瓦轴B(200706)瓦轴Ｂ2002年年度报告（英文版）

Wafangdian Bearing Company Limited 2002 Annual Report (based on IAS) April 18, 2003 Important Notes The Board of Directors and directors of the Company hereby guarantee that there is no false record, false statement of misleading data, major omission in this report, and undertake the individual and associated responsibilities for the truth, accuracy and completeness of the contents in this report. Chairman Mr. Wang Lushun, General manager Mr. Shao Yang, General Accountant Mr. Zhang Xinghai and Financial Manager Mr. Jiang Yulin declare: guarantee the truth, completeness of the financial report in the annual report. Director Christer Gyberg and Patrick Tong were absent from the meeting, and all authorized director Sten Wendin to present and vote on their behalf; director Shan Shikai and director Li Xianrong were absent from the board meeting, and separately authorized director Zhang Xinghai and director Su Shaoli to vote on his behalf; independent director Yang Zan was absent from the meeting, and authorized independent director Gui Liyi to vote on his behalf. 1 Catalog Chapter One. Introduction to basic situation of the company Chapter Two. Abstract of accounting data and business data Chapter Three. Information on equity changes and shareholders Chapter Four. Information on Directors, Supervisors, top management and employees Chapter Five. Governing and managing structure of the Company Chapter Six. Introduction to the shareholders’ meeting Chapter Seven. Work report of the Board of Directors Chapter Eight. Work report of the Supervisory Committee Chapter Nine. Important events Chapter Ten. Financial statements Chapter Eleven. List of reference documents 2 2002 Annual Report of Wafangdian Bearing Company Limited (Based on IAS) Chapter One. Introduction to basic situation of the Company 1. Chinese name of the Company: 瓦房店轴承股份有限公司 Abbreviation of Chinese name: 瓦轴股份公司 English name of the Company: Wafangdian Bearing Company Limited Abbreviation of English name: WBC 2. Legal representative of the Company: Wang Lushun 3. Secretary of the Board of Directors of the Company: Zhang Xinghai Authorized Stock and Security Affairs Representative: Su Shaoli Correspondence address: No. 1 Beigongji Street, Wafangdian City, Liaoning Province, China. Consulting telephone: 0411-5509888 ext. 3373 Fax: 0411-5500794 E-mail: zwz214＠mail.dlptt.ln.cn 4. Registered address: No. 1 Beigongji Street, Wafangdian City, Liaoning Province, China Office address of the Company: No. 1 Beigongji Street, Wafangdian City, Liaoning Province, China Post code: 116300 International net address: http//www.zwz-bearing.com E-mail address: zwz214@mail.dlptt.ln.cn 5. The Company chose Securities Times, Hong Kong Commercial Newspaper, and Takung Pao for disclosure of information of the Company International net address for disclosure: http//www.cninfo.com.cn Preparation and liaison office of this report: Investment and Securities Department of the Company 6. Listing location of the Company’s stock:: Shenzhen Stock Exchange Abbreviated name of the stock: Wazhou B Stock code: 200706 7. Other relative information 1). The originally registered date of the company was March 20, 1997 The originally registered location of the company was: No. 1, Section 1, Beigongji Street, Wafangdian City, Liaoning Province, China 2). Business license registration No. of the entity: 大工商企法字 24239971-2 3).Tax registration No. of the company: 国税大字 2102812242399712 4). Certified public accountants appointed by the company: Shenzhen Pan-China Schinda Certified Public Accountants: Floor 16, Security Towel, No. 5020, Binhe Road, Shenzhen Hong Kong Pricewaterhousecoopers Certified Public Accountants: Floor 22nd, Prince’s Building Central Hong Kong 3 Chapter Two. Abstract of accounting data and business data 1. Main economic indicators of WBC in the report year Unit: thousand Yuan Item Amount (RMB’ Yuan) Total assets 2,000,421 Shareholders’ equity (excluding minority interest) 974,344 Sales income 1,090,571 Profit after tax 14,643 Net profit 17,184 Gains per share 0.05 Yuan Net cash inflow from operating activities 72,140 Increase of cash and cash equivalents 17,851 2. Main accounting data and financial indicators for the previous three years up to the report period: Unit: thousand Yuan Items Year 2002 Year 2001 Year 2000 Sales income 1,090,571 1,055,758 1,075,488 Net profit 17,184 32,593 36,133 Total assets 2,000,421 2,068,428 2,097,839 Shareholders’ equity (excluding minority interest) 974,344 967,060 968,816 Gain per share 0.05 Yuan 0.10 Yuan 0.11 Yuan Weighted gain per share 0.05 Yuan 0.10 Yuan 0.11 Yuan Net assets per share 2.95 Yuan 2.93 Yuan 2.94 Yuan Net cash inflow from operating activities per share 0.22 Yuan 0.20 Yuan 0.02 Yuan Return ratio of net assets % 1.76 3.37 3.73 Weighted return ratio of net assets % 1.77 3.37 4.34 3. Attachment table to the profit composition The attachment table to the 2002 annual profit distribution table has been prepared in accordance with the Notice No. 9 Regulations on Information Preparation and Disclosure of Listed Companies of the Securities Supervisory Committee of China: (the data are based on CAS) Profit in the Net return on assets (%) Gain per share (Yuan/share) Items report period Fully diluted Weighted average Fully diluted Weighted average (Yuan) 2002 2001 2002 2001 2002 2001 2002 2001 Main business profit 207,034,329.44 20.42 22.95 20.41 23.05 0.06274 0.7001 0.6274 0.7001 Operative profit 5,894,163.81 0.58 1.37 0.58 1.37 0.0179 0.0417 0.0179 0.0417 Net profit 14,708,409.30 1.45 1.72 1.45 1.73 0.0446 0.0526 0.0446 0.0526 4 Net profit after deductions 16,653,812.90 1.64 2.51 1.64 2.53 0.0505 0.078 0.0505 0.078 of abnormal profit and loss 4. Information on the equity capital changes in the report period and the reasons (the data are based on CAS) Unit: RMB Yuan Surplus public Statutory public Items Equity shares Capital reserve Retained earnings Shareholders’ equity accumulated. fund welfare fund Period beginning 330,000,000.00 518,686,615.46 36,456,539.01 12,152,179.76 121,655,330.54 1,006,798,485.01 figure Increases in the - 2,473,484.75 2,385,769.63 795,256.54 2,422,639.67 7,281,894.05 report period Decrease in the - report period Period end 330,000,000.00 521,160,100.21 38,842,308.64 12,947,436.30 124,077,970.21 1,014,080,379.06 figure Reasons for Gains from debt Occurring in the Occurring in the Profit transferred in changes restruction etc. report period report period the report period Chapter Three. Information on equity changes and shareholders 1. Equity changes in the report period (1). The change of the equity structure is as the following: Unit: Share Before the Increase/decrease in the report period (+,-) After the change change Allocati Bonus PAF transfer Increase Others Total One. Non-marketable shares 1、 Sponsor’s shares 200,000,000 200,000,000 Including: State-owned share 200,000,000 200,000,000 Shares held by domestic legal person Shares held by foreign legal person Others 2、Collected legal person shares 3、Internal employee shares 4、Preferred shares and others Total non-marketable shares 200,000,000 200,000,000 Two. Marketable shares 1、Home listed RMB ordinary shares 2、Home listed foreign capital shares 130,000,000 130,000,000 3、Abroad listed foreign capital shares 5 4. Others Total of marketable shares 130,000,000 130,000,000 Three. Total shares 330,000,000 330,000,000 (2). Share issue and listing situation: Type of share: Home listed foreign capital share (B-share) Share issue date: February 27,1997 Share issue price: The offered price for general investors is 2.66 HK dollars per share, and 3.575 HK dollars per share for strategic investor, AKTIEBOLAGET SKF. Amount of shares issued: 330,000,000 shares Listing date: The shares were listed on March 20.1997 in Shenzhen Stock Exchange. (3). There was no right issue, bonus issue, and increase issue etc. since shares of the company were listed. (4). No internal employees’ shares in the company. 2. Information on shareholders (1). Up to the report period, the number of the registered shareholders of the WBC was 12395, including 1 state-owned shareholder and public shareholders of 12394. (2) Information on the first ten shareholders up to the end of the year: Unit: Share Number of Percentage of Increase/decrease Nature of share Order Name of shareholder shares total equity (+/-) 1 Wafangdian Bearing Group 200，000，000 60.60 0 State-owned legal Corporation person share 2 AKTIEBOLAGET SKF 65，000，000 19.70 0 Circular shares 3 BIN LIANG 1，319，055 0.40 0 Circular shares 4 LI JUNCHENG 303，100 0.09 0 Circular shares 5 LUO SHI 235，900 0.07 1，600 Circular shares 6 YU RONGHE 227，800 0.07 227，800 Circular shares 7 FENG WEI 200，000 0.06 -67，400 Circular shares 8 WANG WEIHONG 200，000 0.06 0 Circular shares 9 LIN SHIMIN 200，000 0.06 0 Circular shares 10 LIN MINGYU 196，000 0.06 19，600 Circular shares Note: 1). Among the first ten shareholders, the first largest shareholder has no associated relations with any other shareholders. Nothing is known about the relations among other shareholders. 2). In the report period, the frozen period of equity shares held by the strategic investment partner AKTIEBOLAGET SKF expired in 1999. 3. Introduction to the first largest shareholder Name: Wafangdian Bearing Group Corporation Legal representative: Wang Lushun 6 Date of establishment: 1995 Main business and product: Bearings, Machinery equipment, Automobile parts and relative products Registered capital: 360000000 Yuan RMB Wafangdian Bearing Group Corporation is a state-owned sole venture company, the actual controller is Finance Bureau of Dalian 4. Introduction to shareholders with over (including) 10% of the total equity shares of the Company Name: AKTIEBOLAGET SKF (Swedish) Legal representative: Sune Carlsson Date of establishment: 1907 Main business and products: Bearings, seals and relative products, and relative services Registered capital: 1,423,000,000 Swedish Koron Equity structure: totally 113837767 shares of the Company, including A type and B type shares, 28.4% of which go to A type, and 71.6% go to B type. 5. In the report period, the holding shareholder remained unchanged. Chapter Four Information on Directors, Supervisors, top management and employees 1. Introduction to Directors and Supervisors and top management Name Position Sex Age Term Wang Lushun Chairman Male 52 2000.6-2003.6 Jiang Zhongyuan Vice-Chairman Male 50 2000.6-2003.6 Wang Runtian Vice-Chairman Male 60 2000.6-2003.6 Wang Zhongmin Director Male 39 2000.6-2003.6 Gao Yongyang Director Vice-GM Male 50 2000.6-2003.6 Shan Shikai Director Vice-GM Male 45 2000.6-2003.6 Director Chief Accountant Secretary of Zhang Xinghai Male 34 2000.6-2003.6 BD Li Xianrong Director Male 57 2000.6-2003.6 Su Shaoli Director Male 51 2000.6-2003.6 Sten Wendin Director Male 59 2000.6-2003.6 Christer Gyberg Director Male 56 2000.6-2003.6 Patrick Tong Director Male 41 2000.6-2003.6 Gui Liyi Independent director Male 60 2002.6-2003.6 Yang Zan Independent director Male 45 2002.6-2003.6 Sun Wudu President of Supervisory Committee Male 42 2001.6-2004.6 Vice-President of Supervisory Zhang Jiayi Male 54 2001.6-2004.6 Committee(Staff representative) Wang Ruilan Supervisor Male 54 2001.6-2004.6 Duan Lian Supervisor Male 49 2001.6-2004.6 7 Fu Zhongwei Supervisor Male 40 2001.6-2004.6 Li Xintao Supervisor Male 42 2001.6-2004.6 Jiang Lianqing Supervisor Male 40 2001.6-2004.6 Jiang Yulin Supervisor(Staff representative) Male 48 2001.6-2004.6 Li Zhixin Supervisor(Staff representative) Male 32 2001.6-2004.6 Shao Yang GM Male 37 2002.8 Meng Wei Vice-GM Male 35 2002.2 Remarks: (1). Positions held by the directors and supervisors in the shareholding units Name Position in the shareholders’ units Office term Wang Lushun Chairman of Board of Directors, General Manager of From December of 1998 to now Wafangdian Bearing Group Corporation Li Xianrong Finance Controller of WBGC From October of 1995 to now Wang Runtian CPC Secretary WBGC From October of 1995 to now Jiang Zhongyuan Vice-chairman of Board of Directors Wafangdian Bearing From May of 2000 to now Group Corporation Wang Zhongmin Vice-GM of WBGC From April of 2000 to now Zhang Jiayi Chairman of Trade Union Wafangdian Bearing Group From October of 1995 to now Corporation Sten Wendin General Manager , SKF (China) Investment Co,. Ltd. From 1997 to now Christer Gyberg President of Industrial Division, AKTIEBOLAGET SKF From 1996 to now Patrick Tong General Manager, SKF China Ltd. From 1996 to now (2). No director, supervisor and top management owns stock of the Company. 