholders (1) Ended Dec. 31, 2002, the Company had totally 99,706 shareholders, including 17,490 shareholders of B-shares (2) Shares held by the top ten shareholders No. Shareholders Types of Shares Held at Proportion to Total Shares Year End Shares 1. Hefei Meiling Group Company A-shares 123,396,375 29.83% (State shareholder) 2. XIAO YANMEI B-shares 2,305,949 0.56% 3. Yongsheng Industrial Co., Ltd. B-shares 2,229,124 0.54% 4. Hefei Industrial and Commercial Bank A-shares 1,707,750 0.41% 5. Hefei Refrigerator Fittings Factory A-shares 1,707,750 0.41% 6. Hefei Agency of Anhui Agricultural Bank A-shares 1,536,975 0.37% 7. International Business Dept. of Anhui A-shares 1,536,975 0.37% Industrial and Commercial Bank 8. Anhui Province Technology Import & A-shares 1,536,975 0.37% Export Corporation 9. Hefei Construction Bank A-shares 1,536,975 0.37% 10. Anhui Guozhen Energy Co., Ltd. A-shares 1,536,975 0.37% Notes: (1) The shares held by Hefei Meiling (Group) Holdings Co., Ltd. are the promoter’s shares; the shares held by other shareholders are circulating B-shares or legal person A-shares. There existed no business relations among top ten shareholders, among shareholders of non-circulating shares, or between shareholders of non-circulating and circulating shares; they do not belong to the concerted actors as specified in the Measures for Controlling Information Disclosure of Alternation in the Shares Held by Shareholders in Listed Companies; as the Company has no idea on whether there exists any business relationship among the shareholders of circulating shares or they belong to the concerted actors as specified in the Measures for Controlling Information Disclosure of Alternation in the Shares Held by Shareholders in Listed Companies. (2) In the report period, the shareholder holding over 10% of the Company’s shares was Hefei Meiling (Group) Holdings Co., Ltd. that actually holds 29.83%. Those shares had not been pledge, frozen or placed under trusteeship in the report period. (3) About the Shareholder Holding over 10% of the Company’s Shares In the report period, the shareholder holding over 10% of the Company’s total shares was Hefei Meiling (Group) Holdings Co., Ltd. whose legal representative was Wang Jiazhang, registered address: No. 48, Wuhu Road, Hefei City, registered capital: RMB 300 million, principal businesses: washing machine, VCD, water heater, plastic products, packing products, copper products, hotel, transportation and property management, etc. It actually holds 29.83% of the Company’s total shares, which have not been pledged. (4) The Company’s controlling shareholder is a company solely owned by the state, subordinate to Hefei Municipal State Assets Management Committee. Therefore, the Company’s actual controller is Hefei Municipal State Assets Management Committee, which is an organization, entrusted by the government at the same level, unifiedly exercises the decision making and management, comprehensive management and supervision of state assets as the owner of state assets. Section 4 Directors, Supervisors, Senior Executives and Staff I. Shares Held by Directors, Supervisors and Senior Executives, their Office Term and Remuneration Names Gender Titles Age Shares held Shares held Office term at period at period beginning end Wang Jiazhang Male Chairman of the Board 52 13477 13477 May, 2002- May, 2005 Li Shijun Male Director, 48 0 0 Ditto General Manager Niu Xin Female Director 47 0 0 Ditto Wang Yingmin Male Deputy General Manger 44 0 0 Ditto Hu Zhengbing Male Deputy General Manger 34 0 0 Ditto Wei Wuzhou Male Deputy General Manger 32 0 0 Ditto Kong Tansheng Male Director, Chief Accountant 46 0 0 Ditto Wei Wei Male Independent Director 48 0 0 Ditto Zhuo Wenyan Male Independent Director 65 0 0 Ditto Ye Xiaosan Male Director 31 0 0 Ditto Xue Hui Male Secretary of the Board 40 0 0 Ditto Wang Jiyin Male Chairman of the Supervisory 55 0 0 Ditto Committee Chou Yi Female Supervisor 62 0 0 Ditto Weng Jialin Male Supervisor 48 0 0 Ditto Total 13477 13477 II. The Company’s directors and supervisors taking concurrent office in Hefei Meiling (Group) Holdings Co., Ltd. Names Titles in the Company Titles in Shareholder Office Term in Remarks Companies Shareholder Companies Wang Jiazhang Chairman of the Board Chairman of the Board Since July, 2002 Niu Xin Director Director, Since July, 2002 No pay from the Deputy General Manager Company. Chou Yi Supervisor Director Since July, 2002 III. Basis on Determining the Remuneration Basis on determining the remuneration to directors, supervisors and senior executives: The Company conducted democratic valuation and performance assessment on the work of directors, supervisors and senior executives according to the relevant policy of the labor authority and the assessment system of connection of the post based salary with performance result; the remuneration is decided and implemented on the basis of assessment result which has been examined and approved by the Board of Directors or the Shareholders’ General Meeting. As to the remuneration to independent directors, based on the discussion and decision of the 14th meeting of the 3rd Board of Directors, the Company pays the allowance to independent directors at the rate of RMB 20,000 per person per year. The total remuneration to the three directors enjoying highest salaries is RMB 325,000 and that to the three senior executives enjoying the highest salaries is RMB 287,000. The specific distribution is summarized as follows: Annual remuneration range of the directors, supervisors, senior executives (remuneration range and persons): 3 of them enjoying annual pay from RMB 30,000 to 50,000; 3 of them from RMB 50,000 to 70,000, 3 of them from RMB 70,000 to 100,000 and 2 of them enjoying from RMB 110,000 to 140,000. IV. Change in Directors, Supervisors and Senior Executives In the report period, approved by 2002 Shareholders’ General Meeting, Wang Jiazhang, Li Shijun, Niu Xin, Kong Tansheng, Ye Xiaosan, Wei Wei and Zhuo Wenyan were elected members of the 4th Board of Directors and Xue Hui was elected the Secretary of the Board of Directors. Nominated by General Manager, the Board of Directors decided through discussion to engage Hu Zhengbin, Wei Wuzhou and Wang Yingmin as Deputy General Manager and Kong Tansheng as Chief Accountant. In the report period, approved by 2002 Shareholders’ General Meeting, Wang Jiyin, Weng Jialin and Chou Yi were elected members of the 4th Supervisory Committee. V. Employees: the number, professional/occupational composition, education background and retirement The Company has 2,398 staff members, including 185 professionals holding medium and senior professional titles, 1,205 production workers, 460 salespersons, 140 administrative personnel. 595 of them hold college degrees or higher.The Company does not have to bear the expenses to retired staff and there are only 277 internally retired staff members. Professional Number Proportion Production personnel 1,205 50.25% Sales personnel 460 19.18% Administrative personnel 140 5.84% Technicians 78 3.25% Financial personnel 30 1.25% Section 5 Administrative Structure I. Company Administration In accordance with the Rules for Administration of Listed Companies promulgated by China Securities Regulatory Commission and the State Economic and Trade Commission in January, 2002, and the relevant rules and regulations, in the report period, the Company timely updated the Articles of Association, the Rules of Procedures for Shareholders General Meeting, the Rules of Procedures for the Board of Directors, the Rules of Procedures for the Supervisory Committee as well as other internal control systems, which were respectively reviewed and approved at 2002 Shareholders’ General Meeting. The Company has been unceasingly improving the Company’s legal person based administrative structure, and also perfected and standardized the procedures for decision making so that the production operation, investment decision making and supervision and management are carried out in a systematic, standard and scientific way so as to ensure the Company to develop in a steady and healthy way. 2. With a view to seriously implement the Circular of China Securities Regulatory Commission and the State Economic and Trade Commission on Conducting Inspection over the Establishment of Modern Enterprise System in Listed Companies, the Company organized the management in studying the document and established a working group and successfully completed a self-inspection report based on the practical situation of the Company. 3. The Company elected directors strictly according to the procedures on director election as specified in the Articles of Association and worked out standard Rules of Procedures for the Board of Directors. Directors implemented their own obligations and responsibilities in an honest and diligent way based on the maximum interest of the Company and the shareholders; meanwhile, they positively safeguarded the legal equity of other interest related parties. According to the Rules for Administration of Listed Companies, the Company has carefully chosen an independent director candidate and plans to submit the proposal to the Board of Directors and the Shareholders’ General Meeting for review and ensures the number of independent directors shall reach one third of the total directors before June 30, 2003. 4. The Company has worked out standard Rules of Procedures for Supervisory Committee. The members of the Supervisory Committee carry out the work strictly according to the law and regulations of the state and earnestly implement their duties. They have conducted effective supervision over the Company in operation and management, decision making procedures and financial status as well as the directors and senior executives in performance of their duties, and have safeguarded the interest of the Company and the whole shareholders. 5. The Company has truly, accurately, completely and timely disclosed the relevant information strictly according to the laws, regulations and the Articles of Association so that the whole shareholders may enjoy equal right to access to the information. Meanwhile, the Company has done a good job in receiving the visit from investors and reply to their call and letters and has enhanced the information communication between the Company and the investor. II. Performances of Independent Directors According to the relevant provisions of the Guiding Opinions on the Establishment of Independent Director System in Listed Companies promulgated by China Securities Regulatory Commission, with approval by the Shareholders’ General Meeting held on May 18, 2002, Mr. Wei Wei and Mr. Zhuo Wenyan were additionally elected independent directors of the 4th Board of Directors and the Company has also worked out the Independent Directory System. The independent directors earnestly implemented their duties. In operation decision making, the independent directors made independent and objective judgment without being affected by the Company and its principal shareholders. In the report period, the two independent directors respectively expressed independent professional and financial opinions on material related transactions and investments incurred to the Company and other proposals, and produced the written opinion of independent directors, safeguarded the Company’s overall interests, specially the minority shareholders’ legal rights and interests. III. Separation between the Company and its Controlling Shareholder in terms of Business, Personnel, Assets, Organization and Finance 1. Business: The Company is mainly engaged in development, production and sales of household appliances, such as refrigerators. Hefei Meiling (Group) Holdings Co., Ltd., the Company’s controlling shareholder, is mainly engaged in operation of the state capital within the authorization limit and there exists no business competition or engagement in the same business. 2. Personnel: The Company is absolutely independent from Hefei Meiling (Group) Holdings Co., Ltd., its controlling shareholder, in terms of labor, personnel and salary management; the Company has signed labor contract with all staff members, has independent social endowment insurance account; except that the legal representative of the Company and the controlling shareholder is the same person, the Company’s other senior executives, including General Manager, Deputy General Manager, Chief Financial Officer and the Secretary of the Board of Directors are working in full time for the Company and enjoys salaries from the Company. 