深物业A(000011)ST物业Ｂ2002年年度报告（英文版）

SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LTD. 2002 ANNUAL REPORT April 19, 2003 1 Important Notes: Board of Directors of Shenzhen Properties & Resources Development (Group) Ltd. (hereinafter referred to as the Company) individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions nor errors which would render any statement misleading. No director stated that they couldn’t ensure the correctness, accuracy and completeness of the contents of the Annual Report or have objection for this report. Due to business trip, Director Li Zhen was absent from the Board meeting, in which the 2002 Annual Report was examined, with entrusting Director Tian Cheng-gang to attend and vote on his behalf. Due to job adjustment, director Zhaoning had submitted his resignation before, so he didn’t attend the meeting. Wuhan Zhonghuan Certified Public Accountants issued an Auditors’ Report with explanatory notes for the Company; and the Board of Directors and the Supervisory Committee of the Company made explanations in details for the relevant matters, the investors are suggested to notice the content. Chairman of the Board of the Company Tian Cheng-gang, General Manager Fang Yi-bing and Manager of Financial Department Fang Dong-hong hereby confirm that the Financial Report of the Annual Report is true and complete. This report has been prepared in Chinese version and English version respectively. In the event of difference in interpretation between the two versions, the Chinese report shall prevail. Contents . Company Profile---------------------------------------------------------------------------3 . Summary of Financial Highlight and Business Highlight-------------------------3 . Particulars about the Changes in Capital Shares and Shareholders------------5 . Particulars about Director, Supervisor, Senior Executive and staff ------------7 . Administrative Structure----------------------------------------------------------------10 . Brief Introduction to the Shareholders’ General Meeting -----------------------11 . Report of the Board of Directors ----------------------------------- ------------------12 . Report of the Supervisory Committee------------------------------------------------20 . Significant Events-------------------------------------------------------------------------22 . Financial Report--------------------------------------------------------------------------25 . Documents for Reference---------------------------------------------------------------25 2 I. COMPANY PROFILE 1. Name of the Company In Chinese: 深圳市物业 发展 集团股份有限公司 Abbreviation in Chinese: 物业集团 In English: Shenzhen Properties & Resources Development (Group) Ltd. (PRD) 2. Legal Representative: Tian Cheng-gang 3. Secretary of Board of Directors: Guo Yu-mei Authorized Representative in Charge of Securities Affairs: Dong Wei Tel: (86) 755-82211020 Fax: (86) 755-82210610, 82212043 Contact Address: 42nd Floor, International Trade Center, Renmin Road South, Shenzhen 4. Registered Address and Office Address: 39th and 42nd Floor, International Trade Center, Renmin Road South, Shenzhen Post Code: 518014 5. Media Designated for Disclosing Information of the Company: A-Share: Securities Times, B-Share: Ta Kung Pao Internet Web Site Designated by CSRC for Publishing the Annual Report: http://www.cninfo.com.cn Place Where the Annual Report is Prepared and Placed: Office of Board of Directors, on 42nd Floor, International Trade Center, Renmin South Road, Shenzhen 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of Stock and Stock Code: ST Shenwuye-A (000011) ST Wuye-B (200011) 7. The initial registered data: Jan. 17, 1983 Address: Shenzhen Municipal Administrative Bureau of Industrial and Commercial Registered code of enterprise legal person’s business license: 4403011027229 Registered code of tax: 440301192174135 8. Name and address of Certified Public Accountants engaged by the Company: Domestic: Wuhan Zhonghuan CPA Ltd. Address: 16th Floor, Tower B, International Mansion, Wuhan International: KLL Associates CPA Ltd. Address: Suite 1303, Shanghai Industrial Investment Building, 60 Hennessy Road, Wanchai, Hong Kong II. SUMMARY OF FINANCIAL HIGHLIGHTS AND BUSINESS HIGHLIGHTS (I) Accounting data as of the year 2002 (Unit: In RMB) 3 Total profit 44,508,865.86 Net profit 34,622,176.84 Net profit after deducting the non-recurring gains and losses 35,892,303.95 Profit from core business 226,583,123.37 Profit from other business 11,722,507.26 Operating profit 43,701,676.33 Investment income -15,265,839.00 Subsidy income 0 Net incomes/expenditures from non-operating 16,073,028.53 Net cash flows arising from operating activities -34,585,671.37 Net increase in cash and cash equivalents -38,068,377.37 Note: Items of non-recurring gains and losses and the amount involved: Income from non-operating RMB 2,142,211.23 Expenditure of non-operating RMB 1,110,333.89 Net losses due to equity transferring RMB-2,302,004.45 Differences in net profit prepared under CAS and IAS: Unit: RMB’000 CAS IAS Net profit 34,622 35,989 As calculated in accordance with CAS: Net profit: 34,622 IAS adjustments: Amortization payment switched back into fix assets 332 Explanation on the difference Adjustment of Amortization of expenses 1,014 Others 21 Total variance 1,367 As calculated in accordance with IAS: Net profit: 35,989 (II) Major accounting date and financial indexes over the past three years ended the report year (Unit: RMB) Items 2002 2001 2000 After Before After Before adjustments adjustments adjustments adjustments Income from core business 781,284,955.43 1,021,639,372.64 1,021,639,372.64 526,791,452.85 526,791,452.85 Net profit 34,622,176.84 86,206,309.75 86,385,900.61 5,392,916.15 5,392,916.15 Total assets 2,607,979,385.36 2,440,084,079.97 2,448,633,703.29 2,711,282,211.46 2,719,831,834.77 Shareholders’ equity (excluding 337,903,702.25 277,151,339.50 285,880,553.67 189,594,489.40 198,144,112.71 minority interests) Earnings per share (fully diluted) 0.064 0.159 0.159 0.010 0.010 Earnings per share after deducting 0.066 0.152 0.153 0.006 0.006 the non-recurring gains and losses 4 Net assets per share 0.624 0.512 0.528 0.350 0.366 Net assets per share after 0.146 0.076 0.129 -0.092 -0.077 adjustment* Net cash flows per share arising -0.064 0.247 0.247 0.591 0.591 from operating activities Fully diluted return on equity 10.25% 31.10% 30.22% 2.84% 2.72% Weighted average return on equity 11.76% 37.05% 35.79% 3.26% 3.10% Weighted average return on equity 12.19% 35.42% 34.23% 1.99% 1.89% after deducting the non-recurring gains and losses (III) Particulars about change in shareholders’ equity Unit: In RMB Statutory Exchange Total Capital public Surplus Retained Items Share capital welfare transaction shareholders’ reserve public reserve profit public funds reserve equity At the beginning 541,799,175.00 306,007,801.60 62,919,127.11 62,919,127.11 -638,983,920.29 5,409,156.08 277,151,339.50 of the year Increased during 31,539,341.99 34,622,176.84 60,752,362.75 the year Decreased during 5,409,156.08 the year At the end of the 541,799,175.00 337,547,143.59 62,919,127.11 62,919,127.11 -604,361,743.45 337,903,702.25 year Reason of change Unable to pay Realization Shenye Real the account of net profit Estate payable and as of the year Development transferred Co. Ltd. no from accrued longer incremental consolidated expense of land financial statement into the Company III. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS (I) Particulars about changes in shares as of the year 2002 (Unit: Share) Increase/decrease of this time (+, - ) Before the After the Items Allotment Bonus Capitalization of Additional change Others Subtotal change of share shares public reserve issuance I. Unlisted shares 1. Promoters’ shares Including: 5 State-owned share 323,747,713 323,747,713 Domestic legal person’s shares 65,200,850 65,200,850 Foreign legal person’s shares Others 2. Raised legal person’s shares 3. Inner employees’ shares 4. Preference shares or others Total unlisted shares 388,948,563 388,948,563 II. Listed shares 1. RMB ordinary shares 91,355,000 91,355,000 2.Domestically listed foreign 61,459,312 61,459,312 shares 3. Overseas listed foreign shares 4. Frozen shares held by senior executives 36,300 36,300 Total listed shares 152,850,612 152,850,612 III. Total shares 541,799,175 541,799,175 2. Issuance and listing of shares Over the previous three years at the end of the report year, the Company issued neither new shares nor derived securities; and there were changes in neither total number nor the structure of the shares due to bonus shares and allotment of shares. The existent employee’s shares of the Company were subscribed by senior executives when the Company initially issued the shares; the issuance date is Oct. 31, 1991; the issuance price is RMB 3.6 per share; the issuance quantity is 6.5 million shares. (III) About shareholders 1. Ended Dec. 31, 2001, the Company had totally 48577 shareholders, including 39632 ones of A-share, 8945 ones of B-share. 2. About the top ten shareholders are as follows: Holding Proportion Name of shareholders shares (share) (%) SHENZHEN CONSTRUCTION INVESTMENT HOLDINGS 323,747,713 59.75 SHENZHEN INVESTMENT HOLDING CORPORATION 56,628,000 10.45 LABOR UNION OF SHENZHEN INTERNATIONAL TRADE 2,516,800 0.46 PROPERTY MANAGERMENT COMPANY SHENZHEN SPECIAL DISTRICT DUTY-FREE COMMODITY CO. 1,573,000 0.29 XU QIAN 1,050,000 0.19 SHANGHAI ZHAODA INVESTMENT CONSULTANT CO., LTD. 1,010,000 0.19 CHINA SHENZHEN INTERNATIONAL CO-OPERATION CO., LTD. 887,172 0.16 DA PENG SECURITIES CO., LTD. 786,500 0.15 REN JUN DEVELOPMENT CO., LTD. 727,000 0.13 JOHN POSS 680,000 0.13 6 Shenzhen Construction Investment Holdings and Shenzhen Investment Holding Corporation are the shareholders of state-owned shares; Xu Qian, Renjun Development Co., Ltd. and JOHN POSS are the foreign shareholders. The top two shareholders held the state-owned shares, and shares held by them was neither pledging or freezing in the report year. There exists no the association relationship among the top ten shareholders. 3. The controlling shareholder of the Company is Shenzhen Construction Investment Holdings (“the Holdings”), which was established in July 1986, registered capital is RMB 1.5 billion.; legal representative: Mr. Zhang Yijun. The Holdings is an assets management company owned by the whole people, and involve in industry, general undertaking of construction material for civil use, development of real estate and property management, etc. As one of three largest state assets management companies, Shenzhen Construction Investment Holdings exercised the investors’ rights for state assets of the Company within the limits authorized by the municipal government and was entrusted by Shenzhen municipal government. The permanent organization of Shenzhen Municipality State Assets Management Committee is Shenzhen Municipality State Assets Management Office (“Municipality State Assets Office”), who implemented management for three largest state assets management companies of Shenzhen on behalf of Shenzhen municipal government. Thus, the actual controller of Shenzhen Construction Investment Holdings Company is Municipality State Assets Office, whose office address is Investment Bldg., Shen Nan Av., Futian District, Shenzhen and postcode is 518026. 