深赤湾Ａ(000022)深赤湾2002年年度报告（英文）

2002 ANNUAL REPORT SHENZHEN CHIWAN WHARF HOLDINGS LIMITED Important Note The Board of Directors of Shenzhen Chiwan Wharf Holdings Limited (“the Company”) individually and collectively accepts responsibility for the correctness, accuracy and completeness of the contents of this report and confirms that there are no material omissions nor errors which would render any statement misleading. Chairman of the Board Ms. Wang Fen, as well as General Manager of the Company Dr. Liu Zhangjun and Chief Financial Officer Mr. Zhang Jianguo hereby confirm that the Financial Statements in the Annual Report is true and complete. The Annual Report is written in both English and Chinese. In case of any conflict between the two versions, Chinese version prevails. Table of Contents Part I Profile ……………….……………………………………………………. 1 Part II Financial and Business Highlights ………………….……………………. .2 A. Profit and breakdown for 2002 …………….……………………………. .. . 2 B. Financial Indicators …………….………………………. …………………. 2 C. Changes in Shareholders' Equity in 2002 ………….………………...……... 3 Part III Changes in Shareholding Structure and Shareholders …………….……… 3 A. Changes in Shareholding Structure ……………………. …………………. 3 B. Shareholders ……….…………………………………………………. 4 Part IV Directors, Supervisors, Senior Executives and Employees …………………6 A. General Information ….……………….……………………………….. 9 B. Annual Salary ….………………………………………………………. 9 C. Appointment of Senior Executives ……………………………………... 10 D. Work Force ….………………………………………………………. Part V Corporate Structure …….……………………………………….……….. 10 A. Corporate structure ….………………………………..……………….. 10 B. Performance of Independent Directors …………………………………. 12 Part VI Shareholders’ General Meeting .…………………….………………..….. 12 Part VII Report by the Board of Directors ………..……………..………………… 14 A. Performance in 2002 ………………………………………………….. 14 B. Investments in 2002 …………….…………………………………….. 19 C. Financial status ….……………………………………………………. 20 D. Influence of significant changes in business environment and policy ……..20 E. Business plan for 2003 .………………………………………..……….. 21 F. Routine work of the Board of Directors …………………...…..………… 21 G. Profit distribution plan for 2002 ………………………………..………. 23 Part VIII Report by the Supervisory Committee …..………………..……………… 24 Part IX Significant Events …….……………………………………………………25 Part X Financial Statements ….…………………………………………………..28 Part XI Documents for Reference …………………………………………………29 PART I COMPANY PROFILE A. Company's Name in Chinese 深圳赤湾港航股份有限公司 Company's Name in English Shenzhen Chiwan Wharf Holdings Limited (CWH) B. Legal Representative Ms. Wang Fen, Chairman C. Company Secretary Ms. Pei Jiangyuan Authorized Representative Ms. He Yingban and Mr. Tang Qingsong Address 11/F., Chiwan Petroleum Building Port of Chiwan, Shenzhen, PRC Tel +86 755 26817355, 26694620 Fax +86 755 26684117 E-mail cwh@cndi.com D. Place of Registration Port of Chiwan, Shenzhen, PRC Offices 11-12/F., Chiwan Petroleum Building, Port of Chiwan, Shenzhen, PRC Postal Code 518068 E-mail cwh@cndi.com E. Newspaper for Information "Securities Daily" and "Ta Kung Pao” Release Website for Annual Report http:\\www.cninfo.com.cn Annual Report Preparation Secretariat of the Board of Directors F. Stock Exchange Shenzhen Stock Exchange Stock Short Name Shen Chiwan A/Shen Chiwan B Stock Code 000022/200022 G. Other information Date of Original Registration 19 July 1990 Place of Registration Chiwan, Shenzhen Business Registration Number Qi-Gu-Yue-Shen-Zong-Zi No. 102793 Tax Registration Number Guo-Shui-Shen-Zi No. 440301618832968 Di-Shui-Deng-Zi No. 440305618832968 Accounting Firm (Domestic) PricewaterhouseCoopers Zhong Tian Certified Public Accoutants Room 3706, Shun Hing Square, Di Wang Commercial Centre 5002 Shennan Road East Shenzhen, 518068, PRC Accounting Firm (Overseas) PricewaterhouseCoopers 23rd Floor Sunning Plaza 10 Hysan Avenue Hong Kong 1 PART II FINANCIAL AND BUSINESS HIGHLIGHTS A. Profit and breakdown for 2002 (RMB) Profit before tax 303,113,486 Net profit 183,876,579 Gross profit 393,035,908 Operating profit 326,371,283 Share of result of associates before tax 1,397,913 Net cash flow from operating activities 290,261,808 Increase/decrease in cash and cash equivalents -106,082,896 * Net profit for 2002 of Shenzhen Chiwan Wharf Holdings Limited ("the Company”) was calculated under Chinese Accounting Standards to be RMB183,599,988, while under International Accounting Standards to be RMB183,876,579. A discrepancy of RMB276,591 exists between the results of the two calculations since that A/P unpayable was calculated into capital reserve under the new accounting rules issued by the Finance Ministry, while as the profit for the reporting period under International Accounting Standards. B. Financial Indicators (RMB) 2002 2001 (RMB) 2000 (RMB) Sales 714,755,787 478,756,052 448,441,809 Net profit 183,876,579 73,824,569 82,561,186 Total assets 2,331,823,016 2,222,759,643 2,251,825,648 Shareholders’ equity 1,298,098,489 1,153,494,051 1,129,118,317 (Minority interests excluded) Earnings per share 0.482 0.194 0.216 Net assets per share 3.402 3.023 2.960 Net cash flow per share from 0.761 0.498 0.495 operating activities Return on net assets 14.17% 6.40% 7.31% 2 C. Changes in Shareholders' Equity in 2002 1. Changes of sharheolders’ equity Share Capital Surplus Statutory Retained Shareholders' Item premium reserve reserve welfare fund profit equity Initial amount 381,517,000 406,340,474 284,368,189 46,844,945 39,438,124 1,153,494,051 Increase 0 0 64,213,201 9,173,314 183,876,579 256,905,687 Decrease 0 0 0 0 112,301,249 112,301,249 Ending amount 381,517,000 406,340,474 348,581,390 56,018,259 111,013,454 1,298,098,489 2. Reason for the above changes Shareholders’ equity was increased due to the drawing of surplus reserve, statutory welfare fund and retained profit in 2002. PART III CHANGES IN SHAREHOLDING STRUCTURE AND SHAREHOLDERS A. Changes in Shareholding Structure 1. Change in the stock of shares of the Company Change in amount of shares (+,-) bonus reserves new Before the After the change rights shares to stocks issue others subtotal change 1. Untradable shares a. Promoter's shares 224,470,000 224,470,000 among which shares held by the State shares held by domestic legal entity 224,470,000 224,470,000 shares held by overseas legal entity others b. Shares raised from legal entity c. Shares held by staff 121,500 121,500 d. Preference shares and others Subtotal 224,591,500 224,591,500 2. Tradable shares a. A shares 50,478,500 50,478,500 b. B shares 106,447,000 106,447,000 c. Overseas listed shares d. others Subtotal 156,925,500 156,925,500 3. Total shares 381,517,000 381,517,000 2. Issuance and listing of shares 3 a) The company was approved to issue 310,470,000 ordinary shares at a par value of RMB1.00 per share in February 1993, with 224,470,000 being the promoter's shares; 46,000,000 shares (the "A shares”) being issued to PRC investors (of which 6,000,000 shares were allotted to the employees of the Company), and 40,000,000 shares (the "B shares”) being issued to overseas investors. The A shares were issued at RMB3.10 per share and the B shares at RMB3.18 per share, which were payable at HKD2.83 per share. On 5 May 1993, the Company's A and B shares were listed and traded on the Shenzhen Stock Exchange. b) On June 1994, bonus shares were issued in a proportion of "one bonus share for every ten shares”. As a result, the total volume of the Company's shares rose to 341,517,000. On 16 June and 21 June 1994, respectively, 4,600,000 bonus A shares and 4,000,000 bonus B shares were listed and traded on the Shenzhen Stock Exchange. c) On 22 June 1995, the Company's promoter, China Nanshan Development (Group) Incorporation (CND), converted all of its 22,447,000 bonus shares to B shares, which were sold to overseas investors at an average price of HKD3.54 per share, and then listed and traded on the Shenzhen Stock Exchange. d) In December 1995, the Company issued 40,000,000 B shares to overseas investors at HKD2.90 per share, which were listed on the Shenzhen Stock Exchange on 15 December 1995. Consequently, the total volume of the Company's shares rose to 381,517,000. e) Total amount of the Company's shares and the shareholding structure were not changed during the reporting period. f) The Company was approved to issue 6,000,000 Employees’ Shares at an issuing price of RMB3.10 per share in February 1993. The shares were put in trust with Shenzhen Securities Registration Co. Ltd. in March 1993. After bonus shares were issued in June 1994, Employees’ Shares rose to 6,600,000, among which 600,000 bonus shares were allowed to be traded on 16 June 1994. On 1st August 1994, the Company's Employees’ Shares totaling 6,000,000 were allowed to become tradable, except those held by Directors, Supervisory Committee Members and senior management personnel according to relevant rules. B. Shareholders 1. As at the end of 2002, 53,979 shareholders of the Company were recorded, with one shareholder being domestic legal entity, 34,030 being shareholders of A Shares and 19,948 being shareholders of B Shares. 4 2. Top ten shareholders Series Amount of Percen- Number Code Name Shares tage 1 0800004904 CND 224,470,000 58.84% 2 00214193 NEWTON ORIENTAL FUND 3,630,931 0.95% BTFE-VALUE PARTNERS INTELLIGENT FD- 3 00318494 CHINA B SHS FD 2,306,860 0.60% 4 0899033202 WESTERN SECURITIES HOLDINGS LTD 1,626,018 0.43% 5 0899011480 HANSHENG SECURITIES INVESTMENT FD 999,970 0.26% 6 91056644 CHEN CHUNPENG 662,745 0.17% 7 00265943 CHEUNG KIT 527,482 0.14% 8 91169505 ZHENG YUYAO 511,565 0.13% BTFE-BOBL/ MANULIFE GLOBAL FUND- 9 00301608 CHINA VALUE 495,834 0.13% 10 91422875 YANG TIANDING 410,000 0.11% Total 235,641,405 61.76% * a) The above-mentioned amount of shares are the figures recorded at the end of 2002. b) CND being domestic legal entity and the fourth shareholder Western Securities Holdings Ltd. and the fifth shareholder Hansheng Securities Investment Fund being shareholders of A shares, the other seven shareholders among the top ten are all shareholders of B shares. The Company is not aware of any relationship existing among the top ten shareholders. c) CND is the only shareholder holding more than 5% of the Company's shares. Shares held by CND was not changed within the reporting year. CND did not pledge or freeze its shares in 2002. 3. Information about the controlling shareholder of the Company Company name: China Nanshan Development (Group) Incorporation (CND) Legal representative: Dr. Fu Yuning Business scope: Land development, port services and transportation, as well as related bonded warehousing, industry, commerce, property and tourism. Registered Capital: RMB500,000,000 Shareholding structure: Place of Shareholders’ Name of shareholders registration Equity China Merchants (Nanshan) Holdings Limited Hong Kong 36.518% Shenzhen Investment Holding Corporation PRC 26.103% Guangdong Petro-Trade Development Corp. PRC 23.493% China Offshore Oil Nanhai East Corp. PRC 7.831% Clifford Wong Investment Company Ltd. Hong Kong 3.915% China Ocean Oilfields Service (HK) Ltd. Hong Kong 1.644% Silverflow Co., Ltd. Hong Kong 0.496% 5 4. Within the reporting year, the controlling shareholder of the Company was not changed. 5. No. 1 shareholder of the controlling shareholder of the Company No. 1 shareholder of the controlling shareholder of the Company is China Merchants (Nanshan) Holdings Limited, in which China Merchants Holdings (International) Co., Ltd. (CMHI, listed on Hong Kong Exchange) holds 100% equity interests directly and indirectly. Basic information about CMHI is listed as follows. Date of registration: May 28, 1991 Legal Representative: Fu Yuning Registered capital: HKD300,000,000 Place of registration: Hong Kong Business scope: port and port-related business, infrastructure and industrial production Shareholding structure: China Merchants Holdings Co., Ltd. and its wholly-owned subsidiaries holding 53.15% equity interests of CMHI, while public shareholders holding 46.85% equity interests PART IV DIRECTORS, SUPERVISORS SENIOR EXECUTIVES AND EMPLOYEES A. General Information Chairman of the Board, Ms. Wang Fen, 48 years of age, MBA. Having taken part in the development of Chiwan Port ever since 1982. Previously, acted as Director of General Manager Office, Manager of Business Department of CND, and General Manager of Shenzhen Chiwan Godown Co., Ltd. Appointed as the Vice President of CND in 1994 and then Senior Vice President participating and taking charge of the development and management of CND's investment. Presently, President of CND. Elected Director of the Company in March 1993, Vice Chairman of the Company in December 1998, and Chairman of the Company in August 2000. Her present term started from May 2002 and ends in May 2005. Holding 34,100 shares of the Company without any change in 2002. Director, Mr. Fan Zhaoping, 49 years of age. Got Bachelor Degree in Economics at the State's Finance University and Master's Degree in Economics at the Research Institute of Finance Ministry of China, then worked as assistant researcher there. As an experienced finance manager, Mr. Fan took the position of Financial Manager at Shenzhen Chiwan Petroleum Supply Base Co., Ltd. in 1988, and Manager of the Finance Department of CND in 1991, then Manager of the Investment Department and Vice President of CND. Now Senior Vice President of CND. Appointed as the Company's Chief Financial Officer in March 1993 and resigned from the post in September 1999. Director of the Company since April 1995 with the present term starting from May 2002 and ending in May 2005. Holding 28,600 shares of the Company without any change in 2002. Director, Mr. Yuan Yuhui, 53 years of age, university graduate. Previously, Translator and Assistant Director of Textile Science Research Institute of Hebei Province. Worked in the Business Department of CND in 1989, and then Director of General Manager Office. 