3. Assets: There is distinct ownership difference between the Company and Hefei Meiling (Group) Holdings Co., Ltd., its controlling shareholder; the Company has independent production and operation site, complete production, supply and sales system and complementary facilities and the assets are complete and independent. 4. Organization: The Company’s Shareholders’ General Meeting, the Board of Directors and the Supervisory Committee work independently and the Company has established independent and complete organization structure: the departments and offices of production, supply, marketing, personnel, finance, etc. are independent from the controlling shareholder and there exists no joint office work with the controlling shareholder. 5. Finance: The Company has established independent financial departments which has engaged full time chief financial officer and accountants; established independent accounting system and financial management system. The accountants to the subsidiaries and branches are all assigned by the Company and their financial affairs are managed by the Company’s financial department in a centralized way. The Company has opened independent bank account, performs independent accounting and pays taxes independently. IV. Valuation and Encouragement Mechanism for Senior Executives All the Company senior executives are engaged by the Board of Directors. The Board of Directors works out annual operation objective and annual budge plan every year. On this basis, each senior executive has signed a written annual objective operation responsibility and then the Company rewards bonus to them according to the fulfillment of the annual objectives. V. According to the Rules for Administration of Listed Companies and through review and adoption at 2002 Shareholders’ General Meeting dated May 18, 2002, Mr. Wei Wei and Mr. Zhuo Wenyan were engaged as independent directors of the 4th Board of Directors, so that the professional structure of the Board of Directors becomes more rational and the decision making and management become more scientific. The Board of Directors has established its strategy committee and the salary and assessment committee. However, the auditing and nominating committees have not yet been established yet. The Company shall make progressive implementation and improvement according to the laws and regulations. Chapter 6 Shareholders’ General Meeting I. Notice for and Convening of Shareholders’ General Meeting In the report year, the Company held an annual shareholders’ general meeting and three extraordinary shareholders’ meetings. 1. The 24th meeting of the 3rd Board of Directors approved the proposal on holding 2001 Shareholders’ General Meeting. The public notice on holding the Shareholders’ General Meeting was published on China Securities Journal, Securities Times and Hong Kong Ta Kung Pao dated April 17, 2002. The meeting was held at 8:30 a.m., May 18, 2002 at the multi-purpose hall of Meiling Building. 12 shareholders or their representatives attended the meeting, representing a total of 136,158,438 shares, accounting for 32.92 of the Company’s total shares (413,642,949 shares) and no shareholder of B-shares attended the meeting. The meeting was held in compliance with PRC Company Law and the Articles of Association of the Company. The Company’s directors, supervisors and senior executives attended the meeting as nonvoting delegates. The Company also invited its law adviser for the meeting. The meeting was presided by Mr. Wang Jiazhang, Vice Chairman of the Board. 2. The 2nd meeting of the 4th Board of Directors approved the proposal on holding 2002 1st Extraordinary Shareholders’ Meeting. The public notice on holding the Shareholders’ General Meeting was published on China Securities Journal, Securities Times and Hong Kong Ta Kung Pao dated June 26, 2002. The meeting was held at 8:30 a.m., July 26, 2002 at the multi-purpose hall of Meiling Building. 7 shareholders or their representatives attended the meeting, representing a total of 130,666,565 shares, accounting for 31.59 of the Company’s total shares (413,642,949 shares) and no shareholder of B-shares attended the meeting. The meeting was held in compliance with PRC Company Law and the Articles of Association of the Company. The Company’s directors, supervisors and senior executives attended the meeting as nonvoting delegates. The Company also invited its law adviser for the meeting. The meeting was presided by Mr. Wang Jiazhang, Chairman of the Board. 3. The 4th meeting of the 4th Board of Directors approved the proposal on holding 2002 2nd Extraordinary Shareholders’ Meeting. The public notice on holding the meeting was published on China Securities Journal, Securities Times and Hong Kong Ta Kung Pao dated August 17, 2002. The meeting was held at 9:00 a.m., September 16, 2002 at 3rd floor meeting room of Meiling Building. 4 shareholders or their representatives attended the meeting, representing a total of 126,546,264 shares, accounting for 30.59 of the Company’s total shares (413,642,949 shares) and no shareholder of B-shares attended the meeting. The meeting was held in compliance with PRC Company Law and the Articles of Association of the Company. The Company’s directors, supervisors and senior executives attended the meeting as nonvoting delegates. The Company also invited its law adviser for the meeting. The meeting was presided by Mr. Wang Jiazhang, the Chairman of the Board. 4. The 7th meeting of the 4th Board of Directors approved the proposal on holding 2002 3rd Extraordinary Shareholders’ Meeting. The public notice on holding the meeting and the relevant information were published on China Securities Daily, Securities Times and Hong Kong Ta Kung Pao on November 16, 2002. The meeting was held at 9:00 a.m., December 26, 2002 on the 3rd floor meeting room of Meiling Building. 5 shareholders or their representatives attended the meeting, representing a total of 130,674,307 shares, accounting for 31.59 of the Company’s total shares (413,642,949 shares) and no shareholder of B-shares attended the meeting. The meeting was held in compliance with PRC Company Law and the Articles of Association of the Company. The Company’s directors, supervisors and senior executives attended the meeting as nonvoting delegates. The Company also invited its law adviser for the meeting. The meeting was presided by Mr. Wang Jiazhang, the Chairman of the Board. II. Resolutions of the Shareholders’ General Meeting and Publication: 1. 2001 Shareholders’ General Meeting adopted the following resolutions by item-to-item voting: (1) 2001 Work Report of the Board of Directors; (2) 2001 Work Report of the Supervisory Committee; (3) 2001 Profit Distribution Proposal; (4) Proposal for Election for the New Board of Directors; (5) Proposal for Election for the Supervisory Committee; (6) Proposal for the Revision of the Articles of Association of the Company; (7) Proposal for Revising the Rules of Procedures for Shareholders’ General Meeting; (8) Proposal for Revising the Rules of Procedures for the Board of Directors; (9) Proposal for Establishing the Independent Director System; (10) Proposal on Payment of Guarantee Fee to Hefei Meiling (Group) Holdings Co., Ltd.; (11) Proposal for Disposal of the Guarantee Loss; (12) Proposal on Payment of the Use Fee of the Trademark “Meiling” to Hefei Meiling (Group) Holdings Co., Ltd.; The resolutions of the meeting were published on China Securities Journal, Securities Times and Hong Kong Ta Kung Pao dated May 21, 2002. 2. 2002 1st Extraordinary Shareholders’ Meeting adopted the following resolutions by item-to-item voting: (1) Proposal for Purchasing the Proprietary Right of Trademark “Meiling” ; (2) Proposal on Payment of Purchasing the Land Use Right from Hefei Meiling (Group) Holdings Co., Ltd.; (3) Proposal on Rules of Procedures for the Special Committees of the Board of Directors; (4) Proposal on Renewing the Engagement of the Certified Public Accountants; (5) Proposal for Allowance Criteria to the Independent Directors; The resolutions of the meeting were published on China Securities Journal, Securities Times and Hong Kong Ta Kung Pao dated July 27, 2002. 3. 2002 2nd Extraordinary Shareholders’ Meeting adopted the Proposal on Investing Shenleng Refrigerator Project with Cooperation of Chinese Academy of Sciences. The resolution of the meeting was published on China Securities Journal, Securities Times and Hong Kong Ta Kung Pao dated September 17, 2002. 4. 2002 3rd Extraordinary Shareholders’ Meeting adopted the following resolutions by item-to-item voting: (1) Proposal on Accepting the House Property of the West Building of Meiling Building to be Transferred; (2) Proposal on Accepting the Housing, Attached Equipment and Land Use Right of Hefei Meiling Electronics Co., Ltd. to be Transferred; (3) Proposal on Accepting the Equity of Anhui Zhongke Daxunfei Information Technology Co., Ltd. to be Transferred; (4) Proposal on Accepting the Equity of Hefei Meiling Packing Products Co., Ltd. The resolutions of the Shareholders’ General Meeting were published on China Securities Journal, Securities Times and Hong Kong Ta Kung Pao dated December 27, 2002. III. Election and replacement of the Company’s directors and supervisors In the report period, approved by 2001 Shareholders’ General Meeting, Wang Jiazhang, Li Shijun, Niu Xin, Kong Tansheng, Ye Xiaosan, Wei Wei and Zhuo Wenyan were elected directors of the 4th Board of Directors. Wang Jiyin, Weng Jialin and Chou Yi were elected supervisors of the 4th Supervisory Committee. Section 7 Report of the Board of Directors I. Management Discussion & Analysis In 2002, the refrigerator industry had very severe competition, the contradiction of supply greater than demand was intensified, the price continued to be decreased, and there was obvious change different from the past for the external environment; meanwhile, the foreign household appliance brands and some domestic household appliance brands sped up the entrance into the refrigerator market, the uncontrollable factors were increased, and the enterprise’s operation difficulty was enhanced, but the Company’s Board of Director has been stuck to the business philosophy of “consumer first, investor first and profit first”, deepening the innovation and having made great development in the domestic and foreign market. 1. Speed up the technical renovation, with technical innovation as the motive force, made continuous pertinent research and development of new products, and comprehensively shaped the image of specialized and multiple products. 2. Continue to integrate the marketing resource. The Company has determined a major marketing development strategy of creating multiple sales platforms with multiple household appliance products, such as refrigerators, washing machines, electric freezers, air conditioners and small household appliances, laying solid foundation for further market operation. 3. The Company insisted on the development strategy of expanding the export orientation, continuously developed the customers of special refrigerators, and meanwhile the Company utilized comparative competition advantage, carried out the brand operation in the international market, expanded the brand popularity, and explored the overseas market comprehensively. 4. Further strengthen the budget management, exploit the potential and reduce the cost, reduce the product cost, improve the product cost competitiveness, and extend the profit-making space. On the one hand, the Company strengthened the scientific distribution of various expenses; on the other hand, it carried out the internal marketing management, coordinating the sub-target inside the system to the overall profit of the Company, and meanwhile strengthening the Company’s internal operation process and result auditing. The above measures enabled the Company to make good business achievement under the intense competition environment. In 2002, the Company sold 1,053,800 refrigerators (freezers), 2.5% increase than the same period in the previous year, sold 128,000 washing machines, 240.070% increase than the same period in the previous year, and the air-conditioner sales have also made certain achievement for the sales at home and abroad. II. Scope of Principal Businesses and Their Operation Status 1. Scope of principal businesses The Company belongs to the household appliance industry, mainly engaged in the research, manufacturing and sales of the refrigerators, and the scope of principal businesses includes the manufacturing, sales and service of various household refrigerators and auxiliary parts, and the sales and service of other household appliance products. 