4. The second largest shareholder of the Company is Shenzhen Investment Holding Corporation, which was established in Feb. 1988; its legal representative is Mr. Li Heihu, as well as registration capital of RMB 2 billion. It is an assets management company owned by the whole people. IV. PARTICULARS ABOUT DIRECTORS, SUPERVISORS, SENIOR EXECUTIVES AND EMPLOYEES (I) About director, supervisor and senior executives 1. Basis information Holding Holding Office Name Title Gender Age shares at the shares at the term year-begin year-end Jun. 2001– Tian Cheng-gang Chairman of the Board Male 49 0 0 Jun. 2004 Director, General Jun. 2001– Wu Gong-cheng Male 48 0 0 Manager Feb. 2003 7 Jun. 2001– Shao Xiang-hua Director Male 53 0 0 Feb. 2003 Director, Deputy General Jun. 2001– Zha Sheng-ming Male 54 18150 18150 Manager Jun. 2004 Director, Deputy General Jun. 2001– Zhao Ning Male 49 0 0 Manager Jun. 2004 Director, Chairman of Jun. 2001– He Wen-hua Male 58 18150 18150 Labor Union Jun. 2004 Director Jun. 2001– Li Zhen Male 39 0 0 Jun. 2004 Director Jun. 2001– Zhang Tian-liang Male 39 0 0 Feb. 2003 Jun. 2002– Zhang Jian-jun Independent Director Male 38 0 0 Jun. 2004 Chairman of the Jun. 2001– Cao Zi-yang Male 52 0 0 Supervisory Committee Jun. 2004 Supervisor, Manager of Jun. 2001– Tong Qing-huo Male 39 0 0 Human Resource Jun. 2004 Supervisor, Deputy Jun. 2001– Liu Jia-ke Secretary of the Male 53 0 0 Jun. 2004 Discipline Committee Supervisor, Deputy Jun. 2001– Jin Cheng-gui Manager of Auditing Male 55 0 0 Jun. 2004 Department Supervisor, Leader of Jun. 2001– Ma De-qin Female 49 0 0 Labor Union Jun. 2004 Jun. 2001– Fang Yi-bing Deputy General Manager Male 41 0 0 Jan. 2003 Jun. 2001– Yang Shun-cheng Deputy General Manager Male 55 0 0 Jun. 2004 Secretary of the Jun. 2001– Xiu Xu-guang Male 48 0 0 Discipline Committee Jun. 2004 Secretary of the Board, Jun. 2001– Guo Yu-mei Director of the Board of Female 43- 0 0 Jun. 2004 Directors Office Director Mr. Shao Xiang-hua took the post of the vice-president of Shenzhen Construction Investment Holdings (the controlling shareholders of the Company); Director Mr. Zhang Tian-liang took the post of the director of the Office of Shenzhen Construction Investment Holdings; Dir. Mr. Li Zhen took the post of assistant president and concurrently secretary of the 1st industry dept. of Shenzhen investment Holding Corporation. 2. Matters after the report period 8 Wu Gong-cheng resigned from the post of general manager of the Company due to work adjustment. Fang Yi-bing and Luo Jun-de were engaged as general manager and deputy general manager of the Company in the Board meeting dated Jan. 24, 2003. Wu Gong-cheng, Shao Xiang-hua, Zhang Tian-liang resigned from the director of the Company due to work adjustment. Fang Yi-bing, Guo Yuan-xian and Wang Hui-min were elected as director of the Company in extraordinary shareholders’ general meeting dated Feb. 26, 2003. (The relevant public notice was disclosed in Securities Times and Ta Kung Pao dated Jan. 25, 2003 and Feb. 26, 2003 respectively and http://www.cninfo.com.cn designated by CSRC.) 3. Particulars about the annual remuneration According to the regulation of Provisional Measure on Annual Remuneration for Senior Executive approved by shareholders’ general meeting, the Board of Director determined the remuneration and welfare of senior executives in accordance with scale of annual total assets and net assets and accomplishment of profit indexes. Annual remuneration consisted of base wages (fixed income) + annual bounty (income from completion of profit indexes) + encouraging salary (risk income). In 2002, the total annual remuneration (including welfare and subsidy) received by directors, supervisors and senior executives from the Company was RMB 3,173,600 (the profit as of 2001 increase by over 50% compared with the profit of 2000, so encouraging salary as of the year 2001 was paid in 2002). Among them, the total annual remuneration of the top three directors drawing the highest payment was RMB 973,600; the total annual remuneration of the top three senior executives drawing the highest payment was RMB 738,000. There were 14 persons including directors, supervisors and senior executives draw the annual payment from the Company, of them, 3 persons enjoyed the annual salary over RMB 300,000 respectively, 5 persons enjoyed the annual salary between RMB 200,000 and RMB 250,000 respectively, and 6 persons enjoyed the annual salary under RMB 200,000 respectively. The three directors, namely Shao Xiang-hua, Li Zhen and Zhang Tian-liang draw the annual salary from companies, in which they held the post. According to the regulations of Provisional Measure on Work of Independent Director of the Company, the allowance of RMB 30,000 of independent director as of 2002 will be paid in 2003. 4. In the report period, Ms. Li Feng-lan resigned from the post of independent director of the Company due to health. In accordance with Company Law and the relevant regulation of CSRC, Mr. Zhang Jian-jun was by-elected as independent director of the Company in 2002 shareholders’ general meeting. (II) About employees The Company had totally 2239 employees in office at present, including 1233 production personnel, 165 salespersons, 618 technicians, 81 financial personnel, and 9 142 administrative personnel. 1320 persons graduated from 3-year regular collage or above. Presently, the Company needs to bear the cost of 87 retirees. V. ADMINISTRATIVE STRUCTURE (I) Administration of the Company The Company continually perfected the administrative structure of legal person strictly according to Company Law, Securities Law and the relevant laws, regulations and rules related to administration of listed companies. Shareholders’ General Meeting, Board of Directors and Supervisory Committee operated in a standardized way, effectively safeguarded the benefits of investors and the Company. The Company implemented a series of management system approved by 2002 shareholders’ general meeting, and played a positive role to perfect administrative structure of legal person and standardize the Company’s operation. Compared with the regulations of Administration Rules of Listed Companies, the Company considered that the actual administration situation was consistent with the overall demand of Administration Rules of Listed Companies. Explanation of difference is as follows: 1. The controlling shareholder and listed company Shenzhen Construction Investment Holdings, the controlling shareholder of the Company, is a state-owned assets management company. The controlling shareholder exercised the supervision and management on significant decision-making of the Company according to the demand of reporting system of property representative promulgated by Shenzhen Municipal State-owned Assets Management Office and Management Provision on Reporting of Property Representative in a state-owned investor capacity. The controlling shareholder didn’t interfere in the Company’s production operation and management directly. The regulation of standardization on shareholders’ action issued by securities supervisory organization, the Company communicated to the largest shareholders timely so as to ensure the fulfillment of the relevant regulation. The controlling shareholder has held the special meeting on Reporting System of Property Representative, widely collected amendment opinion, and actively explored ways to effectively safeguard shareholder’s rights and legal station of listed company. The Company safeguarded the operation and management in a systematic according to administration system taking shareholders’ general meeting, Board of Directors and Supervisory Committee as core. The Significant decision-making of operation was made by the Board of Directors and Shareholders’ General Meeting. Up to now, there was no situation, on which the controlling shareholder affected the Company’s normal operation and development. 2. Directors and the Board of Directors 10 In the report period, the Company had 1 independent director, while the Company will additionally elect 2 independent directors in the 2003 shareholders’ general meeting so that independent directors will make up one third of total directors. Presently, the Company didn’t establish special committee of the Board of Directors, and will establish special committee of the Board of Directors one by one and the relevant regulation after all three independent directors take the post. (II) Performance of Independent Directors: Mr. Zhang Jian-jun was elected as independent director of the Company in 2002 Shareholders’ General Meeting. Zhang Jian-jun performed his duties according to Articles of Association of the Company and the relevant regulations since holing post. He attended the Board meeting and issued independent opinion on related transaction, equity transfer of joint-stock company whether they are in line with the relevant regulations and Articles of Association and harm benefits of medium and small shareholders. (III) Particulars about the Company’s “Five Separations” from the controlling shareholder The Company has integrated operation, keeps independence in operating management, made “Five Separations” from the controlling shareholder — Shenzhen Construction Investment Holdings: (1) The Company was independent in management, and owned independent production, supply and distribution system. (2) The Company independently engaged employees, and owned absolutely independent management of labor, personnel and salaries. (3) The Property of the Company is transparent, and owned independent assets ownership. (4) The Company owned independent office site and organization. (5) The Company has independent financial auditing system. The Company didn’t provide any guaranty to the controlling shareholder, while the controlling shareholder didn’t occupy the Company’s funds. (IV) Performance Evaluations, Encourage and Binding Mechanism In the report period, the Company was continually performing Provisional Measure of Annual Remuneration approved by shareholders’ general meeting; combined the Company’s assets scale, operation achievement with the salary of the whole managers, effectively prevented short-term action of managers, promoted the long-term steady development and exerted the positive role. VI. BRIEFINGS ON THE SHAREHOLDERS’ GENERAL MEETING The notification on holding Annual Shareholders’ General Meeting was published in the designated intermediaries, namely Securities Times and Ta Kung Pao dated May 28, 2002. The Annual Shareholders’ General Meeting was held on the 35/F of 11 Shenzhen International Trade Commercial Building at 9:00 of June 28, 2001 on schedule. There were 12 shareholders and shareholders’ proxies attended the meeting who held 383,627,113 shares, taking 70.8% of total shares, including 1 shareholder of B-share Directors, supervisors and senior executives attended the meeting as nonvoting delegate; and the professional lawyer Wei Mingxia from Guangdong Jindi Law Firm witnessed the meeting and issued Law Opinion. In the meeting, with 383,627,113 shares for, taking 100% of the total shares with voting right. The following proposals were unanimously approved in the meeting: 2001 Work Report of the Board of Directors 2001 Work Report of the Supervisory Committee 2001 Financial Settlement Report 2001 Annual Report 2001 Profit Distribution Plan The Four Management Provisions (namely Rules of Procedure of the Board of Directors, Rules of Procedure of the Supervisory Committee, Rules of Procedure of the Shareholders’ General Meeting and Provisional Measure on Work of Independent Director); Provisional Measure on Annual Remuneration for Senior Executive of Headquarters; Report on Engagement of Certified Public Accountants as of the Year 2001; Proposal on Engaging Certified Public Accountants in 2002; Proposal on Election of Independent Director The Public Notice on Resolution of this shareholders’ general meeting was published in Securities Times and Ta Kung Pao dated June 29, 2002 and http://www.cninfo.com.cn designated by CSRC. VII. Report of the Board of Directors (I) Analysis of relevant financial data and significant events In 2002, under the situation of comparatively intensified competition of real estate industry, all members of leading group and numerous cadres and staffs of the Group steadied the confidence and got together, carried through fruitful work in the aspects of strengthening the cost management, reinforcing the “relaxing control” of 2nd grade enterprises and well doing all basic management etc. depending on the itself advantage, which made the operation of the Company keep a steady development trend and excessively accomplished the operating plan made known to lower levels by the Board of Directors and all work objectives confirmed at the beginning of the year. In 2002, the Company accomplished an income from core business of RMB 781,284,955.43, a net profit of RMB 34,622,176.84 and excessively completed 30% of the plan (RMB 600 million), including income of RMB 529,638,040.38 realized in the real estate industry and operating profit of RMB 76,616,886.29. The profit of the report