2. Annual remuneration of the directors, supervisors and top management 1). The remuneration of directors (excluding independent directors), supervisors and top management paid by this company is the revenue got by them as the administrative management of the company. The total annual salaries of the directors, supervisors and top management paid by this Company amounted to 160036.55 Yuan. The total salaries of the first three directors who were highly paid reached 65918.1 Yuan, the total salaries of the first three top management who were highly paid reached 56402.94 Yuan. The annual allowance paid to independent directors is 36,000 RMB Yuan (including income tax payable). 2). Annual payment ranges and number of persons Two persons get annual remuneration with value of 30 thousand Yuan; five persons get annual remuneration with value of 20 thousand Yuan; three persons get annual remuneration with value between15 thousand Yuan and 20 thousand Yuan; and two persons get annual remuneration with value below15thousand Yuan. 3). Information on people who were not paid by the Company (1). The following people were paid by Wafangdian Bearing Group Corporation for their salaries and subsidies: 8 Wang Lushun, Li Xianrong, Wang Runtian, Jiang Zhongyuan, Zhang Jiayi, Wang Zhongmin (paid by the WBGC after August of 2002) (2). The following people were paid by AKTIEBOLAGET SKF for their salaries and subsidies: Sten Wendin, Christer Gyberg, Patrick Tong (3). The following people were neither paid by this Company nor by the above two shareholding units: Sun Wudu, Zhang Zuogang, Jiang Lianqing, Wang Ruilan, Duan Lian, Fu Zhongwei; Li Xintao 3. Changes of directors, supervisors and top management In the report period, Mr. Song Mingdong and Mr. Zhang Zuogang resigned their duties as the directors of the company because of business. Employed Mr. Yang Zan, Mr. Gui Liyi as independent directors of the company. Mr. Wang Zhongmin resigned his duty as vice-GM because of the change of work; the company released duty of Mr. Sun Maolin as the vice-GM of the company. Employed Mr. Shao Yang as the GM of the company; employed Mr. Meng Wei as the Vice-GM of the company. 4. Situation about staffs Up to the report period, the Company had a total employment of 9358 persons. 1). Classification according to specialty composing: Production Sales Financial Administrative Technicians others workers people people staffs Persons 7570 296 440 112 575 365 Percentage 80.89 3.16 4.70 2.10 6.14 3.90 2). Among the employees, 1160 received college training or were college graduates. 3979 were with poly-technical school graduates, mid-level technical titles of position or higher or graduated from high middle school. 3). The number of retired works whose relative expenses must be paid by the Company was 967. Chapter Five. Governing and managing structure of the Company 1. Practical situation of the governing and managing structure of the Company The Company followed the requirements in Company Law, Governing and Managing Standard in listed companies and other law regulations, and the AOA, and regulated its operations and perfected its governing and managing structure. 1). The meetings and voting procedures of the shareholders, board of directors and supervisory committee and the formation of the resolutions were totally subject to these requirements. 2). The Company promulgated its internal management systems and regulations to form internal binding mechanism for budgeting, purchasing, material flow and sales. 9 3). The separation of business, personnel, assets, internal organization and finance of the Company from its controlling shareholder: (1). The Company was able to carry out independent operations, with its business being separated from its controlling shareholders; (2). The Company was independent in terms of its personnel, labor and salary management, with its own independent labor and personnel management systems. Except the Chairman of Board of Directors of the parent company Wafangdian Bearing Group Corporation who worked as the Chairman of the Company, the General Manager, Deputy-General Managers and the Finance Controller of the Company were also independent from the controlling shareholder. (3). The production system, auxiliary production system and supplementary facilities of the Company were independent from the controlling shareholder. (4). The finance of the Company was independent from the controlling shareholder. The Company carried out its own independent finance and accounting and paid taxes independently. (5). The Company has basically established its own independent organization from that of the controlling shareholder. 4). The fulfill-function situation of independent directors of the company The company has elected two independent directors at the shareholders’ meeting, which has been held on June of 2002. Since being in the office, the independent directors of the company have got a general impression on the operation situation and governing and managing situation at present stage. The independent directors have participated in the board meeting held by the company and fulfill their function carefully, have promoted the perfect of the modern enterprise system of the company and raised some good suggestion from the view of law and specialty regarding the production and operation of the company. Some independent directors can’t attend several extraordinary board meetings in the report period personally because of business, so they all authorized other independent directors to attend. 2. Further improved the governing and managing structure of the Company In accordance with the Standard Regulations on governing and managing in Listed Companies, and based on the practical situation of the Company, the Company intends to make further improvements and reinforcements: 1). Perfecting the independent director system: The Board of Directors of the Company has established the independent director system before June 30, 2002 in accordance with the regulations in the Regulations on the Governing and Managing Structure of the Listed Companies and The Guiding Opinions on the Establishment of Independent Director System in Listed Companies. And has elected two independent directors on the 2001 annual shareholders’ meeting and made corresponding amendments to the AOA. Now the company intends to elect and employ the candidates of new independent directors in order to make the proportion of independent directors more than one third. The company intends to perfect the independent director system. 2). Regulating the rules of procedures of the three meetings, fulfill-function of independent directors in the AOA, and making corresponding amendments to the AOA accordingly. Meanwhile, compiling and executing working bylaws of the four committees established under the board of directors. 10 Chapter Six. Brief Introduction of the shareholders’ meeting Shareholders’ meeting was held once in the report period. Details are as following: (1). The notice on holding 2001 annual shareholders’ meeting was published on May 14th, 2002. The annual shareholders’ meeting was held on June 16, 2002, at Meeting Room 309, WBGC headquarter. Two shareholders and authorized proxies presenting 26500,0000 shares presented the meeting, occupied 80.3% of the total shares. Five directors and two supervisors also participate in the meeting. (2). After sufficient discussion, the meeting made the following unanimous resolutions with signed votes: 1). Reviewed and approved the 2001 Annual Report of the Company; 2). Reviewed and approved the 2001 Annual Work Report of the Board of Directors of the Company; 3). Reviewed and approved the 2001 Annual Work Report of the Supervisory Committee of the Company; 4). Reviewed and approved the 2001 Annual Final Financial Report of the Company; 5). Reviewed and approved the 2001 Annual Profit Distribution Plan of the Company and anticipant of 2002 annual profit distribution policy; 6). Reviewed and approved proposal on amendments to AOA; 7). Reviewed and approved the 2002 Production and Operation Plan, Financial Budget Plan and Proposal of A/R of the Company; 8). Reviewed and approved proposal on employment and remuneration of domestic and foreign Accountant Firm. 9). Reviewed and approved proposal on employment of independent directors; 10). Reviewed and approved proposal on Mr. Song Mingdong and Mr. Zhang Zuogang resigning their duties as directors of the company; 11). Reviewed and approved proposal on allowance and paying method of the independent directors; 12). Reviewed and approved proposal on adjustment of persons in Board of Directors. The notice of the meeting was published on June 18, 2002 in Security Times, Hong Kong Commercial Newspaper and the Takung Pao in Hong Kong. (3). It was reviewed and approved at the meeting that Mr. Song Mingdong and Mr. Zhang Zuogang resigned their duties as directors of the company, employment of Mr. Yang Zan and Mr. Gui Liyi as the independent directors of the company. Chapter Seven. Work report of the Board of Directors 1. Operation situation of the Company 1). Discussion and analysis on whole operation situation of the company in the report period (1). Information on operation of the company in the report period Based on IAS, the company realized net profit of 17184 thousand Yuan. Based on CAS, the company realized net profit of 14708.4 thousand Yuan. (2). Effect on the company caused by the new accounting policy In 2002, the company adopted new accounting policy and made additional depreciation regarding sealed fixed assets . Based on IAS, affects 2002 annual profit of 14489 thousand Yuan of WBC. 11 Based on CAS, affects 2002 annual profit of 4800 thousand Yuan of WBC. 2). Operation (1). The scope of the main business of the company and it’s the actual situation The scope of the main business of the company includes the manufacture and sales of bearings, machinery equipment, automobile parts and components and other relative products, leasing of machinery equipment and houses, examination of bearings and relative machinery equipment and measuring apparatus. The company has the modern business mechanism characterized by the integrated production, supply and sales system. (2). Composing of main business income and main business profit 1). According to enterprises: (data from CAS) Order Enterprises Main business income Main business cost Main business gross (thousand Yuan) (thousand Yuan) profit(thousand Yuan) Domestic 790,879 590,983 199,896 1 Railway bearings 233,414.8 188,861.4 44,553.4 2 Automobile bearings 161,314.1 134,789.9 26,524.2 3 