2. Operation based on Products in 2002 Products Washing Air Refrigerator Indexes machine conditioner Income from 1,161,820,160.43 72,695,759.72 13,114,031.69 principal businesses Cost of principal 891,032,953.38 66,604,678.22 12,116,179.04 businesses 3. Operation based on regions in 2002 Regions Domestic Overseas Indexes Income from 1,099,781,667.39 162,100,530.95 principal businesses Profit from 238,267,474.87 36,031,427.21 principal businesses 4. Operation and Performances of the Principal Controlled and Shareholding Subsidiaries: Income from Business Scope Registered Total assets principal Net profit Capital businesses Names Anhong Plastics ABS sheet materials USD 1 mil. RMB 13.99 mil. RMB 10.42 mil. -RMB 0.37 mil. Co., Ltd. Hefei Meiling Production and marketing USD 3.067 RMB 100.08 RMB 66.09 mil. RMB 6.77 mil. Packing Co., of corrugated paper mil. mil. Ltd. 5. The total purchase amount of the Company from top five suppliers was RMB233,870,000, accounting for 23.19% of the Company’s total purchase amount in the year; the total sales amount of the Company to top five customers was RMB134,294,000, accounting for 10.64% of the Company’s total sales amount. 6. Problems and difficulties in the operation and their solutions In 2002, the household appliance enterprises faced more competitive market environment, the product price is decreasing continuously, but the price of such raw materials as steel plate and chemical product was increasing. The distribution network change of the household appliance market and sales method change have brought great pressure for the internal strain capacity of the enterprise; the internal production capacity can’t meet the fluctuation amplitude of the market demand. While the whole household appliance industry is in the slow development difficult period, under the background of great changes of external environment, the Company has sped up the technical innovation, fully carried out the process of special and multiple products, continued to integrate the marketing resource, preliminarily set up the multiple sales platform, insisted on the export development strategy, comprehensively explored the international market, further strengthened the budge management, reduced the operation cost, and controlled the operation risk, having made certain operation achievement. III. Investment of the Company in the Report Period 1. Use of Company’s raised fund in the report period: In the report period, there was no share allocation, or the use of fund raised through share allocation extended to this period. 2. Investment of non-raised fund in the report period: On Aug. 14, 2002, the Company signed a joint venture establishment agreement with the Physics & Chemistry Technology Research Institute of Chinese Academy of Sciences in Hefei. Based on this agreement, the Company contributed the production equipment of RMB35,573,700 and cash of RMB6,426,300, totaling RMB42 million, and the Physics & Chemistry Technology Research Institute of Chinese Academy of Sciences contributed its own technology valued RMB18 million, jointly establishing Zhongke Meiling Cryogenic Technology Limited Liability Co. in Hefei. IV. Analysis to Financial Status and Operation Results in the Report Period In RMB ’000 1. Operation results and cash flows involved Indexes Increase/Dec 2002 2001 rease (%) Income from principal businesses 126,188.2 129,267.6 -2.38 Profit from principal businesses 274,298.9 185,631.4 47.76 Operating expenses 186,132.6 236,131.0 -21.17 Administrative expenses 49,150.6 185,363.3 -73.48 Financial expenses 34,718.0 33,469.9 3.74 Investment income 338.3 1,382.1 -76.09 Net profit 8,107.6 -349,549.8 102.32 Net increase of cash and cash equivalents 64,935.5 -40,646.6 259.77 Reasons of variation: (1) The increase of principal business profit is mainly because the Company made product structure adjustment and enhanced the production and sales of high value-added product. (2) The reduction of the business expense is mainly because of the decrease of the Company’s transportation expense and advertisement expense. (3) The decrease of the overhead expense is mainly because compared with the same period in the previous year, the withholding bad debt preparation was decreased. (4) The decrease of the investment return is mainly because of the decrease of the profit distributed from the associated or jointly operated companies and the adjustment of net increase or decrease of the owner’s equity of the invested companies. (5) The increase of the net profit is mainly because the Company strengthened the cost and expense control. (6) The increase of net increase of cash and cash equivalent is mainly because of the increase of cash withdrawal from circulation in the sales. 2. Analysis to Financial Status Indexes Increase/De 2002 2001 crease % Accounts receivable 428,431.3 486,624.1 -11.96 Other receivables 395,272.3 644,699.8 -38.69 Notes receivable 99,107.0 66,263.1 49.56 Total assets 2,300,003.5 2,257,483.6 1.88 Shareholders’ equity 1,035,388.0 1,027,960.7 0.72 Reasons of variation: (1) Decrease of other accounts receivable, mainly the Company bought the Group trademark and land to offset the debt. (2) Increase of notes receivable and increase of main notes settlement. V. Influence of Great Changes of Production Operation Environment and Macroscopic Policies and Regulations on the Company 1. As per requirement of “Obligatory product certification management regulation”, starting from May 1, 2003, the products in the “Product catalogue for obligatory product certification” produced or imported by domestic enterprises must get the obligatory product certificate and use the new certification mark (CCC). The Company’s product has completed the certification work of new certification mark (CCC) as per stipulated requirement. 2. The Chinese market will implement the product energy efficiency marking since July 1, 2003 so that the consumer can get visualized energy consumption information and estimate the daily consumption expense when purchasing the product. This may affect the sales for the product with low energy conservation level. VI. Reports Produced by Certified Public Accountants Hua Zheng Certified Public Accountants and PricewaterhouseCoopers Certified Public Accountants respectively produced standard unqualified auditor’s report for the Company. VII. Business Development Plan in the New Year Based on the development plan, mainly create the new “specialized” product brand in the manufacturing industry, and plan to enlarge the production capacity to adapt to the consumption needs of multiple varieties of the market and rapid change of individual demand; utilize the shared resource, comprehensively set up the multiple sales platform, make further adjustment and integration on the market; speed up the internationalization trend, take the opportunity of China’s WTO entry, actively expand the export, look for the appropriate business opportunities, utilize the comparative advantage resources, set up the plant abroad, and improve the enterprise’s export orientation ability; adopt effective measures to reduce the cost from various aspects. Exploit the source and save the expense, improve the product cost competitiveness and profit margin; utilize the information management measure to improve the management level of the enterprise. VIII. Routine Work of the Board of Directors 1. Board meetings and resolutions in the report year In 2002, the Board of Directors earnestly implemented its duties, actively but cautiously exercised its powers. The Board of Directors held 13 board meetings, listened to the report on the progress of the concerned work and made resolutions on significant events: (1) The 21st meeting of the 3rd Board of Directors was held on the morning of February 5, 2002. 7 directors were expected to attend the meeting and 6 of them were actually present. The meeting was held in compliance with the relevant provisions of the PRC Company Law and Articles of Association of the Company. The following resolutions were formed after careful discussion of the directors present at the meeting: Proposal on Independent Director System and Allowances to Independent Directors, The Company’s Internal Information Disclosure System, Proposal on Amendment of the Articles of Association, Agreement on Use of the Trademark “Meiling”. The resolutions of the meeting were published on China Securities Journal, Securities Times and Hong Kong Ta Kung Pao dated February 8, 2002. (2) The 22nd meeting of the 3rd Board of Directors was held on the morning of April 2, 2002. 7 directors were expected to attend the meeting and 5 of them were actually present. The meeting was held in compliance with the relevant provisions of the PRC Company Law and Articles of Association of the Company. The following resolutions were formed after careful discussion of the directors present at the meeting: Proposal on Disposal of the Guarantees of Wanyan Co. and the Overseas Chinese Co. and Agreement on Guarantees for Bank Loans, Acceptance Drafts and Payment of Guarantee Fees in 2001. The resolutions of the meeting were published on China Securities Journal, Securities Times and Hong Kong Ta Kung Pao dated April 4, 2002. (3) The 23rd meeting of the 3rd Board of Directors was held on the morning of April 8, 2002. 7 directors were expected to attend the meeting and 6 of them were actually present. The meeting was held in compliance with the relevant provisions of the PRC Company Law and Articles of Association of the Company. the following resolutions were formed after careful discussion of the directors present at the meeting: Proposal on Writing Off Partial Accounts Receivable, Proposal on Writing Off Partial Unrecoverable Accounts Receivable, Proposal on Adding and Improving the Methods of Providing Reserve for Devaluation of the Accounts Receivable, Proposal on Accounting Disposal of the Rejected Goods, and Proposal on Listing the Standard Cost Accounting into the Financial Book System. (4) The 24th meeting of the 3rd Board of Directors was held on the morning of April 15, 2002. 7 directors were expected to attend the meeting and 6 of them were actually present. The meeting was held in compliance with the relevant provisions of the PRC Company Law and Articles of Association of the Company. The meeting was presided by Mr. Zhang Jusheng, Chairman of the Board. The supervisors and senior executives attended the meeting as non-voting delegates. The following resolutions were formed after careful discussion of the directors present at the meeting: 2001 Annual Report and the Summary, 2001 Work Report of the Board of Directors, 2001 Business and Work Report of the General Manager, 2001 Profit Distribution Proposal and 2002 Profit Distribution Policy, Proposal on Electing Directors for the New Board of Directors, Proposal for Establishing the Independent Director System, Proposal on Amendment of the Articles of Association, Proposal for the Rules of Procedures for Shareholders’ General Meeting, Proposal for Revising the Rules of Procedures for the Board of Directors, Proposal on Paying Remuneration to Certified Public Accountants in 2001, Proposal on Renewing Engagement of Certified Public Accountants, Proposal on Accepting Partial Land from Hefei Meiling (Group) Holdings Co., Ltd. to be Transferred, Proposal on Accepting the Trademark “Meiling” from Hefei Meiling (Group) Holdings Co., Ltd. to be Transferred. The resolutions of the meeting were published on China Securities Journal, Securities Times and Hong Kong Ta Kung Pao dated April 17, 2002. (5) The 25th meeting of the 3rd Board of Directors was held on the morning of April 28, 2002. 7 directors were expected to attend the meeting and 5 of them were actually present. The meeting was held in compliance with the relevant provisions of the PRC Company Law and Articles of Association of the Company. The meeting was presided by Mr. Wang Jiazhang, Vice Chairman of the Board. The supervisors and senior executives attended the meeting as non-voting delegates. The following resolutions were formed after careful discussion of the directors present at the meeting: 2002 1st Quarterly Report, Proposal on Accepting Partial Land from Hefei Meiling (Group) Holdings Co., Ltd. to be Transferred, Proposal on Accepting the Trademark “Meiling” from Hefei Meiling (Group) Holdings Co., Ltd. to be Transferred. The resolutions of the meeting were published on China Securities Journal, Securities Times and Hong Kong Ta Kung Pao dated April 30, 2002. (6) The 1st meeting of the 4th Board of Directors was held on the morning of May 18, 2002. 