丽珠集团(000513)丽珠Ｂ2002年年度报告（英文版）

LIVZON PHARMACEUTICAL GROUP INC. 2002 ANNUAL REPORT I. IMPORTANT NOTES The Board of Directors of Livzon Pharmaceutical Group Inc. (hereinafter refereed to as the Company) individually and collectively accepts responsibility for the correctness, accuracy and completeness of the con1.1 The Board of Directors of Livzon Pharmaceutical Group Inc. (hereinafter refereed to as the Company) individually and collectively accepts responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions nor errors which would render any statement misleading. The 2002 annual report is written in Chinese and English,the Chinese version is set to be accurate when ambiguities occur in understanding of such two versions. Director Guo Jiaxue and Zhang Yu can’t ensure the reality, accuracy and completeness of the contents of the Report; the reason is:As shareholder,they didn’t take part in the course of choosing the Certified Public Accountants engaged by Livzon Group ,so can’t ensure the report.The investors must pay special attention. Director Guo Jiaxue and independent Director An Chengxin were absent from the Board meeting, in which the 2002 Annual Report was examined, with entrusting Director Zhang Yu and Director Jiang Jian sepereately to attend and vote on his behalf. Chairman of the Board of the Company Mr. Zhu Baoguo, Person in Charge of Financial Mr. An Ning and Deputy General Manager of Financial Dept. Mr. Zheng Weichao hereby confirm that the Financial Report of the Annual Report is true and complete. 1 II. COMPANY PROFILE 1. Legal name of the Company In Chinese: 丽珠医药集团股份有限公司 Short Form in Chinese: 丽珠集团 In English: Livzon Pharmaceutical Group Inc. Short Form in Chinese: LIVZON GROUP 2. Legal Representative: Zhu Baoguo President: Xiao Xiyang 3. Secretary of the Board of Directors: Wang Wuping Representative in charge of Securities Affairs: Li Hao Tel: (0756) 8135888 Fax: (0756) 8886002 E-mail: wangwuping@livzon.com.cn, lihao@livzon.com.cn Contact Address: Livzon Bldg., Guihua North Road, Gongbei, Zhuhai, Guangdong 4. Registered Address: No. 132, Guihua North Road, Gongbei, Zhuhai, Guangdong Office Address: Livzon Bldg., Guihua North Road, Gongbei, Zhuhai, Guangdong Post Code: 519020 Company’s Internet Website: http://www.livzon.com E-mail: zhlivzon@pub.zhuhai.gd.cn 5. Newspapers Chosen for Disclosing Information of the Company: Securities Times, Shanghai Securities News, and Ta Kung Pao (both in Chinese and English) Internet Website Designated by CSRC for Publishing the Annual Report: http://www.cninfo.com.cn The Place Where the Annual Report is Prepared and Placed: Secretariat of the Board of Directors of Livzon Group 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock and Stock Code: Livzon Group (000513) Livzon B (200513) 7. Other Relevant Information of the Company Initial registration date: Jan. 26, 1985 Changed registrations date: Sep. 13, 2002 Address: Administrative Bureau of Commercial and Industrial of Zhuhai Municipal Registered code of enterprise legal person’s business license: QGYZZ Zi No.: 001111 Registered code of taxation: 440401617488309 2 Name and address of Certified Public Accountants engaged by the Company: Domestic: Reanda Certified Public Accountants Co., Ltd. Address: No. 252, Huwan Road, Xiangzhou, Zhuhai International: Ho and Ho & Company Certified Public Accountants Address: Arion Commercial Ctr., 2-12 Queen’s Rd., West, H.K. III. Major Accounting data (In RMB’000) (In this annual report, the amounts are expressed in RMB except for otherwise stated) Items 2002 2001 (as restated) Income 1,601,206 1,395,792 Gross profit 651,195 703,851 Share of profit from associates0 (841) 1,447 Profit before tax 109,176 116,310 (25,255) (27,175) Income tax Profit after tax 91,055 82,001 Minority shareholders’ gains and losses (23,976) (23,928) Net profit as of the year 2002 67,079 58,073 Earnings per share RMB0.22 元 RMB0.19 元 Total share capital 306,035 306,035 Capital and reserve 964,486 906,588 Total assets 1,820,896 1,637,435 Net cash arising from operating activities 305,616 166,068 Net increase (decrease) in cash and cash 62,474 134,083 equivalents Note: (1) The above data were audited by Ho and Ho & Company Certified Public Accountants according to IAS, for reference to investors of B-share only. (2) The Company’s net profit was respectively RMB 61,943,000 and RMB 67,079,000 as audited by Reanda Certified Public Accountants according to CAS and Ho and Ho & Company Certified Public Accountants according to IAS. The difference between the two was RMB 5,136,000. The main reasons for the difference of the net profit were: provision for bad debts was increased by RMB 14,784,000, negative goodwill from purchasing partial equity of subsidiaries was increased by RMB 1,068,000, provision for devaluation of construction in progress was increased by RMB 426,000, amortization of negative goodwill was increased by RMB 195,000 as well as RMB 473,000 of others according to IAS; disposal of subsidiaries’ profit was decreased by RMB 8,262,000, accrued expenses was decreased by RMB 1,111,000, 3 share of profit from associates was decreased by RMB 994,000, depreciation of property, plant and equipment was decreased by RMB 535,000, withdrawal of expenses to be apportioned was decreased by RMB 520,000, amortization of goodwill was decreased by RMB 251,000, and purchasing partial equity of subsidiaries was decreased by RMB 137,000. IV. CHANGE IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDRES (I) Change in share capital 1. Statement of change in share capital (Ended Dec. 31, 2002) Increase/decrease of this time (+, - ) Before the After the Items Allotment Bonus Capitalization of Additional Others change change of share shares public reserve issuance I. Non-circulation shares 1. Promoters’ shares Including: Domestic legal person’s shares 68,056,188 68,056,188 Total non-circulating shares 68,056,188 68,056,188 II. Circulation shares 1. A shares 115,672,310 115,672,310 Including: shares held by senior 80,798 80,798 executives 2.B shares 122,306,984 122,306,984 Total circulating shares 237,979,294 237,979,294 III. Total shares 306,035,482 306,035,482 2. Particulars about the issuance of shares over the previous three years at the end of the report year The Company’s structure of share capital remained unchanged over the previous three years ended the report period, as well as total share capital of 306,035,482 shares. (II) About shareholders 1. Ended Dec. 31, 2002, the Company had totally 45983 shareholders (including 15677 shareholders). 2. Particulars about shares held by the top ten shareholders (ended Dec. 31, 2002) Increase / Holding Type of shares Number of Proportion Full name of Shareholders decrease in the shares at (Circulating/ share pledged/ (%) report year the year-end Non-circulating) frozen China Everbright (Group) Corp. 0 38,917,518 12.72 Non-circulating 0 ShenZhen TAITAI Pharmaceutical Non-circulating: Industry Co., Ltd. 22,379,239 +32,260,916 32,260,916 10.54 0 A shares in circulating: 9,881,677 4 Tiancheng Industrial Co., Ltd. +26,254,595 26,254,595 8.58 B share in circulating 0 Shenzhen Haibin Pharmaceutical Co., +6,752,435 6,752,435 2.21 A share in circulating 0 Ltd. Guangzhou Baokeli Trading Company 0 6,059,428 1.98 Non-circulating 6,059,428 Guoxin Securities Co., Ltd. +3,972,017 3,972,017 1.30 A share in circulating 0 Anxin Securities Co., Ltd. +3,099,479 3,099,479 1.01 A share in circulating 0 Jiashi Growth Profitability Securities +2,697,679 2,697,679 0.88 A share in circulating 0 Investment Fund Hua An Chuangxin Securities +2,532,330 2,532,330 0.83 A share in circulating 0 Investment Fund Kexun Securities Investment Fund +1,913,192 2,218,200 0.72 A share in circulating 0 Notes: (1) The aforesaid Tiancheng Industrial Co., Ltd. and Shenzhen Haibin Pharmaceutical Co., Ltd. are the subsidiary companies of ShenZhen TAITAI Pharmaceutical Industry Co., Ltd. (“TAITAI Pharmaceutical”), who holds 100% equity of the said two companies directly and indirectly respectively; (2) The Company had published the relevant notice on TAITAI Pharmaceutical became the first largest shareholder of the Company by means of consolidated holding in the appointed newspapers for disclosing information dated April 25, 2002. (Public Notice No.: 2002-18) (3) China Everbright (Group) Company of China (“China Everbright”) signed the Agreement of Equity Trusteeship with Xi’an Dongsheng Group Co., Ltd. (“Xi’an Dongsheng”) dated April 12, 2002, which 38,917,518 domestic legal person’s shares of the Company held by China Everbright were trusted by Xi’an Dongsheng. The Company had published the relevant notice in the appointed newspapers for disclosing information dated April 19, 2002. (Public Notice No.: 2002-14) (4) TAITAI Pharmaceutical signed the Agreement of Equity Transfer with Zhuhai Lishi Investment Co., Ltd. (“Zhuhai Lishi”) dated May 9, 2002, which TAITAI Pharmaceutical acquired 6,059,428 shares of the Company purchased by Zhuhai Lishi from Guangzhou Baokeli Trading Company (“Guangzhou Baokeli”), and taking 1.98% of total share capital of the Company. (For detail, please refer to the relevant Public Notice of TAITAI Pharmaceutical dated May 9,2002) (III) Particulars about the largest shareholder ShenZhen TAITAI Pharmaceutical Industry Co., Ltd.: Legal representative: Zhu Baoguo Date of foundation of the Company: Dec. 18, 2002 Main business and production: Manufacture and operation of medicinechina, essence, troche, capsule, granule and hormonal troche. At present, TAITAI Pharmaceutical was mainly engaged in manufacture and sale of healthcare products and western medicine products, such as Taitai Beauty Essence and Menocare Essence, Dexamethasone Acetate Adhesive Tablets, Sulbactam Sodium/ Cefoperazone Sodiumm for Injection, Ampicillin Sodium and Sulbactam Sodium for Injection and Ampicillin Catsules, etc. Registered Capital: RMB 406.62 million 5 Structure of equity: Total share capital of 406.62 million shares, including 301.62 million legal person’s shares and 105 million A shares in circulating. (IV) Particulars about the controlling shareholder of ShenZhen TAITAI Pharmaceutical Industry Co., Ltd. Name of the controlling shareholder: Shenzhen Beiyeyuan Investment Co., Ltd. Legal Representative: Liu Guangli Date of Establishment: Jan. 21, 1999 Main business: investment and setting up industry, domestic trading and supply and marketing of materials. Registered capital: RMB 80 million Structure of equity: Zhu Baoguo invests RMB 72 million, taking 90% of the total investment Liu Guangxia invests RMB 8 million, taking 10% of the total investment Mr. Zhu Baoguo: 40, Chinese nationality, has not enjoy the residence power in the other country or area. Main experience: he experienced in director of Henan Xinxiang Water Resin Institution, vice chairman of the Board and concurrently of Henan Fenglong Fine Chemical Produce Co., Ltd., vice chairman of the Board and concurrently general manager of Shenzhen Amir Foods Co., Ltd., vice chairman of the Board and concurrently general manager of Shenzhen TAITAI Health Foods Co., Ltd., chairman of the Board and general manager of Shenzhen TAITAI Pharmaceutical Industry Ltd.. He is now Chairman of the Board of the Company. (V) Particulars about legal person shareholder holding over 10% of the total shares: Xi’an Dongsheng Group Co., Ltd. Legal representative: Guo Jiaxue Date of Establishment: Mar. 10, 2000 Main Business: Development, production and sale of scientific instrument; mechanical and electrical equipment, industrial raw material and auxiliary material, textile, construction material, sales of metal material (excluding colored metal material); auto lease business, training (excluding national special approval), technology serve. Registered capital: RMB 0.15 billion V. PARTICULARS ABOUT DIRECTORS, SUPERVISORS, SENIOR EXECUTIVES AND EMPLOYEES (I) About directors, supervisors and senior executives 1. Basic information (Dec. 31, 2002) Holding Holding Office Reason of Name Title Gender Age shares at the shares at the term change year-begin year-end Jun. 2002- Zhu Baoguo Chairman of the Board Male 40 0 0 - Jun. 2005 Xu Xiaoxian Vice Chairman of the Male 66 Resigned 48476 48476 - 6 Board from the post of director in Jan. 2003 Vice Chairman