深深房Ａ(000029)深深房2002年年度报告(英文版)

SHENZHEN Special Economic Zone Real Estate & Properties (Group) Co., Ltd. 2002 Annual Report Important: The Board of Directors of Shenzhen Special Economic Zone Real Estate & Properties (Group) Co., Ltd. (hereinafter referred to as the Company) hereby confirms that there are no important omissions, fictitious statements or serious misleading information carried in this report, and shall take all responsibilities, individual and/or joint, for the reality, accuracy and completion of the whole contents. This report is written both in Chinese and English. Should there be any difference in interpretation of the text of the two versions, the Chinese version shall prevail. Chairman of the Board of the Company Shao Zhihe, General Manager Chen Wuhua and Financial manager Liu Maohai hereby confirm that the Financial Report of the Annual Report is true and complete. CONTENTS . IMPORTANT 1 . COMPANY PROFILE 2 . SUMMARY OF FINANCIAL HIGHLIGHT AND BUSINESS HIGHLIGHT 2 . CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS- 3 . PARTICULARS ABOUT DIRECTORS, SUPERVISORS, SENIOR EXECUTIVES AND EMPLOYEES 5 . ADMINISTRATIVE STRUCTURE 7 . BRIEF OF THE SHAREHOLDERS’ GENERAL MEETING 8 . REPORT OF BOARD OF DIRECTORS 8 . REPORT OF SUPERVISORY COMMITTEE 14 . SIGNIFICANT EVENTS 15 . FINANCIAL REPORT 16 . DOCUMENTS AVAILABLE FOR REFERENCE 16 1 . COMPANY PROFILE 1. Legal Name of the Company In Chinese: 深圳经济特区房地产 集团 股份有限公司 In English: SHENZHEN Special Economic Zone Real Estate & Properties (Group) Co., Ltd. Short Form in Chinese: 深房集团 Short Form in English: SPG 2. Legal Representative: Ye Huanbao * 3. Secretary of the Board of Directors: Chen Ji Authorized Representative in charge of Securities Affairs: Tu Zhigang Contact Address: 47/F, SPG Plaza, Renmin South Road, Shenzhen Tel.: (0755) 82293000-4718, 4715 Fax: (0755) 82294024 E-mail: spg@163.net 4. Registered Address: 47/F, SPG Plaza, Renmin South Road, Shenzhen Office Address: 45/F-48/F, SPG Plaza, Renmin South Road, Shenzhen Post Code: 518001 E-mail: spg@163.net 5. Newspapers for Disclosing the Information: Domestic: China Securities and Securities Times Overseas: Ta Kung Pao Internet Website Designated by CSRC for Publishing the Annual Report: http://www.cninfo.com.cn The Place Where the Annual Report is Prepared and Placed: 47/F of SPG Plaza, Renmin South Road, Shenzhen 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Forms of the Stock: SHENSHENFANG A (Stock Code: 000029) SHENSHENFANG B (Stock Code: 200029) 7. Other Information of the Company Business scope: The Company is mainly engaged in development of real estate; sales, lease and mana gement of commercial housing; construction fitment and installation; retail of commodity; trade, hotel and restaurant business. Date of initial registration: On Jan. 8, 1980 Registration place: Bureau of Administration for Industrial and Commercial of Shenzhen Municipal Registered code of Business License: 4403011002426 Registered code of Tax: 440301192179585 Name and address of Certified Public Accountant engaged by the Company: Name: Shenzhen Nanfang Minhe Certified Public Accountants Address: 8/F, Electronics Tech. Bldg., No. 2007, Shen Nan Middle Road, Shenzhen Note *: The change of the Board of Directors was completed in Shareholders’ General Meeting held on Jan. 28, 2003. After change, legal representative (namely Chairman of the Board) of the Company is Mr. Shao Zhihe. . SUMMARY OF FINANCIAL HIGHLIGHT AND BUSINESS HIGHLIGHT (I) In RMB’000 Total profit as of the year 2002 33,287 Net Profit 33,863 2 Gross profit 146,285 Income from associated companies 180,343 Other income 40,179 Net increase cash flows arising from operating activities -32,205 Net increase/decrease in cash and cash equivalents -65,378 Difference between A-share and B-share: Impact on net profit and net assets due to IAS and the relevant adjustments: Net profit Net assets RMB’000 RMB’000 As reported under Chinese Accounting Standards for Enterprises 14,044 1,033,090 Reversal of depreciation and amortization charges in investment 17,175 54,382 properties Adjustment for market value of short-term investments 4 1,276 Timing difference in recognition of expenses accrued in previous year 1,243 210 Difference in recognition of cost of fixe d assets, plant and equipment - (202,149) Goodwill arising from acquisition of subsidiaries 1,397 (7,093) Others - 266 As reported according to International Financial Report Standards 33,863 879,982 (II) Financial data summary over the past three years: 2002 2001 2000 Income from core business (RMB’000) 724,776 593,660 857,997 Gross profit (RMB’000) 146,285 199,965 283,584 Net profit 35,010 (498,295) 75,971 Total assets (RMB’000) 2,743,896 3,205,534 3,870,840 Net assets (RMB’000) 879,982 864,115 1,340.558 Earnings per share (RMB) 0.03 (0.49) 0.07 Net assets pet share (RMB) 0.87 0.85 1.37 Net cash flows per share arising from -0.03 -0.04 0.07 operating activities (RMB) Return on equity (%) 3.98 -57.67 5.46 . CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT PRINCIPAL SHAREHOLDERS ( )Changes in Share Capital 3 1. Changes in shares (Ended Dec. 31, 2002) Before the Changes (+ / -) in report year After the change Shares Bonus Public Added Others Sub- change allotted shares reserve shares total capitalized . Shares not in circulation 1. Promoters’ shares Including: State-owned shares 743,820,000 743,820,000 Domestic legal person Shares Foreign legal person Shares Others 2. Legal person shares placed 3. Employees’ shares 4. Preference shares or others Including: Shares allotted and Capitalized Total shares not in 743,820,000 743,820,000 Circulation . Shares in circulation 1. RMB ordinary shares 147,840,000 147,840,000 2. Domestically listed 120,000,000 120,000,000 foreign shares 3. Foreign shares listed abroad 4. Others Total shares in circulation 267,840,000 267,840,000 . Total 1,011,660,000 1,011,660,000 2. Issuance and listing of shares (1) On June 13, 1993, the Company issued 112 million RMB ordinary shares at the price of RMB 3.80 per share and listed the shares in Shenzhen Stock Exchange for trading on Sep. 15, 1993. On Nov. 30, 1993, the Company issued 100 million domestically listed foreign shares at the price of RMB 3.90 per share (or HK$ 3.5 after conversion) and listed the shares in Shenzhen Stock Exchange for trading on Jan. 10, 1994. (2) In the report year, the Company had never been involved in such activities as distributing bonus shares, capitalization, share allotment and issuance of new shares and there was no in the total shares and the share capital structure. (3) The employees’ shares were listed for trading through approval dated Aug. 26, 1994. At present, the Company has no more employees’ shares. 3. About shareholders (1) The total shareholders in the report period Ended Dec. 31, 2002, the Company had totally 114058 shareholders, including 91201 ones of A-share and 22857 ones of B-share. (2) About the top ten shareholders of the Company Ended Dec. 31, 2002, the top ten shareholders of the Company are as following: Holding shares Proportion in No. Name of shareholders (’0000 Share) total shares (%) 1 Shenzhen Construction Investment Holdings Co. 74,382.00 73.5247 4 2 CBNY S/A PNC/SKANDIA SELECT FUND/CHINA 192.49 0.1903 EQUITY AC 3 Pufeng Securities Investment Fund 80.48 0.0796 4 CHU KOON YUK 72.00 0.0712 5 SHUM YIP KWAN WING DEVELOPMENT LTD 62.84 0.0621 6 ORE BURNS AUSTRALIA PTY LIMITED 60.00 0.0593 7 Haitong Securities (Hong Kong) Co., Ltd. 58.19 0.0575 8 ZHANG XU BIN 50.00 0.0494 9 HE YU CHAN 46.40 0.0459 10 YANG YAO CHU 44.00 0.0435 Note: The No. 1 shareholder holds shares on behalf of the State; the No. 3 is shareholder of circulation A-share; the rest are shareholders of circulation B-shares. Among the top ten shareholders, the Company is unknown whether there exists associated relationship, (3) Ended Dec. 31, 2002, only Shenzhen Construction Investment Holdings Co. (“Construction Investment Holdings”) held over 10% of the total shares of the Company. Construction Investment Holdings was founded in 1996, whose registered capital was RMB 1.5 billion, and legal representative was Zhang Yijun. It was mainly engaged in the general contracting of industrial and civil building projects, construction and design of general industrial and civil building projects; management of land site, operation of commercial housing, development of real estate, foreign economic and technical cooperation, import and export, etc. Its concurrent business scope includes contracting the installation/erection of equipment, electrical equipment, instruments and meters of big industrial construction projects, installation of big integrated production equipment; labor services and training for construction of municipal works; investment and property management, etc. (4) In the report period, the controlling shareholders of the Company remained unchanged. . PARTICULARS ABOUT DIRECTORS, SUPERVISORS, SENIOR EXECUTIVES AND EMPLOYEES (I) About directors, supervisors and senior executives Holding shares Holding shares Name Title Gender Age Office term at the year-begin at the year-end (share) (share) Ye Huanboa Chairman of the Board Male 46 Jun. 1999 - Jan. 2003 0 0 Chen Wuhua Director, General Manger Male 50 Jun. 1999 - Jan. 2006 0 0 Zhuang Director Male 48 Jun. 1999 - Jan. 2003 0 0 Chuanghui Yao Ruisheng Director Male 59 Jun. 1999 - Jan. 2006 0 0 Hu Mingzhong Director Male 50 Jun. 1999 - Jun. 2002 0 0 Peng Naidian Director Male 54 Jun. 1999 - Jan. 2006 0 0 5 Zheng Tianlun Independent Director Male 67 Jun. 1999 - Jun. 2005 0 0 Yang Shaojia Independent Director Male 70 Jun. 2002 - Jun. 2005 0 0 Zhou Fushen Director, Chief Financial Female 48 Jun. 2000 - Jan. 2006 0 0 Supervisor Ma Jianhua Director Male 38 Jun. 1999 - Jan. 2006 0 0 Zhou Daosheng Chairman of the Male 56 Jun. 1999 - Jan. 2003 0 0 Supervisory Committee Gan Lu Supervisor Male 43 Jun. 1999 - Jan. 2006 0 0 Wang Hongbo Supervisor Male 33 Jun. 1999 - Jan. 2003 0 0 Feng Xinying Supervisor Female 54 Jun. 1999 - Jan. 2003 0 0 Yang Junwei Supervisor Male 38 Jun. 1999 - Jan. 2003 0 0 Shen Yuesheng Deputy General Manager Male 43 May 1999 - Jan. 2006 0 0 Wang Xiaolv Deputy General Manger Male 46 May 1999 - Jan. 2003 0 0 Liang Song Deputy General Manager Male 36 Aug. 1999 – Jan. 2006 0 0 Wang Junzhao Chief Economist Male 43 Aug. 1999 – Jan. 2003 0 0 Chen Ji Secretary of the Board Male 31 Jan. 2003 – Jan. 2006 0 0 Note: 1. Director Yao Ruisheng and Hu Mingzhong took the position in Shenzhen Construction Investment Holdings Co., the controlling shareholder of the Company. 2. On Jan. 28, 2003, the Company held Shareholders’ General Meeting and approved the proposal on change of the Board of Directors and Supervisory Committee. New Board of Directors consisted of 10 directors, namely, Shao Zhihe, Chen Wuhua, Xu Zhenhan, YaoRuisheng, Peng Naidian, Liang Song, Zhou Fushen, Ma Jianhua, Zheng Tianlun and Yang Shaojia; Cha irman of the Board was Shao Zhihe. New Supervisory Committee consisted of 5 supervisors, namely, Zhuang Chuanghui, Gan Lu, Yu Fang, Wu Zhiyong and Zhou Hong; Chairman of the Supervisory Committee was Zhuang Chuanghui. New Board of Director engaged the following senior executives: general manager Chen Wuhua; deputy general manager Luo Kunquan, Liang Song, Shen Yuesheng, Zhang Yue; chief financial supervisor Zhou Fushen; secretary of the Board Chen Ji. (II) Annual recompense The Company carried out Annual Recompense System on directors, supervisors and senior executives. The amount of annual recompense is determined based on the salary standard in the same trade and the Company’s actual situation. The relevant department submits plan, which is subject to the Board of Directors for approval. In 2002, the Company paid the annual recompense of RMB 2.46 million to directors, supervisors and senior executives. The total amount of annual remuneration of the top three directors drawing the highest payment was RMB 680,000; the total amount of 02annual remuneration of the top three senior executives drawing the highest payment was RMB 620,000. Of them, 3 ones enjoy the annual salary over RMB 220,000 respectively; 6 ones enjoy the annual salary between RMB 170,000 to RMB 220,000 respectively; 6 ones enjoy the annual salary between RMB 100,000 to RMB 170,000 respectively. Director Yao Ruisheng and Hu Mingzhong drew their annual salary from Shareholding 6 Company. The Company elected two independent directors in June 2002; up to the end of 2002, independent directors of the Company received no pay or allowance from the Company. (III) In the report period, director Hu Mingzhong resigned from the post of director; director and concurrently chief financial supervisor Zhou Fushen resigned from the post of secretary of the Board. (IV) Number of employees, professional/occupational composition, education background and retired employees By the end of the year 2002, the Group had totally 2706 employees, including 1241 production personnel, 362 sales personnel, 493 technicians, 258 financial personnel and 352 administrative personnel. Among them, 287 undergraduates or above, 255 graduated from 3-years regular college, 341 from technical secondary school, 1823 from senior high school or below. The Company had 191 retirees. VI. ADMINISTRATIVE STRUCUTRE (I) Pursuant to PRC Company Law, Securities Law and relevant regulations released by CSRC, the Company has been standardizing its own operation, establishing and continually improving modern enterprise system. The Company has established a series of rules and systems including Articles of Association, Rules of Procedures of the Board of Directors and Rules of Procedures of the Supervisory Committee. The Company has also made self- inspectio n according to the Administrative Rules for Listed Companies jointly issued by CSRC and State Economy and Trade Commission. Details are as follows: 1. Shareholders and Shareholders’ General Meeting The Company could ensure all shareholders to fully implement their rights, enjoy equal status, and have right of participation and right of knowing facts regarding significant issues. Shareholders are entitled to protect their legal rights by legal means; Holding and voting of the Shareholders’ General Meeting are standardized; Correlative transactions are fair and reasonable. 