宁通信B(200468)宁通信Ｂ2002年年度报告（英文版）

Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report (Based on IFRS) Important Note The Board of Directors and Directors of the Company hereby confirms that there are no factitious record, misleading statements or material omission in the information carried in this report, and collectively and individually accepts full responsibility for the truthfulness, accuracy and completeness of the whole contents. The Company’s Legal representative Huang Zhiqin, General Manager Li Weide, and Associate Chief Accountant Qian Ruicheng hereby confirm that the financial report in this report is truthful and complete. This report is prepared both in Chinese and in English. In case of any inconsistency between the two versions, the Chinese version should prevail. 1 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report Contents I. Company Profile ┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄ 3 II. Financial & Operating Highlights ┄┄┄┄┄┄┄┄┄┄┄┄┄┄ 3 III. Share Capital Variation & Shareholders Introduction ┄┄┄┄┄┄ 5 IV. Directors, Supervisors, Senior Management & Employees┄┄┄┄ 7 V. Corporate Governance Structure┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄ 9 VI. Highlights of Shareholders General Meetings ┄┄┄┄┄┄┄┄┄ 10 VII. Report of the Board of Directors ┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄ 11 VIII. Report of the Supervisory Committee ┄┄┄┄┄┄┄┄┄┄┄┄ 17 IX. Significant Events ┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄ 18 X. Financial Report ┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄ 20 XI. Documents for Inspection ┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄ 21 Attached Financial Statement and notes ┄┄┄┄┄┄┄┄┄┄┄ 22 2 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report I. Company Profile 1. Company’s Legal Chinese Name: 南京普天通信股份有限公司 Company’s Legal English Name: Nanjing Putian Telecommunications Co., Ltd. 2. Legal Representative: Mr. Huang Zhiqin 3. Secretary of the Board of Directors: Mr. Xiao Zhaokai Address: No. 1 Putian Road, Qinhuai District Nanjing Telephone: 86-25-2418518-2278,86-25-2409954 Fax: 86-25-2409954 Email Address: securities@postel.com.cn Securities Affairs Representative: Mr. Shi Lian Address: No. 1 Putian Road, Qinhuai District Nanjing Telephone: 86-25-2418518-2258 Facsimile: 86-25-2409954 Email Address: sl@postel.com.cn 4. Registration Address: Bldg. 1, West to Ericcson Building, Jiangning Economics and Technology Development Zone, Nanjing, Jiangsu Province PRC Business Address: No. 1 Putian Road, Qinhuai District Nanjing Postal Code: 210012 Web Site: .www.postel.com.cn Email Address: .securities@postel.com.cn 5. Appointed Newspaper for Company Information Disclosure: Securities Times & Hong Kong Ta Kung Pao Appointed Web Site for Annual Report Publication: www.cninfo.com.cn Annual Report Prepared At: Financial & Securities Department 6. Listing and Trading Place of Company stock: Shenzhen Stock Exchange Stock Abbreviation: Ning Tong Xin B Stock Code: 200468 7. Latest Registration Date: 28 May, 1999 Registered At: State Administration For Industry and Commerce Legal person operating license Qi Gu Su Zong Zi No. 000225 registration code: Taxation Registration Code: 320121134878054 Appointed Auditor: Price WaterHouseCoopers Zhong Tian CPAs Co., Ltd. (Domestic Auditor) PricewaterhouseCooper China Limited(Foreign Auditor ) Auditor’s Business Address: 12th Floor Shui On Plaza 333, Huaihai Zhong Road, Shanghai II.Financial & Operating Highlights 1. Financial data for 2002 (RMB’000) Profit Before Taxation -50,975 Net Profit -55,213 Profit After Deducting Non-recurrent profit/loss -58,774 3 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report Gross profit 147,763 Profit for Other Businesses 8,707 Operating Profit -20,097 Investment Income 164 Subsidy Receipt 5,153 Net Cash Generated from Operating Activities 86,187 Increase of Cash and Cash Equivalent -88,309 Note: Deducted non-recurrent profit/losses are: Items included in Other Operating Income 3,584 Items included in Other Operating Expenses -4,455 Loss on disposal of a subsidiary -721 Subsidy Receipt 5,153 In total 3,561 Explanation of discrepancy as audited under CAS and IFRS (RMB’000) Net assets at Net loss for 2002 31 December 2002 Per PRC reporting (58,926) 373,953 Adjustments for IFRS reporting: Fixed assets depreciation 1,713 - Revaluation - (28,618) Remeasurement of financial assets and financial liabilities in accordance with IAS 39 - (21,833) Profit on sale of trademark to related party 2,000 - Other - 12,594   Per IFRS reporting (55,213) 336,096   2. Main financial data for the recent 3 years: Financial Indicators 2002 2001 2000 2000 (adjusted) (unadjusted) Turnover(RMB’000 yuan) 625,872 753,608 637,651 637,651 Net Profit(RMB’000 yuan) -55,213 2,383 -54,361 -53,770 Total Assets(RMB’000 yuan) 962,347 1,035,535 1,030,081 1,032,220 Shareholder’s Equity(excluding minor 336,096 391,279 388,916 412,763 shareholder’s equity) (RMB’000 yuan) Earnings Per Share(yuan) -0.257 0.011 -0.253 -0.250 Net Assets Per Share(yuan) 1.563 1.82 1.91 1.92 Net Cash Per Share Generated from 0.401 -0.01 -0.31 -0.31 Operating Activities(yuan) Return On Net Assets(%) -16.43% 0.61% -13.98% -13.03% Note 1: The share capital of the Company kept unchanged from the end of the reporting period to the day when this report is published. Note2: Attached Profit Form Profit for Return On Net Equity % Earnings Per Share reporting period Fully diluted Weighted average Fully diluted Weighted average Gross profit 43.96% 40.63% 0.6873 0.6873 4 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report Operating profit -5.98% -5.53% -0.0935 -0.0935 Net profit -16.43% -15.18% -0.2568 -0.2568 Net profit after -17.49% -16.16% -0.2734 -0.2734 deducting Non-recurrent profit/losses 3. Changes on Shareholders’ Equity during the reporting period (RMB’000) Capital Statutory and Statutory Exchange Share accumula discretionary welfare Translation Other Retained Shareholder’s Item capital tion fund accumulation fund reserve reserves earnings equity in total fund At 215,000 149,437 14,998 9,782 -18 115 1,965 391,279 year-beginning Increase 70 1,333 471 -40 -55,213 -53,379 Decrease 1,804 1,804 At year-end 215,000 149,507 16,331 10,253 -58 115 -55,052 336,096 Increase of statutory and discretionary accumulation fund resulted from appropriation of statutory accumulation fund for the year. Increase of statutory welfare fund resulted from proposed appropriation for the year. Decrease of retained earnings resulted from net loss for the year. III. Share Capital Variation & Shareholders Introduction 1. Share Capital Variation (1)Change of the share composition Changes in the period Year-beginni Placed Bonus Shares transferred Sub Year-end ng other shares shares from capital shares -total Un-listed shares 1.Promoter 115,000,000 115,000,000 shares Including: State-owned 115,000,000 115,000,000 shares Domestic legal person shares Foreign legal person shares Other 2.Placement legal person shares 3.Employee’s shares 4.Preference shares and other Un-listed shares 115,000,000 115,000,000 5 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report in total Listed shares 1. RMB ordinary shares 2.Domestically-li 100,000,000 100,000,000 sted foreign shares 3.Overseas listed foreign shares 4.Other Listed shares in 100,000,000 100,000,000 total Total shares 215,000,000 215,000,000 (2)Stock issuing and listing in the last three years The Company did not issue shares in the last three years ended by 2002. 2. Shareholders introduction (1) As at 31st December 2002, the Company had 19757 shareholders, including 1 state-owned legal person shareholder and 19756 B- shareholders. (2) Top ten shareholders at year-end Shareholder Shares held +/-Shares Order Shareholder in the year Share type Equity type at year-end State-owned Non-circulate 1 China Putian Corporation 115,000,000 0 53.49% Shareholder d 2 Yin Xiao’e B-shareholder 632,603 -264,374 Circulated 0.29% 3 Wang Xuanxuan B-shareholder 611,337 0 Circulated 0.28% 4 Ye Zhuanyou B-shareholder 322,900 Unknown Circulated 0.15% 5 He Meizhu B-shareholder 307,600 0 Circulated 0.14% 6 Xu Bingnan B-shareholder 280,000 0 Circulated 0.13% 7 Xie Xinbin B-shareholder 280,000 48,000 Circulated 0.13% 8 Dai Shufen B-shareholder 276,900 5,000 Circulated 0.13% Shanghai Standard 9 B-shareholder 271,839 Unknown Circulated 0.13% Bearing Co., Ltd. 10 He An’e B-shareholder 264,104 -20,000 Circulated 0.12% Note: China Putian Corporation(hereinafter ”China Putian”) owned over 5 percent of the Company’s shares. The number of its shares held kept unchanged during the year and the shares were neither mortgaged nor frozen. Among the top ten shareholders, China Putian is not related to the other nine shareholders. It’s unknown whether there are related parties among the other nine shareholders. (3) Introduction of holding company: Company name: China Putian Corporation Company type: state-owned sole enterprise Legal representative: Ou Yang Zhongmou 6 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report Date of Corporation: 1980 Scale of business: develop and manufacture various communications equipment such as large-scale digital program-controlled switchboard, GSM and CDMA mobile telecommunication equipment and mobile phone, IP serial products, micro-wave telecommunication equipment, optical telecommunication equipment, optical and electric telecommunication cable, communication power supply, distribution equipment, IC phone, multi-media computer terminal, fax machine, postal mechanic and so on; engage in contract for international and domestic telecommunication project, engage in technical and economic business such as cooperation, technology introduction, import and export of relevant products. It was originally named ”China Posts and Telecommunications Industry Corporation” under the Ministry of Posts and Telecommunications and the Ministry of Information Industry. At the end of 1998 it became a large-scale enterprise directly subordinate to the central government. During the reporting period the holding company kept unchanged. IV. Directors, Supervisors, Senior Management & Employees 1. Directors, supervisors and senior management (1) Profile shares held at shares held name sex age Position term of office