6 Now Senior Vice President of CND in charge of the administration, law affairs, research and development issues of CND. Appointed as the Company Secretary in March 1993 and resigned from the post in December 2000. Director of the Company since April 1995 with the present term starting from May 2002 and ending in May 2005. Holding nil shares of the Company. Director, Mr. Han Guimao, 53 years of age, graduated from Construction Department of Tsing Hua University. Mr. Han has been working in the field of construction and engineering for over 30 years. Mr. Han first took a job at Tianjin Second Construction Company in 1969, then worked for the First Designing Institute of the Railway Ministry in 1976, and was working from 1983 to 1992 as Deputy General Manager in the Shenzhen Branch of the Second Engineering Bureau of the Railway Ministry (which ranks among the top ten construction and engineering bureaus in China), then took the position of Executive Deputy General Manager in Shenzhen Nanshan Centre-Zone Development Co. Vice President of CND since 1994, and presently Senior Vice President of CND in charge of general planning, construction and engineering, as well as construction material industry of CND. Director of the Company since May 1998 with the present term starting from May 2002 and ending in May 2005. Holding nil shares of the Company. Director, Mr. Liu Zhangjun, 49 years of age. Got Bachelor Degree in Mechanics from Tongji University and Ph.D Degree in Mechanics at Cambridge University of the United Kingdom. Previously, Head of the Intelligence Import Office in Shenzhen Municipal Personnel Bureau and Manager of the Human Resources Department of CND. General Manager of the Company since August 2000 and Director of the Company since April 1995 with the present term starting from May 2002 and ending in May 2005. Holding nil shares of the Company. Director, Mr. Zheng Shaoping, 40 years of age. Got Bachelor Degree in Shipping and then graduated from Postgraduate School of Dalian Shipping University with a major in Marine Trade Law. Previously, Manager of Business Section, Deputy General Manager and then General Manager of Shenzhen Chiwan Harbour Container Co. Now General Manger of Chiwan Container Terminal Co., Ltd. (CCT). Deputy General Manager of the Company from December 1998 to May 2002, and Director of the Company since May 1999 with the present term starting from May 2002 and ending in May 2005. Holding nil shares of the Company. Director, Mr. Tian Junyan, 41 years of age. Got Master’s Degree in Management at Huazhong University of Science and Technology, studied at Management College at Toronto University in Canada in 1987, and now reading for Doctor’s Degree. Formerly Vice Professor at Management College of Huazhong Technology University. Worked at Management Department and R&D Department of CND since 1996, and now General Manager of Southern China Construction Material Co., Ltd. His present term started from May 2002 and ends in May 2005. Holding nil shares of the Company. Independent Director, Mr. Zhang Limin, 48 years of age. Got Doctor’s Degree in Accounting at Tianjin Finance Institute. Presently Professor and Supervisor for post- graduates at Management College of Zhongshan University. His present term started from May 2002 and ends in May 2005. Holding nil shares of the Company. Independent Director, Mr. Liu Ruiqi, 46 years of age. Got Bachelor Degree in Law at China People’s University, and presently lawyer at Guangdong Saint-Balance Law Firm. 7 His present term started from May 2002 and ends in May 2005. Holding nil shares of the Company. Chairman of Supervisory Committee, Mr. Huang Chuanqi, 38 years of age. Got Doctor’s Degree at Nanjing Aviation and Aerospace University, Doctor’s Degree in Mechanical Engineering at France Bourgogne University, and post-doctor at Aerospace Department at German Stuttgart University. Formerly Professor and Supervisor for post- graduates at Nanjing Aviation and Aerospace University, Assistant to Director of Planning and Technology Division of China Civil Aviation Bureau (“CCAB”), Chief Engineer of a division at CCAB. Presently, Vice President of Shenzhen Investment Holding Corporation and Vice Chairman of CND. Elected as the Chairman of the Company's Fourth Supervisory Committee in May 2002 with the present term ending in May 2005. Holding nil shares of the Company. Vice Chairman of Supervisory Committee, Mr. Yu Liming, 40 years of age. Graduated from South China University of Technology in 1982, and got Master’s Degree at Management College at Fudan University and now reading for Doctor’s Degree at that college. Studied at Delft, IHE College and Authority of Rotterdam Port in Netherlands from 1987 to 1988. Joined China Merchants Holdings Co., Ltd. (CMH) in 1984, and presently Director of CMH, General Manager of Business Development Department of CMH. His present term started from May 2002 and ends in May 2005. Holding nil shares of the Company. Supervisory Committee Member, Ms. Mary-Jean Wong, 45 years of age, university graduate. Now Director of Lucliff (Canada) Company and of Max Return Consultancy (HK) Company, Executive Director of HK Clifford Wong Investment Company Ltd., and Director of CND. Elected as member of the Company's Supervisory Committee in May 1996 with the present term starting from May 2002 and ending in May 2005. Holding nil shares of the Company. Supervisory Committee Member, Mr. Zhang Ning, 43 years of age, Master’s Degree. Previously, Deputy Manager, and then Manager of the Operation Department of CCT , and later appointed as the Assistant General Manager of CCT. Now Deputy General Manager of CCT. Elected as the employees' representative in the Third Supervisory Committee in May 1999 with the present term starting from May 2002 and ending in May 2005. Holding nil shares of the Company. Supervisory Committee Member, Mr. Nie Qi, 41 years of age, Master’s Degree. Previously, worked for Shekou Merchants Harbor Co., Ltd. and appointed as Assistant General Manager of the Company in 1997. Presently, Deputy General Manager of Harbor Division of the Company and General Manager of Shenzhen Chiwan Trans-Grains Terminal Co., Ltd. His present term started from May 2002 and ends in May 2005. Holding 6,200 shares of the Company in 2002. Deputy General Manager, Mr. Lu Baodi, 57 years of age. Previously, cargo controller and Deputy General Manager of Shenzhen Chiwan Harbour Company. Deputy General Manager of the Company since March 1993 with the present term commencing in May 2002 and ending in May 2005. Holding 30,800 shares of the Company without any change in 2002. 8 Deputy General Manager, Ms. Chen Yonglian, 60 years of age, university graduate. Previously, Deputy General Manager of Shell Trading (Chiwan) Joint Venture Co., Ltd., and Deputy General Manager of Shenzhen Chiwan Harbour Company. Deputy General Manager of the Company since March 1993 with the present term commencing in May 2002 and ending in May 2005. Holding 28,000 shares of the Company without any change in 2002. Chief Financial Officer, Mr. Zhang Jianguo, 39 years of age, university graduate. Previously, Financial Manager of Shenzhen Chiwan Petroleum Supply Base Co., Ltd. Appointed as the Financial Manager of the Company in October 1997 and Chief Financial Officer of the Company in September 1999 with the present term starting from May 2002 and ending in May 2005. Holding nil shares of the Company. Company Secretary, Ms. Pei Jiangyuan, 31 years of age, Master’s Degree. Previously worked as the Executive Secretary for the Company’s Chairman. Appointed as the Company Secretary in March 2001 with the present term starting from May 2002 and ending in May 2005. Holding nil shares of the Company. B. Annual Salary Except for the two Independent Directors, the other Directors and Supervisors did not get any emolument, social benefits, or any other preferential treatment from the Company in taking their positions as the Company’s Directors and Supervisory Committee Members in 2002. Director Ms. Wang Fen, Mr. Fan Zhaoping, Mr. Yuan Yuhui, Mr. Han Guimao and Mr. Tian Junyan got their salaries at CND. Supervisory Committee Member Mr. Huang Chuanqi, Mr. Yu Liming and Ms. Mary-Jean Wong got salaries from shareholders of CND. Allowance for Independent Directors was approved at the 2001 Annual General Meeting as RMB60,000/year (pre-tax) each person. Director Mr. Liu Zhangjun and Mr. Zheng Shaoping got their annual salaries totaling RMB680,000 from the Company according to their positions as the General Manager and Deputy General Manager. Total amount of the annual salaries of top three management personnel is RMB950,000. Total amount of the annual salaries of all the Directors, Supervisory Committee Member and senior management staff, who get their salaries from the Company, accounted for RMB1,850,000 in 2002, among which three got salaries from RMB100,000 to RMB200,000 and five from RMB210,000 to RMB400,000. C. Appointment of Senior Executives The Fourth Board of Directors appointed Mr. Liu Zhangjun as General Manager of the Company at its first meeting held on May 10, 2002, and in accepting Mr. Liu Zhangjun’s nomination, appointed Mr. Lu Baodi and Mr. Chen Yonglian as the Company’s Deputy General Manager, Mr. Zhang Jianguo as the Chief Financial Officer. In accepting the Chairman’s nomination, the Fourth Board of Directors appointed Ms. Pei Jiangyuan as the Company Secretary at the same meeting. D. Work force As of 31 December 2002, the Company had 1,373 employees, with 325 being university graduate, 59 financial clerks, 84 sales person, 58 technicians, 72 management personnel, and the others being staff for production. Thirty-five retired employees were recorded. 9 PART V CORPORATE STRUCTURE A. Corporate Structure In strictly implementing the PRC Company Law, the Securities Law as well as other laws and regulations issued by China Securities Regulatory Commission (‘CSRC”), the Company keeps on improving the Company’s corporate structure by setting up systems for modern enterprise so as to standardize the operation of the Company. Details are set out as follows: 1. shareholders and the shareholders’ general meeting The Company ensures that all the shareholders, especially small or medium shareholders, are equal and could enjoy their full rights. The Company called and held shareholders’ general meeting strictly in compliance with the “Rules for Shareholders’ General Meeting”. 2. relationship between the controlling shareholder and the Company Controlling shareholder of the Company operated in line with rules during the reporting year and did not intervene decision or operation of the Company directly or indirectly exceeding authority of the shareholders’ general meeting. The Company is absolutely independent in personnel, assets, finance, organization and business from its controlling shareholder. Details are set out as follows. The Company has basically separated its staff from its controlling shareholder. Senior management personnel of the Company did not take positions at its ultimate shareholding company. No financial clerks took corresponding jobs at the associated companies The Company possesses its own self-governed assets and independent operation system. Assets of the controlling shareholder in the Company (land-use rights and fixed assets such as property and large equipment, etc. being included) was converted through assets evaluation into stock of shares at the latter half of 1992, which the Company has full rights to hold, use and dispose whatsoever. The Company has set up its own financial department as well as the independent normative accounting system and the financial management system on its subsidiary companies. The Company has its own bank accounts and did not share the same bank account with its controlling shareholder. The Company has been paying tax according to the law on its own behalf. Management of the Company on its human resources and staff salary is absolutely independent. Controlling shareholder has handed its wharf-related business thoroughly to the Company to operate and does not engage in the same market as the Company thus has no competition with the Company. 3. Directors and the Board of Directors 10 The Company has elected directors strictly according to the Articles of Association. Numbers and qualifications of Directors conforms with relevant laws and regulations. The Company has two Independent Directors during the reporting period. All Directors attended the Board meetings and shareholders’ general meeting in a positive and responsible manner, participated enthusiastically relevant training so as to know better about laws and regulations as well rights and obligation of Directors. The Company is preparing to set up Rules for Independent Directors and Special Committee of the Board of Directors according to relevant regulations. 4. Supervisors and the Supervisory Committee Numbers and qualification of Supervisory Committee Members are in compliance with requirements of laws and regulations. The supervisors have performed seriously their duties, taken responsible attitude to all the shareholders, supervised the financial affairs, the duties performed by the Company’s Directors, managers and other senior executives in terms of compliance with the laws and regulations. 5. Performance valuation, encouragement and binding mechanism for senior management staff All the senior executives of the Company are appointed by the Board of Directors. The Board set up the Company’s business and financial budget for each year and sign evaluation contracts accordingly with senior executives. The Board then grants rewards and punishment to senior executives according to their respective performance during the year. 6. Relevant beneficiaries The Company has been fully respecting and safeguarding the legal rights and interests of the banks and other creditors, staff, consumers and other parties of related interests so as to develop the Company in a consistent and healthy way. 7. Information release The Company has authorized the Company Secretary to take charge of disclosing information, receiving visits and inquiries of the shareholders. The Company has been disclosing the relevant information in a real, accurate, complete and timely way strictly according to the law, regulations and the Articles of Association so as to ensure all the shareholders to have equal opportunity to obtain the information. Ever since its establishment, the Company has been operating in a standard way according to the requirement of Company Law and other laws and regulations. The Company will keep on doing so according to the “Corporate Principle for Listed Companies” issued by CSRC and Finance Ministry of the State on January 7, 2002 so as to safeguard the interests of shareholders and relevant beneficiaries. B. Performance of Independent Directors Two Independent Directors were elected at the 2001 Annual General Meeting held on May 10, 2002 according to the “Guiding Lines on Setting up Independent Director System in Listed Companies” issued by CSRC. During the reporting period, Independent Directors seriously performed their duties, got to know the Company’s business and operation, and thus played significant roles in the scientific decision-making of the Board. 11 Another one Independent Director is to be elected before June 30, 2003 according to relevant rules. “Rules for Independent Directors of the Company” is to be set up. PART VI SHAREHOLDERS’ GENERAL MEETING One annual general meeting and one special shareholder’s meeting were held in 2002. The Company disclosed the Notice of the Annual General Meeting for 2001 in the specified newspapers on 9 April 2002. On 10 May 2002, the meeting was held as scheduled at the Conference Room on 11/F, Chiwan Petroleum Building, Shenzhen. Thirteen participants, including shareholders (or shareholders’ authorized proxies), Directors, Supervisory Committee members, senior management staff and lawyer etc., represented 224,591,500 shares, or 58.87% of the total 381,517,000 shares, with 224,591,500 being A shares (81.65% of the total A shares), and 0 shares being B shares (0% of the total B shares), which conformed to the Company Law and the Company's Articles of Association. The meeting was presided by Ms. Wang Fen, Chairman of the Board of Directors. Following proposals were reviewed and passed by voting at the meeting. 