2. The controlling Shareholder and the Public Company The control shareholder performed its rights of investor according to law and did not damage the interest of the Company and other shareholders. The control shareholder has realized separation from the public company in respect of personnel, assets and finance, and the organization and business of the Company are independent. 3. Directors and the Board of Directors The Company elected directors strictly according to the stated procedures in the Articles of Association, adopted accumulative voting system in election of directors; Directors could comply with relevant laws, legislations and Articles of Association, and could perform obligations in a loyal, honest and reliable manner; The number of the Board and the personnel composing are in line with relevant requirements; The Board of Directors could seriously perform the obligations as stated in relevant laws, legislations and Articles of Association; The Company has established standardized Rules of Procedures of the Board of Directors, and could hold the Board of Directors according to stated procedures. The Company shall establish independent director system as soon as possible. 4. Supervisors and the Supervisory Committee The number of the members of the Supervisory Committee and the personnel composing are normative and reasonable; The Company has standardized Rules of Procedures of the Supervisory Committee, safeguarded the right of knowing facts of supervisors, and could provide necessary assistance to supervisors in their normal performing of obligations. The 7 Supervisory Committee operated strictly in accordance with stated procedures, and meetings of the Supervisory Committee could be held regularly with normative meeting records. 5. Performance Evaluations and Encouragement and Binding Mechanism The Company has established fair and transparent performance evaluation criteria and procedures for directors, supervisors and managers. Salary committee of the Company implemented performance evaluation for directors and managers. The Company elects managers strictly according to relevant stipulations. The Company has established encouragement mechanism for managers that connect salary with the Company’s performance and personal achievements. 6. Beneficiaries The Company has been respecting the legal rights of creditors and other beneficiaries, cooperating with related beneficiaries actively so as to push the Company to develop in a healthy manner. 7. Information Disclosures and Transparent The secretary of the Board of Directors is responsible for information disclosure; Strictly according to regulations of laws, legislations and Articles of Association, the Company carried out disclosure of sustained information, administrative information and information regarding shareholder’s equity in real, accurate, complete and timely manner so as to ensure equal chance for all shareholders to obtain information. (II) Implementation of Duties of Independent Directors Independent directors could perform their duties according to relevant laws and regulations, safeguard the whole interest of the Company and the legal right and interest of the medium and small shareholders, attend normally the Board of Directors of the Company and execute vote right and issue independent directors on engagement and disengagement of senior executives, transfer of significant assets and etc. VII. BRIEFINGS ON THE SHAREHOLDERS’ GENERAL MEETING The Company held one Shareholders’ General Meeting in the report year: (I). The notification on holding the 10 t h Shareholders’ General Meeting was published in Securities Times, China Securities and Ta Kung Pao dated May 29, 2001. The 10 t h Shareholders’ General Meeting was held in the meeting room on the 48/F of Shen Fang Plaza at 9:00AM dated June 28, 2002 on schedule. Two shareholders attended the meeting, holding 744,064,000 shares, taking 73.55% of the total share capital of the Company, including 743,820,000 A shares and 244,000 B shares, respectively taking 73.52% of the total share capital of the Company in compliance with Company Law and Articles of Association. The meeting was witnessed and issued the legal opinion by the lawyer of Shenzhen Xinda Law Firms. The meeting examined and approved the following proposals: 1.2001 Report of the Board of Directors 2.2001 Report of the Supervisory Committee 3.2001 Financial Statement and Profit Distribution Proposal 4.Proposal on Engaging Independent Directors 5.Proposal on Agreeing Mr. Hu Mingzhong to Resign Post as Director The relevant resolutions of the Shareholders’ General Meeting were published in Securities Times, China Securities and Ta Kung Pao dated June 29, 2002. (II) The 10 t h Shareholders’ General Meeting approved Mr. Hu Mingzhong to resign post as director and elected Mr. Zheng Tianlun and Mr. Yang Shaojia as independent directors. VIII. Report of the Board of Directors I. Operation of the Company (I) Scope of core business and status 8 1.The Company belongs to real estate industry and is engaged in the development of real estate and sales of commercial house, lease and management of property, construction decoration and installation, retail and trade of commodities and hotel and meal and eating service. According to the results audited by Shenzhen Planning and State Land & Resources Bureau, the Company ranked 24 t h in the comprehensive development companies of Shenzhen in 2002. In the report period, the consolidated statements reflected an income from core business of RMB 748,050,000, which increased by RMB 131.8 million, an increase of 21.39%. The total amount of profit was RMB 15.19 million and the net profit was RMB 14.04 million. The main reason was that in 2001 the Company withdrew assets impairment loss amounting to RMB 503.04 million and withdrew loss of lawsuit and arbitration in advance amounting to RMB 29.87 million. Particulars about business of various industries: (Unit: RMB’0000) Industries Revenue Proportion in the Operating Gross Gross profit income from core cost profit ratio business Real estate industry 21,867 29.23% 16,380 5,487 25.29% House lease 9,125 12.20% 3,245 5,879 64.43% Construction 7,315 9.78% 6,407 908 12.41% industry Property 6,232 8.33% 5,756 476 7.64% management industry Travel and eating 1,753 2.34% 1,401 352 20.07% service industry Commodity 29,942 40.02% 28,363 1,579 5.27% circulation industry Other industries 1,252 1.67% 351 901 71.99% Counteracting 2,680 3.58% 2,403 277 10.32% between each other among industries inside the Company In the report period, the income from core business of the Company was RMB 748.05 million, which increased by RMB 131.80 million than that of the corresponding period of the previous year amounting to RMB 616.25 million, an increase of 21.39%, including: Real estate industry decreased by RMB 21.94 million, which was mainly due to the decrease of sales of old buildings of the Group in the report period; The income from house lease increased by RMB 20.03 million, which was mainly because the lease income of the Group, its subsidiaries Shenzhen Estate Management Co., Ltd. and Shenzhen Shen Fang Department Store Co., Ltd. increased; The income of construction and installation increased by RMB 40.08 million, which was mainly because the linking income of subsidiary Shenzhen Zhen Tong Engineering Co., Ltd. increased; The income from property management increased by RMB 450,000; The income from hotel and eating service increased by RMB 800,000; The income from commodity circulation industry increased by RMB 117.53 million, which was mainly because that the sales of import and export trade of subsidiaries Shenzhen Shen Fang Department Store Co., Ltd. and Shenzhen Shen Fang Bond Trade Co., Ltd increased; The income from other industries decreased by RMB 15.58 million, which was mainly because that the income of subsidiaries Shenzhen Hua Zhan Construction and Supervision Co., Ltd. and Shenzhen Zhu Yuan Tong Mini-bus Rent Co., Ltd. decreased and the business among industries counteracted; The counteracting between each other among industries inside the Company increased by RMB 9.57 million. 9 2. In the report period, the core business and structure experienced no change compared with the previous report period. (II) Operation and achievement of main holding and sha re-holding companies (Unit: RMB’0000) Name of company Holding Operating scope Registered Income Total profit Net profit Equity (%) capital of core business Shenzhen Shen Fang 100% Domestic supplying and 10,000,000 20,815 10 7 Department Store Co., sales of commercial Ltd. goods and materials Shenzhen Shen Fang 100% Bond business of steel, 5,000,000 10,191 -52 -52 Bond Trade Co., Ltd construction material, mechanical & electrical equipment Shenzhen Hua Zhan 75% Construction and 8,000,000 243 144 -144 Construction and supervision Supervision Co., Ltd. Shenzhen Zhen Tong 100% Repair and maintenance 10,000,000 7,315 123 123 Engineering Co., Ltd. Shenzhen Petrel Hotel 100% Hotel service 30,000,000 1,753 116 98 Co., Ltd. Shenzhen Shen Fang 100% Real estate development 20,000,000 1,514 106 89 Group Bao’an and sales of commercial Development Co., Ltd. house Shenzhen Special 100% Real estate development 20,000,000 128 -7 -7 Economic Zone Real Estate (Group) Guangzhou Real Estate Co., Ltd. America Great Wall 70% Real estate development USD500,00 79 -37 -37 Estate Co., Ltd 0 Shenzhen Numeral 70% Consultation of 20,000,000 1,433 -71 -103 Harbour Investment investment information Co., Ltd. and technology Shenzhen Zhu Yuan 100% Mobile renting 10,290,000 200 15 15 Tong Mini-bus Rent Co., Ltd. Shenzhen Shen Fang 100% Construction of parking 42,500,000 265 33 26 Parking Lot Co., Ltd. lot Shenzhen Estate 100% Estate management and 7,250,000 7,285 639 542 Management Co., Ltd. service Xin Feng Estate Co., 82% Investment and share HKD500,0 4,440 53 53 Ltd. holding 00 Xin Feng Enterprise 100% Consultation of HKD1,000, 3,005 158,561 15,8561 Co., Ltd. investment management 000 Total 58,666 15,9633 15,9171 (III) Particulars about sales of the top five customers: Customers Total amount of sales Proportion in the total (RMB’0000) income of the Company Agriculture bank Bank Shenyang 808 1.08% Sub-branch Zheng Zhongming 699 0.93% Shenyang Spring Department Store 651 0.87% Co., Ltd. Chen Shaoling 415 0.56% Liao Chuyin 348 0.47% 10 (IV) Difficulties and problems arising from the operation and solutions In the report period, the Company adopted active measures to solve the difficulties and problems arising from the operation and especially under the situation of deficiency of scale projects, low assets quality and tense running funds established foundation for the development of the enterprise and provided development stamina through the measures of reinforcing the development of digging potential projects, liquidizing the stock assets, planning as a whole and dispatching funds, striving for increasing land reserve and strengthening internal management of the enterprise etc.. II. Investment in the report period (I) Application of proceeds raised through share offering In the report period, the Company had no raised proceeds and there was no such situation that the application of proceeds raised through previous share offering continuing to the report period. (II) For projects invested with proceeds not raised through share offering and their progress, please refer to notes of financial report. III. Financial status in the report period (the data used in the following analysis are from auditor report of A share) (I) Ended Dec. 31, 2002, the total assets of the Group was RMB 3,000.99 million, which decreased by RMB 472.22 million compared with that of the beginning of the report period amounting to RMB 3,473.21 million, an decrease of 13.6%. The reasons of change were: 1. The current assets were RMB 2,227.53 million, which decreased by RMB 223.73 million than that of the beginning of the report period amounting to RMB 2,451.26 million, a decrease of 9.13%. The main reasons were The monetary funds decreased by RMB 94.56 million, a decrease of 27.5%, which was mainly because that the Company repaid bank loan after the expiration of time deposit; The accounts receivable decreased by RMB 17.27 million, a decrease of 11.73%, which was mainly because that the Group recovered payment for sales of buildings receivable; The inventory decreased by RMB 140.77 million, a decrease of 7.94%, which was mainly because that the Company transferred equity of the subsidiary Shanghai Company and did not bring into the consolidation in the report period. 