period decreased by 60% compared with that of the previous year, which was mainly due to the characteristics of real estate industry and because that partial projects of the Company was in the phase of development and did not reach the profit 12 settlement situation. Ended the end of the report period, the shareholders’ equity of the Company was RMB 337,903,702.25, an increase of 22% than that of the beginning of the year, which was mainly because that the Company realized net profit amounting to RMB 34,622,176.84 and transferred the accounts of long-term book credit that could not be paid amounting to RMB 4,391,511.18 and the value added expense of land of the 2nd stage of International Trade Square and Jiabin Garden etc. that was not necessary to pay amounting to RMB 27,147,830.8 into capital public reserve. (II) Operation in the report period 1. Scope of core business and operation The Company is large real estate specialty company with the core business of real estate development, property operation and management and concurrently is engaged in the taxi passenger transport, commodity department store and hotel and food industry. The income from core business of the whole year was RMB 780 million and the profit from core business was RMB 43.70 million. The main formation was as follows: (1) Classified according to products and industries: Income from industry of real estate development: RMB 529.63 million Profit: RMB 76.61 million Income from industry of property management and lease: RMB 120.30 million Profit: RMB-33.88 million Income from taxi passenger transport: RMB 33.55 million Profit: RMB 6.84 million Income from commercial operation: RMB 101.35 million Profit: RMB-2.41 million Travel and hotel and food business: RMB 5.75 million Profit: RMB 10,000 Other business: RMB 3.18 million Profit: RMB-3.46 million (2) Classified according to areas Income from Shenzhen area: RMB 742.37 million Profit from core business: RMB 33.17 million Income from East China area: RMB 920,000 Profit from core business: RMB 13.64 million Income from Hainan area: RMB 37.98 million Profit from core business: RMB -3.11 million (3) Sales income, cost of sales and gross profit ratio of the main products taking over 10% of the income from core business and profit from core business: Unit: RMB’000 Classified Income Cost of Gross Increase/decre Increase/de- Increase/de according to from core core profit ase of income crease of crease of industry or business business ratio from core cost of core gross profit 13 product (%) business business ratio compared compared compared with the with the with the previous year previous previous (%) year (%) year (%) Real estate 529,638 416,140 21.43 -32.71 -38.79 57.26 development Property 120,304 171,793 -29.97 22.26 134.28 -217.62 management and lease Department 101,352 103,633 -2.25 -10.35 -1.90 -134.35 store retail Taxi service 33,556 25,472 24.09 12.77 6.68 192.00 Hotel and 5,755 5,438 5.50 -- -- -- food Others 3,186 8,071 -153.32 -- -- -- Notes: the core business of the Company was not involved in the related transaction. (4) Explanation of the decrease of profitability capability of core business in the report period compared with the previous year: Due to the feature of industry of real estate development, the completion settlement of real estate development projects needs a time period of two to three years generally. In the report period, except for the former A District of Huang Yu Yuan and D Group of Fenghe Rili, the newly started real estate projects has not reached the condition for completion settlement, thus the profitability of core business decreased compared with the previous report period. 2. Operation and achievement of main holding companies and share-holding companies Unit: RMB’000 Name of companies Registered Core business Proportion Assets Net capital in the scale profit equity Shenzhen Huangcheng 25,000 Development, construction, 100% 978,670 51,500 Real Estate Co., Ltd. operation and management of auxiliary commercial service facilities of Huanggang Port Shenzhen International 29,850 Automobile passenger 100% 130,430 1,290 Trade Auto Industrial transport and automobile Company lease Shenzhen International 12,830 Commodities and general 100% 31,930 610 Trade Department Store merchandise 14 Co., Ltd. Shenzhen International 20,000 House lease and building 100% 135,430 1,130 Property Management management Company 3. Major suppliers and customers In the business of real estate development, the Company generally contracted the real estate projects developed to the contractor companies that gained the bidding by means of project bidding form and the contractor companies were responsible for providing the construction materials. The sales objects of the commercial house of the Company were mainly individual customers and there was no batch customer generally. The amount of sales of the top five customers took 1% of the total sales amount of the Company. 4. Difficulties arising from the operation and solutions Under the increasingly intensified competition in the market environment, in recent year the Company adopted a series of measures and gained progress with breakthrough in the aspects of adjusting operating strategy, peeling off ill assets and optimizing industrial structure etc. but still faced many difficulties of seriously deficient operating funds, relatively heavy burden of bequeathal problems in the history and necessity of reinforcing the market expansion capability etc. Aiming at these difficulties, the Board of Directors took solution plans with details in VII of the report (VII) 2003 business plan and main operating measures. (III) Investment in the report period 1. In the report period, the Company did not raise proceeds through share offering and there was no such situation that the application of proceeds raised through previous share offering continuing to the report period. 2. In the report period, material projects, progress of project and earnings of proceeds not raised through share offering Unit: RMB’000 Name of project Amount of project Progress of project Earning of project City Golden Castle 6,920 Formally started at the Not completed at the Project end of the year end of the year District B of Huang Yu 358,000 Peak cover and Not completed at the Yuan decoration inside and end of the year outside D Group of Fenghe Rili 67,990 Completed Completed at the end of the year The 4th Stage of Shanghai 28,440 Structural peak cover Not completed at the Pastoral City and decoration end of the year Total 461,350 --- Not completed at the 15 end of the year (IV) Analysis of financial operation of the Board of Directors 1. Change of main financial indexes Unit: RMB’000 Items Amount of the Amount of the Amount of Increase/decrease report year previous year increase/decrease rate Total assets 2,607,979 2,440,084 167,895 6.88% Inventory 1,461,647 1,339,638 122,009 9.11% Long-term 353,857 109,608 244,249 222.84% liabilities Shareholders’ 337,904 277,151 60,753 21.92% equity Profit from core 226,583 288,070 -61,487 -21.34% business Net profit 34,622 86,206 -51,584 -59.84% Net increase of -38,068 6,744 --- --- cash and cash equivalents Explanation: (1) The total assets increased by 6.88%, which was mainly because that in the report period the Company increased the input to the real estate projects and newly increased partial properties of International Trade Commercial Building from Shenzhen International Trade Square Property Development Co., Ltd. by means of payment of debts or purchase. (2) The inventory increased by 9.11%, which was because that in the report period, the Company newly increased development projects and raised input in the former real estate investment projects. (3) The long-term liabilities increased by 222.84%, which was mainly due to the increase of long-term bank loan. (4) The shareholders’ equity increased by 21.92%, which was mainly because that the Company realized net profit and transferred the accounts of long-term book credit that could not be paid and the value added expense of land of the 2nd stage of International Trade Square and Jiabin Garden etc. that was not necessary to pay into capital public reserve. (5) The profit from core business decreased by 21.34%, which was mainly because that the real estate investment projects were in the period of development and had no condition to be settled. (6) The net profit decreased by 59.84%, which was mainly because that the real estate investment projects were in the period of development and had no condition to be settled. (7) The net increase of cash and cash equivalents decreased, which was mainly because that the real estate investment projects were in the period of development and 16 had no condition of sales. 2. Change and reason of profit formation Amount (RMB’000) Proportion in the total amount of profits (%) In 2002 In 2001 In 2002 In 2001 Total amount of profit 44,509 105,881 -- -- Profit from core business 226,583 288,070 509 272 Profit from other business 11,723 3,832 26.3 3.6 Period expense 194,604 178,763 437 169 Invest earnings -15,266 -11,042 -34.3 -10.4 Subsidy income 0 0 0.00 0.00 Net amount of non-business 16,073 3,784 36.1 3.6 income and expenditure Explanation: 1) In the report period the total amount of profit decreased by 145% compared with the corresponding period of the previous year, which was mainly because that the real estate investment project had not reached the settlement condition. 2) Profit from other business increased by 206% compared with the corresponding period of the previous year, which was mainly due to the turning in the profit of contracting of Huanggang Jinli Building project. 3) The increase of period expense was mainly due to the increase of advertisement expense of Huangcheng Real Estate Company, a subsidiary of the Company. 4) The investment earnings decreased by RMB 5.82 million compared with the previous year, which was mainly because that the Company appropriated impairment loss of long-term and short-term investment in the report period. 5) The net amount of non-business income and expenditure increased by RMB 12.29 million compared with the previous year, which was mainly because that the Company sold the Shuibei factory house and gained earnings in the report period. (V) Influence of macro-environment, policies and regulations According to CK (2002) No.5 document, Shenzhen Property Jifa Storage Co., Ltd., which is affiliated foreign investment enterprise of the Company, started to implement Enterprise Accounting System from the beginning of 2002 and retroactively adjusted the undistributed profit of the beginning of 2001 amounting to RMB 17,099,246.62 according to the relevant regulations of Enterprise Accounting System. The Company adjusted the undistributed profit of the beginning of 2001 amounting to RMB 8,549,623.31 accordingly. (VI) Wuhan Zhonghuan Certified Public Accountants provided Auditors’ Report with interpretative explanation. We consider: The case of “ Haiyi Company” has been disclosed in 2000 Annual Report, 2001 Annual Report and 2002 Interim Report. The Company thought the fact cognized in 17 the original judgment was unclear and the applied law was unsuitable and after applied by the Company, Guangdong Higher People’s Court has decided to examine again on this case. According to the regulations of reexamination, after provided the possession drawing by the Company, Shenzhen Intermediate People’s Court stopped the implementation of this case. At present, this reexamination case is still in examination. As stated in the notes 5.24 of the accounting statements, the Company cancelled the accounts of long-term book credit that could not be paid amounting to RMB 4,391,511.18 after verification and transferred into capital public reserve. According to SGT (2001) No.314 document, the Company would transfer the value added expense of land of projects of the 2nd stage of International Trade Square and Jiabin Garden that were appropriated in the previous year and was necessary to be paid amounting to RMB 27,147,830.81 into capital public reserve, which resulted that the net profit of the Company increased by RMB 31,539,341.99. (VII) 2003 business plan and main operating measures The year of 2003 is an important year for the development of the Company. The Company shall focus the efforts to push the reform and development of the enterprise surrounding two main lines of productive operation and assets management. In 2003 the Company plans to gain revenue of RMB 800 million and plans to invest totally RMB 450 million. The Company will really do the work of the following aspects well: 1. To reinforce the construction and sales of important real estate projects, set about the work of increasing the land preparation and fully strengthen all operating management so as to ensure the completion of operating indexes. (1) To seriously well do the construction of newly started and continuously constructed real estate projects so as to ensure the engineering progress to reach the planned objectives on time. (2) To reinforce the property sales so as to ensure the completion of annual operating planning indexes. (3) To timely follow and participate in the work of land remising and bidding purchase of domestic large and middle cities in order to increase the land reserve. 