皇庭国际(000056)深国商Ｂ2002年年度报告（英文版）

SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD 2002 ANNUAL REPORT April 18, 2003 Contents . Important Notes------------------------------------------------------------------------------ . Company Profile----------------------------------------------------------------------------- . Summary of Financial Highlight and Business Highlight--------------------------- . Changes in Capital Shares and Particulars about Shareholders ------------------- . Particulars about Directors, Supervisors, Senior Executives and Employees--- . Administrative Structure------------------------------------------------------------------- . Brief Introduction to the Shareholders’ General Meeting -------------------------- . Report of the Board of Directors ----------------------------------- --------------------- . Report of the Supervisory Committee--------------------------------------------------- . Significant Events---------------------------------------------------------------------------- . Financial Report----------------------------------------------------------------------------- . Documents for Reference------------------------------------------------------------------ I. IMPORTANT NOTES Board of Directors of Shenzhen International Enterprise Co., Ltd. (hereinafter referred to as the Company) individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions nor errors which would render any statement misleading. Director Mr. Xiao Guangsheng was absent from the Board meeting, and authorized Director Ms. Song Shengjun to attend and vote on his behalf. Chairman of the Board of the Company Mr. Li Jinquan, General Manager Ms. Song Shengjun and Person in charge of Accounting Mr. Ding Jingjia hereby confirm that the Financial Report of the Annual Report is true and complete. II. COMPANY PROFILE 1. Legal Name of the Company In Chinese: 深圳市国际企业股份有限公司 In English: Shenzhen International Enterprise Co., Ltd. 2. Legal Representative: Li Jinquan 3. Secretary of the Board of Directors: Xie Wei Authorized Representative in Charge of the Securities Affairs: Zhang Weidong Tel: (86) 755-82281888, 82285565 Contact Address: Investment and Management Dept., 23rd Floor, Development Center Bldg., Renmin South Road, Shenzhen Fax: (86) 755-82285573 E-mail: guoqi@szonline.net 4. Registered Address and Office Address: 23rd Floor, Development Center Bldg., Renmin South Road, Shenzhen Post Code: 518001 Company’s Internet Website: http://www.china-ia.com E-mail: szia@szonline.net 5. Newspapers Chosen for Disclosing the Information of the Company: Securities Times, Ta Kung Pao Internet Website Designated by CSRC for Publishing the Annual Report: http://www.cninfo.com.cn The Place Where the Annual Report is Prepared and Placed: Investment and Management Dept. of the Company 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock (A-share): SZIEC-A Stock Code: 000056 Short Form of the Stock (B-share): SZIEC-B Stock Code: 200056 7. Initial Registration Date: March 1993; Place: Shenzhen, Guangdong Registration Date after the Adjustment: Dec. 2002; Place: Shenzhen Guangdong Registered Code of Enterprise Legal Person’s Business License: 4403011016891 Registered Code of Tax: 440301520200039 The Certified Public Accountants Engaged by the Company: Domestic: Reanda Certified Public Accountants Co., Ltd. Office Address: Room 808, New Dong An Market, No. 138, Wangfujing Av., Dongcheng District, Beijing International: BDO International Certified Public Accountants Office Address: 2008, East District of Zhubang 2000, No. 100, Balizhuangxili, Chaoyang District, Beijing III. SUMMARY OF FINANCIAL HIGHLIGHTS AND BUSINESS HIGHLIGHTS 1. Major accounting data and business indexes as of the year 2002 (Unit: In RMB) As of the year 2002 Item Consolidated Statement Total profit -34,676,065.48 Net profit -25,706,674.11 Net profit after deducting non-recurring gains and losses -21,761,556.63 Profit from core business 37,028,171.06 Profit from other business 14,180,493.31 Operating profit -28,964,988.91 Investment income -1,400,742.31 Subsidy income - Net income / expenditure from non-operating -4,310,334.26 Net cash flows arising from operating activities 8,416,728.47 Net increase in cash and cash equivalents 737,144.88 Note: Items of non-recurring gains and losses and the relevant amounts: Items Amount (RMB) Disposal gains and losses of subsidiaries or investee 365,216.78 company’s equity Income from non-operating 1,421,406.16 Expenditure of non-operating 5,731,740.42 Total -3,945,117.48 The explanation on the difference between the auditing results under PRC GAAP and IAS: As audited by Reanda Certified Public Accountants according to PRC GAAP and by BDO International Certified Public Accountants according to IAS promulgated by International Accounting Standard Committee, the Company’s profit after taxation as of the year 2002 respectively was RMB –25,707,000 and RMB –23,739. The adjustment for the differences was as follows: (Unit: In RMB’000) Consolidated statement as of the year 2002 Profit after tax as audited by Reanda Certified Public Accountants -25,707 Adjustment to conform with IAS: Write off of intangible assets - Provision for doubtful debts 264 Provision for obsolete stock 5,564 Taxation paid - Increase of expenses to be apportioned -3,048 Increase of depreciation charge -812 Expenditure of improvement fixed assets - Sales of devaluation assets in the previous years - Minority interest - Sales of property under development - “A share” Prior year adjustments - Profit after tax as audited by BDO International Certified Public Accountants -23,739 Difference in the profit after taxation as audited by Reanda Certified Public Accountants Co., Ltd. under PRC GAAP and by BDO International Certified Public Accountants under IAS is due to the different regulations in PRC GAAP and IAS. 2. Accounting data and financial indexes over the recent three year at the end of report year (Unit: In RMB) 2001 2000 Index 2002 Before After Before After adjustment adjustment adjustment adjustment Income from core business 187,832,592.39 301,449,776.02 301,449,776.02 469,862,925.05 653,336,594.47 Net profit -25,706,674.11 19,705,795.74 5,569,386.66 36,123,036.96 38,870,863.03 Total assets 1,095,417,472.51 1,188,321,640.00 1,166,350,253.00 1,108,846,910.43 1,265,245,320.81 Shareholder’s equity (excluding 332,919,956.01 372,763,039.20 358,626,630.12 424,662,995.72 353,057,243.46 minority interests) Earnings per share (RMB/share) Weighted average earnings per -0.12 0.09 0.03 0.16 0.176 share Fully diluted earnings per share -0.12 0.09 0.03 0.16 0.176 Earnings per share after deducting -0.10 -0.06 -0.04 0.16 0.195 non-recurring gains and losses Net assets per share (RMB/share) 1.51 1.69 1.62 1.72 1.60 Net assets per share after 1.45 1.51 1.49 1.65 1.27 adjustment (RMB/share) Net cash flows per share arising 0.04 -0.08 -0.08 0.18 0.18 from operating activities Return on equity (%) -7.43 5.43 1.55 8.51 11.01 Weighted average return on equity after deducting non-recurring -6.29 -3.46 -2.28 8.79 9.75 gains and losses 3. Changes in shareholders’ equity in the report year (Unit: RMB) Statutory Total Share Capital public Surplus Retained Items capital shareholders’ capital reserve public reserve profit welfare fund equity Amount at the year-begin 220,901,184 51,109,680.43 124,206,735.53 25,609,713.31 -37,590,969.84 358,626,630.12 Increase in the report year 0 0 306,730.07 102,243.36 306,730.07 - Decrease in the report year 0 0 0 0 25,706,674.11 25,706,674.11 Amount at the year-end 220,901,184 51,109,680.43 124,513,465.60 25,711,956.67 -63,604,374.02 332,919,956.01 Profits Profits distribution distribution Causes Withdrawal Withdrawal and deficit as and deficit as of the year of the year IV. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS (I) Particulars about the changes in share: Statement of change in shares (Ended Dec. 31, 2002) Unit: share Increase/decrease of this time (+, - ) Before the After the Items Allotment Bonus Capitalization of Additional Sub- change Others change of shares shares public reserve issuance total Ｉ． Unlisted Shares 1. Promoters’ shares 42,035,328 42,035,328 Including: State-owned share 42,035,328 42,035,328 Domestic legal person’s shares Foreign legal person’s shares Others 2. Raised legal person’s shares 51,643,584 51,643,584 3. Employees’ shares 4. Preference shares or others Total Unlisted shares 93,678,912 93,678,912 II. Listed Shares 1. RMB ordinary shares 55,222,272 55,222,272 2.Domestically listed foreign 72,000,000 72,000,000 shares 3. Overseas listed foreign shares 4. Others Total Listed shares 127,222,272 127,222,272 ＩＩＩ. Total shares 220,901,184 220,901,184 2. Issuance and listing of shares (1) By the end of the report year, the Company didn’t issue new shares over the past three year. (2) In the report year, both the Company’s total shares and its structure remained unchanged. (II) About Shareholders 1. Ended Dec. 31, 2002, the Company has 41,380 shareholders in total. 2. Particulars about shares held by the top ten shareholders (Ended Dec. 31, 2002) Unit: 0,000 share Increase / Number of Holding decrease in Proportion share Full name of Shareholders shares at Type of shares the report (%) pledged/ the year-end year frozen Shenzhen Special Economic Zone State-owned legal - 4203.533 19.03 Development (Group) Co. person share Foreign legal - Malaysia Foh Chong & Sons SDN.BHD. 3026.419 13.70 person share and B-share Shenzhen Taitian Industrial Development Domestic legal - 1907.539 8.64 Co. person share F.C.(ASIA) HOLDINGS SDN.BHD. -11.146 860.839 3.90 B-share - LETSCON HOLDINGS SDN.BHD. -34.013 586.821 2.66 B-share - Foreign legal - Hong Kong Mengxin Industrial Co. 374.400 1.69 person share Foreign legal - Malaysia Uchino United Co. 288.000 1.30 person share Domestic legal - Dapu Hechang Chemical Co., Ltd. 288.000 1.30 person share Foreign legal - Hong Kong F.C. International Trade Co. 288.000 1.30 person share CBNY S/A PNC/SKANDIA SELECT B-share -2.27 238.142 1.08 - FUND/CHINA EQUITY AC Notes: (1) There exists no associated relationship among the top ten shareholders, and they do not belong to the consistent actionist regulated by the Management Measure of Information Disclosure on Change of Shareholding for Listed Company. (2) Shenzhen Special Economic Zone Development (Group) Co. holds the shares of the Company on behalf of the state. Foreign shareholder: Malaysia Foh Chong & Sons SDN.BHD., F.C.