2. The long-term investment was RMB 312.66 million, which decreased by RMB 176.43 million compared with that of the beginning of the report period amounting to RMB 489.10 million, a decrease of 36.07% and the main reason was that the Company sold the equity of Guangdong Shantou Bay Bridge Co., Ltd. in the report period. 3. The fixed assets was RMB 409.99 million totally, which decreased by RMB 18.68 million than that of the beginning of the report period amounting to RMB 428.68 million and the main reasons were Due to the decline of consolidated scope, the Company transferred out the balance of fixed assets of the corresponding companies at the beginning of the report period; The Company withdrew the depreciation of the fixed assets of the report period. 4. Intangible assets was RMB 44.21 million, which decreased by RMB 57.40 million compared with that of the beginning of the report period amounting to RMB 101.61 million, a decrease of 56.49% and the reason was that the land of the subsidiary Shantou Hualin Real Estate Development Co., Ltd. had been developed and transferred into inventory. 5. In the breakdown of assets impairment loss, the increase amount of reserve for bad debts of the report period and the transfer amount of reserve for falling price of inventory of the report period was because that the subsidiary Shanghai Real Estate Development Company had been dealing with the procedures of equity transfer and the scope of consolidated statement changed. 11 (II) Ended Dec. 31, 2002, the total amount of liabilities of the Group was RMB 1,974.08 million, which decreased by RMB 485.66 million than that of the beginning of the report period amounting to RMB 2,459.73 million, a decrease of 19.74% and the main reasons were: The short-term and long-term loan of bank was reduced by RMB 399.74 million; The Company paid outstanding tax of RMB 58.35 million; The accrued expense of the report period decreased by RMB 75.06 million compared with the previous year, a decrease of 43.20% and the main reason was the consolidated scope of the report period decreased and the Company repaid the outstanding interest of bank loan in the report period. (III) Ended Dec. 31, 2002, the shareholders’ equity of the Group was RMB 1,033.09 million, which increased by RMB 14.01 million than that of the beginning of the report period amounting to RMB 1,019.08 million, a decrease of 1.37% and was the net profit of the report period. IV. Business plan of the new report year The business work of 2003 is a year with significant meaning for the Company to realize the steady development. We shall always implement the business with real estate development as dominance and with engineering construction, property management and commercia l and trading hotels as brace, well carry through operating and management measures of “ three reinforcements one reduction”, namely “reinforcing the development of new projects, reinforcing the liquidity of stock assets, reinforcing the development of material and culture and strengthening the centripetal force and agglomeration force of staffs and reducing all expense and expenditure” and try to enhance the whole operating level of the enterprise and core competitive force and return to shareholders with good operating achievements. The Company shall focus on the following work: 1. To reinforce the development of projects, adopt the form of resources integration to gradually form intensive investment with real estate as core business and scale operation and further strengthen the management of cost, quality and progress of projects. Simultaneously, to try hard to seek lands resources with development value and scaled projects and enhance the production and operation benefits of the enterprise. The projects in progress and planned to develop of 2003: Cuizhu Mountain Villa locates in the Dongmen North Road, Shenzhen, taking an area of 5,899 sq. m.. The total construction area is 30,170 sq. m. with 33 floors on ground. At present, 26 floors of the body had been accomplished smoothly and it is estimated to be finished in Nov. 2003. Binhai Building situates in the cross place of Hai Road and Wutong Mountain, Yantian District, Shenzhen, taking an area of 5,314 sq. m.. The total construction area is 49,021 sq. m. and it is two buildings of high- floor house with 29 floors of each building. At present, the design of all construction drawings has been finished and basic engineering of stack is under construction. It is estimated to be finished at the end of Oct. 2004. The three-stage renovation project of Niga ng situates in Nigang Village, Luohu District, Shenzhen, taking an area of 12,112 sq. m.. The total construction area is 54,000 sq. m. and it is two buildings of high- floor house with 28 floors of each building and one building of small high-floor building with 12 floors. It is estimated to be finished at the end of Nov. 2004. The 3r d stage of Zhonghuan Garden situates in Longhua Town, Bao’an District, Shenzhen, taking an area of 10,750 sq. m.. It is a building of multi- floor house with 7 floors. At present, the engineering has been finished and it is estimated to be occupies in Aug. 2003. The sales work is being carried out now. 2. To reinforce the work of liquidizing the stock assets and improve the assets quality. The 12 Company shall continue to push the transfer work of partial domestic projects that has been deposited for several years so as to improve the assets status and enhance the assets quality. Simultaneously, to reinforce the sales and lease work of existing real property and further raise the liquidity of existing real property. 3. To deepen the construction of system and culture, standardize the administrative structure of the Company and thoroughly raise the management level of the enterprise. The Company shall continue to reinforce all basic management with the cost management as the core and continuously strengthen the work of financial management and risks control. Firstly, to reduce the operating cost and decrease all expenses and cost; secondly, to well do the work of assets planning as a whole, recover assets and reorganize the debts with consideration of liquid izing the assets in order to raise assets utility efficiency, reduce financial expense and raise operating efficiency; thirdly, according to the need of business development, to scientifically and reasonably set up management and business organizations and corresponding work posts, fully import competition mechanism, reinforce the encouragement of distribution mechanism and try hard to push the mature enterprises to implement the renovation of diversification of property main body; fourthly, to reinforce the work of construction of CPC and create good operating environment full of agglomeration force. (I) Meetings and resolutions of the Board of Directors in the report period There were totally seven Board meetings held in 2002. 1. The 1 s t meeting was held in the Conference Room of the Group Company. Seven directors attended the meeting and one director entrusted other directors to vote. The following resolutions were examined and approved in the meeting: (1) 2001 Annual Report of A Share and B Share and their Summary (2) 2001 Profit Distribution Plan (3) 2001 Appropriation Plan of Assets Impairment (4) Proposal on Engagement of Perennial Counselor The aforesaid resolutions were published on Securities Times, China Securities and Ta Kung Pao dated April 19, 2002. 2. The 2n d meeting was held on May 27, 2002 and seven directors attended the meeting. The meeting discussed and decided to nominate Zheng Tianlun and Yang Shaojia as candidates of Independent Director and also formed resolutions on date of holding 2002 Shareholders’ General Meeting and examination issues. The aforesaid resolutions were published on Securities Times, China Securities and Ta Kung Pao dated May 28, 2002. 3. The 3r d meeting was held on Aug. 16. Six directors attended the meeting and three directors entrusted other directors to vote. The meeting examined and approved 2002 Interim Report and Profit Distribution Plan. The aforesaid resolutions were published on Securities Times, China Securities and Ta Kung Pao dated Aug. 20, 2002. 4. The 4t h meeting was held on Sept. 26. Five directors attended the meeting and three directors entrusted other directors to vote. The meeting examined and approved Rectification Plan of SHENFANG Group. 5. The 5 t h meeting was held on Oct. 24. Six directors attended the meeting and three directors entrusted other directors to vote. The meeting examined and approved The 3 r d Quarter Report and Proposal on Transfer of Guangdong Shanto Bay Bridge Co., Ltd. The aforesaid resolutions were published on Securities Times, China Securities and Ta Kung Pao dated Oct. 26, 2002 and Oct. 31. 6. The 6t h meeting was held on Nov. 11. Seven directors attended the meeting and one director entrusted other directors to vote. The meeting discussed and agreed to engage 13 evaluation organization to implement special evaluation to the project of “ The 1s t City of Wuhan”. 7. The 7 t h meeting was held on Dec. 27. Five directors attended the meeting and three directors entrusted other directors to vote. The meeting examined and approved the nomination of candidates of the 4t h Board of Directors and formed resolutions on the date of holding the 1st Extraordinary Shareholders’ General Meeting of 2003 and examination issues. The aforesaid resolutions were published on Securities Times, China Securities and Ta Kung Pao dated Dec. 28, 2002. (II) Implementation of resolutions of Shareholders’ General Meeting by the Board of Directors The 9t h Shareholders’ General Meeting of the Company has formed resolutions on profit distribution of 2001 and engagement of Certified Public Accountants etc. and the Board of Directors strictly implemented the aforesaid resolutions according to the authorization of Shareholders’ General Meeting. In the report period, the Company had no plan of profit distribution and converting capital public reserve into share capital or shares allotment and additional issuance of new shares. VI. Preplan of profit distribution of the report period Audited as per Chinese Accounting Standards and as per International Accounting Standards respectively, the net profit of the Company in 2002 was RMB 14,044,057.06 and RMB 33,863,000 respectively. The profit available for distribution was RMB-941,984.096. After discussed by the Board of Directors, the Company would not distribute profit in 2002. VII. The newspapers designated for information disclosure by the Company remained unchanged. Domestic newspapers were Securities Times and China Securities and overseas newspaper was Ta Kung Pao. IX.REPORT OF THE SUPERVISORY COMMITTEE In 2002, according to the duties prescribed in Company Law and Articles of Association, the Supervisory Committee actively and effectively carried out work. In the report period, the Supervisory Committee attended the Shareholders’ General Meeting, participated in every meeting of the Board of Directors, inspected periodically the management and operation of the Board of Directors and the Company, supervised over the significant operation activities of the Company and make efforts to safeguard the legal right and interest of all shareholders of the Company. (I) Meetings of the Supervisory Committee 1. The 1 s t meeting of the Supervisory Committee was held on April 17, 2002, which examined and approved 2001 Annual Report and 2001 Work Report of the Supervisory Committee. 