2. To reinforce the assets and liabilities reorganization, gradually make the relationship with the banks clear, examine the credit and debt and well do the capital recovery. (1) To gradually clear the relationship with all credit bank and reestablish the good credit of the Company. (2) To further examine credit and liabilities, strengthen the recovery of all credit capital and push the responsibility pursuing payment. (3) To continuously reinforce the lease work of existing assets and liquidity of stock assets. 18 3. To focus the efforts to create the commercial new brand of “International Trade District” of the Company with the opening of “Metro International Trade Stop” and “Commercial Reconstruction of Renmin South Road of Luohu District” as the turning point. 4. Planned investment projects In 2003, the Company plans to complete an investment of RMB 450 million, including RMB 250 million of District B of Huang Yu Yuan, RMB 55 million of Group B of Fenghe Rili, RMB 70 million of Longbi Project and RMB 75 million of the 4th stage of Shanghai Pastoral City. (VIII) Routine work of the Board of Directors 1. Particulars about holding of Board meetings in the report period: Time of meetings main contents Mar.18, 2002: Extraordinary meeting and engagement of Shenzhen Pengcheng Certified Public Accountants and Glass Radcliffe Chan as 2001 financial auditors April 23, 2002 Examination of proposals of 2001 Annual Report and Profit Distribution Plan, Loss Offset, Appropriation of Impairment Loss, Assets Rejection, Investment Plan, Management Regulation, Proposal of Annual Salary System, Resignation of Independent Directors and Restructuring of 2nd Grade Enterprises etc. May 24, 2002 Proposal on Confirmation of Holding Annual Shareholders’ General Meeting and Shareholders’ General Meeting Aug.13, 2002 Examination of Semi-annual Report, Operation of the 1st First Half of the Year and the Plan of the 2nd Half of the Year Sept.24, 2002 Examination of Transfer Issue of Nanjing Tongren Project Oct.2, 2002 Examination of Report of the 3rd Quarter of 2002 Nov.8, 2002 Examination of Transfer Issue of Australia Project Dec.2, 2002 Examination of Issue of Change of Personnel of the Company 2. In 2002, the Company strictly implemented all resolutions of Shareholders’ General Meeting and accomplished the work of engagement of domestic and overseas auditors according to the relevant regulations of CSRC. 3. According to the resolution of Shareholders’ General Meeting, the profit of 2001 amounting to RMB 86.38 million was used to offset the loss of the previous year. (IX) After discussed and decided by the Board of Directors, in 2002, the Company would not distribute profit nor convert capital public reserve into share capital. The profit earnings were used to offset the loss of the previous year continuously. This proposal shall be submitted to Annual Shareholders’ General Meeting for 19 examination. VIII. REPORT OF THE SUPERVISORY COMMITTEE In 2002, the Supervisory Committee held four meetings: the 1st meeting was held on Apr.23, 2002, examined and approved 2001 Work Report of the Supervisory Committee, amended Rules of Procedure of the Supervisory Committee, inspected whether the annual report of the Company reflected truly the operation and financial status. The 2nd meeting was held on July 19, 2002, summarized the inspection of finance discipline of the Company, listened to the report of the financial status, production, operation and assets of the Financing Dept., Assets Management Dept. and Operation Dept. The 3rd meeting was held on Aug.13, 2002, examined and approved the Semi Annual Report and Summary. The 4th meeting was held on Dec.13, 2002, studied patiently the spirit of Consummating Legal Person Administrative Structure and Further Improving the Level of Normative Operation of Listed Company of Director, Zhang Yundong of CSRC Shenzhen Office, discussed the problems in the process of normative operation of the Company and correction measure compared with the report. The present supervisors all agreed to turn the discussion into written opinion and submitted it to the office of the Board of Directors of the Company for reporting to CSRC Shenzhen Office. The members of the Supervisory Committee participated in every meeting of the Board of Directors, supervised over the operation according to law of the Board of Directors and the management based on Company Law, Administration Rules of Listed Company and Articles of Association, organized and read the business and financial information of significant economic activities, organized person to study the problems reflected in every item of audit by the internal audit institutions in 2002, put forward to the opinion of consummating the internal control system of the subsidiaries of the Company and avoiding assets to be run off and strictly implemented the supervision duties The independent opinion of the Supervisory Committee on relevant events of the Company is as follows: 1. Operation according to law: The Board of Directors operates in accordance with the PRC Company Law, Articles of Association and relevant laws and legislations. The Board of Directors and the management obeyed strictly relevant laws and regulations in the operation activities, patiently implemented the resolutions of the Shareholders’ General Meeting. The procedure of significant operation, investment and personnel change was in conformity with Administration Rules of Listed Company and Articles of Association. 2002 is the cost-earning year of the Company. Under the leading of the Board of Directors, the Company grasped the production and operation and meanwhile, enhanced the internal management of the Company such as financial settlement, internal control and report system of property right representatives of the direct subsidiaries as the major clews of cost management. Recently, the Company promulgated the rule that the minister in charge of financing (manager) of the direct subsidiaries managed its subsidiaries. These management measures enhanced the 20 supervision and control of the subsidiaries by Group Company, played a pushing role to the improvement of the economic performance of the whole group. The Supervisory Committee hadn’t found directors and senior executives violating laws, legislations, Articles of Association and damaging the Company’s interests. 2. Financial inspection: Through inspecting the Company’s financial accounting documents and relevant rules and systems, the Supervisory Committee believed that the system of financial work was sound and administration was improved, and the Company’s profit accounting and allocation of provision for various assets devaluation were all in line with regulations of financial system of listed company and internal control system. As audited by the Certified Public Accountants, the Company’s financial report truly, objectively and accurately reflected the financial status and business results. 3. The Company hadn’t raised funds publicly in the report year. 4. The Supervisory Committee haven’t found unreasonable transaction, inside trading, damaging of rights and interests of part of shareholders or runoff of the Company’s assets. 5.Wuhan Zhonghuan Certified Public Accountants issued the auditor’s report with explanation. The Supervisors Committee believed that: The “Haiyi Company” lawsuit has been disclosed in 2000 Annual Report, 2001 Annual Report and 2002 Semi Annual Report by the Company. The explanation on the retrial of the case in 2002 Annual Report of the Company is true. At present, the case is still in intercession stage of retrial in justice procedure. As stated in Note 5.24 of accounting statements, the Company offset RMB 4,391,511.18 long-term book credit and transferred it to capital public reserve; according to SGT[2001]314, the Company will transfer RMB 27,147,830.81 land increment expense of the 2nd period of International Trade and Jiabin Garden which was appropriated in previous year but need not be paid to capital public reserve. RMB 31,539,341.99 increase of net assets caused by it was in accordance with the fact. 6.In the report period, the Company transferred 55% equity of Nanjing International Tongren Development held by the Company and the Company’s whole subsidiary, Hong Kong Shenye Real Estate Development Co., Ltd. to Nanjing AC Household Electrical Instrument (Group) Corporation and the transfer price was RMB 77,000,000. The Company disclosed detailedly the signed contract and completion of transfer procedure on Securities Times and Ta Kung Pao dated Oct.17, 2002 and Jan.16, 2003 as well as http://www.cnifo.com.cn. The Supervisors Committee believed that the decision-making and procedure of the transfer of the item was in accordance with relevant regulations in Company Law and Articles of Association. 7.The Company signed Contract on Construction of Building Project in Shenzhen 21 with Shenzhen Yuezhong (Group) Co., Ltd. (Yuezhong Company) that Yuezhong Company undertook the construction project of City Golden Castle Project developed by Yuezhong Company. The term of the contract is from Dec.30, 2002 to May 2, 2004. This transaction was presided by Shenzhen Bidding Center and Yuezhong Company got the bid. The Company disclosed detailedly the signed contract and completion of transfer procedure on Securities Times and Ta Kung Pao dated Jan.15, 2003 as well as http://www.cnifo.com.cn. The Supervisors Committee believed that there existed no actions breaking relevant laws and regulations or harm for the interest of the middle and small shareholders. IX. SIGNIFICANT EVENTS (I) Significant lawsuits or arbitration 1.The “Haiyi Company” lawsuit has been disclosed in 2000 Annual Report, 2001 Annual Report and 2002 Semi Annual Report. The Company believed that the recognized facts of the initial trial were unclear and the law adopted was not reasonable. Through the Company’s application, Guangdong Province High People’s Court had decided to retry the case. According to the decision of retrial, Shenzhen Intermediate People’s Court stopped the execution of the case after the Company supplied assets drawing. At present, the case is still in intercession stage of retrial in justice procedure. 2.Concerning “Jiyong Company” lawsuit disclosed in 2001 Annual Report and 2002 Semi Annual Report, the Company has applied obliged execution for Shenzhen Intermediate People’s Court. The case was in the process of execution. 3. Concerning “Hubei International Trade” lawsuit disclosed in 2001 Annual Report and 2002 Semi Annual Report, the Company received (2000)YGFMYZ ZI NO.90 Civil Judgement in the report period, Guangdong Province High People’s Court made the final trial. The main content of the trial was: 1) The Contract of Constructing Houses between the Company and Hubei Foreign Trade Economic Cooperation Office Shenzhen Branch was valid but should been relieved; 2) The Company returned payment for constructing houses amounting to RMB 10.8 million and corresponding bank interest to Hubei Foreign Trade Economic Cooperation Office Shenzhen Branch. Now the case is in stage of execution and the Company has been negotiating the pacification with Hubei Foreign Trade Economic Cooperation Office Shenzhen Branch. 