(ASIA) HOLDINGS SDN.BHD., LETSCON HOLDINGS SDN.BHD., Hong Kong Mengxin Industrial Co., Malaysia Uchino United Co., Hong Kong F.C. International Trade Co. and CBNY S/A PNC/SKANDIA SELECT FUND/CHINA EQUITY AC. (3) Malaysia Foh Chong & Sons SDN.BHD. holds 10,080,000 B shares in circulating and 20,184,192 unlisted foreign legal person shares. 3. The first largest shareholder of the Company (1) The largest shareholder of the Company is Shenzhen Special Economic Zone Development (Group) Co. (“SDG”), who holds 42,035,330 shares of the Company, taking 19.03% of the total shares of the Company. Its registered capital of SDG is RMB 104.85 million; legal representative is Hu Ge. It registered in Shenzhen of Guangdong. Business scope includes: industrial transportation, tourism, real estate and la nd development, financial business and commerce and trade, issuance of valuable securities, information consultation, textile products, knitting products, department stores, grains and oils, other foods, metal wares and electrical appliances, chemical products, contracting overseas projects and domestic projects for international bidding. (2) Shenzhen Special Economic Zone Development (Group) Co. is the state wholly owned subsidiary of Shenzhen Investment Holding Corporation (“Investment Holding”). The registered capital of Investment Holding is RMB 2 billion; legal representative is Li Heihu; registered place is Shenzhen of Guangdong. Business scope includes: Management and supervision of enterprise’s state assets, financing and property right; to share all kinds of enterprise and turn over investment, to offer credit and assurance; to impose profit after tax and occupying expenses of assets of state enterprise and the other business authorized by municipal government. 4. Other legal person’s shareholder holding over 10% (including 10%) of the total share of the Company: Malaysia Foh Chong & Sons SDN.BHD. holds 30, 264, 190 shares of the Company, taking 13.70% of the total shares; legal representative is Xiao Guangsheng; registered place is Malaysia. Business scope includes: rubber plantation, real estate development, chemical, metal wares, raw material import & export, financial companies, securities investment. V. PARTICULARS ABOUT DIRECTOR, SUPERVISOR, SENIOR EXECUTIVE AND STAFF (I) Directors, supervisors and senior executives 1. Basic information Number of holding Number of Name Gender Age Title Office term shares at the holding shares at year-begin the year-end Li Jinquan Male 56 Chairman of the Board Dec. 1999 – Dec. 2002 144,000 144,000 Song Shengjun Female 49 Director, General Manager Dec. 1999 – Dec. 2002 172,800 172,800 Zhang Jianmin Male 44 Director May 2001 – Dec. 2002 Cai Zhuan Male 38 Director Dec. 1999 – Dec. 2002 Xiao Male 55 Director Dec. 1999 – Dec. 2002 Guangsheng Chen Jiehou Male 62 Independent director Dec. 2001 – Dec. 2002 Fang Yuji Male 41 Independent director Dec. 2001 – Dec. 2002 Zhou Xiaoxing Female 47 Chairman of the Supervisory Dec. 1999 – Dec. 2002 Committee Zhou Xiaoling Female 43 Supervisor Dec. 1999 – Dec. 2002 Li Mugui Male 58 Supervisor May 2001 – Dec. 2002 89,700 89,700 Huang Guizhen Female 53 Deputy General Manager Dec. 1999 – Dec. 2002 Ding Jingjia Male 54 Chief Financial Supervisor Dec. 1999 – Dec. 2002 144,000 144,000 Xie Wei Male 28 Secretary of the Board Apr. 2001 – Dec. 2002 Note: Particulars about directors or supervisors holding the position in Shareholding Company Director Mr. Zhang Jianmin took the post of Deputy General Manager of Shenzhen Special Economic Zone Development (Group) Co.; Director Mr. Cai Zhuan took the post of General Manager of Shenzhen Taitian Industrial Development Co.; Director Mr. Xiao Guangsheng took the post of Director of Malaysia Foh Chong & Sons SDN.BHD.; and Supervisor Mr. Li Mugui took the post of Chairman of the Board of Dapu Hechang Chemical Co., Ltd. 2. Particulars about the annual remuneration During the report year, the annual remuneration of the directors, supervisors and senior executives consisted of the monthly wage (including basis wage and benefit wage) and the allowance. The total annual remuneration of the Company’s present directors, supervisors and senior executives was RMB 565,000. Among them, (1) one enjoyed the annual remuneration over RMB 100,000 per year, (2) five enjoyed the annual remuneration between RMB 60,000 and 75,000 respectively, and (3) seven enjoyed the annual remuneration under RMB 60,000 respectively. The total remuneration of the top three directors drawing the highest payment was RMB 145,000. The total remuneration of the top three senior executives drawing the highest payment was RMB 265,000. The Company respectively paid the allowance of RMB 15,000 (tax excluded) per year to independent director Mr. Chen Jiehou and Mr. Fang Yuji. In 2002, Director Li Jinquan, Director Zhang Jianmin, Director Cai Zhuan, Director Xiao Guangsheng, Director Chen Jiehou, Director Fang Yuji and Supervisor Li Mugui received no pay from the Company. Of them, Director Zhang Jianmin drew the annual salary from Shenzhen Special Economic Zone Development (Group) Co.; Director Xiao Guangsheng drew the annual salary from Malaysia Foh Chong & Sons SDN.BHD.. According to resolution of the 7th meeting of 3rd Board of Directors dated Nov. 20, 2001, the said directors respectively drew the allowance of RMB 15,000 (tax excluded) per year from the Company; supervisors respectively drew the allowance of RMB 10,000 (tax excluded) per year from the Company. 3. Directors, supervisors and senior executives didn’t leave the office in the report period. (II) About staff Ended Dec. 31, 2002, the Company had totally 998 employees in office. The composing of professional and background of education and the retiree are as follows: Composing of professional: salesperson: 823 persons; technicians: 75 persons; financial personnel: 35 persons; administrative personnel: 65 persons. Background of education: postgraduate: 3 persons; bachelor degree: 72 persons; 3-years regular college: 130 persons; person graduated from technical secondary school: 308 persons. The Company has 6 retirees. VI. AMINISTRATIVE STRUCTURE (I) The Company’s Actual Administration In the report period, strictly according to PRC Company Law, Securities Law and relevant requirements of normative documents released by CSRC, the Company further consummated legal person administrative structure, on the basis of establishment and amendment of Articles of Association of the Company, Rules of Procedure of the Shareholders’ General Meeting, Rules of Procedure of the Board of Directors, Rules of Procedure of the Supervisory Committee, Work Rule of General Manager and other regulations and systems, established Information Disclosure System, ensured the information disclosure of the Company to be more accurate, timely and complete. The Company further cleared the property right of the Company, changed enterprise type into a Sino- foreign limited liability company and correspondingly amended Articles of Association of the Company. Through the Company conducted administration strictly according to the requirement of the documents on companies’ administration promulgated by CSRC and gained a large achievement in recent years, there existed disadvantage in the work of administration, for example, the special committee of the Board of Directors need further implement work, the effective performance evaluation, encourage and binding system for senior executives is not established and so on, the Company will improved and consummated continuously in future work. (II) Performance of Independent Directors The independent directors of the Company patiently performed duties, examined patiently every proposal examined by the Board of Directors and significant events, expressed independent opinion on relevant events, put forward to many constructive opinions in significant operation decision- making, consummating administrative structure and standardizing financial management and played a full role of independent directors. (III) The Company was separated from Shenzhen Economic Zone Development (Group) Co., Ltd. in personnel, assets and financing, the organization and business were independent, they independently settled and undertook liabilities and risk. 1. In respect of personnel, the Company is absolutely independent management of labor, human affairs and salaries; The Company’s senior executives including the chairman of the Board, general manager, vice general manager, financial superintendent and the secretary of the Board haven’t been taking actual managerial positions and receiving salaries in shareholders’ companies concurrently 2. In respect of assets, the Company has clear property right of assets, and there exists no occupation of assets by the large shareholder or related parties. 3. In respect of finance, the Company has established the independent finance department, and established independent business accounting system and financial management system, and opened independent bank account and paid taxes independently. 