2. The 2 n d meeting of the Supervisory Committee was held on June 25, 2002, which examined and approved Proposal on Rules of Procedures of Significant Problems of the Supervisory Committee. 3. The 3 r d meeting of the Supervisory Committee was held on Aug.15, 2002, which examined and approved 2002 Semi Annual Report and its Summary. 4. The 4t h meeting of the Supervisory Committee was held on Sep.24, 2002, which studied Notification on Requiring SHENZHEN Special Economic Zone Real Estate & Properties (Group) Co., Ltd. to Correct in Stipulated Time released by CSRC Shenzhen Office and made proposal and resolution of correction. 5. The 5 t h meeting of the Supervisory Committee was held on Dec.27, 2002, which 14 commended the candidates of the supervisors of the 4th Supervisory Committee and submitted it to the Shareholders’ General Meeting for approval. (II). Independent Opinions of the Supervisory Committee 1.The Company operated according to Company Law and Articles of Association in the report period and the internal control system was perfect. The directors, general manager and senior executives had no actions of breaking laws, regulations and Articles of Association or harmful for the interest of the Company when they performed their duties. Concerning the existed problems in respect of the independence, Articles of Association and the operation of three committees, which were found in the inspection of establishment of modern enterprise system of listed companies by CSRC Shenzhen Office, the Company conducted correction according to Company Law, Securities Law, Administrative Rules for Listed Company and other laws and regulations. 2. The Supervisory Committee of the Company carried out inspection on execution of finance discipline by the Company and its subsidiaries, examined patiently and carefully the financial system and financial status of the Company and pushed the Company to take measure of improving and enhancing the work of accounting management. The Supervisory Committee believed that in the report period, the auditor’s report with no n-reservation opinion issued by Nanfang Minhe Certified Public Accountants was true and accurate and reflected objectively the financial status and operation result of the Company. 3.In the report period, in the transaction of purchase and sale of assets, the agent institution audited and assessed carefully and ensured the reasonable price base. Neither internal transactions nor damage of right and interest of part shareholders and running off of the Company’s assets were found. X. SIGNIFICANT EVENTS (I). Significant Lawsuit and Arbitration Concerning the significant lawsuits and arbitrations interfered with the Company in the report period, please read Note 8 and 10 in financial statements. (II) Sale of assets of the Company in the report period The Company published public notice on transfer of equity of the Company’ subsidiary, Chaofei Company on Securities Times, China Securities and Ta Kung Pao dated Oct.31, 2002. The transaction has been completed and the transfer has not much influence on the consistency of business and the stability of the management team. After this transfer, the financial status of the Company was improved and this transaction produced RMB 0.18 billion investment income. (III) Concerning related transactions of the Company, please read Note 7 in financial statements. (IV). In the report year, the Company had neither signed any significant contract of trusteeship, contracting, leasing and etc., nor contract of guarantee for external parties and entrusting financing. (V). The Company or shareholders holding over 5% of the total shares had no promised event in the report year or promised event carried down to the report year. (VI). The Company engaged Shenzhen Nanfang Minhe Certified Public Accountants in charge of the annual audit of the Company of 2002. The Certified Public Accountants has provided annual audit of the Company of 2001. According to agreement, the Company will pay audit expense of RMB 1.2 million to Shenzhen Nanfang Minhe Certified Public Accountants. (VII). From July 29, 2002 to July 31, 2002, CSRC Shenzhen Office and Shenzhen Economic & Trade Bureau inspected the Company’s establishment of modern enterprise system and put forward to the correction opinion on the independence, Articles of Association and the 15 operation of three committees. According to the correction notification, the Company submitted Correction Proposal of the Company to CSRC Shenzhen Office. Because the election at expiration of office terms of the Board of Directors and the Supervisory Committee of the Company was completed just now, at present, the Company is carrying out Correction Proposal step by step in respect of standardizing three committees’ operation and establishing rules and systems and plans to disclose the whole correction after completing the amendment of Articles of Association. XI. FINANCIAL REPORT (Financial report and auditor’s report are attached hereafter.) XII. DOCUMENTS FOR REFERNECE 1. The financial statement carried with signatures and seals of the legal representative, the person in charge of accounting work, and the person in charge of accounting institution. 2. The original of auditors’ report carried with seal of Certified Public Accountants as well as signatures and seals of certified public accountants. 3. Originals of all documents and manuscripts of public notices that had been disclosed in China Securities, Securities Times and Ta Kung Pao in the report year. Board of Directors of SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. Apr. 19, 2003 16 REPORT OF THE AUDITORS TO THE SHAREHOLDERS OF SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. (Incorporated in the People’s Republic of China with limited liability) We have audited the accompanying consolidated balance sheet of Shenzhen Special Economic Zone Real Estate & Properties (Group) Co., Ltd. (the “Company”) and its subsidiaries (the “Group”) as of December 31, 2002 and the related consolidated statements of income, cash flows and changes in equity for the year then ended. These financial statements set out on pages 2 to 33 are the responsibility of the Group’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the 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 financial position of the Group as of December 31, 2002 and of the results of operations and cash flows of the Group for the year then ended in accordance with International Financial Reporting Standards. Moore Stephens Shenzhen Nanfang Minhe Certified Public Accountants April 15, 2003 1 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2002 Note 2002 2001 RMB’000 RMB’000 Turnover 4 724,776 593,660 Cost of sales (578,491) (393,695) Gross profit 146,285 199,965 Other operating income 40,179 47,190 186,464 247,155 General and administrative expenses (165,089) (633,531) Other operating expenses (29,319) (22,194) Loss from operations 5 (7,944) (408,570) Finance costs 8 (110,087) (108,833) Share of (losses)/profits of non-consolidated subsidiaries, associates, and contractual joint ventures (27,302) 19,092 Gain from the disposal of contractual joint venture 9 180,343 -- Profit /(loss) before taxation 35,010 (498,311) Taxation 10 (1,723) (2,089) Profit /(loss) after taxation 33,287 (500,400) Minority interests 576 2,105 Net profit /(loss) for the year 33,863 (498,295) Earnings per share Basic 11 RMB0.03 RMB(0.49) Diluted 11 N/A N/A The notes on pages 6 to 33 form part of these financial statements. 2 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 2002 Note 2002 2001 RMB’000 RMB’000 ASSETS Non-current assets Property, plant & equipment 12 271,241 288,019 Investment properties 13 628,410 602,622 Non-consolidated subsidiaries 14 144,430 151,352 Associates 15 13,871 14,818 Contractual joint ventures 16 162,231 312,569 Long term investments 17 58,835 59,072 Intangible assets 18 1,459 2,125 Land held for development 19 42,753 99,483 1,323,230 1,530,060 Current assets Properties under development for sale 20 716,067 868,380 Completed properties for sale 21 242,100 256,615 Inventories 22 36,093 16,392 Short term investments 23 2,951 3,051 Accounts receivable 122,211 146,046 Prepayments, deposits and other debtors 51,903 41,093 Cash and bank balances 249,341 343,897 1,420,666 1,675,474 Current liabilities Customers’ deposits 190,913 174,521 Accounts payable and accrued expenses 24 680,773 729,373 Dividends payable 25 138,764 138,764 Tax payable 26 6,063 68,746 Bank loans 28 834,762 1,143,772 1,851,275 2,255,176 Net current liabilities (430,609) (579,702) Total assets less current liabilities 892,621 950,358 Non-current liabilities 27 (18,818) (109,806) Minority interests 6,179 5,603 NET ASSETS 879,982 846,155 CAPITAL AND RESERVES Issued capital 29 1,011,660 1,011,660 Reserves (131,678) (165,505) 879,982 846,155 The notes on pages 6 to 33 form part of these financial statements. 3 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2002 Note 2002 2001 RMB’000 RMB’000 OPERATING ACTIVITIES Cash received from sales of goods or rendering of services 785,711 645,320 Other cash received relating to operating activities 119,832 135,299 Cash paid for goods and services (501,553) (415,288) Cash paid to and on behalf of employees (109,570) (93,623) Taxation paid (103,209) (82,349) Cash paid relating to other operating activities (113,329) (120,137) Interest paid (110,087) (108,833) Net cash used in operating activities (32,205) (39,611) INVESTING ACTIVITIES C a s h r e c e i v e d f r o m disposal of investments 322,250 33 Dividends received and interest received 23,305 25,502 Net cash received from the sale of fixed assets, intangible assets and other long-t e r m a s s e t s 397 530 Cash paid to acquire fixed assets, intangible assets a nd other long-t e r m a s s e t s (11,485) (22,830) Cash paid to acquire investments (1,800) (5,226) Net cash from/(used in) investing activities 332,667 (1,991) FINANCING ACTIVITIES P r o c e e d s from borrowings 728,688 696,733 Repayments of borrowings (1,078,934) (659,215) Dividends paid (15,594) (4,184) Net cash (used in)/from financing activities (365,840) 33,334 NET DECREASE IN CASH AND CASH EQUIVALENTS (65,378) (8,2 68) C a s h a n d c a sh equivalents at beginning of year 30 168,510 176,778 C a s h a n d cash equivalents at end of year 30 103,132 168,510 T h e n o t e s o n p a g e s 6 t o 3 3 f o r m p a r t o f t h e s e f i n a ncial s t a t e m e n t s . 4 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2002 Cumulative Staff Share Capital translation General welfare Accumulated capital reserve reserve reserve fund losses Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Balance at December 31, 2000 1,011,660 686,059 6,447 326,094 115,594 (805,296 ) 1,340,558 Loss for the year (498,295 ) (498,295) Others 175 3,717 3,892 Balance at December 31, 2001 1,011,660 686,234 10,164 326,094 115,594 (1,303,591 ) 846,155 Profit for the year 33,863 33,863 Transfer (see note 31) (322,777) 322,777 -- Others 74 110 (36 ) Balance at December 31, 2002 1,011,660 686,308 10,054 3,317 115,594 (946,951 ) 879,982 PRC laws and regulations require PRC companies to provide statutory reserves. General reserve is a p p r o p r i a t e d a t 1 5 % a n d s taff welfare fund at within 10% from net profits after taxation as reported in the financial statements prepared under the A c c o u n t i n g S t a n d a r d s f o r B u s i n e s s E n t e r p r i s e s of P R C . Provision for the general reserve ceases when the accumulated general reserve amounts to 50% of the issued capital. All statutory reserves, including the general reserve fund and staff welfare fund, are for specific purposes and are not distributed in the form of cash dividends. The Company declares dividends based on the lower of ne t profit after appropriation to reserves as reported in the financial statements prepared under the A c c o u n t i n g S t a n d a r d s f o r B u s i n e s s E n t e r p r i s e s a n d A c c o u n t i n g Sy s t e m s f o r B u s i n e s s E n t e r p r i s e s in PRC and as reported in the financial statements prepared und e r IFR S. For the year ended December 31, 2002, the directors have not declare d a n y dividends to its shareholders. The notes on pages 6 to 33 form part of these financial statements . NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2002 GENERAL Shenzhen Special Economic Zone Real Estate and Properties (Group) Co., Ltd. (the “Company”) was incorporated in January 1980 in the People’s Republic of China (th e “ P R C " ) and was reorganized as a joint stock limited company in July 1993. A and B shares were issued by the Company in September 15, 1993 and January 10, 1994 respectively. The Company and its subsidiaries (the “Group”) are principally engaged in prope rty 5 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. development, investment and management, hotel operations, construction, fitting- out, equipment installation and maintenance, retail operations and trading. BASIS OF PREPARATION The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board under the historical cost basis except for the revaluation of investment properties. T he accounting policies a d o p t e d b y t h e C o m p a n y u n d e r I F R S differ from the accounting policies used in the financial statements of the Group which were prepared in accordance with Accounting Standards for Enterprise Business and Accounting Systems for Enterprise Business in the PRC. Adjustments to restate the results of operations and the net assets in compliance with IFRS will not be taken up in the accounting books of the companies in the Group. Details of impacts of such adjustments on the net assets as at 31 December 2002 and net profit for the year then ended a re included in note 37 to the financial statements. PRINCIPAL ACCOUNTING POLICIES Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31 December each year. The results of subsidiaries acquired or disposed of during the year, if any, are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. The results of operations of subsidiaries are included in the consolidated income statement and the share attributable to minority interests is excluded from the consolidated net profit. All significant intercompany transactions and balances within the Group have been eliminated on consolida tion. Goodwill Positive goodwill arising on consolidation represents the excess of the cost of the acquisition over the Group’s share of the fair value of the identifiable assets and liabilities acquired. In respect of subsidiaries: *For acquisitions be fore January 1, 2001, positive goodwill is eliminated against reserves. *For acquisitions on or after January 1, 2001, positive goodwill is amortized on a straight- line basis over its estimated useful life. Positive goodwill is stated in Consolidated Bala nce Sheet at cost less any accumulated amortization and any impairment losses. 3 PRINCIPAL ACCOUNTING POLICIES - (continued) Goodwill continued *On disposal of a subsidiary, any attributable amount of purchased goodwill not previously amortized through the Consolidated Income Statement or which has previously been dealt with as a movement on group reserves is included in the calculation of the profit or loss on disposal. Subsidiaries A subsidiary is an enterprise in which the Company, directly or indirectly, holds more than half of the issued share capital, or controls more than half of the voting power, or where the 6 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. Company controls the composition of its board of directors or equivalent governing body. Investments in subsidiaries are included in the Company’s balance sheet at cost less provision, if necessary, for impairment l o s s e s . The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable. Subsidiaries not consolidated In the consolidated balance sheet the unconsolidated subsidiaries are recorded at cost and adjusted thereafter for post acquisition change in the Group’s share of net assets of the subsidiaries. The consolidated income statement reflects the Group’s share of the results of operations of the subsidiaries. Investments in subsidiaries excluded from consolidation are stated at cost less provision for a n y impairment losses and the results of the subsidiaries are accounted for by the Company on the basis of dividends received and receivable. Associates An associate is a company o v e r which the Group is in a position to exercise significant influence, but not control, through participation in the financial and operating policy decisions of the investee. The consolidated income statement includes the Group’s share of the post-acquisition results of associates for the year, and the consolidated balance sheet includes the Group’s share of the net assets of the associates plus the unamortized goodwill less capital reserves on acquisition of the associates. In the Company’s balance sheet the investment in associates are stated at cost less provision, if necessary, for impair m e n t losses. Contractual joint ventures A contractual joint venture is a venture which operates under a contractual agreement whereby the Group or Company and at least one other party undertake an economic activity which is subject to control and none of the parties involved unilaterally has control over the economic activity. The consolidated income statement includes the Group’s share of the post-acquisition results of its contractual joint venture for the year. In the consolidated balance sheet, inte rests in contractual joint venture are accounted under the equity method and are stated at cost, less goodwill, and adjusted for the post acquisition change in the Group’s share of the contractual joint venture’s net assets. 3. P R I N C I P A L A C C O U N T I N G P O L IC I E S - (continued) Cash and cash equivalents C a s h e q u i v a l e n t s a r e s h o r t - te r m , h i g h l y l i q u i d i n v e s t m e n t s t h a t a r e r e a d i l y c o n v e r t i b l e t o k n o w n amounts of cash and that are subject to an insignificant risk of changes in value. Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, bank balances and time deposits within three months of maturity when acquired. Property, plant & equipment 7 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. Property, plant & equipment except investment properties is stated at cost less accumulated depreciation and any impairment losses. The cost of an asset comprises its purchase price and any directly attributable cost of bringing the asset to its working condition and loc ation for its intended use. Expenditure incurred after the asset has been put into operation, such as repairs and maintenance and overhaul costs, is normally charged to the profit and loss account in the year in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset, the expenditure is capitalized as an additional cost of the asset. When an asset is sold, its c ost and accumulated depreciation are removed from the financial statements and any gain or loss resulting from the disposal, being the difference between the net disposal proceeds and the carrying amount of the asset, is included in the profit and loss account. Depreciation is provided to write off the cost of property, plant & equipment over their estimated useful lives on a straight- line basis. Estimated useful lives are summarized as follows: Land use rights and buildings in the PRC 25 – 3 0 y e a r s Plant and machinery 7 years Motor vehicles 6 years Furniture, fixtures and office equipment 5 years Construction- in-progress represents plant and properties under construction and includes the costs of construction plus interest charges arising from borrowings used to finance the construction during the construction period. No depreciation is provided for construction-in-progress until they are completed and put in use. Investment properties Investment properties are completed properties which are held for the ir investment potential, any rental income being negotiated at arm’s length. Investment properties are stated at their fair value based on independent professional valuations or directors’ valuations at the balance sheet date. Any gain or loss arising from a change in the fair value of investment property should be included in the income statement. Gains or losses arising from the retirement or disposal of investment property should be determined as the difference between the net disposal proceeds and the carrying amount of the asset and should be recognized as a n income or expense in the income statement. No depreciation is provided on investment properties except where the unexpired term of the relevant lease is 20 years or less. 3. PRINCIPAL ACCOUN TING POLICIES - (continued) Impairment of assets At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the r e c o v e rable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the greater of net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre -tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its c a r r y i n g a m o u n t , t h e c a r r y i n g a m o u n t o f th e a s s e t ( c a s h -generating unit) is reduced to its 8 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. recoverable amount. Impairment losses are recognized as an expense immediately, unless the relevant asset is land or buildings other than investment property carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset ( c a s h -generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carryin g amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognized as income immediately, unless the releva nt asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. Completed properties and properties under development Completed properties and properties under development held for sale are stated at the lower of cost and net realizable value. Cost includes the cost of land, development expenditure, borrowing costs capitalized in accordance with the Group’s accounting policy and other attributable expenses. Net realizable value is determine d b y t h e m a n a g e m e n t b a s e d o n prevailing market conditions. Inventories Inventories are stated at the lower of cost and net realizable value. Cost, which comprises all costs of purchase and other costs that have been incurred in bringing the inventories to their present location and condition, is calculated using the first in first out method. Net realizable value represents the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessa r y t o m a k e t h e s a l e . Long-term investments Long-term investments where the Group is not in a position to exercise significant influence or exert control are stated at cost less provision for impairment losses, where the investment’s carrying amount exceeds its estimated recoverable amount. Short-term investments Short-term investments are stated in the balance sheet at fair value. Changes in fair value are recognized in the income statement. 3. PRINCIPAL ACCOUNTING POLICIES - (continued) R e v e n u e r e c o g n i t io n Turnover comprises (i) proceeds from sales of properties, (ii) revenue from retail sales of merchandise, (iii) revenue from hotel services, (iv) revenue from sales of goods, (v) billings related to construction, fitting-out, equipment installation and maintenance contracts, and (vi) rental income from investment properties. Income from sales of properties together with the interest earned on deposits from the installment sales of flats are recognized upon the execution of a binding sales agreement or upon the issuance of an occupation permit completion certificate by the relevant authority, whichever is the later. Deposits received from forward sales of properties are carried in the balance sheet under current liabilities. Installment sales of developed properties are recognized to the extent that installments are received or become due under the relevant sales contracts. 9 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. Revenue from hotel services, property management services and taxi services is recognized when the services are rendered. R e v e n u e from the sale of goods, other than merchandise, is recognized upon delivery of the goods to customers a n d entitlement to the sales consideration is obtained. Profit from construction, fitting- out, equipment installation and maintenance contracts, which are mainly short-term in nature, is recognized under the completed-contract method, whereby billings and costs are accumulated and deferred, together with the related profit, until completion of the work. Rental income, including rental invoiced in advance from properties under operating leases, is recognized on a straight-line basis over the terms of the relevant leases. Interest income is accrued on a time basis, by reference to the principal outstanding and at the interest rate applicable. R e t i r e m e n t b e nefit costs In accordance with local government regulations, the Group is required to make contributions to a retirement insurance fund which is administered by the local social security bureau in accordance with government regulations. The amount of contributions is determined at a fixed percentage of the basic salaries of the Group’s existing PRC staff. Retirement benefits are paid directly from the fund and are calculated based upon a retired employee’s basic monthly salary and their number of years’ servi c e . The amount charged to the income statement represents the amount of contribution payable to the scheme by the Group. Deferred income tax Deferred taxation is provided, using the liability method, for temporary differences arising b e t w e e n t h e t a x b a ses of assets and liabilities and their carrying values for financial reporting purposes. Currently enacted tax rates are used to determine deferred tax. It is recognized in the financial statements to the extent that it is probable that future taxable income will be available against which the temporary differences can be utilized. 