of the Jun. 2002- Yi Zhenqiu Male 58 0 0 - Board Jun. 2005 Vice Chairman of the Guo Jiaxue Male 36 Ditto 0 0 - Board Gu Yueyue Director Female 52 Ditto 0 0 - Wang Xiaobin Director Male 48 Ditto 0 0 - Zhang Yu Director Male 42 Ditto 0 0 - An Chengxin Independent Director Male 63 Ditto 0 0 - Jiang Jian Independent Director Male 32 Ditto 0 0 - Gao Dianhe Independent Director Male 59 Ditto 0 0 - Qi Zhan Independent Director Male 37 Ditto 0 0 - Chairman of the Ditto Yuan Guoliu Male 56 0 0 - Supervisory Committee Wang Bo Supervisor Male 36 Ditto 0 0 - Resigned from the post of An Ning Supervisor Male 30 0 0 - supervisor in Jan. 2003 Jun. 2002- Wang Congxin Supervisor Male 42 0 0 - Jun. 2005 Qiu Qingfeng Supervisor Male 31 Ditto 0 0 - Dec. 2002- Xiao Siyang President Male 40 0 0 - Jun. 2005 Jun. 2002- Dong Shaozhi Vice-president Male 61 0 0 - Jun. 2005 Liu Shuqing Assistant president Female 39 Ditto 0 0 - Wang Wuping Secretary of the Board Male 36 Ditto 0 0 - Resigned from the Zhao Rui Person in charge of Fiance Male 36 0 0 - post in Jan. 2003 Particulars about directors and supervisors holding the post in Shareholding Company 7 Drawing the payment Title in Shareholding Name Name of Shareholding Company Office term from the Shareholding Company Company (Yes / No) ShenZhen TAITAI Pharmaceutical Zhu Baoguo Chairman of the Board From Nov. 1999 Yes Industry Co., Ltd. ShenZhen TAITAI Pharmaceutical Deputy General Gu Yueyue - Yes Industry Co., Ltd. Manager ShenZhen TAITAI Pharmaceutical Wang Xiaobin General Manager From Jan. 2001 Yes Industry Co., Ltd. ShenZhen TAITAI Pharmaceutical Qiu Qingfeng Secretary of the Board From Nov. 1999 Yes Industry Co., Ltd. Guo Jiaxue Xi’an Dongsheng Group Co., Ltd. Chairman of the Board From Mar. 2000 Yes 2. About annual remuneration The total annual remuneration received by senior executives of the Company (including president, vice-president, assistant president, person in charge of finance and secretary of the Board, the same below) amounted to RMB 2,220,000 (tax included, the same below). Among them, 3 enjoyed the annual salary between RMB 100,000 and RMB 450,000 respectively, 2 enjoyed the annual salary over RMB 450,000 respectively. The total amount of annual remuneration of the top three senior executives drawing the highest payment was RMB 1,670,000. The Company implemented annual target remuneration system and individual performance merit system for senior executives, and paid float wage to senior executives according to contacting among annual target remuneration, individual performance and achievement of the Group’s operation target. As examined and approved by the 2nd meeting of the 4th Board of Directors, the 2nd meeting of the 4th Supervisory Committee and the 1st Extraordinary Shareholders’ General Meeting of 2003 of Livzon Group, the allowance standard of chairman of the Board and vice chairman of the Board was RMB 7,500 per month from July 1,2002; the allowance standard of the other directors (including independent directors) except chairman of the Board and vice chairman of the Board was RMB 6,000 per month from July 1, 2002; the allowance standard of chairman of the Supervisory Committee was RMB 3,500 per month from July 1, 2002; the allowance standard of the other supervisors was RMB 3,000 per month from July 1, 2002. 3. Directors, supervisors and senior executives leaving the office and engaged by the Company The two proposals on reelection of the Board of Directors of Livzon Group and on reelection of the Supervisory Committee was examined and approved at the 2001 Shareholders’ General Meeting of Livzon Group, Wang Xiaobin, Zhu Baoguo, Zhang Yu, Yi Zhenqiu, Xu Xiaoxian, Guo Jiaxue and Gu Yueyue were elected as directors of the 4th Board of Directors, An Chengxin, Qi Zhan, Gao Dianhe, Jiang Jian were elected independent directors of the 4th 8 Board of Directors; Wang Congxin, An Ning, Qiu Qingfeng, Wang Bo and Yuan Guoliu were elected as Supervisors of the 4th Supervisory Committee. The following proposals were examined and approved in the 1st meeting of the 4th Board of Directors: Proposal on Electing Chairman of the Board and Vice Chairman of the Board, Proposal on Engaging President of the Company (Zhu Baoguo was engaged as Chairman of the Board of the 4th Board of Directors of Livzon Group, Yi Zhenqiu, Xu Xiaoxian, Guo Jiaxue were engaged as Vice Chairman of the Board of the 4th Board of Directors of Livzon Group. The Board of Directors engaged Xu Xiaoxian as President of Livzon Group, while the other senior executives of the Company remained unchanged). In the 4th meeting of the 4th Board of Directors, 5th meeting of 4th Board of Directors and 6th meeting of the 4th Board of Directors and the 1st Extraordinary Shareholders’ General Meeting of 2003 of the Company early and late, the following proposals were examined approved: Proposal on Engaging Managing Vice-President of the Company; Proposal on Mr. Xu Xiaoxian resigned from the post of President and Director of the Company; Proposal on Engaging Mr. Xu Xiaoxian as life honorary chairman of the Board of Livzon Group; Proposal on Engaging Mr. Xiao Siyang as President of Livzon Group and director candidate; Proposal on Engaging person in charge of finance of Livzon Group; Proposal on Mr. Xu Xiaoxian resigned from the post of director of Livzon Group and Proposal on Electing Mr. Xiao Siyang as director of Livzon Group. Mr. Xu Xiaoxian no longer took the post of President and Director of Livzon Group; Shen Weijun no longer took the post of Vice-president; Xiao Siyang was elected as Managing Vice-president, President and Director of Livzon Group early and late; Zhao Rui resigned from the post of person in charge of finance (Chief Accountant); An Ning was elected as person in charge of finance (Chief Accountant). The proposal on Electing Chairman of the Supervisory Committee of Livzon Group was examined and approved at the 1st meeting of the 4th supervisory Committee; Yuan Guoliu was elected as Chairman of the Supervisory Committee of the 4th Supervisory Committee. In the 3rd meeting of the 4th Supervisory Committee, the proposals on An Ning resigned from the post of Supervisor of Livzon Group and on Engaging Mr. Cao Pingwei as supervisor candidate of Livzon Group. As approved by the 1st Extraordinary Shareholders’ General Meeting of 2003, the following proposals were examined and approved: Proposal on Electing Cao Pingwei as Supervisor of Livzon Group and Proposal on An Ning resigned from the post of Supervisory of Livzon Group. Cao Pingwei was elected as Supervisor of Livzon Group, and An Ning no longer took the post of Supervisor of Livzon Group. (II) About employees The Company had 2602 on-the-job employees (excluding shareholding company). Among them, 1021 production personnel, 1090 salespersons, 53 scientific research personnel, 77 financial personnel, 207 administrative personnel, 128 rear-service personnel, and 26 other personnel. Persons gained master or above take 2.5% of the total number, persons gained bachelor take 25.1% of the total number, persons graduated from 3-years regular college 9 graduate take 24%of the total number, persons graduated from polytechnic school graduate take 21.9% of the total number, other persons take 26.5% of the total number. The Company needs to bear the expenses of 92 retirees. VI. ADMINISTRATIVE STRUCUTRE (I) Company Administration The Company operated in a standardized way strictly according to relevant requirement on modern enterprise system and consummated continuously the legal person administrative structure of the Company through improving every regulations, systems and administrative structure step by step. In the report period, the Company studies patiently and implemented Notification on Carrying out Inspection of Establishment of Modern Enterprise System in Listed Companies promulgated by CSRC and SETC (ZJF[2002]NO.32), carried out a comprehensive inspection of establishment of modern enterprise system of the Company, made the self-inspection report and submitted it to relevant authorities after examined and approved by the 14th meeting of the 3rd Board of Directors. According to Guide Opinion on Establishing Independent Directors System in Listed Companies, the 4th Board of Directors has added four independent directors, perfected the composing of the Board of Directors and further improved the establishment and consummation of modern enterprise system. (II) Implementation of duties of independent directors In 2002, the Company actively introduced into independent directors, further standardized the legal person administrative structure of the Company and added corresponding independent directors system in Articles of Association according to regulations before June 30, 2002. Independent Directors could fully implement duties, concentrate on the operation, financial status and the legal person administrative structure of the Company, attended or entrusted other directors to attend every meetings of the Board of Directors and the Shareholders’ General Meeting of the Company of 2002 and expressed independent opinions on change of directors, supervisors and senior executives of the Company and etc. (III) Separation from the biggest shareholder in business, personal, assets, organization and financing The Company and the biggest shareholder are completely independent in business, personal, assets, organization and financing. In respect of business, the business operation of the Company is completely independent and the Company has independent purchase and sale system; in respect of personal, the labor, personal and salary management of the Company are separated from the principal shareholder; in respect of assets, the Company has complete assets and independent system of production, supply and sale; in respect of organization, the Company has complete and independent institution establishment and is separated from the principal shareholder; in respect of financing, the Company has independent financial department, has established independent financing statement system and owns normative and 10 independent financing and accounting system and financing management system for the subsidiaries. (IV) Establishment and implementation of evaluation and encouragement mechanism of senior executives In 2002, the Company continued to implement system of annual salary on aim and provided float salary based on the connection of the personal performance of senior executives of the Company and implementation of aim of operation benefit of the Company. VII. ABOUT THE SHAREHOLDERS’ GENERAL MEETING (I) 2001 Annual Shareholders’ General Meeting of the Company (the 15th Shareholders’ General Meeting) published notification of the meeting on the newspaper disclosed for information disclose on May 25, 2002 and held in International Meeting Room of Zhuhai Hotel on June 26, 2002. 