Metallurgical and mining bearings 227,320.4 147,278 80,042.4 4 Machine tool and electronic 67,875.5 45,552.9 22,322.6 equipment bearings 5 Current bearings 100,954.2 74,500.8 26,453.4 Exporting 132,152.2 145,587.2 -13,435 2). According to products (data from CAS) Order Product Main business income Main business cost Main business gross (thousand Yuan) (thousand Yuan) profit (thousand Yuan) 1 Bearing 923,031.4 736,570.1 186,461.2 2 accessories 175,955.9 151,306.4 24,649.5 Total 1,098,987.2 887,876.6 211,110.7 3). According to regions (the data based on CAS) Main business details of the company and subsidiary companies are as the following: 2002 Main business income Main business cost Main business gross profit Amounts Proportion Amounts Proportion Amounts Proportion (%) (%) (%) Product Sales RMB RMB 923,031,371.79 83.99% 736,570,137.22 82.96% RMB 186,461,234.57 88.32% —Exporting 132,152,196.70 12.03% 145,587,196.66 16.40% (13,434,999.96) (6.36%) —Domestic sales 790,879,175.09 71.96% 590,982,940.56 66.56% 199,896,234.53 94.69% Including: Northern sales 336,103,579.21 30.58% 249,377,426.44 28.09% 86,726,152.77 41.08% Southern sales 207,581,654.27 18.89% 155,852,306.03 17.55% 51,729,348.24 24.50% Eastern China Sales 208,488,158.74 18.97% 156,692,906.31 17.65% 51,795,252.43 24.53% Western Sales 38,705,782.87 3.52% 29,060,301.78 3.27% 9,645,481.09 4.57% Industrial service sales 175,955,872.31 16.01% 151,306,416.05 17.04% 24,649,456.26 11.68% 12 RMB 1,098,987,244.10 100.00% RMB 887,876,553.27 100.00% RMB 211,110,690.83 100.00% 2001 Main business income Main business cost Main business gross profit Amounts Proportion Amounts Proportion (%) Amounts Proportion (%) (%) Product sales RMB896,529,698.60 83.64% RMB 684,675,079.39 81.79% RMB 211,854,619.21 90.23% —Exporting 120,277,030.09 11.22% 132,220,442.20 15.79% (11,943,412.11) (5.09%) —Domestic sales 776,252,668.51 72.42% 552,454,637.19 66.00% 223,798,031.32 95.32% Including: Northern sales 347,213,298.21 32.39% 243,240,131.77 29.06% 103,973,166.44 44.28% Southern sales 185,167,716.02 17.27% 133,452,889.62 15.94% 51,714,826.40 22.03% Eastern China Sales 210,217,515.36 19.61% 151,506,620.47 18.10% 58,710,894.89 25.00% Western Sales 33,654,138.92 3.14% 24,254,995.33 2.90% 9,399,143.59 4.00% Industrial service sales 175,388,488.80 16.36% 152,446,070.80 18.21% 22,942,418.00 9.77% RMB 1,071,918,187.40 100.00% RMB 837,121,150.19 100.00% RMB 234,797,037.21 100.00% (3). Main products and the occupation ratio in market 1). The market occupation ratio of main products of the company (bearings) Order Product Name Occupation ratio (%) 1 Railway bearings 20 2 Automobile bearings 20 3 Metallurgy mineral bearings 15 4 Machine tool and electronic 10 equipment bearings 5 Current bearings 10 2). In the report period, the main business or it’s structure, main business gains capability didn’t change much compared with the last period. 3). Operation and achievements of the main holding interest companies and participating interest company 1). General situation to holding interest companies of the company: Company Registration Establishme Registration Owning Main business Nature or type Legal name address nt date capitals interest of the economy representative Dalian Produce Chinese-Ameri General Wafangdian bearings and can joint 1996.03.28 USD 4,510,000 75% Wang Lushun Bearing Beigongji Street relative venture No 1. Section 1. products company Produce and Liaoyang Baita Liaoyang RMB sell bearings Limited Dist. Weiguo Rd. 1996.11.22 100% Feng Lijie bearing 19,350,000 and machinery company No 61. manufacture 2). Operation situation and achievements of the holding interest and participating interest 13 companies Unit: RMB Yuan Name of invested company Equity share Main Business Total Profit Net profit percentage income Liaoyang Bearing Co., Ltd. 100% 43,023,593.43 153134.15 52,733.16 Wafangdian General Bearing Co., 75% 17,266,237.89 -1,799,621.41 -1,799,621.41 Ltd. Dalian SKF Wazhou Bearings Co., 49% 146,898,943.02 25,429,752.53 21,927,756.89 ltd. Shanghai Zhenxin Wazhou 40% 5,381,816.05 15,102.97 14,111.81 Mechanical & Electrical Product Sales Co., Ltd. Shanghai Aimuyi Mechanical & 4.76% 104,769,759.51 2,679,350.59 2,575,149.71 Electrical Equipment Chain Co., Ltd. 3). Holding interest & participating interest company, which the investment gains is equivalent to more than 10 % of the net profit: a. The current bearing company adopted new accounting policy and made additional depreciation to the sealed fixed assets, this affected the profit. b. Dalian SKF Wazhou mainly produced spherical roller bearings, and realized net profit of 2192.78 RMB’0000 Yuan. 4). Information on main suppliers and clients (1). Total purchasing amounts from the first five suppliers is 152637.6 thousand Yuan, which is equivalent with 35.24% of the total purchasing amounts. (2). The total sales amounts of the first five customers is 205576.5 thousand Yuan, which is equivalent with 19.17% of the total sales value of the company. 5). Problems and difficulties arising from operation and solving plan In 2002, the internationalization competition in domestic bearing markets is very drastically, the providing of bearings is much more than requirement. The company focus on the market, adjust product mixture and promote the change and update of the products actively, strengthen the sales and services network establishment of the market, improve market structure; adjust economy operation situation actively in order to make the financial situation of enterprise more healthy; adopt client credit-grade management, strengthen the A/R collection and control the increasing tendency of A/R. 2. Information on investment of the company in report period 1). Information on complete situation of the operation plan Unit: RMB thousand Yuan 14 Total B-share fund having 27,850 Total B-share fund (after been used in this year 405,855 deduction of issue expenses) Total B-share fund accumulated used in this year 405,855 Whether it is Whether Intends to Actual Gains from the conformity with Promising items change the invest investment investment plan progress and items anticipated gains Railway bearing 60,000 No 65,710 145,000 Yes improvement Automobile spherical roller 80,000 No 56,470 183,000 Yes bearings Metallurgy mineral bearings 80,000 No 97,820 252,000 Yes Compensate borrowings 100,000 No 102,590 Yes Total 320,000 322,590 Explanation on why not reach the planned progress Improvement on automobile taper roller bearings is delayed. and gains (explain in every item) Explanation on changing reasons and changing No change procedure (explain in every item) Up to the report period, the B-share accumulated investment on the improvement items of railway bearings is 65710 thousand Yuan; the B-share accumulated investment on the item of the automobile tapered bearings is 56470 thousand Yuan; the B-share accumulated investment on the metallurgy mineral bearings is 97820 thousand Yuan. Up to the year 2002, all of the B-share fund with the value of 220000 thousand Yuan has been used out on the promising investment items. The surplus of the original items will be invested by using the self-raised capitals. 2). Investment situation of non B-share fund: In the year 2002, the company used 16300 thousand Yuan self-raised capitals in technique improvement, including 3380 thousand Yuan goes to railway bearing improvement; 12920 thousand Yuan goes to metallurgy mineral bearings. 3). Gain from investment: Up to 2002, the investment items of railway bearings, automobile tapered bearings, metallurgy mineral beatings are still in progress, they still need continuous improvement. 15 Items of railway bearings: focus on improvement of railway high-speed freight wagon bearings, passenger coach bearings, locomotive bearings in order to make the precise of matching roller of railway bearings to reach I, II level; introduce two producing lines of railway bearing heat treatment in order to realize the atmosphere heat treatment, fixture quench and Bainite hardening, improved the internal quality of products; provide the guarantee to matching of speedup truck bearings, improved the producing abilities, it is more important that it ensured the occupation ratio of railway bearings in market and increased the exporting shares. Automobile tapered bearings: after improvement, the precise grade has reached P6x, and has realized the “three crowning” geometry, the capability is 6 million sets. Metallurgical mineral bearings: after improvement, the precise of products has heightened one grade, the technical equipment level has reached the designed requirements, and is in the most advanced level in domestic. And it has promoted the development of markets and further improved the market share. 3. Analysis on financial situation, results and change of operation Unit: thousand Yuan Items Year 2002 (Yuan) Year 2001 (Yuan) Increase/Decrease (%) Total assets 2,000,421 2,068,428 -3.29 Non-current 103,703 98,969 4.78 liabilities Shareholders’ 974,344 967,060 0.75 equity Sales gross profit 184,115 216,400 -14.92 Net profit 17,184 32,593 -47.28 Changing reasons: Main business profit decreased because: the profit is affected by sales price. 4. Effect on the company from change of external environment and mecro-policy, regulations of the enterprise 1. After joining in WTO, the economy of China is globalized rapidly. The import taxes of bearings further lowered, the import bearings will increase, and will impact the domestic bearing market and export. 2. In 2003, the GDP will increase above 7%, this brings good market environment to the company 5. Operation plan of the new year Key work in 2003: 1. Strengthen market sales network establishment, focus on major clients in order to enlarge market share; 2. Promote more precisely producing method, and strictly control cost expenses, and improve the economical interest of WBC; 3. Speed up product improvement, adjusting product mixture and execute technique improvement; 6. Daily work of the Board of Directors (One). The meetings and resolutions of the Board of Directors in the report period 16 Eight meetings were held in the report period, including five extraordinary meetings. The details are as the follows: 1. The fifth meeting of second board session of the Company was held on February 28, 2002 in Meeting Room 309 of WBGC headquarters. Due participating 14 directors and 10 actually attended the meeting. 4 other directors authorized their proxies to attend the meeting. After discussions the following resolutions were made unanimously: (1). Reviewed and approved 2002 annual final financial report (Un-audited); (2). 2002 production and operation plan and financial budget plan will be submitted to board meeting for discussion after adjustment. (3). Reviewed and approved the finished situation of B-share fund and the 2002-investment plan of B-share fund; (4). Reviewed and approved proposal on releasing the duty of Mr. Sun Maolin as the Vice-GM of the company and employment of Mr. Meng Wei as the Vice- GM of the company. The board of directors agreed that Mr. Song Mingdong resigned his duty as vice-GM of the company. After nominated by the GM, the board of directors employed Mr. Meng Wei as the vice-GM of the company. The resolution of the meeting was published on Security Times, Hong Kong Commercial Newspaper and Takung Pao in Hong Kong. 2. The sixth meeting of second board session of the Company was held on April 12,2002 in Meeting Room 309 of WBGC headquarters. Due participating 14 directors and 9 actually attended the meeting. 