7 directors were expected to attend the meeting and all of them were actually present. The meeting was held in compliance with the relevant provisions of the PRC Company Law and Articles of Association of the Company. The meeting formed the following resolutions: Mr. Wang Jiazhang was elected Chairman of the 4th Board of Directors; Mr. Li Shijun was engaged as General Manager of the Company; Nominated by General Manager Li Shijun, Wang Yingmin, Wei Wuzhou and Hu Zhengbing were engaged as chief supervisor of the technical department, manufacture department and marketing department of the Company and Mr. Kong Tansheng was engaged as the chief supervisor of the financial department; Mr. Xue Hui was engaged as the Secretary of the Board. The resolutions of the meeting were published on China Securities Journal, Securities Times and Hong Kong Ta Kung Pao dated May 21, 2002. (7) The 2nd meeting of the 4th Board of Directors was held on the morning of June 24, 2002. 7 directors were expected to attend the meeting and 5 of them were actually present. The meeting was held in compliance with the relevant provisions of the PRC Company Law and Articles of Association of the Company. The meeting was presided by Mr. Wang Jiazhang, Chairman of the Board. The supervisors and senior executives attended the meeting as non-voting delegates. The following resolutions were formed after careful discussion of the directors present at the meeting: Self-inspection Report on Establishment of Modern Enterprise System, Rules of Procedures for the Special Committees of the Board of Directors, Proposal on Implementing the Encouragement and Binding Mechanism for Sales Persons, and Proposal for Holding 2002 1st Extraordinary Shareholders’ Meeting. The resolutions of the meeting were published on China Securities Journal, Securities Times and Hong Kong Ta Kung Pao dated June 25, 2002. (8) The 3rd meeting of the 4th Board of Directors was held on the morning of July 6, 2002. 7 directors were expected to attend the meeting and 6 of them were actually present. The meeting was held in compliance with the relevant provisions of the PRC Company Law and Articles of Association of the Company. The meeting was presided by Mr. Wang Jiazhang, Chairman of the Board. The supervisors and senior executives attended the meeting as non-voting delegates. The following resolutions were formed after careful discussion of the directors present at the meeting: Proposal on Investing Low Temperature Refrigerator Project with Cooperation of Chinese Academy of Sciences. (9) The 4th meeting of the 4th Board of Directors was held on the morning of August 14, 2002. 7 directors were expected to attend the meeting and 6 of them were actually present. The meeting was held in compliance with the relevant provisions of the PRC Company Law and Articles of Association of the Company. The meeting was presided by Mr. Wang Jiazhang, Chairman of the Board. The following resolutions were formed after careful discussion of the directors present at the meeting: 2002 Semi-annual Report and the Summary, Proposal on Investing Low Temperature Refrigerator Project with Cooperation of Chinese Academy of Sciences, and Proposal for Holding 2002 2nd Extraordinary Shareholders’ Meeting. The resolutions of the meeting were published on China Securities Journal, Securities Times and Hong Kong Ta Kung Pao dated August 17, 2002. (10) The 5th meeting of the 4th Board of Directors was held on the morning of September 28, 2002. 7 directors were expected to attend the meeting and 7 of them were actually present. The meeting was held in compliance with the relevant provisions of the PRC Company Law and Articles of Association of the Company. The meeting was presided by Mr. Wang Jiazhang, Chairman of the Board. The directors present at the meeting studied the document issued by CSRC Hefei Commissioner Office, and reviewed and adopted: About the Correction and Improvement Measures according to the Official Letter of CSRC Hefei Commissioner Office. (11) The 6th meeting of the 4th Board of Directors was held on the morning of October 24, 2002. 7 directors were expected to attend the meeting and 5 of them were actually present. The meeting was held in compliance with the relevant provisions of the PRC Company Law and Articles of Association of the Company. The meeting was presided by Mr. Wang Jiazhang, Chairman of the Board. After careful discussion of the directors present at the meeting, the meeting reviewed and adopted: 2002 3rd Quarterly Report. The resolutions of the meeting were published on China Securities Journal, Securities Times and Hong Kong Ta Kung Pao dated October 25, 2002. (12) The 7th meeting of the 4th Board of Directors was held on the morning of November 15, 2002. 7 directors were expected to attend the meeting and 6 of them were actually present. The meeting was held in compliance with the relevant provisions of the PRC Company Law and Articles of Association of the Company. The meeting was presided by Mr. Wang Jiazhang, Chairman of the Board. After careful discussion of the directors present at the meeting, the meeting reviewed and adopted: Proposal on Accepting the House Property of the West Building of Meiling Building to be Transferred, Proposal on Accepting the Housing, Attached Equipment and Land Use Right of Hefei Meiling Electronics Co., Ltd. to be Transferred; Proposal on Accepting 8.57 Equity of Anhui Zhongke Daxunfei Information Technology Co., Ltd. to be Transferred, and Proposal on Accepting 48.28 Equity of Hefei Meiling Packing Products Co., Ltd. held by Hefei Cardboard Cases Plant. The resolutions of the meeting were published on China Securities Journal, Securities Times and Hong Kong Ta Kung Pao dated November 19, 2002. (13) The 4th meeting of the 4th Board of Directors was held on the morning of December 26, 2002. 7 directors were expected to attend the meeting and 6 of them were actually present. The meeting was held in compliance with the relevant provisions of the PRC Company Law and Articles of Association of the Company. The meeting was presided by Mr. Wang Jiazhang, Chairman of the Board. The following resolutions were formed after careful discussion of the directors present at the meeting: Operation Result of 2002, Outline of the Operation Plan in 2003, Operation Responsibility Letter in 2003, and Proposal on the Proportion of Provision for Bad Debts of Other Receivables. 2. Implementation of the Resolutions of the Shareholders’ General Meeting by the Board of Directors In the report year, the Company held an annual shareholders’ general meeting and three extraordinary shareholders’ meetings. The Board of Directors implemented the duties strictly according to the Articles of Association and the relevant regulations, earnestly implemented various resolutions of the Shareholders’ General Meeting. (1) The Board of Directors successfully fulfilled the transactions of purchased of the proprietary right of Meiling Trademark and the Land Use Right from Hefei Meiling (Group) Holdings Co., Ltd. (2) According to the resolutions adopted by 2002 2nd Extraordinary Shareholders’ Meeting, the Board further implemented Shenleng Refrigerator Project with cooperation of Chinese Academy of Sciences and the products have been successfully launched in the market. (3) According to resolutions adopted at 2002 3rd Extraordinary Shareholders’ Meeting, the Board of Directors successfully completed the purchase of the house property of the west building of Meiling Building, the building, attached equipment and land use right from Hefei Meiling Electronics Co., Ld., partial equity of Anhui Zhongke Daxunfei Information Technology Co., Ltd. and partial equity of Heifei Meiling Packing Products Co., Ltd., etc. IX. The Profit Distribution Proposal and the Predicted 2002 Profit Distribution Policy 1. Profit Distribution Proposal As the Company made deficits in 2001 and the profit earned in 2002 shall be used for making up the deficits of the previous years. Therefore, the Company shall neither conduct profit distribution nor convert public reserve into share capital; the profit distribution plan shall be implemented after the deficits have been made up. This proposal shall be submitted to 2002 Shareholders’ General Meeting for Review after examined and approved by the Board of Directors. 2. Expected 2003 Profit Distribution Policy The profit to be earned in 2003 shall be used for making up deficits first; and profit distribution shall be made after the deficits have been made up. X. Other matters to be reported The newspapers chosen by the Company for disclosing the information in 2002 are Securities Times, China Securities Journal and Ta Kung Pao. Section 8 Report of the Supervisory Committee In the report period, the Supervisory Committee earnestly implemented powers and obligations of supervisors according to the PRC Company Law, the Articles of Association of the Company and relevant laws and regulations and in compliance with the Rules of Procedures for the Supervisory Committee, fully exercised the supervision over the Board of Directors and its members and the senior executives, and plaid a good role in the standardized operation and sustainable development of the Company. I. Meetings In the report period, members of the Supervisory Committee not only attended 2001 Shareholders’ General Meeting and all the board meetings as non-voting delegates, but also held four meetings which are summarized as follows: 1. The 7th meeting of the 3rd Supervisory Committee was held on the morning of April 15, 2002. 3 supervisors were expected to attend the meeting and all of them were actually present. The meeting was held in compliance with the relevant provisions of the PRC Company Law and Articles of Association of the Company. The following resolutions were adopted after careful discussion of the supervisors present at the meeting: 2000 Annual Report and the Summary, 2000 Work Report of the Supervisory Committee. 2. The 1st meeting of the 4th Supervisory Committee was held on the morning of May 18, 2002. 3 supervisors were expected to attend the meeting and all of them were actually present. The meeting was held in compliance with the relevant provisions of the PRC Company Law and Articles of Association of the Company. Through careful discussion of the supervisors present at the meeting, Mr. Wang Jiyin was elected Chairman of the 4th Supervisory Committee. 3. The 2nd meeting of the 4th Supervisory Committee was held on the morning of August 14, 2002. 3 supervisors were expected to attend the meeting and all of them were actually present. The meeting was held in compliance with the relevant provisions of the PRC Company Law and Articles of Association of the Company. The following resolutions were adopted after careful discussion of the supervisors present at the meeting: 2002 Semi-annual Report, Proposal on Investing Low Temperature Refrigerator Project with Cooperation of Chinese Academy of Sciences, and Proposal for Holding 2002 2nd Extraordinary Shareholders’ Meeting. 4. The 3rd meeting of the 4th Supervisory Committee was held on the morning of November 12, 2002. 3 supervisors were expected to attend the meeting and all of them were actually present. The meeting was held in compliance with the relevant provisions of the PRC Company Law and Articles of Association of the Company. The following resolutions were adopted after careful discussion of the supervisors present at the meeting: Proposal on Accepting the House Property of the West Building of Meiling Building to be Transferred, Proposal on Accepting the Housing, Attached Equipment and Land Use Right of Hefei Meiling Electronics Co., Ltd. to be Transferred; Proposal on Accepting 8.57 Equity of Anhui Zhongke Daxunfei Information Technology Co., Ltd. to be Transferred, and Proposal on Accepting 48.28 Equity of Hefei Meiling Packing Products Co., Ltd. held by Hefei Cardboard Cases Plant. II. Independent Opinion on the Relevant Events in 2002 1. Operation According to the Law In the report period, the Board of Directors conducted operation in a standardized way and seriously implemented various resolutions and authorizations of the Shareholders’ General Meeting strictly according to the PRC Company Law, the PRC Securities Law and the Articles of Association, and other laws and regulations. The decision making procedures were scientific and rational. Directors and senior executives observed discipline and obeyed the law, performed their duties with due diligence and faithfully. As a result, the Company developed in quick paces in various businesses. They performed no action against the law, regulations and the Articles of Association or never did anything harmful to the interests of the Company. 