大东海A(000613)ST东海Ｂ2002年年度报告（英文版）

Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders 海南大东海旅游中心股份有限公司 Hainan Dadonghai Tourism Centre (Holdings) Co., Ltd. Annual Report 2002 Overseas Report Term: Year 2002 1 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders contents I. Important Statement............................................................................................................................. 1 II. Company Profile................................................................................................................................. 3 III. Financial Highlights.......................................................................................................................... 4 IV. Changes in Share Capital and Shareholders ...................................................................................... 5 V. Particulars about the Directors, Supervisors and Senior Managements ............................................. 7 VI. Management Structure ...................................................................................................................... 9 VII. About the Shareholders’ General Meeting .................................................................................... 11 VIII. Report of the Board of Directors.................................................................................................. 12 IX. Report of the Supervisory Committee ............................................................................................ 17 X. Significant Events ............................................................................................................................ 19 XI. Financial Statement......................................................................................................................... 21 XII. Documents Available for Inspection ............................................................................................. 38 2 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders I. Important Statement The Board of Directors of the Company guarantees that there are no significant omissions, fictitious or misleading statements in the Report and we will accept individual and joint responsibilities for the truthfulness, accuracy and completeness of the Report. Hainan Chongxin CPA and Grant Thornton CPA issued auditing reports respectively with explanatory statements and without reserved opinion. The Board of Directors and the Supervisory Committee have made detailed specification on the relevant events. Shareholders are suggested to read the relevant statements carefully. Director Chen Haixiong and Fu Zhen absent the meeting of the Board. Director Zhao Man entrusted director Li Yuanbin to present the meeting and vote on behalf of her. Mr. Li Shanhu, the Chairman of the Board, and Mr. Li Yuanbin, the General Manager, and Mr. Li Wei, the Chief Financial Officer declares: the Financial Statement in the report is secured for its truthfulness and completeness. II. Company Profile (I) Statutory name in Chinese: 海南大东海旅游中心股份有限公司 Statutory name in English: Hainan Dadonghai Tourism Centre (Holdings) Co., Ltd. (II) Legal representative: Li Shanhu (III) Secretary of the Board: Liu Juntao Security affair liaison: Li Caijie Liaison address: Dadonghai, Sanya Tel: 0898-88219888 Ext.8264 Fax: 0898-88212298 Email: hnddht@21cn.com (IV) Registered address: Dadonghai, Sanya Office address: Dadonghai, Sanya Post code: 572021 (V) Press media stated by the Company for information disclosure: Security Times and Hong Kong Commercial Daily Website assigned by China Security Supervisory Committee for online publishing of this report: http://www.cninfo.com.cn Annual Report 2002 is prepared and ready for enquiring in: Stock Affair Department (VI) Stock listed in: Shenzhen Stock Exchange Abbreviation of stock name: ST Donghai A, ST Donghai B Stock code: 000613,200613 (VII) Supplementary information 1. Date of registration: April 26, 1993. Place of registration: Dadonghai, Hedong District, 3 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders Sanya. Date of the latest change of registration: May 23, 2001. Place of registration: Dadonghai, Hedong District, Sanya. 2. Business license number: 4600001003983 3. Tax registration number: 460200201357188 4. Domestic accountant: Hannan Chongxin Certified Public Accountant Office address: Rom 1202, CMEC Building, Guomao Ave., Haikou, Hainan Overseas accountant: Grant Thornton Office address: 13th Floor, Gloucester Tower, The Landmark, 11 Pedder Street, Central, Hong Kong III. Financial Highlights (I) Major profit indices of the year (in thousand RMB) Total profit 4,775 Net profit 4,775 Net profit after deducting of irregular earnings/losses -1,070 Other business profit 5,845 Operation profit 8,966 Net cash flow generated from operation activities 11,679 Net increasing of cash and cash equivalents 840 Note: The amount of irregular earnings/loss deducted is RMB5,845 thousand, due to other income amounted to RMB5,845 thousand. Influence of the adjustment in accordance with IAS on the net profit (in RMB) Items Net profit On China Accounting Standard 227 On International Accounting Standard 1. Transfer the interests of capital reserves and the discount of other 4,155 account payable in the statutory accounts into earnings of current year. 2. Adjustment of deducting from the previous figures 393 On International Accounting Standard 4,775 (II) Financial highlights of the previous 3 years (in thousand RMB) Items 2002 2001 2000 4 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders Turnover 24,280 22,652 20,888 Net profit 4,775 4,324 -56,297 Total asset 201,974 227,339 240,731 Shareholder’s equity 12,128 7,353 3,029 Earnings per share (RMB) 0.013 0.012 -0.15 Net asset per share (RMB) 0.033 0.020 0.008 Net asset per share after adjustment 0.020 0.006 0.008 Net cash flow per share generated from operation activities 0.03 -0.04 -0.05 Net earnings/asset ratio (%) 39.37 58.81 -1,858.60 Weighted average net earnings/asset ratio (%) 39.37 58.81 -1,858.60 (III) Change of shareholders’ equity in the report term (in thousand RMB) Items Share Capital Accumulated Shareholders’ capital reserves loss equity At the beginning of term 364,100 47,454 -404,201 7,353 Increased this term 4,775 4,775 Adjusted this year Decreased this term At the end of term 364,100 47,454 -399,426 12,128 Causation of change: 1. Increasing of capital reserves: discount of debt been counted in due to reconstruction of debt and capital. 2. Increasing of un-distributed profit: transfer in of net profit realized in current year. IV. Changes in Share Capital and Shareholders (I) Change of share capital Change of shareholding (in 10 thousand shares) At Increase or decrease of the change(+ -) At End of Beginning Year of Year Share Bonus Capita Oth Sub allotted shares lized er - total 5 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders (I) Non-current shares 1 Promoter’s shares 10,985.7 10,985.7 State-owned shares 9,632.7 9,632.7 Domestic legal person shares 1,353 1,353 Overseas legal person holding shares Others 2 Legal person shares invited 12,114.3 12,114.3 3 Employees’ shares 4 Preference shares or others Total of non-current shares 23,100 23,100 (II) Current shares 1 RMB common shares listed domestically 4,510 4,510 2 Foreign capital shares listed domestically 8,800 8,800 3 Foreign capital shares listed abroad 4 Others Total of current shares 13,310 13,310 (III) Total shares 36,410 36,410 (II) Particulars about the shareholders 1. At the end of year 2002, there totally were 21457 shareholders of the Company, including 15876 of A-share holders, 5581 of B-share holders and 3 senior management shareholders. 