5 other directors authorized their proxies to attend the meeting. After discussion the following resolutions were made unanimously: (1). Reviewed and approved unanimously 2001 work report of board of directors of the company; (2). Reviewed and approved unanimously 2001 annual final financial report (audited); (3). Reviewed and approved unanimously 2001 annual report and abstract of the annual report (based on CAS and IAS); (4). Reviewed and approved unanimously 2001 annual profit distribution plan: Board of directors of the company decided: 10% of the net profit after taxes shall go to the statutory surplus public accumulated fund, and 5% shall go to the statutory public welfare fund; based on the total number of equity shares of 330,000,000 at the end of the period, 0.30RMB Yuan (including tax) shall be paid to every 10 shares. The remaining profit shall be carried over to the coming year.. The proposed profit distribution plan for 2002 is as the following: The Company intends to make a profit distribution to all shareholders in 2002. 20% to 40% of the net profit to be realized in 2002 shall be paid for dividend in 2002. The payment shall be made mainly in cash. The ratio of cash payment in the dividend distribution shall not be less than 50%. The concrete distribution plan shall be subject to the then practical situation. The resolution shall be submitted to 2001 annual shareholders’ meeting for approval before being executed. (5). Reviewed and approved unanimously 2002 first quarter report; (6). Reviewed and approved unanimously proposal on employment and remuneration of domestic and foreign accountant firm; (7). Reviewed and approved unanimously proposal on holding 2001 annual shareholders’ meeting. After discussion, the 2002 production and operation plan and financial budget plan were approved with 11 directors agreed, 3 directors reserved the following opinions: a. Readjust and execute accounts receivable budget; 17 b. Make followed-up plan and submit to the board of directors monthly; c. Execute the reducing account receivable methods in order to lower the value of account receivables further; d. Necessary resolution of board of directors supported the special actions in 2002 production and operation plan and financial budget; e. Make necessary action plan in order to connect the sales, production and inventories better, ensure to reduce the inventories. (8). Regarding the annual audit report, Shenzhen Pan-China Schinda Certified Public Accountant offered audit report with non-standard unreserved opinions, the statement is that they adopted the data from Dalian SKF Wazhou (the associated company of WBC, which was audited by DTT accountant firm). They emphasis that every amount related to SKF Wazhou is based on the audit report from other CPA, and board of directors of the company believed the report reflects the financial health and operation results truly, accurately and fairly. No negative effect in the report, so it is not necessary to adopt any methods to improve. And they also believed that the company did not violate accounting standard, system and relative information disclosure regulations. Shenzhen Pan-China Schinda Certified Public Accountant offered this explanation illustration, only because they are limited by the audit scope. It is in accordance with cautious principles. The notice of the meeting was published in Security Times, Hong Kong Commercial Newspaper and English Takung Pao on April 18, 2002. 3. The seventh meeting of second board session of the Company was held on August 14, 2002 in Meeting Room 309 of WBGC headquarters. Due participating 14 directors and actually 13 attended the meeting. The other 1 director authorized proxy to attend. After discussion, made the following resolutions unanimously: One. Reviewed and approved unanimously 2002 mid-year report (based on CAS and IAS); Two. Reviewed and approved unanimously 2002 mid-year final financial report; Three. Reviewed and approved unanimously 2002 mid-year profit distribution plan. The notice of the meeting was published in Security Times, Hong Kong Commercial Newspaper and English Takung Pao on August 19, 2002. In the report period, five extraordinary meetings were held, the details are as the following: 1. The first extraordinary board meeting in 2002 of the Company was held on May 14, 2002 in Meeting Room 309 of WBGC headquarters. Due participating 14 directors and actually 8 attended the meeting. The other 6 directors authorized their proxies to attend. After discussion, made the following resolutions unanimously: a. Reviewed and approved unanimously proposal on Mr. Song Mingdong and Mr. Zhang Zuogang resigning their duties as directors of the company; b. Reviewed and approved unanimously proposal on nomination of independent director candidates; c. Reviewed and approved unanimously proposal on adjustment on numbers of board of directors between the year 2002 and the year 2003. In accordance with requirements in establishment of independent director system in listed companies issued by CSRC, based on the actual situation, the company intends to adjust the number of board of directors between the year 2002 and the year 2003. It is to say that before the shareholders’ meeting in June 2003, the board of directors is composed of 14 directors, including 1 chairman, 2 vice-chairmen. While after the shareholders’ meeting, the board of directors is composed of 12 directors, including 1 chairman, 2 vice-chairmen. The proposal must be submitted to shareholders’ meeting being held on June 2002 for approval. 18 After approved by the shareholders’ meeting, regarding the amendments to AOA and relative affairs, the board of directors authorized Mr. Sten Wendin and Mr. Su Shaoli to finish the work before the shareholders’ meeting being held on June 2003. d. Reviewed and approved unanimously proposal on amendment to AOA; e. Reviewed proposal on allowance and payment method of independent directors; All participating directors agreed the allowance payment method, and with 10 “Yes”, 4 “No”, more than half of directors agreed the independent directors annual allowance with value of 36,000 RMB Yuan (including individual income tax payable). Above proposal must be submitted to 2001 annual shareholders’ meeting for approval. f. Reviewed and approved unanimously proposal on holding 2001 annual shareholders’ meeting. The notice of the meeting was published in Security Times, Hong Kong Commercial Newspaper and English Takung Pao on May 16, 2002. 2. The second extraordinary board meeting in 2002 of the Company was held on June 29, 2002 in Meeting Room 309 of WBGC headquarters. Due participating 14 directors and actually 7 attended the meeting. The other 7 directors authorized their proxies to attend. After discussion, made the following resolutions unanimously: The meeting reviewed and approved self-audit report on establishment of modern enterprise system of the company. The notice of the meeting was published in Security Times, Hong Kong Commercial Newspaper and English Takung Pao on July 2, 2002. 3. The third extraordinary board meeting in 2002 of the company was held on August 23, 2002 in Meeting Room 309 of WBGC Headquarters. Due participating 14 persons, actual 8 persons attend the meeting, 6 persons authorized proxies to present. After discussion, made the following resolution: Agreed Mr. Wang Zhongmin resigned his duty as general manager of WBC. Agreed to employ Mr. Shao Yang as the general manager of WBC. The notice of the meeting was published in Security Times, Hong Kong Commercial Newspaper and English Takung Pao on August 27, 2002. 4. The fourth extraordinary board meeting in 2002 of the company was held on October 25, 2002 in Meeting Room 309 of WBGC Headquarters. Due participating 14 directors and actually 10 attended the meeting, other 4 directors authorized their proxies to attend. After discussion, made the following resolution: Reviewed and approved the third quarter report of 2002 of the company. The notice of the meeting was published in Security Times, Hong Kong Commercial Newspaper and English Takung Pao on October 29, 2002. 5. The fifth extraordinary board meeting in 2002 of the company was held on December 19, 2002 in Meeting Room 309 of WBGC Headquarters. Due participating 14 directors, actually 9 attended the meeting, other 5 directors authorized their proxies to attend, 2 supervisors also participated in the meeting. After discussion, made the following resolution: Reviewed and approved unanimously Correcting Report on relative problems raising from circular examination of WBC. The notice of the meeting was published in Security Times, Hong Kong Commercial Newspaper and English Takung Pao. 19 (Two). Execution situation of shareholders’ meeting resolution 1. In the report period, the board of directors fulfilled its function in accordance with authorization by the shareholders’ meeting and the function scope regulated in AOA, and supervised the operation activities effectively based on production and operation plan and operating targets, which is ensured at the year beginning. And finished the 2001-profit distribution work of the company and other works, which were ensured at the shareholders’ meeting. 2. Profit distribution plan for 2002 and profit distribution plan for 2003 The proposed profit distribution plan for 2002 is as the following: 10% of the net profit after taxes shall go to the statutory surplus public accumulated fund, and 5% shall go to the statutory public welfare fund; based on the total number of equity shares of 330,000,000 at the end of the period, 0.30RMB Yuan (including tax) shall be paid to every 10 shares. The remaining profit shall be carried over to the coming year. The proposed profit distribution plan for 2003 is as the following: 20% to 40% of the net profit to be realized in 2003 shall be paid for dividend in 2003. The payment shall be made mainly in cash. The ratio of cash payment in the dividend distribution shall not be less than 50%. The concrete distribution plan shall be made in accordance with actual situation. 3. Execution situation on bonus issue, increase issue in the report period No bonus issue and increase issue in the report period. 4. In 2002, Shenzhen Pan-China Schinda Certified Public Accountants issued a non-standard and unreserved audit report for the company. We, as the board of the directors, consider that this report actually ,correctly and justly reflect the financial situation and operative result of the company. And the company didn’t violate accounting standard, system and relative regulations relating to information disclosure. Constricted by the audit scope, the explanatory note issued by the Shenzhen Pan-China Schinda Certified Public Accountants is coherent with the cautious principle. Chapter Eight. Work report of the Supervisory Committee In 2002, the Supervisory Committee fulfilled its duties and obligations according to Company Law and the AOA of the Company and participated in all the activities of the Company and expressed its opinions. 