2. Financial Inspection In the report period, the Supervisory Committee conducted earnest and careful inspection over the Company’s financial position. In the opinion of the Supervisory Committee, the Company maintained good financial position, operated the funds with high efficiency, conducted standardized financial management and kept healthy internal system. Hua Zheng Certified Public Accountants and PricewaterhouseCoopers Certified Public Accountants respectively produced standard unqualified auditor’s report for the Company’s financial report of the year 2002, which truly, accurately and completely reflected the Company’s financial position and operation result. 3. Assets acquisition and sales activities and related transactions Based on the inspection, the Supervisory Committee holds that the related transactions in connection with assets acquisition in the report period were carried out based on the principle of fairness, for which the assets appraisal agency with qualification for securities sector produced written independent opinion, expressing that no insider transaction was involved in the related transactions and aroused no harm to the interest of any shareholder or loss of the Company’s assets. Section 9 Significant Issues I. The Company had not been involved in any material lawsuit or arbitration in the report period. II. Assets Sales and Acquisition 1. In order to further promote the self-health, rectify the “Meiling” trademark ownership relationship, and maintain the completeness and independence of the relevant assets, the Company’s Board of Directors and the Board of Directors of Hefei Meiling (Group) Holdings Co., Ltd. signed the “Trademark transfer agreement” on April 29, 2002 regarding the transfer of “Meiling” trademark right for refrigerators, electric freezers and commodities listed in the relevant trademark registration certificates. Based on the agreement, the Company spent RMB130 million acquiring the “Meiling” trademark right for refrigerators, electric freezers and commodities listed in the relevant trademark registration certificates. 2. To recover the Company’s fund occupied by the Group Co. as soon as possible and rectify the assets relationship between the two, the Company and Hefei Meiling (Group) Holdings Co., Ltd. signed the “Land usage right transfer agreement” on April 29, 2002. Based on this agreement, the Company acquired the land usage right for 2 Wuhu Road, 33 Wuhu Road and Longgang Development Zone at RMB23,456,800, RMB63,147,500 and RMB36,407,000 respectively. 3. On Nov. 15, 2002, the Company signed “Agreement on usage right transfer of some houses, house ancillary equipment and land”, “Agreement on estate transfer of western block of Hefei Meiling Building” and “Agreement on equity transfer of Anhui Xunfei Information Technology Co., Ltd. of China Technology University” with Hefei Meiling Electronic Limited Liability Co., Hefei Meiling Building and Hefei Meiling (Group) Holdings Co., Ltd. respectively. Based on the agreements signed, the Company spent RMB28,364,600, RMB6,195,000 and RMB18,960,000 respectively acquiring the usage right of the house, house ancillary equipment and land of Hefei Meiling Electronic Co., western block of Meiling Building and 8.57% equity of Xunfei Co. held by Hefei Meiling Group. 4. On Nov. 15, 2002, the Company signed “Agreement on equity transfer of Hefei Meiling Packaging Product Co., Ltd.” with Hefei Paper Carton Plant. The Company spent RMB25,055,600 acquiring 48.28% equity of Hefei Meiling Packaging Product Co., Ltd. held by Hefei Paper Carton Plant. III. All the other associated transactions of the Company in the report period are normal associated transactions. Please refer to Annex of Financial Statement for details. IV. During the report period, the Company didn’t entrust, contract or lease the assets of other companies, and no other companies entrusted, contracted or leased the Company’s assets. In the report period, the Company didn’t entrust others to carry out cash assets management. V. Fulfillment of the Company or shareholders with above 5% shares on the open disclosed commitment As of December 31, 2002, the debt of Hefei Meiling (Group) Holdings Co., Ltd. was RMB101,105,322.12. The reason of debt is mainly because the Group Co. acquired the Company’s assets of the air-conditioner plant, equity of the Washing Machine Company and relevant fund occupation fee it undertook. The Company’s 19th Meeting of the 3rd Board of Directors reviewed and passed the plan to resolve the debt of the Group Co., i.e. for the total debt of RMB367,813,045.81 as of June 30, 2001, 8% will be withdrawn in 2001; 20% in 2002; 30% in 2003, 30% in 2004 and 12% in 2005. In 2002, the Company acquired some land usage right and exclusive use right of “Meiling” trademark from Hefei Meiling (Group) Holdings Co., Ltd., with a total amount of RMB253,011,300.00. This amount is used to offset the debt receivable from Hefei Meiling (Group) Holdings Co., Ltd., so the debt withdrawal plan stipulated at that time was completed above the quota. VI. Engagement, Change of the Engagement or Disengagement of Certified Public Accountants In the report period, the Company engaged Hua Zheng Certified Public Accountants and PricewaterhouseCoopers Certified Public Accountants as the Company’s domestic and international auditors respectively, paid HK$ 810,000 to the international auditor and RMB 400,000 to the domestic auditor. PricewaterhouseCoopers Certified Public Accountants and Hua Zheng Certified Public Accountants had offered auditing services to the Company for seven and two years respectively. VII. Events Condemned in Public by Shenzhen Stock Exchange As the Company had offered loan guarantees for Anhui Wanyan Electronics Co., Ltd. and Hefei Overseas Chinese Economic Development Co., the Company had to take related responsibility for repayment according to the case judgment. However, the Company had failed to timely disclose the details of the event and even stated that the Company did not have to assume the above loss; afterwards however, the Company made a resolution on assuming the aforesaid loss. This event has brought about big loss to the Company. Secondly, although the Company and its controlling shareholder entered into an agreement for sharing the advertising expenses, yet the Company advanced all the payment without implementing the obligations of going through necessary procedures of review and approval and timely disclosing the information, and made wrong aging in the financial treatment. These actions seriously violated the rules of listing and was condemned in public by Shenzhen Stock Exchange. The Company announced the negative influence on the market caused by aforesaid events on the designated newspapers dated July 5, 2002 and expressed deep regret to the investors. The Company shall further standardize the action of information disclosure and avoid occurrence of such events in future. Section 10 Financial Report International auditors’ report To the shareholders of Hefei Meiling Company Limited (Incorporated as a joint stock limited company in the People's Republic of China) We have audited the accompanying consolidated balance sheet of Hefei Meiling Company Limited (the “Company”) and its subsidiaries (the “Group”) as at 31 December 2002 and the related consolidated income and cash flow statements for the year then ended. These consolidated financial statements set out on pages 2 to 29 are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2002 and the consolidated results of its operations and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards. PricewaterhouseCoopers Certified Public Accountants Hong Kong, 22 April 2003 HEFEI MEILING COMPANY LIMITED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002 Notes 2002 2001 RMB’000 RMB’000 Sales 3 1,236,938 1,260,209 Cost of sales (976,667) (1,104,164) Gross profit 260,271 156,045 Other operating income 4 22,631 16,976 Distribution costs (184,985) (216,584) Administrative expenses (55,506) (262,779) Other operating expenses (552) (1,330) Profit/(loss) from operations 5 41,859 (307,672) Finance costs - net 7 (34,963) (33,598) Share of profit of associates 14 454 - Profit/(loss) before tax 7,350 (341,270) Income tax 8 (117) (38) Profit/(loss) after tax 7,233 (341,308) Minority interests 24 655 (65) Net profit/(loss) 7,888 (341,373) Earnings/(loss) per share 9 RMB0.02 (RMB0.83) The accompanying notes form an integral part of these consolidated financial statements. HEFEI MEILING COMPANY LIMITED CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2002 Notes 2002 2001 RMB’000 RMB’000 ASSETS Non-current assets Land use rights 10 127,550 5,900 Property, plant and equipment 11 545,022 536,451 Construction in progress 12 4,768 9,183 Intangible assets 13 150,193 - Investments in associates 14 27,944 1,660 Available-for-sale investments 15 30,690 11,730 Amount due from controlling shareholder 16 140,225 375,970 Amount due from a related company 17 128,292 145,795 1,154,684 1,086,689 Current assets Inventories 18 268,700 294,723 Receivables and prepayments 19 524,962 530,784 Cash and cash equivalents 20 176,163 126,426 969,825 951,933 Total assets 2,124,509 2,038,622 EQUITY AND LIABILITIES Shareholders’ equity Share capital 21 413,643 413,643 Reserves 22 857,210 856,318 Accumulated losses 23 (524,372) (532,260) 746,481 737,701 Minority interests 24 19,426 2,081 Non-current liabilities Borrowings 25 43,300 8,920 Current liabilities Trade and other payables 26 677,249 745,180 Borrowings 25 621,575 527,940 Dividend payable 2,478 2,800 Provision 27 14,000 14,000 1,315,302 1,289,920 Total liabilities 1,358,602 1,298,840 Total equity and liabilities 2,124,509 2,038,622 The accompanying notes form an integral part of these consolidated financial statements. These consolidated financial statements have been approved for issue by the board of directors on 22 April 2003. HEFEI MEILING COMPANY LIMITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2002 Share Accumulated capital Reserves losses Total RMB’000 RMB’000 RMB’000 RMB’000 (note 21) (note 22) (note 23) Year ended 31 December 2001 Balance at 1 January 2001 As previous reported 413,643 856,318 62,477 1,332,438 Effect of adopting IAS 39 (note (a)) - - (253,364) (253,364) As restated 413,643 856,318 (190,887) (1,079,074) Loss for the year - - (341,373) (341,373) Balance at 31 December 2001 413,643 856,318 (532,260) 737,701 Year ended 31 December 2002 Balance at 1 January 2002 413,643 856,318 (532,260) 737,701 Share of reserve of an associate - 892 - 892 Profit for the year - - 7,888 7,888 Balance at 31 December 2002 413,643 857,210 (524,372) 746,481 (a) In accordance with the transitional requirement of IAS 39, the Group recorded a net loss of RMB253,364,000 in retained earnings for the remeasurement of its financial assets at their amortised cost. The accompanying notes form an integral part of these consolidated financial statements. HEFEI MEILING COMPANY LIMITED CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002 Notes 2002 2001 RMB’000 RMB’000 Cash flows from operating activities Cash generated from operations 28 (a) 46,255 64,278 Interest paid (36,179) (33,177) Income tax paid - (136) Net cash generated from operating activities 10,076 30,965 Cash flows from investing activities Proceeds from disposal of property, plant and equipment 1,732 10 Investment in an associate (25,055) (1,660) Payment for land use rights (150) - Purchase of property, plant and equipment (44,619) (46,636) Payment for construction in progress (7,678) (25,878) Purchase of intangible assets (7,568) - Decrease in amount due from a related company 17,503 2,710 Increase in amount due from controlling shareholder (4,461) (52,114) Dividends received - 1,229 Interest received 1,224 3,372 Purchase of available-for-sale investments (18,960) (580) Net cash outflow from investing activities (88,032) (119,547) Cash flows from financing activities Proceeds from bank loans 786,145 767,830 Repayment of bank loans (658,130) (679,250) Dividends paid (322) (137) Decrease in pledged bank deposits 33,878 11,545 Net cash inflow from financing activities 161,571 99,988 Increase in cash and cash equivalents 83,615 11,406 Cash and cash equivalents at beginning of year 68,548 57,142 Cash and cash equivalents at end of year 20 152,163 68,548 The accompanying notes form an integral part of these consolidated financial statements. 