2. Top 10 shareholders: (in shares) No. Name of Shareholder Shares Share Property of share Frozen held portion 1 China Great Wall Assets Management Co., Ltd. 96,327,000 26.46 State-owned shares 2 Hainan Shanya Yinnong Industrial Development Co., Ltd. 9,900,000 2.72 Legal person shares 3 Yangpu Jinyu Industrial Co., Ltd. 6,666,000 1.83 Legal person shares 4 Huaxia Security Co., Ltd. 6,600,000 1.81 Legal person shares 5 Shanghai Jinxian Investment Co., Ltd. 4,973,000 1.37 Legal person shares 6 China International Trade Trust & Investment Co., Ltd. 3,960,000 1.09 State-owned shares 7 Hainan Hongkong-Macau International Leasing Co., Ltd. 3,894,000 1.07 State-owned shares 3,894,000 6 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders 8 Sanya Zhongxing Development Co., Ltd. 3,630,000 1.00 Legal person shares 9 China Agriculture Bank Haikou Jinmao Branch 3,300,000 0.91 State-owned shares 10 Sanya United Credit Company 3,300,000 0.91 Legal person shares (1) China Greatwall Assets Management Co., Ltd. is holding 96327000 of state-owned shares. It was on October 10, 2002, approved by the Ministry of Finance by official document Cai-qi-[2002]430, this company transferred 60000000 to Haikou Grocer Co., Ltd., while the shares’ were transformed into legal person shares. (This event has been announced on the Jan 15, 2003 issues of Security Times and Hong Kong Commercial Daily. The share equity transmitting procedures have been completed in Security Registration and Clearing Co., Ltd. Shenzhen Branch.) (2) There isn’t any associated relationship between the 1st shareholder and the other shareholders among the top-10 list. None of them are regarded as “collaborators” in accordance with “The rules of information disclosure on change of shareholding.” Shareholders beyond the top-10 list are unknown for their condition of “associated relationship” and “collaborating”. (3) China Greatwall Assets Management Co., Ltd. is the only shareholder who is holding more than 5% of the shares of the Company. The shares held by this company has not changed or been put pledge or freezing. 3. Particulars about the controlling shareholders (1) Name of the shareholder: China Greatwall Assets Management Co., Ltd. Legal representative: Wang Xingyi Date of incorporation: October 18, 1999 Registered capital: RMB 10 billion Major business: acquiring, managing and treatment of the bad assets peeled off from China Agriculture Bank. (2) In accordance with the “Agreement of share equity trusteeship of Hainan Dadonghai Tourism Centre (Holdings) Co., Ltd.” engaged between China Greatwall Assets Management Co., Ltd. and Haikou Grocery Co., Ltd. on December 5, 2001, Haikou Grocery Co., Ltd. was consigned to manage 60 million shares of the Company that held by China Greatwall Assets Management Co., Ltd. (takes 16.48%) of the total share capital. It is the practical controller of the Company temporarily. Name of the shareholder: Haikou Grocery Co., Ltd. Legal representative: Fan Pingyue Date of incorporation: August 28, 1998 Registered capital: RMB113,693,900 Major business: processing of animal and meat products, vending of frozen foods and side products of agriculture, refrigeration stoking, real-estate developing (3) The company has applied for the share transferring procedures for Shenzhen Stock Exchange on December 28, 2002. The application was approved and announced on Jan 15, 2003. The transferring routine has been completed in China Security Registration and Clearing Co., Ltd. Shenzhen Branch. Therefore Haikou Grocery Co., Ltd. became the top shareholder of the Company. V. Particulars about the Directors, Supervisors and Senior 7 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders Managements (I) Directors, Supervisors and Senior Managements Name Position GenderAge Term Shares held at theShares held at the beginning of year end of year Li Shanhu Chairman of the Board Male 63 2002-2005 0 0 Zheng Jirong Vice Chairman Male 43 2002-2005 2673 2673 Li Yuanbin Director, GM Male 51 2002-2005 0 0 Huang Qingwang Director, Vice GM Male 32 2002-2005 0 0 Liu Juntao Director, Vice GM, Secretary of the Board Male 34 2002-2005 0 0 Li Wei Director, CFO Male 40 2002-2005 0 0 Zhu Xinglie Director Male 43 2002-2005 0 0 Chen Haixiong Director Male 41 2002-2005 2640 2640 Fu Zhen Director Female 29 2002-2005 0 0 Zhao Man Independent Director Female 51 2002-2005 0 0 Leng Mingquan Independent Director Male 48 2002-2005 0 0 Huang Wencai Chairman of Supervisory Committee Male 34 2002-2005 0 0 黎才杰 Supervisor Male 40 2002-2005 0 0 Wang Guobin Supervisor Male 32 2002-2005 0 0 Luo Weneng Supervisor Male 57 2002-2005 0 0 Ming Jinhua Supervisor Female 34 2002-2005 0 0 Chen Liurong Vice GM Male 39 2002-2005 0 0 Wang Xiangyun Vice GM Female 40 2002-2005 0 0 (II) Particulars about Directors and Supervisors holding positions in shareholding entities Name Holds position in Position Zheng Jirong China Greatwall Assets Management Co., Ltd. Vice section Haikou Office director (III) Annual payrolls 1. Payrolls for the directors, supervisors and senior management are decided in accordance with the relevant standards of the company on salary and positions. 2. For the year 2001, the overall annual payrolls of the directors, supervisors and senior 8 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders managements are amounted to RMB258 thousand. The annual payrolls of the top-3 directors are amounted to RMB126 thousand. The annual payrolls of the top-3 managements are amounted to RMB81.8 thousand. The allowances for independent directors are amounted to RMB12 thousand (since July). 3. The range of the payrolls for the directors, supervisors and senior managements: 40~50 thousand --------- 5 people 20~40 thousand ----------1 people below 20 thousand -------1 people 4. The directors who are not taking salaries from the Company: Li Shanhu, Zhen Jirong, Huang Qingwang, Zhu Xinglie, Chen Haixiong and Fu Zhen. Supervisors who are not taking salaries from the Company are: Huang Wencai, Wang Guobin and Luo Wen’en. They takes salaries from the shareholders or relevant entities. (IV) Leaving of directors, supervisors and senior managements in the report term 1. For transferring of job, Liu Chenjing quit from his position of director during the report term. For transferring of jobs, Deng Ping and Xu Zhe quit from their positions of independent directors. For transferring of job, Zhou Jinhua quit from his position of supervisor. 2. Zhang Xiaolin quit from his position of vice general manager due to transferring of job. (V) Particulars about the employees There are totally 250 employees in the Company, including 165 of service employees, 28 of financial employees, 20 of technical employees, 37 of executive employees, 33.56% of the employees are with diploma or degrees. There is no retired employee in the company. VI. Management Structure (I) Particulars about the management of the company In accordance with the requirement of the relative laws and regulations of the Company Law, Security Law, Rules of Management of Public Companies, and official documents issued by China Securities Supervisory Council, the Company is improving the management structure and establishing a modern enterprise managing system. For the standardization of the operation, the Company established the Shareholders’ General Meeting, the Board of Directors, the Supervisory Committee, and committees specialized in of Strategies, Auditing, Nominating, and Salary Assessment respectively. Managing regulations of “The Article of Association”, “Rules for Shareholders’ General Meeting”, “Rules for the Board Meeting”, “Rules for the Supervisory Committee’s Meeting”, and “Internal Accounting System” were produced. The directors, supervisors and senior managements were exercising their duties with trustfulness and hardworking, and under the regulations of the “Article of Association” and “The Rules of Share Listing of Shenzhen Stock Exchange”. Information about the management of the Company was disclosed frankly, precisely, completely, and duly. The followings are the specifications about the management structures of the Company. 1. About the shareholders and shareholders’ general meeting: The Company secures the rights of au pair of the shareholders, especially the minority 9 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders shareholders, to ensure they’re with the ability in exercising their rights. “The Rules for Shareholders’ General Meeting” was produced to rule the calling and holding of the meeting. The associated transactions were on basis of reasonable and justice with no harming of the benefit of the minority shareholders. 2. About the relationship between the controlling shareholder and the Company: The behaviors of the controlling shareholders are legalized and acts no interference surpassing the shareholders’ general meeting and/or indirectly. The Company is completely separated from the controlling shareholder in the aspect of personnel, assets, and financing. The Company is accounting independently and undertakes the liabilities and ventures by itself. 3. About the directors and the Board: The directors were elected with respecting of the procedures stated in the Article of Association. The formation of the Board was in corresponding with the relevant laws and regulations. The Board of Directors produced “Rules of the Board Meeting” in purpose of ruling the behaviors of the directors in the Board Meeting and the shareholders’ general meeting. 