3. P R I N C I P A L A C C O U N T I N G P O L I C I E S - (continued) Intangible assets Intangible assets represent the cost of acquisition of taxi licenses and computer software and are stated at cost less amortization and provision, if any, for impairment losses. Amortization is provided to write off the cost of taxi licens es over the licens e period granted by relevant authorities, namely 10 years, by equal installments. Amortization is provided to write off the cost of computer software over 5 years. Foreign currency translation Foreign currency transactions are converted at exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the rates of exchange ruling at the balance sheet date. Exchange differences arising in these transactions are dealt with in the income statement. On consolidation, the financial statements of overseas subsidiaries maintained in foreign currencie s are translated at exchange rates ruling on the balance sheet date. Exchange difference arising on consolidation, if any, are dealt with in reserves. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale , a r e a d d e d to the cost of those assets, until s u c h t i m e a s the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is 10 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. deducted from borrowing costs eligible for capitaliz ation. All other borrowing costs are recognized in net profit or loss in the period in which they are incurred. Provisions, contingent liabilities and contingent assets P r o v i s i o n s a r e r e c o g n i z e d w h e n t h e G r o u p h a s a p r e s e n t l e g a l o r c o n s t r u c t i v e obligation as a result of past events, it is probable that an outflow of resources w i l l 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. A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognized because it is not probable that outflow of economic resources will be r e q u i r e d o r t h e a m o u n t o f obligation cannot be measured reliably. A contingent liability is not recognized but is dis closed in the notes to the accounts. When a change in the probability of an outflow occurs so that outflow is probable, it will then be recognized as a provision. A c o n t i n g e n t a s s e t i s a p o s s i b l e a s s e t t h a t a r i s e s f r o m p a s t e v e n t s a n d w h o s e existence wil l be confirmed only by the occurrence or non-occurrence of one or more uncertain events not wholly within the control of the Group. Contingent assets are not recognized but are disclosed in the notes to the accounts when an inflow of economic benefits is probable. When inflow is virtually certain, an asset is recognized. BUSINESS AND GEOGRAPHICAL SEGMENTS For management purposes, the Group is organized into five major operating divisions – property, retailing and trading, transportation and catering services, construction technical support and others. The divisions are the basis on which the Group reports its primary segment information. Principal activities are as follows: Property - construction and development, sales, leasing and management of properties Retailing and trading - sale of general merchandise Transportation and - hotel and restaurant operation and provision of taxi services catering service Construction - construction, fitting out and equipment installation and maintenance technical support Others - corporate financing, etc. The Group’s business is principally conducted in the People’s Republic of China (PRC) with its turnover for the year ended December 31, 2002 identified by geographical segments as follows: RMB (’000) 11 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. PRC 720,795 Hong Kong 3,189 The United States of America 792 724,776 Segment information relating to the businesses for the year ended December 31, 2002 is presented below: Transportation Construction Retailing and catering technical Properties and trading services support Others Eliminations Consolidated RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 REVENUE External sales 342,068 299,418 17,528 53,798 11,964 -- 724,776 Inter-segment 6,146 -- -- 19,349 1,300 (26,795) -- sales Total revenue 348,214 299,418 17,528 73,147 13,264 (26,795) 724,776 I n t e r-segment sales are charged at prevailing market rates. 12 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. 4. BUSINESS AND GEOGRAPHICAL SEGMENTS - (continued) Transportation Construction Retailing and catering technical Properties and trading services support Others Eliminations Consolidated RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RESULTS Segment results 110,908 15,791 3,518 9,076 20,618 (2,766) 157,145 Unallocated corporate expenses (165,089) Loss from operation (7,944) Finance costs (110,087) Share of losses of non-consolidated subsidiaries, associates, and contractual joint ventures (27,302) Gain from the disposal of contractual joint venture 180,343 Profit before tax 35,010 Taxation (1,723) Profit after tax 33,287 Minority interests 576 Net profit for the year 33,863 OTHER INFORMATION Segment assets 1,306,557 170,571 92,450 19,655 76,331 1,665,564 N o n -consolidated subsidiaries 107,219 -- -- 4,665 32,546 144,430 Associates 8,891 -- -- -- 4,980 13,871 Contractual joint ventures 24,115 2,851 83,908 -- 51,357 162,231 Unallocated corporate assets 757,800 Consolidated total assets 2,743,896 Segment liabilities 948,029 107,720 69,750 9,367 79,497 1,214,363 Unallocated corporate liabilities 655,730 Consolidated total liabilities 1,870,093 Capital expenditure 2,683 2,172 1,533 2,719 2,377 Depreciation 8,255 5,106 9,408 526 242 Non-cash expenses other than depreciation 1,593 -- 741 -- 646 13 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. 4. B U S I N E S S A N D G E O G R A P H I C A L S E G M E N T S - (continue d) The Group’s business is principally conducted in the People’s Republic of China (PRC) with its turnover for the year ended December 31, 2001 identified by geographical segments as follows: RMB (’000) PRC 584,270 Hong Kong 8,564 The United States of America 826 593,660 Segment information about these businesses for the year ended December 31, 2001 is presented below: Transportation Construction Retailing and catering technical Properties and trading services support Others Eliminations Consolidated RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 REVENUE External sales 354,265 180,630 15,857 20,304 22,604 -- 593,660 I n t e r -s e g m e n t -- -- -- 11,729 5,494 (17,223) -- sales Total revenue 354,265 180,630 15,857 32,033 28,098 (17,223) 593,660 I n t e r-segment sales are charged at prevailing market rates. Transportation Construction Retailing and catering technical Properties and trading services support Others Eliminations Consolidated RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RESULTS Segment results 154,180 20,860 1,771 3,671 67,080 (3,502) 244,060 Unallocated corporate expenses (652,630) Loss from operations (408,570) Finance costs (108,833) Share of profits of non-consolidated subsidiaries, associates, and contractual joint ventures 19,092 Loss before tax (498,311) Taxation (2,089) Loss after tax (500,400) Minority interests 2,105 Net loss for the year (498,295) 14 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. 5. BUSINESS AND GEOGRAPHICAL SEGMENTS - (continued ) Transportation Construction Retailing and catering technical Properties and trading services support Others Eliminations Consolidated RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 OTHER INFORMATION Segment assets 1,666,925 141,073 52,659 13,782 79,707 1,954,146 N o n -consolidated subsidiaries 46,719 8,180 -- 9,058 62,845 126,802 Associates 1,473 -- -- -- 4,847 6,320 C o n t r a ctual joint ventures 83,552 4,511 105,690 -- 87,023 280,776 Unallocated corporate assets 837,490 Consolidated total assets 3,205,534 Segment liabilities 1,255,893 138,250 109,079 13,314 138,951 1,655,487 Unallocated corporate liabilities 709,495 Consolidated total liabilities 2,364,982 Capital expenditure 1,364 8,493 6,786 919 5,268 Depreciation 8,312 3,605 6,589 -- 5,880 Non-cash expenses 389,234 2,730 1,420 3,055 111,092 other than depreciation The average number of employees for the year for each of the Group’s principal divisions was as follows: 2002 2001 Properties 1,421 1,528 Retailing and trading 283 280 Transportation and catering services 239 231 Construction technical support 184 193 Others 33 36 2,160 2,268 PROFIT/ (LOSS) FROM OPERATIONS 2002 2001 RMB’ 000 RMB’000 Profit / (Loss) from operations is stated after crediting and charging the following: Crediting: Interest income 107,647 8,137 15 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. Rental income 94,849 71,219 Write back of bad debts -- 11,662 Exchange gain 1,374 2,090 Gain on disposal of property, plant & equipment 139 75 Charging: Depreciation 23,538 24,386 Amortization 11,786 4,502 Staff costs (note 6) 99,276 77,428 Rent paid under operating leases of land and building -- 492 Exchange loss 935 2,814 P r o v i s i o n f o r i m p a i r m e n t l o s s e s o f a s s et s ( n o t e 7 ) 33,903 503,029 STAFF COSTS 2002 2001 RMB’ 000 RMB’000 Salaries and bonus 80,026 63,491 R etirement benefit costs and provision for other welfare 19,250 13,937 99,276 77,428 P R O V I S I O N F O R I M P A I R M E N T L O SS E S O F A S S E T S 2002 2001 RMB’ 000 RMB’000 Property, plant & equipment -- 1,641 N o n -consolidated subsidiaries -- 3,444 Associates -- 22,406 Contractual joint venture 352 18,892 Long term investments -- 20,301 Intangible assets -- 10,377 Properties under development for sale -- 398,974 Completed properties for sale 365 17,000 Inventories -- 18 Accounts receivable , other debtors and amount due from n o n -consolidated subsidiaries 33,186 9,976 33,903 503,029 FINANCE COSTS 2002 2001 RMB’ 000 RMB’000 Interest expenses - bank borrowings 110,087 108,833 GAIN FROM THE DISPOSAL OF CONTRACTUAL JOINT VENTURE As a u t h o r i z e d b y G e n e r a l M e e t i n g , t h e i n t e r e s t s in S h a n t o u B a y B r i d g e C o . L t d . h e l d b y F r e s h P e a k Holdings Ltd., a subsidiary of the Company, has been transferred for RMB322 million and the related procedures for the transfer have been finished as at 31 December 2002. 10. TAXATION 2002 2001 RMB’ 000 RMB’000 16 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. The charge comprises: PRC income tax for the year 1,723 2,089 Domestic income tax is calculated in accordance with applicable income tax regulations and a t 1 5 % ( 2 0 0 1 : 15%) of the estimated assessable profit determined in accordance with the accounting principles and the relevant financial regulations applicable to enterprises in the PRC. Taxation for other jurisdictions is calculated at rates prevailing in the respective jurisdictions, details of which are as follows: 2002 2001 RMB’ 000 RMB’000 PRC enterprises income tax - enterprises in Shenzhen 15% 15% - enterprises outside Shenzhen 33% 33% Hong Kong profits tax 16% 16% Reconciliation to the domestic tax e x p e n s e as follow s : 2002 2001 R M B ’ 000 RMB’000 Accounting profit under IF R S 35,010 ( 4 9 8 , 311 ) D i f f e r e n c e arising f r o m a c c o u n t i n g p o l i c i e s b a s e d o n I F R S (19, 819) (39,264 ) Accounting profit under Accounting Standards for Enterprise Business of the P R C 15,191 (537,575 ) Tax at the domestic rate of 15% 2,279 -- Net tax effect of expenses not deductible for tax purposes and other factors (556) 2,089 Tax expense 1,723 2,089 In respect of tax losses carried forward in the amount of RMB3,672,000 (2001: R M B 2 3 2 , 6 9 7 , 0 0 0 ) , n o d e ferred tax asset was recognized because, from a current perspective, a tax benefit will probably not be realizable within a reasonable period. Events in future business years may require an adjustment to deferred tax assets. 