1 General information Hefei Meiling Company Limited (the “Company”) is a joint stock limited company incorporated in the People’s Republic of China (the “PRC”). The Company and its subsidiaries (the “Group”) are mainly engaged in the manufacturing of household refrigerators and sale of household electronic appliances. The Company’s A shares and B shares are listed on the Shenzhen Stock Exchange. The Company’s controlling shareholder is Hefei Meiling Holding Company (“HMHC”), a state-owned enterprise established in the PRC. Currently, 30% (2001: 32%) of the Company’s issued shares are held by HMHC. 2 Principal accounting policies The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below: A Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) under the historical cost convention except as disclosed in the accounting policies below. This basis of accounting differs from that used in the preparation of the statutory financial statements of the Group which were prepared in accordance with the accounting standards and relevant financial regulations applicable to enterprises in the PRC. The consolidated financial statements have incorporated adjustments to the statutory financial statements so as to conform to IFRS. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current events and actions, actual results ultimately may differ from those estimates. 2 Principal accounting policies (continued) B Group accounting (1) Subsidiaries Subsidiaries, which are those entities in which the Group has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies, are consolidated. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless cost cannot be recovered. Where necessary, accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the Group. Details of the Group’s subsidiaries are shown in note 32. (2) Associates Associates are entities over which the Group generally has between 20% and 50% of the voting rights, or over which the Group has significant influence, but which it does not control. Investments in associates are accounted for by the equity method of accounting. Under this method the Group’s share of the post-acquisition profits or losses of associates is recognised in the consolidated income statement and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the cost of the investment. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The Group’s investments in associates include goodwill (net of accumulated amortisation) on acquisition. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognise further losses, unless the Group has incurred obligations or made payments on behalf of the associates. Details of the Group’s associates are shown in note 14. 2 Principal accounting policies (continued) C Foreign currency translation (1) Measurement currency Items included in the financial statements of each entity in the Group are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity (the “measurement currency”). The consolidated financial statements are presented in Renminbi (“RMB”), which is the measurement currency of the Company. (2) Transactions and balances Foreign currency transactions are translated into the measurement currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognised in the consolidated income statement. D Land use rights Land use rights are stated at cost less accumulated amortisation. Land use rights are amortised over the lease period using the straight-line method. E Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation and impairment loss. Depreciation is calculated on the straight-line method to write off the cost of each asset to its residual value over its estimated useful life as follows: Buildings 30 - 40 years Plant and machinery 10 - 16 years Furniture, fixtures and office equipment 8 - 12 years Motor vehicles 8 - 15 years When the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains and losses on disposal of property, plant and equipment are determined by comparing proceeds with carrying amount and are included in profit from operations. Interest costs on borrowings to finance the construction of property, plant and equipment are capitalised during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are expensed. 2 Principal accounting policies (continued) E Property, plant and equipment (continued) Repairs and maintenance are charged to the consolidated income statement during the financial period in which they are incurred. The cost of major renovations is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset. F Construction in progress Construction in progress represents capital assets under construction or installation and is stated at cost . Cost comprises original cost of the asset and other direct costs including interest costs arising from borrowings used to finance the construction of the asset during the construction period. No depreciation is provided on construction in progress until the related asset is available for use. G Intangible assets (1) Research and development Research expenditure is recognised as an expense as incurred. Cost incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will be a success considering its commercial and technological feasibility, and only if the cost can be measured reliably. Other development expenditures are recognised as an expense as incurred. (2) Computer software The cost of acquisition of new computer software is capitalised and treated as an intangible asset if these costs are not an integral part of the related hardware. Computer software is amortised on the straight-line basis over its useful life, not exceeding a period of 10 years. (3) Other intangible assets Expenditures to acquire patents and trademarks is capitalised and amortised usig the straight-line method over their useful lives, but not exceeding 20 years. 2 Principal accounting policies (continued) H Impairment of long-lived assets Property, plant and equipment and other non-current assets are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount which is the higher of an asset’s net selling price and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows. I Investments The Group classified its investments into the following categories: trading, held-to-maturity and available-for-sale. The classification is dependent on the purpose for which the investments were acquired. Management determines the classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis. Investments that are acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as trading investments and included in current assets. Investments with a fixed maturity that management has the intent and ability to hold to maturity are classified as held-to-maturity and are included in non-current assets, except for maturities within twelve months from the balance sheet date which are classified as current assets. Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are classified as available-for-sale; and are included in non-current assets unless management has the expressed intention of holding the investment for less than twelve months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in current assets. During the year, the Group did not hold any trading and held-to-maturity investments. Purchases and sales of investments are recognised on the trade date, which is the date that the Group commits to purchase or sell the asset. Cost of purchase includes transaction costs. Available-for-sale investments are not subsequently fair-valued because they do not have quoted market prices in active markets and whose fair values cannot be reliably measured. These investments are carried at cost, and are subject to review for impairment. J Operating leases Leases of assets where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the consolidated income statement on the straight-line basis over the period of the lease. 2 Principal accounting policies (continued) K Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted average method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity) but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business less the costs of completion and selling expenses. L Trade receivables Trade receivables are carried at original invoice amount less provision made for impairment of these receivables. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, discounted at the market rate of interest for similar borrowers. M Cash and cash equivalents Cash and cash equivalents are carried in the consolidated balance sheet at cost. For the purposes of the consolidated cash flow statement, cash and cash equivalents comprise cash on hand and deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less. N Borrowings Borrowings are recognised initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the consolidated income statement over the period of the borrowings. O Income taxes The charge for PRC income tax is based on profit before tax for the year as stated in the statutory financial statements adjusted for non-taxable and non-deductible items and is provided for at the rates applicable to the Company and its subsidiaries. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Currently enacted tax rates are used in the determination of deferred income tax. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. 2 Principal accounting policies (continued) P Pension obligations The Group participates in a defined contribution retirement scheme organised by the municipal government where the Group operates. The scheme is funded by monthly payments by the Group at 20% of the employees’ basic salaries. Once the contributions have been paid, the Group has no further payment obligations. Contributions to the scheme are charged to the consolidated income statement in the year to which they relate. Q Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. R Revenue recognition Revenue comprises the invoiced value for the sale of goods net of value-added tax, rebates and discounts, and after eliminating sales within the Group. Revenue from the sale of goods is recognised when significant risks and rewards of ownership of the goods are transferred to the buyer. Interest income is recognised on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the Group. Dividends are recognised when the right to receive payment is established. S Dividends Dividends are recorded in the Group’s consolidated financial statements in the period in which they are approved by the Group’s shareholders. T Segment reporting Business segments provide products or services that are subject to risks and returns that are different from those of other business segments. Geographical segments provide products or services within a particular economic environment that is subject to risks and returns that are different from those of components operating in other economic environments. 2 Principal accounting policies (continued) U Financial instruments Financial assets and liabilities carried in the consolidated balance sheet include cash and cash equivalents, available-for-sale investments, receivables, payables and borrowings. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. V Comparatives Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year. 3 Sales Sales represents revenue from the sale of household refrigerators and other household electrical appliances and accessories of household appliances to external customers at invoiced value net of discounts, value added tax and returns. Business segment information is not shown as the sale of household refrigerators accounted for more than 90% (2001: more than 90%) of the consolidated revenue and result of the Group. All assets and operations of the Group are located in the PRC, which is considered as one geographic location in an environment with similar risks and returns. Approximately 90% (2001: approximately 90%) of the Group’s sales were made in the PRC. Accordingly, no geographical segment information is shown. 