4. About the supervisors and the Supervisory Committee: The supervisors were elected with respecting of the procedures stated in the Article of Association. The formation of the Committee was in corresponding with the relevant laws and regulations. The Committee produced “Rule of the Supervisory Committee’s Meetings” in purpose of ruling the behaviors of the supervisors in the company. For the responsibilities representing the benefits of the shareholders, the Committee supervised on the legality of the behaviors of the financial departments, the directors, and the senior managements. 5. About information disclosure The Company produced “Regulations of Information Disclosure”. The secretary of the Board was authorized to in charge of the information disclosure and respond inquires of the shareholders. The Company implemented information disclosing under the principles of truthful, accurate, completed, and duly to ensure all the shareholders is able to get information of the Company equally. (II) Particulars about the independent directors 2 positions of independent directors were setup within the Board of Directors. Since the engaging of the independent directors, they presented the board meeting and the shareholders’ general meeting actively, and issued independent opinions on the significant decision making in accordance with the relevant regulations. (III) Separation with the controlling shareholder in aspects of business, personnel, assets, organization and financing. The Company is completely separated with the controlling shareholders in the said aspects and has its own abilities in business operation and management. 1. In the aspect of business: the company has its independent and complete business operation capability. There is no common business range of the controlling shareholder and the Company. 2. In personnel: The labor management, personnel and salary management are operated independently. All of the senior managements were engaged by the Board of Directors, while 10 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders other managements are under the assessment of the personnel department. None of the senior managements takes job in the shareholding party. 3. In assets: The company owns the assets completely and runs its operations independently. The assets are completely separated from the controlling shareholder. 4. In organization: The company has a mature and independent organization structure, which completely separated from the controlling shareholder. The shareholders’ general meeting, the Board of Directors and the Supervisory Committee were setup in accordance with relevant laws and operated under regulations. The Company has its own office that separated from that of the shareholders. 5. In accounting: The company has its own independent accounting division, accounting system, and bank account. There was not any connection between the accounting clerks and the controlling shareholders. VII. About the Shareholders’ General Meeting The Company announced holding of the Shareholders’ General Meeting 2001 on the May 24, 2002 issues of Security Times and Hong Kong Commercial Daily. The meeting was held in the international convention hall of South China Grand Hotel (property of the Company) on June 25th, 2002. 5 shareholders presented the meeting representing 100,416,100 shares (takes 27.58% of the total shares). The meeting was notarized by the lawyers from Hainan Fangyuan Lawyers Office. The following proposals were passed as resolutions through open balloting. 1. Annual Report of the Board of Directors 2001 2. Annual Report of the Supervisory Committee 2001 3. Annual Report of the Company 2001 and its Summary Version 4. Financial Statement 2001 5. Profit Distribution Preplan 2001 6. Proposal on drawing and deducting of asset devalue reserves 7. Proposal of term altering of the Board of Directors 8. Proposal of term altering of the Supervisory Committee The resolutions were published on the June 26, 2002 issues of Security Times and Hong Kong Commercial Daily. (V) Particulars about the changing of directors and supervisors 1. As the resolutions of the Shareholders’ General Meeting 2001, Li Shanhu, Zheng Jirong, Li Yuanbin, Huang Qingwang, Liu Juntao, Li Wei, Zhu Xinglie, Chen Haixiong and Fu Zhen were elected the directors of the 4th term Board of Directors. Zhao Man and Leng Mingquan were elected the independent director of the 4th term Board of Directors. Liu Chengjin was approved to quit from the position of director, while Deng Ping and Xu Zhe were approved to quit from the positions of independent directors. Huang Wencai, Wang Guobin and Luo Wen’en were elected the supervisors of 11 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders the 4th term Supervisory Committee as the representative of the shareholders, while Ming Jinhua and Li Caijie were approved to be the supervisor of the 4th term Supervisory Committee as the representative of the employees. Zhou Jinhua was approved to quit from the position of supervisor. VIII. Report of the Board of Directors (I) Analyzing of business operation Since 2002, the Company is fully utilizing the advantage of the major business in accordance with the annual business plan. New marketing strategies were adopted in consolidating the current market and expanding in the international market. New company was established to expand the business operation and increase profitability. On one hand, basing on the consolidating of current domestic market, emphasizes been laid on the development of relationships with tour agents and business tour agents in areas of north, southwest and central China to increase the portion of business tours. On the other hand, Sanya Operation Company was established to develop leasing project in Dadonghai tourism district and develop on-water entertainment services. The major business income realized in the current year was RMB24.28 million, which takes 92.67% of the annual business plan and increased by 7.19% over that of the previous year. Realized RMB0.23 million takes 92% of the annual business plan. (II) Operation of the Company 1. Major business range The business range of the Company covers: developing of real-estate, hotel & food services, tour services, photographing, gardening, crop & oil products, textile, general retailing, hardware and electronics, commodity, industrial materials, metal materials, machinery equipment, and tickets agents. 2. Operation of the business (1) The Company is a public company involved in tourism and service providing. Under the good condition of the tourism market in Hainan is going uphill, the Company adjusted its business strategy in full range. Sanya company was established and the entertainment company was restored to business. The Company also been entrusted to operate 90% of the share capital of Haikou Luoniu Mount Coach Co., Ltd., 32% of the share capital of Hainan Shenluoshan National Forest Park Investment Co., Ltd., and 60% of the share capital of Haikou Holiday Beach Development Co., Ltd. which were held by Yangpu Haiya Investment Co., Ltd. These businesses enlarged the business range of the Company and enforced the profitability of the Company. (2) Improve the managing system, through the managing of the Company and out leasing of some projects, to enforce the internal business management and optimizing of resources. A good operation situation has been established by specialized operation, standardized service, and cross stimulation. Therefore the operation situation of the Company has been greatly improved. (3) Reduce debts by positive means. “Debt reformation agreement” has been engaged with Communication Bank Hainan Branch, Hainan Technical Venture Investment Co., Ltd. “Agreement of Understanding” was engaged with the Clearing Team of Hainan Development Bank. “Debt Transferring Agreement” was engaged with Fujian Hui’an Construction and Installation Co., Ltd. Thus the burden of debt was partially released from the Company. In the mean time, through negotiation with the taxation department, reassessment was undertaken on the 12 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders Company and the hotel estate tax. Taxation clearance was completed for year 2000 and 2001. This saved the Company from over taxed on the estate. For year 2002, the Company realized major business turnover of RMB24,280,000, gross profit ratio at 92.63%, operational net profit of RMB8,966,000 and net profit of RMB4,755,000. 