11. EARNINGS PER SHARE a The calcula tion of basic earnings per share is based on the consolidated profit of R M B 3 3 , 8 6 3 , 0 0 0 (2001: loss of RMB498,295,000) and on the 1,011,660,000 shares (2001: 1,011,660,000 shares ) in issue during the year. b During the year ended 31 December 2002 and 2001, there were no dilutive potential shares. Fully diluted earnings per share are not disclosed. PROPERTY, PLANT & EQUIPMENT Plant Office Land and and Motor equipment Construction buildings machinery Vehicles and others in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Cost At January 1, 2002 256,040 55,062 38,449 31,981 38,465 419,997 Additions 6,874 15 2,516 1,863 262 11,530 Disposal of assets (3,874) -- (3,337) (447 ) -- (7,658 ) D i s p o s a l o f s ubsidiaries (3,009) -- (1,854) (1,480 ) (470 ) (6,813 ) At December 31, 2002 256,031 55,077 35,774 31,917 38,257 417,056 17 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. Depreciation At January 1, 2002 68,756 12,811 29,316 19,454 -- 130,337 Charge for the year 20,466 783 2,648 1,255 -- 25,152 Disposal of assets (2,406) -- (3,037) (426 ) -- (5,869 ) D i s p o s a l o f subsidiaries (2,600) -- (1,615) (1,035 ) -- (5,250 ) At December 31, 2002 84,216 13,594 27,312 19,248 -- 144,370 Provision for impairment losses At January 1, 2002 1,313 68 164 96 -- 1,641 Additions -- -- -- -- -- -- D i s p o s a l o f subsidiaries -- -- (116) (80) -- (196) At December 31, 2002 1,313 68 48 16 -- 1,445 Net book value At December 31, 2002 170,502 41,415 8,414 12,653 38,257 271,241 At December 31, 2001 185,971 42,183 8,969 12,431 38,465 288,019 The Group’s leasehold land and buildings including investment properties (note 13) are being held in the People’s Republic of China under medium term leases. Certain properties have been pledged as security for the Group’s bank borrowings (see note 32). INVESTMENT PROPER TIES 2002 2001 RMB’ 000 RMB’000 At January 1, 2002 602,622 187,148 Disposal of properties (8,234) (10,763 ) Reclassified from property, plant & equipment and inventories 34,022 426,237 At December 31, 2002 628,410 602,622 The investment properties have been revalued as at 31 December 2002 by the directors and certain investment properties have been pledged as security for the group’s bank borrowings ( s e e n o t e 3 2). SUBSIDIARIES At December 31, 2002, the Company had intere sts in the following principal subsidiaries which have been included in the consolidated financial statements: Place of equity Interest held Subsidiaries establishment/incorporation Principal activities D i r e c t Indirect % % Great Wall Estate Co., Inc. U.S.A. Property development 70 -- Shenzhen Special Economic Zone PRC Property development, 100 -- Real Estate (Group) Guangzhou decoration Property and Estate Co., Ltd. and construction design Skill Elite Ltd. Hong Kong Corporate financing 100 -- 18 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. Shenzhen City SPG Bao An PRC Property development 95 5 Development Ltd. and sales Shenzhen City Shenfang Free PRC Trading of construction 95 5 Trade Trading Ltd. materials Shenzhen City Shenfang PRC Investment and management 90 10 Investment Ltd. Shenzhen City Bamboo Garden PRC Car rental 100 -- Car Rental Ltd. Shenzhen Shenfang Car Park Ltd. PRC Develop and operate car park 70 30 深圳市 湖 社 信息 服 PRC Information service -- 100 中心 深圳巿数码港信息技术培训中心 PRC Training -- 100 14. SUBSIDIARIES - (continued) Place of equity Interest held Subsidiaries establishment/incorporation Principal activities D irect Indirect % % Shenzhen City Wa Gen Construction PRC Construction project 75 -- Management Ltd. management Shinnying Tongxin Real Est. Dev. PRC Real estate development -- 93.1 Co. Ltd. Barenie Co. Ltd. Hong Kong Properties investment -- 80 Openice Ltd. Hong Kong Investment holding 20 80 Shantou SEZ Wellam Fty Bldg., PRC Factory building, sales and -- 82 Dev. Co. rental Xin-Feng Real Estate Dev. PRC Real estate management -- 55 Construction (Wuhan) Co. Ltd. and rental service Fresh Peak Investment Ltd. Hong Kong Properties investment -- 55 Wellam Ltd. Hong Kong Investment holding -- 82 Shenzhen Petrel Hotel Co. Ltd. PRC Hotel operations 68.1 31.9 Shenzhen Cyber Port Co., PRC Property investment and 70 -- Ltd information technology consultancy 19 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. Shenzhen Shenfang Department PRC Commercial goods supplier 95 5 Store Co. Ltd. Shenzhen City Property PRC Property management 95 5 Management Ltd. Shenzhen Zhen Tung Engineering PRC Fitting-out contracting and 73 27 Ltd. maintenance Fresh Peak Holdings Ltd. Hong Kong Investment, management 100 -- and consultation Fresh Peak Enterprise Ltd. Hong Kong Investment holding 82 -- 广州黄埔新邨房地产有限公司 PRC Property development and -- 100 sale Keyear Development Ltd. Hong Kong Investment holding -- 100 20 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. 14. SUBSIDIARIES - (continued) The non-consolidated subsidiaries involved have either been terminated or liquidated, are in the process of liquidation or not intended to be held for long term. The Group already made appropriate provision therefore and consequently they have not been consolidated in the Group’s financial statements for the year but included as non-consolidated subsidiaries as follows: 2002 2001 RMB’ 000 RMB’000 Unlisted Investments, at cost 427,996 394,259 Share of post-acquisition losses (199,961) (204,317) 228,035 189,942 Less: Provision for impairment losses (189,942) (189,942) 38,093 -- Add: Amounts due from non-consolidated subsidiaries 106,337 151,352 144,430 151,352 Details of the non-consolidated subsidiaries are summarized in the following: Place of Equity Establishment/ interest held Subsidiaries incorporation Principal activities Direct Indirect % % Shenzhen Shen Fang Industrial PRC Property management, 100 -- Development Co., Ltd. investment holding Shenzhen Real Estate Consolidated PRC Construction material, 100 -- Service Co., Ltd. consume goods Shenzhen Tefa Real Estate PRC Construction and decoration 100 -- Consolidated Service Co., Ltd. Guangdong Province Fengkai Lian PRC Manufacturing and trading -- 90 Feng Cement Manufacturing Co., in cement products Ltd. 深圳市数码港通信有限公司 Product development and PRC sales of web and computer -- 90 21 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. 14. SUBSIDIARIES - (continued) Place of equity Equity establishment/ interest held Subsidiaries incorporation Principal activities Direct Indirect % % Shenzhen Fresh Peak Real Estate PRC Property trading agency 95 5 Trading and Revaluation Co. Ltd. Shenzhen Shenfang (Group) PRC Property development 100 -- Shanghai Property Development Co., Ltd. Fidelity Development Limited Canada Property Development 75 -- Bekaton Property Limited Australia Property Development 60 -- Beijing SPG Property Management PRC Property management 100 -- Limited 北京新峰房地公司 PRC Property development and 75 25 management Dergetta Company Limited HK Dormant -- 70 Shenzhen City Shenfang PRC Retailing/trading of construction 100 -- Construction and Decoration materials Materials Ltd. Shenzhen City SPG Long Gang PRC Property development, sales, 100 -- Development Ltd. management and rental Shenzhen Lian Hua Industry and PRC Trading of equipment and 100 -- Trading Co. Ltd. provision of renovation material Paklid Limited HK Property construction and 100 -- trading of construction materials Shenzhen City Zhen Tung New PRC Investing on electronic and 95 5 Electronic and Electrical electrical engineering project Development Ltd. Shenzhen City Wing Wah PRC Repairs and maintenance of 90 10 Engineering Ltd. machinery ASSOCIATES 2002 2001 RMB’000 RMB’000 22 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. Unlisted investments, at cost 38,077 38,327 Share of post-acquisition losses (1,800) (843) 36,277 37,484 Less: Provision for impairment losses (22,406) (22,406) 13,871 15,078 Less: Amounts due to associates -- (260) 13,871 14,818 At December 31, 2002 the Company had interests in the following principal associates: Place of Establishment/ Equity interest held Associates incorporation Principal activities Direct Indirect % % Yunnan Kun Peng Aviation PRC Aviation service 25 -- Service Ltd. Tung Yick Property Co., Ltd. Hong Kong Property development 20 -- 深圳 博 有限公司 PRC Property management and leasing 45 -- CONTRACTUAL JOINT VENTURES 2002 2001 RMB’ 000 RMB’000 Unlisted Investments, at cost 314,764 477,867 Share of post-acquisition profits 24,868 29,495 339,632 507,362 Less: Provision for impairment losses (143,073) (165,803) 196,559 341,559 Less: Amounts due to contractual joint ventures (34,328) (28,990) 162,231 312,569 23 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. 16. CONTRACTUAL JOINT VENTURES - (continued) Particulars of the principal contractual joint ventures are set out as follows: Group Joint venture committed registered capital Principal Method of Contractual Joint venture capital contribution activity Participation in earnings (’000) (’000) Guangzhou Sui Xin Property 5 years from RMB30,000 RMB71,000 Construction and 36% of profits from Da De Plaza and Estate Co Ltd. 14 October sales of properties 1992 Xian Fresh Peak Building Co. 30 years RMB20,000 RMB600,000 Construction and All profits after tax and appropriation commercial buildings Ltd. from 6 July sales of properties to statutory reserves are to be used first to repay the capital 1993 contributions and interest on capital. Thereafter 67% of net profits. Harbin Jianfeng Technology 30 years RMB20,000 RMB30,000 Technology All profits of Harbin after tax and Jianfeng appropriation Development Co. Ltd. from 26 June development Technology to statutory Building reserves are to be used 1993 first to repay the capital contributions. Thereafter 50% of net profits. 16. CONTRACTUAL JOINT VENTURES - (continued) 24 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. Group committed Joint venture capital Principal Method of Contractual joint venture registered capital contribution activity Participation in earnings (’000) (’000) Jiangmen Xinjian Real 10 years US$6,600 US$6,000 Property 33% of net of Jianmen profits, Xinjian commercial Estate Co. Ltd. from 19 development building. May 1993 Kunshan Diao Feng 20 years US$7,200 US$9,000 Supply of Profit distributions and appropriation to statutory Electricity Power Co. from 29 electricity reserves are to be determined by the board of Ltd. November directors annually. 1993 浮山旅游 公司 30 years RMB30,000,000 RMB30,000,000 Tourism Profits net of taxation will be distributed to the extent from development of 70% to the Company. The remaining 30% will January be shared by the Company and the other venturer by 1985 the proportion of 55% and 45% respectively. 25 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. 17. LONG TERM INVESTMENTS 2002 2001 RMB’ 000 RMB’000 PRC legal entity shares, at cost 16,825 16,825 Unlisted equity investments, at cost less provision for impairment losses 42,010 42,247 58,835 59,072 18. INTANGIBLE ASSETS Vehicle Computer licenses software Total RMB’ 000 RMB’ 000 RMB’ 000 At January 1, 2002 2,017 108 2,125 Addition -- 83 83 Amortization for the year (713) (36) (749) At December 31, 2002 1,304 155 1,459 19. LAND HELD FOR DEVELOPMENT RMB’ 000 Cost At January 1, 2002 109,860 Addition 15,729 Transfer * (77,965) Amortization (701) At December 31, 2002 46,923 Provision for impairment At January 1, 2002 10,377 Transfer * (6,207) At December 31, 2002 4,170 Net book value At December 31, 2002 42,753 At December 31, 2001 99,483 * The land has been developed and transferred to properties under development for sale during the year. 20. PROPERTIES UNDER DEVELOPMENT FOR SALE 2002 2001 1 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. RMB’ 000 RMB’000 Cost 1,358,116 1,585,328 Less: Provision for impairment losses (642,049) (716,948) 716,067 868,380 Included in properties under development for sale is a piece of land awaiting development held in the United States at a cost of RMB122,664,021 against which provision for impairment of RMB104,723,917 was made in prior years. In 2000, the Group brought a lawsuit over an unauthorized sale of the land. Whilst the litigation was in progress the land was held in custody by the court. COMPLETED PROPERTIES FOR SALE 2002 2001 RMB’ 000 RMB’000 Cost 260,501 304,765 Less: Provision for impairment losses (18,401) (48,150) 242,100 256,615 INVENTORIES 2002 2001 RMB’ 000 RMB’000 Raw materials 4,661 4,202 Work-in-progress 5,853 -- Finished goods 26,216 12,923 Less: Provision for impairment losses (833) (833) Consumables 196 100 36,093 16,392 23. SHORT-TERM INVESTMENTS 2002 2001 RMB’ 000 RMB’000 Listed equity investments, at market value 2,944 3,034 Debentures, at market value 7 17 2 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. 