1. Meetings in the report period Three meetings were held in the report period: 1). The third supervising meeting of the second session of the Company was held on April 15, 2002 in Meeting Room 309 of WBGC headquarters. Due participating 9 supervisors and actually 6 attended the meeting. Mr. Sun Wudu presided over the meeting and heard the report about the operation situation and financial health of the company from relative leaders. The present supervisors reviewed and agreed the following report: (1). Reviewed and agreed the 2001 Annual Report and its abstract of WBC (based on CAS and IAS); (2). Reviewed and agreed the 2001 Annual Final Financial Report of WBC; (3). Reviewed and agreed the 2001 First Quarter Report of WBC (based on CAS and IAS); (4). Reviewed and agreed the 2002 Production and operation plan, Financial budget plan and A/R plan, which have been adjusted; 20 (5). Reviewed and agreed the 2002 Financial Budget Report; (6). Reviewed and agreed the 2001 Work Report of Supervisory Committee of WBC; (7). Reviewed and agreed the other issues. Agreed that the Quarter Report, Mid-year Report may be approved by Fax or other delivering patterns. 2). The fourth supervising meeting of second session of the Company was held on August 14, 2002 in Meeting Room 309 of WBGC headquarters. Due participating 9 supervisors and actually 7 supervisors attended. Mr. Sun Wudu presided over the meeting and heard the report about the operation situation and financial health of the company from relative leaders. The present supervisors reviewed and agreed the following report: (1). Reviewed and agreed the 2002 Mid-year Report of the company (based on CAS and IAS); (2). Reviewed and agreed the 2002 Mid-year final financial report of the company; (3). Reviewed and agreed the 2002 Mid-year profit distribution plan of the company. 3). The fifth supervising meeting of second session of the Company was held on December 19, 2002 in Meeting Room 309 of WBGC headquarters. Due participating 9 supervisors and actually 8 supervisors attended. Mr. Sun Wudu presided over the meeting. The presenting supervisors reviewed and agreed: the Correcting Report on relative problems raising from the circular examination of WBC. 2. Statutory operation of the Company In accordance with the power regulated in the Company Law of PRC and AOA, Supervisory Committee of the company participated in the operation of the company actively. And supervise the statutory operation of the company, examine the financial health of the company. 1. Statutory operation of the company. In the report period, the decision-making procedure is regulative, and strictly executes relative laws, ordinances of the state and has established perfect internal controlling system. The supervisors of the company supervised the fulfillment of function of the directors and managers, and didn’t find out any activity violating the laws, legal regulations, AOA or hurting the interest of the Company. 2. Examining the finance health of the Company. In 2002, Shenzhen Pan-China Schinda Certified Public Accountants issued a non-standard and unreserved audit report for the company. We, as the supervisors of supervisors committee, consider that this report actually, correctly and justly reflect the financial situation and operative result of the company. And the company didn’t violate accounting standard, system and relative regulations relating to information disclosure. Constricted by the audit scope, the explanatory note issued by the Shenzhen Pan-China Schinda Certified Public Accountants is coherent with the cautious principle. 3. The actual investment items of the last B-share funds of the company are conformity with the promising items. 4. In the report period, there is no asset reorganization activity such as major purchasing or sales in the company. 5. The associated transaction of the company is performed with the fair and reasonable price, and didn’t hurt the interest of listed companies. Chapter Ninth. Important events 1. In the report year the Company had no major lawsuits and arbitration. 21 2. Amendments were made to the AOA of the Company in April of 2002, and approved by the shareholders’ meeting, which was held on June. The details of the amendments were published on April 18, 2002 in Security Times, Hong Kong Commercial Newspaper and the Takung Pao in Hong Kong. 3. In the report period, there were no purchases and sales of important and major assets and acquisition and merger in the Company; 4. Important associated transactions The principles of fairness, rightness and openness were respected in the associated events and associated transactions of the Company. The Company also followed the principle of sufficient disclosure of the information on relative associated transactions. Price of association transactions is in accordance with market price. In the report period, the associated transaction items with the accumulated amount over 10% of net profit or over 5% of the net assets of the company are shown as follows: Important transaction between the company & subsidiary companies and WBGC & other associated enterprises 2002 2001 RMB’000 RMB’000 Fellow subsidiaries - purchase of raw materials and bearing parts 95,109 94,019 - sale of raw materials and bearing parts 155,842 160,121 - sale of property, plant and equipment 621 - - sale of accounts receivable 5,001 - Dalian SKF Bearing Company Limited, an associate - purchase of raw materials and bearing parts 145,704 119,931 - sale of raw materials and bearing parts 86,438 78,793 Wafangdian Bearing Group - sale of accounts receivable for cash 48,989 38,283 - sale of accounts receivable 11,798 - - sale of raw materials 766 27,234 - payment of land use fee 3,164 3,164 - payment of research and development costs 5,400 5,400 - payment for guarding and fire protection service 3,700 3,700 - payment of finance charge for guarantee of bank borrowings (note 7) (note (b)) - 11,000 10,500 5. Information on entrusting, contracting and leasing of assets from other companies by the Company or the Company’s assets entrusted, contracted or leased by other companies: The Company rented the land use rights of its controlling shareholder Wafangdian Bearing Group Corporation, the Company’s subsidiary Company Wafangdian Current Bearing Company Limited rented the workshops of the Company. The ownership of the trademark “ZWZ”, which the company used is 22 belong to WBGC, in accordance with regulations in Trademark Permission Contract signed with WBGC, the term of the company using trademark “ZWZ” without payment will be expired on December 31, 2003. 6. Up to the report period, the guarantee with value of 4480 thousand Yuan provided to WBGC is still not eliminated, WBGC and WBC have reached agreement that WBGC provided a deposit receipt of 4480 thousand Yuan as pledge of guarantee risk. After the guarantee is eliminated, WBC hands back the pledge to WBGC, so WBC can void risk caused by guarantee. 7. In the report period, the Company did not entrust any other institutions to manage its cash and assets. 8. The company and the shareholders with more than 5% (include 5%) shares of the company haven’t disclosed any promising items on the appointed newspaper and websites. 9. In the report period the Company did not change or discontinue the service contracts with the certified public accountants. The remuneration paid by the Company to Shenzhen Pan-China Schinda Certified Public Accountants was 305 thousand Yuan. The certified public accountants has audited for the company continuously for 6 years; The remuneration paid by the Company to Hong Kong Pricewaterhousecoopers Certified Public Accountants was 665 thousand Hong Kong dollars. The certified public accountant has audited for the company continuously for 6 years. 10. In the report period, no check, administration penalty or notifying criticism from CSRC was made on the company, board of directors of the company and the directors, neither did the publicly condemn from the Shenzhen Stock Exchange. However, Dalian Correspondent Agency of CSRC made a circular examination to the company on October of 2002, and based on items listed in Correcting Notice, the company will solve the problems existed in AOA and Regulating Operation and amend the AOA accordingly. Regarding the problems in the governing and managing structure of legal persons, except the Industrial and Commercial changing and register procedure is not finished, others have been solved. The Correcting Report of the company is published in the Securities Time, Hong Kong Commercial Newspaper and Takung Pao in Hong Kong on December 21 of 2002. 11. In accordance with the 《Notice on Serious Execution of the〈On Correcting the Regionally-Made Tax Policy of “Collection First and Refunding Afterwards” 〉Issued by the State Council》, document No. CAISHUI [2000] 99 by the Ministry of Finance of China, the preferential tax policy of “Collection first and refunding afterwards” enjoyed by the Company has expired on December 31, 2001. In 2002, the Company shall pay income tax at the rate of 33%. Chapter Ten. Financial Statements INTERNATIONAL AUDITORS’ REPORT TO THE SHAREHOLDERS OF 23 WAFANGDIAN BEARING COMPANY LIMITED (Incorporated as a joint stock limited company in the People’s Republic of China) We have audited the accompanying consolidated balance sheet of Wafangdian Bearing Company Limited (the “Company”) and its subsidiaries (the “Group”) as at 31 December 2002, and the related consolidated income and cash flow statements for the year then ended. These consolidated financial statements set out on pages 2 to 27 are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2002 and the consolidated results of its operations and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards. PricewaterhouseCoopers Certified Public Accountants Hong Kong 18 April 2003 24 WAFANGDIAN BEARING COMPANY LIMITED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002 Notes 2001 RMB’000 RMB’000 Sales 3 1,090,571 1,055,758 Cost of sales (906,456) (839,358) Gross profit 184,115 216,400 Other operating income 4 7,730 13,640 Distribution costs (65,192) (62,914) Administrative expenses (85,282) (88,988) Profit from operations 5 41,371 78,138 Finance costs - net 7 (46,578) (45,079) Share of profit of associates 13 15,743 8,936 Profit before tax 10,536 41,995 Income tax 8 4,107 (9,307) Profit after tax 14,643 32,688 Minority interests 19 2,541 (95) Net profit 17,184 32,593 Earnings per share 9 RMB0.05 RMB0.10 The accompanying notes form an integral part of these consolidated financial statements. WAFANGDIAN BEARING COMPANY LIMITED CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2002 Notes RMB’000 RMB’000 ASSETS Non-current assets Property, plant and equipment 11 384,449 394,292 Construction in progress 12 45,256 58,398 Investments in associates 13 79,475 80,444 Available-for-sale investments 2,000 2,000 Deferred tax assets 8 8,544 - 519,724 535,134 Current assets Inventories 14 530,360 530,877 Receivables and prepayments 15 853,124 932,023 Prepaid income tax 5,757 - Cash and cash equivalents 16 91,456 70,394 1,480,697 1,533,294 Total assets 2,000,421 2,068,428 EQUITY AND LIABILITIES Shareholders’ equity Share capital 17 330,000 330,000 Reserves 18 560,003 560,068 Retained earnings 84,341 76,992 974,344 967,060 Minority interests 19 3,580 6,121 Non-current liabilities Borrowings 20 101,300 96,300 Other liabilities 2,403 2,669 103,703 98,969 Current liabilities Trade and other payables 21 386,404 457,141 Income tax payable - 1,707 Borrowings 20 532,390 537,430 918,794 996,278 Total liabilities 1,022,497 1,095,247 Total equity and liabilities 2,000,421 2,068,428 The accompanying notes form an integral part of these consolidated financial statements. These consolidated financial statements have been approved for issue by the board of directors on 18 April 2003. 