year-beginning at year-end Huang May 2001 Male 41 President of BOD 0 0 Zhiqin -Jun 2003 Vice president of BOD, Jun 2000 Li Weide Male 55 0 0 General Manager -Jun 2003 Zhou Jun 2000 Male 60 Director 0 0 Zhenkai -Jun 2003 Jun 2000 Cao Bin Male 46 Director 0 0 -Jun 2003 May 2001 Wang Lili Female 52 Director 0 0 -Jun 2003 May 2002 Director 0 0 Jiang -Jun 2003 Male 47 Haishan Assistant General Jun 2000 0 0 Manager -Jun 2003 May 2002 Director 0 0 Liu -Jun 2003 Male 48 Chuanxi Assistant General Mar 2002 0 0 Manager -Jun 2003 Zhang May 2001- Male 61 Independent Director 0 0 Xiaoqiang Jun 2003 Dai May 2001 Male 59 Independent Director 0 0 Yuanfang -Jun 2003 Wang Chairman of the May 2001 Male 52 0 0 Jiaqiang -Jun 2003 Supervisory Committee May 2001 Jiang Kun Male 34 Supervisor 0 0 -Jun 2003 Shi May 2002 Male 52 Supervisor 0 0 Xinhua -Jun 2003 Sun Assistant General May 2002 Male 45 0 0 Qiang Manager -Jun 2003 Jiang Male 40 Assistant General Jun 2000 0 0 7 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report Hanbin Manager -Jun 2003 Yuan Assistant General Aug 2002 Male 39 0 0 Yong Manager -Jun 2003 Zou Assistant General Aug 2002 Male 42 0 0 Dezhong Manager -Jun 2003 Xiao Jun 2000 Male 37 Secretary of BOD 0 0 Zhaokai -Jun 2003 Qian Associate Chief Jun 2000 Male 54 0 0 Ruicheng Accountant -Jun 2003 (2) Directors and supervisors working for the Company’s shareholders Name Company Position Office Term Huang Zhiqin China Putian Vice President Since Dec 2001 Zhou Zhenkai China Putian Retired Since Nov 2002 Cao Bin China Putian General Manager of Technology & Quality Since Nov 2001 Department Wang Lili China Putian Senior Researcher of Technology & Quality Since Dec 2001 Department Wang Jiaqiang China Putian General Manager of Financial Department Since Nov 2001 Jiang Kun China Putian Director and Assistant General Manager of Since Dec 2001 Chongqing Telecommunications Equipment Co., Ltd. (3) Annual remuneration How directors, supervisors, and senior management’s remuneration are decided and paid: Presently, the directors(exept independent directors) and supervisors are not paid by the Company. Those directors or supervisors who hold the administrative positions in the Company receive remuneration according to their administrative posts. The senior management are paid according to their responsibility by the General Manager within the scope decided by the Board of Directors. Independent directors receive allowance from the Company at the standard decided by the shareholder’s general meeting. In 2002, a total of RMB776,219 was paid to those directors, supervisors and senior management who received remuneration from the Company, including RMB235,597 to the three directors working in the Company and RMB340,904 to the three senior management with highest remuneration. There are ten persons receiving remuneration from the Company among the directors, supervisors and senior management, including 3 persons with an annual remuneration below RMB60,000 each, 6 persons between RMB60,000 to RMB90,000 each and one person over RMB90,000. Independent directors received an allowance of RMB18,000 (after-tax) each person from the Company in 2002. The directors and supervisors who do not receive remuneration from the Company are: Mr. Hang Zhiqin, Mr. Zhou Zhenkai, Mr. Cao Bin, Ms. Wang Lili, Mr. Wang Jiaqiang and Mr. Jiang Kun. They all receive remuneration from the controlling shareholder, China Putian Corporation. 8 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report (4) Employment and unemployment of the directors, supervisors and senior management in the reporting period In the reporting period, approved by the Shareholders General Meeting, Mr. Lu Junhai left the post of director due to retirement, Mr. Sun Qiang left the post of supervisor, Mr. Jiang Haishan and Mr. Liu Chuanxi were appointed as directors. Mr. Shi Xinhua was elected as Employee Supervisor by Employee Representative Meeting. Mr. Liu Chanxi, Mr. Sun Qiang, Mr. Yuanyong and Mr. Zou Dezhong were appointed by the Board of Directors as Assistant General Manager. 2. Employees of the Company At the end of 2002, the Company had 1,778 employees. A breakdown by job duties of the employees is as follows: Technology 340 Production 502 Sales 342 Services 309 Administration 285 A breakdown by educational level is as follows: University degree and above 353 Technical secondary school 178 College 429 Below high school 387 High school 431 The Company has 545 retired employees, whose expenses are jointly borne by the Company and social security fund. V. Corporate Governance Structure 1. Present state of the Company’s management Ever since listed in the stock market, the Company has been attaching great importance to corporate governance. It formulated the Rule of Procedure of the Board of Directors and Rule of Procedure of the Supervisory Committee and appointed two independent directors at an early time. During the reporting period it continued to improve its governance structure. According to the Company Ordinance, Securities Law and relevant requirement of China Securities Regulatory Commission (CSRC) as well as the actual condition, the Company formulated the Rule of Procedure of Shareholders General Meeting and amended the Articles of Association in order to further standardize its operation as a modern enterprise. The Company believes its present operation to be fundamentally in conformity with the requirement of the Listed Company Management Rule, though there are some discrepancies, particularly, as it need to perfect the incentive system for senior management and it hasn’t established special committee of the BOD. As for these deficiencies, the Company is now taking active actions to improve. 2. Independent directors’ working performance The Company engaged two independent directors in May 2001. The two independent directors were conscientious in performing their duties in the reporting period. They carefully attended the meetings of the BOD and participated the important decisions of Company in the spirit of protecting the interests of minor 9 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report shareholders. Their work has made the decisions of the Company more scientific. 3. “Five Separates” with the holding company The Company is independent on China Putian, the holding company, in terms of personnel, assets, finance, organization and business and has the ability to operate on self-determination. (1) Personnel: The Company has independent laboring and salary management system. General Manager, Assistant General Manager and other senior management all receive remuneration from the Company. None of them take any important positions in the holding Company. The nomination of directors and managers by the holding company are executed through legal procedures. (2) Assets: The assets of the Company is clearly clarified with the holding company on ownership, subject to no impropriation or interferences from the latter. (3) Finance: The Company has established independent financial department and financial control policies. The control company did not interfere the Company on using its own fund. (4) Organization: The Company has an all-round system of internal organizations such as the Board of Directors and Supervisory Committee, who can all perform their duties independently. (5) Business: The Company does its business independent on its ultimate controlling and related companies. 4. The Company has established an embryo incentive system for senior management, which is to be perfected in the future. VI. Highlights of Shareholders General Meeting In the reporting period the Company held 2001 Shareholders General Meeting. The Fourteenth Meeting of the Second BOD decided to hold the shareholders meeting, and published the meeting notice on the Securities Times and Ta Kung Pao on 18 April 2002. On 21 May 2002, the Company’s 2001 Shareholders General Meeting was held in the Company’s boardroom at No. 1 Putian Road, Qinhuai District, Nanjing. One state-owned legal person shareholder, representing 115,000,000 shares, and three B-shareholder and B-shareholder proxies, representing 46,750 shares, were present at the meeting. They represented 115,046,750 shares altogether, or 53.51% of the Company’s 215,000,000 share capitals in total. The meeting was presided by President of BOD, Mr. Huang Zhiqin, and passed the following proposals, including: (1) 2001 Annual Report of the Company (2) 2001 Work Report of the Board of Directors (3) 2001 Work Report of the Supervisory Committee (4) 2001 Work Report of General Manager 10 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report (5) 2001 Financial Report (6) 2001 Profit Distribution Plan and 2002 Profit Distribution Policy: no dividends shall be declared and no capital accumulation fund shall be transferred into share capital for 2001. It’s estimated that no dividend will be declared for 2002. (7) Adjusting members of the BOD (8) Listened the Second Supervisory Committee’s resolution of adjusting committee member (9) Amendment to the Articles of Association (10) Rule of Procedure of Shareholders General Meeting (11) Paying allowance to independent directors The announcement of the meeting was published on Securities Times and Ta Kung Pao on 22 May 2002. As approved by the meeting, Mr. Lu Junhai left the post of director due to retiring from work; Mr. Jiang Haishan and Mr. Liu Chuanxi were appointed as directors of the Second BOD. At the same time, Mr. Sun Qiang left the post of supervisor due to job transferring. Mr. Shi Xinhua was elected by Employee Representative Meeting as Employee Supervisor of the Second Supervisory Committee. VII. Report of the Board of Directors 1. Analysis of operating position of the Company in the reporting period 2002 was a hard year for telecommunications equipment industry. As a consequent of the recession of global telecom industry, the domestic telecom operators became more rational in their business strategies. Also in this year, China Telecom’s investment plan was affected by its restructuring process. According to the Information Industry Ministry, investment on domestic telecom fixed assets dropped 20 percent from last year. Under the influence of the decrease of market demand and the intensification of market competition, the