4. In respect of organization, the Board of Directors, the Supervisory Committee and other internal organizations have been functioning independently. The large shareholder and its subsidiary organizations have neither assigned management plan and order to the Company and the Company’s subsidiaries, nor impacted the independency of the Company’s management and administration through other ways. 5. In respect of business, the Company has independent purchase and sales system as well as independent and complete business and management capabilities. (IV) Establishment and implementation of evaluation and encouragement system and related reward system for senior executives of the Company In the report period, the Company adopted annual salary system in the wage allotment of the senior executives. At the year-beginning, the Company affirmed the integrated indexes of economic performance and management duties for the senior executives according to the whole development stratagem, annual operation aim and financial budget of the Company and at the year-end, connection with the Company’s operation and the work report of the senior executives, the Board of Directors of the Company examined the annual evaluation for the senior executives. VII. BRIEFINGS ON THE SHAREHOLDERS’ GENERAL MEETING In the report year, the Company altogether held 2 meetings of the Shareholders’ General Meeting with details as follows: (I) The 1st meeting of the 3rd Board of Directors in 2002 held on Apr.11, 2002 made resolution of holding 2001 annual Shareholders’ General Meeting which was held in the meeting room of the Company, 23F, Development Center Building, Renminnan Road, Luohu District, Shenzhen on May 17, 2002. The meeting was presided by Chairman of the Board, Li Jinquan and 8 shareholders and shareholders’ representatives attended the meeting, representing 119,320,435 shares, taking 54.02% of the total share capital in conformity with Company Law and Articles of Association. The meeting examined and approved the following resolutions: 1.2001 Work Report of the Board of Directors 2.2001 Work Report of the Supervisory Committee 3.2001 Financial Settlement Report 4.2001 Profit Distribution Proposal 5.2002 Profit Distribution Policy The public notice on resolution of the meeting was published on Securities Times and Ta Kung Pao dated May 18, 2002. (II) The 7th meeting of the 3rd Board of Directors in 2002 held on Sep.25, 2002 made resolution of holding the 1st Extraordinary Meeting of the Shareholders’ General Meeting of 2002, which was held in the meeting room of the Company, 23F, Development Center Building, Renminnan Road, Luohu District, Shenzhen on Oct.28, 2002. The meeting was presided by Chairman of the Board, Li Jinquan and 7 shareholders and shareholders’ representatives attended the meeting, representing 118,786,214 shares, taking 53.77% of the total share capital in conformity with Company Law and Articles of Association. The meeting examined and approved the following resolutions: 1. Proposal on Applying for Relevant Authorities Institution to Change Enterprise Type into Foreign Investment Limited Liabilities Company; 2. Proposal on Amending Part Terms of Articles of Association of the Company The public notice on resolution of the meeting was published on Securities Times and Ta Kung Pao dated Oct.29, 2002. VIII. Report of the Board of Directors I. Operation in the report period 1. Scope of core business and operating status (1) The Company is mainly engaged in the retail business of chain stores and development of real estate and is also involved in other businesses of property management etc.. In the report period, since the competition of commercial retail market was more intensified, the Company was transforming from commercial operating type to service type. Simultaneously, the real estate business was still in the development period, the originally developed buildings has been sold out basically and new buildings still did not start the sales, thus the operating achievements of the Company incurred a decline compared with the year of 2001. In 2002, the Company realized an income from core business of RMB 187,832,592.39, profit of core business of RMB 37,028,171.06 and net profit of RMB-25,706,674.11. Statement of income from core business classified according to industries: Unit: RMB Industries Income from Cost of core Gross profit Increase/decrease Increase/decrease Increase/decreas core business business ratio (%) of income from of cost of core e of gross profit core business business compared ratio compared compared with the with the last year with the last last year (%) (%) year (%) Retail 125,360,123.95 102,904,054.41 17.91 -34.91 -31.76 -3.79 commerce Real estate 53,474,337.13 39,335,760.01 26.44 -45.72 -33.02 -13.95 sales Property 8,998,131.31 4,850,551.43 46.09 1.83 -0.53 1.27 management 2. Operation and achievements of main holding companies and share-holding companies (1) She nzhen International Market, whose 99.94% equity is held by the Company, is mainly engaged in the retail and wholesale business of chain stores with registered capital of RMB 10 million and total assets of RMB 285,806,101.52. In 2002, this company realized income from core business of RMB 91,758,674.54, profit from core business of RMB 17,442,966.75 and net profit of RMB-7,714,943.62. (2) Shenzhen Rongfa Investment Co., Ltd., whose 60% equity is held by the Company, is mainly engaged in the development of real estate with registered capital of USD 5 million and total assets of RMB 626,818,853.96. In 2002, since the new projects of real estate development of the Company were in the preparation period of construction, thus the Company incurred a temporary decline in the benefits and realized income from core business, profit from core business and net profit of RMB 53,474,337.13, RMB 11,423,376.92 and RMB-24,721,091.28 respectively. (3) Shenzhen SIEC Property Management Co., Ltd., whose 61% equity is held by the Company, is mainly engaged in the business of property management with registered capital of RMB 7 million and total assets of RMB 12,023,959.62. In 2002, this company realized income from core business, profit from core business and net profit of RMB 8,998,131.31, RMB 3,726,192.14 and RMB 988,166.75 respectively. (4) Shenzhen Longgang International Market Co., Ltd., whose 100% equity is held by the Company, is mainly engaged in the retail business of general merchandise with registered capital of RMB 15 million and total assets of RMB 50,814,639.29. In 2002, this company realized income from core business, profit from core business and net profit of RMB 33,601,476.41, RMB 4,435,635.25 and RMB 1,442,085.37 respectively. 3. Major suppliers and customers In the report period, the total amount of purchase of the top five suppliers was approximately RMB 25.21 million, taking 24.5% of the total annual amount of purchase. The total amount of sales of the top five customers was approximately RMB 13.10 million, taking 6.97% of the total annual amount of sales. 4. Difficulties and problems arising from operation and solutions In 2002, the problems and difficulties arising from the operation mainly reflected: (1) The market competition force of commercial retail business was not enough. In the report period, the market competition of commercial retail in Shenzhen was intensified. The large overseas magnate of retail industry made use of the opportunity of China’s entry to WTO to expand wantonly and occupied more and more market share with their fruitful commodities and high-quality service. The medium and small commercial enterprises at home just could carry out price war and the retail commerce of the Company was in the transformation period, thus the income from this part decreased somewhat compared with the year of 2001. (2) The real estate business faced the preparation period of construction in the development period of new projects. The real estate projects newly developed have been sold out basically and Jinhuyuan large house projects and Shenzhen downtown large shopping center under construction was still in the preparation period of construction, which resulted that the sales income from real estate declined somewhat temporarily compared with the year of 2001. Though there existed the aforesaid difficulties and problems, the whole Company still had full confidence on the future and planned to solve them through the following proposals in 2003 tightly around “benefits”: (1) To gradually change the operating strategy in the commercial retail business from operation type to service type; to both advance and retreat and remover the operating emphasis to the Sino- foreign cooperation to set up large shopping center; to tightly catch the two dominant links of commodities and service and further enhance the economic benefits. (2) To reinforce the Huizhou sun one-hundred project under construction in terms of real estate business to ensure the rapid recovery of capital; to emphasize to invest in the new projects with low risks, high benefits and rapid recovery and gain the market with high quality and high added value buildings; at the same time to strengthen the land reserve and save resources for the sustainable development of the Company in the future. II. Investment in the report period Ended Dec.31, 2002, the balance of long-term investment of the Company was RMB 21,799,670.90, which increased by RMB 337,832.94 compared with the last year, an increase of 1.57%. 1. Application of raised proceeds in the report period In the report period, there was no application of raised proceeds and the proceeds raised through previous share offering was used up in the previous year. 2. Investment of proceeds not raised through share offering in the report period In the report period, the projects of Jinhuyuan and Shenzhen downtown large shopping center etc. invested with proceeds not raised through share offering by the Company were in the preparation period of construction. Among which, Shenzhen Rongfa Investment Co., Ltd., a affiliated company of the Company, signed SDHZ (2002) No.9005 Transfer Contract of Land Use Right with Shenzhen Planning and State Land Resources Bureau and formally gained the development and construction right of project of Shenzhen downtown large shopping center. At present, American SOM Company, which is the famous international design firm engaged, is carrying through design of project plan. III. Financial status and operating results in the report period Name In 2002 (RMB) In 2001 (RMB) Proportion of Reason of increase/decrease (%) increase/decrease Total assets 1,095,417,472.51 1,166,350,253.00 -6.08 Decrease of accounts receivable and other receivables Shareholders’ 332,919,956.01 358,626,630.12 -7.16 Annual loss equity Income from core 187,832,592.39 301,449,766.02 -37.69 Decrease of commerce business and real estate income Profit from core 37,028,171.06 79,298,682.21 -53.31 Decrease of income business from core business Profit from other 14,180,493.31 8,150,586.36 73.98 Increase of income business from store rental Net profit -25,706,674.11 5,569,386.66 -561.57 Decrease of profit from core business Accountants 23,954,726.34 48,660,549.83 -50.77 Receive of payment receivable for sales of buildings by mortgage Other receivables 103,994,457.85 156,929,343.53 -33.73 Receive of arrearage of other companies Accounts payable 24,811,594.83 41,614,789.89 -40.38 Decrease of commercial purchase volume Accounts received 22,966,383.30 15,315,313.70 