27 WAFANGDIAN BEARING COMPANY LIMITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2002 Share Retained capital Reserves earnings Total RMB’000 RMB’000 RMB’000 RMB’000 Notes (note 17) (note 18) Year ended 31 December 2001 Balance at 1 January 2001 As previous reported 330,000 552,290 87,526 969,816 Effect of adopting IAS 39 (a) - - (18,849) (18,849) As restated 330,000 552,290 68,677 950,967 Adjustment arising from restatement of retained earnings of statutory financial statements 18 - (1,880) 1,880 - Net profit - - 32,593 32,593 Transfer from retained earnings to reserves 18 - 9,658 (9,658) - Dividends relating to 2000 - - (16,500) (16,500) Balance at 31 December 2001 330,000 560,068 76,992 967,060 Year ended 31 December 2002 Balance at 1 January 2002 330,000 560,068 76,992 967,060 Adjustment arising from restatement of retained earnings of statutory financial statements 18 - (4,925) 4,925 - Net profit - - 17,184 17,184 Transfer from retained earnings to reserves 18 - 4,860 (4,860) - Dividends relating to 2001 10 - - (9,900) (9,900) Balance at 31 December 2002 330,000 560,003 84,341 974,344 (a) In accordance with the transitional requirements of IAS 39, the Group recorded a net loss of RMB18,849,000 in retained earnings for the remeasurement of its financial assets at their amortised cost. The accompanying notes form an integral part of these consolidated financial statements. 28 WAFANGDIAN BEARING COMPANY LIMITED CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002 Notes 2002 2001 RMB’000 RMB’000 Cash flows from operating activities Cash generated from operations 23 118,976 115,485 Interest paid (36,652) (38,268) Income tax paid (10,184) (11,201) Net cash from operating activities 72,140 66,016 Cash flows from investing activities Purchase of property, plant and equipment (4,086) (2,325) Payment for construction in progress (58,389) (56,982) Proceeds from disposal of property, plant and equipment 4,986 2,936 Increase in investments in associates - (574) Decrease in available-for-sale investments - 433 Government grants received - 6,000 Interest received 1,622 2,599 Dividends received 13 14,995 10,084 Net cash used in investing activities (40,872) (37,829) Cash flows from financing activities Proceeds from borrowings 38,600 22,650 Repayment of borrowings (38,640) (24,560) Repayment of other liabilities (266) (4,159) Increase in pledged bank deposits (3,211) (14,000) Dividends paid (9,900) (16,500) Net cash used in financing activities (13,417) (36,569) Increase/(decrease) in cash and cash equivalents 17,851 (8,382) Cash and cash equivalents at beginning of year 56,394 64,776 Cash and cash equivalents at end of year 16 74,245 56,394 The accompanying notes form an integral part of these consolidated financial statements. 29 1. General information Wafangdian Bearing Company Limited (the “Company”) was established in the People’s Republic of China (the “PRC”) as a joint stock limited liability company. The Company secured a listing on the Shenzhen Stock Exchange in March 1997. The Company and its subsidiaries (the “Group”) together with its associates are principally engaged in the production and sale of bearing products. 2. Principal accounting policies The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below: A Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) under the historical cost convention except as disclosed in the accounting policies below. This basis of accounting differs from that used in the preparation of the statutory consolidated financial statements in the PRC (“PRC statutory financial statements”). The PRC statutory financial statements of the Company and its subsidiaries comprising the Group have been prepared in accordance with the accounting principles and regulations as applicable in the PRC. Appropriate adjustments have been made to these PRC statutory financial statements to conform with IFRS. Differences arising from the adjustments are not incorporated in the accounting records of the Company and its subsidiaries. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current events and actions, actual results ultimately may differ from those estimates. B Group accounting (1). Subsidiaries Subsidiaries, which are those entities in which the Group has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies, are consolidated. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless cost cannot be recovered. Where necessary, accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the Group. Details of the Group’s subsidiaries are shown in note 27. (2). Associates Associates are entities over which the Group generally has between 20% and 50% of the voting rights, or over 30 which the Group has significant influence, but which it does not control. Investments in associates are accounted for by the equity method of accounting. Under this method the Group’s share of the post-acquisition profits or losses of associates is recognised in the consolidated income statement and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post acquisition movements are adjusted against the cost of the investment. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The Group’s investments in associates include goodwill (net of accumulated amortisation) on acquisition. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognise further losses, unless the Group has incurred obligations or made payments on behalf of the associates. Details of the Group’s associates are shown in note 13. C Foreign currency translation (1) Measurement currency Items included in the financial statements of each entity in the Group are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity (the “measurement currency”). The consolidated financial statements are presented in Renminbi (“RMB”), which is the measurement currency of the Company. (2) Transactions and balances Foreign currency transactions are translated into the measurement currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognised in the consolidated income statement. D Property, plant and equipment Property, plant and equipment is stated at historical cost less accumulated depreciation and impairment loss. Depreciation is calculated on the straight-line method to write off the cost of each asset to its residual value over its estimated useful life as follows: Plant and office buildings 15 - 35 years Production equipment and machinery 7-18 years Furniture, fixtures and office equipment 4-11 years Motor vehicles 6 years Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains and losses on disposal of property, plant and equipment are determined by comparing proceeds with carrying amount and are included in profit from operations. Interest costs on borrowings to finance the construction of property, plant and equipment are capitalised during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are expensed. 31 Repairs and maintenance are charged to the consolidated income statement during the financial period in which they are incurred. The cost of major renovations is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset. E Construction in progress Construction in progress represents capital assets under construction or installation and is stated at cost . Cost comprises original cost of the asset and other direct costs including interest costs arising from borrowings used to finance the construction of the asset during the construction period. No depreciation is provided on construction in progress until the related asset is available for use. F Research and development Research expenditure is recognized as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognized as intangible assets when it is probable that the project will be a success considering its commercial and technological feasibility, and only if the cost can be measured reliably. Other development expenditures are recognized as an expense as incurred. G Impairment of long-lived assets Property, plant and equipment and other non-current assets are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the carrying amount of the asset exceeds its recoverable amount which is the higher of an asset’s net selling price and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows. H Investments The Group classified its investments into the following categories: trading, held-to-maturity and available-for-sale. The classification is dependent on the purpose for which the investments were acquired. Management determines the classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis. Investments that are acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as trading investments and included in current assets. Investments with a fixed maturity that management has the intent and ability to hold to maturity are classified as held-to-maturity and are included in non-current assets, except for maturities within 12 months from the balance sheet date which are classified as current assets. Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are classified as available-for-sale; and are included in non-current assets unless management has the expressed intention of holding the investment for less than 12 months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in current assets. During the year, the Group did not hold any trading and held-to-maturity investments. Purchases and sales of investments are recognized on the trade date, which is the date that the Group commits to purchase or sell the asset. Cost of purchase includes transaction costs. Available-for-sale investments are not subsequently fair-valued because they do not have quoted market prices in active markets and whose fair values cannot be reliably measured. These investments are carried at cost, and are subject to review for impairment. 32 I Operating leases Leases of assets where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the consolidated income statement on the straight-line basis over the period of the lease. J Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted average method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity) but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business less the costs of completion and selling expenses. K Trade receivables Trade receivables are carried at original invoice amount less provision made for impairment of these receivables. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, discounted at the market rate of interest for similar borrowers. L Cash and cash equivalents Cash and cash equivalents are carried in the consolidated balance sheet at cost. For the purposes of the consolidated cash flow statement, cash and cash equivalents comprise cash on hand and deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less. M Borrowings Borrowings are recognized initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognized in the consolidated income statement over the period of the borrowings. N Income taxes The charge for PRC income tax is based on profit before tax for the year as stated in the statutory financial statements adjusted for non-taxable and non-deductible items and is provided for at the rates applicable to the Company and its subsidiaries. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Currently enacted tax rates are used in the determination of deferred income tax. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. O Pension obligations 33 The Group participates in a defined contribution retirement scheme organized by the municipal government where the Group operates. The scheme is funded by monthly payments by the Group at 19% of the employees’ basic salaries. Once the contributions have been paid, the Group has no further payment obligations. Contributions to the scheme are charged to the consolidated income statement in the year to which they relate. P Provisions Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. Q Revenue recognition Revenue comprises the invoiced value for the sale of goods net of value-added tax, rebates and discounts, and after eliminating sales within the Group. Revenue from the sale of goods is recognized when significant risks and rewards of ownership of the goods are transferred to the buyer. Interest income is recognized on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the Group. Dividends are recognized when the right to receive payment is established. Government subsidy is recognized when there is reasonable certainty that it can be received and is included as other operating income. R Dividends Dividends are recorded in the Group’s consolidated financial statements in the period in which they are approved by the Group’s shareholders. S Segment reporting Business segments provide products or services that are subject to risks and returns that are different from those of other business segments. Geographical segments provide products or services within a particular economic environment that is subject to risks and returns that are different from those of components operating in other economic environments. T Financial instruments Financial assets and liabilities carried on the consolidated balance sheet include cash and cash equivalents, available-for-sale investments, receivables, payables and borrowings. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. U Comparatives Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year. 34 3. Sales Sales represent revenue from the sale of bearing and related products to external customers at invoiced value net of discounts, value-added tax and returns. Business segment information is not shown as sales of bearing and related products accounted for more than 90% (2001: more than 90%) of the consolidated revenue and results of the Group. All assets and operations of the Group are located in the PRC, which is considered as one geographic location in an environment with similar risks and returns. Approximately 90% (2001: approximately 90%) of the Group’s sales were made in the PRC. Accordingly, no geographical segment information is shown. 4. Other operating income RMB’000 RMB’0 Government subsidy - 6,000 Sale of raw materials 4,887 6,208 Other 2,843 1,432 7,730 13,640 5. Profit from operations The following items have been included in arriving at profit from operations: 2002 2001 RMB’000 RMB’000 Depreciation of property, plant and equipment (note 11) 83,795 47,926 Impairment of property, plant and equipment (included in administrative expenses) - 941 Repairs and maintenance 28,658 32,602 Land use fee paid to Wafangdian Bearing Group 3,164 3,164 Research and development expenditure paid to Wafangdian Bearing Group 5,400 5,400 (Write-back of provision)/provision for inventories (note (a)) (8,224) 28,145 Provision/(write-back of provision) for impairment of receivables 5,821 (18,983) Staff costs (note 6) 137,200 130,551 Gain on disposal of property, plant and equipment (1,713) (647) (a) Certain obsolete bearing products were sold during the year, as a result, provision for such items was partially reversed. 35 6. Staff costs 2002 2001 RMB’000 RMB’000 Wages and salaries 103,055 97,959 Staff welfare 14,293 13,181 Contributions to retirement scheme 19,852 19,411 137,200 130,551 Average number of employees of the Group during the year 10,332 10,521 7. Finance costs - net 2002 2001 RMB’000 RMB’000 Interest expense on bank borrowings 36,652 38,268 Less: Amount capitalized in construction in progress (1,608) (2,132) 35,044 36,136 Finance charge paid to Wafangdian Bearing Group for guarantee of bank borrowings (note 26) 11,000 10,500 Other finance charges 849 1,007 46,893 47,643 Interest income (1,622) (2,599) Net foreign exchange loss 1,307 35 46,578 45,079 8. Income tax 2002 2001 RMB’000 RMB’000 Current tax 2,720 8,314 Share of tax of associates (note 13) 1,717 993 Deferred tax (8,544) - (4,107) 9,307 PRC income tax comprises income tax of the Company and its subsidiaries, Wafangdian General Bearing Company Limited and Liaoyang Bearing Manufacture Company Limited, and is calculated at rates applicable to the relevant companies ranging from 27% to 33%. Dalian SKF Bearing Company Limited, an associate, being a foreign investment enterprise, was granted exemption from income tax for two years commencing from the first cumulative profit-making year and a 50% reduction in the income tax rate in the following three years. Since 1998 was not a full year operation for this associate, it has elected 1999 as its first profit-making year. Accordingly, income tax of this associate for 2002 was provided for at 12% (2001: 12%) of its taxable income. 36 The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the tax rates applicable to the Group as follows: 2002 2001 RMB’000 RMB’000 Profit before tax 10,536 41,995 Tax calculated at tax rate of 27% to 33% (2001: 27% to 33%) 1,010 13,705 Income not subject to tax (6,700) (5,871) Expenses not deductible for tax purposes 1,583 1,473 Tax charge (4,107) 9,307 Movements in deferred tax assets are as follows: 2002 2001 RMB’000 RMB’000 At beginning of year - - Depreciation of property, plant and equipment 8,544 - At end of year 8,544 - The deferred tax assets recognized in the consolidated balance sheet arose from depreciation of property, plant and equipment and are expected to be utilized within the coming 3 years. As at 31 December 2002, deferred income tax assets arising from temporary differences amounting to RMB47,988,000 (2001: RMB46,075,000) were not recognized in these consolidated financial statements. Such unrecognized deferred tax assets mainly arose from provision for inventories and trade receivables. 9. Earnings per share Earnings per share is calculated by dividing net profit by the weighted average number of ordinary shares in issue during the year. 2002 2001 Net profit RMB17,184,000 RMB32,593,000 Weighted average number of ordinary shares in issue 330,000,000 330,000,000 Basic earnings per share RMB0.05 RMB0.10 The Company has no potential dilutive shares, therefore, basic and diluted earnings per share are the same. 10. Dividend per share On 18 April 2003, the board of directors proposed a dividend of RMB0.03 (2001: RMB0.03) per share for the year ended 31 December 2002 totaling RMB9,900,000 (2001: RMB9,900,000). The proposed dividend distribution is subject to approval by the shareholders in the next annual general meeting. These consolidated 37 financial statements do not reflect this dividend payable, which will be accounted for in shareholders’ equity as an appropriation of retained earnings in the year ending 31 December 2003. 11. Property, plant and equipment Production Furniture, Plant and equipment fixtures and office and office Motor buildings machinery equipment vehicles Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Year ended 31 December 2002 Opening net book amount 114,282 189,886 86,111 4,013 394,292 Reclassification - 76,547 (76,547) - - Additions 579 3,020 399 88 4,086 Transfer from construction in progress (note 12) 17,218 52,439 766 2,716 73,139 Disposals (80) (2,857) (70) (266) (3,273) Depreciation charge (note 5) (8,468) (70,026) (3,317) (1,984) (83,795) Closing net book amount 123,531 249,009 7,342 4,567 384,449 At 31 December 2002 Cost 242,000 673,525 23,214 18,311 957,050 Accumulated depreciation and impairment (118,469) (424,516) (15,872) (13,744) (572,601) Net book amount 123,531 249,009 7,342 4,567 384,449 At 31 December 2001 Cost 226,358 625,968 22,189 19,736 894,251 Accumulated depreciation and impairment (112,076) (359,535) (12,625) (15,723) (499,959) Net book amount 114,282 266,433 9,564 4,013 394,292 All plant and office buildings are located in the PRC. The land where the properties are situated are leased from Wafangdian Bearing Group for a term expiring on 18 July 2006 at an annual rental of RMB3,164,000. At 31 December 2002, the net book value of property, plant and equipment of the Group that were pledged as security for bank borrowings amounted to RMB26,390,000 (2001: RMB21,469,000) (note 20(a)). At 31 December 2002, the ownership certificates of buildings with net book value of RMB12,837,000 have not been obtained. 12. Construction in progress 2002 2001 RMB’000 RMB’000 At beginning of year 58,398 76,108 Additions 59,997 59,114 38 Transfer to property, plant and equipment (note 11) (73,139) (76,824) At end of year 45,256 58,398 Borrowing costs of RMB1,608,000 (2001: RMB2,132,000) arising from financing specifically used for the construction of certain production facilities were capitalized during the year and are included in “additions” above. A capitalization rate of 6.03% (2001: 6.03%) representing the borrowing cost of the loan used to finance the construction was used. 13. Investments in associates 2002 2001 RMB’000 RMB’000 At beginning of year 80,444 82,011 Additions - 574 Share of profit 15,743 8,936 Share of tax (note 8) (1,717) (993) Share of profit after tax 14,026 7,943 Dividends received (14,995) (10,084) At end of year 79,475 80,444 Particulars of associates, which are unlisted companies, are as follows: Country of Name incorporation Principal activities Equity interest held 2002 2001 Dalian SKF Bearing Company Limited PRC Manufacturing and trading of 49% 49% SRB bearing products Shanghai Zhenxin Company Limited PRC Sale of bearing products and 40% 40% accessories 14. Inventories 2002 2001 RMB’000 RMB’000 Raw materials 93,465 128,717 Work in progress 86,024 94,247 Finished goods 350,871 307,913 530,360 530,877 As at 31 December 2002, the carrying amount of inventories that are carried at net realizable value amounted to RMB48,430,000 (2001: RMB45,962,000). 39 15. Receivables and prepayments 2002 2001 RMB’000 RMB’000 Trade receivables 663,295 686,116 Less: Provision for impairment (73,111) (67,290) Trade receivables – net 590,184 618,826 Bills receivable 31,513 13,965 Amounts due from holding company (note 22) 206 206 Amounts due from fellow subsidiaries (note 22) 155,822 161,348 Amounts due from associates (note 22) 32 32 Prepayments 55,472 97,329 Other receivables 19,895 40,317 853,124 932,023 16. Cash and cash equivalents For the purpose of the consolidated cash flow statement, the cash and cash equivalents comprise the following: 2002 2001 RMB’000 RMB’000 Cash at bank and in hand 91,456 70,394 Less: Pledged bank deposits (note 21(a)) (17,211) (14,000) 74,245 56,394 Weighted average effective interest rate for cash at bank 0.98% 1.52% 17. Share capital 2002 2001 Thousand RMB’000 Thousand RMB’000 shares shares Registered, issued and fully paid of RMB1.00 each State-owned legal person shares 200,000 200,000 200,000 200,000 B shares 130,000 130,000 130,000 130,000 330,000 330,000 330,000 330,000 Pursuant to articles 13 and 14 of the Company’s articles of association, the state-owned legal person shares and B shares are all registered ordinary shares and carry equal rights. The Company’s B shares are listed on the Shenzhen Stock Exchange. State-owned shares are not transferable unless approvals are obtained from relevant authorities. 