Company incurred an decrease in sales income in its major products such as Distribution Frame and Comprehensive Wiring Products, while its operating expenses got higher than last year, thus resulting an deficit of RMB55,213 for the year. 2. Main business of the Company (1) Introduction of main business The Company is mainly engaged in manufacture, sales and after sales services of data communications products, wiring communications products, wireless communications products, distribution frame products as well as multi-media computers and relevant products. The Company’s main business was unchanged in the reporting period. It realized turn over of RMB625,872,000 for the year, 16.95% down form last year, and gross profit of RMB147,763,000, 17.87% down from last year. (2) Composition of turn over(yuan) By industry: Industry Sales Cost 11 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report Telecommunications 509,977,683.41 380,766,890.67 Electric appliances 102,310,488.19 83,307,407.28 By products: Product Sales Cost Distribution frame 212,873,982.45 150,968,306.59 Network products 217,754,807.01 175,752,896.13 Wireless products 57,587,901.38 49,006,839.41 Electric products 102,310,488.19 83,307,407.28 By region: Region Sales Cost North China 118,428,238.04 87,786,961.26 East China 224,016,173.68 176,664,464.76 South-east China 66,882,628.78 49,589,197.76 North-east China 43,161,357.82 32,008,890.75 Central China 29,388,653.21 23,106,790.81 South-west China 60,933,943.44 46,186,611.11 South China 34,187,269.37 25,271,528.77 North-west China 32,799,717.72 22,716,720.79 Products contributing 10 percent of turn over:: Products Sales Cost Gross margin Network products 217,754,807.01 175,752,896.13 19.29% Electric products 102,310,488.19 83,307,407.28 18.57% Distribution frame 212,873,982.45 150,968,306.59 29.08% (3) Operating results of main subsidiaries and associated companies(yuan) Main subsidiaries Company’s Registered Subsidiary Main business Total assets Turnover Net profit equity capital Nanjing Nanfang Data communication Telecommunications 100% 33,175,147 143,098,835 132,186,828 -11,165,679 equipment Company Nanjing Hongyan Electric Manufacture and sales 74% 11,970,000 54,547,593 73,039,801 -819,221 Appliances Company of electrical products Nanjing Postel Intelligent building Smart-building Technology 70% 12,000,000 58,373,461 63,337,782 2,094,122 system Company Nanjing Postel Hongyan Electric appliances, Electric Appliance 65% telecommunication US$ 400,000 9,744,115 44,513,553 1,420,471 Company parts Beijing Pi-com Network electronic Telecommunications 51% products, digital US $ 500,000 90,597,948 50,853,895 -4,066,754 Equipment Ltd. transmission system Associated companies on which investment income contributing more than 10 percent of the Company’s net profit. investment Equity of the Registered Company Main business Net profit Income to the Company capital Company 12 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report Nanjing Postel Wong Zhi Manufacture and Telecommunications 34% sales of CMMA 50,000,000 -19,034,703 -6,471,799 Co., Ltd mobile phone (4) Main suppliers and customers In 2002, the Company’s purchase from the top five suppliers accounted for about 31.74 percent of the total amount, and sales to the top five customers accounted for about 6.18 percent of the total amount. (5) Difficulty in operation The Company’s operating position in 2002 shows that the decrease of the sales income was mainly caused by telecommunications equipment market demand, and increase of cost and expenses also affected the profit. The Company is going to work hard to promote its competitiveness and operating results by various measures including readjusting industry structure, strengthening internal management and preventing cost rise. 2. Investment in reporting period (1) Use of proceeds from share issuing The Company did not raise any fund by issuing shares in the reporting period or use proceeds raised in previous periods. (2) Other investment in report period There are no significant investment during the reporting period. In the reporting period the Company invested 8.9 million yuan to form a new subsidiary named Nanjing Putian Internet Company jointly with some technician cadremen, and holds 89% stake in it. The subsidiary, which has a registered capital of 10 million yuan, is mainly engaged in development, production and sales of wide-band products. The subsidiary which was officially established in October 2002 incurred a loss of 723 thousand yuan for this year. In the reporting period, as agreed by the other shareholders, the Company made an additional investment in its associated Company, Nanjing Postel Wong Zhi Telecommunications Co., Ltd., in order to speed up the production of CDMA mobile phone. The proportion of each shareholders’ interest in the company kept unchanged after the investment, and the Company still holds 34% stake in it. Nanjing Postel Wong Zhi Telecommunications Co., Ltd. is a joint venture specializing in manufacture and sales of CDMA mobile phone, invested by parties including Toshiba Corporation Japan, Hong Kong Wong’s Industrial (holdings) Ltd. and the Company. It set on business in 2000 and launched its products in this year. In the reporting period, the Company made an additional investment of 7,068,000 yuan in its subsidiary, Nanjing Postel Smart-building Technology Company, with an increase of equity from 70 percent to 82.24 percent. 3. Analysis on financial position and operating results(RMB’000) Item 2002 2001 Increase/ Ratio Main reason of increase/decrease 13 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report decrease Total assets 962,347 1,035,535 -73,188 -7.07% Decrease of current liabilities and decrease of shareholders equity by net loss for the year Shareholder’s 336,096 391,279 -55,183 -14.10% Deficit for the year equity Increase of cash -88,309 89,261 -177,570 -198.93% Increase of cash used in repaying loan and and cash investment activities in the year equivalents Gross profit 147,763 179,907 -32,144 -17.87% Decrease of sales income over last year Subsidy receipt 5,153 1,258 3,895 309.62% Subsidy for a technical renovation project Net profit -55,213 2,383 -57,596 -2416.95% Decrease of turnover, increase of expenses and decrease of investment income 4. Work plan for next year According to the analysis, the condition in 2003 will still be serious for the telecommunication and electric appliance industries, while there will be some new highlights. The Company is going to seize the market opportunity, forge ahead with new ideas and measures and strive to bring about an upswing in 2003. Generally, it will do the following work: (1) Further adjust product composition, accelerate development of new products, form the “Four Industry Structure” including Distribution Frame Industry, Internet Industry, Wireless Industry and Electric Industry. (2) strengthen market exploration, establish a united marketing network in order to centralize marketing resources, reduce cost and adapt to the demand of market competition. (3) To take reform in system and mechanism, strengthen examination on employees, set up the system of “elimination through contest” to enhance the employees’ positivity and promote the enterprise’s competitiveness. (4) Introduce more foreign investment, increase export, and try to make progress in international business. (5) Strengthen capital management, select the profitable while abandoning the unprofitable in order to perfect its product mix. (6) Enhance management standard, centralize resources and reduce cost by overall budget management and ERP. (7) Implement Brand Strategy, adopt ISO 9000 Quality Management System to promote product quality. (8) Strengthen technical renovation to enhance product capacity. (9) Strengthen corporate culture building to improve the quality of employees. 6. Routine work of the Board of Directors (1) Meetings and resolutions of BOD during the reporting period Thirteen meetings of BOD were held during the reporting period. 1) On 22 January 2002, the Company held the 11th Meeting of the Second BOD, which considered and approved the proposal of adjusting investment amount in its associated Company, Nanjing Postel Wong Zhi Telecommunications Co., Ltd.,. Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 25 January 2002. 2) On 7 March 2002, the Company held the 12th Meeting of the Second BOD, on which 14 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report the following resolutions were considered and approved: A. Mr. Cao Bin left the post of General Manager and Chief Engineer; B. Appoint Mr. Liu Chuanxi as Assistant General Manager; C. Transfer the Company’s 3.33% equity of Nanjing Dongda Wideband Telecom Technology Company to the other investors. Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 9 March 2002.. 3) On 13 April 2002, the Company held the 13th Meeting of the Second BOD on which the following resolutions were considered and approved: A. Set up Nanjing Putian Wideband Network Co., Ltd. B. Readjust the planned additional investment in Nanjing Postel Smart-building Co., Ltd. C. Cancel the previous investment plan with SVT Group D. Change the Company’s registered address. Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 16 April 2002. 4) On 16 April 2002, the Company held the 14th Meeting of the Second BOD, on which the following proposals were considered and approved: A. 2001 Work Report of the Board of Directors B. 2001 Work Report of General Manager C. 2001 Financial Report D. 2001 profit distribution preplan and 2002 profit distribution policy E. 2001 Annual Report and summary F. Amendment to the Articles of Association G. Adjust the members of the Board of Directors: approved Mr. Lu Junhai to leave the post of director due to his retiring from work, nominated Mr. Jiang Haishan and Mr. Liu Chuanxi as directors; elected Mr. Huang Zhiqin as president of the Board of Directors. H. Rules of Procedures of Shareholders General Meeting I. Rules of Procedures of the Board of Directors J. Pay allowance to Independent Directors K. Proposals on holding 2001 Shareholders General Meeting Announcement of the meeting was published on the Securities Times and Ta Kung Pao on18 April 2002. 