3. Business situation of the full subsidiaries of the Company. (1) South-China Grand Hotel is one of the full subsidiaries of the Company primarily involved in operation of hotel, food and tourism services. The hotel realized major business turnover of RMB21,702,000 in the report term, which decreased by 4.19% than the previous year, takes 89.38% of the major business turnover of the Company. (2) Sanya Operation Branch Company is another full subsidiary of the Company primarily involved in tourism services. It realized major business turnover of RMB2,578,000, which takes 10.62% of the total major business turnover of the Company. (3) Income from the entrusted Haikou Luoniu Mount Tourism Coach Co., Ltd., Hainan Shenluo Mount National Forest Part Investment Co., Ltd. and Haikou Holiday Beach Development & Management Co., Ltd. were amounted to RMB900,000. (4) Major products that takes 10% of the major business turnover or major business profit or over (in thousand RMB) Name of the products Sales income Sales cost Gross profit ratio Rent of hotel rooms 16,389 11 99.93% Restaurants 3,732 1,748 53.17% Leasing and other income 4,159 29 99.31% 4. Problems encountered in the operation and solutions In the operation of year 2002, for the on-water entertainment project of Dadonghai didn’t approved by the government, the major business turnover achieved only 92% as planned. Facing the possible difficulties and problems, the Company enforced the capital reconstruction procedure. Depending on the advantage of major business, the Company took over the operation of 3 enterprises from Hainan Yangpu Haiya Company to enlarge the profitability. 5. No prediction was made on the profitability of the Company for the current year. (III) Investment 1. The Company issued B-shares and A-shares in 1996 and 1997 respectively and raised RMB124,050,000 of proceeds. Among which RMB19,860,000 has been put into other investment through legal procedures, the rest of RMB90.69 million was adopted by Hainan Dadonghai Tourism Centre Group Co., Ltd., and RMB13.50 was adopted by Hainan Dadonghai Tourism Co., Ltd. 2. There isn’t any non-raised investment project in the report term. 13 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders (IV) Financial situation of the Company (1) Major financial indices and cause of change Items 2002 2001 Changed by Causations (%) Total asset 201,984 227,339 -11.15 Drawing of depreciation, amortizing of land using right and expenses, payment for account payable Long-term 88 92,932 -99.91 Transferring of long-term liabilities liabilities expire within one year Shareholders’ 12,128 7,353 64.94 Transferring of gains from debt equity reforming into reserves Operation profit 8,966 14,823 -39.51 Decreasing of allowance income Net profit 4,775 4,324 10.43 Increasing of gains from debt reforming (V) The macro business environment and governmental policies of the industry didn’t changed significantly for the current year. (VI) The CPA issued auditor’s report with explanatory statements but no qualified opinion for the Company. The followings are the presentations of the Board of Directors on the relevant issues. 1. The items involved in the auditor’s report and the basic attitude of the CPA on these items Without qualifying our opinion, we draw attention to note 2 to the financial statements which indicates that the Company reported net current liabilities of RMB143,437,000 and accumulated losses of RMB399,426,000 as at 31 December 2002. These conditions, along with other matters as set out in note 2, indicate the existence of a material uncertainty which may cause significant doubt about the Company's ability to continue as a going concern. 2. Opinions of the Board of Directors, Supervisory Committee and senior managements on these issues. The Board of Directors, Supervisory Committee and senior managements take for, the amount of overdue debt and accumulated operational loss are at big figure, the Company involved in many lawsuit events, the major assets have been sealed. These were primarily caused by the former controlling shareholder – Hainan Dadonghai Tourism Centre Group Co., Ltd., who occupied the proceeds raised from share placing. That caused the Company find no way to expand its business investment, the major business income decreased successively for years due to reducing of consolidating range, the Company’s weak in debt returning, that brought more overdue debt and lawsuits, finally caused the assets of the Company been sealed. On the other side, the accumulated operational loss has reached a very high level due to successively decreasing of major business incomes for years, and the tracing-back adjustment on the false profit of years of 1993~1997 as well as the drawing of reserves. 3. Influence of these events on the Company 14 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders These events do influence the operation of the Company, primarily present in the circulation of fund, secondary financing, and investment on new projects. 4. Possibilities of reducing the influence of the aforesaid events Carry on negotiation with the creditors, push forward the reforming of debts, make every effort to reduce the debts to the lowest level, consolidate the operation and management of current business projects, and develop new profit point. 5. Practical steps of reducing the influence (1) Consolidating the current market, continue to develop the market of both domestic and overseas. (2) Emphasize on the coordinating with the relevant government department of Sanya city. Carry on the application for approval of the business projects of Sanya Operation Branch and Entertainment Company, to enlarge the business range and increase major business turnover. (3) Continues to enforce financial management, clear account receivables, and control the cost and expenditures. (4) Negotiate with China Agriculture Bank Sanya Branch, Commercial Bank Hainan Branch, China Oriental Asset Management Co., Ltd., and China Tourism Trust & Investment Company on the plans of debt reforming. (VII) Business plan for year 2002 1. Carry on the negotiation with the creditors and government departments to release the burden of debts. 2. Full adopt the advantage of operation and management, operate the entrusted assets to develop new profit points and cut down the costs. 3. Stress on operation and managing of the major businesses, enforce the internal financial management, strictly control the budgets, implement full scale cost management, continues to develop potential capabilities. 4. Go all out on standardizing and systemizing of management. Perform good job in information disclosing and the works of “3-meetings”. 5. Push forward the enterprise culture construction, upgrade the employees to a higher level in business capability and overall diathesis. (VIII) Daily work of the Board of Directors 1. Board meetings and resolutions during the report term (1) The 17th meeting of the 3rd term Board of Directors was held on April 3, 2002. The following resolutions were passed: Annual Report 2001 of the Board of Directors Annual Report 2001 of the Company 15 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders Financial Settlement 2001 Profit distribution preplan of 2001 Proposal on drawing of asset devalue reserves Presentations on the events referred by the auditors’ report The proposal of restoring in the stock market raised by the Company The proposal of debt reforming for year 2002 The resign of Mr. Zhang Xiaolin from the position of vice general manager (2) The 18th meeting of the 3rd term Board of Directors was held on April 26, 2002. The 1st Quarterly Report of 2002 was passed. (3) The 19th meeting of the 3rd term Board of Directors was held on May 23, 2002. The following resolutions were passed: The proposal of term-altering of the Board of Directors The proposal of holding the Shareholders’ General Meeting 2001 on June 25, 2002 (4) The 1st provisional meeting of the Board of Directors was held on June 14, 2002. The proposal of nominating Leng Mingquan as the nominee of independent director of the 4th term of Board of Directors was passed. (5) The 1st meeting of the 4th term Board of Directors was held on June 25, 2002. the following resolutions were passed by the meeting. Director Li Shanhu was elected the Chairman of the 4th term Board of Directors, Director Zhen Jirong was elected the vice Chairman. The report of self-inspection on establishing of modern enterprise