40 18. Reserves The movements of reserves are as follows: Statutory Statutory common public Capital reserve reserve fund welfare fund (note (a)) (note (b)) (note (b)) Total RMB’000 RMB’000 RMB’000 RMB’000 At 1 January 2001 513,115 26,117 13,058 552,290 Adjustment arising from restatement of retained earnings of statutory financial statements (note (i)) - (1,281) (599) (1,880) Transfer from retained earnings 5,571 2,725 1,362 9,658 At 31 December 2001 518,686 27,561 13,821 560,068 At 1 January 2002 518,686 27,561 13,821 560,068 Adjustment arising from restatement of retained earnings of statutory financial statements (note (ii)) - (3,284) (1,641) (4,925) Transfer from retained earnings 2,475 1,590 795 4,860 At 31 December 2002 521,161 25,867 12,975 560,003 (i). The Group charged certain provisions for trade receivables and inventories, and accruals to opening retained earnings in the PRC statutory financial statements in 2001. These charges have resulted in a decrease in reserve funds as at 31 December 2000 and an increase in retained earnings as at that date by RMB1,880,000. The above adjustments made in the PRC statutory financial statements had no impact on these consolidated financial statements which were prepared in accordance with IFRS. (ii). During the year, the Group charged certain amount of depreciation of property, plant and equipment to opening retained earnings in the PRC statutory financial statements. These charges have resulted in a decrease in reserve funds as at 31 December 2001 and an increase in retained earnings as at that date by RMB4,925,000. The above adjustments made in the PRC statutory financial statements have no impact on these consolidated financial statements which are prepared in accordance with IFRS. Capital reserve mainly comprises surplus arising from the difference between the value of the bearing business and the related assets and liabilities transferred from Wafangdian Bearing Group and the nominal value of state-owned legal person shares issued by the Company and the share premium on the issue of B shares. Reserve funds In accordance with relevant PRC regulations applicable to joint stock limited companies and the Company’s articles of association, the Company is required to allocate its profit after taxation to the following reserves: Statutory common reserve fund Each year the Group is required to transfer 10% of its profit after taxation as reported under its PRC statutory financial statements to the statutory common reserve fund until the balance reaches 50% of the registered share capital. This reserve can be used to make up prior years’ losses or to increase share capital. Except for making up of prior years’ losses, any other usage should not result in the balance of this reserve falling below 25% of the registered capital. 41 Statutory public welfare fund Each year the Group is required to transfer 5% to 10% of its profit after taxation as reported under its PRC statutory financial statements to the statutory public welfare fund. The use of this reserve is restricted to capital expenditure for staff welfare facilities owned by the Group. The statutory public welfare fund is not available for distribution to shareholders (except in liquidation). Once capital expenditure for staff welfare facilities has been made, an equivalent amount must be transferred from the statutory public welfare fund to the discretionary common reserve fund. The Group has not made any appropriation from retained earnings or transfer from the statutory public welfare fund to the discretionary common reserve fund. (c). Distributable profits Pursuant to relevant PRC regulations and the articles of association of the Company, profit distributable to shareholders shall be the lower of the distributable profits as determined in accordance with PRC accounting standards as stated in the PRC statutory financial statements and the distributable profits as adjusted in accordance with IFRS. 19. Minority interests 2002 2001 RMB’000 RMB’000 At beginning of year 6,121 8,274 Share of net (loss)/profit of subsidiaries (2,541) 95 Liquidation of a subsidiary - (2,248) At end of year 3,580 6,121 20. Borrowings 2002 2001 RMB’000 RMB’000 Current Bank borrowings 532,390 537,430 Non-current Bank borrowings 101,300 96,300 Total borrowings 633,690 633,730 (a). Current borrowings include secured bank borrowings amounting to RMB23,220,000 (2001: RMB22,550,000). These bank borrowings are secured over certain plant, property and equipment of the Group (note 11). (b). Certain bank borrowings of the Group are guaranteed by the following companies: 2002 2001 RMB’000 RMB’000 Wafangdian Bearing Group 598,140 599,640 Other third parties 10,830 11,540 608,970 611,180 42 (c). The interest rate exposure of the borrowings of the Group is as follows: 2002 2001 RMB’000 RMB’000 Total borrowings: - at fixed rates 633,690 633,730 Weighted average effective interest rates: - bank borrowings 5.78% 6.03% Maturity of non-current borrowings: RMB’000 RMB’000 Between 2 and 5 years 101,300 96,300 (d). The carrying amount and estimated fair value of the Group’s non-current borrowings at 31 December 2002 are set out as follows: 2002 2001 RMB’000 RMB’000 Carrying amount 101,300 96,300 Estimated fair value 102,512 96,540 The fair value of non-current borrowings is estimated by applying a discounted cash flow approach using current market interest rates for similar indebtedness. Fair value estimates are made at specific point in time and are based on relevant market information. These estimates are subjective in nature and involved uncertainties and matters of significant judgement and therefore cannot be determined with precision. Changes in valuation methods and assumptions could significantly affect the estimates. 21. Trade and other payables 2002 2001 RMB’000 RMB’000 Trade and bills payable (note (a)) 151,915 167,527 Amount due to holding company (note 22) 26,268 33,033 Amounts due to fellow subsidiaries (note 22) 42,923 57,759 Amounts due to associates (note 22) 29,851 54,935 Receipts in advance 14,111 11,427 Value added tax payable 58,983 67,761 Other payables 62,353 64,699 386,404 457,141 Bills payable are secured by bank deposits of RMB17,211,000 (2001: RMB14,000,000) (note 16). 22. Amounts due from/to holding company, fellow subsidiaries, associates These balances were generated in the normal course of business. They are unsecured, non-interest bearing and have no fixed terms of repayment. 43 23. Cash generated from operations Reconciliation of profit before tax to cash generated from operations: Notes 2002 2001 RMB’000 RMB’000 Net profit 17,184 32,593 Adjustments for: Minority interests (2,541) 95 Income tax (4,107) 9,307 Depreciation 5 83,795 47,926 Impairment of property, plant and equipment 5 - 941 Provision/(write-back of provision) for impairment of receivables 5 5,821 (18,983) (Write-back of provision)/provision for inventories 5 (8,224) 28,145 Gain on disposal of property, plant and equipment 5 (1,713) (647) Share of profit of associates 13 (15,743) (8,936) Government subsidy 4 - (6,000) Interest income 7 (1,622) (2,599) Interest expense 7 35,044 36,136 Changes in working capital: - inventories 8,741 (46,082) - receivables and prepayments 73,078 61,383 - trade and other payables (70,737) (17,794) Cash generated from operations 118,976 115,485 24. Financial instruments V Credit risk The Group has no significant concentration of credit risk. The carrying amount of accounts receivable included in the consolidated balance sheet represents the Group’s maximum exposure to credit risk in relation to its financial assets. These receivables are spread among a number of customers in the PRC and overseas. Cash is placed with reputable banks. No other financial assets carry a significant exposure to credit risk. W Foreign exchange risk The Group operates in the PRC and its transactions are primarily denominated in RMB, the national currency. In the opinion of the directors, the Group does not have significant foreign exchange risk exposure. X Interest rate risk The Group has no significant interest-bearing assets, as such its income and operating cash flows are 44 substantially independent of changes in market interest rates. The interest rates of the Group’s borrowings are disclosed in note 20. In the opinion of the directors, the Group’s exposure to interest rate risk was not significant. Y Fair value The carrying amounts of the following financial assets and financial liabilities approximate their fair value: cash, receivables, payables and borrowings. 25. Commitments (a). Capital commitments Capital expenditure contracted for at the balance sheet date but not recognized in the consolidated financial statements is as follows: 2002 2001 RMB’000 RMB’000 Property, plant and equipment - 32,700 (b). Operating lease commitments At 31 December 2002, the future aggregate minimum lease payments under non-cancelable operating leases in respect of land use rights are as follows: 2002 2001 RMB’000 RMB’000 Not later than 1 year 3,164 3,164 Later than 1 year and not later than 5 years 8,042 11,206 11,206 14,370 26. Related party transactions The holding company of the Company is Wafangdian Bearing Group, a state-owned enterprise established in the PRC, which owns 60.6% of the Company’s shares. The following material transactions were carried out with Wafangdian Bearing Group and other related parties during the year: 2002 2001 RMB’000 RMB’000 Fellow subsidiaries - purchase of raw materials and bearing parts 95,328 94,019 - sale of raw materials and bearing parts 151,957 160,121 - sale of accounts receivable at book value 5,001 - 45 Dalian SKF Bearing Company Limited, an associate - purchase of raw materials and bearing parts 145,704 119,931 - sale of raw materials and bearing parts 86,438 78,793 Wafangdian Bearing Group - sale of accounts receivable at book value for cash 48,989 38,283 - sale of accounts receivable at book value 11,798 - - sale of raw materials and bearing parts 3,016 27,234 - payment of land use fee 3,164 3,164 - payment of research and development costs 5,400 5,400 - payment for guarding and fire protection service 3,700 3,700 - payment of finance charge for guarantee of bank borrowings (note 7) (note (b)) 11,000 10,500 Directors’ emoluments 99 95 (a). The directors of the Company are of the opinion that the above transactions were entered into in the ordinary course of business and based on mutually agreed terms. (b). The finance charge was calculated at an annual rate of 2% of certain bank borrowings guaranteed by Wafangdian Bearing Group. (c). Pursuant to the agreement signed between Wafangdian Bearing Group and the Company on 1 January 2002, the Company can use Wafangdian Bearing Group’s trademark “ZWZ” free of any charge for a period expiring on 31 December 2003. 27. Subsidiaries As at 31 December 2002, the Company had the following unlisted subsidiaries: Country of Name incorporation Principal activities Equity interest held 2002 2001 Wafangdian General Bearing Company PRC Manufacturing of bearing and 75% 75% Limited spare parts for automobiles and trains Liaoyang Bearing Manufacture Company PRC Manufacturing of Y-series 100% 100% Limited bearing products 28. Contingent liabilities At 31 December 2002, the Company and its subsidiaries had provided guarantees for bank loans of RMB4,480,000 (2001: RMB4,480,000) and bank loans of RMB 3,150,000 (2001: None) granted to Wafangdian Bearing Group and another associated parties. 46 Chapter Eleven. List of reference documents 1. Accounting statements with the signatures and seals of the legal representative, financial controller and the director of the accounting department of the company; 2. The original 2002 annual audit report and the financial statement with the seal of the Certified Public Accountants and the personal signature and seal of the certified public accountant. 3. AOA of the company; 4. Original documents and notices of the company disclosed in newspapers designated by the Security Supervisory Committee of China in the report period. Above documents are kept in the Investment and Securities Department of the company. 47