5) On 25 April 2002, the Company held the 15th Meeting of the Second BOD, which considered and approved the Company’s 2002 First Quarter Report. Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 27 April 2002. 6) On 21 May 2002, the Company held the 16th Meeting of the Second BOD, which 15 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report approved to appoint Mr. Sun Qiang as Assistant General Manager. Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 22 May 2002. 7) On 18 June 2002, the Company held the 17th Meeting of the Second BOD, which approved to transfer its 2.24% equity in Hangzhou Hongyan Company to China Putian Corporation. 8) On 26 June 2002, the Company held the 18th Meeting of the Second BOD, which approved the Company’s self-inspection report on establishing modern enterprise system. 9) On 2 August 2002, the Company held the 19th Meeting of the Second BOD, which approved to adjust the investment plan on Nanjing Putian Internet Co., Ltd.. 10) On 14 August 2002, the Company held the 20th Meeting of the Second BOD, on which the following proposals were considered and approved: A. General Manager’s Work Report of the first half of 2002 B. Financial report of the first half of 2002 C. Distribution plan for the first half of 2002 D. 2002 Semi-annual Report and summary E. Suspend the preparatory work of refinancing by share issuing F. Appoint Mr. Yuan Yong and Mr. Zou Dezhong as Assistant General Manager. Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 17 August 2002. 11) On 27 September 2002, the Company held the 21st Meeting of the Second BOD, which considered and approved the proposal of adjusting its equity in Nanjing Putian Internet Company to be invested. 12) On 25 October 2002, the Company held the 22nd Meeting of the Second BOD, which considered and approved the Company’s Third Quarter Report. 13) On 13 December 2002, the Company held the 23rd Meeting of the Second BOD, which approved to render guarantee for its subsidiary, Beijing P-com Telecommunications Company Ltd. for a bank loan of RMB5,000,000. (2) Implementation of resolutions of Shareholders General Meeting by BOD Pursuant to the resolution of 2001 Shareholders General Meeting, the Company began to pay allowance to Independent Directors from this year. 7. Profit distribution preplan for the year The Company realized net loss of 55,213 thousand yuan and accumulated losses of 55,052 thousand yuan for 2002. According to the profit distribution policy passed by the 16 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report 14th Meeting of the Second BOD as well as the fact of the Company’s accumulated losses, the Board of Directors advised that no dividends be declared for 2002, and that no capital accumulation fund be transferred into share capital. VIII. Report of Supervisory Committee 1. Meetings of the Supervisory Committee during the reporting period The Supervisory Committee held four meetings in the reporting period.: (1) On 16 April 2002,the Company held the 6th Meeting of the Second Supervisory Committee, which considered and approved the Supervisory Committee’s 2001 Work Report, the Company’s 2001 Annual Report and Summary, 2001 Financial Report and proposal on adjusting members of the Supervisory Committee. Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 18 April 2002. (2) On 25 April 2002, the 7th Meeting of the Second Supervisory Committee was held, which considered and approved the First Quarter Report of the Company. Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 27 April 2002. (3) On 14 August 2002, the Company held the 8th Meeting of the Second Supervisory Committee, which considered and approved the financial report and profit distribution plan for the first half of 2002 and the Company’s 2002 Semi-annual Report and summary. Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 17 August 2002. (4) On 25 October 2002, the Company held the 9th Meeting of the Second BOD, which considered and passed the Company’s 2002 Third Quarter Report. Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 26 October 2002. 2. Independent opinion presented by the Supervisory Committee (1) The Company’s performance in abiding by the laws in operation The Supervisory Committee inspected and supervised the procedures and resolutions of Shareholders General Meeting and the Board of Directors as well as implementation of Shareholders General Meeting by BOD, senior management’s actions in performing duties and enterprise management mechanism of the Company. The Supervisory Committee believe that the Board of Directors and the administrative management were in conformance with the relevant rules including Company Law, Securities Law, Regulations On Listed Company of Shenzhen Stock Exchange and the Articles of Association of the Company in operation during the reporting period. Internal control policies have been formulated. And no acts of the directors and senior management were 17 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report observed violating the laws or contrary to the interest of the Company in their duties. Under the leadership of the Board of Directors and the management, the Company made great efforts to avoid from the impact of the grim external situation and has achieved awarding results in some aspects. (2) The Company’s financial position: The Supervisory Committee carefully inspected the financial policy and position of the Company, and believe that the 2002 Accounting Statement gives a true view of the Company’s financial position and operating results, and the 2002 Auditor’s Report as well as the related judgement presented by Pricewaterhouse Coopers is objective and fair. The Company’s inventory and trade receivables remain at a high level although it has made provision for impairment of bad assets according to accounting regulations in this year. In 2003, it need to take more effective measures to reduce loss on assets and prevent from financial risks. We also suggest the Company to reduce expenses and strengthen budget management to enhance operating results in the present unfavorable market condition under intensive competition. (3) The Company’s related transactions: In this year the Company’s related transactions were executed at market price by normal commercial terms under the rule of fair trade. No actions of harming the interest of the Company were observed by the Supervisory Committee after inspection. IX. Significant Events 1. The Company was not engaged in any lawsuit or arbitration of material importance during the reporting period. 2. matters related to purchasing assets, selling assets or merging during the reporting period In April 2002, the Company transferred its 3.33% equity of Nanjing Dongda Wideband Telecom Technology Company(original investment amount RMB500,000) to the other investors at the price RMB1,000,000. 3. Material related transactions: (1) There are no material related transactions during the reporting period. (2) Other related transactions: see Notes to the Financial Statements 26 Note: The related transactions were of selling of products via each other’s marketing network out of normal necessity of business, and may be continued to occur in 2003. 4. Material contracts 18 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report (1) During the reporting period the Company did not trust, contract or lease assets to other companies or from other companies. (2) Material guarantee: During the reporting period the Company did not render guarantee of material amount to any other companies. It rendered guarantee for the following subsidiaries’ bank loans in the reporting period (million yuan) Relation with Time of Time of Type of Warrantee amount term note the Company lending repayment guarantee Half Joint 10 06.06.2002 12.06. 2002. repaid year liabilities Nanjing Nanfang Fully owned Joint Telecommunications 10 07.25. 2002 07.25.2003 1 year subsidiary liabilities Company Joint 20 06.28.2002 06.27.2003 1 year liabilities Half Joint 1 06.14.2002 12.14.2002 repaid year liabilities Half Joint 3 01.15.2002 07.15.2002 repaid year liabilities Half Joint 1 04.29.2002 10.29.2002 repaid year liabilities Nanjing Hongyan Controlled Joint Electric Appliance 1 12.16.2002 12.16.2003 1 year subsidiary liabilities Company Half Joint 1 10.31.2002 04.30.2003 year liabilities Half Joint 3 07.10.2002 01.10.2003 year liabilities Half Joint 3 09.25.2002 03.25.2003 year liabilities Half Joint 2 04.03.2002 10.02.2002 repaid year liabilities Half Joint 1.5 05.30.2002 11.29.2002 repaid year liabilities Nanjing Postel Controlled Half Joint Hongyan Electric 1 06.15.2002 12.14.2002 repaid subsidiary year liabilities Appliance Company Joint 1 12.23.2002 12.22.2003 1 year liabilities Half Joint 2 10.08.2002 04.07.2003 year liabilities Nanjing Bada Controlled Nine Joint Telecommunications 2 06.03.2002 03.03.2003 subsidiary months liabilities Factory Nanjing Postel Controlled Five Joint Smart-building 4 12.26.2002 05.23.2003 subsidiary months liabilities Technology Ltd. 1 year Joint 2 02.25.2002 02.25.2003 liabilities 1 year Joint 1 05.22.2002 05.22.2003 liabilities Associated Nanjing Mennekes 1 year Joint company 2 07.26.2002 07.26.2003 Electric Appliance Ltd. liabilities (consolidated) 1 year Joint 2 10.18.2002 10.18.2003 liabilities 1 year Joint 1 10.21.2002 10.21.2003 liabilities Note: the company did not provide guarantee for any other parties except the above companies. (3) The Company made no entrust investment during the reporting period. 19 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report 5. Commitment of the Company or shareholders holding over 5 percent share capital During the reporting period, the Company or shareholders holding more than 5 percent of share capital did not make any commitment. 6. Appointment of Public Accountant The Company continued to appoint Price WaterHouseCoopers Zhong Tian CPAs Co., Ltd. and PricewaterhouseCoopers China Limited as the domestic and foreign auditors. Payment to the auditors: (unit: yuan) 2002 2001 Auditor Audit expense Other expense Audit expense Other expense Price WaterHouseCoopers 300,000 500,000 Zhong Tian CPAs Co., Ltd. PricewaterhouseCoopers 700,000 700,000 China Limited Note: (1) Expense for business trip was borne by the auditors themselves. (2) At the end of the reporting period, there was 300,000 yuan not paid to the auditors yet as the auditing for 2002 had not been finished, and it will be settled after the work is finished. (3) The auditors provided no other services charging fees except audit services for the Company. 