49.96 Increase of payments in advance for advanced sales of buildings Other payables 69,047,584.75 105,404,938.63 34.49 Substitute to repay the payments due to guarantee Accrued expense 18,627,898.43 10,099,571.31 84.44 Payment of interests Taxation payable 3,309,752.58 37,615,772.38 -91.20 Payment of income tax and operating tax Financial expense 22,902,062.12 18,475,700.92 23.96 Decrease of interest capitalization Investment -1,400,742.31 17,248,934.65 108.12 Large amount of earnings earnings from equity transfer available in the previous year Net increase of 737,144.88 -22,090,936.22 103.34 Decrease of cash cash and cash outflow of purchase of equivalents commodities IV. Business plan of the New Year Facing the austere reality and operating environment with increasingly intensified competition, the Company set up high crisis consciousness, helped each other in the same condition, reinforced the core business and raised the core competitive force with “Development, Innovation and Benefits” as the work guiding policy of the whole year so as to ensure the realization of large margin of increase of economic benefits in 2003. In order to realize the aforesaid objectives, the Company planned to set about in the following aspects: 1.To deepen the system reform and continue to improve the legal person’s administrative structure of the Company. To carry out all work seriously after the Company’s transfer into Sino- foreign joint venture so as to better adapt to the new problems and new situation faced by the Company after China’s entry into WTO from the system, mechanism and basic work. 2.To make the aconomic benefits as the exclusive standard to measure all work in the commercial retail business, gradually change the operating strategy and make it change from operation type to service type. At present, to reinforce the investment attraction and introduce into the strategic cooperation partners; to adopt various flexible measures to reposition and readjust the existing stores; to quicken the industrial adjustment according to the new situation and new problems of retail industry and set up large and medium shopping center with integration of shopping, lie fallow and entertainments etc.. 3. To emphasize the work, produce the refined products and increase the benefits in terms of real estate business: to strengthen risk consciousness and create elaborate buildings; to carefully reinforce the projects of Jinhuyuan, Shenzhen downtown large shopping center and Huizhou sun one- hundred etc. and try hard to cultivate new growth point of profit; to increase the land reserve and found a solid foundation for the sustainable development of the Company in the future. 4. To reinforce the utility plan of the Company’s capital, expand the financing channels and really reduce the financial expense of the Company; at the same time to continue to try every means to adopt various measures to liquidize the stock assets and raise the assets quality and profitability capability. 5. To realize the transformation from the traditional personnel management to modern human resources development, improve the encouragement mechanism and strengthen the agglomerate force; to further improve the construction of enterprise internal organizational framework and reinforce the implementation of all work. V. Routine work of the Board of Directors (I) Meetings and resolutions of the Board of Directors in the report period In the report period, the Company totally held eight Board meetings with details as follows: 1. The 1st meeting of the 3rd Board of Directors of 2002 was held in the conference room in 23/F, Development Center Building in Renmin South Road, Shenzhen on April 11, 2002. Seven directors should be present and actually six attended the meeting. The meeting examined and approved the following resolutions: (1) Resolution on Disagreement of Mr. Li Jinquan’s Resignation from the Post of Chairman of the Board (2) 2001 Work Report of the Board of Directors (3) 2001 Annual Report and its Summary (4) 2001 Financial Settlement Report (5) 2001 Profit Distribution Preplan (6) 2002 Profit Distribution Policy (7) Resolution on Holding 2001 Shareholders’ General Meeting The aforesaid resolutions were published on Securities Times and Ta Kung Pao dated April 15, 2002. 2. The 2nd meeting of the 3rd Board of Directors of 2002 was held in the conference room in 23/F, Development Center Building in Renmin South Road, Shenzhen on April 26, 2002. Seven directors should be present and actually seven attended the meeting. The meeting examined and approved the following resolutions: (1) Report of the 1st Quarter of 2002 (2) Information Disclosure System of Shenzhen International Enterprise Co., Ltd. The aforesaid resolutions were published on Securities Times and Ta Kung Pao dated April 27, 2002. 3. The 3rd meeting of the 3rd Board of Directors of 2002 was held in the conference room in 23/F, Development Center Building in Renmin South Road, Shenzhen on May 23, 2002. Seven directors should be present and actually six attended the meeting. After seriously studying Notification on Implementation of Inspection of Modern Enterprise System of Listed Companies promulgated by CSRC and State Commission of Economy and Trade with ZJF (2003) No.32 document and Notification on Forwarding Notification on Implementation of Inspection of Modern Enterprise System of Listed Companies of CSRC and State Commission of Economy and Trade promulgated by Shenzhen Securities Regulatory Office with SZBFZ (2002) No.114 document, the present directors examined and approved the detailed implementation plan of the examination work of the Company. 4. The 4th meeting of the 3rd Board of Directors of 2002 was held in the conference room in 23/F, Development Center Building in Renmin South Road, Shenzhen on June 21, 2002. Seven directors should be present and actually four directors attended the meeting, which examined and approved Self- inspection Report of Establishment of Modern Enterprise System of Shenzhen International Enterprise Co., Ltd.. 5. The 5th meeting of the 3rd Board of Directors of 2002 was held in the conference room in 23/F, Development Center Building in Renmin South Road, Shenzhen on Aug. 16, 2002. Seven directors should be present and actually five directors attended the meeting, which examined and approved Semi-annual Report of 2002 and Summary of the Semi-annual Report. The aforesaid resolutions were published on Securities Times and Ta Kung Pao dated Aug.20, 2002. 6. The 6th meeting of the 3rd Board of Directors of 2002 was held in the conference room in 23/F, Development Center Building in Renmin South Road, Shenzhen on Sept. 17, 2002. Seven directors should be present and actually four attended the meeting. The meeting examined and approved the following resolutions: (1) Resolution on Applying for Changing the Enterprise Quality into Foreign Investment Co., Ltd. to Relevant Charge Department (2) Resolution on Amendment of Partial Articles of Articles of Association of the Company The aforesaid resolutions were published on Securities Times and Ta Kung Pao dated Sept.19, 2002. 7. The 7th meeting of the 3rd Board of Directors of 2002 was held in the conference room in 23/F, Development Center Building in Renmin South Road, Shenzhen on Sept. 25, 2002. Seven directors should be present and actually four attended the meeting. The meeting examined and approved Resolution on Holding the 1st Extraordinary Shareholders’ General Meeting of 2002. The aforesaid resolutions were published on Securities Times and Ta Kung Pao dated Sept. 27, 2002. 8. The 8th meeting of the 3rd Board of Directors of 2002 was held in the conference room in 23/F, Development Center Building in Renmin South Road, Shenzhen on Oct.28, 2002. Seven directors should be present and actually six attended the meeting. The meeting examined and approved Report of the 3rd Quarter of 2002. The aforesaid resolutions were published on Securities Times and Ta Kung Pao dated Oct. 29, 2002. (II) Implementation of resolutions of Shareholders’ General Meeting by the Board of Directors In the report period, the Board of Directors timely arranged the personnel to seriously implement the resolutions in an active attitude strictly according to the resolutions of Shareholders’ General Meeting and safeguard the shareholders’ rights and interests in a comparatively good way. VII. Preplan of profit distribution of the report year Ended Dec.31, 2002, the profit after taxation was RMB -25,707,000 and RMB-23,739,000 respectively audited by Reanda Certified Public Accountants as per Domestic Accounting Standards and BDO Certified Public Accountants as per International Accounting Standards respectively. According to the principle of taking the lower amount for profit distribution, calculated as per International Accounting Standards, the profit after taxation in 2002 was RMB -25,707, after appropriating the statutory surplus public reserve of RMB 204,486.71 and statutory public welfare fund of RMB 102,243.36, adding the undistributed profit carried down from the end of 2001 amounting to RMB-37,590,969.84, the total profit available for distribution to shareholders was RMB-63,604,374.02. The profit distribution preplan of 2002 was: neither to distribute profit nor to convert public reserve into share capital. This distribution preplan is planned to implement subject to the examination and approval of Shareholders’ General Meeting. VIII. Explanation of Correction of Material Accounting Errors and Influence of the Board of Directors Reanda Certified Public Accountants engaged by the Company found that the relevant accounting disposals of the report period and the last year belonged to material accounting errors in the auditing cause of finance of year 2002 of the Company and adjusted the relevant items of the amount of year begin in the Balance Sheet and Income Statement according to relevant regulations with details as follows: In 2001, when Shenzhen Longgang International Enterprise Co., Ltd., a subsidiary of the Company, and Shenzhen Rongfa Investment Co., Ltd. (hereinafter referred to as Rongfa Company) transferred the equity of Shenzhen Longgang Rongfa Investment Co., Ltd. (hereinafter referred to as Longgang Investment), the accounts of land price of real estate project of Xieli Garden invested by