managing system was passed and proved to be submit to China Security Supervisory Council, National Economic and Trade Council, China Security Supervisory Council Haikou Special Office and Hainan Provincial Economic and Trade Bureau. The proposal of restoring Hainan Dadonghai Tourism Centre (Holdings) Co., Ltd. Entertainment Company to business operation. The proposal of incorporating Hainan Dadonghai Tourism Centre (Holdings) Co., Ltd. Sanya Operation Branch. (6) The 2nd meeting of the 4th term Board of Directors was held on July 30, 2002. The following resolutions were passed: The Interim Report 2002 and its Summary Version 16 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders The presentations on the Interim Financial Report of Year 2002 The proposal on drawing and deducting of asset devalue reserves (7) The 3rd meeting of the 4th term Board of Directors was held on October 26, 2002. The followings are adopted as resolutions: The 3rd Quarterly Report 2002 The establishing of committees specialized in strategy, auditing, nominating, and salary assessment. (IX) The profit distribution preplan or capitalization of capital reserves In accordance with the auditing report of Hainan Chongxin CPA, the Company realized net profit of RMB227,182.89. Counting on the undistributed profit carried down from previous years amounted to RMB-403,831,916.17, the profit distributable of current year is RMB-403,604,733.28. The Board of Directors decided that the profit after tax of current year would be used in covering previous losses. No profit after tax will be distributed. No capitalization of capital reserves will be implemented. (X) Press medias assigned by the Company are Security Times and Hong Kong Commercial Daily. IX. Report of the Supervisory Committee (I) Work Summary In the report period, the Supervisory Committee held altogether five meetings. 1. The 12th meeting of the 3rd Supervisory Committee was held on August 3, 2002. The meeting examined and adopted: (1) 2001 Work Report of the Supervisory Committee; (2) 2001 Annual Report and the Summary; (3) 2001 Financial Settlement Report; (4) Application for Recovering Listing to Shenzhen Stock Exchange; (5) Opinion of the Supervisory Committee on the Some Statements of the Board. 2. The 13th meeting of the 3rd Supervisory Committee was held on May 23, 2002. The meeting examined and adopted: (1) Approval of Huang Wencai, Luo Wen’en and Wang Guobin to be shareholders’ representative supervisor candidates of the 4th Supervisory Committee; (2) Approval of Ming Jinhua and Li Caijie to be employees’ representative supervisor candidates of the 4th Supervisory Committee. 3. The 1st meeting of the 4th Supervisory Committee was held on June 25, 2002. The meeting examined and adopted: Huang Wencai was elected Chairman of the 4th Supervisory Committee. 17 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders 4. The 2nd meeting of the 4th Supervisory Committee was held on July 30, 2002. The meeting examined and adopted: 2002 Semi-Annual Report and the Summary. 5. The 3rd meeting of the 4th Supervisory Committee was held on October 26, 2002. The meeting examined and adopted: 2002 3rd Quarter Report. (II) Independent Opinion In the report year, the Supervisory Committee seriously implemented various supervisory functions and safeguarded the interest of the Company and the shareholders according to its duties specificed in the PRC Company Law and the Articles of Association of the Company. 1. Operation According to the Law In the report period, the Supervisors attended all the Board meetings as non-voting delegates. In the opinion of the Supervisory Committee, the Company conducted its operation in a stadandardized way, implemended various resolutions in a practical way, the decision-making procedures complied with the relevant provisions of the PRC Company Law and the Articles of Association of the Company; the Company established complete internal control system; directors and senior executives did their jobs with due diligence in a work-respecting and honest way, and performed no action against the laws, regulations, the Articles of Association or harmful to th einterest of the Company. 2. Financial Inspection Hainan Cong Xin Certified Public Accountants and Grant Thornton Certified Public Accountants audited the Company’s 2002 Financial Report according to the Chinese Accounting Standards and the International Accounting Standards and produced unqualified auditor’s report with explanatory notes. In the opinion of the Supervisory Committee, the Auditor’s Report truly reflected the Company’s financial position and operation result of the year. 3. The year the Company made the latest issue is 1997. Except the small amount which has been invested in the projects as committed, most of the proceeds raised through the issuing has been diverted by the original principal shareholders. Reserve for bad debts has been fully provided and the projects have been stopped as they have become out of date. 4. In the report period, the Company had not been involved in such activities as acquisition and sales of assets. 5. In the report period, the Company had not been involved in any related transactions. 6. Hainan Cong Xin Certified Public Accountants and Grant Thornton Certified Public Accountants audited the Company’s 2002 Financial Report according to the Chinese Accounting Standards and the International Accounting Standards and produced unqualified auditor’s report with explanatory notes. The Board of Directors made special explanation on the events involved in the report. In the opinion of the Supervisory Committee, the auditor’s report has truly and objectively reflected the Company’s financial position and operation result. The explanation of the Board of Directors on the events involved in the auditors’ reserved opinion was in compliance with the Company’s practical situation and the measures planned to be taken are practical and effective. The Supervisory Committee shall urge and assist the Board of Directors and the management to carry out the measures as soon as possible so as to improve the Company’s financial position and operation 18 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders situation and ensure the Company to conduct normal and sustainable operation. X. Significant Events (I) Material Lawsuits and Arbitrations 1. In the report period, the Company had no material lawsuits or arbitrations. 2. Material Lawsuits and Arbitrations Disclosed in 2002 Semi-annual Report (1) According to the judgment of Hainan Higher People’s Court, the Company owed RMB 30,978,051.00 and payable interest of RMB 5,144,638 in arrears for completed projects to No.2 Engineering Bureau under the Ministry of Railways (No. 2 Bureau). As of December 31, 2001, the Company repaid RMB 34,678,270.00, not including the fee of title transfer. (2) The Company provided guarantee for the loan of RMB 10 million borrowed by the original shareholder Dadonghai Group Co. from Bank of Communications, Hainan Branch. The loan was overdue. Sanya Intermediate People’s Court judged that Company should bear the liability for guarantee and attached the Company’s real estate with title certificate No. of SHZFZZ No. 97. The Company stated the principal and interests of the loan as estimated liabilities in accounts. (3) The Company obtained loan of RMB 5 million and long-term credit loan of RMB 6 million from Bank of Communications, Hainan Branch by means of mortgage on December 23, 1997. The loan was overdue. Sanya Intermediate Court judged that Company should repay the principal and corresponding interests and attached the Company’s real estate with title certificate No. SHZFZZ No. 102. (4) The Company borrowed loans of RMB 11.4296 million and USD 88,000 from Hainan Hong Kong and Macao International Trust Investment Co., Ltd. The loans were overdue. Haikou Intermediate Court judged that Company should repay the said principals and corresponding interest and attached the Company’s real estate (1-8 storey of South China Hotel) with title certificate No. of SHZFZZ No. 96. On June 25, 2002, China Orient Asset Management Corporation replaced Hainan Hong Kong and Macao International Trust Investment Co., Ltd. and became the Company’s creditor. (5) China Tourism International Trust Investment Co., Ltd. brought an action in Beijing Intermediate People’s Court against the Company in respect of the loan with the principal of RMB 20 million. After the Company appealed to Beijing Higher People’s Court, Beijing Higher People’s Court judged with (2000) GJZZ No. 20 Judgment that the Company should repay the principal of RMB 20 million and corresponding interests on March 30, 2000. (The Company has repaid RMB 9.2 million). (6) South China Hotel under the Company borrowed loan of RMB 5 million from the original Orient City Credit Cooperative in 1994. On September 9, 2002, the Company and the liquidation team for dissolution of Hainan Development Bank reached an agreement on debts reorganization. The Company would repay the aforesaid debt with the certificate of the land transfer right and interest at the price of RMB 2.40 million. In September, 2002, the Company transferred the said certificate to the creditor and the case has been closed. 