7. The Company, the Board of Directors or the directors were not punished by the securities regulatory departments during the reporting period. X. Financial Report 1. Auditor’s report The Company’s 2002 Financial Statements were audited and issued a report with unqualified opinion by Price WaterHouseCoopers Zhong Tian CPAs Co., Ltd. and PricewaterhouseCoopers China Limited. REPORT OF THE AUDITORS TO THE SHAREHOLDERS OF NANJING POSTEL TELECOMMUNICATIONS CO., LTD. (incorporated in the People's Republic of China with limited liability) We have audited the accompanying consolidated balance sheet of Nanjing Postel Telecommunications Co., Ltd. (the “Company”) and its subsidiaries (the “Group”) as of 31 December 2002 and the related consolidated income and cash flow statements for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable 20 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Group as of 31 December 2002 and of the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards. PricewaterhouseCoopers China Limited Shanghai, People's Republic of China 17 April 2003 2. Financial statements(attached) 3. Notes to the financial statements (attached) XI. Documents for Inspection 1. Original text of accounting statements signed and sealed by legal person representative, financial controller and accountant officer. 2. Original text of Auditor’s Report signed and sealed by Certified Public Accountant with public accountant’s seals on. 3. Original texts of all the files and announcements published on the newspapers appointed by China Securities Regulatory Commission during the reporting period. Nanjing Putian Telecommunications Co., Ltd. 19 April 2003 21 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report NANJING PUTIAN TELECOMMUNICATIONS CO., LTD. CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts are stated in Renminbi thousand Yuan unless otherwise stated) Notes 2002 2001 Sales 3 625,872 753,608 Cost of sales 3 (478,109) (573,701)   Gross profit 147,763 179,907 Other operating income 13,161 7,049 Distribution costs (66,666) (58,847) Administrative expenses (109,901) (89,709) Other operating expenses (4,454) (4,875)   Operating (loss) profit 4 (20,097) 33,525 Finance costs, net 6 (23,995) (19,954) (Loss) profit on disposal of a subsidiary 7 (721) 1,150 Profit on sale of trading investments 164 1,249   (Loss) profit before tax (44,649) 15,970 Profit from sales of investments in an associated company 503 - Share of loss of associated companies 13 (6,829) (2,758)   (Loss) profit before tax (50,975) 13,212 Tax 8 (5,658) (6,990)   (Loss) profit before minority interests (56,633) 6,222 Minority interests 9 1,420 (3,839)   Net (loss) profit for the year (55,213) 2,383   (Loss) earnings per share 10 Rmb (0.26) Rmb 0.01   22 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report NANJING PUTIAN TELECOMMUNICATIONS CO., LTD. CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2002 (All amounts are stated in Renminbi thousand Yuan unless otherwise stated) Notes 2002 2001 ASSETS Non-current assets Property, plant and equipment 11 110,654 118,527 Construction in progress 9,316 3,482 Land use rights 12 35,559 36,402 Investments in associated companies 13 22,241 18,253 Intangible assets 14 17,440 13,455   195,210 190,119   Current assets Inventories 15 178,471 189,188 Receivables and prepayments 16 409,812 421,993 Trading investments - 17 Cash and bank balances 17 178,854 234,218   767,137 845,416   Total assets 962,347 1,035,535   23 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report NANJING PUTIAN TELECOMMUNICATIONS CO., LTD. CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2002 (continued) (All amounts are stated in Renminbi thousand Yuan unless otherwise stated) Notes 2002 2001 EQUITY AND LIABILITIES Capital and reserves Share capital 18 215,000 215,000 Reserves 19 121,096 176,279   336,096 391,279   Minority interests 9 17,457 21,082   Non-current liabilities Long-term bank loan 20 35,000 35,000 Employee housing benefits payable 20,655 26,862 Other non-current liabilities 842 1,936   56,497 63,798   Current liabilities Trade and other payables 21 261,604 173,063 Current tax liabilities 729 2,063 Dividend payable 464 50 Short-term bank loans 22 289,500 384,200   552,297 559,376   Total liabilities 608,794 623,174   Total equity and liabilities 962,347 1,035,535   On 17 April 2003, the Company’s Board of Directors authorised these financial statements for issue. 24 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report NANJING PUTIAN TELECOMMUNICATIONS CO., LTD. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts are stated in Renminbi thousand Yuan unless otherwise stated) Year ended 31 December 2001 Statutory and Retained Capital discretionary Exchange earnings accumulation accumulation Statutory Translation Other (accumulated fund fund welfare fund reserve reserves losses Balance at 1 January 2001 - As previously reported 178,570 32,480 19,949 - 115 (33,351 - Effect of adopting IAS 39 (note a) - - - - - (21,833 - Pre-operating expenses written off - - - - - (2,014       - As restated 178,570 32,480 19,949 - 115 (57,198 Transfer of employee housing benefits cost (note b) (29,131) (15,283) (9,643) - - 54,057 Adjustment for previous years’ profit appropriations (note c) - (479) (479) - - 958 Investment reserves (2) - - - - Disposal of a subsidiary - (2,253) (354) - - 2,607 Exchange translation difference - - - (18) - Net profit for the year - - - - - 2,383 Profit appropriation for 2001 - 533 309 - - (842       Balance at 31 December 2001 149,437 14,998 9,782 (18) 115 1,965       (a) In accordance with the transitional requirements of IAS 39, the Group recorded a net loss of Rmb 21,833 in retained earnings for financial liabilities at their amortised cost. (b) Pursuant to the circulars on housing reform issued by the Ministry of Finance of the PRC, the Group transferred the total employee “accumulated losses” account to the “statutory welfare fund”, “statutory and discretionary accumulation fund” and “capital accumulation (c) Upon adoption of the new PRC accounting standards which became effective on 1 January 2001, certain prior year amounts were res were also adjusted accordingly. 25 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report NANJING PUTIAN TELECOMMUNICATIONS CO., LTD. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2002 (continued) (All amounts are stated in Renminbi thousand Yuan unless otherwise stated) Year ended 31 December 2002 Statutory and Retain Capital discretionary Exchange earning accumulation accumulation Statutory Translation Other (accumulat fund fund welfare fund reserve reserves losse Balance at 1 January 2002 149,437 14,998 9,782 (18) 115 1,9 Exchange translation difference - - - (40) - Net loss for the year - - - - - (55,2 Proposed profit appropriation for 2002 - 1,333 471 - - (1,8 Other movement 70 - - - -       Balance at 31 December 2002 149,507 16,331 10,253 (58) 115 (55,0       26 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report NANJING PUTIAN TELECOMMUNICATIONS CO., LTD. CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts are stated in Renminbi thousand Yuan unless otherwise stated) Notes 2002 2001 CASH FLOWS FROM OPERATING ACTIVITIES (Loss) profit before tax (50,975) 13,212 Adjustments for: Depreciation 11 20,058 19,481 Impairment of property, plant and equipment 11 1,038 2,117 Impairment of receivables 4 7,292 110 Write-down of inventories 4 24,777 5,985 Amortization of land use rights and intangible assets 12, 14 5,765 4,979 Interest expense 6 24,868 19,863 Interest income 6 (1,109) (1,259) Share of loss of associated companies 13 6,829 2,758 Profit on sale of an associated company (503) - Loss on disposal of property, plant and equipment and intangible assets 502 1,399 Loss (profit) on disposal of a subsidiary 7 721 (1,150) Profit on sale of trading investments (164) (1,249)   Operating profit before working capital changes 39,099 66,246   Increase in inventories (14,060) (21,855) Decrease in receivables and prepayments 4,871 49,450 Increase (decrease) increase in trade and other payables 87,028 (72,531)   Cash generated from operations 116,938 21,310 Net interest paid (23,759) (18,604) Tax paid (6,992) (5,256)   Net cash generated from (used in) operating activities 86,187 (2,550)   27 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002 (continued) (All amounts are stated in Renminbi thousand Yuan unless otherwise stated) Notes 2002 2001 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of government bonds 18 18 Proceeds from disposal of property, plant and equipment 550 1,846 Purchase of property, plant and equipment, intangible assets and payments on construction projects (24,886) (23,417) Investments in associated companies (15,121) (6,363) Proceeds from sale of trading investments 181 3,709 Disposal of a subsidiary, net of cash disposed 7 (494) (3,867) Cash paid relating to the investing activities (31,942) -   Net cash used in investing activities (71,694) (28,074)   CASH FLOWS FROM FINANCING ACTIVITIES Repayment of non-current liabilities (7,301) (2,206) Proceeds from bank loans 405,000 298,200 Repayment of bank loans (499,700) (175,200) Capital contributed by minority shareholders of consolidated subsidiaries 1,299 - Dividend paid to minority shareholders (2,100) (909)   Net cash (used in) generated from financing activities (102,802) 119,885   (Decrease) increase in cash and cash equivalents (88,309) 89,261 Cash and cash equivalents at beginning of year 234,218 144,957   Cash and cash equivalents at end of year 145,909 234,218   Cash and cash equivalents comprise: Cash at bank and in hand 145,909 234,218   28 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report NANJING PUTIAN TELECOMMUNICATIONS CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts are stated in Renminbi thousand Yuan unless otherwise stated) 1 CORPORATE INFORMATION Nanjing PUTIAN Telecommunications Co., Ltd. (the “Company”) was established in May 1997 in the People’s Republic of China (the “PRC”) as a joint stock limited company. The principal activities of the Company and its subsidiaries (the “Group”) are the manufacture and marketing of telecommunication equipment, electric appliances and other related accessories in the PRC. Particulars of the Company's principal subsidiaries, joint ventures and associated companies are shown in note 25. All the operating assets and substantially all the sales of the Group are based in the PRC. China Putian Corporation, which holds the Company’s 115,000,000 state-owned shares, or 53.49% of the Company’s total share capital, is regarded as the Company’s ultimate holding company (the “Ultimate Holding Company”). 