Longgang Investment was cancelled out by the engineering accounts of Longcheng Revenue cum invested by Longgang Investment. Since the engineering of Longcheng Revenue has not been finished yet, in 2001 Shenzhen Longgang State Bureau of Lands transferred the engineering account of Longping Avenue that should cancel out the accounts of land price of Center City into the land price of Xieli Garden and in 2002 the Company received the settlement report of canceling out the accounts of land price to Longping Revenue from relevant departments of the government and receipt of Shenzhen Finance Bureau. Thus the Company did not estimated the cost of Xieli Garden, namely less carrying forward the equity transfer cost of Longgang International Enterprise and Rongfa Company to Longgang Investment and at the same time less transferring out the cost of Center City of Rongfa Company (the engineering accounts of Longping Avenue, which was accounts to cancel out the accounts of land price of Center City project developed by Rongfa, was reckoned into accounts as temporarily estimated amount of development cost of Center City of Rongfa Company).. The correction of this accounting error adjusted and reduced the temporarily estimated amount of development cost of Rongfa Company by RMB 21,970,000, adjusted and reduced the net profit in the consolidated statements of year 2001 by RMB 14,136,409.07 and adjusted the retained earnings of the beginning of the year in consolidated statements of year 2002 to reduce by RMB 14,136,409.07, including: adjusting and reducing the surplus public reserve by RMB 3,520,527.36 and adjusting and reducing the undistributed profit at year begin by RMB 10,615,881.71. IX. REPORT OF THE SUPERVISORY COMMITTEE (I) Particulars on the Work of the Supervisory Committee in the Report Year The Supervisory Committee held 3 meetings in the report year besides attending the Board meetings as non-voting delegates: 1. The 1st Meeting of the 3rd Supervisory Committee of 2002 was held in the Company’s meeting room on April 11, 2002. 3 supervisors should attend the meeting and 2 of them were all present. The meeting was presided by Ms. Zhou Xiaoxing, the Chairman of the Supervisory Committee. Following resolutions were examined and approved in the meeting: (1) 2001 Work Report of the Supervisory Committee (2) 2001 Annual Report and Summary (3) 2001 Profit Distribution Preplan The public notice on resolution of this meeting was published on Securities Times and Ta Kung Pao dated Apr.15, 2002. 2. The 2nd Meeting of the 3rd Supervisory Committee of 2002 was held in the Company’s meeting room on April 26, 2002. 3 supervisors that should attend the meeting were all present. The meeting was presided by Ms. Zhou Xiaoxing, the Chairman of the Supervisory Committee. The meeting examined and approved the 1st Quarterly Report of 2002. The public notice on resolution of this meeting was published on Securities Times and Ta Kung Pao dated Apr.27, 2002. 3. The 3rd Meeting of the 3rd Supervisory Committee of 2002 was held in the Company’s meeting room on Aug.16, 2002. 3 supervisors should attend the meeting and 2 of them were all present. The meeting was presided by Ms. Zhou Xiaoxing, the Chairman of the Supervisory Committee. The meeting examined and approved 2002 Annual Report and Summary and Semi Annual Report and Summary. The public notice on resolution of this meeting was published on Securities Times and Ta Kung Pao dated Aug.20, 2002. (II) Independent Opinions of the Supervisory Committee on the Company’s Operation 1. Operation according to law In the report period, the Supervisory Committee supervised over the Company’s operation according to laws and believed that the Company could legally operate strictly according to Company Law and relevant laws and regulations, patiently implement the guideline of Legal System, Supervision, Self-discipline and Standardization promulgated by CSRC, disclose relevant information of the Company completely and in time and did not occur phenomenon breaking regulations. The decision- making procedure was in conformity with laws and regulations and the internal control system was basically perfect. The directors, general manager and other senior executives worked in a diligent and responsible way and strictly executed every resolutions of the Shareholders’ General Meeting in the report period and had not no actions breading laws, regulations and Articles of Association or damaging the interest of the Company and the right and interest of the shareholders when they performed their duties. 2. Financial status Lianda Xinlong Certified Public Accountants and Dehao International Certified Public Accountants issued standard unqualified auditors’ reports for 2002, which truly reflected the Company’s financial status and operation results. 3. In the report year, the Company had no use of raised funds. 4. Purchase and sale of assets in the report year. In the report period, the Company had no significant purchase and sale of assets. The purchase and sale of assets occurred was the need of the normal operation business. The trading price of purchase and sale of assets was reasonable. There existed no internal transactions and the transactions did not damage the right and interest of part shareholders or cause assets run off. 5. Correlative Transaction in the Report Year In the report year, the Company’s correlative transactions belonged to allowable commercial behavior, was fair and reasonable and did not damage the interest of the Company. X. SIGNIFICANT EVENTS (I) Material Lawsuit and Arbitration There was no new significant lawsuit or arbitration in the report year. The progress of the significant lawsuit or arbitration in previous years is as follows: 1. As the plaintiff in the dispute case, the Company took proceedings against Fanyu Fu Mao Curtain Co., Ltd for the export agreement on processing and producing curtains with imported materials. However, since the defendant has no assets available for prosecution and hasn’t been operating normally, Luohu People’s Court decided judicially to stop the case through SLFZZ (1995) No. 466-3 civil declaration letter. 2. The Company took proceedings against Shen Fa Enterprise Co., Ltd for dispute of debts. The mediate has come into effect through (1997) SLFJTZ No. 34 issued by Shenzhen Luohu People’s Court, which confirmed the debts of RMB 8 million that Shen Fa Enterprise Co., Ltd owed to the Company ended January 31, 1997. The Company made application to the Court for implementing the case according to law. Shen Fa Enterprise Co., Ltd. offset the debts with the No. II-7 resident district of Yantai Development Zone with area of 18388.44 M2 amounting to RMB 4,989,400 in land assessment value, which was priced for the 70% equity rights of Yantai Tong Fa Real Estate Co., Ltd as owned by Shen Fa. The rest of unsettled debts are in process. 3. As the plaintiff in the dispute case of transferring of equity rights, the Company took proceedings against Hong Kong Wei Yi Enterprise Co., Ltd., Shenzhen Hua Yuan Industrial Investment Co., Ltd. and Jiangyin Hua Yuan Thermal Power Co., Ltd. The (1998) SZFJTCZ No. 3 civil mediate letter issued by Shenzhen Intermediate People’s Court has come into legal effect. Ended Dec.31, 2002, RMB 21,578,545.60 was claimed. The case is in further process. 4. As the plaintiff in the debt dispute, Shenzhen Economic Zone Development (Group) took proceedings against the Company. According to (2000) YFJYZZ No. 170 civil verdict issued by Guangdong Superior People’s Court, the Company should repay RMB 7,112,950, US$ 1 million and corresponding interests. The two sides came into Reconciliation Agreement on February 4, 2002. Ended February 7, 2002, the Company had repaid RMB 23 million to the defendant. 5.Concerning the lawsuit that Guangdong International Trust Development Co., Ltd. Shenzhen Branch indicted the Company to default rent and management fee, Shenzhen Intermediate People’s Court made civil judgement that judged the Company to repay RMB 4,696,048.34 rent and RMB 118,149.92 management fee. The two parties reached pacification agreement on July 11, 2002. 6.The Company provided guarantee for RMB 6 million bank loan of Shenzhen SZ-HK Industry Trade Export Company and the loan bank, Bank of China Shenzhen Branch Shangbu Sub-branch as accuser indicted to Shenzhen Futian District People’s Court and required the Company to undertake joint repayment liability. Shenzhen Futian District People’s Court made (2001) SFFJCZ NO.1721 Civil Judgement on Apr.1, 2002 and judged to overrule the lawsuit appeal that the accuser required the Company to undertake joint repayment liability. The accuser disagreed the trial and appealed to Shenzhen Intermediate People’s Court. Shenzhen Intermediate People’s Court made (2002) SZFJZZZ NO.469 Civil Judgement and judged to overrule the appeal and retain the initial trial. (II) In the report period, the Company had no significant purchase and sale of assets. (III) In the report period, the Company had no significant related transactions. (IV) Significant Contracts and Implementation of Contracts 1. In the report year, the Company had never kept as custodian, contracted or leased any other company’s assets and vice versa. 2. Significant guarantee contract in the report period The Company provided guarantee for RMB 50 million loan of the Company’s share-controlling subsidiary, Shenzhen International Marketplace from Commercial Bank Shenzhen Branch Hongwei Sub-branch. The aforesaid guarantee was made decision according to the procedure stated in Articles of Association and Work Rule of the Board of Directors. 