35 persons attended the meeting, representing 122,773,864 shares, taking 40.12% of the total shares of the Company (including 27,541,757 B shares, taking 9.0% of the total shares of the Company). The lawyer of Guangdong Desai Law Firms witnessed the meeting, which examined and approved the following resolutions by voting in written forms: 1.Examined and approved 2001 Work Report of the Board of Directors of the Company 2.Examined and approved 2001 Work Report of the Supervisory Committee of the Company 3.Examined and approved 2001 Financial Statement Report of the Company 4.Examined and approved 2001 Profit Distribution Proposal of the Company 5.Examined and approved Proposal on Admitting Posthumously Domestic and Overseas Certified Public Accountants of 2001 and Engaging Domestic and Overseas Certified Public Accountants of 2002 6.Examined and approved Proposal on Amendment of Articles of Association of the Company 7.Examined and approved Proposal on Election at Expiration of Office Terms of the Board of Directors of the Company 8.Examined and approved Proposal on Election at Expiration of Office Terms of the Supervisory Committee of the Company The public notice on resolutions of the 15th Shareholders’ General Meeting was published on newspaper designated for information disclosure dated June 27, 2002. VIII. REPORT OF THE BOARD OF DIRECTORS I. Discussion and analysis of the operation In 2002, changes have taken place in the equity structure and the Company elected the Board of Directors and the Supervisory Committee at the expiration of the office term. Under the guidance of correct decision-making of the new Board of Directors, after struggling together by the operating management of the Company and all staffs of Livzon, the Company smoothly completed the stable handover of the management of the Company and all work of production and operation developed stably. The Company gained good operating achievements of the whole year. 11 The Company fully adjusted the marketing teams and further made the specialization of marketing organizations transparent. The headquarter of the Company emphasized the three marketing teams of Marketing Company, Libao Company and Liwei Company and made the aforesaid three marketing teams gradually emphasize the markets of alimentary canal medicine, gynecological medicine, cerebral vas medicine, procreation endocrinal medicine, dermatological department medicine and urological department medicine. Tightly surrounding the aforesaid market advantage, the Company carried through the preliminary selection of the varieties inside the Company, expanded the mutual complementation of varieties in the same remedial field and made the variety advantage gradually transform into market advantage. In the second half of 2002, the Company confirmed the market promotion work to the important brands and varieties of Lizhu Dele and Lizhu Changle, according to the market orientation of ordinary medicine and OCT medicine, enlarged the regional market promotion and advertisement, which established foundation for the sales growth of the Company in 2003. Aiming at the status that the large variety with annual sales exceeding RMB 100 million was simple, focusing and gathering the variety, well selecting variety and large variety shall become the long-term strategy oriented to the future scientific research work of the Company. In 2002, the Company had another eight production lines, which had passed the national GMP authentication, at the same time the Company and its subsidiary Livzon Pharmaceutical Trade Co., Ltd. took the lead in passing national GSP authentication, which made the quality of Livzon products further gain guarantee from the aspect of hardware. II. Operation status (I) Scope of core business and its operation The Company is mainly engaged in the businesses of pharmaceutical products production, marketing, and scientific research with main products of Lizhu Dele, Lizhu Changle, Lizhu Wei San Lian, Lizhu Wei, Lizhu Feng, Lizhu Saile and Shenqi Fuzheng Injection Liquid etc, which were involved in over 100 varieties of each pharmaceutical field of chemical medicine, bio-chemical medicine, biological engineering medicine, chemical compound crude medicine, antibiotics, micro-ecological preparation, patent Chinese medicine, diagnosis reagents etc. Income from core business classified according to areas: (statistics according to the data of main wholly owned subsidiaries and holding subsidiaries) Areas Income from core Increase/decrease of income from core business business (RMB’000) compared with the previous year (%) Northeast area 97,465.1 -2.64 North China area 268,382.3 +26.27 Central China area 137,016.2 -9.77 East China area 248,606.7 +392.53 South China area 412,461.2 +9.60 Southwest area 196,342.8 +20.62 Northwest area 53,676.5 -6.66 12 Income from core business classified according to products Products Income from core business Increase/decrease of income (RMB’000) from core business compared with the previous year (%) Lizhu Dele series 102,947.8 -22.19 Amoxicillin 81,185.0 -3.21 Ampicillin 54,855.1 -11.02 6-APA 74,296.2 36.45 Ceftriazone 107,544.4 22.39 Antivirus Granule 110,683.6 30.52 Likewei 78,436.4 -16.17 (II) Operation and achievements of main holding companies and share-holding companies 1. Livzon Synthetic Drugs Factory is mainly engaged into the production and operation of chemical crude medicine with a registered capital of RMB 102.28 million and its main products are Amoxicillin, Ampicillin and Ceftriazone etc.. Ended Dec. 31, 2002, the total assets of this factory were RMB207,220 thousand yuan and the profit after taxation realized in the whole year of 2002 was RMB43,930 thousand yuan. 2. Libao Bio-chemical Pharmaceutical Co., Ltd. is mainly engaged in the production and operation of bio-chemical medicine with a registered capital of RMB 50 million and its main products are Livzon Saile and Urine Induced Enzyme etc.. Ended Dec. 31, 2002, the total assets were RMB70,510 thousand yuan and the profit after taxation realized in the whole year of 2002 was RMB14,320 thousand yuan. 3. Livzon Group Sichuan Everbright Pharmaceutical Co., Ltd. is mainly engaged in the production and sales of patent Chinese medicine and development of new medicine with a registered capital of RMB 66 million and its main products are Antivirus Granule and Jiuwei Yinao Granule etc.. Ended Dec. 31, 2002, the total assets of this company were RMB151,940 thousand yuan and the profit after taxation realized in the whole year of 2002 was RMB12,958 thousand yuan. 4. Limin Pharmaceutical Factory is mainly engaged in the production and operation of Chinese medical preparation and pharmaceutical crude materials etc. with a registered capital of RMB 24.44 million and its main products are Shenqi Fuzheng Injection Liquid and Thrombus Connection etc.. Ended Dec. 31, 2002, the total assets of this company were RMB95,800 thousand yuan and the profit after taxation realized in the whole year of 2002 was RMB12,400 thousand yuan. 5. Likang Pharmaceutical Co., Ltd. is mainly engaged in the production and operation of chemical antibiotic preparation with a registered capital of RMB 38.02 million and its main products are Da Nuo Xin and Rui Pu Xin etc.. Ended Dec. 31, 2002, the total assets of this company were RMB81,480 thousand yuan and the profit after taxation realized in the whole year of 2002 was RMB8,270 thousand yuan. 13 6. Livzon Wonderful Technology Investment Limited is mainly engaged in the R&D of medicine and technology and consultation of science and technology with a registered capital of RMB 10 million and its main products are Livzon Qile and Livzon Ruixin etc.. Ended Dec. 31, 2002, the total assets of this company were RMB24,510 thousand yuan and the profit after taxation realized in the whole year of 2002 was RMB5,340 thousand yuan. 7. Hubei Liyi Pharmaceutical Science and Technology Co., Ltd. is mainly engaged in the R&D of medicine and pharmaceutical technology and consultation of science and technology. Ended Dec. 31, 2002, the total assets of this company were RMB61,350 thousand yuan and the profit after taxation realized in the whole year of 2002 was RMB3,800 thousand yuan. (III) Particulars about sales customers and suppliers In the report period, the total amount of sales of the top five customers was RMB 221,094,900, taking 13.81% of the total annual amount of sales of the Company and the total amount of purchase of the top five suppliers was RMB 111,331,900, taking 12.42% of the total annual amount of purchase of the Company. II. Investment in the report period (I) Application of raised proceeds In the report period, the Company had not raised proceeds through the securities market. (II) Investment 1. After examined and approved by the 10th meeting of the 3rd Board of Directors on Feb. 21, 2002, the Group purchased 4728 shares (taking 60.13% of the total share capital) of Guangdong New Beijiang Pharmaceutical Co., Ltd. with RMB 44,916,000. 2. After examined and approved by the Board of Directors, the Company carried through equity reorganization to Hubei Keyi Pharmaceutical Co., Ltd. (hereinafter referred to as Keyi Company) and Hubei Liyi Pharmaceutical Science and Technology Co., Ltd. (hereinafter referred to as Liyi Company), which are subsidiaries of the Company so as to ensure the stable development of Liyi Company and Keyi Company and establish ligament of scientific research and industry. The Company and Hubei Pharmaceutical Industrial Institution invested the 25.5% equity of Keyi Company held respectively to Liyi Company by means of capital increase and share expansion. After the capital increase and share expansion, Liyi Company held 51% equity of Keyi Company and thus realized to hold Keyi Company. The Company further carried through the capital increase and share expansion to Liyi Company and after the capital increase and share expansion, the Company held 59% equity of Liyi Company and directly held 15.75% equity of Keyi Company. III. Analysis of financial status In the report period, the Company realized an income from core business of RMB1,601,205,600, which increased by RMB205,413,600 compared with that of the previous year amounting to RMB1,395,792,000, an increase of 14.72%, which was mainly due to the increase of sales of Synthetic Drugs Factory, Marketing Company, Sichuan 14 Everbright, Likang Pharmaceutical Company and Limin Pharmaceutical Factory. The profit from core business realized in the report period was RMB703,850,200, which increased by RMB53,989,900 compared with that of the previous year amounting to RMB649,860,300, an increase of 8.31%, which was mainly due to the increase of income from core business. The net profit realized was RMB61,942,700, which increased by RMB12,526,200 than that of the previous year, an increase of 25.35%, which was mainly due to increase of profit of subsidiaries Livzon Synthetic Pharmaceutical Factory and Limin Pharmaceutical Factory. The total assets at the end of the report period was RMB1,856,439,200, which increased by RMB184,530,200 than that of the beginning of the report period amounting to RMB1,671,909,000, an increase of 11.04%, which was mainly due to the merger of Guangdong Xin Beijiang Pharmaceutical Co., Ltd. and the shareholders’ equity at the end of the report period was RMB949,408,700, which increased by RMB33,520,200 than that of the beginning of the report period amounting to RMB915,888,500, an increase of 3.66%, which was mainly due to the net profit realized in the report period. In the report period, the net increase of cash and cash equivalents was RMB62,132,600, a decrease of RMB29,999,600 compared with that of the previous year amounting to RMB92,132,200, which was mainly due to the increase of recovery of short-term loan in the report period IV. Business plan of the new report year The year of 2003 is the first year in which the new term of management led by the new Board of Directors, based on the work style of dealing with concrete matters relating to work, innovation and high-efficiency, carries out the new development objectives of the Group. In order to realized the rapid and stable development of Livzon and create more return for shareholders, the Company shall emphasize on the work of the following aspects in 2003: 1. To reinforce the focusing and gathering and make the variety strong and large To select several large varieties from the products of variety Da Ji, Shenqi Fuzheng Injection Liquid, Livzon Wei, Qian Lie An Shuan and Nao Li Long etc showing comparatively strong growth potential in 2002, reinforce the market input and marketing planning to the aforesaid varieties, gradually cultivate them into large varieties with sales exceeding over RMB100 million and form the main growth point of profit of the Group. Simultaneously, to gradually cancel out a patch of dispatched varieties with small sales volume and small market potential. 2. To gradually carry out framework adjustment to affiliated enterprises and organizations Considering that there are comparatively many productive 2nd grade legal persons of Livzon Pharmaceutical Factory, Livzon Chinese Medical Factory, Libao Company and Livzon Biological Engineering Factory etc. and the harmonious capability between each other is weak, which makes the whole production capability and management advantage of the Group not be brought into full play; the increasingly importance for the affiliated Livzon Marketing Company, Libao Company and Liwei Company to carry out the GSP management and standardized running; the problems of united management and efficiency increase of scientific research organizations Liyi Company, Institution, Chinese Medical Center and proper motion R&D organizations of 2nd grade enterprises desiderates to be solved. The Company shall 15 gradually adjust the 2nd grade enterprises and organizational framework according to the actual situation. 