1. To approve the working report of the Board of Directors for the year of 2001; 2. To approve the working report of the Supervisory Committee for the year of 2001; 3. To approve the financial statement for the year of 2001; 4. To approve “Report on Retrospective Adjustment of Profit under the New Accounting Rules for Enterprise”; As audited by Zhong Tianqin Certified Public Accountants, net profit accumulated in the previous years was decreased by RMB13,004,652.92 as effected by the retrospective adjustment on accounting pursuant to the new Accounting Rules for Enterprise, among which surplus reserve by RMB5,201,861.17, retained profit at the beginning of 2001 by RMB7,802,791.75. Deficit for retained profit totaling RMB7,457,547.82 was to be offset with the surplus reserve. Interim net profit as of 2001 was RMB25,855,915.03, while distributable profit was RMB25,855,915.03. No interim dividend was to be distributed and no reserves be transferred into stocks. 5. To approve the profit distribution plan for the year of 2001; Audited by PricewaterhouseCoopers Zhong Tian Public Accountants in accordance with Chinese Accounting Standard, the Company achieved a net profit of RMB86,829,223 (“domestic audited profit”) in 2001. Audited by PricewaterhouseCoopers in accordance with International Accounting Standard, the Company achieved a net profit of RMB73,824,569 (“overseas audited profit”) in 2001. According to relevant rules and regulation of the State as well as the Company’s Articles of Association, following profit distribution plan was approved. a. RMB8,682,922, i.e.10% of the domestic audited profit for 2001 was to be drawn for Statutory Surplus Reserve; b. 5% of the domestic audited profit for 2001 totaling RMB4,341,461 was to be drawn for Statutory Welfare Fund; 12 c. 25% of the domestic audited profit for 2001 totaling RMB21,707,306 was to be drawn for Discretionary Surplus Reserve; d. After the above drawing of Statutory Surplus Reserve, Statutory Welfare Fund and Discretionary Surplus Reserve from domestic and overseas audited profit respectively, profit distributable to shareholders amounted respectively to RMB52,097,534 and RMB39,092,880. The principle of taking the lower amount as the base for distribution is taken. A cash dividend of RMB0.102 per share (pre-tax) totaling RMB38,914,734 will be paid for the total 381,517,000 shares as at the end of 2001, with the balance of domestic audited profit of RMB13,182,800 and the balance of overseas audited profit of RMB178,146 being retained for the next year. e. The Company has no plan to convert its reserves into equity for 2001. 6. To approve the change of domestic accounting firm for the year of 2001 from Zhong Tianqin Certified Public Accountants to PricewaterhouseCoopers Zhong Tian Certified Public Accountants; 7. To approve the appointment of PricewaterhouseCoopers Zhong Tian Certified Public Accountants and PricewaterhouseCoopers as the Company’s accounting firms for the year of 2002; 8. To approve the amendment of Article 93, Article 98 and Article 112 of the Articles of Association of the Company; 9. To approve the allowance for Independent Director as RMB60,000/year (pre-tax) for each person. Expenses on the traffic for attending the Company’s Board Meeting and the Shareholders’ General Meeting as well as on other items arisen from performing their duties are reimbursed by the Company in full amount; 10. To elect Ms. Wang Fen, Mr. Fan Zhaoping, Mr. Han Guimao, Mr. Yuan Yuhui, Mr. Liu Zhangjun, Mr. Zheng Shaoping, Mr. Tian Junyan, Mr. Liu Ruiqi (Independent Director), and Mr. Zhang Limin (Independent Director) as Directors for the Company’s Fourth Board of Directors; 11. To elect Mr. Huang Chuanqi, Mr. Yu Liming, Ms. Mary-Jean Wong, Mr. Zhang Ning, and Mr. Nie Qi as members for the Company’s Fourth Supervisory Committee. The meeting was notarized by Shenzhen Nanshan Public Notaries. Lawyer Mr. Zhou Weiping of Haiwen & Partners presented his opinion at the meeting as that convening, procedure and voting of the meeting, as well as qualifications of attendants were all conformed with relevant laws, regulations and the Company’s Articles of Association. The above resolutions were released on the “Securities Daily” and “Ta Kung Pao” on 11 May 2002. The Company disclosed the Notice of the First Special Shareholders’ Meeting for 2002 in the specified newspapers on 5 November 2002. On 6 December 2002, the meeting was held as scheduled at the Conference Room on 11/F, Chiwan Petroleum Building, Shenzhen. 20 participants, including shareholders (or shareholders’ authorized proxies), Directors, Supervisory Committee members, senior management staff and lawyer etc., represented 226,313,259 shares, or 59.32% of the total 381,517,000 shares, with 224,563,500 being A shares (81.64% of the total A shares), and 1,749,759 shares being B 13 shares (1.64% of the total B shares), which conformed to the Company Law and the Company's Articles of Association. The meeting was presided by Ms. Wang Fen, Chairman of the Board of Directors. “Feasibility Study Report on Participating in Investing in Mawan Port” was reviewed and passed by voting at the meeting. Lawyer Mr. Zhou Weiping of Haiwen & Partners presented his opinion at the meeting as that convening, procedure and voting of the meeting, as well as qualifications of attendants were all conformed with relevant laws, regulations and the Company’s Articles of Association. The above resolution was released on the “Securities Daily” and “Ta Kung Pao” on 7 December 2002. PART VII REPORT BY THE BOARD OF DIRECTORS A. Performance in 2002 1. Core business The company is engaged mainly in the handling, warehousing and transportation of containers as well as bulk and general cargoes at the terminals of Chiwan Port in Shenzhen, and also in other related services. The Port of Chiwan is one of the important ports in Shenzhen where foreign trade cargo is handled. The company achieved a throughput of 19,940,000 tons in 2002, 44.7% up compared with 2001, or 22.7% of the total volume in Shenzhen during the year, 2.3% up compared with 2001. Container throughput at the Port of Chiwan rose 71.4% up to 1,544,000 TEU in 2002, higher than the 50.4% growth rate of Shenzhen Port. Container throughput enjoyed a 20.4% share in the container handling market in Shenzhen, 2.4% up compared with 2001. Throughput of bulk and general cargo of the company in 2002 increased by 30.1% to 7,270,000 tons, which shared almost the same one-third market as 2001 in business of bulk and general cargo in Shenzhen. Business performance of the Company for the past three years is set out as follows. Business Data 2002 2001 2000 Total throughput (’000 ton) 19,940 13,500 10,500 Throughput of bulk and general cargo (’000 ton) 7,270 5,590 5,420 Container throughput (’000 TEU) 1,544 901 642 Trucking (’000 teu•km) 4,230 3,760 3,260 Hours charged for tugboat 13,847 9,151 7,861 a. business of container terminals In grasping the precious opportunity arisen from the rapid growth of container throughput of Shenzhen, the Company spent more efforts in marketing and upgrading the service, meanwhile, related handling facilities were purchased so as to optimize the resource deployment and in turn improve the operation efficiency and handling capacity. With 7 new international lines calling in 2002, container throughput of the Company increased by 14 over 70% compared with 2001, which ranked the first among other ports of Shenzhen. In contributing significantly for Shenzhen Port’s popping up to be the sixth container port around the world, container terminal business contributed more than two-third of the Company’s profit in 2002. b. business of bulk and general cargo terminals Through exploring in cargoes such as imported fertilizer and grains, the Company has set up its own unique brand. Throughput of imported fertilizer and grains in 2002 increased by 49.2% and 29.2% respectively compared with 2001. Throughput of the above two kinds of cargo accounted for 83% of the Company’s total throughput of bulk and general cargo, i.e. 5% up compared with 2001. Market share and influence of the Company has been upgrading among Shenzhen ports as well as ports in Southern China. With the competitive edges further sharpened, profit from the business is expected to grow. c. business of land and marine transportation In adapting to the market change, the Company optimized resource deployment and adjusted business structure in land and marine transportation business in 2002. On the aspect of land transportation, the Company put its excellent resource on tow-trucking business and accomplished turnover from the business of RMB26.865m, 80.5% up over 2001. Tow-trucking business is now enjoying the biggest market share in Shenzhen. Operation pattern was innovated so as to ensure the container transportation service to major customers. Trucking volume of 4.23million teu•km was accomplished in 2002 with profit therein doubled. On the aspect of marine transportation, the Company withdrew from shuttle barge service plying between Hong Kong and Shenzhen, which suffered tough competition and low margin. With attention being shifted thoroughly to tugboat service, hours charged for tugboat reached 13,487 hours in 2002, 51.3% up over 2001. Safe sailing in and out of Chiwan Port was guaranteed, meanwhile, good return was achieved. 2. Breakdown of sales Unit: RMB Operation Business Amount Percent Container handling handling 438,324,776 58.98% Bulk and general cargo handling handling 193,079,793 25.98% Land transportation transportation 54,534,539 7.34% Marine transportation transportation 30,336,571 4.08% Godown godown 13,310,439 1.79% Agency agency 13,588,476 1.83% Subtotal 743,174,594 100% Business offset* -28,418,807 Total 714,755,787 * including tow-trucking service provided by land transportation business for container business amounting to RMB18.61m, while inter-transaction regarding container handling amounting to RMB8.07m. 15 3. Breakdown of gross profit Unit: RMB Operation Business Amount Percent Container handling handling 278,981,045 71.18% Bulk and general cargo handling handling 69,517,353 17.74% Land transportation transportation 10,286,242 2.62% Marine transportation transportation 16,327,292 4.17% Godown godown 4,459,583 1.14% Agency agency 12,352,175 3.15% Subtotal 391,923,690 100% Business offset 1,112,218 Total 393,035,908 Sales and gross profit of the Company in 2002 rose by 49.3% and 103% respectively compared with 2001 due to the following reasons. Incredible growth of business volume led to the significant growth of turnover. Meanwhile, cost and expenses did not grow as well under sound control. Thus, profit was increased considerably. 4. Financial highlights for core businesses, which accounts for over 10% of the turnover and profit Unit: RMB Business Turnover Cost Profit margin Container handling 438,324,776 159,343,731 63.65% Bulk and general cargo handling 193,079,793 123,562,440 36.00% 5. Results of wholly-owned subsidiaries and joint ventures a. Chiwan Container Terminal Co., Ltd. (CCT) The company holds 50% of equity interests directly and 4% indirectly in CCT. With a registered capital of USD 44,000,000, CCT is engaged mainly in handling containers and warehousing cargos, especially in accommodating international container lines. With 7 new international container lines calling during the reporting year, container throughput of CCT achieved 1,142,000TEU, 77.4% up compared with 2001, higher than the 50.4% growth rate of Shenzhen Port. As of December 31, 2002, total assets of CCT was RMB 1,157,724,713, while net profit for 2002 amounted to RMB209,309,926. b. Shenzhen Chiwan Harbor Container Co. Ltd. (CHCC, name changed from Shenzhen Chiwan Harbor Container Co. in October 2002) Previously, CHCC was the Company’s wholly owned subsidiary. During the reporting period, the Company transferred 40% of CHCC’s equity interest to Chiwan Wharf (Hong Kong) Co. Limited, in which the Company holds 100% equity interests. With a registered 16 capital of RMB15,000,000, CHCC is engaged in the accommodation service for container barges for import and export trade, coastal foreign trade and domestic trade. During the reporting year, CHCC achieved a container throughput of 345,000TEU, 36.3% up compared with 2001. As of December 31, 2002, total assets of CHCC was RMB239,706,680, while net profit for 2002 amounted to RMB20,686,064. c. Harbor Division Being an independent accounting unit but not an enterprise controlled under the Company, Harbor Division is engaged in handling and warehousing of fertilizer for export trade. During the reporting period, throughput of bulk and general cargo reached 5,360,000 tons, 30.2% up compared with 2001. As of December 31, 2002, total assets of Harbor Division was RMB332,736,282, while net profit for 2002 amounted to RMB13,186,999. d. Shenzhen Chiwan Terminal Co., Ltd The Company holds 100% equity interest directly and indirectly in that company. With a registered capital of RMB50,000,000, the company is engaged mainly in the handling and stacking of steel products, lumbers and grains for import and export trade. During the reporting period, the company achieved a throughput of 1.91million tons of bulk and general cargo, 29.7% up compared with 2001. As of December 31, 2002, total assets of the company was RMB150,663,320, while net profit for 2002 amounted to RMB22,442,938. e. Shenzhen Chiwan Trans-Grains Terminal Limited The Company holds 100% equity interest directly and indirectly in that company. With a registered capital of RMB45,000,000, the company is engaged in the business of handling, warehousing and packing of grains, providing related service for handling and warehousing grains for Shenzhen Chiwan Terminal Co., Ltd. During the reporting period, stacking volume of grains reached 17,880,000 tons day, 31.5% up compared with 2001. As of December 31, 2002, total assets of the company was RMB90,408,941, while net profit for 2002 amounted to RMB11,408,212. f. Shenzhen Chiwan Transportation Co., Ltd. (name changed from Shenzhen Chiwan Transportation Company in October 2002) Previously, that company was the Company’s wholly owned subsidiary. During the reporting period, the Company transferred 25% equity interest of that company to Chiwan Wharf (Hong Kong) Co. Limited, in which the Company holds 100% equity interests. With a registered capital of RMB7,000,000, the company is engaged in container transportation service on land and at ports. During the reporting period, trucking volume reached 4.23 million TEU.km, 12.5% up compared with 2001. As of December 31, 2002, total assets of the company was RMB60,469,665, while net profit for 2002 amounted to RMB5,981,674. g. Shenzhen