4 Other operating income 2002 2001 RMB’000 RMB’000 Sale of scrap materials 7,875 14,459 Tax refund on export sales and new products 1,957 1,614 Long outstanding payables written-back 10,577 - Other 2,222 903 22,631 16,976 5 Profit/(loss) from operations The following items have been included in arriving at profit/(loss) from operations: 2002 2001 RMB’000 RMB’000 Write-back of provision for inventories (note (a)) (6,114) (17,169) Provision for impairment of receivables (included in administrative expenses) 15,631 146,854 Provision for guarantee - 55,500 Provision for impairment of construction in progress (included in administrative expenses) (note 12) - 1,308 Depreciation of property, plant and equipment (note 11) 46,240 43,695 Amortisation of land use rights (included in administrative expenses) (note 10) 1,511 550 Amortisation of intangible assets (included in administrative expenses) (note 13) 5,375 - Warranty expense (note 27) 12,158 12,780 Trademark fee paid to HMHC (note 31 (b)) - 12,445 Research and development expenditure 2,484 2,773 Operating lease rentals for buildings 6,883 5,292 Staff costs (note 6) 83,527 86,739 Loss on disposal of property, plant and equipment 169 981 (a) Certain obsolete products were sold during the year, as a result, provision for such items was partially reversed. 6 Staff costs 2002 2001 RMB’000 RMB’000 Wages, salaries and bonuses 71,771 75,266 Staff welfare 5,304 7,116 Contributions to retirement scheme 6,452 4,357 83,527 86,739 Average number of employees of the Group during the year 2,576 2,790 7 Finance costs, net 2002 2001 RMB’000 RMB’000 Interest income from bank deposits 1,224 3,372 Dividend income - 1,229 Net exchange (loss)/gain (8) 17 Interest expense on bank borrowings (36,179) (33,177) Finance charge paid to HMHC for guarantee of bank borrowings (note 31 (c)) - (5,039) (34,963) (33,598) 8 Income tax 2002 2001 RMB’000 RMB’000 Current tax - 38 Share of tax of associates (note 14) 117 - 117 38 (a) PRC income tax comprises income tax of the Company and its subsidiaries, Zhongke Meiling Cryogenics Company Limited and Anhui Anhong Plastics Co., Ltd., and is calculated at rates applicable to the relevant companies ranging from 24% to 33%. (b) The tax on the Group’s profit/(loss) before tax differs from the theoretical amount that would arise using the tax rates applicable to the Group as follows: 2002 2001 RMB’000 RMB’000 Profit/(loss) before tax 7,350 (341,270) Tax calculated at a tax rate of 24% to 33% (2001: 24% to 33%) 2,426 (112,619) Unrecognised deferred tax assets 3,140 112,975 Expenses not deductible for tax purposes 116 88 Utilisation of previously unrecognised tax losses (5,565) (406) Tax charge 117 38 As at 31 December 2002, deferred income tax assets arising from temporary differences and tax losses amounting to RMB151,328,000 (2001: RMB148,188,000) and RMB46,447,000 (2001: RMB52,012,000) respectively were not recognised in these consolidated financial statements. Such unrecognised deferred tax assets arose from temporary differences in respect of provision for receivables and inventories. 9 Earnings/(loss) per share Earnings/(loss) per share is calculated by dividing net profit/(loss) by the weighted average number of ordinary shares in issue during the year. 2002 2001 Net profit/(loss) RMB7,888,000 (RMB341,373,000) Weighted average number of ordinary shares in issue 413,643,000 413,643,000 Basic earnings/(loss) per share RMB0.02 (RMB0.83) The Company has no potential dilutive shares, therefore basic and diluted earnings/(loss) per share are the same. 10 Land use rights 2002 2001 RMB’000 RMB’000 Opening net book amount 5,900 6,450 Additions (note 28 (b)(ii)) 123,161 - Amortisation (1,511) (550) Closing net book amount 127,550 5,900 At end of year Cost 134,161 11,000 Accumulated amortisation (6,611) (5,100) Net book amount 127,550 5,900 11 Property, plant and equipment Furniture, fixtures Plant and and office Motor Buildings machinery equipment vehicles Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Year ended 31 December 2002 Opening net book amount 171,153 339,092 17,172 9,034 536,451 Transfer from construction in progress (note 12) - 11,758 335 - 12,093 Additions 39,383 4,525 81 630 44,619 Disposals (25) (908) (35) (933) (1,901) Depreciation (6,243) (35,496) (2,671) (1,830) (46,240) Closing net book amount 204,268 318,971 14,882 6,901 545,022 A At 31 December 2002 Cost 240,961 537,840 34,932 20,302 834,035 Accumulated depreciation (36,693) (218,869) (20,050) (13,401) (289,013) Net book amount 204,268 318,971 14,882 6,901 545,022 B At 31 December 2001 Cost 201,603 528,488 34,779 21,054 785,924 Accumulated depreciation (30,450) (189,396) (17,607) (12,020) (249,473) Net book amount 171,153 339,092 17,172 9,034 536,451 (a) At 31 December 2002, the ownership certificates of buildings with net book value of RMB14,195,000 (2001: nil) have not been obtained. (b) At 31 December 2002, the net book value of buildings of the Group that were pledged as security for bank borrowings amounted to RMB66,839,000 (2001: nil) (note 25 (a)). 12 Construction in progress 2002 2001 RMB’000 RMB’000 Balance at beginning of year 9,183 48,507 Additions 7,678 25,878 Impairment - (1,308) Transfer to property, plant and equipment (note 11) (12,093) (63,894) Balance at end of year 4,768 9,183 13 Intangible assets Computer Technical software Trademark know-how Total RMB’000 RMB’000 RMB’000 RMB’000 (note 28 (b)(i)) (note 28 (b)(iii)) Year ended 31 December 2002 Opening net book amount - - - - Additions 7,490 130,078 18,000 155,568 Amortisation (698) (4,377) (300) (5,375) Closing net book amount 6,792 125,701 17,700 150,193 At 31 December 2002 Cost 7,490 130,078 18,000 155,568 Accumulated amortisation (698) (4,377) (300) (5,375) Net book amount 6,792 125,701 17,700 150,193 14 Investments in associates 2002 2001 RMB’000 RMB’000 At beginning of year 1,660 - Additions (note 31 (e)) 25,055 1,660 Share of profit 454 - Share of tax (note 8) (117) - Share of profit after tax 337 - Share of capital reserve 892 - At end of year 27,944 1,660 Particulars of associates, which are unlisted companies, are as follows: Name Registered Principal activities Equity interest capital held 2002 2001 Heifei Meiling Packing USD3,067,000 Manufacturing and sale of 48.28% - Product Co., Ltd. (note packing materials 31 (e)) Hefei Meiling - Sigema USD1,000,000 Manufacturing and sale of 20% 20% Appliances Co., Ltd. air conditioners 15 Available-for-sale investments 2002 2001 RMB’000 RMB’000 At beginning of year 11,730 11,150 Additions (note 31 (a)) 18,960 580 At end of year 30,690 11,730 Available-for-sale investments include investments in listed and unlisted companies. Investment in a listed company represents legal person shares in the listed company. Pursuant to the “Standard Opinion on Joint Stock Companies Limited by Shares” issued by relevant PRC authorities, legal person shares are not transferable or allowed to be traded on the stock markets except with the approval of relevant authorities. 16 Amount due from controlling shareholder 2002 2001 RMB’000 RMB’000 Amount due from controlling shareholder 156,606 405,156 Less: Provision for impairment (16,381) (29,186) Amount due from controlling shareholder, net 140,225 375,970 (a) The balance mainly represents recharge of advertising and other selling expenses to HMHC, interest charge on the outstanding balance and receivables arising from disposal of equity interests in certain companies to HMHC. According to an agreement dated 20 March 2001, no interest would be charged to HMHC on the outstanding balance commencing 1 January 2001. (b) Pursuant to an agreement dated 5 March 2002 entered into between the Company and HMHC, the outstanding balance will be fully repaid by the end of 2005. 17 Amount due from a related company 2002 2001 RMB’000 RMB’000 Amount due from a related company 280,071 297,574 Less: Provision for impairment (151,779) (151,779) Amount due from a related company, net 128,292 145,795 17 Amount due from a related company (continued) (a) The balance was due from Hefei Meiling Washing Machine Co., Ltd. (“Washing Machine Co.”), a subsidiary of HMHC. The year end balance mainly represents advances to Washing Machine Co. for the purchase of property, plant and machinery, for financing its operations, and interest charge on the outstanding balance. According to an agreement dated 20 March 2001, no interest would be charged to Washing Machine Co. on the outstanding balance commencing 1 January 2001. (b) Pursuant to an agreement dated 5 March 2002 entered into between the Company and Washing Machine Co., the outstanding balance will be repaid according to a repayment schedule in ten years commencing 1 January 2003. (c) The amount due from Washing Machine Co. is guaranteed by HMHC. 18 Inventories 2002 2001 RMB’000 RMB’000 Raw materials - At cost 47,826 46,713 - At net realisable value 7,974 17,562 Work in progress - At cost 8,392 9,080 Finished goods - At cost 177,168 206,821 - At net realisable value 27,340 14,547 268,700 294,723 19 Receivables and prepayments 2002 2001 RMB’000 RMB’000 Trade receivables 571,464 603,267 Less: Provision for impairment (240,522) (214,139) Trade receivables, net 330,942 389,128 Bills receivables 92,312 66,263 Amounts due from related companies (note 31 (f)) 27,469 11,773 Other receivables 64,247 62,251 Less: Provision for impairment (23,710) (21,657) Other receivables, net 40,537 40,594 Prepayments 33,702 23,026 524,962 530,784 20 Cash and cash equivalents For the purpose of the consolidated cash flow statement, cash and cash equivalents comprise the following: 2002 2001 RMB’000 RMB’000 Cash at bank and in hand 176,163 126,426 Less: Pledged bank deposits (note 26 (a)) (24,000) (57,878) 152,163 68,548 The effective average interest rate on short-term bank deposits was 0.99% (2001: 1.58%) per annum. 21 Share capital Registered, issued and fully paid ordinary shares of RMB1 each: Unlisted Unlisted A shares A shares held by held by legal A shares, B shares, HMHC persons listed listed Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Year ended 31 December 2001 At 1 January 2001 136,830 25,660 138,053 113,100 413,643 Listing of unlisted shares (13,434) - 13,434 - - At 31 December 2001 123,396 25,660 151,487 113,100 413,643 Year ended 31 December 2002 At 1 January 2002 and 31 December 2002 123,396 25,660 151,487 113,100 413,643 Pursuant to the Company's articles of association, A and B shares are all registered ordinary shares. Except for the currency in which dividends are payable, these shares carry equal rights. 22 Reserves The movements of reserves are as follows: Statutory Statutory Discretionary common public common Capital reserve welfare reserve Reserve fund fund fund Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Year ended 31 December 2001 Balance at 1 January 2001 and at 31 December 2001 571,429 65,426 65,643 153,820 856,318 Year ended 31 December 2002 Balance at 1 January 2002 571,429 65,426 65,643 153,820 856,318 Share of capital reserve of an associate 892 - - - 892 Balance at 31 December 2002 572,321 65,426 65,643 153,820 857,210 In accordance with relevant PRC regulations applicable to joint stock limited companies and the Company’s articles of association, the Company is required to allocate its profit after taxation to the following reserves: Statutory common reserve fund Each year the Group is required to transfer 10% of its profit after taxation as reported under its PRC statutory financial statements to the statutory common reserve fund until the balance reaches 50% of the registered share capital. This reserve can be used to make up prior years’ losses or to increase share capital. Except for making up of prior years’ losses, any other usage should not result in the balance of this reserve falling below 25% of the registered capital. Statutory public welfare fund Each year the Group is required to transfer 5% to 10% of its profit after tax as reported under its PRC statutory financial statements to the statutory public welfare fund. The use of this reserve is restricted to capital expenditure for staff welfare facilities owned by the Group. The statutory public welfare fund is not available for distribution to shareholders (except in liquidation). Once capital expenditure for staff welfare facilities has been made, an equivalent amount must be transferred from the statutory public welfare fund to the discretionary common reserve fund. Discretionary common reserve fund The discretionary common reserve fund can be set up by means of appropriation from retained earnings or transferred from the statutory public welfare fund. The reserve can be used to reduce losses, to increase share capital or for payment of dividends. Any transfer to the reserve requires the approval of shareholders in general meeting. No profit appropriation will be made for the year 2002 as the net profit for the year has been utilised to make up accumulated losses. 