3. To fully carry out the planning management All affiliated enterprises and departments of the Company must strictly implement the business plan of 2003 and relevant business planning indexes of dissembled sales, profit, expense, scientific research and technical reform etc. and with this as the important standard of performance examination for each enterprise and each department, to gradually from the simple and high-efficient encouragement mechanism. 4. To push the information construction with the spirit of high-efficiency and dealing with concrete matters relating to work Based on gradually uniting the marketing information management and office automatization, to raise the whole information level and establish foundation for the Company to fully import ERP information management work in the future. 5. To highly intervene in the industry of crude medicine The production of half-synthetic and ferment crude medicine of Livzon Synthetic Pharmaceutical Factory and New Beijiang Pharmaceutical Factory has formed a certain scale and famous degree and the production and sales of crude medicine has become the growth point of sales income and profit of the Company. In 2003, the Company shall reinforce the investment in the industry of crude medicine, make full use of the whole advantage of talents and technology etc. of existing production of crude medicine and gradually make the crude medicine become a leading industry of Livzon. V. Routine work of the Board of Directors In the report period, the Company totally held the 10th, 11th, 12th, 13th, 14th, 15th meeting of the 3rd Board of Directors and the 1st, 2nd, 3rd, 4th, 5th meeting of the 4th Board of Directors. On Feb. 21, 2002, the 10th meeting of the 3rd Board of Directors was held in the conference room in the 3/F of the Company and the meeting examined and approved Proposal on Investing and Holding Guangdong New Beijiang Pharmaceutical Co., Ltd. and Proposal on Amendment of Articles of Association of Livzon Group. On March 11, 2002, the 11th meeting of the 3rd Board of Directors was held in the conference room in 3/F of the Company and the meeting examined and approved Proposal on Renewal Election of the Board of Directors of Livzon Group and Proposal on Holding Extraordinary Shareholders’ General Meeting of Livzon Group etc.. On April 3, 2002, the 12th meeting of the 3rd Board of Directors was held in the conference room of the 3/F of the Company and the meeting examined and approved Proposal on Issuance of Cancellation of 2002 Extraordinary Shareholders’ General Meeting etc.. On April 16, 2002, the 13th meeting of the 3rd Board of Directors was held in the conference room of the 3/F of the Company and the meeting examined and approved 2002 Work Report of President of Livzon Group, 2001 Work Report of the Board of Directors, 2001 Financial Settlement Report, 2001 Profit Distribution Preplan, 2001 Annual Report of Livzon Group, 2002 Profit Distribution and Converting Capital Pubic Reserve into Share Capital Policy of 16 Livzon, The 1st Quarter Report of 2002 of Livzon Group, Proposal on Engagement of 2002 Domestic and Overseas Certified Public Accountants of Livzon Group, Proposal on Credit and Financing Issues and Proposal on Amendment Relevant Issues of Investing and Holding Guangdong New Beijiang Pharmaceutical Co., Ltd. etc.. On May 24, 2002, the 14th meeting of the 3rd Board of Directors was held in the conference room of 3/F of the Company and the meeting examined and approved Proposal on Amendment of Articles of Association, Proposal on Renewal Election of the Board of Directors of Livzon Group and Proposal on Holding 2001 Shareholders’ General Meeting of Livzon Group etc.. On June 13, 2002, the 15th meeting of the 3rd Board of Directors was held in the conference room in the 3/F of the Company and the meeting examined and approved Proposal on Issues of Improving the Property Relationships of Restructured Enterprises, Proposal on Related Transaction Issues Between Livzon Group and American Anshi Company, Proposal on Self-inspection Report of Establishment Modern Enterprise System of Livzon Group, Proposal on Transferring Equity of Chengdu Likai Shouxing Technology Co., Ltd. and Proposal on Transferring the Equity of Livzon Synthetic Pharmaceutical Factory Held by the Group to Livzon Hong Kong Company etc.. On June 26, 2002, the 1st meeting of the 4th Board of Directors was held in Zhuhai Hotel and the meeting examined and approved Proposal on Election of Chairman and Vice Chairman of the Board of Directors of Livzon Group and Proposal on Engagement of President of Livzon Group etc.. On Aug. 16, 2002, the 2nd meeting of the 4th Board of Directors was held in the Yinhu Travel Center in Shenzhen and the meeting examined and approved Work Report of President of the First Half of 2002, Report of Financial Implementation of the First Half of 2002, 2002 Semi-annual Report of Livzon Pharmaceutical Group Inc., Rules of Procedure of the Board of Directors of Livzon Pharmaceutical Group Inc., Rules of Work of President of Livzon Pharmaceutical Group Inc., Management Measure of Information Disclosure of Livzon Pharmaceutical Group Inc., Proposal on Allowance Issues of Directors of Livzon Group, Proposal on Relevant Issues of Authorizing the Management to Accomplish to Incorporate Aobeitaike Biological Pharmaceutical Co., Ltd., Proposal on Increase of Registered Capital of Livzon (Hong Kong) Co., Ltd. and Proposal on Credit and Financing Issues of Livzon Group etc.. On Oct. 28, 2002, the 3rd meeting of the 4th Board of Directors was held by means of communication and the meeting examined and approved The 3rd Quarter Report of 2002 of Livzon Group. On Nov. 29, 2002, the 4th meeting of the 4th Board of Directors was held by means of communication and the meeting examined and approved Proposal on Engagement of Managing Vice-president of Livzon Group. On Dec. 26, 2002, the 5th meeting of the 4th Board of Directors was held by means of communication and the meeting examined and approved Proposal on Mr. Xu Xiaoxian’s Resignation from the Post of President of Livzon Group and Director of Livzon Group, 17 Proposal on Engagement of Mr. Xu Xiaoxian as Lifelong Honorary Chairman of the Board of Directors of Livzon Group, Proposal on Engagement of Mr. Xiao Siyang as President of Livzon Group and as Candidate of Director of Livzon Group, Proposal on Adjusting Issuance of Establishing Aobeitaike Biological Pharmaceutical Co., Ltd. and Proposal on Holding the 1st Extraordinary Shareholders’ General Meeting of 2003 of Livzon Group etc.. VI. Implementation of 2001 Dividend Distribution 2001 plan of profit distribution was: based on the net profit of the consolidated statements as audited by overseas auditor amounting to RMB 59,049,000, after deducting the statutory public reserve and statutory welfare fund amounting to RMB 5,247,787.86 respectively as appropriated by 10% respectively according to the net profit of parent company audited by domestic auditor amounting to RMB 52,477,878.62 and the appropriation amount of each holding subsidiary amounting to RMB 10,281,517.25, which totally amounted to RMB 20,777,092.97. Besides, the subsidiaries complementarily appropriated the statutory pubic reserve and statutory welfare fund which were not appropriated in the previous year amounting to RMB 14,341,833.78, adding the undistributed profit at the beginning of the report year amounting to RMB-13,079,000, the profit available for distributing to shareholders was RMB 10,851,000 in 2001 with distribution at the rate of cash RMB 0.3 for every 10 shares. The Company would not distribute bonus shares or convert capital public reserve into share capital. The aforesaid profit distribution plan has been examined and approved by 2001 Shareholders’ General Meeting of Livzon Group held on June 26, 2002. The Company published the implementation notice of dividend distribution on July 23, 2002 and the plan of dividend distribution is: based on the total existing share capital of 306,035,482 shares, to distribute cash to shareholders at the rate of cash RMB 0.3 (tax included) for every 10 shares and the total cash dividend distributed out was RMB 9,181,064.46 (tax included). The equity registration day (the last trading day of B share) is: July 29, 2002. Ex-dividend day is: July 30, 2002. The work of 2001 dividend distribution has all been finished successfully. VII. The preplan of profit distribution and converting capital public reserve into share capital Based on the net profit of parent company of 2002 as audited by Reanda CPAs amounting to RMB69,488,465.39 after adjusting and reducing the net profit of the previous year amounting to RMB3,083,293.50, to respectively appropriate 10% of the net profit as statutory public reserve and statutory welfare fund amounting to RMB6,640,517.18 respectively and each holding subsidiaries appropriates the statutory public reserve and statutory welfare fund amounting to RMB17,783,137.50, which totally amounts to RMB31,064,171.86. The net profit realized in 2002 as audited by domestic auditor amounting to RMB61,942,736.50, after appropriating statutory public reserve and statutory welfare fund totally amounting to RMB31,064,171.86, adding undistributed profit at the beginning of the report period amounting to RMB15,890,833.68, the profit available for distribution for shareholders was RMB46,769,398.32 in 2002. The net profit realized in 2002 as audited by 18 overseas auditor amounting to RMB67,079,000, after appropriating statutory public reserve and statutory welfare fund totally amounting to RMB31,064,000, adding the undistributed profit after adjustment at the beginning of the report year amounting to RMB7,768,000 and deducting the payment of dividend of 2001 amounting to RMB9,181,000, the profit available for distribution was RMB34,602,000 in 2002. According to the principle of taking the lower amount of profit available for distributing to shareholders, based on the profit available for distribution as audited by overseas auditor amounting to RMB34,602,000, to distribute dividend at the rate of RMB1.0 yuan (tax included) for every 10 shares, the profit used by the Company for distribution is RMB30,603,548.2. The balance of undistributed profit as audited by domestic auditor is RMB16,165,850.12 (undistributed profit as audited by overseas auditor amounting to RMB399.8) and is carried down to the next year. In 2002, the Company shall not distribute profit or convert capital public reserve into share capital. IX.REPORT OF THE SUPERVISORY COMMITTEE (I) Work of the Supervisory Committee On Apr.16, 2002, the 6th meeting of the 3rd Supervisory Committee of the Company was held in the meeting room of 3F in the Company’s Office Building, which examined and approved 2001 Work Report of the Supervisory Committee of the Company. On May 24, 2002, the 7th meeting of the 3rd Supervisory Committee of the Company was held in the meeting room of 3F in the Company’s Office Building, which examined and approved Proposal on Election at Expiration of Office Terms of the Supervisory Committee of the Company. On June 26, 2002, the 1st meeting of the 4th Supervisory Committee of the Company was held in Zhuhai Hotel, which examined and approved Proposal on Election of Chairman of the Supervisory Committee of the Company. On Aug.16, 2002, the 2nd meeting of the 4th Supervisory Committee of the Company was held in Yinhun Tour Center, Shenzhen, which examined and approved 2002 Semi Annual Report of 2002 of the Company, Rules of Procedures of the Supervisory Committee of the Company and Proposal on Allowance of Supervisors of the Company. On Dec.26, 2002, the 3rd meeting of the 4th Supervisory Committee of the Company was held by communication voting, which examined and approved Proposal on Mr. An Ning’s Resigning Supervisor of the Company and Proposal on Agreeing Mr. Chao Ping Wei as Candidate of Supervisor of the Company. (II) Independent opinions of the Supervisory Committee 1. Particulars about the Company’s operation according to law The Supervisory Committee implemented duties prescribed in Company Law and Articles of Association, fully executed the right of the Supervisory Committee and inspected on the Company’s operation according to law. After inspection, the Board of Directors actually implemented every resolutions of the Shareholders’ General Meeting, the procedure of 19 decision-making was in conformity with Articles of Association of the Company and established internal control system including appropriation of assets’ devaluation and dealing with losses. The directors and senior executives had no actions of breaking of laws, regulations and Articles of Association and harmful for the interest of the Company and the shareholders when they performed their duties. 