4.Concernign “Gintian Lawsuit” disclosed in 2001 Annual Report and 2002 Semi Annual Report, in Feb.2002, Highest People’s Court rejected the appeal of Gintian Company and remained the initial trial. In the process of cognizance, the Company found assets with equity amount of Gintian Company and supplied to the creditor, Changchun Communication of Bank and Jilin Province High People’s Court, which has sealed up the assets. Because the Company actively assisted Changchun Communication of Bank to realized its right and the assets was recognized good 22 quality assets by Changchun Communication of Bank, Changchun Communication of Bank has reached mutual understanding with the Company and has not executed joint guarantee liability temporarily at present. 5. Concernign “Luohu Hotel’s Bankruptcy Lawsuit” disclosed in 2001 Annual Report and 2002 Semi Annual Report, in the report period, Shenzhen Intermediate People’s Court released the civil judgement of the final trial with (2002) SZFJS ZI NO.7-1 and announced Luohu Hotel’ bankruptcy and repaying debts and appointed Lawyer Zheng Zhibin of Jindu Law Firms and CPA of Shenzhen Yongming Certified Public Accountants to establish a liquidation team. The Company has declared credit amounting to HKD 32 million and RMB 22 million to Shenzhen Intermediate People’s Court. The case is still in the stage of checking and reclaiming bankrupt assets. The amount the Company can be paid is not clear. 6.Concerning “Hung Fuming Lawsuit” disclosed in 2001 Annual Report and 2002 Semi Annual Report, in the report period, Shenzhen Intermediate People’s Court made the judgement of the first trial and rejected the accuser, Huang Fuming’s requirement that required the Company to pay HKD 10,516,019 debt and 22,283,110.81 interest as well as RMB 20,000 debt and 51,933.11 interest. Hung Fuming has appealed to Guangdong Province High People’s Court. 7.”Hong Kong Huiheng Lawsuit” disclosed in 2001 Annual Report and 2002 Semi Annual Report has been comprehensively and finally resolved through pacification. The Company disclosed detailedly on Securities Times and Ta Kung Pao dated Apr.26, 2002 and the web site http://www.cninfo.com.cn designated by CSRC. (II) Material purchase and sales of assets 1. The Company disclosed issue of signing Release Agreement of Agreement Letter on Joint Development and Operation of Shenzhen Huanggang Port Service District on the designated newspapers on Nov.21, 2000. In the report period, SWJMZF (2002) No.2027 document of Shenzhen Foreign Trade and Economic Cooperation Bureau gave an Official and Written Reply on Release of Joint Venture Shenzhen Huanghe Real Estate Development Co., Ltd. and Release of Agreement Letter on Joint Development and Operation of Shenzhen Huanggang Port Service District took effect formally. The Company carried through detailed disclosure in Securities Times, Ta Kung Pao and http://www.cninfo.com.cn on July 3, 2002. 2. In the report period, the Company transferred 55% equity of Nanjing International Tongren Development Co., Ltd. totally held by the Company and its wholly owned subsidiary Hong Kong Shenye Real Estate Development Co., Ltd. to Nanjing AC Household Electrical Instruments (Group) Corporation with price of RMB 77 million. The Company carried through detailed disclosure on particulars about signing contracts and completing transfer procedures on Securities Times and Ta Kung Pao dated Oct. 17, 2002 and Jan.16, 2003 respectively and http://www.cninfo.com.cn. 23 3. In the report period, the Company signed the contract and transferred the estate property of 11,353.93 sq. m. of the whole building of Building A of Tianbei Industrial Factory in Tianbei San Road, Luohu District, Shenzhen to Shenzhen Wood Industrial Development Co., Ltd. (hereinafter referred to as “Wood Company”) with the price of RMB 21 million. The Company carried through detailed disclosure on contracts and transfer situation in Securities Times, Ta Kung Pao and http://www.cninfo.com.cn on Jan.21, 2003. (III) After-period issues of material related transactions The Company signed Construction Contract of Shenzhen Construction Projects with Shenzhen Yuezhong (Group) Co., Ltd. (hereinafter referred to as Yuezhong Company) in Shenzhen and let Yuezhong Company to undertake the construction projects of “City Golden Castle Project” developed by the Company. The term of contract implementation was from Dec.30, 2002 to May 2, 2004. This transaction behavior was presided by Shenzhen Bidding Center and formed a related transaction due to bidding shooting of Yuezhong Company. The Company carried through detailed disclosure on the specific situation of this related transaction in Securities Times, Ta Kung Pao and http://www.cninfo.com.cn on Jan.15, 2003. (IV) Material Guarantee 1. The Company and subsidiaries of the Company provided mortgage loan guarantee to bank for purchasers of commercial house and ended Dec.31, 2002 the guarantee amount still not settled totally amounted to RMB 916.88 million. This guarantee issue was the guarantee provided by real estate developers for small owners to purchase the commercial house of the Company, which was the common phenomenon inside the industry. 2. The guarantee issue provided for Gintian Company, for details please refer to Gintian Case state in Item 4 of IX (I). (V) Commitment events carried down to the report period of the Company Please refer to Note.9 of Accounting Statements for commitment events of the Company. (VI) Engagement of Certified Public Accountants Approved in the provisional Board meeting, the Company entrusted Wuhan Zhonghuan Certified Public Accountants Co., Ltd. to take charge of the domestic audit of the Company of 2002 and Hong Kong Huarong Certified Public Accountants Co., Ltd. to take charge of the overseas audit of the Company of 2002 and submitted it to the next Shareholders’ General Meeting for approval. The Company disclosed detailedly on Securities Times and Ta Kung Pao dated Mar.8, 2002 and the web site http://www.cninfo.com.cn. 24 Since the first Agreement of Audit Business, Wuhan Zhonghuan Certified Public Accountants Co., Ltd. and Hong Kong Huarong Certified Public Accountants Co., Ltd. has provided audit service for the Company for 2 months. The total audit expense of the Company in 2002 is RMB 0.4 million. (VII) Neither the Company nor the Board of Directors and its members was inspected, penalized, criticized or publicly censured by the securities regulatory authorities in the report period. X. FINANCIAL REPORT (ATTACHMENT) XI. DOCUMENTS AVAILABLE FOR REFERENCE 1. Financial statements carried with signatures and sales of legal representative and chief accountant of the Company; 2. Original of Auditors’ Report carried with sale of Certified Public Accountants as well as signatures and sales of certified public accountants. 3. Originals of all documents as disclosed in public on the newspapers as designated by CSRC in the report period. Board of Directors of ShenZhen Properties & Resources Development (Group) Ltd. April 19, 2003 25 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物业发展(集团)股份有限公司 Consolidated Financial Statements For the year ended December 31, 2002 1 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物业发展(集团)股份有限公司 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2002 CONTENTS PAGES Report of the auditors 1 Consolidated income statement 2 Consolidated balance sheet 3 Consolidated cash flow statement 4 Consolidated statement of changes in equity 5 Notes to the financial statements 6-27 AUDITORS’ REPORT TO THE SHAREHOLDERS OF SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED (Incorporated in the Peoples’ Republic of China with limited liability) We have audited the accompanying consolidated balance sheet of Shenzhen Properties & Resources Development (Group) Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) as of December 31, 2002 and the related consolidated statements of income and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standard on Auditing issued by the International Auditing and Assurance Standards Board except that the scope of our work was limited as explained below. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by directors, as well as evaluating the overall financial statements presentation. However, the evidence available to us was limited as we were unable to carry out auditing procedures necessary to obtain adequate assurance regarding the results and assets and liabilities of certain subsidiary companies which were excluded in these consolidated financial statements as fully disclosed in note 15 to the financial statements. This is not in accordance with International Accounting Standard no.27 issued by International Accounting Standards Board. There were no other satisfactory audit procedures that we could adopt to obtain sufficient evidence regarding the results and assets and liabilities of these subsidiaries. Qualified opinion arising from limitation of scope and disagreement about accounting treatment Except for any adjustments that might have been found to be necessary had we been able to obtain sufficient evidence concerning the Group’s results and assets and liabilities and except for not in accordance with International Accounting Standard no.27, the financial statements give a true and fair view of the financial position of the Group as of December 31, 2002, and of the results of its operation and its cash flows of the Group for the year then ended in accordance with International Financial Reporting Standards promulgated by the International Accounting Standards Board. KLL Associates CPA Limited Lee Ka Leung, Daniel Practising Certificate Number P01220 , 2002 1 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物业发展(集团)股份有限公司 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31,2002 __________________________________________________________________________ Notes 2002 2001 RMB’000 RMB’000 Turnover 5 778,312 1,015,727 Cost of sales (547,141 ) (740,154 ) Gross profit 231,171 275,573 Other net revenue/(expenses) 453 (4,689 ) Administrative expenses (118,169 ) (104,231 ) Distribution costs (34,689 ) (12,770 ) Profit from operations 7 78,766 153,883 Finance costs 8 (48,416 ) (73,178 ) Share of profits/(losses) of associates 650 (20,002 ) Income from investments 9 14,877 27,503 Profit before taxation 45,877 88,206 Taxation 10 (9,887 ) (17,371 ) Profit after taxation 35,990 70,835 Minority interests - (1,365 ) Profit attributable to shareholders 35,990 69,470 Earnings per share Basic and diluted 11 RMB0.07 RMB0.13 __________________________________________________________________________ 2 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物业发展(集团)股份有限公司 CONSOLIDATED BALANCE SHEET AT DECEMBER 31,2002 __________________________________________________________________________ Notes 2002 2001 RMB’000 RMB’000 ASSETS Non-current assets Property, plant and equipment 12 324,080 297,987 Intangible assets 13 63,314 65,194 Interest in subsidiaries not consolidated 15 87,762 24,836 Interests in associates 16 216,904 126,156 Long-term investments 17 19,776 23,890 Pledged bank balance 3,000 11,100 714,836 549,163 Current assets Inventories 18 1,434,843 1,303,201 Trade and other debtors 101,985 278,560 Trading securities 19 16,810 34,502 Cash and bank balances 251,531 282,994 1,805,169 1,899,257 Current liabilities Trade and other creditors 1,129,625 1,146,161 Taxes payable 874 30,518 Dividends payable - 29,454 Short-term loans 20 785,000 953,600 Current portion of long-term liabilities 21 - 1,194 1,915,499 2,160,927 Net current liabilities (110,330 ) (261,670 ) Total assets less current liabilities 604,506 287,493 Non-current liabilities Long-term loans 21 250,000 1,400 Other long-term payables 40,463 2,024 290,463 3,424 314,043 284,069 CAPITAL AND RESERVES Share capital 22 541,799 541,799 Reserves (227,756 ) (280,647 ) 314,043 261,153 Minority interests - 22,917 314,043 284,069 __________________________________________________________________________ Approved by the Board of Directors on DIRECTOR DIRECTOR 3 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物业发展(集团)股份有限公司 CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31,2002 __________________________________________________________________________ Notes 2002 2001 RMB’000 RMB’000 Net cash inflow from operating activities 23 192,032 9,454 Investing activities Interest received 4,163 23,881 Dividend paid (29,454 ) - Proceeds on disposal of other investments 13,528 10,117 Decrease/(Increase) in trading securities 17,692 15,329 Proceeds on disposal of fixed assets 2,373 36,890 Purchases of fixed assets (2,530 ) (48,689 ) Acquisition of intangible assets - (24,888 ) Advances/(Repayment) to associates (190,002 ) 71,206 Net cash inflow/(outflow) from investing activities (184,230 ) 83,846 Financing activities Interest paid on bank loans and other loans (103,254 ) (73,178 ) Repayment to minority shareholders (22,917 ) - New bank loans raised 24 338,600 306,008 Repayments of bank loans 24 (259,794 ) (318,129 ) Net cash used in financing activities (47,365 ) (85,299 ) Increase in cash and cash equivalents (39,563 ) 8,001 Decrease in bank balances pledged as securities to loans 8,100 1,200 Cash and cash equivalents at beginning of year 282,994 273,793 Cash and cash equivalents at end of year 251,531 282,994 4 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物业发展(集团)股份有限公司 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED DECEMBER 31,2002 __________________________________________________________________________ Statutory Public Share capital welfare Translation Retained capital reserve fund reserve earnings Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Balance at January 1, 2001 541,799 256,806 79,511 13,289 (654,112 ) 237,293 Prior year adjustment - - - - (46,961 ) (46,961 ) Loss for the year - - - 1,350 78,199 79,549 Balance at December 31, 20001 541,799 256,806 79,511 14,639 (622,874 ) 269,881 Prior year adjustment - - - - (8,729 ) (8,729 ) Profit for the year - - - - 35,990 35,990 Transfer of reserve - 31,540 - (14,639 ) - 16,901 Balance at December 31, 2002 541,799 288,346 79,511 - (595,613 ) 314,043 5 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物业发展(集团)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,2002 __________________________________________________________________________ 1. CORPORATE INFORMATION Shenzhen Properties Resources Development (Group) Ltd. (the “Company”) was incorporated as a joint stock company with limited liability in the People’s Republic of China pursuant to a reorganisation of state-owned enterprises. A and B shares were issued by the Company. The Company and its subsidiaries (the “Group”) are principally engaged in property development, investment and management, transportation, construction and property development consultancy. 2. GOING CONCERN The directors have carefully considered the financial position of the Group in the light of accumulated losses of RMB595,613,000 (2001: RMB622,874,000) and net current liabilities of RMB110,330,000 (2001: RMB261,491,000) as shown on the balance sheet as at December 31, 2002. The Group is currently in negotiation with its bankers to renew certain banking facilities. The absence of such confirmed facilities raised significant uncertainties that the Group will be able to continue as going concern. Provided that the negotiations can be successfully completed and after taking into account the cash inflow expected to be received from the sales of properties in coming year, the directors arrived at the opinion that the Group will be able to meet in full its financial obligations as they fall due in the foreseeable future. Accordingly, the financial statements have been prepared on a going concern basis, and no adjustments have been made which would result from a failure to obtain such funding. 3. BASIS OF PREPARATION The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (hereafter referred to as “IFRS”). The consolidated financial statements have been prepared under the historical cost convention except as disclosed in the accounting policies below. 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 event and actions, actual results ultimately may differ from those estimates. 6 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物业发展(集团)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,2002 __________________________________________________________________________ 4. PRINCIPAL ACCOUNTING POLICIES The following principal accounting policies are adopted by the Group in preparing the financial statements to comply with IAS: (a) Subsidiaries Subsidiaries, which are those entities in which the Company and its subsidiaries (hereafter referred to as “the Group”) has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies are consolidated. The existence and effect of potential voting rights that are presently exercisable or presently convertible are considered when assessing whether the Group controls another entity. 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. (b) Associates Investments in associates are accounted for by the equity method of accounting. Under this method the company’s share of the post-acquisition profits or losses of associates is recognised in the income statement and its share of post-acquisition movements in reserves is recognized in reserves. The cumulative post-acquisition movements are adjusted against the cost of the investment. Associates 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 associates are eliminated to the extent of the Group’s interest in the associates; unrealized 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 associate equals or exceeds its interest in the associate, the Group does recognise further losses, unless the Group has incurred obligations or made payments on behalf of the associates. (c) Property, plant and equipment Property, plant and equipment are stated at cost or less accumulated depreciation and any impairment losses. Deprecation is calculated on the straight-line method to write off the cost or the revalued amounts of each asset, to their residual values over their estimated useful lives as follows: Land and buildings in the PRC 20 –25 years Buildings outside the PRC Term of lease or, if less, 20 years Motor vehicles 5 years Fixtures and equipment 5 years Leasehold improvements 5 years 7 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物业发展(集团)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,2002 __________________________________________________________________________ 4. PRINCIPAL ACCOUNTING POLICIES - continued (c) Property, plant and equipment - continued 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 are determined by comparing proceeds with carrying amount and are included in operating profit. Repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Interest costs on borrowings to finance the construction of property, plant and equipment are capitalized, during the period of time that is required to complete and prepare the asset for its intended use. All other borrowing costs are expensed. (d) Land use rights Land use rights are stated at cost less accumulated amortisation and impairment losses. Cost represents consideration paid for the rights to use the land on which various warehouses, container storage areas and buildings are situated for 50 years. Amortisation of land use right is calculated on a straight-line basis over the period of the land use right. (e) Intangible assets Intangible assets represent the cost of acquisition of taxi licences and are stated at cost less amortisation and provision, if necessary, for any permanent diminution in value. Amortisation is provided to write off the cost of taxi licences over the license period granted by relevant authorities, which is 20 years. (f) Investment in equity securities (i) Long term investments Long-term investments which are held for long term are stated at cost less provision for diminution in value other than temporary in nature. (ii) Trading securities Listed investments held for trading are classified as current assets and are stated at fair value, with any resultant gain or loss recognised in the consolidated income statement. Other listed investments held by the Group are classified as being available-for-sale and are stated at fair value, with any resultant gain or loss being recognised directly in the consolidated income statement. The fair value of listed investments held for trading and listed investment available-for-sale is their quoted bid price at the balance sheet date. Unlisted investments are stated in the consolidated balance sheet at cost less impairment losses. 8 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物业发展(集团)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,2002 __________________________________________________________________________ 4. PRINCIPAL ACCOUNTING POLICIES - continued (g) Properties under development Properties under development are stated at cost less provision for anticipated losses, where appropriate. Cost includes cost of land use rights acquired, development cost and borrowing costs capitalized. (h) Completed properties for sale Completed properties for sale are stated at the lower of cost and the estimated net realizable value. Cost includes cost of land use rights acquired, development cost and borrowing costs capitalized. Net realizable value represents the estimated selling price less the estimated costs necessary to make the sale. (i) Inventories Inventories are stated the lower of cost and net realisable value. Costs, which comprise all costs of purchase, are calculated using the weighted average method. Net realisable value represents the estimated selling prices less all estimated costs of completion and selling expenses. (j) Impairment loss 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. Impairment losses are recognised in the consolidated income statement. (k) Revenue recognition Revenue from sale of property is recognised when sales agreements are signed between the Group and the customers, deposits are received from customers in full amount, and the relevant risks and rewards were transferred to the customers. Revenue from the sale of goods is recognised upon the transfer of risks and rewards of ownership. Rental income under operating leases is recognised on a straight line basis over the term of the relevant lease. Interest income is recognised on a time proportion basis taking into account the principal amounts outstanding and the interest rates applicable. 9 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物业发展(集团)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,2002 __________________________________________________________________________ 4. PRINCIPAL ACCOUNTING POLICIES - continued (l) Retirement benefit costs The Group participates in retirement schemes operated by local authorities and the annual cost of providing retirement benefits is charges to the consolidated profit and loss account according to the contribution determined by the relevant schemes. (m) Taxation The charge for taxation is based on the result for the year as adjusted for items, which are non-assessable or disallowable. Timing differences arise from the recognition for tax purposes of certain items of income and expense in a different accounting period from that in which they are recognised in the accounts. The tax effect of timing difference, computed using the liability method, is recognised in accounts to the extend in its probable a liabilities or an asset will crystallize in the foreseeable future. (n) Foreign currencies translation The Company and its subsidiaries maintain their books and records in Renminbi (‘RMB’). Transactions in foreign currencies are translated at exchange rates quoted by he People’s Bank of China at the translation dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into RMB at the exchange rate quoted by the People’s Bank of China at the balance sheet date. All exchange differences are dealt with in the income statement. The accounts of subsidiaries and associated companies expressed in foreign currencies are translated at rates of exchange ruling at the balance sheet date. Exchange differences arising in these cases are dealt with as a movement in reserves. (o) Operating leasing Leases where substantially all the rewards, and risks of ownership of assets remain with the lessors are accounted for as operating leases. Rentals income and expenses under operating leases are credited and charged respectively to the consolidated income statement on a straight-line basis over the term of the relevant lease. (p) Cash and cash equivalents Cash and cash equivalents comprise short term highly liquid investments which are readily convertible into known amounts of cash and which were within three months of maturity when acquired, less advances from bank repayable within three months from the date of the advances. 