2 PRINCIPAL ACCOUNTING POLICIES (a) Basis of preparation The consolidated financial statements have been prepared based on the management accounts of the Company, its subsidiaries, joint ventures and associated companies. Those management accounts are prepared in accordance with PRC accounting standards, which differ in certain respects from International Financial Reporting Standards (“IFRS”). These financial statements have incorporated adjustments made to the management accounts in order to conform with IFRS. The consolidated financial statements have been prepared under the historical cost convention. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current events and actions, actual results ultimately may differ from those estimates. The Group adopted International Accounting Standard 39 – Financial Instruments: Recognition and Measurement in 2001. The financial effects of adopting this standard were reported in the previous year’s consolidated financial statements. (b) Group accounting (1) Subsidiaries Subsidiaries are those entities in which the Group has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless cost cannot be recovered. Where necessary, accounting policies for subsidiaries have been changed to ensure consistency with those adopted by the Group. (2) Associated companies Investments in associated companies are accounted for by the equity method of accounting. Under this method the Company’s share of the post-acquisition profits or losses of associated companies is recognised in the income statement and its share of post-acquisition movements 29 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the cost of the investment. Associated companies are entities over which the Group generally has between 20% and 50% of the voting rights, or over which the Group has significant influence, but which it does not control. Unrealised gains on transactions between the Group and its associated companies are eliminated to the extent of the Group’s interest in the associated companies; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. When the Group’s share of losses in an associated company equals or exceeds its interest in the associated company, the Group does not recognise further losses, unless the Group has incurred obligations or made payments on behalf of the associated company. (3) Joint ventures The Group’s interests in jointly controlled entities are accounted for by proportionate consolidation. The Group combines its share of the joint ventures’ individual income and expenses, assets and liabilities and cash flows on a line-by-line basis with similar items in the Group’s financial statements. The Group recognises the portion of gains or losses on the sale of assets by the Group to the joint venture that it is attributable to the other venturers. The Group does not recognise its share of profits or losses from the joint venture that result from the purchase of assets by the Group from the joint venture until it resells the assets to an independent party. However, if a loss on the transaction provides evidence of a reduction in the net realisable value of current assets or an impairment loss, the loss is recognised immediately. (c) Foreign currency translation (1) Reporting currency The Company uses the Renminbi (“Rmb”) as reporting currency. The consolidated financial statements of the Group are presented in Renminbi thousand. (2) Transactions and balances Foreign currency transactions are translated into Rmb using the exchange rates stipulated by the People’s Bank of China prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into Renminbi at the exchange rates stipulated by the People’s Bank of China at the balance sheet date. Exchange differences arising from these translations are recognised in the income statement. (3) Foreign entities Income statements and cash flows of foreign entities are translated into the Group’s reporting currency at average exchange rates for the year and their balance sheets are translated at the exchange rates ruling on 31 December. Exchange differences arising from the net investment in foreign entities are taken to shareholders’ equity. When a foreign entity is sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale. (d) Trading investments Investments that are acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as trading investments and included in current assets. All purchases and sales of trading investments are recognised on the trade date, which is the date that the Group commits to purchase or sell the asset. Cost of purchase includes transaction costs. Trading investments are subsequently carried at fair value. Realised and unrealised gains and losses arising from changes in the fair value of trading investments are included in the income statement in the year in which they arise. (e) Property, plant and equipment 30 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report Property, plant and equipment are stated at cost less accumulated depreciation and impairment loss. Depreciation is calculated on the straight-line method to write off the cost of each asset to their residual values over their estimated useful lives as follows: Buildings 15-35 years Plant and machinery 10-15 years Furniture, fixtures and office equipment 6-8 years Motor vehicles 4-11 years When the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains and losses on disposal of property, plant and equipment are determined by comparing proceeds with carrying amount and are included in operating profit. Interest costs on borrowings to finance the construction of property, plant and equipment are capitalised during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are expensed. Repairs and maintenance are charged to the income statement during the financial period in which they are incurred. The cost of major renovations is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset. (f) Construction in progress Construction in progress represents capital assets under construction or being installed and is stated at cost. Cost comprises cost of equipment, construction costs and other direct costs including interest expense arising from borrowings to finance the projects during the construction period. On completion of construction, the cost is transferred to property, plant and equipment. (g) Land use rights Land use rights are stated at cost less amortization. Amortization is calculated on the straight line method to write off the cost of land use rights over their use period. (h) Intangible assets Intangible assets represent software expenditures. Software expenditures represent the cost of software rights. They are stated at cost and amortized on the straight-line basis over their use period from the date they are put into use. (i) Impairment of long-lived assets Property, plant and equipment and other non-current assets, including intangible assets, are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount which is the higher of an asset’s net selling price and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows. (j) Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted average method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity) but excludes borrowing costs. Net realisable value is the estimated selling 31 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report price in the ordinary course of business, less the costs of completion and selling expenses. (k) Trade receivables Trade receivables are carried at original invoice amount less provision made for impairment of these receivables. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, discounted at the market rate of interest for similar borrowers. (l) Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. For the purpose of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks and other short-term highly liquid investments. (m) Borrowings Borrowings are recognised initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings. (n) Pension costs The Group participates in a government defined contribution retirement scheme. Under the scheme, retirement benefits of existing and retired employees are guaranteed by the local Unified Retirement Fund and the Group has no further obligations beyond the annual contributions. The Group's contributions are charged to the income statement in the period to which they relate. (o) Income taxes PRC income tax is provided for based on the assessable profits computed in accordance with PRC tax regulations and tax rates applicable to the Group. Deferred income tax is provided, using the liability method, for all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. Currently enacted tax rates are used to determine deferred income tax. (p) Revenue recognition Revenue comprises the invoiced value for the sale of goods and services net of value-added tax, rebates and discounts, and after eliminating sales within the Group. Revenue from the sale of goods is recognised when significant risks and rewards of ownership of the goods are transferred to the buyer. Revenue from rendering of services is based on the stage of completion determined by reference to services performed to date as a percentage of total services to be performed. Other revenues earned by the Group are recognised on the following bases: • Interest income - on an effective yield basis. • Subsidy income - when the right to receive payment is approved by the government. (q) Financial instruments Financial instruments carried in the balance sheet include cash and bank balances, investments, receivables and prepayments, payables and borrowings. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. 