2.Reanda Certified Public Accountants. and Hong Kong Ho and Ho & Company audited 2002 financial report of the Company respectively according to domestic and overseas accounting standards and issued auditor’s report with non-reservation opinion. The Supervisory Committee believed that the auditor’s report could reflect truly the financial status and result of production and operation of the Company. 3.The Company has never raised capital from the securities market in the last three years. 4. The trading price of purchase and sale of assets of the Company was reasonable No inside trading has been found as well as indication of damage of part shareholders’ rights and interests and runoff of the Company’s assets. 5.Related transactions of the Company were in conformity with the rule of market economic with fair transaction and reasonable price and never damaged the interest of the Company and the shareholders. X. SIGNIFICATN EVENTS (I) There was no material lawsuit or arbitration in the report year. (II) Other material events 1.On Mar.26, 2001, to clear the property right relationship of the 2nd class enterprises of the Company, the Company applied for Zhuhai Foreign Trade Commission and submitted the proposal to the 13th Shareholders’ General Meeting of 2001 to change the Chinese shareholder of the twelve 2nd class enterprises including LIVZON Group LIVZON Pharmaceutical Factory into the Company and change the foreign shareholder into Antao Development Co., Ltd., which is the whole th subsidiary of the Company established in Hong Kong. The 13 Shareholders’ General of the Company approved the proposal on May 26, 2001 and Zhuhai Foreign Capital Introduction Office authorized the application with WTYWZG ZI[2001] NO.273 on June 18, 2001. After the change, the proportion of the equity of the twelve 2nd class enterprises including LIVZON Group LIVZON Pharmaceutical Factory held by the shareholder of the Company through the Company remained unchanged. Ended as of Dec.31, 2002, the change procedure of the property right of the aforesaid 12 enterprises has been finished. 2.As examined and approved Proposal on Consummating Property Right relationship of Restructured Enterprises by the 15th meeting of the 3rd Board of Directors, the Company agreed to transfer 10% equity of LIVZON Group Synthetic Drugs Factory held by the Company to Zhuhai Kangjian Investment Co., Ltd. held by the staffs of Synthetic Drugs Factory as the price of RMB 10,228,000 and transfer 30% equity of LIVZON Group Limin Pharmaceutical Factory held by the Company to Shaoguan Danhua Investment Co., Ltd. held by the staffs of Limin Pharmaceutical Factory as the price of RMB 7,331,040.00. The aforesaid change register procedure of industry and commerce has been finished. 20 3.As the resolution of the 6th meeting of the 3rd Board of Directors, the Company authorized the management team to conduct employees’ share-holding restructure of LIVZON Group Biology Material Factory. To suit the development requirement of strategic focusing of the Company, the Company has transferred equity of LIVZON Group Biology Material Factory held by the Company to the employee representatives and labor union of LIVZON Group Biology Material Factory as the price of RMB 2 million. 4. The Company signed Equity Assignment Agreement with Gong Liuzhu on June 20, 2002 to transfer 40% equity of Chengdu Likai chiral Technology Co., Ltd. held by the Company as the price of RMB 1,025,400. (III) Guarantee Events The Company signed Patent Permission Agreement with Korea Yiyang Medicine Co., Ltd. (Hereinafter referred to as Yiyang) and agreed that the Company engrossed unreversible patent use right of PPI compound and the use of Yiyang’s patent in China including Hong Kong for production, machining and sale. The agreement stipulated the Company to pay USD 2.5 million introduction expense and the Company has paid USD 1.25 million in the report year and has USD 1.25 million unpaid, converting into RMB 10,346,625.00. The Company agreed to give Yiyang deduction as 10% of sale amount of product in the first three years since starting product sale, % of sale amount of product within the five years in the aforesaid three years and 1% of sale amount of product within the left term until July 22, 2014 (agreement’s expiration date). (IV) Engaging domestic and overseas Certified Public Accountants As examined and approved by the 13th meeting of the 3rd Board of Directors and 2001 Annual Shareholders’ General Meeting, the Company engaged Reanda Certified Public Accountants and Hong Kong Ho and Ho & Company as the domestic and overseas Certified Public Accountants of the Company of 2002 with term of one year. The remuneration the Company paid to the domestic and overseas Certified Public Accountants was respectively RMB 330,000 and RMB 400,000. XI.FINANCIAL REPORT REPORT OF THE AUDITORS To the shareholders of B shares of Livzon Pharmaceutical Group Inc. 麗珠醫藥集團股份有限公司 (incorporated in the People’s Republic of China with limited liability) We have audited the accompanying consolidated balance sheet of Livzon Pharmaceutical Group Inc., (“the Group”) as at 31st December 2002 and the related consolidated statements of income, cash flows and changes in equity for the year then ended. These financial statements are the responsibility of the Group’s 21 management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, the evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall presentation of financial statements. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements presents fairly, in all material aspects, the financial position of the Group as at 31st December 2002 and the results of its operations and its cash flows for the year then ended, in accordance with International Financial Reporting Standards. Ho and Ho & Company Certified Public Accountants 18th April 2003 Hong Kong 22 LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31ST DECEMBER 2002 NOTES 2002 2001 RMB’000 RMB’000 (As restated) Revenue (5) 1,601,206 1,395,792 Cost of sales (897,355) (744,597) Gross profit 703,851 651,195 Other operating income 22,620 22,817 Selling expenses (376,249) (374,511) Administrative expenses (190,153) (162,836) Other operating expenses (5,978) (11,515) Profit from operations (7) 154,091 125,150 Finance costs (8) (21,725) (14,112) Loss from investments (9) (17,503) (1,021) Share of profit / (loss) of associates 1,447 (841) Profit before tax 116,310 109,176 Income tax expense (10) (25,255) (27,175) Profit after tax 91,055 82,001 Minority interests (23,976) (23,928) Net profit for the year 67,079 58,073 Dividend (11) - 9,181 Earnings per share – basic (12) RMB0.22 RMB0.19 23 LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 CONSOLIDATED BALANCE SHEET AT 31ST DECEMBER 2002 NOTES 2002 2001 RMB’000 RMB’000 (As restated) Assets Non-current assets Property, plant and equipment (13) 698,775 586,199 Construction in progress (14) 67,344 76,372 Goodwill (15) 20,950 12,234 Negative goodwill (16) (5,355) (5,142) Intangible assets (17) 25,148 20,458 Investments in associates (19) 17,230 8,216 Other investments (20) 22,797 33,976 846,889 732,313 Current assets Inventories (21) 199,334 197,571 Trade and other receivables (22) 457,539 458,560 Amounts due from associates 4,979 233 Other investments (20) 16,878 15,955 Bank balances and cash (22) 295,277 232,803 974,007 905,122 Total assets 1,820,896 1,637,435 Equity and liabilities Capital and reserves Share capital (23) 306,035 306,035 Reserves (24) 658,451 600,553 964,486 906,588 Minority interests 173,041 116,637 1,137,527 1,023,225 Non-current liabilities Bank loans – due after one year (25) 71,500 550 Current liabilities Trade and other payables (27) 407,573 286,033 Amounts due to associates 3,750 81 Tax liabilities 17,379 25,926 Bank loans – due within one year (25) 183,167 301,620 611,869 613,660 Total equity and liabilities 1,820,896 1,637,435 The financial statements on pages 2 to 33 were approved and authorised for issue by the Board of Directors on 18th April 2003 and are signed on its behalf by: Director Director 24 LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31ST DECEMBER 2002 Properties Statutory Discretionary Share Share revaluation surplus surplus capital premium reserve reserve reserve RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Balance at 1st January 2001 - As previously stated 306,035 417,689 9,609 24,623 76,685 - Prior year adjustment - - - - - - As restated 306,035 417,689 9,609 24,623 76,685 Net profit for the year - As previously stated - - - - - - Prior year adjustment - - - - - - As restated - - - - - Transfer to statutory surplus reserve and public welfare fund from accumulated profits - Transfer for the year - - - 10,584 - - Understatement of transfer for prior year - - - 10,269 - - - - 20,853 - Balance at 1st January 2002 (As restated) 306,035 417,689 9,609 45,476 76,685 Dividend paid for 2001 - - - - - Net profit for the year - - - - - Transfer to statutory surplus reserve and public welfare fund from accumulated profits - - - 14,881 - Balance at 31st December 2002 306,035 417,689 9,609 60,357 76,685 25 LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST DECEMBER 2002 2002 2001 RMB’000 RMB’000 (As restated) Profit from operations 154,091 125,150 Adjustments for: Negative goodwill released to income (1,264) (1,005) Written-off the construction in process 4,357 - Written-back the provision of impairment loss on construction in progress (426) - Written-off of intangible assets 3,254 23,670 Amortisation of intangible assets 12,396 5,548 Depreciation of property, plant and equipment 74,328 56,180 Amortisation of goodwill 2,540 1,444 Loss/(profit) on disposal of property, plant and equipment 2,159 (2,556) Operating cash flows before movements in working capital 251,435 208,431 Decrease in inventories 7,477 11,707 Decrease in trade and other receivables 28,708 12,622 (Increase)/decrease in amounts due from associates (4,746) 4,155 Increase/(decrease) in trade and other payables 78,764 (42,360) Increase/(decrease) in amounts due to associates 3,669 (4,617) Cash generated by operations 365,307 189,938 Income tax paid (37,165) (7,878) Interest paid (22,526) (15,992) Net cash from operating activities 305,616 166,068 26 LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 CONSOLIDATED CASH FLOW STATEMENT (CONTINUED) FOR THE YEAR ENDED 31ST DECEMBER 2002 NOTES 2002 2001 RMB’000 RMB’000 (As restated) Net cash from operating activities 305,616 166,068 Investing activities Dividend paid (9,181) - Interest received 2,284 9,546 Dividends received from an associate 1,319 966 Dividends received from other investments 458 388 Disposal of subsidiary (28) 131 - Disposal of partial interest in subsidiaries 23,698 - Disposal of an associated company 1,025 - Proceeds on disposal of property, plant and equipment 28,291 2,565 Proceeds on disposal of a subsidiary not consolidated - 2,661 Proceeds on disposal of long-term other investments 1,714 173 Proceeds on disposal of short-term other investments 1,664 14,378 Purchases of property, plant and equipment (32,981) (37,660) Purchases of intangible assets (18,683) (13,442) Acquisition of subsidiaries (29) (43,640) 870 Acquisition of investment in associates (1,253) (1,026) Purchases of current investments (10,175) (21,234) Purchases of non-current investments (3,811) (1,960) Further acquisition of investments in a subsidiary not consolidated - (1,326) Further acquisition of investments in a subsidiary (11,628) (9,205) Increase in fixed deposits-mature over 3 months - 11,000 Increase in the construction in progress (67,805) (52,539) Net cash used in investing activities (138,573) (95,845) Financing activities Capital injection from minority shareholders 10,128 1,600 Dividend paid to minority shareholders (4,494) (15,900) New bank loans raised 191,417 327,550 Repayments of bank loans (301,620) (249,390) Net cash (used in) / from financing activities (104,569) 63,860 Net increase in cash and cash equivalents 62,474 134,083 Cash and cash equivalents at beginning of year 232,803 98,720 Cash and cash equivalents at end of year Bank balances and cash 295,277 232,803 27 LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 1. CORPORATE INFORMATION Livzon Pharmaceutical Group Inc. (the “Company”) is a joint stock company registered in the People’s Republic of China (the “PRC”) and its A shares and B shares are listed on the Shenzhen Stock Exchange. The Company and its subsidiaries (together referred to as the “Group”) are principally engaged in the production and sales of medical products and the trading of imported medical products in the PRC. The largest shareholder of the Company is Shenzhen Tai Tai Pharmaceutical Group Inc. Limited, a limited company incorporated in PRC and listed in Shenzhen Stock Exchange 2. PRESENTATION OF FINANCIAL STATEMENTS The consolidated financial statements have been prepared in Renminbi (“RMB”), the currency in which the majority of the Group’s transactions are denominated. The Group maintains its accounting records and prepares its statutory financial statements in accordance with the accounting principles and the relevant financial regulations applicable to foreign investment enterprises in the PRC. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). The accounting policies and basis adopted to the preparation of the statutory financial statements differ in certain respects from IFRS. The differences arising from the restatement of the results of operations and the net assets for compliance with IFRS are adjusted in financial statements but will not be taken up in the accounting records of the Group. 3. CHANGE OF ACCOUNTING POLICIES AND PRIOR YEAR ADJUSTMENT In the current year, the Group changed the accounting policy to the depreciation on property, plant and equipment. The new policy requires the property, plant and equipment, which has purchased but not yet used or those temporarily retired, are to be depreciated on the same basis as other assets in used. In previous years, no depreciation charge is provided for these assets. The new policy has been applied retrospectively. In the opinion of the Group’s management, the adoption of the new policy can reflect the value of the Group’s asset more effectively. The adoption of the new policy resulted in the decrease in accumulated profits, net of minonty interests, as at 1st January 2001 by RMB2,107,000 and the net profit for 2001 by RMB976,000. 28 LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Except for certain financial instruments which are stated at their fair value, the financial statements have been prepared on the historical basis. The principal accounting policies adopted are set out below: (a) Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and enterprises controlled by the Company (“its subsidiaries”) made up to 31st December each year. Control is achieved where the Company has the power to govern its financial and operating policies of an investee enterprise so as to obtain benefits from its activities. On acquisition of subsidiaries, the assets and liabilities are stated at the fair value at the date of acquisition. The interest of minority shareholders is stated at the minority’s proportion of the fair values of the assets and liabilities recognised. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the Group. All significant intercompany transactions and balances between group enterprises are eliminated on consolidation. (b) Investments in associates An associate is an enterprise over which the Group is in a position to exercise significant influence, but not control, through participation in the financial and operating policy decisions of the investee. The operating results assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Investments in associates are carried in the balance sheet at cost as adjusted by post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual investments. 29 LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued (b) Investments in associates - continued Where a group enterprise transacts with an associate of the Group, unrealised profits and losses are eliminated to the extent of the Group’s interest in the relevant associate, except to the extent that unrealised losses provide evidence of an impairment of the asset transferred. (c) Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary or associate at the date of acquisition. Goodwill is recognized as an asset and amortised on a straight-line basis over its estimated useful life. Goodwill arising on the acquisition of an associate is included within the carrying amount of the associate. Goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet. On disposal of a subsidiary or an associate, the attributable amount of unamortised goodwill is included in the determination of the profit or loss on disposal. (d) Negative goodwill Negative goodwill represents the excess of the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary or associate at the date of acquisition over the cost of acquisition. Negative goodwill is released to income based on an analysis of the circumstances from which the balance resulted. To the extent that the negative goodwill is attributable to losses or expenses anticipated at the date of acquisition, it is released to income in the period in which those losses or expenses arise. The remaining negative goodwill is recognised as income on a straight-line basis over the remaining average useful life of the identifiable acquired depreciable assets. To the extent that such negative goodwill exceeds the aggregate fair value of the acquired identifiable non-monetary assets, it is recognised as income immediately. Negative goodwill arising on the acquisition of an associate is deducted from the carrying amount of that associate. Negative goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet as a deduction from assets. 30 LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued (e) Revenue recognition Sales of goods are recognised when goods are delivered and title has passed. Interest income is accrued on a time basis, by reference to the principal outstanding and at the interest rate applicable. Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established. (f) Foreign currencies Transactions in currencies other than RMB are initially recorded at the rates of exchange prevailing on the dates of the transactions. Monetary assets and liabilities denominated in such currencies are re-translated at the rates prevailing on the balance sheet date. Profits and losses arising on exchange are included in net profit or loss for the year. On consolidation, the assets and liabilities of the Group’s overseas operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the year. Exchange differences arising, if any, are classified as equity and transferred to the Group’s translation reserve. Such translation differences are recognised as income or as expenses in the year in which the operation is disposed of. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. (g) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from borrowing costs eligible for capitalisation. All other borrowing costs are recognised as expenses in the period in which they are incurred. 31 LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued (h) Retirement benefit costs Payments to defined contribution retirement benefit plans are charged as an expense as they fall due. Payments made to state-managed retirement benefit schemes are dealt with as payments to defined contribution plans where the Group’s obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit plan (i) Government grants Government grants subsidizing the Group’s research project are recognised as income when the relevant cost incurred. Government grants subsidizing the purchase of assets are deducting from the purchase cost of such asset. (j) Taxation Income tax expense represents the sum of the tax currently payable and deferred tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill (or negative goodwill) or from the initial recognition (other than in a business combination )of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. 32 LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued (j) Taxation - continued Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no larger probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. (k) Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss. Depreciation is charged so as to write off the cost of assets over their estimated useful lives, using the straight-line method, on the following bases : Buildings 5% Machinery 10% Electronic equipment 20% Transport equipment 20% Other equipment 20% The gain or loss arising from disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement. 33 LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (l) Construction in progress Construction in progress represents properties under construction for production, rental or administrative purposes, or for purposes not yet determined and equipment purchased prior to installation and is stated at cost less any recognised impairment loss. Cost comprises direct costs and, where applicable, professional fees and borrowing costs capitalised in accordance with the Group’s accounting policy. Costs on completed construction works are transferred to the appropriate asset category. Costs incurred on construction in progress are recognised as an expense immediately when the work is terminated. No depreciation is provided on construction in progress until it is completed and put into commercial operation (m) Intangible assets - research and development expenditure Expenditure on research activities is recognised as an expense in the year in which it is incurred. Development expenditure arising from the Group’s development is recognised as an asset only if all of the following conditions are met: ·an asset is created that can be identified; ·it is probable that the asset created will generate future economic benefits; and ·the development cost of the asset can be measured reliably. Otherwise, development expenditure is recognized as an expense in the year in which it is incurred. The development expenditure recognised as an assets are amortised on a straight-line basis over their useful lives. (n) Impairment At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. 34 LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued (n) Impairment - continued Recoverable amount is the greater of net selling price and value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to the assets. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined as no impairment loss had been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately. (o) Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling prices less all estimated costs to completion and costs to be incurred in marketing, selling and distribution. (p) Financial instruments Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument. (i) Trade receivables Trade receivables are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts. 35 LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued (p) Financial instruments - continued (ii) Investments Investments are recognised on a trade-date basis and are initially measured at cost. Investments other than held-to-maturity debt securities are classified as either held-for-trading or available-for-sale, and are measured at subsequent reporting dates at fair value. Where securities are held for trading purposes, gains and losses arising from changes in fair value are included in net profit or loss for the period. For available-for-sale investments, gains and losses arising from changes in fair value are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the net profit or loss for the period. (iii) Bank borrowings Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption, are accounted for on an accrual basis and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. (iv) Trade payables Trade payables are stated at their nominal value. (q) Provisions Provisions are recognised when the Group has a present obligation as a result of a past event which it is probable will result in an outflow of economic benefits that can be reasonably estimated. (r) Cash equivalents Cash equivalents represent short-term, highly liquid investments that are readily convertible to a known amount of cash and subject to an insignificant risk of changes in value. 