2,951 3,051 24. ACCRUED EXPENSES 2002 2001 RMB’ 000 RMB’000 Project cost 39,044 93,362 Losses for litigation and arbitration 51,022 54,317 Interests for bank borrowings 6,677 24,711 Land use fee 544 544 Water and electricity 726 91 Other 676 720 98,689 173,745 25. DIVIDENDS PAYABLE The item of dividends payable resulted from dividends declared and not paid by the directors in prior year. In respect of the current year, the directors have not declared dividends to its shareholders. 26. TAX PAYABLE 2002 2001 RMB’ 000 RMB’000 Corporation tax (147) 58,235 Personal income tax 965 1,830 Business tax 4,157 9,882 Value added tax (1,548) (2,236) Property tax 2,592 774 Others 44 261 6,063 68,746 27. NON-CURRENT LIABILITIES 2002 2001 RMB’ 000 RMB’000 Bank loans (note 28) -- 90,735 Other liabilities 18,818 19,071 18,818 109,806 3 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. Included in other liabilities was RMB12,889,000 borrowed from minority shareholders of a subsidiary of the Company and the remaining balance is the accruals for property management and maintenance fees. These liabilities are non-interest bearing and do not have fixed terms for repayment. 28. BANK LOANS 2002 2001 RMB’ 000 RMB’000 Bank loans Secured 709,209 1,053,439 Guaranteed 125,553 161,068 On credit 20,000 -- 834,762 1,234,507 Bank loans repayable: Within one year or on demand 834,762 1,143,772 In the second year -- 89,298 In the third to fifth years, inclusive -- 1,437 834,762 1,234,507 Portion classified as current liabilities 834,762 1,143,772 Long term portion -- 90,735 834,762 1,234,507 Particulars of assets which are pledged to secure bank loans and other facilities are set out in note 32. The guarantees are provided by third parties and certain group companies. 29. SHARE CAPITAL 2002 2001 RMB’ 000 RMB’000 Registered, issued and paid-in 891,660,000 A shares par value 891,660 891,660 120,000,000 B shares 120,000 120,000 1,011,660 1,011,660 ‘A’ shares are issued to Chinese national investors resident in the PRC and ‘B’ shares are issued to foreign investors. Chinese national investors resident in the PRC have been entitled to purchase and sell ‘B’ shares since June 2001. ‘A’ and ‘B’ shares have a par value of RMB 1 per share and rank pari passu. 4 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. 30. CASH AND CASH EQUIVALENTS 2002 2001 RMB’ 000 RMB’000 Cash and bank balances 249,341 343,897 Less: deposits secured over 3 months (146,648) (174,663) 102,693 169,234 Effect of foreign exchange rate changes 439 (724) Restated cash and cash equivalents 103,132 168,510 31. GENERAL RESERVE Under the resolution passed by General Meeting held on 8 June 1999, part of the general reserve would be used to offset the accumulated losses. The resolution was retroactively executed for B shares in 2002. PLEDGE OF ASSETS At December 31, 2002, certain of the Group’s investment properties, leasehold land and buildings, properties under development and properties held for sale with an aggregate net carrying value of RMB 790,856,500 and fixed deposits amounting to RMB94,748,400 were pledged to secure loans and general banking facilities to the extent of RMB738,179,550 granted to the Group. Facilities amounting to RMB709,209,000 were utilized at December 31, 2002. Bank loans are repayable in various installments up to 31December 2003. Interest is charged on the outstanding balances at rates ranging from3.87% to 11.25% per annum. 33. RELATED PARTY RELATIONSHIPS AND TRANSACTIONS In addition to subsidiaries, associates and contractual joint ventures stated in notes 14, 15 and 16 respectively, the following entities have also been defined as related parties with whom the Group has had significant transactions during the year or with whom a significant balance exists at the year end. Nature of relationship Shenzhen Construction Investment Holding Corporation Ultimate holding company The following is a summary of the significant transactions with related parties during the year. 5 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. Shenzhen City Wing Wah Engineering Ltd. 2002 2001 RMB’ 000 RMB’000 Construction and development expenses 272 5,210 The expenses were made based on the market price. Some net balances due from / (to) related parties at December 31, 2002 and 2001 are stated in notes 14 and 16, and included in the balance sheet of the Group as non-consolidated subsidiaries and contractual joint venture, the remaining balances are summarized as follows: 2002 2001 RMB’ 000 RMB’000 Shenzhen Construction Investment Holding Corporation (188,764) (188,764) The above amounts are included in the balance sheet of the Group in the following classifications: 2002 2001 RMB’ 000 RMB’000 Accounts payable and accrued expenses (50,000) (50,000) Dividends payable (138,764) (138,764) (188,764) (188,764) Both these balances are unsecured and non-interest bearing. Directors’ emoluments There are nine directors in the Company. Five of the directors received emoluments totaling RMB930,000 for the year ended December 31, 2002. Four directors did not receive any salary or other benefits from the Company. 34. CONTINGENT LIABILITIES 2002 2001 RMB’ 000 RMB’000 Guarantees given for banking and credit facilities granted to: - contractual joint ventures 9,293 11,000 - third parties 156,054 158,600 165,347 169,600 35. LITIGATION AND ARBITRATION 1. On March 21, 1997, the Company executed an agreement with Baoxin Real Estate Development (Shenzhen) Company Limited (“Baoxin”) to sell its share of 68% interests in Guo Xin Building at a consideration of RMB145,000,000. In addition, the construction cost for the building of RMB15,000,000 was undertaken by Baoxin. Baoxin has paid a deposit of RMB45,000,000. The outstanding purchase consideration of RMB100,000,000 and the construction cost of RMB15,000,000 6 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. have still not been settled. So the Company lodged a claim. As sentenced by the Guangdong High People’s Court on September 28, 2002, Baoxin should pay the outstanding purchase consideration of RMB98,948,060 and its interests to the Company. At December 31, 2002, the case was still pending for the second inquisition. For prudence purposes, the Company has not taken up any income on the above transaction. The deposit that has been received was included as other payable. Up to December 31, 2002, the construction cost for Guo Xin Building included in properties under development for sale in the balance sheet amounted to RMB166,109,047. As the title of Guo Xin Building was in the name of Baoxin, the Company has made a provis ion of RMB69,907,107 for loss in the construction of this building. 2. On June 26, 1993, the Company and the former Harbin Construction Engineering College (merged into Harbin Industry University now) have signed a cooperative agreement. Under the agreement, the Company has advanced a loan of RMB22,120,500, which was used for another purpose by the former Harbin Construction Engineering College and not yet repaid up till now, so the Company took an action against Harbin Industry University for repayment of the loan in Harbin Intermediate People’s Court and the case was accepted to proceed on December 16, 2002. At the same time, on June 26, 1993, Fresh Peak Holding Ltd. (“Fresh Peak”), a wholly-owned subsidiary of the Company, and the former Harbin Construction University Science and Technology Development Head Office (named Harbin Industry University Science and Technology Development Head Office now, hereafter referred to as the former Head Office and Head Office respectively) have signed a contract called Harbin Jianfeng Science and Technology Development Co., Ltd. (“ Jianfeng”) Under the contract, Fresh Peak and the Company have paid to Jianfeng RMB55,960,000 of its investment cost. Subsequently, on May 15, 1996, they have signed an operating contract guaranteed by the former Harbin Construction University (merged into Harbin Industry University now). Under this contract, the former Head Office will operate Jianfeng for 13 years and should together with the former Harbin Construction University pay the contract fee to Fresh Peak every period for the purpose of settlement of the above investment cost and its interest. As the former Head Office and the former Harbin Construction University have never paid the contract fee, Fresh Peak lodged a claim against Head Office and Harbin Industry University to Heilongjiang Province High People’s Court and the case was accepted to proceed on January 21, 2003. Up to March 31, 2003, the legal proceedings for these tow cases are still in progress. The investment cost for Jianfeng included in contractual joint ventures in the balance sheet amounted to RMB95,601,809 and a provision for impairment of RMB75,775,014 has been made. 35. LITIGATION AND ARBITRATION - (continued) 3. On August 20, 2001, the Company applied to China International Economic Arbitration Committee for an arbitration against Ju Bang Co Limited, the joint venture partner, for the compensation on early redemption of the land use rights. The 7 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. arbitration is still in progress. Subsequently , on December 16, 2002, the Company lodged a complaint to the Shenzhen Intermediate People’s Court to make Bamboo Garden Enterprise Ltd., the contractual joint venture, repay a construction advance of RMB37,330,000 and its interest. This complaint is still in progress. Up to December 31, 2002, the construction cost for this project amounting to RMB38,256,853 was included in construction in progress in the balance sheet and this construction was built under the capacity of Bamboo Garden Enterprise Ltd. The construction work has been terminated. In the opinion of the Company, the construction advance or the corresponding compensation can be reasonably estimated to take back, so no provision for impairment against this construction in progress has been made. 4. A subsidiary, Great Wall Estate Company Inc., incorporated in the United States, took a law suit against several parties including a bank for the ownership of a piece of land in Los Angeles, California which was unlawfully transferred by the defendants without the consent of the Company. The transfer was executed in August 2000. Subsequently, the land was mortgaged to a bank for a loan of US$650,000. The Company has applied for the court’s adjudication to restore the legal title thereof to the Company. At December 31, 2002, the case was still in judicial process. There has been no material development and adverse effects on this case are not known at the balance sheet date. Up to December 31, 2002, the carrying value of the land is RMB122,664,021 and the Company has made a provision of RMB104,723,917 for impairment against the cost of this land. 36. COMMITMENTS At December 31, 2002, the Group has outstanding commitments payable in the following year under an operating lease in respect of land and building as follows: 2002 2001 RMB’000 RMB’000 In the second to fifth years inclusive -- 400 At December 31, 2002, the Group also has outstanding capital commitments for property development projects as follows: 2002 2001 RMB’000 RMB’000 Authorized but not contracted 327,968 562,130 Contracted for 422,914 325,438 750,882 887,568 37. MATERIAL EVENTS A subsidiary, Xin-Feng Real Estate Dev. Construction (Wuhan) Co. Ltd. (“Xin-Feng (Wuhan)”) entered into an agreement with 武汉市土地整理储备供应中心 (“土地中心”) on December 31, 2002. Under the agreement, the land use right with area of 33,933 square 8 SHENZHEN SPECIAL ECONOMIC ZONE REAL ESTATE & PROPERTIES (GROUP) CO., LTD. meter owned by Xin-Feng (Wuhan) was taken back by the government and stored by 土地 中心 which will pay the corresponding compensation to Xin-Feng (Wuhan). As at December 31, 2002, the agreement is still pending to fulfill and the carrying value of the land use right is RMB９２，０６６，８１０． 38. IMPACT OF IFRS AND OTHER ADJUSTMENTS ON NET PROFIT AND SHAREHOLDERS’ EQUITY Net profit for the year Net assets RMB’000 RMB’000 As reported in the consolidated financial statements prepared in accordance with Accounting Standards for Enterprise Business in the PRC 14,044 1,033,090 Reversal of depreciation charges in respect of investment properties 17,175 54,382 Adjustment for market value of short-term investments 4 1,276 Expenses accrued in previous year 1,243 210 Difference in recognition of cost of fixed assets -- (202,149) Goodwill arising from acquisition of subsidiaries 1,397 (7,093) Others -- 266 As reported in the consolidated financial statements prepared in accordance with IFRS 33,863 879,982 39. COMPARATIVE FIGURES Certain comparative figures have been reclassified to conform with the current year’s presentation. 9