19 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders (II) In the report period, the Company had conducted no such activities as assets acquisition, sales, absorption or consolidation. (III) In the report period, the Company conducted no related transactions. (IV) Material Contracts in the Report Period 1. On August 8, 2002, the Company and Yangpu Haiya Investment Co., Ltd. entered into Letter of Intent for Equity Transfer, the Company plans to receive 90% equity of Haikou Luoniushan Tourism Automobile Lease Co., Ltd. with the value of RMB 2.70 million held by Yangpu Haiya Investment Co., Ltd. based on the net asset per share at the time of entering into the formal equity transfer agreement; 32% equity of Hainan Mt. Shenluo National Forestry Park Investment Co., Ltd. with the value of RMB 16 million; and 60% equity of Haikou Holiday Seabeach Development and Management Co., Ltd. with value of RMB 6 million. The Company and Yangpu Haiya Investment Co., Ltd. entered into Equity Custody Agreement. On the same day, the Company accepted the custody of the corresponding equity of the aforesaid companies held by Yangpu Haiya Investment Co., Ltd. prior to the aforesaid transfer with the custody term from August 1, 2002 to July 31, 2003 with the custody fee amounting to RMB 2,300 thousand. The said transaction has brought about additional net assets amounting to RMB 851 thousand in the report year. 2. On September 19, 2001 and December 5, 2001, China Great Wall Assets Management Co., Ltd. and Haikou Food Co., Ltd. entered into Equity Transfer Agreement and Equity Custody Agreement respectively. According to the agreements, Great Wall Co. trusted all rights of 60 million state-owned shares of the Company held by it except disposition right to Haikou Food Co. 3. In the report period, the Company had no material guarantees offered or any guarantee which had not been implemented. 4. In the report period, the Company neither entrusted others to manage cash assets nor had any cash assets entrusted to others for management incurred previously and carried down to the report period. (V) In the report period, the Company or any shareholder holding over 5% of the share capital had not been involved in any commitments. 1. In the report period, the Company prepared 2002 Profit Distribution Proposal and implemented the proposal accordingly in 2002. 2.On September 19, 2001 and December 5, 2001, China Great Wall Assets Management Co., Ltd. and Haikou Food Co., Ltd. entered into Equity Transfer Agreement and Equity Custody Agreement respectively. The public notice on the equity transfer was published on Securities Times and Hong Kong Commercial Daily dated January 15, 2003 and the equity transfer procedures were completed with China Securities Registration and Clearing Co., Ltd. Shenzhen Branch. After the equity transfer was finished, the Equity Custody Agreement became invalid automatically. (VI) Engagement of CPA In the report period, the Company renewed the engagement of Hainan Cong Xin Certified Public Accountants and Grant Thornton Certified Public Accountants as the Company’s domestic and international auditors. The two certified public accountants had offered auditing services to the 20 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders Company successively for two years and the Company paid the remuneration totally RMB 570,000.00 to these two certified public accountants. (VII) In the report period, the Company, the Board of Directors or any director had never been inspected, experienced administrative penalty or been criticized by circulating a notice of criticism by China Securities Regulatory Commission, or condemned in public by Shenzhen Stock Exchange. (VIII) This report is prepared in both Chinese and English. Should there be any difference in interpretation between the two versions, the Chinese version shall prevail. XI. Financial Statement To the members of Hainan Dadonghai Tourism Centre (Holdings) Co., Ltd. (incorporated in the People's Republic of China with limited liability) We have audited the financial statements of Hainan Dadonghai Tourism Centre (Holdings) Co., Ltd. (the "Company") for the year ended 31 December 2002 on pages 2 to 17 which have been prepared in accordance with International Financial Reporting Standards as promulgated by the International Financial Reporting Standards Board. The financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing issued by the International Federation of Accountants. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements give a true and fair view of the financial position of the Company as at 31 December 2002 and of its profit and cash flows for the year then ended. Without qualifying our opinion, we draw attention to note 2 to the financial statements which indicates that the Company reported net current liabilities of RMB143,437,000 and accumulated losses of RMB399,426,000 as at 31 December 2002. These conditions, along with other matters as set out in note 2, indicate the existence of a material uncertainty which may cause significant doubt about the Company's ability to continue as a going concern. Grant Thornton Certified Public Accountants Hong Kong 15 April 2003 Income statement for the year ended 31 December 2002 21 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders Notes 2002 2001 RMB'000 RMB'000 Turnover 4 24,280 22,652 Cost of sales (3,121) (3,509) Gross profit 21,159 19,143 Other income 5 5,845 21,067 Selling, general and administrative expenses (18,038) (25,387) Profit from operations 8,966 14,823 Net finance costs 6 (4,191) (10,499) Profit before taxation 7 4,775 4,324 Taxation 8 - - Profit for the year 20 4,775 4,324 22 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders Earnings per share (RMB Fen) 9 1.31 1.19 Balance sheet as at 31 December 2002 Notes 2002 2001 RMB'000 RMB'000 ASSETS AND LIABILITIES Non-current assets Property, plant and equipment 10 105,431 110,711 Land use right 11 50,222 51,364 155,653 162,075 Current assets Land exchange right 12 30,837 49,445 Inventories 13 1,857 2,317 Trade and other receivables 14 1,931 1,766 Tax recoverable 6,011 6,891 Cash at banks and in hand 5,685 4,845 46,321 65,264 Current liabilities Bank loans 15 105,128 56,751 23 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders Trade and other payables 84,630 70,303 189,758 127,054 Net current liabilities (143,437) (61,790) Non-current liabilities Bank loans 15 88 50,140 Other payables - 42,792 88 92,932 Net assets 12,128 7,353 CAPITAL AND RESERVES Share capital 16 364,100 364,100 Reserves 17 (351,972) (356,747) Shareholders’ funds 12,128 7,353 Cash flow statement for the year ended 31 December 2002 2002 2001 24 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders RMB'000 RMB'000 Cash flows from/(used in) operating activities Profit before taxation 4,775 4,324 Adjustments for : Depreciation 5,391 7,632 Provision/(Written back) for doubtful receivables 1,067 (383) Amortisation of land use right 1,142 1,485 Interest income (3) (1) Interest expense 4,194 10,500 Gain on disposal of land exchange right - (12,096) Gain on disposal of property, plant and equipment (244) (68) Operating profit before changes in working capital 16,322 11,393 (Increase)/Decrease in trade and other receivables (1,232) 1,131 Decrease in inventories 460 102 Decrease in tax recoverable 880 1,151 Decrease in trade and other payables (4,751) (28,356) Cash used in operations (4,643) (25,972) Net cash generated from/(used in) operating activities 11,679 (14,579) Cash flows from/(used in) investing activities Purchases of property, plant and equipment (216) (395) 25 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders Proceeds from sales of property, plant and equipment 349 3 Proceeds from sales of land exchange right - 18,778 Interest received 