36 LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 5. REVENUE 2002 2001 RMB’000 RMB’000 Sales of medical products 1,601,206 1,395,792 6. BUSINESS AND GEOGRAPHICAL SEGMENTS As the Group is engaged only in the production and sales of medical products and the trading of imported medical products in the PRC, no segment information is presented. 7. PROFIT FROM OPERATIONS Profit from operations has been arrived at after charging / (crediting) :- 2002 2001 RMB’000 RMB’000 (As restated) Depreciation of property, plant and equipment 74,328 56,180 Amortisation of intangible assets 12,396 5,548 Amortisation of goodwill 2,540 1,444 Written-off of intangible assets 3,254 23,670 Loss/(profit) on disposal of property, plant and equipment 2,159 (2,556) Release of negative goodwill to income (1,264) (1,005) Staff costs 124,226 101,121 Research and development costs 21,209 11,846 Government grants (2,395) (263) 8. FINANCE COSTS 2002 2001 RMB’000 RMB’000 Interest on bank loans 22,526 14,643 Less : Amounts included in the cost of qualifying assets (801) (531) 21,725 14,112 Borrowing cost included in the cost of qualifying assets during the year arose on the general borrowing pool and are calculated by applying a capitalization rate of 5% (2001: 7%) to expenditure on such assets. 37 LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 9. LOSS FROM INVESTMENTS 2002 2001 RMB’000 RMB’000 Interests on bank deposits 2,284 9,546 Dividends from other investments 458 388 Provision for impairment loss of investments in associates (1,602) (6,028) Provision for impairment loss of long-term other investments (10,813) (3,924) Provision for impairment loss of short-term other investments (7,766) (5,279) Profit on disposal of a subsidiary not consolidated - 525 Loss on disposal of a subsidiary (1,205) - Profit on disposal of partial interests in subsidiaries 1,227 - Loss on disposal of associate (264) - Profit on disposal of other investments 178 3,751 (17,503) (1,021) 10. INCOME TAX EXPENSE 2002 2001 RMB’000 RMB’000 Profits tax - current year 24,455 24,205 - under-provision for prior years 800 2,970 PRC income tax 25,255 27,175 The basis tax rate applicable to the Group is 15%. According to the relevant tax policies of PRC, income tax of Livzon (Group) Syntpharm Factory is charged at 7.5% on its estimated assessable profit, Livzon (Group) Liman Chemical Pharmaceutical Factory is charged at 24% on its estimated assessable profit, 廣 東 新 北 江 制 藥 股 份 有 限 公 司 and Hubei Keyi Pharmaceutical Holdings Company Ltd are charged at 33% on their estimated assessable profit. Income tax of Ando Development Ltd and Livzon (Hong Kong) Co. Ltd., which are subsidiaries incorporating in Hong Kong, are charged at 16% on their estimated assessable profit. 38 LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 10. INCOME TAX EXPENSE - continued As the tax effect on temporary timing difference is insignificant, no deferred taxation is provided. The reconciliation of the taxation for the year and the profit as stated in consolidated income statement is as follows:- 2002 2001 RMB’000 RMB’000 (As restated) Profits before taxation 115,425 109,176 Tax charge calculated at the rates applicable to the Group 18,652 24,853 Tax effect on disallowed items 9,942 409 Tax effect on utilizing tax losses brought forward (4,139) (1,057) Taxation for current year 24,455 24,205 11. DIVIDEND The directors propose that a dividend in respect of 2002 of RMB0.1 (2001 : RMB0.3) per shares will be paid to shareholders. The dividend is subject to approval by shareholders at the Annual General Meeting. 12. EARNINGS PER SHARE The calculation of earnings per share is based on the Group’s profit attributable to shareholders of RMB67,079,000 (2001: RMB58,073,000 as restated), and 306,035,482 shares (2001: 306,035,482 shares) in issue during the year. As the Group did not have diluting instrument in issue, no diluted earnings per share information is presented . 39 LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 13. PROPERTY, PLANT AND EQUIPMENT Land and Electronic Tran buildings Machinery equipment equip RMB’000 RMB’000 RMB’000 RMB COST At 1st January 2002 554,075 288,540 33,415 Additions 24,534 7,400 3,622 Transfer from construction in progress 35,911 23,729 3,985 Acquired on acquisition of a subsidiary 83,526 75,979 - Disposals (35,410) (14,135) (2,524) Transfer on disposal of a subsidiary - (4,496) (292) At 31st December 2002 662,636 377,017 38,206 ACCUMULATED DEPRECIATION At 1st January 2002 (As restated) 158,101 127,861 18,515 Charge for the year 31,501 29,673 4,510 Acquired on acquisition of a subsidiary 19,989 27,848 - Eliminated on disposals (8,840) (11,733) (2,196) Eliminated on disposal of a subsidiary - (534) (95) At 31st December 2002 200,751 173,115 20,734 CARRYING AMOUNT At 31st December 2002 461,885 203,902 17,472 At 31st December 2001 395,974 160,679 14,900 40 LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 14. CONSTRUCTION IN PROGRESS 2002 2001 RMB’000 RMB’000 At 1st January 78,690 48,978 Acquired on acquisition of a subsidiary 2,222 30 Additions 68,606 52,539 Interest capitalised 801 531 Government grant received (801) - Transfer to property, plant and equipment (75,925) (23,388) Written-off (4,357) - At 31st December 69,236 78,690 Provision for impairment loss (1,892) (2,318) 67,344 76,372 As at 31st December 2002, the construction in progress did not include any capitalised interest (2001: RMB764,000). 15. GOODWILL RMB’000 COST At 1st January 2002 14,149 Arising from acquisition of subsidiaries 11,256 At 31st December 2002 25,405 AMORTISATION At 1st January 2002 1,915 Charge for the year 2,540 At 31st December 2002 4,455 CARRYING AMOUNT At 31st December 2002 20,950 At 31st December 2001 12,234 Goodwill is amortised over its estimated useful life. The estimated foreseeable life of the goodwill arising on acquisitions is ten years. 41 LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 16. NEGATIVE GOODWILL RMB’000 GROSS AMOUNT At 1st January 2002 8,560 Increase from further acquisition of investments in a subsidiary 1,204 At 31st December 2002 9,764 RELEASED TO INCOME At 1st January 2002 3,418 Released in the year 991 At 31st December 2002 4,409 CARRYING AMOUNT At 31st December 2002 5,355 At 31st December 2001 5,142 The negative goodwill is released to income on a straight-line basis over, a period of 10 years, the remaining estimated weighted average useful life of the depreciable assets acquired. 17. INTANGIBLE ASSETS RMB’000 COST At 1st January 2002 30,138 Additions 18,683 Acquired on acquisition of a subsidiary 1,657 Written off (3,307) At 31st December 2002 47,171 AMORTISATION At 1st January 2002 9,680 Charge for the year 12,396 Emlinated on disposal (53) At 31st December 2002 22,023 CARRYING AMOUNT At 31st December 2002 25,148 At 31st December 2001 20,458 At 31st December 2002, intangible assets represent costs for acquisition of technical 42 knowhow and other expenses incurred in developing new pharmaceutical products. 43 LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 18. SUBSIDIARIES Details of the Company’s subsidiaries at 31st December 2002 are as follows :- Place of Proportion of incorporation ownership Principal Name of subsidiary and operation interest Activity Ando Development Limited Hong Kong 100% General trading Livzon (Group) Advertising Co., Zhuhai, PRC 100% Operation in advertising Ltd. business Livzon (Group) Biotechnology Zhuhai, PRC 100% Manufacture and sale of Pharmaceutical Factory products made from microbio fermentation, blood products, recombinant DNA products and biochemical reagent Livzon (Group) Healthcare Zhuhai, PRC 100% Production of Chinese patent Product Factory medicines and health tonics Livzon (Group) Investment Zhuhai, PRC 100% Economic and information Consultant Co., Ltd. consultant service Livzon (Group) Liman Chemical Shaoguan, PRC 100% Production and sale of Pharmaceutical Factory biochemical reagent Livzon (Group) Livzon Zhuhai, PRC 100% Production of Chinese Traditional Chinese Medicine medicines and health tonics Factory Livzon (Group) Pharmaceutical Zhuhai, PRC 100% Production of biological tablets, Factory hard capsules and powder Livzon (Group) Pharmaceutical Zhuhai, PRC 100% Research and development of Research Institute biochemical reagent and pharmaceutical materials Livzon (Group) Pharmaceutical Zhuhai, PRC 100% Sale of the Group’s Trading Co., Ltd. pharmaceutical products Livzon (Group) Reagent Factory Zhuhai, PRC 100% Production of biochemical reagent and enzyme linked immune reagent Livzon (Group) Syntpharm Zhuhai, PRC 90% Production of chemical Factory medicinal materials and medical reagent 44 45 LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 18. SUBSIDIARIES - continued Place of Proportion of incorporation ownership Principal Name of subsidiary and operation interest Activity Lizhu (Hong Kong) Co., Limited Hong Kong 100% General trading Zhuhai Livzon Pharmaceutical Zhuhai, PRC 100% Import and export business of Trading Co., Ltd. pharmaceutical reagent and raw material Guangdong Central South Shenzhen, PRC 70% Retail and wholesale of Pharmacy Co., Ltd. medicines 廣東新北江制藥股份有限公司 Qingyuan, PRC 60.13% Manufacture and sale of pharmaceutical products and related knowhow Livzon Chainstore Operation Co., Zhuhai, PRC 90% Investment, chain store Ltd. operation, economic and technological operation, consulting and technological service Livzon (Group) Libao Zhuhai, PRC 76.99% Manufacture and sale of Biochemical & Pharmaceutical pharmaceutical products Co., Ltd. Livzon (Group) Livzon-bam Zhuhai, PRC 82% Manufacture and sale of Biomaterials Co., Ltd. hydroxyapatite products and coated titanium dental implant Shanghai Livzon Pharmaceutical Shanghai, PRC 85% Manufacture and sale of Co., Ltd. pharmaceutical products Sichuan Everbright Pangzhou, PRC 52.21% Manufacture and sale of Pharmaceutical Co., Ltd. pharmaceutical products Zhuhai Li Ao Wei Sheng Tai Zhuhai, PRC 90% Research of pharmaceutical Products Co., Ltd. product Zhuhai Livzon Wonderful Zhuhai, PRC 80% Research and development of Technology Investment Co., medicine and pharmaceutical Ltd. technology, technological consulting and project investment Zhuhai Medicine Technology Zhuhai, PRC 80% Research and development of Development Co., Ltd. medicine and pharmaceutical technology, technological consulting and project 46 investment 47 LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 18. SUBSIDIARIES - continued Place of Proportion of incorporation ownership Principal Name of subsidiary and operation interest Activity Zhuhai Modern Chinese Medicine Zhuhai, PRC 100% Research and development of High Technology Co., Ltd. pharmaceutical technology Zhuhai S.E.Z. Likang Zhuhai, PRC 72% Manufacture and sale of Pharmaceutical Co., Ltd. pharmaceutical products 深圳市塔坤信息咨詢有限公司 Shenzhen, PRC 52.5% Provision of consultation service 深圳市三心藥行連鎖有限公司 Shenzhen, PRC 63% Retailing of pharmaceutical products Hubei Keyi Pharmaceutical Hubei, PRC 45.84% Manufacture and sale of Holdings Company Limited * Chinese and foreign patent medicines, biochemical reagent and health tonics Hubei Liyi Pharmaceutical Hubei, PRC 59% Research and development of Technology Company Limited * medicine and development of medical and pharmaceutical technology, technological consulting and project investment * The Company has consolidated the financial statements of Hubei Keyi Pharmaceutical Holdings Company Limited and Hubei Liyi Pharmaceutical Technology Company Limited as the Company exercises unilateral control over the financial and operating policies of both companies. 