3. In the report year, the Company hadn’t entrusted others to manage assets or handle loans for it. 4. In the report year, the Company hadn’t singed other significant contracts. (V) Promised Events in the Report Year or Carried Down to the Report Year by the Company or Shareholder Holding Over 5% Shares. The Company disclosed 2002 profit distribution policy in 2001 annual report: “in 2002, the Company plans to distribution dividend in cash for one time and will be implemented after 2002. The proportion of dividend distribution in the net profit is 20% to 30%. The profit distribution policy is a plan proposal and the Board of Directors will retain the right of adjusting the plan according to the actual operation of the Company.” Because the net profit of the Company in 2002 was a loss and non-distributed profit also occurred loss. According to the actual status, the Company affirmed the proposal without dividend distribution temporarily in 2002 which is subject to 2002 Annual Shareholders’ General Meeting for examination. In the report year, the Company and the shareholders holding over 5% equity did not disclose other events on the designated newspapers or web sites. (VI) In the report year, the Company engaged Lianda Xinlong Certified Public Accountants and Dehao International Certified Public Accountants as the domestic and overseas Certified Public Accountants. The total remuneration the Company paid to Certified Public Accountants in 2002 was RMB 0.65 million, among of which RMB 0.4 million for Lianda Xinlong Certified Public Accountants, which provided audit service for the Company since 2001; RMB 0.25 million for Dehao International Certified Public Accountants, which provided audit service for the Company since 2002. (VII) In the report year, the Company did not occurred significant events stated in Article 62 of Securities Law and Article 17 of Detailed Rules for Implementation of Information Disclosure in Companies with Publicly Issued Shares and significant events the Board of Directors judged as. XI. FINANCIAL REPORT AUDITORS’ REPORT TO THE SHAREHOLDERS OF SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD. (incorporated in the People’s Republic of China with limited liability) We have audited the financial statements of Shenzhen International Enterprise Co., Ltd. (“the Company”) and its subsidiaries (collectively “the Group”) for the year ended 31 December 2002 on pages 2 to 18 which have been prepared in accordance with International Accounting Standards. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS The Directors of the Company are responsible for the preparation of financial statements which give a true and fair view. In preparing financial statements which give a true and fair view it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion, based on our audit, on those accounts and to report our opinion to you. BASIS OF OPINION We conducted our audit in accordance with International Standards on Auditing issued by the International Federation of Accountants. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion. OPINION In our opinion, the financial statements give a true and fair view, in all material respects, of the state of affairs of the Group as at 31 December 2002 and of its profit and cash flows for the year then ended. BDO International Certified Public Accountants Beijing, China, 20 March 2003 SHENZHEN INTERNATINAL ENTERPRISE CO., LTD. CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002 Notes 2002 2001 RMB'000 RMB'000 Turnover 3&4 187,832 291,824 Cost of sales (150,804) (217,293) Gross profit 37,028 74,531 (46,83 (98,78 Other revenue less other expenses 4) 1) (9,806) (24,250) Gain on disposals of subsidiaries - 47,280 Impairment in value of land and buildings - (24,231) Net finance costs 5 (22,902) (13,279) Profit before taxation 6 (32,708) (14,480) Taxation 7 (539) (4,823) Profit after taxation (33,247) (19,303) Minority interests 9,508 5,637 Profit attributable to shareholders (23,739) (13,666) Basic earnings per share RMB-0.11 RMB-0.06 Fully diluted earnings per share RMB-0.11 RMB-0.06 The accompanying notes form an integral part of these financial statements. SHENZHENG INTERNATIONAL ENTERPRISE CO., LTD. CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2002 Notes 2002 2001 RMB'000 RMB'000 ASSETS Non-current assets Fixed assets 9 362,679 345,294 Construction in progress 10 - 42,054 Intangible assets 11 4,139 - Deferred expenditures 12 5,861 - Long term investment 13 16,570 10,000 Goodwill 14 4,448 4,976 393,697 402,324 Current assets Inventories 15 368,490 348,661 Accounts receivables 23,955 55,416 Prepayments and other receivables 139,606 193,097 Deferred expenses 476 461 Cash and cash equivalents 16 154,521 153,571 687,048 751,206 Current liabilities Bank loans 17 560,846 534,440 Bills payable 7,000 - Amounts due to a shareholder 20,113 47,824 Accounts payables 24,812 59,998 Receipts in advance and other payables 72,294 62,494 Dividends payable 5,271 5,271 Taxes payable 3,310 33,503 Accruals 18,628 11,511 712,274 755,041 Net current assets/(liabilities) (25,226) (3,835) Non-current liabilities 18 2,700 2,700 Minority interests 22,975 29,254 Total net assets 342,796 366,535 Representing: Share capital 19 220,901 220,901 Reserves 20 175,623 175,316 Accumulated losses 20 (53,728) (29,682) Total shareholders’ funds 342,796 366,535 On behalf of the Board ___________________________________ ___________________________________ Director Director The accompanying notes form an integral part of these financial statements. SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD. CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002 Notes 2002 2001 RMB'000 RMB'000 Net cash inflow/(outflow) from operating activities 21(a) 50,496 95,424 Returns on investments and servicing of finance: Interest paid (32,889) (24,269) Interest received 3,421 11,781 Dividend paid - (383) Dividend received 100 - Net cash outflow from returns on investment and servicing of finance (29,368) (12,871) Taxation: Tax paid (45,507) (45,451) Tax refund - 1,430 Net cash outflow from taxation (45,507) (44,021) Investment activities: Proceeds on disposal of fixed assets 98 883 Proceeds from disposal of a jointly controlled entity 6,000 - Acquisition of fixed assets (3,188) (48,107) Acquisition of construction in progress (888) (21,617) Additions of other deferred expenses - (3,099) Additions of goodwill - (5,284) Net cash outflow from investment activities (1,077) (74,125) Net cash outflow before financing (25,456) (35,593) Financing: Bank loans 21(b) 26,406 12,782 Net cash inflow from financing activities 26,406 12,782 (Decrease)/Increase in cash and cash equivalents 950 (22,811) (Increase)/Decrease in bank balances pledged as securities to loans 597 (38,647) Cash and cash equivalents at the beginning of the year 43,924 105,382 Cash and cash equivalents at the end of the year 21(c) 45,471 43,924 The accompanying notes form an integral part of these financial statements. SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2002 Share Accumulated Capital Reserves losses Total RMB'000 RMB'000 RMB'000 RMB'000 Balance at 31 December 2001 220,901 175,316 (29,682) 366,535 Net loss for 2002 - - (23,739) (23,739) Profit appropriation - 307 (307) - Balance at 31 December 2002 220,901 175,623 (53,728) 342,796 The accompanying notes form an integral part of these financial statements. SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 (Expressed in Renminbi Yuan) 1. Corporate information Shenzhen International Enterprise Co., Ltd. (“ the Company”) was incorporated in 1983 in the People’s of Republic China and was restructured as a stock limited company in 1993. The Company issued A and B shares in 1994 and 1995 respectively in the Shenzhen Stock Exchange. The principal activities of the Company and its subsidiaries (together with the Company referred to as the “Group”) are chain departmental stores, property development, management and trading. 2. Principal accounting policies (a) Statement of compliance The financial statements of the Group have been prepared in accordance with International Accounting Standards (“IAS”). The Group also prepares a set of financial statements which comply with the People’s Republic of China (“PRC”) accounting regulations. A reconciliation of the Group’s results and shareholders’ equity under IAS and PRC accounting regulations is presented in note 28 & 29. A summary of the principal accounting policies is set out below. (b) Basis of preparation of the accounts The measurement basis used in the preparation of the financial statements is historical cost. (c) Basis of consolidation The consolidated financial statements of the Group include the financial statements of the Company and all its subsidiary companies made up to 31 December each year. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from or to the date of their acquisition or disposal, as appropriate. All material inter-company transactions and balances are eliminated on consolidation. Details of the Company’s subsidiary companies are set out in note 22. Goodwill arising on acquisition of subsidiary companies, being the excess of the cost of investments in these companies over the fair value of the Group’s share of the separable net assets acquired, is amortized on a straight-line basis to the income statement over its estimated useful economic life. The excess of the Group’s share of the fair value of the separable net assets of subsidiaries acquired over the cost is credited to capital reserve. On disposal of a subsidiary during the year, any attributable amount of purchased goodwill not previously amortized through the consolidated income statement or which has previously been dealt with as a movement on the Group’s reserves is included in the calculation of the profit or loss on disposal. 