Chiwan Shipping & Transportation Co., Ltd. (name changed from Shenzhen Chiwan Shipping & Transportation Company in October 2002) Previously, that company was the Company’s wholly owned subsidiary. During the reporting period, the Company transferred 40% equity interest of that company to Chiwan Wharf (Hong Kong) Co. Limited, in which the Company holds 100% equity interests. With a registered capital of RMB6,000,000, the company is engaged in tugboat service at ports, and gave up during the reporting period, container barge transportation service plying 17 between Hong Kong and Shenzhen, which suffers tough competition and low margin. During the reporting period, 13,847 hours were charged for tugboats, 51.3% up compared with 2001. As of December 31, 2002, total assets of the company was RMB37,734,205, while net profit for 2002 amounted to RMB9,427,881. h. Shenzhen Chiwan Godown Co., Ltd. The Company holds 50% equity interest in that company through its wholly owned subsidiary Chiwan Wharf (Hong Kong) Co. Limited. Undertakings of that company have been consolidated into the Company since 2002. With a registered capital of HKD23,500,000, the company is mainly engaged in the warehousing of supervised cargo, bonded cargo and ordinary cargo. During the reporting period, the company achieved a turnover volume of 450,000 tons, almost the same as 2001. As of December 31, 2002, total assets of the company was RMB40,223,860, while net profit for 2002 amounted to RMB847,949. i. Shenzhen Chiwan International Freight Agency Co., Ltd. As a subsidiary of the Company with a registered capital of RMB5,000,000, the company is engaged mainly in freight forwarding agency and custom declaration service. During the reporting year, the volume of container agency reached 8035TEU, 21.4% down compared with 2001. As of December 31, 2002, total assets of the company was RMB10,648,604, while net profit for 2002 amounted to RMB330,279. j. Shenzhen Chiwan Oriental Logistics Co., Ltd The Company holds 100% equity interest directly and indirectly in that company. With a registered capital of RMB10,000,000, the company started its operation in 2001. As of December 31, 2002, total assets of the company was RMB6,944,655, while net loss for 2002 amounted to RMB150,949. . k. Chiwan Wharf Holdings (Hong Kong) Ltd. Registered in Hong Kong and being a wholly owned subsidiary of the Company, that company is an investment holding company with a registered capital of HKD1,000,000. As of December 31, 2002, total assets of the company was RMB156,123,968, while net profit for 2002 amounted to RMB8,780,250. Its wholly owned subsidiary Chiwan Shipping (Hong Kong) Ltd. is engaged in agency service for international shipping and transportation related to business of the Company. During the reporting year, barge transportation volume plying between Shenzhen and Hong Kong achieved 60,586 TEU, 15.9% up compared with 2001. l. Shenzhen Joint Favour Marine Shipping Agency Co., Ltd. The Company holds 51% of equity interests in that company. With a registered capital of RMB5,000,000, the company is engaged mainly in agency service for domestic and overseas ships. In exploring agency service for container vessels and big ships, the company provide agency service for 1748 ship callings, 18% up compared with 2001. As of December 31, 2002, total assets of the company was RMB7,335,854, while net profit for 2002 amounted to RMB177,404. 6. Major customers 18 Sales (operating income) of the top five customers are totaled RMB292,722,691, 40.95% of the company’s gross sales (operating income). B. Investments in 2002 1. Utilization of proceeds No funds were raised in 2002. The last proceeds had been used up by the end of 1996. 2. Other investments During the reporting year, RMB186.98m was invested in fixed assets, 28.5% up compared with 2001, i.e. RMB41.48m more than 2001, among which RMB79.16m in the infrastructure facilities and RMB107.82m in the handling and transportation equipment at the port. Progress schedule of major investment projects is observed. Container stacking yards of 40,000m2 and bonded warehouse of 9000m2 were completed and put into operation. The new tugboat of 4000hp, two quay cranes and six RTG have been delivered. Two 16-ton gantry crane are being manufactured. Construction of Phase-III grain silos and a new container berth (Berth 12) were commenced. Growth of investments during the reporting period is aimed at upgrading the operation efficiency and handling capacity so as to keep up with the rapid growth of business. The Company will further increase its investments in fixed assets in 2003. 3. Significant investments During the reporting period, China Merchants Holdings (International) Co., Ltd. (CMHI) invited the Company to invest in, develop and operate Berth 0, Berth 5, Berth 6, Berth 7 nad Berth 8 at Mawan Port. CMHI and the Company would set up a BVI company, in which CMHI and the Company hold 50% equity interest each. BVI company and Nanyou Group would then set up three joint-venture companies, in which BVI company holds 60% equity interests, to operate the project according to certain schedule. Such investment accords with the Company’s strategy and will bring a new niche area for the Company through getting scarce port resource and further enlarging the Company’s space for future development. “Feasibility Study Report on Participating in Investing in Mawan Port” proposed by the Board was reviewed and passed at the Company’s Special Shareholders’ Meeting held in December 2002. In the future five years, the Company and CMHI will invest around RMB900m in Mawan Project through the BVI company. Three joint-venture companies were set up and got their business licenses. According the construction schedule, Berth 0 will be put into service in mid-2003, Berth 5 to Berth 8 will be re-designed to three berths, which will be completed in 2003. Construction of the three berths will commence in 2003. C. Financial Status Unit: RMB Items 2002 2001 +/- (%) Reason Cash and cash 55,729,865 162,170,168 -65.63 Repayment of bank loans equivalents 19 Entrusted loans totaling RMB100m Short-term 100,000,000 0 - through China Merchants Bank to investment Nanyou Group Total assets 2,331,823,016 2,222,759,643 4.91 Non-current liabilities 41,800,000 194,308,000 -78.49 Repayment of bank loans Shareholders’ equity 1,298,098,489 1,153,494,051 12.54 Increase of net profit Growth of container terminal business Gross profit 393,035,908 193,984,617 102.61 and decline of cost resulted from cargo structure optimization Financial costs 24,589,184 36,819,275 -33.22 Decrease of bank loans and interest rates Increase of profit of subsidiary Minority interests 105,229,949 37,224,735 182.69 companies Increase of gross profit and sound Net profit 183,876,579 73,824,569 149.07 control of administrative and finance Net increase of cash -106,082,896 20,596,504 -615.05 Control of balance of bank loans and cash equivalents D. Influence of Significant Changes in Business Environment and policy 1. container terminal business Pearl River Delta has become one of the biggest manufacturing centers around the world. With China’s entry into WTO, economic development in China, especially in southern China will be highly promoted, which will in turn bring impetus to the growth of foreign trade. Shenzhen Municipal Government issued certain favorite policies in supporting the development of logistic industry in 2002. World famous companies have set up their territorial procurement center and consolidation center in Shenzhen. Growth of procurement volume will definitely further drive the growth of foreign trade cargo manufactured in Shenzhen and in Pearl River Delta. Container terminal business in Shenzhen will keep on growing rapidly with sufficient containerized cargo, while the Company’s container terminal business grows as well. 2. Bulk and general cargo terminal business With China’s entry into WTO, quota for imported fertilizer and grains rises year by year. Southern China is the important area for consumption of fertilizer and grains in China. Imported fertilizer and grains are major cargoes handled at Chiwan Port. Phase III grain silos will be put into operation in mid-2003, which will play an active role in maintaining the Company’s market share relating to grains handling. The Company’s bulk and general cargo terminal business will keep on growing in 2003. E. Business Plan for 2003 In 2003, the company will focus on 1. exploring its container terminal business by further investing and resource optimizing; A new multi-purpose berth of five tons will be put into operation in 2003 with its related handling facilities equipped. Computer network and customer service will be upgraded. The Company will keep up with the growth rate of Shenzhen Port, meanwhile strive for a bigger market share. 20 2. handling of imported fertilizer and grains; Phase III grain silos will be put into operation in mid-2003. Meanwhile, research and marketing work will be emphasized so as to fully develop the potentials, further sharpen competitive edges, and enhance the utilization of facilities. As for land transportation, the Company will enlarge its market share of tow-trucking service through centralizing its excellent resources and perfecting its operation pattern to develop its own efficient management process so as to improve its service for port enterprises and major customers. As for marine transportation, focus will be put on providing related service. Another tugboat of 4000hp will be built so as to match the need of timely and safe accommodation of increasing big container and bulk cargo vessels. F. Routine Work of the Board of Directors 1. Board meetings and resolutions The Board of Directors held thirteen meetings (including seven special meetings) in 2002. The seventh meeting of the Third Board of Directors of the Company took place in the following sequence on 5 April 2002. • To review and approve the Chairman’s Working Report for 2001; • To review and approve the Annual Report of the Company for 2001 and the Abstract; • To review and approve the Company’s Financial Statements for 2001, which was to be submitted for review to the 2001 Annual General Meeting; • To discuss and approve the profit and dividend distribution plan for 2001 as follows, which was to be submitted for approval to the 2001 Annual General Meeting; Audited by PricewaterhouseCoopers Zhong Tian Public Accountants in accordance with Chinese Accounting Standard, the Company achieved a net profit of RMB86,829,223 (“domestic audited profit”) in 2001. Audited by PricewaterhouseCoopers in accordance with International Accounting Standard, the Company achieved a net profit of RMB73,824,569 (“overseas audited profit”) in 2001. According to relevant rules and regulation of the State as well as the Company’s Articles of Association, following profit distribution plan was approved. a. RMB8,682,922, i.e.10% of the domestic audited profit for 2001 was to be drawn for Statutory Surplus Reserve; b. 5% of the domestic audited profit for 2001 totaling RMB4,341,461 was to be drawn for Statutory Welfare Fund; c. 25% of the domestic audited profit for 2001 totaling RMB21,707,306 was to be drawn for Discretionary Surplus Reserve; d. After the above drawing of Statutory Surplus Reserve, Statutory Welfare Fund and Discretionary Surplus Reserve from domestic and overseas audited profit respectively, profit distributable to shareholders amounted respectively to RMB52,097,534 and RMB39,092,880. The principle of taking the lower amount as the base for distribution is taken. A cash dividend of RMB0.102 per share (pre-tax) totaling RMB38,914,734 will be paid for the total 381,517,000 shares as at the end of 2001, with the balance of 21 domestic audited profit of RMB13,182,800 and the balance of overseas audited profit of RMB178,146 being retained for the next year. e. The Company has no plan to convert its reserves into equity for 2001. • To set as follows the profit distribution policy for 2002, which is to be proposed according to the actual status by the Board of Directors to the Annual General Meeting for review. a. Profit for 2002 will be distributed for only once; b. After drawing of statutory surplus reserve and welfare fund according to the Articles of Association of the Company, no less than 60% of the net profit for 2002 will be distributed; c. Dividend will be distributed in cash or bonus shares or both. • To review and approve the re-appointment of PricewaterhouseCoopers Zhong Tian Certified Public Accountants and PricewaterhouseCoopers as the Company’s accounting firms for the year 2002, and to resolve to submit the appointment proposal to the Annual General Meeting for 2001 for review; • To review and approve the re-appointment of Mr. He Fei and Mr. Zhou Weiping of Haiwen & Partners as the Company’s solicitors for the year 2002; • To approve the recommendation of CND and nominate Ms. Wang Fen, Mr. Fan Zhaoping, Mr. Han Guimao, Mr. Yuan Yuhui, Mr. Liu Zhangjun, Mr. Zheng Shaoping and Mr. Tianjun as the candidates for the Company’s Fourth Board of Directors, and submit the nomination to 2001 Annual General Meeting for election; • To approve the allowance for Independent Director as RMB60,000/year (pre-tax) for each person. Expenses on the traffic for attending the Company’s Board Meeting and the Shareholders’ General Meeting as well as on other items arisen from performing their duties are reimbursed by the Company in full amount, which was to be submitted for approval to the 2001 Annual General Meeting; • To approve “Rules on Information Release”; • To approve the amendment of Article 93, Article 98 and Article 112 of the Articles of Association of the Company which was to be submitted for approval to the 2001 Annual General Meeting; and • To approve the time, venue and agenda of the Annual General Meeting for 2001. The eighth meeting of the Third Board of Directors was held on 29 April 2002 to review and approve the Company’s Report for the First Quarter of 2002. The first meeting of the Fourth Board of Directors was held on 10 May 2002 with the following resolutions being passed thereat. • To elect Ms. Wang Fen as the Chairman of the Fourth Board of Directors; • To appoint Mr. Liu Zhangjun as the Company’s General Manager in accepting the Chairman’s nomination; 22 • To appoint Mr. Lu Baodi and Mr. Chen Yonglian as the Company’s Deputy General Manager, Mr. Zhang Jianguo as the Chief Financial Officer in accepting the General Manager’s nomination; and • To appoint Ms. Pei Jiangyuan as the Company Secretary in accepting the Chairman’s nomination. The second meeting of the Fourth Board of Directors was held on 25 June 2002 to review and approve “Report on Setting up Modern Enterprise System”. The third meeting of the Fourth Board of Directors was held on 22 August 2002 to review and approve the Company’s Interim Report for 2002 and the Abstract. The fourth meeting of the Fourth Board of Directors was held on 24 October 2002 to review and approve the Company’ Report for the Third Quarter of 2002. Within the range of their responsibilities and powers, Directors held 7 special Board meetings and passed resolutions on the Company’s operation and management as well as on many other significant issues, such as on bank loan facility, nomination of Independent Directors, and participation in the investment in Mawan Port etc. 2. Execution of the resolutions passed at the Annual General Meeting The Board had completed the dividends distribution for 2001 before 10 July 2002 in accordance with relevant resolution passed at the 2001 Annual General Meeting. G. Profit Distribution Plan for 2002 Audited by PricewaterhouseCoopers Zhong Tian Public Accountants in accordance with Chinese Accounting Standard, the Company achieved a net profit of RMB183,599,988 (“domestic audited profit”) in 2002. Retained profit of RMB13,182,800 being taken in, profit distributable to shareholders amounts to RMB196,782,788 (“domestic profit”). Audited by PricewaterhouseCoopers in accordance with International Accounting Standard, the Company achieved a net profit of RMB183,876,579 (“overseas audited profit”) in 2002. Retained profit of RMB178,146 being taken in, profit distributable to shareholders amounts to RMB184,054,725 (“overseas profit”). According to relevant rules and regulation of the State as well as the Company’s Articles of Association, following profit distribution plan was approved by the Board of Directors, which is to be submitted for approval to the 2002 Annual General Meeting. 