19. INVESTMENTS IN ASSOCIATES 2002 2001 RMB’000 RMB’000 Cost of investment 17,067 8,191 Share of post-acquisition profit/ (loss) net of dividends received and goodwill amortization 163 25 48 17,230 8,216 49 LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 19. INVESTMENTS IN ASSOCIATES - continued Details of the Group’s associates at 31st December 2002 are as follows :- Place of Proportion incorporation of ownership Principal Name of associate and operation interest Activity 廣東藍寶制藥有限公司 Qingyuan, 26% Manufacture and sale of PRC biochemical products Livzon Electomedical Zhuhai, PRC 28% Manufacture and sale of Instrument Co., Ltd. electromedical instrument Livzon Group Changzhou Changzhou, 30% Manufacture and sale of Kangli Pharmaceutical Co., PRC pharmaceutical products Ltd. MolecularTaq Limited Hong Kong 37% Research of pharmaceutical products Shanghai Lizhu-Dongfeng Shanghai, 50% Manufacture and sale of Biotechnology Co., Ltd. PRC biochemical products 四川光大植化有限公司 Pangzhou, 40% Production of Chinese PRC pharmaceutical material 20. OTHER INVESTMENTS Non-current investments 2002 2001 RMB’000 RMB’000 Available for sale investment at cost less provision for impairment loss 22,797 33,976 Current investments 2002 2001 RMB’000 RMB’000 Available for trading investment at fair value 16,878 15,955 The investments included above represent investments in listed and unlisted equity securities that contribute the Group with dividend income and trading gains. The fair value 50 of listed securities are based on quoted market prices. 51 LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 21. INVENTORIES 2002 2001 RMB’000 RMB’000 Raw materials 57,655 60,142 Work in progress 18,054 21,649 Finished goods 123,625 115,780 199,334 197,571 Included above are finished goods of RMB 436,564 (2001: RMB19,555,000) carried at net realisable value. 22. OTHER FINANCIAL ASSETS Trade and other receivables at the balance sheet date comprise gross amounts receivable from the sale of goods of RMB426,687,000 (2001: RMB342,000,000). An allowance has been made for estimated irrecoverable amounts from the sale of goods of RMB138,128,000 (2001: RMB89,500,000). This allowance has been determined by reference to past default experience. The directors consider that the carrying amount of trade and other receivables approximates their fair value. Bank balances and cash comprise cash held by the Group and short-term bank deposits with an original maturity of three months or less. The carrying amount of these assets approximates their fair value. The Group’s credit risk is primarily attributable to its trade receivables. The amounts presented in the balance sheet are net of allowances for doubtful receivables, estimated by the Group’s management based on prior experience and the current economic environment. The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers. 52 LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 23. SHARE CAPITAL 2002 2001 No. of No. of shares shares ’000 RMB’000 ’000 RMB’000 Registered, issued and fully paid : A shares of RMB1 each 183,728 183,728 183,728 183,728 B shares of RMB1 each 122,307 122,307 122,307 122,307 306,035 306,035 306,035 306,035 There were no movements in the share capital of the Company in either the 2002 or 2001 reporting periods. 24. RESERVES Notes 2002 2001 RMB’000 RMB’000 (As restated) Share premium 417,689 417,689 Properties revaluation reserve 9,609 9,609 Statutory surplus reserve (a) 60,357 45,476 Discretionary surplus reserve (b) 76,685 76,685 Public welfare fund (c) 59,509 43,326 Accumulated profits 34,602 7,768 658,451 600,553 According to the PRC companies law, the reserve available for distribution is the lower of the amount determined under PRC Accounting Regulations and the amount determined under IFRS. As at 31st December 2002, the reserve available for distribution was RMB3,999,000 (2001:RMB1,670,000) after taking into account the current year’s proposed dividend of RMB30,603,000. 53 LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 24. RESERVES (Continued) Notes: (a) Statutory surplus reserve The Company is required under the laws and regulations of the PRC to transfer an amount of 10% of its profit for the year, determined under PRC accounting regulations for companies limited by shares, to the statutory surplus reserve, until the balance of the statutory surplus reserve is equal to 50% of the Company’s issued share capital. In accordance with the laws and regulations, the statutory reserves can be utilised as follows : (i) to make up losses of the Company; (ii) to distribute to shareholders in the form of a bonus issue which is subject to approval in the general meeting. The balance of the statutory surplus reserve after such distribution is not less than 25% of the issued share capital of the Company. (b) Discretionary surplus reserve The Company may transfer an amount from its profit for the year calculated under PRC accounting regulations for companies limited by shares to the discretionary surplus reserve in accordance with the resolutions of shareholders in the general meeting. The discretionary surplus reserve can be utilised to make up losses of the Company and to distribute to shareholders in the form of bonus issue. (c) Public welfare fund According to the law and regulations of the PRC, the Company is required to transfer 5-10% of its profit after tax calculated under PRC accounting regulations for companies limited by shares to the public welfare fund. The public welfare fund can only be used for the collective benefits of the Group’s employees. 25. BANK LOANS 2002 2001 RMB’000 RMB’000 Secured 181,900 117,000 Unsecured 72,767 185,170 54 254,667 302,170 55 LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 25. BANK LOANS - continued 2002 2001 RMB’000 RMB’000 The borrowings are all denominated in RMB and repayable as follows : On demand or within one year 183,167 301,620 In the second year 71,500 500 254,667 302,170 Less: Amount due from settlement within one year (shown under current liabilities) (183,167) (301,620) Amount due for settlement after one year 71,500 550 2002 2001 Interest rates 4.2%-7.6% 3.6-6.4% At 31st December 2002, all the bank loans of the Group were arranged at fixed interest rates. The directors estimate the fair value of the Group’s borrowings as follows: 2002 2001 RMB’000 RMB’000 Bank loans 255,665 302,510 26. PLEDGE OF ASSETS At the balance sheet date, the Group’s land and buildings with an aggregate carrying amount of approximately RMB122,211,000 (2001 : RMB79,224,000) were pledged to banks as security for bank loans granted to the Group. 27. OTHER FINANCIAL LIABILITIES Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. The directors consider that the carrying amount of trade payables approximates to their fair value. 56 LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 28. DISPOSAL OF SUBSIDIARY Net assets disposed: 2002 RMB’000 Property, plant and equipment 4,281 Inventory 3,886 Trade and other receivable 4,910 Bank balance and cash 259 Trade and other payable (11,741) 1,595 Loss on disposal of subsidiary (1,205) Total consideration 390 Less: Bank balances and cash disposed of (259) Net cash inflow generated from disposal 131 29. ACQUISITION OF SUBSIDIARIES Net assets acquired : 2002 RMB’000 Property, plant and equipment 112,729 Construction in progress 2,222 Investments in associate 7,788 Intangible assets 1,657 Inventories 13,126 Trade and other receivables 32,597 Bank balances and cash 1,276 Trade and other payables (54,517) Tax payable (3,363) Bank borrowing (62,700) Minority interests (17,155) 33,660 Goodwill 11,256 Total consideration 44,916 Less: Bank balances and cash acquired (1,276) Net cash inflow arising on acquisition 43,640 The subsidiaries acquired during the year contributed RMB69,707,890 of revenue and RMB947,248 of profit before tax for the period between the date of acquisition and the 57 balance sheet date. 58 LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 30. CAPITAL COMMITMENTS 2002 2001 RMB’000 RMB’000 Capital expenditure contracted for but not provided in respect of : Purchase of property, plant and equipment and construction in progress 17,671 5,661 Purchase of intangible assets 17,713 5,495 Acquisition of investment in a subsidiary 72,941 17,550 108,325 28,706 31. OPERATING LEASE COMMITMENTS 2002 2001 RMB’000 RMB’000 Minimum lease payments under operating leases recognized as expenses for the year 9,932 11,978 At the balance sheet date, the Group had outstanding commitments under non-cancellable operating leases, which fall due as follows :- 2002 2001 RMB’000 RMB’000 Within one year 959 1,155 In the second to fifth years inclusive 1,159 1,463 After five year 3,283 - 5,401 2,618 Operating lease payments represent rentals payable by the Group for certain of its office properties. 32. CONTINGENT LIABILITIES 2002 2001 RMB’000 RMB’000 Negotiated bills 4,380 5,440 59 LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 33. RETIREMENT BENEFIT PLANS The employees in the PRC of the Group are the qualifying member of the state-managed retirement benefit scheme, which required the Group to contribute a standard proportion of salaries paid to the government department. The Group’s obligation under the schemes are required to contribute the amount of the standard proportion in the above. The Group operates defined contribution retirement benefit plans for all qualifying employees in Hong Kong of the Group. The assets of the plans are held separately from those of the Group in funds under the control of trustees. Where there are employees who leave the plans prior to vesting fully in the contributions, the contributions payable by the Group are reduced by the amount of forfeited contributions. The total cost charged to income of RMB15,468,000 (2001:RMB12,815,000) represents contributions payable to these plans by the Group at rates specified in the rules of the plans. As at 31 December 2002, contributions of RMB463,530 (2001:RMB1,230,809)due in respect of the current reporting period had not been paid over to the plans. 34. RELATED PARTY TRANSACTIONS In addition to the amounts due from/(to) associates as set out in the balance sheet, the Group also entered into the following transactions with the associate during the year: 2002 2001 RMB’000 RMB’000 Sales of goods 1,200 - Purchase of goods 49,033 19,433 Other operating income 6,665 - 60 LIVZON PHARMACEUTICAL GROUP INC. 麗珠醫藥集團股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 35. ACCOUNTING TREATMENT The Group has prepared a separate set of accounts for the year ended 31st December 2002 in accordance with the PRC accounting standards. The major differences between the accounts prepared under the PRC Accounting Standards and those under IFRS are summarised as follows: Net profit for the year Net assets RMB’000 RMB’000 Under PRC accounting standards 61,943 949,409 Adjustments: Elimination of interest capitalised for property, plant and equipment - (25,568) Provision for impairment loss of construction in progress 426 - Depreciation on property, plant and equipment (535) (1,070) Negative goodwill arising from acquisition of a subsidiary - (1,638) Negative goodwill arising from partial acquisition of subsidiaries 1,068 1,068 Goodwill arising from acquisition of associates - 2,690 Gain on disposal of a subsidiary (8,262) - Partial disposal of interest in subsidiaries (137) (137) Amortisation of goodwill (251) (502) Amortisation of negative goodwill 195 195 Share of results of associates (994) (1,171) Written off of deferred expenditure (520) (2,473) Provision for bad and doubtful debts 14,784 - Accrual of expenses (1,111) 13,480 Proposed dividend - 30,603 Others 473 (400) 5,136 15,077 Under IFRS 67,079 964,486 61 XII.DOCUMENTS FOR REFERENCE 1.Original of auditor’s report carried with the signatures and seals of legal representative, person in charge of financing and person in charge of accounting. 2. Original of auditor’s report carried with the seal of Certified Public Accountants and the signature and the seal of certified public accountants. 3.Original of documents and manuscripts of public notices disclosed publicly on newspapers designated by CSRC in the report period. Livzon Pharmaceutical Group Inc. Chairman of the Board 62