2 Principal accounting policies - continued (d) Long term investments (i) Investments held on a continuing basis for an identified long-term purpose are classified as “long term investment”. Long term investment are stated in the balance sheet at cost less any provisions for diminution in value. Provisions are made when the fair values have declined below the carrying amounts, unless there is evidence that the decline is temporary, and are recognized as an expense in the income statement, such provisions being determined for each investment individually. Provisions against the carrying value of investment securities are written back when the circumstances and events that led to the write-down or write-off cease to exist and there is persuasive evidence that the new circumstances and events will persist for the foreseeable future. (ii) Profits or losses on disposal of investments are determined as the difference between the net disposal proceeds and the carrying amo unt of the investments and are accounted for in the income statement as they arise. (e) Fixed assets Fixed assets are carried in the balance sheet on the following basis: (i) Fixed assets are stated in the balance sheet at cost less accumulated depreciation. (ii) The carrying amount of fixed assets is reviewed periodically in order to assess whether the recoverable amount has declined below the carrying amount. When such a decline has occurred, the carrying amount is reduced to the recoverable amount. The amount of reduction is recognized as an expense in the income statement. In determining the recoverable amount, expected future cash flows generated by the fixed assets are discounted to their present values. When the circumstances and events that led to the write-down or write-off cease to exist, any subsequent increase in the recoverable amount of an asset is written back to the income statement. The amount written back is reduced by the amount that would have been recognized as depreciation had the write-down or write-off not occurred. (iii) Subsequent expenditure relating to a fixed asset that has already been recognized is added to the carrying amount of the asset when it is probable that future economic benefits, in excess of the originally assessed standard of performance of the existing asset, will flow to the enterprise. All other subsequent expenditure is recognized as an expense in the period in which it is incurred. (iv) Gains or losses arising from retirement or disposal of a fixed asset are determined as the difference between the estimated net disposal proceeds and the carrying amount of the asset and are recognized in the income statement on the date of retirement or disposal. (f) Depreciation and amortization (i) Depreciation is calculated to write off the costs or valuation of fixed assets, after taking into account their estimated residual values, over their estimated useful lives using the straight-line method. The estimated useful lives are as follows: Buildings and land use rights 30 years Office equipment 5 years Motor vehicles 5 years Others 5 years Leasehold improvement 5 years No depreciation is provided on construction in progress. 2. Principal accounting policies - continued (ii) Goodwill arising on consolidation or on equity accounting is amortized on a straight-line basis over an estimated useful economic life of not more than 10 years. (iii) Leasehold improvement is amortized on a straight-line basis over an estimated useful economic life of not more than 10 years. (g) Revenue recognition Provided it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognized in the income statement as follows: (i) Sale of goods Revenue is recognized when goods are delivered at the customers’ premises which is taken to be the point in time when the customer has accepted the goods and the related risks and rewards of ownership. Revenue excludes value added or other sales taxes and is after deduction of any trade discounts. (ii) Sale of property Revenue from sale of property is recognized when the sales agreements are signed between the Group and the customers and the sales proceeds can be collected with reasonably assurance. (iii) Rental income from operating leases Rental income receivable under operating leases is recognized on a straight-line basis over the term of the lease. (iv) Service income Service income is recognized when services are rendered. (v) Dividends Dividend income from investments is recognized when the shareholder’s right to receive payment is established. (vi) Interest income Interest income from bank deposits is accrued on a time-apportioned basis on the principal outstanding and at the rate applicable. (h) Inventories Inventories are carried at the lower of cost and net realizable value. Cost is calculated using the weighted average cost formula and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. 2. Principal accounting policies - continued When inventories are sold, the carrying amount of those inventories is recognized as an expense in the period in which the related revenue is recognized. The amount of any write-down of inventories to net realizable value and all losses of inventories are recognized as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realizable value, is recognized as a reduction in the amount of inventories recognized as an expense in the period in which the reversal occurs. (i) Deferred taxation Deferred taxation is provided using the liability method in respect of the taxation effect arising from all material timing differences between the accounting and tax treatment of income and expenditure which are expected with reasonable probability to crystallize in the foreseeable future. Future deferred tax benefits are not recognized unless their realization is assured beyond reasonable doubt. (j) Translation of foreign currencies Foreign currency transactions during the year are translated into Renminbi at the exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated into Renminbi at the exchange rates quoted by the People’s Bank of China at the balance sheet date. Exchange gains and losses are dealt with in the income statement. (k) Operating leases Rental payable under operating leases is accounted for in the income statement on a straight-line basis over the periods of the respective leases. (l) Retirement costs The Group participates in retirement schemes operated by local authorities and the annual cost of providing retirement benefits is charged to the consolidated profit and loss account according to the contribution determined by the relevant schemes. (m) Borrowing costs Borrowing costs are expensed in the income statement in the period in which they are incurred, except to the extent that they are capitalized as being directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale. (n) Related parties For the purposes of these financial statements, parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the party are subject to common control or common significant influence. Related parties may be individuals or other entities. (o) Cash equivalents Cash equivalents are short-term, highly liquid investments which are readily convertible into known amounts of cash without notice and which were within three months of maturity when acquired. For the purposes of the cash flow statement, cash equivalents would also include advances from banks repayable within three months from the date of the advance. 3. Turnover Turnover represents the invoiced value of goods sold to customers net of value added tax and other sales taxes and trade discounts, after eliminating inter-company transactions. 4. Segment information An analysis of the Group’s turnover by principal activities for the year ended 31 December 2002 is as follows: 2002 2001 RMB'000 RMB'000 By activities: Property sales 125,360 88,737 Department store sales 53,474 194,295 Rental - 1,357 Rendering of services 8,998 7,435 187,832 291,824 All sales were made in the PRC during the year. 5. Net finance costs 2002 2001 RMB'000 RMB'000 Interest income (3,444) (11,781 ) Net foreign exchange (gain)/loss 260 (1,176 ) Interest expenses - Bank borrowings (exclusive of capitalized interest) 25,306 24,269 - Others - 1,280 Others 780 687 22,902 13,279 6. Profit before taxation Profit before taxation is stated after charging and crediting the following: 2002 2001 RMB'000 RMB'000 After charging: Depreciation 16,372 22,283 Amortization of goodwill 528 308 Amortization of intangible assets 237 - Amortization of deferred expenditures 6,014 - Rental under operating leases 731 4,638 Interest expenses 25,306 25,549 Provision for bad debts (3,460) 17,980 Provision for diminution in value of inventories (5540) 944 And after crediting: Interest income 3,444 11,781 Rental income 20,161 17,308 Gain on disposal of fixed assets 31 209 7. Taxation 2002 2001 RMB'000 RMB'000 Current taxation 539 4,823 Deferred taxation - - 539 4,823 The Group provided for income tax on the estimated assessable profit for the year at a rate of 15%, the prevailing income tax for all PRC enterprise in Shenzhen. 8. Earnings per share The calculation of basic and diluted earning per share is based on the consolidated loss for the year of RMB23,739,000 (2001: RMB13,666,000) and the 220,901,184 shares (2001: 220,901,184 shares) in issue. 9. Fixed assets Building and Motor Office Leasehold land use rights vehicles equipment improvement Others Total RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 Cost or valuation at 1 January 2002 424,845 7,394 15,048 3,014 5,632 455,933 additions 48,530 365 1,123 - - 50,018 disposals (1,707) (1,250) (6,700) - - (9,657) reclassification (14,830) - - (3,014) (5,632) (23,476) at 31 December 2002 456,838 6,509 9,471 - - 472,818 Accumulated depreciation at 1 January 2002 97,125 3,567 6,749 321 2,877 110,639 charge for the year 14,268 403 1,701 - - 16,372 written back (906) (812) (2,213) - - (3,931) reclassification (9,743) - - (321) (2,877) (12,941) at 31 December 2002 100,744 3,158 6,237 - - 110,139 Net book value at 31 December 2002 356,094 3,351 3,234 - - 362,679 at 31 December 2001 327,720 3,827 8,299 2,693 2,755 345,294 As at 31 December 2002, land and buildings with net book values of RMB 320,161,000 (2001:RMB232,395,000) have been mortgaged to the banks to secure general banking facilities for the Company and its subsidiaries (Note 25). 10. Construction in progress Grace Grace Huizhou mansion club mansion international house parking lots enterprise Total RMB'000 RMB'000 RMB'000 RMB'000 Balance as at 1 January 2002 16,800 - 25,254 42,054 Additions 17,672 12,601 - 30,274 Transferred to fixed assets (34,472) (12,601) - (47,074) Transferred to inventory - - (25,254) (25,254) Balance as at 31 December 2002 - - - - Balance as at 31 December 2001 16,800 - 25,254 42,054 11. Intangible assets 2002 2001 RMB'000 RMB'000 Software 4,139 - Total 4,139 - 12. Deferred expenditures 2002 2001 RMB'000 RMB'000 Leasehold improvement 5,861 - Total 5,861 - 13. Long term investments 2002 2001 RMB'000 RMB'000 Unlisted shares in PRC 16,570 10,000 Total 16,570 10,000 14. Goodwill 2002 2001 RMB'000 RMB'000 Cost 5,284 5,284 Amortization as at the beginning of the year (308) - Amortization for the year (528) (308) Net book value 4,448 4,976 During the year of 2001, the Company acquired a further 10% equity interest in a subsidiary at a cost higher than the 10% of the fair value of the subsidiary. Accordingly, goodwill of RMB 5,284,000 is generated, and the balance is capitalized. 