32 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report 3 SALES AND COST OF SALES Sales and cost of sales include the following: Manufactured Purchased telecommunication telecommunication and and Manufactured Sub-contracting electrical products electrical products electronics products services 2002 Sales 346,103 195,374 56,583 2,072 Cost of sales (248,707) (164,513) (42,100) (1,816)      Gross profit 97,396 30,861 14,483 256      2001 Sales 450,422 196,124 81,660 1,762 Cost of sales (327,143) (166,199) (63,070) (1,042)      Gross profit 123,279 29,925 18,590 720      The Group is organized into one main business segment, telecommunication and related products. Accordingly no presented. All assets and operations of the Group are located in the PRC, which is considered as one geographic location in an returns. Accordingly, no geographical segment information is presented. 33 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report 4 OPERATING (LOSS) PROFIT 2002 2001 The following items have been included in arriving at operating (loss) profit: Profit from sale of trademark (note 26(a)) 2,000 - Subsidy income 5,153 1,258 Depreciation on property, plant and equipment (note 11) 20,058 19,481 Loss on disposal of property, plant and equipment 485 1,399 Staff costs (note 5) 56,111 59,276 Impairment of receivables 7,292 110 Write-down of inventories 24,777 5,985 Impairment of property, plant and equipment included in “other operating expenses” (note 11) 1,038 2,117 Amortization of land use rights (Included in “Administrative expenses”) (note 12) 828 1,034 Amortization of intangible assets (Included in “Administrative expenses”) (note 14) 4,937 3,945   5 STAFF COSTS 2002 2001 Employees’ wages and salaries 42,642 47,212 Pension costs 9,351 9,003 Directors’ remuneration 596 661 Other 3,522 2,400   56,111 59,276   Average number of persons employed by the Group during the year 1,759 1,767   6 FINANCE COSTS, NET 2002 2001 Interest expense on bank loans 24,868 19,863 Interest income (1,109) (1,259) Other 236 1,350   23,995 19,954   7 DISPOSAL OF A SUBSIDIARY In November 2002, Nanjing Postel Triway Telecommunications Company Ltd. (“Triway”) , a 51% owned subsidiary of the Group, was liquidated. Accordingly Triway was no longer consolidated into the Group since the date its liquidation. 34 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report The related assets and liabilities of Triway at the date of liquidation are as follows: Property, plant and equipment 38 Cash and bank balances 1,071 Other payables (100)  Net assets at the date of liquidation 1,009  Net assets received from liquidation 515 Book value of the Group’s investment 1,236  Loss on disposal (721)  The effect of the disposal on cash and cash equivalents of the Group is as follows: Cash received on liquidation 577 Cash and bank balances at the date of liquidation 1,071  Net cash outflow on disposal (494)  8 TAX 2002 2001 Current tax 5,658 6,990 Share of tax of associated companies (note 13) - -   5,658 6,990   The Company and its subsidiaries and joint ventures are subject to the following income tax rates in 2002 and 2001: 2002 2001 The Company (a) 15% 15% Nanjing Nanfang Telecommunications Company Limited (a) 15% 15% Nanjing Bada Telecommunications Factory 33% 33% Nanjing Hongyan Electric Appliance Company 33% 33% Shanghai Huaning Telecommunications Development Ltd. (b) 15% 15% Nanjing Golden Huali Electronics Ltd. (c) - - Nanjing Yuhua Electroplating Factory 33% 33% Nanjing Postel Shiye Company Ltd. 33% 33% Nanjing Postel Computer Company Ltd. 33% 33% Nanjing Mennekes Electric Appliance Ltd. (c) 27% 12% Nanjing Postel Smart-building Technology Ltd. 33% 33% Postel Telecommunications (H.K.) Co., Ltd. (d) 16% 16% Beijing Picom Telecommunications Equipment Ltd. (c) - - Nanjing Postel Hongyan Electric Appliance Company (c) - - Nanjing Postel Computer Technology Company Ltd. 33% 33% 35 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report Nanjing Postel Network Company Ltd. (e) - - (a) Both the Company and Nanjing Nanfang Telecommunications Company Limited are qualified as high technology enterprises established in the Nanjing High and New Technology Industrial Development Zone. In accordance with relevant regulations, they are subject to income tax at a reduced rate of 15%. (b) Shanghai Huaning Telecommunications Development Ltd. (“Huaning”) is established in the Shanghai Pudong Area. In accordance with the relevant regulations, Huaning is subject to income tax at a reduced rate of 15%. (c) Nanjing Golden Huali Electronics Ltd., Nanjing Mennekes Electric Appliance Ltd., Beijng Picom Telecommunications Equipment Ltd. and Nanjing Postel Hongyan Electric Appliance Company are Sino-foreign joint ventures and are entitled to full exemption from income tax for the first two years starting from the first profit-making year (after utilising all tax losses brought forward) and a 50% reduction in the income tax rate for the three years thereafter. Nanjing Golden Huali Electronics Ltd. has not yet fully utilised its losses brought forward from prior years, and therefore, is not subject to income tax for 2002. In 2002, Nanjing Mennekes Electric Appliance Ltd. is subject to income tax at 27% since its tax holiday expired at the end of 2001. Beijing Picom Telecommunications Equipment Ltd. and Nanjing Postel Hongyan Electric Appliance Company entered into their first profit-making year in 2001 and were exempted for income tax for 2002. (d) In accordance with the Hong Kong tax law, Postel Telecommunications (H.K.) Co., Ltd., a subsidiary established in Hong Kong on 1 December 2000, is subject to income tax at 16%. (e) Nanjing Postel Network Company Ltd. has not provided any income tax since it has no taxable income for 2002. The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the tax rate of the Company as follows: 2002 2001 (Loss) profit before tax (50,975) 13,212   Tax calculated at a tax rate of 15% (7,646) 1,982 Previous years’ tax underprovided 3,611 - Unrecognised tax losses 3,264 - Income and expense items which are not taxable or deductible for income tax purposes 5,858 3,450 Effect of different tax rates for certain subsidiaries, joint ventures and associated companies 571 1,558   Tax charge 5,658 6,990   Deferred tax assets are recognised to the extent that realisation of the related tax benefit through future taxable income is probable. The Group has estimated unrecognised tax losses and deductible temporary differences of Rmb21,760,000 (2001 : nil) and Rmb78,007,000 (2001: Rmb44,901,000) respectively to carry forward against future taxable income. In accordance with PRC tax law, tax loss can be carried forward against future taxable income for a period of 5 years, accordingly the Group’s tax losses will expire in 2008. The Group does not have other significant unprovided deferred tax. 36 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report 9 MINORITY INTERESTS 2002 2001 At beginning of year 21,082 21,392 Additional investment 2,031 - Disposals (1,722) - Share of net (loss) profit of subsidiaries (1,420) 3,839 Dividend paid (2,514) (959) Adjustment on employee housing benefits cost - (3,190)   At end of year 17,457 21,082   10 (LOSS) EARNINGS PER SHARE (Loss) earnings per share is calculated by dividing net (loss) profit for the year by the 215,000,000 shares in issue during the year. 11 PROPERTY, PLANT AND EQUIPMENT Furniture, Plant and Motor Buildings machinery fixtures vehicles Total and office equipment Cost At 1 January 2001 103,884 85,472 39,886 8,408 237,650 Additions in 2001 3,280 1,284 6,152 3,199 13,915 Disposals in 2001 (1,072) (3,393) (3,370) (255) (8,090) Transfer out in 2001 (3,956) (206) (434) (333) (4,929) At 1 January 2002 102,136 83,157 42,234 11,019 238,546 Additions in 2002 5,496 2,138 5,850 774 14,258 Disposals in 2002 (110) (5,266) (1,741) (462) (7,579) At 31 December 2002 107,522 80,029 46,343 11,331 245,225 Accumulated depreciation At 1 January 2001 26,961 48,546 21,022 5,764 102,293 Charge for 2001 3,515 8,514 6,184 1,268 19,481 Disposals in 2001 (149) (2,762) (1,812) (122) (4,845) Transfer out in 2001 (1,391) (98) (180) (133) (1,802) At 1 January 2002 28,936 54,200 25,214 6,777 115,127 Charge for 2002 4,232 7,441 6,545 1,840 20,058 Disposals in 2002 (24) (4,821) (1,439) (260) (6,544) At 31 December 2002 33,144 56,820 30,320 8,357 128,641 Impairment charge At 1 January 2001 - - 2,775 - 2,775 37 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report Charge for 2001 - 1,642 453 22 2,117 At 1 January 2002 - 1,642 3,228 22 4,892 Charge (reversal) for 2002 2,382 - (1,344) - 1,038 At 31 December 2002 2,382 1,642 1,884 22 5,930 Net book value At 31 December 2002 71,996 21,567 14,139 2,952 110,654 At 31 December 2001 73,200 27,315 13,792 4,220 118,527 12 LAND USE RIGHTS 2002 2001 Cost At beginning of year 40,183 38,897 Additions - 1,286 Disposals (15) - At end of year 40,168 40,183 Accumulated amortization At beginning of year 3,781 2,747 Amortization for the year 828 1,034 At end of year 4,609 3,781 Net book value 35,559 36,402 13 INVESTMENTS IN ASSOCIATED COMPANIES 2002 2001 At beginning of year 18,253 12,833 Share of loss (6,829) (2,758) Share of tax (note 8) - - Investments during the year 11,317 8,178 Disposals (500) - At end of year 22,241 18,253 38 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report Details of the associated companies are included in note 25. 