1. RMB18,359,999, i.e.10% of the domestic audited profit for 2002 is to be drawn for Statutory Surplus Reserve; 2. 5% of the domestic audited profit for 2002 totaling RMB9,179,999 is to be drawn for Statutory Welfare Fund; 3. 25% of the domestic audited profit for 2002 totaling RMB45,899,997 is to be drawn for Discretionary Surplus Reserve; 4. After the above drawing of Statutory Surplus Reserve, Statutory Welfare Fund and Discretionary Surplus Reserve from domestic and overseas profit respectively, profit distributable to shareholders amounts respectively to RMB123,342,793 and 23 RMB110,614,730. The principle of taking the lower amount as the base for distribution is taken. A cash dividend of RMB0.288 per share (pre-tax) totaling RMB109,876,896 will be paid for the total 381,517,000 shares as at the end of 2002, with the balance of domestic profit of RMB13,465,897 and the balance of overseas profit of RMB737,834 being retained for the next year. 5. The Company has no plan to convert its reserves into equity for 2002. PART VIII REPORT BY THE SUPERVISORY COMMITTEE Within the reporting year, in accordance with the “Company Law” of PRC and the Company’s Articles of Association, the Supervisory Committee conducted examination and supervision, carried out its rights and obligations as well as delegated its representatives to attend the Board Meeting and gave its opinions upon the Company’s decision-making regarding some significant issues. The Supervisory Committee held four meetings in 2002. The seventh meeting of the Third Supervisory Committee was held on 5 April 2002 to review and pass the Chairman’s Working Report for 2001; review and pass the Annual Report of the Company for 2001 and the Abstract; review and pass the Company’s Financial Statements for 2001; review and pass the Working Report of the Supervisory Committee for the year of 2001; and discuss and approve that the Fourth Supervisory Committee shall consist of five members, among which three are nominated by the controlling shareholder CND, and two are elected by the employees; and to approve to nominate Mr. Huang Chuanqi, Mr. Yu Liming and Ms. Mary-Jean Wong as candidates for the Fourth Supervisory Committee and submit the proposal to the 2001 Annual General Meeting for discussion. Mr. Zhang Ning and Mr. Nie Qi were elected by the employees as their representatives in the Fourth Supervisory Committee. The first meeting of the Fourth Supervisory Committee was held on 10 May 2002 to elect Mr. Huang Chuanqi as the Chairman, Mr. Yu Liming as the Vice Chairman, and to authorize the Secretariat handle daily business of the Fourth Supervisory Committee. The second meeting of the Fourth Supervisory Committee was held on 22 August 2002 to approve the Company’s Interim Report for 2002 and the Abstract; A special meeting of the Fourth Supervisory Committee was held on December 19, 2002 to study documents issued by the Shenzhen Branch of CSRC, and to review and approve “Report on the Corporate Structure of the Company and Detailed Measures for Improvement”. The Committee expressed its independent opinions on the following issues: 24 • By supervising the Company’s production and operation, as well as the decision- making and management, the Committee confirmed that during the year 2002 the Company did not, in the above activities, demonstrate any behavior which might have violated the laws and regulations of the country, and that the Company had set up perfect intra-control system. By supervising the behaviors of the Company’s Directors and senior management personnel as they were exercising their authorities, the Committee confirmed that, during the year 2002, the Company’s Directors and senior management personnel had not, in their daily business and management activities, demonstrated any behavior which might have violated the laws, regulations, the Company’s Articles of Association, or the resolutions passed at the Shareholders’ Meetings. They had neither abused their authorities, nor infringed upon the interests of the shareholders, the Company or its employees. • With no reserved opinions contained therein, the Auditor's Statements for 2002 presented by the Company’s domestic and overseas accounting firms truly reflected the Company's financial status and business performance. • No funds were raised during the reporting year. The last proceeds (by issuing 40,000,000 B Shares in December 1995) had been used up by the end of 1996. Actual usage and amount of the proceeds were in conformity with the original plan. • Related party transactions in 2002 were conducted fairly in conformity with market prices (see Financial Statements for details), and have not impaired the interests of the Company. PART IX SIGNIFICANT EVENTS A. The Company had no significant law suits or arbitration cases involved in 2002. B. The Company did not conduct any significant acquisition or sale of assets, or any merger and consolidation in 2002. C. Related Party Transactions 1. Land-use fees The Company had the following material transactions with related companies during the year. 2002 2001 RMB RMB Payment to Nanshan Development, the holding company - lease of docking sites and stacking yards 21,378,320 14,796,466 - rental of office buildings 2,338,806 2,419,946 Proceeds from Nanshan Development, the holding company - disposal of an associate - 29,500,000 Payment to Shenzhen Chiwan Petroleum Supply Base Co., 25 Ltd., a fellow subsidiary - rental of office buildings 589,720 611,306 Payment to Shenzhen Southseas Grains Industries Ltd., a fellow subsidiary - lease of docking sites and stacking yards 2,934,422 - Payment to Shenzhen Haiqin Engineering Supervision Co., Ltd., a fellow subsidiary - fee for engineering supervision 884,781 1,081,760 Receivable from Shenzhen Gangchuang Construction Co,. Ltd, a fellow subsidiary - disposal of property, plant and equipment - 4,400,000 Transactions with the related parties were carried out on commercial terms and conditions at market prices. 2. Guarantee CND guaranteed for the Company’s bank loan totaling RMB10,000,000 with the validity period starting from May 8, 2000 and ending in November 27, 2006. D. Significant Contracts 1. The Company did not hold in trust, contract or lease any significant assets from other companies in 2002, nor did it put in trust, contract or lease its significant assets to other companies. 2. During the reporting period, according to the Board’s resolution passed on January 24, 2002 (see press release on “Securities Daily” and “Ta Kung Pao” on January 26, 2002 for details), the Company entered into a loan contract totaling RMB200m with Shekou Sub-branch of China Agriculture Bank on March 11, 2002 (see press release on “Securities Daily” and “Ta Kung Pao” on March 13, 2002 for details). 3. The Company had no entrusted financing during the reporting period. E. Commitment The Company promised to appoint two Independent Directors before June 30, 2002 in its 2001 Annual Report. Two Independent Directors were elected at the Company’s 2001 Annual General Meeting held on May 10, 2002. F. The Company appointed PricewaterhouseCoopers Zhong Tian Certified Public Accountants as the Company’s domestic accounting firm for 2002, and PricewaterhouseCoopers as the Company’s overseas accounting firm for 2002. Remunerations of the Company’s accounting firms were set out as follows: 2002 2001 Pricewaterhous Pricewaterhouse Pricewaterhous Zhong Pricewaterhouse e Coopers Coopers Zhong e Coopers Tianqin Coopers Zhong Tian Tian Audit RMB400,000 HKD390,000 RMB185,000 RMB385,000 HKD390,000 expenses 26 Other - - - - - expenses G. During the reporting year, the Company and its Directors were not punished by the supervising authority. H. Other Significant Events after the Reporting Period The Company entered into an agreement on January 9, 2003 with China State Grains, Cereals & Foods Import & Export (Group) Inc. (“CSGCF”) on the transfer of 1% equity interest and all the related rights and obligations which CSGCF holds in CCT at a transfer price of HKD15,763,667, among which HKD14,256,318 being for the transfer of equity and HKD1,507,349 being for the transfer of creditor’s rights. The Company paid the above amount to CSGCF on January 30, 2003. Relevant official procedures are being handled. The Company’s subsidiary Chiwan Wharf (Hong Kong) Co. Limited (“CWHK”) entered into an agreement on February 26, 2003 with Hidoney Developments Limited (“Hidoney”) on the transfer of 4% equity interest and related creditor’s rights which Hidoney holds in CCT at a transfer price of HKD53,000,000. CWHK’s subsidiary Grossalan Investment Limited (“Grossalan”) entered into an agreement on February 26, 2003 with MTL Chiwan Holdings Limited (“MTL”) on the transfer of all the 16.67% equity interest which Grossalan holds in Hidoney at a transfer price of HKD53,000,000. 27 PART X FINANCIAL STATEMENTS (See attached) 28 PART XI DOCUMENTS FOR REFERENCE 1. Financial Statements carrying the signatures of the Company's legal representative, the Chief Financial Officer and the person in charge of accounting; 2. Original copy of Auditor's Statement sealed by CPA and signed by registered accountants; 3. Original copy and press release of all the documents disclosed in 2002 on “Securities Daily”, and “Ta Kung Pao”; and 4. Original copy of the Annual Report signed by the Chairman. Wang Fen Chairman Shenzhen Chiwan Wharf Holdings Limited 29 SHENZHEN CHIWAN WHARF HOLDINGS LIMITED REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2002 SHENZHEN CHIWAN WHARF HOLDINGS LIMITED Contents Pages Report of the international auditors 1 Consolidated income statement 2 Consolidated balance sheet 3 Consolidated statement of changes in shareholders’ equity 4 Consolidated cash flow statement 5 Notes to the consolidated financial statements 6 - 36 Supplementary information 37 PricewaterhouseCoopers 22nd Floor Prince’s Building Central Hong Kong Telephone (852) 2289 8888 Facsimile (852) 2810 9888 REPORT OF THE INTERNATIONAL AUDITORS TO THE MEMBERS OF SHENZHEN CHIWAN WHARF HOLDINGS LIMITED (Incorporated as a joint stock limited company in the People’s Republic of China) We have audited the accompanying consolidated balance sheet of Shenzhen Chiwan Wharf Holdings Limited (the “Company”) and its subsidiaries (the “Group”) as of 31st December 2002 and the related consolidated income and cash flow statements for the year then ended. These consolidated financial statements set out on pages 2 to 36 are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion the consolidated financial statements present fairly in all material respects the financial position of the Group as of 31st December 2002, and of the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards. PricewaterhouseCoopers Certified Public Accountants Hong Kong, 16th April, 2003 -1- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31ST DECEMBER 2002 Note 2002 2001 RMB RMB Revenue 3 714,755,787 478,756,052 Operating costs (321,719,879) (284,771,435) Gross profit 393,035,908 193,984,617 Administrative expenses (70,752,437) (59,805,215) Other operating income 4,087,812 8,986,190 Profit from operations 4 326,371,283 143,165,592 Finance costs - net 6 (24,589,184) (36,819,275) (Loss)/gain on disposal of associates 7 (66,526) 10,280,353 Share of results of associates before tax 1,397,913 1,946,370 Profit before tax 303,113,486 118,573,040 Income tax expense 8 (14,006,958) (7,523,736) Profit after tax 289,106,528 111,049,304 Minority interests 25 (105,229,949) (37,224,735) Net profit 183,876,579 73,824,569 Earnings per share 9 0.482 0.194 The notes on pages 6 to 36 form an integral part of these consolidated financial statements. -2- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED CONSOLIDATED BALANCE SHEET AS AT 31ST DECEMBER 2002 2002 2001 Note RMB RMB ASSETS Non-current assets Property, plant and equipment 11 1,261,647,873 1,157,674,898 Land use rights 12 617,305,856 636,917,412 Investment property 13 19,167,511 19,411,508 Construction-in-progress 14 49,823,701 11,668,948 Intangible assets 15 (3,416,480) (2,865,130) Investments in associates 16 3,122,194 22,115,497 Available-for-sale investments 17 59,979,500 60,227,000 2,007,630,155 1,905,150,133 Current assets Inventories 18 19,720,491 18,531,049 Amount due from a related company 29(c) 12,785 5,331,806 Loans to a related company 29(d) 100,000,000 - Other receivables and prepayments 22,761,088 28,066,567 Trade receivables 125,968,632 103,509,920 Cash and cash equivalents 19 55,729,865 162,170,168 324,192,861 317,609,510 Total assets 2,331,823,016 2,222,759,643 SHAREHOLDERS’ EQUITY Share capital 24 381,517,000 381,517,000 Reserves 26 805,568,035 732,538,927 Retained earnings 111,013,454 39,438,124 1,298,098,489 1,153,494,051 otal shareholders’ equity Minority interests 25 456,976,246 362,847,219 LIABILITIES Non-current liabilities Borrowings 20 41,800,000 194,308,000 Current liabilities Trade payables 40,430,630 29,623,975 Other payables and accrued expenses 32,623,855 32,360,538 Tax liabilities 8 5,020,750 5,309,444 Short-term bank borrowings 20 434,940,000 442,406,940 Amount due to holding company 29(b) 21,933,046 2,409,476 534,948,281 512,110,373 576,748,281 706,418,373 Total liabilities Total equity and liabilities 2,331,823,016 2,222,759,643 Director Director The notes on pages 6 to 36 form an integral part of these consolidated financial statements. -3- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31ST DECEMBER 2002 Share capital