10 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物业发展(集团)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,2002 __________________________________________________________________________ 4. PRINCIPAL ACCOUNTING POLICIES - continued (q) Deferred taxation Deferred taxation is accounted for at the current taxation rate in respect of timing differences between profit as computed for taxation purposes and profit as stated in the accounts to the extent that an asset or liability is expected to be payable or receivable in the foreseeable future. 5. TURNOVER An analysis of the Group’s turnover is as follows: 2002 2001 RMB’000 RMB’000 Sale of properties 529,638 774,335 Sale of goods 101,352 94,979 Taxi service 33,556 37,838 Property rental and management services income 104,824 82,149 Hotel and restaurant operations 5,755 - Others 3,187 26,426 Total revenue 778,312 1,015,727 6. BUSINESS AND GEOGRAPHICAL SEGMENTS For management purposes, the Group is organised into three major operating divisions – property, trading, and transportation and catering services. The divisions are the basis on which the Group reports its primary segment information. Principal activities are as follows: Property - construction, sales, leasing and management of properties Trading - sale of general merchandise Transportation and catering service - hotel and restaurant operation and provision of taxi services All the Group’s business are conducted in PRC. 11 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物业发展(集团)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,2002 __________________________________________________________________________ 6. BUSINESS AND GEOGRAPHICAL SEGMENTS - continued Segment information about these businesses for the year ended December 31, 2002 is presented below: Sales of Taxi services, properties, hotel and management restaurant services and operations rental income Trading and others Eliminations Consolidated RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Revenue External sales 634,462 101,352 42,498 - 778,312 Inter-segment sales 12,508 - - (12,508 ) - Total revenue 646,970 101,352 42,498 (12,508 ) 778,312 Inter-segment sales are charged on terms as determined by the directors. Sales of Taxi services, properties, hotel and management restaurant services and operations rental income Trading and others Eliminations Consolidated RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RESULTS Segment results 175,563 30,702 24,906 - 231,171 General administrative expenses and unallocated corporate expenses (152,405 ) Operating profit 78,766 Finance costs (48,416 ) Share of losses of associates 650 Income from investments 14,877 Profit before tax 45,877 Income taxed (9,887 ) Profit after tax 35,990 Minority interests - Net profit for the year 35,990 12 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物业发展(集团)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,2002 __________________________________________________________________________ 6. BUSINESS AND GEOGRAPHICAL SEGMENTS - continued Segment information about these businesses for the year ended December 31, 2001 is presented below: Sales of Taxi services, properties, hotel and management restaurant services and operations rental income Trading and others Eliminations Consolidated RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Revenue External sales 856,484 94,979 64,264 - 1,015,727 Inter-segment sales 24,456 - - (24,456 ) - Total revenue 880,940 94,979 64,264 (24,456 ) 1,015,727 Inter-segment sales are charged on terms as determined by the directors. Sales of Taxi services, properties, hotel and management restaurant services and operations rental income Trading and others Eliminations Consolidated RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RESULTS Segment results 225,119 32,089 18,365 - 275,573 General administrative expenses and unallocated corporate expenses (121,690 ) Operating profit 153,883 Finance costs (73,178 ) Share of losses of associates (20,002 ) Income from investments 27,503 Profit before tax 88,206 Income taxed (17,371 ) Profit after tax 70,835 Minority interests (1,365 ) Net profit for the year 69,470 13 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物业发展(集团)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,2002 __________________________________________________________________________ 7. PROFIT FROM OPERATONS Profit from operations has been arrived at after charging: 2002 2001 RMB’000 RMB’000 After charging: Depreciation of owned fixed assets (note 12) 23,009 39,352 Amortisation of intangible assets (note 13) 1,880 4,441 Net Provision for inventories - 24,552 Net foreign exchange loss - 107 Provision for doubtful debts 97,765 25,319 Staff costs – statutory pension 3,582 2,203 – other costs 73,233 27,828 Provision for diminution in value of investment 6,305 9,704 And after crediting: Interest income 4,163 23,881 Provision for inventories written back (19,832 ) - Gain on disposal of fixed assets 15,058 4,059 8. FINANCE COSTS 2002 2001 RMB’000 RMB’000 Interest expenses 103,254 75,685 Less: Interest capitalised (54,838 ) (2,507 ) 48,416 73,178 14 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物业发展(集团)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,2002 __________________________________________________________________________ 9. INCOME FROM INVESTMENTS 2002 2001 RMB’000 RMB’000 Interest on bank deposits, government bonds and other loans 4,163 23,881 Provision for diminution in value of investments written back 10,714 - Gain on dealing of listed investments - 2,671 Reversal of the provision for trading securities - 951 14,877 27,503 10. TAXATION 2002 2001 RMB’000 RMB’000 The charge comprises: Profits tax for the year: PRC profits tax 9,887 17,371 Taxation attributable to the Company and its subsidiaries 9,887 17,321 Share of taxation attributable to associates - 50 9,887 17,371 The Group provided for income tax on the estimated assessable profit for the year at the rate of 15% (2001: 15%), the prevailing income tax rate for all PRC enterprise in Shenzhen. Taxation on overseas profits has been calculated on the estimated assessable profit for the year at the rates of taxation prevailing in the countries in which the subsidiary operate. 11. EARNINGS PER SHARE The calculation of earnings per share is based on the Group’s profit attributable to shareholders of RMB35,990,000 (2001: RMB78,199,000) and the 541,799,000 (2001: 541,799,000) shares in issue during the year. 15 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物业发展(集团)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,2002 __________________________________________________________________________ 12. PROPERTY, PLANT AND EQUIPMENT Leasehold land and Leasehold Motor Fixture and buildings improvements vehicles equipment Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 COST At January 1, 2002 308,131 33,744 65,277 32,307 439,459 Transferred from inventories 130,359 - - - 130,359 Additions - - 2,883 1,146 4,029 Disposals (93,365 ) - (14,767 ) (4,966 ) (113,098 ) At December 31, 2002 345,125 33,744 53,393 28,487 460,749 DEPRECIATION At January 1, 2002 78,496 8,327 38,206 16,443 141,472 Charge for the year 10,122 2,617 8,276 1,994 23,009 Eliminated on disposals (11,145 ) - (11,813 ) (4,854 ) (27,812 ) At December 31, 2002 77,473 10,944 34,669 13,583 136,669 NET BOOK VALUES At December 31, 2002 267,652 22,800 18,724 14,904 324,080 At December 31, 2001 229,635 25,417 27,071 15,864 297,987 As at December 31, 2002, land and buildings with net book values of RMB 248,575,000 (2001: RMB118,728,000) have been pledged to the banks to secure general banking facilities for the Company and its subsidiaries. 13. INTANGIBLE ASSETS 2002 2001 RMB’000 RMB’000 Original Cost 88,812 88,812 Accumulated amortisation (25,498 ) (23,618 ) Net book value 63,314 65,194 As at December 31, 2002, taxi licenses with net book value of RMB 16,840,000 (2001: RMB31,680,000) have been pledged to the banks to secure general banking facilities for the Company and its subsidiaries. 16 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物业发展(集团)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,2002 __________________________________________________________________________ 14. PRINCIPAL SUBSIDIARIES Details of the principal subsidiaries included in consolidated financial statement at December 31, 2002 are as follows: Proportion of ownership interest/ Proportion of Voting Names of subsidiary power held Principal activities Place of incorporation Direct Indirect % % Hainan Xinda Development 100 Property development The People’s Republic Headquarter Company and trading of China Shenzhen Property and Construction 100 Property development The People’s Republic Development Company of China Shenzhen ITC Estate Management 95 5 Property management The People’s Republic Company of China Shenzhen International Trade Plaza 95 5 Retailing of general The People’s Republic merchandise of China Shenzhen Huangcheng Real Estate 95 5 Property development, The People’s Republic Company Limited construction and of China management Shenzhen ITC Vehicles Services 90 10 Transportation and The People’s Republic Company vehicles rental service of China 深圳市物业工程建设监理有限公司 90 10 Property development The People’s Republic consultancy services of China Shanghai Shenzhen Properties 80 20 Property management The People’s Republic Development Company Limited and construction of China 深圳市国贸餐饮有限公司 80 20 Restaurant operation The People’s Republic and wine merchandise of China 17 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物业发展(集团)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,2002 __________________________________________________________________________ 15. INTEREST IN SUBSIDIARIES NOT CONSOLIDATED 2002 2001 RMB’000 RMB’000 Cost of investment 116,950 34,493 Provision for diminution in value (61,698 ) (9,657 ) 55,252 24,836 Amounts due from associates 72,031 - Amounts due to associates (39,521 ) - 87,762 24,836 Details of subsidiaries excluded in consolidated financial statement at December 31, 2002 are as follows: Shum Yip Properties Development 100 Property development Hong Kong Limited Zhanjing Shenzhen Estate 100 Property development The People’s Republic Development Company Limited and retailing of of China general merchandise Shenzhen ITC Plaza & Development 70 Property investment The People’s Republic Company Limited and development of China 大连深圳物业发展有限公司 100 Property development The People’s Republic of China 深圳市房地产交易所 100 Property investment The People’s Republic of China 深圳市物业建筑设计公司 100 Property development The People’s Republic of China 四会市建业皇江开发公司 100 Property development The People’s Republic of China 深圳特速机动车驾驶员培训中心有 100 Driver training The People’s Republic 限公司 of China 深圳市龙耀房地产开发公司 100 Property development The People’s Republic of China 深杉公司 100 Dormant The People’s Republic of China 深市国贸旅游公司 100 Tourism The People’s Republic of China 南京深圳物业发展有限公司 100 Property development The People’s Republic of China 18 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物业发展(集团)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,2002 __________________________________________________________________________ 16. INTEREST IN ASSOCIATES 2002 2001 RMB’000 RMB’000 Cost of investment 219,674 292,297 Share of post-acquisition loss, net of dividends received (146,102 ) (127,337 ) Provision for diminution in value (51,598 ) (76,242 ) 21,974 88,718 Amounts due from associates 200,560 37,438 Amounts due to associates (5,630 ) - 216,904 126,156 Details of the principal associates at December 31, 2002 are as follows: Proportion of ownership interest/ Proportion of Names of associates Voting power held Principal