14 INTANGIBLE ASSETS 2002 2001 Cost At beginning of year 22,244 15,594 Additions 8,939 8,216 Transfer out (832) (1,566) At end of year 30,351 22,244 Accumulated amortization At beginning of year 8,789 6,410 Additions 4,937 3,945 Transfer out (815) (1,566) At end of year 12,911 8,789 Net book value 17,440 13,455 15 INVENTORIES 2002 2001 Raw materials - at cost 29,730 37,984 - at net realizable value 2,417 965 Work in progress - at cost 16,869 25,813 - at net realizable value - 1,762 Finished goods - at cost 127,267 118,031 - at net realizable value 2,188 4,633 178,471 189,188 16 RECEIVABLES AND PREPAYMENTS 2002 2001 Trade receivables 395,562 400,386 39 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report Other receivables 28,539 22,323 Less: Provision for impairment (47,920) (40,628) Trade and other receivables, net 376,181 382,081 Prepayments 14,207 16,420 Receivables from related parties (note 26 (b)) 19,424 23,492 409,812 421,993 17 CASH AND BANK BALANCES 2002 2001 Cash at bank and in hand 145,909 234,218 Bank deposits 32,945 - 178,854 234,218 The effective interest rates on bank deposits ranged from 1.25% to 1.98% and these deposits have maturities over three months. For the purpose of the cash flow statement, cash and cash equivalents comprise cash at bank and in hand. 18 SHARE CAPITAL 2002 2001 Registered, issued and fully paid shares of Rmb 1 each: State-owned shares, not listed 115,000 115,000 Domestically-listed foreign shares (B shares) 100,000 100,000 215,000 215,000 19 RESERVES (a) Capital accumulation fund Transactions of the following nature are recorded in the capital accumulation fund: (1) Share premium arising on the issue of shares at prices in excess of their par value; (2) Donations received; (3) Surplus arising from the revaluation of assets; and (4) Any other items required by the PRC regulations to be so treated. Amounts in the capital accumulation fund can be utilised to offset prior years’ losses or for 40 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report issue of bonus shares. (b) Statutory accumulation fund and statutory welfare fund Statutory reserves include both the statutory accumulation fund and the statutory welfare fund. PRC Company Law requires a company to appropriate 10% of its profit for the year computed in accordance with the PRC accounting regulations (after offsetting prior years’ losses) to the statutory accumulation fund. When the balance of such fund reaches 50% of the company’s registered share capital, any further appropriation is optional. The statutory accumulation fund can be utilised to offset prior years’ losses or for issue of bonus shares. However, the fund shall be maintained at a minimum of 25% of registered share capital after any such issue. PRC Company Law also requires a company to appropriate between 5% to 10% of its profit for the year computed in accordance with the PRC accounting regulations (after offsetting prior years’ losses) to the statutory welfare fund. The fund shall be utilised for the collective benefit of the workforce, including the provision of staff quarters. No other distribution shall be made from the fund other than upon liquidation of the company. In 2002, Rmb 1,332,995 and Rmb 470,732 had been appropriated by subsidiaries to the statutory accumulation fund and statutory welfare fund respectively. (c) Discretionary accumulation fund and dividends The Board of Directors recommends that no appropriation to the discretionary accumulation fund and no dividend be made for 2002. The above recommendations are subject to approval by the shareholders in the Company’s Annual General Meeting to be held in 2003. 20 LONG-TERM BANK LOAN Long-term bank loan represents an unsecured loan borrowed from China Construction Bank and is due on 4 February 2007. The long-term bank loan is guaranteed by the Ultimate Holding Company. 2002 2001 (a) Weighted average effective interest rates at 31 December 6.21% 6.21%   (b) The carrying amount of the long-term bank loan approximates its fair value. The fair value is based on discounted cash flows using a discount rate based upon the borrowing rate which was available to the Group for bank borrowings with similar terms at the balance sheet date. 21 TRADE AND OTHER PAYABLES 2002 2001 Trade payables 212,741 132,405 Customer deposits 5,357 8,610 Accrued expenses - 250 Other payables 34,061 25,067 252,159 166,332 Payables to related parties (note 26 (b)) 9,445 6,731 41 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report 261,604 173,063 21 SHORT-TERM BANK LOANS 2002 2001 Secured (b) 1,500 2,000 Unsecured (c) 288,000 382,200 289,500 384,200 (a) Interest is charged on the outstanding balances at rates ranging from 4.79% to 6.37% (2001: 5.30% to 7.02%) per annum. (b) The loan is secured by a fixed deposit of US$195,152. (c) Unsecured short-term loans of Rmb 77,000,000 are guaranteed by the Ultimate Holding Company (2001: Rmb 237,000,000). 22 FINANCIAL INSTRUMENTS (a) Credit risk The Group have no significant concentration of credit risk. The carrying amounts of accounts receivable included in the balance sheet represent the Group's maximum exposure to credit risk in relation to its financial assets. No other financial assets carry a significant exposure to credit risk. Cash is placed with state-owned banks and financial institutions. (b) Foreign exchange risk The Group operates in the PRC and has no significant exposure to any specific foreign currency. (c) Interest rate risk The Group has no significant interest-bearing assets, as such its income and operating cash flows are substantially independent of changes in market interest rates. Interest rates on bank loans are disclosed in notes 20 and 22. (d) Fair value The carrying amounts of the following financial assets and financial liabilities approximate their fair value: bank balances and cash, trading investments, trade receivables and payables, prepayments and other receivables and payables, short-term borrowings. 24 CAPITAL COMMITMENTS Capital expenditure in respect of property, plant and equipment contracted for at 31 December 2002 but not recognised in the financial statements amounted to Rmb 20,544,000 (2001: Rmb 55,000,000). 25 PRINCIPAL SUBSIDIARIES, JOINT VENTURES AND ASSOCIATED COMPANIES 42 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report The Company’s subsidiaries, joint ventures and associated companies, all of which are established in the PRC except Postel Telecommunications (H.K.) Co., Ltd. which is established in Hong Kong, are as follows: Name of company Group’s equity interest Principal activities 2002 2001 Subsidiaries: Nanjing Nanfang 100% 100% Manufacture and sale of data Telecommunications Company Limited communication equipment Nanjing Bada 60% 60% Manufacture and sale of Telecommunications Factory telecommunication equipment Nanjing Hongyan Electric 74% 74% Manufacture and sale of Appliance Company electrical products Shanghai Huaning Telecommunications 93.5% 93.5% Export agency business Development Ltd. Nanjing Golden Huali 60% 60% Manufacture and sale of lights, Electronics Ltd. electronic products and accessories Nanjing Yuhua Electroplating 60% 60% Metal surface processing and Factory manufacture and sale of consternation hardware Nanjing Postel Shiye Company Ltd. 100% 100% Hotel and catering Nanjing Postel Computer 99.5% 99.5% Design, manufacture and sale Company Ltd. of computer products Nanjing Postel Smart-building 82.24% 70% Manufacture and sale of smart Technology Ltd. building system Postel Telecommunications (H.K.) 90% 90% Export and import of Co., Ltd. telecommunications equipment Beijing Picom Telecommunications 51% 41% Manufacture and sale of data Equipment Ltd. communication equipment Nanjing Postel Hongyan Electric 65% 65% Manufacture and sale of Appliance Company electrical products Nanjing Postel Computer Technology 86.6% 86.6% Sale of computer and Computer Ltd. communication equipment Nanjing Postel Network Company Ltd. 89% - Manufacture and sale of network equipment Joint ventures: Nanjing Mennekes 50% 50% Manufacture and sale of Electric Appliance Ltd. switches Associated companies: Xishan Postel Information 49% 49% Provision of data and Network Co., Ltd. voice transmission services Nanjing Postel Wangzhi 34% 34% Design and production of CDMA Telecommunications Ltd. and 3G products 43 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report Nanjing Dongda Broadband 16.7% 20% Design, manufacture and sale of Technology Co., Ltd. telecommunication equipment Nanjing Zhongyou Telecommunications Ltd. 30% 30% Manufacture and sale of telecommunication equipment and electrical accessories Nanjing Changle Telecommunications 49% 49% Manufacture and sale of Equipment Factory telecommunication equipment 26 RELATED PARTY TRANSACTIONS (a) The following transactions were carried out with related parties: 2002 2001 Sale of trademark to Ultimate Holding Company 2,000 - Sale of goods to a subsidiary of Ultimate Holding Company 1,723 11,192 Sale of goods to Nanjing Zhongyou Telecommunications Ltd. 1,593 10,331 Sale of intangible assets to Nanjing Changle Telecommunications Equipment Factory - 589 5,316 22,112 Purchase of goods from Nanjing Changle Telecommunications Equipment Factory 17,630 - Purchase of goods from Nanjing Postel Wangzhi Telecommunications Ltd. 6,409 - 24,039 - (b) Balances with related parties 2002 2001 Receivables from Xishan Postel Information Network Co., Ltd. 11,934 11,942 Receivables from a subsidiary of Ultimate Holding Company 6,543 8,424 Receivables from Nanjing Zhongyou Telecommunications Ltd. 947 3,126 19,424 23,492 Payables to Nanjing Changle Telecommunications Equipment Factory 7,275 6,731 Payables to Nanjing Postel Wangzhi Telecommunications Ltd. 2,170 - 9,445 6,731 The above balances are unsecured, interest free and have no fixed terms of repayment. 27 CONTINGENCIES 44 Nanjing Putian Telecommunications Co., Ltd. 2002 Annual Report The Group purchased certain CDPD products from Lucent Technologies World Services Inc. ("Lucent") in 1998. A memorandum was signed by both parties under which Lucent agreed to exchange any unsold CDPD products for other up-to-date CDPD products with the same value. Since Lucent has terminated the production of CDPD products, the Group is not able to exchange the products from Lucent. As at 31 December 2002 unsold CDPD products totalled Rmb15,150,151. The Group is currently requesting Lucent, through related procedures, to provide compensation. Management believes that this matter will be satisfactorily resolved and no provision has been made in the financial statements. NANJING PUTIAN TELECOMMUNICATIONS CO., LTD. RECONCILIATION OF NET PROFIT AND NET ASSETS BETWEEN PRC REPORTING AND IFRS REPORTING (All amounts are stated in Renminbi thousand Yuan unless otherwise stated) Net assets at Net loss for 2002 31 December 2002 Per PRC reporting (58,926) 373,953 Adjustments for IFRS reporting: Fixed assets depreciation 1,713 - Revaluation - (28,618) Remeasurement of financial assets and financial liabilities in accordance with IAS 39 - (21,833) Profit on sale of trademark to related party 2,000 - Other - 12,594   Per IFRS reporting (55,213) 336,096   45