3 1 Net cash generated from investing activities 136 18,387 Cash flows from financing activities Increase in bank loan - 140 Repayment of bank loans (1,675) - Repayment of other payables (9,300) - Net cash (used in)/generated from financial activities (10,975) 140 Increase in cash 840 3,948 Cash at beginning of year 4,845 897 Cash at end of year 5,685 4,845 Statement of changes in equity for the year ended 31 December 2002 Share Capital Accumulated capital reserve losses Total RMB'000 RMB'000 RMB'000 RMB'000 26 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders Balance at 1 January 2001 364,100 47,454 (408,525) 3,029 Profit for the year - - 4,324 4,324 Balance at 31 December 2001 and as at 1 January 2002 364,100 47,454 (404,201) 7,353 Profit for the year - - 4,775 4,775 Balance at 31 December 2002 364,100 47,454 (399,426) 12,128 Notes to the financial statements for the year ended 31 December 2002 1. GENERAL Hainan Dadonghai Tourism Centre (Holdings) Co., Ltd. ("the Company") was established as a joint stock limited company in the People's Republic of China ("the PRC") on 26 April 1993 as part of the reorganisation of its predecessor, Hainan Sanya Dadonghai Tourism Centre Development Co., Ltd. pursuant to the approval on 3 January 1993 of the Joint Stock Committee of Hainan Province. On 6 May 1996, the Company transferred part of the existing assets and liabilities of its non-core business to a new company, Hainan Dadonghai Tourism Industry (Holdings) Co., Ltd. After the restructuring, the Company retained the assets and liabilities relating to the business of South China Hotel. The principal activities of the Company are hotel operations and management. The registered office of the Company is located at Dadonghai, Sanya, Hainan, PRC. The average number of employees of the Group during the year was 250 (2001: 337). 2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS As shown in the financial statements, the Company reported net current liabilities of RMB143,437,000 and accumulated losses of RMB399,426,000 as at 31 December 2002. Further, certain of the bank loans have been overdue and the bankers and other lenders have demanded repayment of amounts due to them. The Company is in the process to negotiate with some of the bankers and other lenders to postpone the repayment of certain bank loans and other payables but no formal agreement has been reached up to the date of approval of the financial statements. Notwithstanding the foregoing, the financial statements have been prepared on a going concern basis, the validity of which is dependent upon the successful completion of formal debts restructuring 27 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders agreement between the Company and its bankers and other lenders. The directors are of the opinion that the Company will be able to secure the ongoing support of its bankers and other lenders, finalise the debts restructuring arrangement as mentioned above in order to enable the Company to continue as a going concern. On this basis, the directors consider that it is appropriate to prepare the financial statements on a going concern basis. The financial statements do not include any adjustments that would result if the aforementioned debts restructuring arrangements are not successful. 3. BASIS OF PREPARATION OF FINANCIAL STATEMENTS (Continued) Should the Company be unable to successfully finalise the debts restructuring arrangements, the Company may not be able to continue in business as a going concern. Accordingly, adjustments would have to be made to reclassify non-current assets as current assets and non-current liabilities as current liabilities, to reduce the value of assets to their recoverable amounts and to provide for any future liabilities which might arise. 4. PRINCIPAL ACCOUNTING POLICIES The financial statements on page 2 to 17 are prepared in accordance with International Financial Reporting Standards ("IFRS") issued by the International Financial Reporting Standards Board ("IFRSB") and interpretations issued by the Standing Interpretation Committee of the IFRSB as if those standards had been applied consistently throughout the year. This basis of accounting differs from that used in the statutory accounts of the Company which were prepared in accordance with the accounting principles and the relevant financial regulations applicable to enterprises in the PRC. The financial statements are prepared under the historical cost convention as modified by the revaluation of certain assets and liabilities of the Company. The following principal accounting policies were adopted in preparation of the financial statements of the Company to conform to IFRS : (a) Property, plant and equipment (i) Depreciation Depreciation is provided to write off the cost or valuation of property, plant and equipment over their estimated useful lives, taking into account the estimated residual value, using the straight line method. The estimated useful lives of property, plant and equipment are as follows : Buildings 40 years Plant and machinery 20 years Entertainment equipment 16 years Motor vehicles 7-12 years Other equipment 8 years 5. PRINCIPAL ACCOUNTING POLICIES (Continued) (a) Property, plant and equipment (Continued) 28 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders (ii) Measurement bases Property, plant and equipment are stated at cost or valuation less provision for diminution in value and accumulated depreciation. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to the working condition and location for its intended use. Subsequent expenditure relating to property, plant and equipment is added to the carrying amount of the assets if it can be demonstrated that such expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the assets. When assets are sold, any gain or loss resulting from their disposal, being the difference between the net disposal proceeds and the carrying amount of the assets, is included in the statement of income. (b) Impairment The carrying amounts of the Company's assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. All impairment losses are recognised in the statement of income. Calculation of recoverable amount The recoverable amount of the Company's receivables is calculated as the present value of expected future cash flows, discounted at the original effective interest rate inherent in the asset. Receivables with a short duration are not discounted. The recoverable amount of other assets is the greater of their net selling price and value in use. In accessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market situations. 6. PRINCIPAL ACCOUNTING POLICIES (Continued) (c) Land use right Land use right are stated at cost less provision for permanent diminution in value where necessary and is amortised over 50 years, taking into account the estimated residual value, using the straight line method. (d) Land exchange right Land exchange right are stated at face value less provision for permanent diminution in value where necessary. (e) Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials computed using weighted average method and, where applicable, direct labour and those overheads that have been incurred in bringing the inventories to their present location and condition. Net realisable value is calculated as the actual or estimate selling price less all further costs of completion and the estimated costs necessary to make the sale. 29 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders (f) Foreign currencies Transactions in foreign currencies are translated into Renminbi Yuan at the rates of exchange ruling at the dates of transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into Renminbi Yuan at the rates of exchange ruling at that date. Profits and losses arising on exchange are dealt with in the statement of income. (g) Financial instrument Financial instruments of the Company include loans and receivables, cash and bank balances, creditors and other payables. The accounting policies for various types of investments of the Company are set out in the individual accounting policies associated with these investments. Other financial instruments are stated at cost. (h) Recognition of revenue Revenue from hotel room and other ancillary services are recognised when the services are rendered. 