activities Place of incorporation Direct % Shenzhen Luohu Hotel Company 50 Hotel operation The People’s Republic Limited of China Shenzhen Carrier Service 40 Air-conditioning The People’s Republic Company Limited of China ITC Tian An Company Limited 50 Property investment The People’s Republic and development of China Shenzhen Lingnan Jifa 50 Warehousing The People’s Republic Warehouse Company Limited of China Anhui Nan Peng Paper 30 Manufacturing and The People’s Republic Manufacturing Company sales of coated art of China Limited paper Suzhou Fuda Property 25 Property development The People’s Republic Development Company of China Limited Shenzhen Matform Ceramics 26 Ceramics craft The People’s Republic Industry Company Limited of China 深圳国贸实业发展有限公司 38.33 Property development The People’s Republic of China 深圳天安国际大厦业管理有限 50 Building management The People’s Republic 公司 of China 上海裕通房地产开发有限公司 40 Property development The People’s Republic of China 龙华地产公司 20 Property investment The People’s Republic of China 广州利士风汽车有限公司 30 Motor vehicle trading The People’s Republic of China 深圳皇和房地产开发有限公司 合作 Property Investment The People’s Republic of China 塞班岛投资公司 30 Property Investment The People’s Republic of China 晓晖发展有限公司 10 Property development The People’s Republic of China 重庆广发房屋开发有限公司 25 Property development The People’s Republic of China Chatswood Investment 45 Property investment The People’s Republic Development Co Pty. Ltd and development of China 19 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物业发展(集团)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,2002 __________________________________________________________________________ 17. LONG TERM INVESTMENTS 2002 2001 RMB’000 RMB’000 Unlisted equity investments at cost - 5,184 Provision for permanent diminution in value - (5,070 ) - 114 Unlisted legal person shares 23,776 23,776 Provision for diminution in value (4,000 ) - 19,776 23,890 18. INVENTORIES 2002 2001 RMB’000 RMB’000 Properties held for sale/under development 825,482 437,087 Completed properties held for sale 603,237 862,405 Other inventories 3,942 3,709 1,432,661 1,303,201 Properties under development include a piece of land in Nanjing with carrying value of RMB 151,441,000 of which development works terminated several years ago due to unfavorable market conditions. The directors will develop the land for property trading purposes when the property market improves in future. As at December 31, 2002, completed properties held for sale with carrying value of RMB 95,742,000 (2001:RMB135,800,000) have been pledged to the banks to secure general banking facilities granted to the subsidiaries. 19. TRADING SECURITIES 2002 2001 RMB’000 RMB’000 Listed securities, at market value 3,000 34,498 Government bonds, at cost - 4 3,000 34,502 20 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物业发展(集团)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,2002 __________________________________________________________________________ 20. SHORT-TERM LOANS 2002 2001 RMB’000 RMB’000 Mortgaged bank loans 326,000 418,000 Guaranteed bank loans 433,000 489,500 Other unsecured loans 26,000 46,100 785,000 953,600 Mortgaged bank loans are secured by the Group’s assets and bear interest at prevailing market rates ranging form 5% to 8% (2001: 5% to 8%) per annum. Other unsecured loans carry interest at an annual fixed rate of approximately 7% (2001: 7%). Mortgaged bank loans of RMB 67,440,000 (2001: RMB 90,000,000) and guaranteed bank loans of RMB 312,000,000 (2001: RMB 353,800,000) have been overdue. Management of the Company is in the process of negotiating with the banks to extend the repayment due date. 21. LONG-TERM LOANS 2002 2001 RMB’000 RMB’000 Bank loans – secured Wholly repayable within five years 250,000 2,594 Not wholly repayable within five years 40,463 - 290,463 2,594 Less: Amount due within one year shown under current liabilities 1,428 1,194 289,035 1,400 Long-term bank loans are secured by the Group’s assets and bearing interest at prevailing market rates ranging from 5% to 6% (2001: 4% to 5%) per annum. 21 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物业发展(集团)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,2002 __________________________________________________________________________ 22. SHARE CAPITAL 2002 2001 RMB’000 RMB’000 Registered, issued and fully paid: 388,949,000 state shares and shares held by other promoters of RMB1 each 388,949 388,949 91,391,000 A share of RMB1.00 each 91,391 91,391 61,459,000 B share of RMB1.00 each 61,459 61,459 541,799 541,799 All the shares rank pari passu with each other in all respects. 22 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物业发展(集团)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,2002 __________________________________________________________________________ 23. RECONCILIATION OF PROFIT FROM ORDINARY ACTIVITIES BEFORE TAXATION TO NET CASH INFLOW FROM OPERATING ACTIVITIES 2002 2001 RMB’000 RMB’000 Profit from ordinary activities before taxation 45,877 88,206 Adjustment for: Share of results of associates 650 11,452 Minority interest - 20,617 Interest expense 103,254 75,685 Interest income (4,163 ) (23,881 ) Bad or doubtful debts written back (47,445 ) (29,614 ) Provision for doubtful debts 84,578 54,933 Provision for inventories 43,526 27,098 Provision for inventories written back - (2,546 ) Provision for diminution in value of investments 5,076 9,704 Reversal of provision on trading securities written back - (951 ) Depreciation of property, plant and equipment 23,009 39,352 Amortisation of intangible assets 1,881 4,441 Gain on disposal of fixed assets (14,797 ) (4,059 ) Gain on dealing of listed investments - (2,671 ) Operating cash flows before movements in working capital 241,446 267,766 Increase in inventories (131,642 ) (124,682 ) Decrease/(Increase) in receivables 176,575 (109,349 ) (Decrease)/Increase in payables (16,536 ) (9,928 ) Cash generated by operations 269,843 23,807 Taxes paid (77,811 ) (14,353 ) Net cash inflow from operating activities 192,032 9,454 23 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物业发展(集团)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,2002 __________________________________________________________________________ 24. ANALYSIS OF CHANGES IN FINANCING DURING THE YEAR Other Short-term Long-term short-term bank loans bank loans loans RMB’000 RMB’000 RMB’000 Balance at January 1, 2002 907,500 2,594 46,100 New loans raised 90,000 248,600 Repayments of amounts borrowed (212,500 ) (1,194 ) (46,100 ) Balance at December 31, 2002 785,000 250,000 - 25. PRIOR YEAR ADJUSTMENTS RMB’000 Reversal of profit arising from long term investment in the previous years 8,729 The adjustment relates to a change in accounting policy of revenue recognition from long-term investment that income had been over-recognised in the previous years. In order to be consistent with the presentation of the statutory financial statements which are prepared under PRC GAAP, the directors consider that it is appropriate to reflect such adjustments as a prior year adjustment to the equity of the Group as of January 1, 2001. 26. PLEDGE OF ASSETS As at December 31, 2002, leasehold land and buildings with a net book value of RMB 248,575,000 (2001: RMB 118,728,000), completed properties held for sales of RMB 95,742,000 (2001: RMB 135,800,000) and certain taxi licenses having a net book value of RMB 16,840,000 (2001: RMB 31,680,000) have been pledged to the banks for the general banking facilities granted to the Group. 24 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物业发展(集团)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,2002 __________________________________________________________________________ 27. CONTINGENT LIABILITIES (1) The Company provided guarantee to a third party for a bank loan of RMB 65,000,000. This party is unable to meet the repayment and the banks have taken legal action to receive certain assets of this party. The bank will take the shortfall from the Company when the legal action is completed. (2) In 1999, an appeal was lodged by the Group with the Guangdong High Civil Court in relation with a claim by certain customers under certain contracts related to the sale of properties made by the Group to its customers. It was alleged that the Company had breached the contracts by not providing the title documents by the dates as specified in the contacts. The total amount under dispute is approximately HK$79,000,000, representing compensation claimed by the customers. A court ruling has not yet been made on the case. The directors, after consultation with the Group’s legal advisers, are of the opinion that these claims were unfounded and are confident that the Group will not suffer any loss from these claims. Accordingly, no provision for loss has been made in the Company’s financial statements. (3) A court case during 2000 was finalized and the Group has to pay approximately RMB 10,800,000 together with interest for the failure in completion of sales contract to its customer. The directors are now negotiated with this customer in order to seek for out of court settlement. (4) A subsidiary is a defendant in a law suit brought during 2001 claiming approximately HK$ 10,676,000 and RMB 20,000 relating to the imports of refrigerator from a supplier. A court ruling has not yet been made on the case. The directors are of the opinion that these claims were unfounded and are confident that the Group will not suffer any loss from these claims. Accordingly, no provision for loss has been made in the Company’s financial statements. 28. OPERATING LEASES The Group leases out certain properties under non-cancellable operating leases. Rental income to be received as follows: 2002 2001 RMB’000 RMB’000 Land and buildings - expiring in the first year 22,430 3,060 - expiring in the second to fifth years inclusive 15,685 8,451 - expiring after the fifth year 4,017 972 42,132 12,483 25 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物业发展(集团)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,2002 __________________________________________________________________________ 29. RELATED PARTY TRANSACTIONS During the year, group companies entered into the following transactions with related parties who are not members of the Group: Amounts due to Amounts due from Rental income related parties related parties 2002 2001 2002 2001 2002 2001 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Associates - 1,873 339,900 32,005 279,660 61,433 The above transactions were carried out at terms agreed between the Group and the associates. The amounts due to related parties are unsecured, interest free and have no fixed terms of repayment. 30. IMPACT OF IAS ADJUSTMENTS ON PROFIT/LOSS Profit For the year ended December 31, 2002 2001 RMB’000 RMB’000 As reported in financial statements prepared in accordance with PRC GAAP 34,622 86,207 Adjustment to confirm with IAS: Unrealised profit on trading securities - 118 Understatement of rental income - 2,973 Deferred expenses written off (81 ) (3,236 ) Amortisation charges written back to fixed assets 332 10,467 Addition depreciation charges (2,617 ) (4,408 ) Addition amortisatiobn charges - (1,917 ) Minority interest - 646 Reverse of “B shares” last year adjustments - 6,227 “A share” prior years adjustments - (27,695 ) Others 3,734 88 35,990 69,470 26 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物业发展(集团)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,2002 __________________________________________________________________________ 31. IAS IMPACT ON CONSOLIDATION NET ASSETS December 31, Consolidated net assets 2002 2001 RMB’000 RMB’000 As reported in financial statements prepared in accordance with PRC GAAP 337,904 300,713 Adjustment to confirm with IAS: Unrealised profit on trading securities - 118 Understatement of rental income - 2,973 “B share” prior years adjustments (4,000 ) (4,000 ) Deferred expenses written off (3,265 ) (3,236 ) Amortisation charges written back to fixed assets 411 11,605 Addition depreciation charges (7,764 ) (4,408 ) Addition amortisatiobn charges (8,373 ) (8,572 ) Unamortised expenses written off (4,233 ) (4,230 ) Reverse of “B shares” last year adjustments - 626 Others 3,364 (7,520 ) 314,044 284,069 27