15. Inventories 2002 2001 RMB'000 RMB'000 Inventories at department store 2,882 7,594 Completed properties for sale 365,608 341,067 Total 368,490 348,661 As at 31 December 2002, completed properties for sale with a carrying value of RMB 170,342,554.42 (2000: RMB 116,487,456.84) have been mortgaged to the banks to secure general banking facilities for the Company and its subsidiaries. 16. Cash and cash equivalents 2002 2001 RMB'000 RMB'000 Cash and bank balances 154,308 153,571 Marketable securities 213 - Total 154,521 153,571 17. Bank loans 2002 2001 RMB'000 RMB'000 Mortgaged loans 400,566 287,800 Guaranteed loans 160,280 236,460 Credit loans - 10,180 Total 560,846 534,440 18. Non-Current Liabilities 2002 2001 RMB'000 RMB'000 Deferred taxation 2,700 2,700 Total 2,700 2,700 During the year, the Company does not have significant timing difference arising from sale of property under development. 19. Share capital A share B share Total RMB'000 RMB'000 RMB'000 At 31 December 2001 148,901 72,000 220,901 At 31 December 2002 148,901 72,000 220,901 The par value for per share is RMB1.00. 20. Reserves Statutory Discretionary Capital surplus Surplus public welfare Accumulated reserve reserve reserve fund losses Total RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 At 1 January 2002 51,110 59,371 39,225 25,610 (29,682) 145,634 Transferred - 205 - 102 (307) - Profit for the year - - - - (23,739) (23,739) At 31 December 2002 51,110 59,576 39,225 25,712 (53,728) 121,895 (a) The reasons for the difference between the amount as at the beginning of the year and last year’s report is the adjustment of the fundamental errors. The statutory surplus reserve decreased by 2,347,000, the discretionary public welfare fund decreased by 1,173,000 and accumulated losses decreased by 10,616,000. (b) Statutory surplus reserve According to the PRC Company Law, the Company is required to transfer at least 10% of its profit after taxation, as determined under PRC accounting regulations, to the statutory surplus reserve until the reserve balance reaches 50% of the registered capital. The transfer to this reserve must be made before the distribution of dividends to shareholders. Statutory surplus reserve can be used to make good previous years’ losses, if any, and for capitalization issues provided that the balance after such issue is not less than 25% of the registered capital. (c) Discretionary public welfare fund According to the Company’s articles of association, the Company is required to transfer a certain percentage of its profit after taxation, as determined under PRC accounting regulations, to the discretionary public welfare fund. The discretionary public welfare fund can only be used for the collective welfare of the Company’s employees such as the construction of staff quarters. The fund forms part of the shareholders’ equity as individual employees can only use these facilities, the titles of which will remain with the Company. The appropriation to this fund must be made before the distribution of dividends to shareholders. The articles of association of the Company specify that a maximum of 5% of its profits can be appropriated to the discretionary public welfare fund and the rate of appropriation is to be determined by the board of directors annually. (d) Surplus reserve The rate of appropriation to these reserves is to be determined by the board of directors annually. General reserve can be used to make good previous years’ losses, if any, and for capitalization issues. 21. Notes to the consolidated cash flow statement (a) Reconciliation of profit before taxation to net cash inflow from operating activities is as follows: 2002 2001 RMB'000 RMB'000 Profit before taxation (32,708) (14,480) Minority interests - 829 Interest expenses 25,306 24,269 Interest income (3,444) (11,781) Foreign exchange loss 260 - Provision for bad debts (3,460) - Provision for inventory (5,540) - Depreciation 16,372 22,283 Amortization of goodwill 528 308 Amortization of intangible assets 237 - Amortization of other deferred expenses 6,014 - Decrease/(increase) in deferred expenses (15) (242) Increase/(decrease) in accruals (974) 3,963 Decrease in non-current liabilities - -130 Gain on disposals of fixed assets (31) (209) Impairments in fixed assets - 24,231 investment income 803 - Decrease/(increase) in inventories (7,304) 108,694 Decrease/(increase) in accounts receivable 32,262 46,408 Decrease/(increase) in prepayments and other receivables 50,179 (99,210) Increase/(decrease) in bills payable 7,000 (5,000) Increase/(decrease) in amounts due to a shareholder (27,710) 47,824 Increase/(decrease) in accounts payable (27,923) (30,204) Increase/(decrease) in receipts in advance and other payables 20,644 (22,129) 50,496 95,424 (b) Analysis of change in financing during the year 2002 2001 RMB'000 RMB'000 Balance as at 1 January 2002 534,440 521,658 Additions during the year 549,346 752,544 Repayments during the year (522,940) (739,762) Balance as at 31 December 2002 560,846 534,440 21. Notes to the consolidated cash flow statement - continued (c) Analysis of cash and cash equivalents 2002 2001 RMB'000 RMB'000 Cash and bank balances 154,521 153,571 Less: Fixed deposits pledged as securitie s to bank loans (109,050) (109,647) Cash and cash equivalents 45,471 43,924 22. Principal Subsidiaries Place of Equity establishment/ Principal Interest Subsidiaries incorporation Registered capital activities held Shenzhen International Arcade Department Co., Ltd. Shenzhen RMB 10,000,000 store operation 99.94% Shenzhen Longgang International Arcade Enterprise Department Co., Ltd. Shenzhen RMB 15,000,000 store operation 100% Shenzhen International Arcade RMB Chain Store Shenzhen 10,000,000 Dormant 100% Shenzhen International Arcade Property Property Management Co., Ltd. Shenzhen RMB 7,000,000 Management 61% Property Shenzhen Rongfa Investment construction Co., Ltd. Shenzhen USD 5,000,000 and Trading 60% Shenzhen Grace International Meizi Town Industry and Conmmerce Co., Ltd. Shenzhen RMB5,000,000 Cosmetic retail 63.90% Property Huizhou Rongfa Industry construction Investment Co., Ltd. Huizhou RMB6,000,000 and Trading 90% 23. Contingent liabilities During the year, a subsidiary provided guarantee to mortgagees for the mortgage loans for the purchases of residential properties in Grace Mansion for the maximum period of 20 years to the extent of RMB490million. 24. Contingent assets As a plaintiff, the subsidiary raised in a court case for taking back the loan RMB 6,147,005.00 from Longhua Town Buoluo County Guangdong in 1989. The defendant is the government of Longhua Town. In 1990, as the defendant was unable to meet the repayment, the court suspended the case, and the subsidiary wrote off its rights. Till December of 2002, the court seal up all the land for industry and business of defendant about 27,147.48 square meters. 25. Pledge of assets As at 31 December 2002, bank fixed deposits of RMB109,050,000 (2001: RMB109,647,000), properties under development of RMB 170,342,000(2001: RMB172,857,000) and land and buildings with a net book value of RMB320,161,000 (2001: RMB232,395,000) have been pledged to the banks for the general banking facilities granted to the Group. 26. Operating leases (a) Leases as leasee Non-cancellable operating leases are payable as follows: 2002 2001 RMB'000 RMB'000 Land and buildings - expiring in the first year - 681 - expiring in the second to fifth years inclusive - 7 - expiring after the fifth year - 37,995 - 38,683 (b) Leases as lessor The Group Leases out certain properties under non-cancellable operating leases. Rental income to be received as follows: 2002 2001 RMB'000 RMB'000 Land and buildings - expiring in the first year 19,000 1,947 - expiring in the second to fifth years inclusive 80,000 8,016 - expiring after the fifth year - - 99,000 9,963 27. Material related party transactions It is no significant related party sales and purchases during the year. 28. Impact of IAS adjustments on profit/loss Profit for the year ended 2002 2001 RMB'000 RMB'000 As reported in financial statements prepared in accordance with PRC GAAP (25,707) 5,569 Adjustment to confirm with IAS: Write off of intangible assets - (162) Provision for doubtful debts 264 (264) Provision for obsolete stock 5,564 (843) Taxation paid - (212) Additional depreciation charge (812) (1,618) Additional amortization charge (3,048) - Leasehold improvement capitalized - 655 Net profit of long term assets written off in the previous years disposed of during the year - 5,406 Minority interest - 2,647 Sales of property under development - (3,781) "A share" Prior year adjustments - (21,063) (23,739) (13,666) 29. Impact of IAS adjustments on consolidated net assets 31 December Consolidated net assets 2002 2001 RMB'000 RMB'000 As reported in financial statements prepared in accordance with PRC GAAP 332,920 358,627 Adjustment to confirm with IAS: Write off of intangible assets - (162) Provision for doubtful debts - (264) Write back of the assets written off in the previous years - 5,406 Provision for obsolete stock - (843) Provision for depreciation (812) (1,618) Leasehold improvement capitalized - 655 Consolidate adjustments 10,627 4,734 Amortization of goodwill 62 - 342,797 366,535 30. Approval of financial statements The financial statements were approved by the Board of Directors on 23 March 2003. XII. DOCUMENTS AVALIABLE FOR REFERENCE 1. The financial statements carried with signatures and seals of the Company’s legal representative, person in charge of accounting affairs and person in charge of accounting institution. 2. Original of the Auditors’ Report carried with the seals of Lianda Xinlong Certified Public Accounts as well as the signatures and seals of individual certified public accountants; original of the Auditors’ Report carried with the seals of Dehao International Certified Public Accountants as well as the signatures and seals of individual certified public accounts. 3. Originals of all documents and manuscripts of all public notices disclosed in Securities Times and Wen Wei Po designated by CSRC in the report year. This annual report is prepared in both Chinese and English. Should there be any difference in interpretation between the two versions, the Chinese version shall prevail. Board of Directors of Shenzhen International Enterprise Co., Ltd. April 22, 2003