7. PRINCIPAL ACCOUNTING POLICIES (Continued) (i) Related parties Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. (j) Provision A provision is recognised in the balance sheet when the Company has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. (k) Cash and cash equivalent For the purpose of the cash flow statement, cash and cash equivalents comprise cash in hand and amounts repayable on demand with banks and short-term highly liquid investments which are readily convertible into known amounts of cash without notice and which were within three months of maturity when acquired, less advances from banks repayable within three months from the date of the advance. 8. TURNOVER Turnover comprises hotel revenue and other ancillary services revenue. 9. OTHER INCOME 2002 2001 30 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders RMB'000 RMB'000 Compensation from local authority 3,973 7,915 Gain on disposal of property, plant and equipment 244 68 Gain on disposal of land exchange right (see note 19) - 12,096 Waiver of payables 528 - Others 1,100 988 5,845 21,067 10. NET FINANCE COSTS 2002 2001 RMB'000 RMB'000 Interest expense 4,194 10,500 Interest income (3) (1) 4,191 10,499 11. PROFIT BEFORE TAXATION 2002 2001 RMB'000 RMB'000 Profit before taxation is arrived at after charging : Depreciation of property, plant and equipment 5,391 7,632 31 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders Staff cost 3,252 5,337 Amortisation of land use right 1,142 1,485 12. TAXATION The Company provides for taxation on the basis of its income for financial reporting purposes, adjusted for income and expense items which are not assessable or deductible for income tax purposes. 13. EARNINGS PER SHARE Earnings per share was calculated based on the profit for the year of RMB4,775,000 (2001 : RMB4,324,000) and on the weighted average number of 364,100,000 shares (2001 : 364,100,000 shares). 14. PROPERTY, PLANT AND EQUIPMENT Landand Plant and Entertainment Motor Other buildings machiner equipment vehicle equipment Total y RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 At cost less impairments At 1 January 2002 134,254 23,666 9,459 2,615 9,614 179,608 Additions 74 6 80 - 56 216 Disposals - (46) (62) - (273) (381) Reclassification - (1,316) 1,303 (4) 17 - At 31 December 2002 134,328 22,310 10,780 2,611 9,414 179,443 Accumulated depreciation At 1 January 2002 36,100 15,147 6,802 2,235 8,613 68,897 Charge for the year 3,846 813 209 91 432 5,391 Written backon disposal - (19) (56) - (201) (276) 32 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders Reclassification - (2,511) 2,730 - (219) - At 31 December 2002 39,946 13,430 9,685 2,326 8,625 74,012 Net book value At 31 December 2002 94,382 8,880 1,095 285 789 105,431 At 31 December 2001 98,154 8,519 2,657 380 1,001 110,711 15. LAND USE RIGHT 2002 2001 RMB'000 RMB'000 Cost less accumulated amortisation and provision for impairment 50,222 51,364 Land use right represent the right to use the land of Sanya Dadonghai Tourism Centre at Sanya City for a period for 50 years from 1996 to 2046. 16 LAND EXCHANGE RIGHT 2002 2001 RMB'000 RMB'000 At cost 30,837 49,445 Land exchange right represents the face value of a right where the Company can use it as a cash 33 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders coupon for consideration of purchasing land in future. The right can be sold to other parties. The land exchange right was issued to the Company by the Sanya city authority as a result of certain of the land use right in Sanya previously owned by the Company being taken back by the authority. At 31 December 2001, a right with face value of RMB32,568,000 was under restriction for transfer because the original land use right was sequestrated. On 18 September 2002, such restriction was released by the high court of Hainan. 17. INVENTORIES Inventories represent consumable store, food and beverage in relation to hotel operations. 34 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders 18. TRADE AND OTHER RECEIVABLES Included in the trade and other receivables are receivables from a former major shareholder, Hainan Dadonghai Tourism Centre Group Co., Limited of RMB240,519,000 (2001 : RMB240,519,000), and a former related company, Hainan Dadonghai Tourism Industry (Holdings) Co., Limited of RMB54,723,000 (2001 : RMB54,826,000). 2002 2001 RMB'000 RMB'000 Amount outstanding 295,242 295,345 Less : Provision (295,242) (295,242) - 103 The amounts due from these companies are unsecured, non-interest bearing and has no fixed terms of repayment. 19. BANK LOANS 2002 2001 RMB'000 RMB'000 Bank loans 105,216 106,891 Less : Current portion due within one year included under current liabilities (105,128) (56,751) Non-current portion included under non-current liabilities 88 50,140 20. SHARE CAPITAL 2002 2001 35 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders RMB'000 RMB'000 Registered and fully paid : Promoter shares of RMB1 each 109,857 109,857 Legal person shares of RMB1 each 121,143 121,143 45,100,000 "A" shares of RMB1 each 45,100 45,100 88,000,000 "B" shares of RMB1 each 88,000 88,000 364,100 364,100 21. RESERVES Capital Accumulated reserve losses Total RMB'000 RMB'000 RMB'000 Balance at 31 December 2002 47,454 (399,426) (351,972) Balance at 31 December 2001 47,454 (404,201) (356,747) According to the Company Law of the PRC and the Article of Association of the Company, when distributing net profit of each year, the Company shall set aside 10% of its net profits as reported in the statutory accounts for the statutory common reserve fund (except when the fund has reached 50% of the Company's registered share capital) and 5% to 10% for the statutory common welfare fund. These reserves cannot be used for purposes other than those for which they are created and are not distributable as cash dividends. 22. LITIGATION MATTERS AND PLEDGE OF ASSETS As at 31 December 2002, various bankers and lenders have taken legal actions to request the Company to repay the amounts due to them. Most of the land and buildings are pledged or sequestrated to various bankers and lenders to secure bank loans and other borrowings granted to the Company. 36 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders 23. RELATED PARTIES TRANSACTIONS In last year, the Company had the following transaction with one of its major shareholders, The Great Wall Assets Management Company : 2002 2001 RMB'000 RMB'000 Assets exchange - 6,581 The Company exchanged certain of its recreational equipments and two motor vehicles with a total net book value of RMB6,581,000 with The Great Wall Assets Management Company for a land use right at Haikou city. The land use right was later exchanged to a land exchange right amounting to RMB18,778,000 under the approval of the Haikou city authority. The land exchange right was then disposed to a third party at a consideration of RMB18,778,000. The gain from this disposal was RMB12,096,000 (see note 5). 24. IMPACT OF IFRS ADJUSTMENTS ON PROFIT FOR THE YEAR AND NET ASSETS Profit for the year Net assets 2002 2001 2002 2001 RMB'000 RMB'000 RMB'000 RMB'000 As reported in statutory accounts As previously reported 227 1,782 12,128 7,353 Opening balances adjustment - taxation overprovided in last year - 393 - 393 As restated 227 2,175 12,128 7,746 Impact of IFRS adjustments - wavier of interest and other payables recognised as capital reserve in PRC statutory accounts now 37 Hainan Dadonghai Tourism Centre (Holdings) Co.,Ltd. 2002 Annual Report for Overseas Shareholders adjusted as income for the year 4,155 2,542 - - - reversal of opening balances adjustment 393 (393) - (393) As restated for the Company 4,775 4,324 12,128 7,353 25. FINANCIAL INSTRUMENTS (a) Fair value of financial instruments The directors consider that the carrying amount of cash, trade and other receivables, trade and other payables and banks and other loans approximates to their fair value. (b) Credit risks At balance sheet date, the Company has no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet. 26. APPROVAL OF THE FINANCIAL STATEMENTS The financial statements on pages 2 to 17 were approved by the board of directors on 15 April 2003. XII. Documents Available for Inspection 1. Accounting Statements with signatures and seals of the legal representative, Chief Accountant and person in charge of accounting affairs; 2. Original copy of the Auditors’ Report under the seal of the accounting firm and signed by and under the seal of certified accountants. 3. Originals of all documents and manuscripts of Public Notices of the Company disclosed in public in the newspapers as designated by China Securities Regulatory Commission. Hainan Dadonghai Tourism Centre (Holdings) Co., Ltd. April 18, 2003 38