Reserves Retained (note 24) (note 26) earnings Total RMB RMB RMB RMB Balance at 1st January 2001 381,517,000 698,040,380 49,560,937 1,129,118,317 Dividend paid for 2000 - - (49,215,693) (49,215,693) Profit for the year - - 73,824,569 73,824,569 Transfer from retained profits to reserves - 34,731,689 (34,731,689) - Currency translation differences - (233,142) - (233,142) Balance at 31st December 2001 381,517,000 732,538,927 39,438,124 1,153,494,051 Balance at 1st January 2002 381,517,000 732,538,927 39,438,124 1,153,494,051 Dividend paid for 2001 - - (38,914,734) (38,914,734) Profit for the year - - 183,876,579 183,876,579 Transfer from retained profits to reserves - 73,386,515 (73,386,515) - Currency translation differences - (357,407) - (357,407) Balance at 31st December 2002 381,517,000 805,568,035 111,013,454 1,298,098,489 The notes on pages 6 to 36 form an integral part of these consolidated financial statements. -4- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST DECEMBER 2002 Note 2002 2001 RMB RMB Cash flows from operating activities Cash generated from operations 27 329,339,906 235,739,625 Interest received 1,018,003 1,762,976 Interest paid (25,455,780) (38,355,786) Income tax paid (14,640,321) (9,223,469) Net cash from operating activities 290,261,808 189,923,346 Cash flows from investing activities Purchase of property, plant and equipment (28,707,771) (79,162,536) Payments for construction-in-progress (156,749,561) (71,169,843) Acquisition of an associate (1,875,000) - Disposal of available-for-sale investments 328,640 - Classification of an associate to a subsidiary 28 3,222,198 - Disposal of an associate 1,457,484 29,500,000 Disposal of investment fund - 30,000,000 Disposal of property, plant and equipment 5,056,580 2,729,934 Dividend received 1,738,400 2,207,830 Net cash used in investing activities (175,529,030) (85,894,615) Cash flows from financing activities Proceeds from short-term borrowings 733,012,421 450,564,435 Proceeds from long-term borrowings 10,000,000 68,608,000 Repayments of short-term borrowings (749,489,361) (400,952,459) Repayments of long-term borrowings (153,498,000) (152,000,000) Capital contribution from minority investors of a subsidiary 25 - 72,702,784 Repayment of cash advance to minority investors of a subsidiary 25 - (72,460,258) Dividends paid to minority investors of a subsidiary 25 (21,926,000) (679,036) Dividends paid (38,914,734) (49,215,693) Net cash used in financing activities (220,815,674) (83,432,227) (Decrease)/increase in cash and cash equivalents (106,082,896) 20,596,504 Movement in cash and cash equivalents: Cash and cash equivalents at 1st January 162,170,168 141,806,806 (Decrease)/increase (106,082,896) 20,596,504 Effect of exchange rate changes (357,407) (233,142) Cash and cash equivalents at 31st December 19 55,729,865 162,170,168 The notes on pages 6 to 36 form an integral part of these consolidated financial statements. -5- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 Corporate information Shenzhen Chiwan Wharf Holdings Limited (the “Company”) was incorporated on 16th January 1993 in the People’s Republic of China (the “PRC”) as a joint stock limited company. The Company and its subsidiaries (the “Group”) are principally engaged in bulk and general cargo packing, cargo handling, container terminal services, bonded warehouse operation, arranging land and sea transportation for customers. 2 Accounting policies The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below: (a) Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). They have been prepared under the historical cost. The preparation of the consolidated 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. The Group adopted IAS 40 Investment Property in 2001. The financial effects of adopting the standard were reported in the previous year’s consolidated financial statements. (b) Group accounting (1) Subsidiaries Subsidiaries, which are those entities in which the Group has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies are consolidated. 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. -6- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2 Accounting policies (Continued) (b) Group accounting (Continued) (1) Subsidiaries (Continued) 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. The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition plus costs directly attributable to the acquisition. The excess of the cost of acquisition over the fair value of the net assets of the subsidiary acquired is recorded as goodwill. See note 2(f) for the accounting policy on goodwill. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless cost cannot be recovered. Where necessary, accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the Group. A listing of the Group’s principal subsidiaries is set out in note 31. (2) 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 recognised 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; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The Group’s investment in associates includes goodwill (net of accumulated amortisation) on acquisition. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group will not recognise further losses, unless the Group has incurred obligations or made payments on behalf of the associates. A listing of the Group’s associates is shown in note 16. (c) Foreign currency translation (1) Measurement currency Items included in the financial statements of each entity in the Group are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity (“the measurement currency”).The consolidated financial statements are presented in Renminbi (“RMB”), which is the measurement currency of the Group. -7- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2 Accounting policies (Continued) (c) Foreign currency translation (Continued) (2) Transactions and balances Foreign currency transactions are translated into the measurement currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies, are recognised in the income statement. Translation differences on debt securities and other monetary financial assets measured at fair value are included in foreign exchange gains and losses. Translation differences on non-monetary items such as equities held for trading are reported as part of the fair value gain or loss. Translation differences on available-for-sale equities are included in the revaluation reserve in equity. (3) Group companies Income statements and cash flows of foreign entities are translated into the Group’s reporting currency at average exchange rates for the year and their balance sheets are translated at the exchange rates ruling on 31 December. Exchange differences arising from the translation of the net investment in foreign entities and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign entity is sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. (d) Property, plant and equipment Land and buildings (except for investment property – see note 2(e)) comprise mainly harbor facilities and offices, and other property, plant and equipment are stated at historical cost less depreciation and impairment loss. Depreciation is calculated on the straight-line method to write off the cost or revalued amount of each asset to their residual values over their estimated useful lives as follows: Buildings 5 - 40 years Harbor facilities 50 years Plant, machinery and equipment 5 - 15 years Motor vehicles, cargo ships and tugboats 5 - 20 years Furniture and fixtures 5 years Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. -8- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2 Accounting policies (Continued) (d) Property, plant and equipment (Continued) Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in operating profit. Interest costs on borrowings to finance the construction of property, plant and equipment are capitalised, during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are expensed. Repairs and maintenance are charged to the income statement during the financial period in which they are incurred. The cost of major renovations is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset. (e) Investment property Investment property, principally comprising office buildings, is held for long-term rental yields and is not occupied by the Group. Investment property is treated as a long-term investment and is recorded at cost less accumulated depreciation less impairment loss. Depreciation is calculated on the straight-line method to write off the cost of investment property to their residual values over their estimated useful life of 40 years. Where the carrying amount of investment property is greater than its fair value, it is written down to its recoverable amount. The fair value of investment property is determined by the discounted cash flow method based on the reasonable anticipative investment return rate. (f) Intangible assets (1) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net assets of the acquired subsidiary/associate at the date of acquisition. Goodwill is amortised using the straight-line method over its estimated useful life. Management determines the estimated useful life of goodwill based on its evaluation of the respective companies at the time of the acquisition, considering factors such as existing market share, potential growth and other factors inherent in the acquired companies. At each balance sheet date the Group assesses whether there is any indication of impairment. If such indications exist an analysis is performed to assess whether the carrying amount of goodwill is fully recoverable. A write down is made if the carrying amount exceeds the recoverable amount. -9- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2 Accounting policies (Continued) (f) Intangible assets (Continued) (2) Negative goodwill Negative goodwill represents the excess of the fair value of the net identifiable assets acquired over the cost of acquisition. Negative goodwill is presented in the same balance sheet classification as goodwill. It represents the amount not exceeding the fair values of acquired identifiable non-monetary assets and is recognised as income on a systematic basis over the remaining weighted average useful life of the identifiable acquired depreciable or amortisable assets. (g) Impairment of long lived assets Property, plant and equipment and other non-current assets, including goodwill and intangible assets are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount which is the higher of an asset’s net selling price and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows. (h) Land use rights Land use rights are up-front payments to acquire long-term interests in land. These are stated at cost and amortised over the remaining period of the lease on a straight-line basis. In previous years, land use rights were included in property, plant and equipment and were stated at cost less accumulated amortisation. The changes in classification of land use rights did not have a significant effect on the financial statements. (i) Investments The Group classified its investments in debt and equity securities into the following categories: trading, held-to-maturity and available-for-sale. The classification is dependent on the purpose for which the investments were acquired. Management determines the classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis. Investments that are acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as trading investments and included in current assets; for the purpose of these financial statements short term is defined as 3 months. Investments with a fixed maturity that management has the intent and ability to hold to maturity are classified as held-to-maturity and are included in non-current assets, except for maturities within 12 months from the balance sheet date which are classified as current assets; during the period the Group did not hold any investments in this category. Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are classified as available-for-sale; and are included in non-current assets unless management has the expressed intention of holding the investment for less than 12 months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in current assets. - 10 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2 Accounting policies (Continued) (i) Investments (Continued) Purchases and sales of investments are recognised on the trade date, which is the date that the Group commits to purchase or sell the asset. Cost of purchase includes transaction costs. Trading and available- for-sale investments are subsequently carried at fair value. Held-to-maturity investments are carried at amortised cost using the effective yield method. Realised and unrealised gains and losses arising from changes in the fair value of trading investments are included in the income statement in the period in which they arise. Unrealised gain and losses arising from changes in the fair value of securities classified as available-for-sale are recognised in equity. The fair value of investments are based on quoted bid prices or amounts derived from cash flow models. Fair values for unlisted equity securities are estimated using applicable price/earnings or price/cash flow ratios refined to reflect the specific circumstances of the issuer. Equity securities for which fair values cannot be measured reliably are recognised at cost less impairment. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the income statement as gains and losses from investment securities. (j) Leases (1) When the Group company is the lessee Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased property or the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in other long-term payables. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the useful life of the asset or the lease term. Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. - 11 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2 Accounting policies (Continued) (j) Leases (Continued) (2) When the Group company is the lessor When assets are leased out under a finance lease, the present value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Lease income is recognised over the term of the lease using the net investment method, which reflects a constant periodic rate of return. Assets leased out under operating leases are included in investment property and property, plant and equipment in the balance sheet. They are depreciated over their expected useful lives on a basis consistent with similar owned property, plant and equipment. Rental income (net of any incentives given to lessees) is recognised on a straight-line basis over the lease term. (k) Inventories Inventories are stated at the lower of cost or net realisable value. Cost is determined using the weighted average method. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of selling expenses. Costs of inventories includes the transfer from equity of gains/losses on qualifying cash flow hedges relating to inventory purchases. (l) Trade receivables Trade receivables are carried at original invoice amount less provision made for impairment of these receivables. A provision for impairment of trade receivables is established when there is an objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, discounted at the market rate of interest for similar borrowers. (m) Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short- term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are included within borrowings in current liabilities on the balance sheet. (n) Borrowings Borrowings are recognised initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings. - 12 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2 Accounting policies (Continued) (o) Deferred income taxes Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Currently enacted tax rates are used in the determination of deferred income tax. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. (p) Pension obligations A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity and will have no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees benefits relating to employee service in the current and prior periods. The Group pays contributions to publicly administered pension insurance plans on a mandatory, contractual or voluntary basis. Once the contributions have been paid, the Group has no further payment obligations. The regular contributions constitute net periodic costs for the year in which they are due and as such are included in staff costs. (q) Revenue recognition Revenue comprises the invoiced value for the sale of services net of, rebates and discounts, and after eliminating sales within the Group. Revenue from services is recognised upon performance of the service. Interest income is recognised on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the Group. Dividends are recognised when the right to receive payment is established. Rental income is recognised on an accrual basis. (r) Dividends Dividends are recorded in the Group’s financial statements in the period in which they are approved by the Group’s shareholders. (s) Segment reporting Business segments provide products or services that are subject to risks and returns that are different from those of other business segments. Geographical segments provide products or services within a particular economic environment that is subject to risks and returns that are different from those of components operating in other economic environments. - 13 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2 Accounting policies (Continued) (t) Comparatives Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year. 3 Segment information (a) Primary reporting format - business segments The Group is organised into two main business segments in the PRC: (i) Harbour related services - provides loading and unloading services, storage services, port management services and harbour agency services; and (ii) Transportation services - provides trucking and shipping services. Year ended Harbour related Transportation 31st December 2002 services services Total RMB RMB RMB Revenue 627,203,664 87,552,123 714,755,787 Segment result 314,686,820 17,858,533 332,545,353 Unallocated costs (6,174,070) Profit from operations 326,371,283 Finance expenses - net (24,589,184) Share of results of associate before tax 1,397,913 1,397,913 Loss on disposal of an associate (66,526) (66,526) Profit before tax 303,113,486 Income tax expense (14,006,958) Profit after tax 289,106,528 Minority interests (105,229,949) Net profit 183,876,579 Segment assets 2,177,690,718 91,030,604 2,268,721,322 Associates 3,122,194 3,122,194 Unallocated assets 59,979,500 Consolidated total assets 2,331,823,016 Segment liabilities 516,267,866 18,680,415 534,948,281 Unallocated liabilities 41,800,000 Consolidated total liabilities 576,748,281 Other segment items Capital expenditure 163,015,602 22,296,797 185,312,399 Depreciation 66,443,381 6,906,787 73,350,168 Amortisation 20,092,917 69,989 20,162,906 - 14 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3 Segment information (Continued) (a) Primary reporting format - business segments (Continued) Year ended Harbour related Transportation 31st December 2001 services services Total RMB RMB RMB Revenue 412,162,358 66,593,694 478,756,052 Segment result 149,043,227 (593,469) 148,449,758 Unallocated costs (5,284,166) Profit from operations 143,165,592 Finance expenses - net (36,819,275) Share of results of associates before tax 1,946,370 1,946,370 Gain on disposal of an associate 10,280,353 10,280,353 Profit before tax 118,573,040 Income tax expense (7,523,736) Profit after tax 111,049,304 Minority interests (37,224,735) Net profit 73,824,569 Segment assets 2,045,773,354 94,643,792 2,140,417,146 Associates 22,115,497 22,115,497 Unallocated assets 60,227,000 Consolidated total assets 2,222,759,643 Segment liabilities (497,858,981) (14,251,392) (512,110,373) Unallocated liabilities (194,308,000) Consolidated total liabilities (706,418,373) Other segment items Capital expenditure 79,616,210 16,751,796 96,368,006 Depreciation 58,939,080 9,469,339 68,408,419 Amortisation 19,959,027 104,754 20,063,781 Impairment charge 950,000 10,203,933 11,153,933 There are no sales or other transactions between the business segments. Unallocated costs represent corporate expenses. Segment assets consist primarily of property, plant and equipment, construction-in- progress, intangible assets, inventories, receivables and operating cash, and exclude investments. Segment liabilities comprise operating liabilities and exclude items such as taxation and certain corporate borrowings. Capital expenditure comprises additions to property, plant and equipment, investment property and intangible assets. (b) Secondary reporting format - geographical segments The Group provides the above services in the PRC, its country of incorporation. No geographical segment information is presented. - 15 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3 Segment information (Continued) (c) Analysis of sales 2002 2001 RMB RMB Revenue from services 714,755,787 478,756,052 Revenue arising from interest is disclosed in note 6. Revenue arising from operating lease rental is disclosed in note 4. 4. Profit from operations The following items have been included in arriving at profit from operations: 2002 2001 RMB RMB Depreciation on property, plant and equipment (note 11) - owned assets 72,158,662 67,458,407 - owned assets leased out under operating leases 746,895 503,200 Depreciation on investment property (note 13) 444,611 446,812 Amortisation of land use rights (note 12) 19,611,556 19,669,085 Amortisation of intangible assets – goodwill (included in operating expenses) (note 15) 1,418,961 1,418,961 Negative goodwill recognised as income (included in other operating income) (note 15) (867,611) (1,024,265) Operating lease rentals - land and buildings 29,310,667 21,505,141 - plant, machinery and equipment 1,886,363 840,448 - cargo ships and tugboats 840,700 3,152,208 Loss/(gain) on disposal of associates (note 7) 66,526 (10,280,353) Gain on disposal of property, plant and equipment 865,694 (681,502) Costs of inventories recognised as expenses (included in operating costs) 48,073,138 38,709,883 Staff costs (note 5) 134,406,912 97,342,660 Doubtful debts provision 1,656,149 1,778,834 Provision for inventories (note 18) 451,698 - Repairs and maintenance expenditure on property, plant and equipment 14,656,446 11,953,803 Rental income - owned assets (3,044,377) (3,323,352) - investment property (1,175,529) (1,051,375) Dividend income (1,738,400) - Gain on disposal of available-for-sale investments (81,140) - Impairment charge of property, plant and equipment (included in operating costs) - 10,203,933 Impairment charge of construction-in-progress (included in operating costs) (note 14) - 950,000 - 16 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 5 Staff costs 2002 2001 RMB RMB Wages and salaries 123,287,865 89,433,017 Pension costs - defined contribution scheme (note 21) 11,119,047 7,909,643 134,406,912 97,342,660 The average number of employees in 2002 was 3,310 (2001: 2,547), of whom 1,944 (2001: 1,477) were part-time. 6 Finance costs - net 2002 2001 RMB RMB Interest income 1,018,003 1,762,976 Net foreign exchange transaction (losses)/gains (143,029) 162,747 Interest expenses on bank borrowings (25,455,780) (40,063,799) Less: Interest expenses capitalised in construction- -in-progress (note 14) 521,238 1,708,013 (24,934,542) (38,355,786) Others (529,616) (389,212) (24,589,184) (36,819,275) 7 Loss/gain on disposal of associates Current year loss of RMB66,526 represents loss arising from disposal of the Group’s 49% equity interest in Shenzhen (Shekou) Xinwan Shipping Co., Ltd. during the year. In 2001, the gain of RMB10,280,353 was arising from disposal of the Group’s 21.44% equity interest in Guangzhou Xinkang Real Estate Development Company Ltd. 8 Income tax expense 2002 2001 RMB RMB PRC income tax (note (a) ) Company and subsidiaries 13,533,414 7,128,831 Share of tax of associates 150,719 281,954 Hong Kong profits tax (note (b) ) 322,825 112,951 14,006,958 7,523,736 - 17 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 8 Income tax expense (Continued) (a) In accordance with the relevant income tax laws applicable to enterprises operating in the Shenzhen Special Economic Zone of the PRC, the profits of the Group companies are fully exempted from income tax for five years commencing from the first profit making year of operation followed by a 50% exemption for the immediate next five years (“tax preferential period”), after which the profits of the companies are taxable at the full rate which is currently 15%. As at 31st December 2002, the Group companies with remaining tax preferential period status and the tax reductions involved were as follows: Remaining tax 2002 preferential years tax rate 2 7.5% Shenzhen Chiwan Terminal Company Limited Chiwan Container Terminal Company Limited 2 7.5% - Phase 1 5 - - Phase 2 5 - Shenzhen Chiwan Grains Terminal Company Limited Business taxes are levied at 3.03% to 5.05% on the Group’s service income. Deferred taxation has not been provided as there are no significant temporary differences. (b) Hong Kong taxation represents the amount provided at the rate of 16% (2001: 16%) on the estimated assessable profits for the year. (c) The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the basic tax rate of the home country of the Company as follows: 2002 2001 RMB RMB Profit before tax 303,113,486 118,573,040 Income tax provision calculated at the effective tax rate of 15% (2001: 15%) 45,467,023 17,785,956 Effect of different tax rate in other country 20,177 10,395 Effect on tax losses of subsidiaries 93,057 378,919 Effect of tax preferential period (31,393,579) (13,216,880) Income not subject to tax (1,643,549) (35,064) Expenses not deductible for tax purposes 1,463,829 2,600,410 Tax charge 14,006,958 7,523,736 - 18 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 8 Income tax expense (Continued) (d) The tax liabilities in the consolidated balance sheet included the following: 2002 2001 RMB RMB Income tax 2,341,349 3,125,431 Business taxes, value-added tax and other surcharges 2,679,401 2,184,013 5,020,750 5,309,444 9 Earnings per share Basic earnings per share is calculated by dividing the consolidated profit attributable to shareholders by the number of ordinary shares in issue during the year. 2002 2001 RMB RMB Net profit attributable to shareholders RMB 183,876,579 RMB 73,824,569 Number of ordinary shares in issue 381,517,000 381,517,000 Earnings per share RMB 0.482 RMB 0.194 Diluted earnings per share for both years were not disclosed as there were no dilutive potential ordinary shares. 10 Dividend per share A dividend of RMB0.288 per share amounting to a total dividend of RMB109,876,896 in respect of 2002 is to be proposed. These financial statements do not reflect this dividend payable, which will be accounted for in shareholders’ equity as an appropriation of retained earnings in the year ending 31st December 2003. The dividends declared in respect of 2001 and 2000 were, respectively, RMB38,914,734 and RMB49,215,693. - 19 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 11 Property, plant and equipment Plant, M machinery vehic Harbour and cargo s Buildings facilities equipment and tugb RMB RMB RMB R Year ended 31st December 2002 Opening net book amount 198,399,691 496,308,981 357,850,196 90,104, Transfers (note 14) 34,448,967 1,935,350 51,378,935 24,055, Additions - 125,780 847,356 26,092, Disposals (370,019) - (847,315) (4,390, Classification of an associate to a subsidiary (note 28) 29,158,492 - 5,340,056 942, Depreciation (9,195,579) (10,432,177) (30,900,253) (18,963, Closing net book amount 252,441,552 487,937,934 383,668,975 117,841, At 31st December 2002 Cost 327,163,062 559,839,228 541,204,360 222,671, Accumulated depreciation (74,721,510) (71,901,294) (157,535,385) (104,830, Net book amount 252,441,552 487,937,934 383,668,975 117,841, At 31st December 2001 Cost 251,490,088 557,778,098 480,197,482 197,236, Accumulated depreciation and impairment (53,090,397) (61,469,117) (122,347,286) (107,131, Net book amount 198,399,691 496,308,981 357,850,196 90,104, The management has assessed the carrying amount of the above assets and no impairment is considered necessary. - 20 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 12 Land use rights 2002 2001 RMB RMB Net book value at 1st January 2002 636,917,412 656,586,497 Amortisation (19,611,556) (19,669,085) Net book value at 31st December 2002 617,305,856 636,917,412 In addition to its own land, the Group also leased from China Nanshan Development (Group) Incorporation (“Nanshan Development”), the Company’s holding company, several plots of land. The land owned by Nanshan Development was invested by Shenzhen Investment Holding Corporation in 1982, which holds a 25% interest in share capital of Nanshan Development. At that time, the prevailing PRC laws did not provide for a mechanism for issuing official certificate on the land use rights. However, certain formal land documents were issued by Shenzhen Municipal Planning and Land Bureau such as an outline “red line sketch” planning document in respect of the land mentioned above. Nanshan Development had agreed on 9th December 1992 to indemnify the Group from any losses arising out of or in connection with the land use rights. On expiry of the lease terms, the Company will negotiate with Nanshan Development to extend the lease terms of the leasehold land up to a total maximum of 50 years. The Directors expect that the lease terms can be extended. 