23 Distributable profits Pursuant to relevant PRC regulations and the articles of association of the Company, profit distributable to shareholders shall be the lower of the distributable profits as determined in accordance with PRC accounting standards and the distributable profits as adjusted in accordance with IFRS. 24 Minority interests 2002 2001 RMB’000 RMB’000 At beginning of year 2,081 2,016 Additions (note 28 (b)(iii)) 18,000 - Share of net (loss)/profit of subsidiaries (655) 65 At end of year 19,426 2,081 25 Borrowings 2002 2001 RMB’000 RMB’000 Current Bank borrowings 621,575 527,940 Non-current Bank borrowings 43,300 8,920 664,875 536,860 Total borrowings (a) Bank borrowings to the extent of RMB42,000,000 (2001: nil) were secured over certain buildings of the Company (note 11). (b) Certain bank borrowings of the Group are guaranteed by the following companies: 2002 2001 RMB’000 RMB’000 HMHC 604,755 503,740 A third party 8,920 23,920 613,675 527,660 (c) On 27 March 2003, one of the Group’s major bankers has confirmed that it would provide banking facilities totalling RMB700,000,000 to the Group for a period to 31 December 2004. As at 31 December 2002, banking facilities of RMB244,975,000 has not been utilised. 25 Borrowings (continued) (d) The interest rate exposure of the borrowings of the Group is as follows: 2002 2001 RMB’000 RMB’000 Total borrowings - at fixed rates 664,875 536,860 2002 2001 Weighted average effective interest rate: - bank borrowings 5.43% 5.90% Maturity of non-current borrowings: 2002 2001 RMB’000 RMB’000 Between 1 and 2 years 30,000 8,920 Between 2 and 5 years 13,300 - 43,300 8,920 (e) The carrying amount and estimated fair value of the Group’s non-current borrowings at 31 December 2002 are set out as follows: 2002 2001 RMB’000 RMB’000 Carrying amount 43,300 8,920 Estimated fair value 43,645 8,982 The fair value of non-current borrowings is estimated by applying a discounted cash flow approach using current market interest rates for similar indebtedness. Fair value estimates are made at specific point in time and are based on relevant market information. These estimates are subjective in nature and involved uncertainties and matters of significant judgement and therefore cannot be determined with precision. Changes in valuation methods and assumptions could significantly affect the estimates. 26 Trade and other payables 2002 2001 RMB’000 RMB’000 Trade payable 379,281 342,881 Bills payable (note (a)) 80,000 140,000 Amounts due to related companies (note 31 (f)) 13,687 35,025 Provision for loss on guarantee (note (b)) 55,500 55,500 Other payables and accruals 75,928 79,215 Receipts in advance 72,853 92,559 677,249 745,180 (a) Bills payable are secured by bank deposits of RMB24,000,000 (2001: RMB57,878,000) (note 20). (b) Pursuant to an agreement dated 2 April 2002 entered into by the Company and HMHC, the repayment for the loss on guarantee will initially be settled by HMHC. The amount will be repaid by offsetting the amount due from HMHC. 27 Provision 2002 2001 RMB’000 RMB’000 Balance at beginning of year 14,000 14,000 Provision for the year (note 5) 12,158 12,780 Utilised during the year (12,158) (12,780) Balance at end of year 14,000 14,000 The Group provides a three-year warranty on compressors of refrigerators and undertakes to repair or replace items that fail to perform satisfactorily during the warranty period. A provision of RMB14,000,000 (2001: RMB14,000,000) has been recognised at the year end for expected warranty claims based on past experience of the level of repairs and returns. It is expected that RMB6,897,000 will be used in 2003, RMB4,641,000 in 2004 and RMB2,462,000 in 2005. 28 Cash generated from operations (a) Reconciliation of net profit/(loss) to cash generated from operations: 2002 2001 RMB’000 RMB’000 Net profit/(loss) 7,888 (341,373) Adjustments for: Minority interests (655) 65 Income tax 117 38 Write-back of provision for inventories (note 5) (6,114) (17,169) Provision for impairment of receivables (note 5) 15,631 146,854 Trademark fee (note 31 (b)) - 12,445 Finance charge paid to HMHC for guarantee of bank borrowings (note 31 (c)) - 5,039 Depreciation of property, plant and equipment (note 11) 46,240 43,695 Impairment of construction in progress (note 12) - 1,308 Amortisation of land use rights (note 10) 1,511 550 Amortisation of intangible assets (note 13) 5,375 - Loss on disposal of property, plant and equipment 169 981 Dividend income (note 7) - (1,229) Interest income (note 7) (1,224) (3,372) Interest expense (note 7) 36,179 33,177 Share of profit of associates (note 14) (454) - Changes in working capital: - inventories 32,137 73,074 - receivables and prepayments (22,614) 162,515 - trade and other payables (67,931) (52,320) Cash generated from operations 46,255 64,278 (b) Non-cash transactions (i) Pursuant to an agreement dated 29 April 2002 entered into by the Company and HMHC, the Company acquired the trademark “Meiling” from HMHC at a consideration of RMB130,000,000, the consideration was satisfied by setting off the amount due from HMHC. (ii) Pursuant to an agreement dated 25 April 2002 entered into by the Company and HMHC, the Company acquired certain land use rights from HMHC at a consideration of RMB123,011,000, the consideration was satisfied by setting off the amount due from HMHC. 28 Cash generated from operations (continued) (iii) On 9 August 2002, the Company and Institute of Physical Chemistry of Chinese Academy of Sciencer (“Institute of Physical Chemistry”) entered into an agreement to establish Zhongke Meiling Cryogenics Company Limited. The Company injected RMB42,000,000 (including cash of RMB6,426,000 and property, plant and equipment of RMB35,574,000) and owns 70% of the equity interest, and Institute of Physical Chemistry injected technical know-how in the amount of RMB18,000,000 and owns 30% of the equity interest. 29 Financial instruments A Credit risk The carrying amount of accounts receivable included in the consolidated balance sheet represents the Group’s maximum exposure to credit risk in relation to its financial assets. Trade receivables are spread among a number of customers in the PRC and overseas. Details of the amounts due from HMHC and a related company are included in note 16 and note 17 respectively. Cash is placed with reputable banks. No other financial assets carry a significant exposure to credit risk. B Foreign exchange risk The Group operates in the PRC and its transactions are primarily denominated in RMB, the national currency. In the opinion of the directors, the Group does not have significant foreign exchange risk exposure. C Interest rate risk The Group has no significant interest-bearing assets, as such its income and operating cash flows are substantially independent of changes in market interest rates. The interest rates of the Group’s borrowings are disclosed in note 25. In the opinion of the directors, the Group’s exposure to interest rate risk was not significant. D Fair value The carrying amounts of the following financial assets and financial liabilities approximate their fair value: cash, receivables, payables and borrowings. 30 Capital commitments Capital expenditure contracted for at the balance sheet date but not recognised in the consolidated financial statements is as follows: 2002 2001 RMB’000 RMB’000 Property, plant and equipment 16,649 11,045 31 Related party transactions The following material transactions were carried out with related parties during the year: C N ot es 2002 2001 RMB’000 RMB’000 HMHC - Purchase of trademark “Meiling” 28 (b)(i) 130,000 - - Purchase of land use rights 28 (b)(ii) 123,011 - - Purchase of available-for-sale investments (a) 18,960 - - Recharge of advertisement and other selling expenses - 61,515 - Payment of trademark fee (b) - 12,445 - Payment of finance charge for guarantee of bank borrowings (c) - 5,039 - Purchase of property, plant and equipment 8,000 28,400 Washing Machine Co. - Purchase of raw materials (d) 19,420 13,237 - Purchase of finished goods (d) 42,286 36,027 - Sale of raw materials (d) 19,490 9,149 Other subsidiaries of HMHC - Purchase of raw materials (d) 197,440 175,602 - Sale of finished goods (d) 5,420 4,877 - Purchase of equity interest in an associate (e) 25,055 - - Purchase of property, plant and equipment 34,560 - (a) Pursuant to an agreement dated 12 November 2002, the Company acquired 8.57% equity interest of Anhui Zhong Ke Da Xun Fei Information Technology Co., Ltd. from HMHC at a consideration of RMB18,960,000. (b) Pursuant to an agreement dated 25 December 2002, no trademark fee (2001: RMB12,445,000) will be paid to HMHC for the period from 1 January 2002 to the acquisition date of the trademark from HMHK. 31 Related party transactions (continued) (c) Pursuant to an agreement dated 25 December 2002, no finance charge (2001: RMB5,039,000) will be paid to HMHC for the year of 2002 for bank borrowings guaranteed by HMHC. (d) The directors are of the opinion that these transactions were entered into in the ordinary course of business and based on mutually agreed terms. (e) Pursuant to an agreement dated 15 November 2002, the Company acquired 48.28% equity interest of Hefei Meiling Packing Product Co., Ltd. from Hefei Paper Case Factory, which is a subsidiary of HMHC, at a consideration of RMB25,055,000. (f) Amounts due from/to related companies are unsecured, interest free and repayable on demand. (g) Directors’ emoluments The total remuneration of the directors for the year was RMB402,000 (2001: RMB402,000). 32 Subsidiaries As at 31 December 2002, the Company had the following unlisted subsidiaries which are limited liability companies incorporated in the PRC: Registered Name capital Equity interest held Principal activities 2002 2001 Hefei Meiling Electrical Parts RMB5,000 note (a) 100% Manufacturing and Manufacture Co., Ltd. ,000 sale of accessories of household appliances Anhui Anhong Plastics Co., Ltd. USD1,000, 75% 75% Manufacturing and 000 sale of accessories of household appliances Zhongke Meiling Cryogenics RMB60,00 70% - Development, Company Limited (note 28 0,000 manufacturing (b)(iii)) and sale of cryogenic refrigerators (a) Hefei Meiling Electrical Parts Manufacture Co., Ltd. was liquidated during the year and the Company took over all of its assets and liabilities. HEFEI MEILING COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2002 The impact of IFRS adjustments on the PRC statutory financial statements is as follows: Net profit Net assets for the year ended as at 31 December 2002 31 December 2002 RMB’000 RMB’000 As reported under the PRC statutory financial statements 8,107 1,035,388 IFRS adjustments: Provision for warranty expenses - (14,000) Remeasurement of financial assets in accordance with IAS 39 476 (268,332) Depreciation of property, plant and equipment (2,561) (5,042) Provision for expenses 3,626 - Net effect on adjustments to opening accumulated losses in the PRC statutory financial statements (1,573) - Other (187) (1,533) As restated after IFRS adjustments 7,888 746,481 Section 11 Documents Available for Inspection I. Financial Statements signed by and under the seal of the legal representative, chief accountant and accounting supervisor; II. Original of Auditors’ Report carried with the seals of the domestic and international certified public accountants as well as personal signatures and seals of certified public accountants; III. All the originals of the Company’s documents and public notice disclosed in the newspapers designated by China Securities Regulatory Commission All the aforesaid documents are placed at the head office of the Company, and the Company shall timely make them available whenever it is asked to supply by China Securities Regulatory Commission/Shenzhen Stock Exchange, or any shareholder asks for reading according to the relevant law and regulations or the Articles of Association. Board of Directors of Hefei Meiling Co., Ltd. Wang Jiazhang, Chairman of the Board April 25, 2003