13 Investment property 2002 2001 RMB RMB Net book value at beginning of year 19,411,508 - Additions 200,614 - Transfer from contruction-in-progress - 19,858,320 Depreciation for the year (note 4) (444,611) (446,812) Net book value at end of year 19,167,511 19,411,508 Independent valuer has not been employed to determine the fair value of the investment property. Its fair value as at 31st December 2002 was determined by management of the Company to be RMB19,589,000 (2001: RMB20,751,000) using discounted cash flow method. - 21 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 14 Construction-in-progress 2002 2001 RMB RMB At 1st January 11,668,948 180,673,465 Additions 156,083,390 71,169,843 Interest expenses capitalised (note 6) 521,238 1,708,013 Transferred to property, plant and equipment (note 11) (118,449,875) (221,074,053) Transferred to investment property (note 13) - (19,858,320) 49,823,701 12,618,948 Less: provision for impairment - (950,000) At 31st December 49,823,701 11,668,948 A capitalisation rate of 5.69% per annum (2001:5.58%) was used, representing the borrowing cost of the loans used to finance the project. 15 Intangible assets Goodwill Negative goodwill Total RMB RMB RMB Year ended 31 December 2001 Opening net book amount 6,142,546 (8,612,980) (2,470,434) Amortisation for the year (1,418,961) 1,024,265 (394,696) Closing net book amount 4,723,585 (7,588,715) (2,865,130) At 31 December 2001 Cost 14,728,112 (8,757,950) 5,970,162 Accumulated amortisation (10,004,527) 1,169,235 (8,835,292) Net book amount 4,723,585 (7,588,715) (2,865,130) Year ended 31 December 2002 Opening net book amount 4,723,585 (7,588,715) (2,865,130) Amortisation for the year (1,418,961) 867,611 (551,350) Closing net book amount 3,304,624 (6,721,104) (3,416,480) At 31 December 2002 Cost 14,728,112 (8,757,950) 5,970,162 Accumulated amortisation (11,423,488) 2,036,846 (9,386,642) Net book amount 3,304,624 (6,721,104) (3,416,480) - 22 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 16 Investments in associates 2002 2001 RMB RMB Share of net assets, other than goodwill 3,122,194 12,204,406 Amounts due from associates - 9,911,091 3,122,194 22,115,497 The amounts due from associates in 2001 were unsecured, interest-free and had no fixed terms of repayment. The principal associate, unlisted, is: Country of establishment/ Name incorporation Percentage of interest held 2002 2001 Chiwan Wharf Network System Co., Ltd PRC 37.5% 37.5% Shenzhen Chiwan Godown Co., Ltd. (“Chiwan Godown”) PRC - 50% Shenzhen (Shekou) Xinwan Shipping Co., Ltd. PRC - 49% The Group has effective control over Chiwan Godown during the year and thus this company was classified as a subsidiary of the Group in 2002. The results and net assets of Chiwan Godown were consolidated by the Group during the year. Details of such consolidation are set out in note 28. In 2002, the Group disposed of its interest in Shenzhen (Shekou) Xinwan Shipping Co., Ltd. Details of the disposal are set out in note 7. 17 Available-for-sale investments 2002 2001 RMB RMB At beginning of year 60,227,000 60,928,354 Disposals (247,500) (701,354) At end of year 59,979,500 60,227,000 Available-for-sale investments represented investments in PRC and overseas companies of not more than 20% of their paid up capital at 31st December 2002. Available-for-sale investments of the Group have neither a quoted market price in an active market nor a fixed maturity, and are measured at cost less provision for impairment. During the current year, the Group did not hold any trading and held-to-maturity investments. - 23 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 18 Inventories 2002 2001 RMB RMB Raw materials 4,830,389 5,753,796 Spare parts 15,341,800 12,777,253 20,172,189 18,531,049 Less: provision (451,698) - 19,720,491 18,531,049 19 Cash and cash equivalents 2002 2001 RMB RMB Cash at banks and in hand 55,729,865 122,426,168 Short-term bank deposits - 39,744,000 55,729,865 162,170,168 The weighted average effective interest rate on short-term bank deposits in 2001 was 1.82% per annum. 20 Borrowings 2002 2001 RMB RMB Current Bank borrowings (note a) 419,040,000 435,516,940 Current portion of long-term bank borrowings (note b) 15,900,000 6,890,000 434,940,000 442,406,940 Non-current Long-term bank borrowings (note b) 41,800,000 194,308,000 Total borrowings 476,740,000 636,714,940 (a) Short-term bank loans, which bear interest at rates ranging from 4.54% to 4.78% per annum (2001: 5.85%), are repayable within one year. Short-term bank loan of RMB36,040,000 is obtained by a wholly owned subsidiary and is guaranteed by the Company. In 2001, short-term bank loans of RMB233,000,000 of the Group were guaranteed by Nanshan Development. - 24 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 20 Borrowings (continued) (b) Loan of RMB10,000,000 was raised from a bank during the year. It bears interest at 6.21% per annum and is repayable on 24th November 2006 and is guaranteed by Nanshan Development. Another bank loan of HK$45,000,000 (RMB equivalent 47,700,000) bearing interest at HIBOR+1.5% per annum (2001: HIBOR+1.5% per annum) was obtained by a wholly owned subsidiary and is guaranteed by China Merchants Holdings (International) Co., Ltd, a related company. The loan is repayable in 8 installments from 2nd February 2001 with the last installment due on 2nd February 2005. Maturity of long-term bank borrowings: 2002 2001 RMB RMB Between 1 and 2 years 21,200,000 153,900,000 Between 2 and 5 years 20,600,000 40,408,000 41,800,000 194,308,000 (c) The Group has the following undrawn committed borrowing facilities: 2002 2001 RMB RMB Floating rate - expiring within one year 190,000,000 - - expiring over one year 100,000,000 - 290,000,000 - Fixed rate - expiring within one year 200,000,000 170,000,000 - expiring over one year 50,000,000 - 250,000,000 170,000,000 21 Pension obligations In accordance with certain regulations of the Shenzhen Municipal Government, all enterprises established in Shenzhen are required to contribute to a retirement insurance fund administered by the Shenzhen Municipal Government at rates ranging from 7% to 12% (2001: 7% to 12%) of the basic salaries of the Group’s existing PRC staff. The retirement insurance fund is fully responsible for payments to retired staff. - 25 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 22 Financial risk management (a) Financial risk factors The Group’s activities expose it to financial risks including the effects of changes in foreign currency exchange rates and interest rates. The Group’s overall risk management seeks to minimise potential adverse effects on the financial performance of the Group. (i) Foreign exchange risk The Group operates in PRC and is exposed to foreign exchange risk arising from currency exposures primarily with respect to Renminbi. The Group has a number of investments in foreign subsidiaries, whose net assets are exposed to currency translation risk. Currency exposure to the net assets of the Group’s subsidiaries in Hong Kong is managed primarily through borrowings denominated in the relevant foreign currencies. (ii) Interest rate risk The Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Group has no significant interest-bearing assets except bank deposits and loans to a related company, interest rates on which have been fixed in relevant contracts. Other financial assets and liabilities do not have material interest rate risk. (iii) Credit risk The Group has no significant concentrations of credit risk. The Group has policies in place to ensure that sales of services are made to customers with an appropriate credit history. Cash transactions are limited to high credit quality financial institutions. The Group has policies that limit the amount of credit exposure to any one financial institution. (iv) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The Group maintains flexibility in funding by keeping committed credit lines available. (b) Fair values Financial assets of the Group include cash and bank balances, trade receivables, other receivables and prepayments, loans to a related company, amount due from a related company and available-for-sale investments. Their fair values are not materially different from their carrying amounts. Financial liabilities of the Group include bank borrowings, trade payables, other payables and accrued expenses, taxes payable and amount due to holding company. The carrying amounts of short-term loans are estimated to approximate their fair values based on the nature or short-term maturity of these instruments. - 26 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 22 Financial risk management (continued) (b) Fair values (continued) The fair value of long-term bank loans is estimated by applying a discounted cash flow approach using current market interest rates for similar indebtedness. The fair value is not materially different from the carrying amount. 23 Commitments (a) Capital commitments Capital expenditure contracted for at the balance sheet date but not recognised in the consolidated financial statements is as follows: 2002 2001 RMB RMB Plant, machinery and equipment 206,349,152 44,747,961 Land and buildings 72,288,530 19,769,590 Harbour facilities 8,100,000 11,000,000 286,737,682 75,517,551 (b) Operating lease commitments – where the Group is the lessee The future minimum lease payments under non-cancellable operating leases in respect of a cargo ship, tugboats and the use of land leased from Nanshan Development, are as follows: 2002 2001 RMB RMB Not later than 1 year 19,882,445 29,153,854 Later than 1 year and not later than 5 years 5,121,247 9,555,748 25,003,692 38,709,602 Operating lease commitments – where the Group is the lessor The future minimum lease payments receivable under non-cancellable operating leases are as follows: 2002 2001 RMB RMB Not later than 1 year 2,519,011 2,519,011 Later than 1 year and not later than 5 years 10,076,046 10,076,046 Later than 5 years 32,747,152 35,266,163 45,342,209 47,861,220 - 27 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 24 Share capital Registered, issued and fully paid ordinary shares of RMB1 each: Unlisted A shares held by Unlisted A Nanshan shares held by A shares, B shares, Development legal persons listed listed Total Year ended 31st December 2001 At 1st January and 31st December2001 224,470,000 121,500 50,478,500 106,447,000 381,517,000 Year ended 31st December 2002 At 1st January and 31st December2002 224,470,000 121,500 50,478,500 106,447,000 381,517,000 The A and B shares carry equal rights with respect to the distribution of the Company’s assets and profits and rank pari passu in all other respects. 25 Minority interests 2002 2001 RMB RMB At 1st January 362,847,219 326,058,994 Capital contribution by minority investors of a subsidiary - 72,702,784 Minority interests of a new subsidiary (note 28) 10,825,078 - Share of net profits of subsidiaries 105,229,949 37,224,735 Payments of dividends (21,926,000) (679,036) Repayment of cash advance to minority investors of a subsidiary - (72,460,258) At 31st December 456,976,246 362,847,219 - 28 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 26 Reserves Statutory public Share Capital Surplus welfare Translation premium reserves reserves fund reserve Total (note (b)) (note (b)) (note (c)) (note (d)) RMB RMB RMB RMB RMB RMB At 1st January 2001 250,956,191 155,384,283 253,977,961 42,503,484 (4,781,539) 698,040,380 Transfer from retained earnings to reserves: Statutory surplus reserve - - 8,682,922 - - 8,682,922 Statutory public welfare fund - - - 4,341,461 - 4,341,461 Discretionary surplus reserve - - 21,707,306 - - 21,707,306 Currency translation differences - - - - (233,142) (233,142) At 31st December 2001 250,956,191 155,384,283 284,368,189 46,844,945 (5,014,681) 732,538,927 At 1st January 2002 250,956,191 155,384,283 284,368,189 46,844,945 (5,014,681) 732,538,927 Transfer from retained earnings to reserves: Statutory surplus reserve - - 18,346,629 - - 18,346,629 Statutory public welfare fund - - - 9,173,314 - 9,173,314 Discretionary surplus reserve - - 45,866,572 - - 45,866,572 Currency translation differences - - - - (357,407) (357,407) At 31st December 2002 250,956,191 155,384,283 348,581,390 56,018,259 (5,372,088) 805,568,035 - 29 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 26 Reserves (continued) (a) Pursuant to the relevant PRC regulations and the articles of association of the Company, profit after taxation shall be appropriated in the following sequence: (i) make up accumulated losses; (ii) transfer 10% of the profit after tax to the statutory surplus reserve. When the balance of the statutory surplus reserve reaches 50% of the paid up share capital, such transfer needs not be made. (iii) transfer 5% to 10% of the profit after tax to the statutory public welfare fund. For the year ended 31st December 2002, a 5% of the profit after tax is recommended (2001: 5%). (iv) transfer to the discretionary surplus reserve on amount approved by the shareholders in general meetings. (v) distribute dividends to shareholders. The amounts of transfers to the statutory surplus reserve and statutory public welfare fund shall be based on profit after tax in the PRC statutory accounts prepared in accordance with PRC accounting standards. (b) Share premium and capital reserves According to the relevant PRC regulations, share premium and capital reserves can only be used to increase share capital. (c) Statutory surplus reserve and discretionary surplus reserve According to the relevant PRC regulations, statutory surplus reserve and discretionary surplus reserve can be used to make up losses or to increase share capital. Except for the reduction of losses incurred, any other usage should not result in the statutory surplus reserve falling below 25% of the registered capital. (d) Statutory public welfare fund According to the relevant PRC regulations, the use of statutory public welfare fund is restricted to capital expenditure for employees’ collective welfare facilities. Staff welfare facilities are owned by the Group. The statutory public welfare fund is not normally available for distribution to shareholders except in liquidation. Once the capital expenditure on staff welfare facilities has been made, an equivalent amount must be transferred from the statutory public welfare fund to discretionary surplus reserve. (e) Profit distribution Pursuant to the relevant PRC regulations and the articles of association of the Company, profit distributable to shareholders shall be the lower of the accumulated profit distributable to shareholders determined according to the PRC accounting standards as stated in the PRC statutory accounts and the accumulated profit distributable to shareholders adjusted according to IFRS. - 30 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 27 Cash generated from operations Reconciliation of profit before tax to cash generated from operations: 2002 2001 RMB RMB Profit before tax 303,113,486 118,573,040 Adjustments for: Depreciation (note 11, 13) 73,350,168 68,408,419 Amortisation of land use rights (note 12) 19,611,556 19,669,085 Amortisation of intangible assets (note 15) 551,350 394,696 Reversal of impairment of available-for-sale investments - (231,000) Impairment of property, plant and equipment (note 11) - 10,203,933 Impairment of construction-in-progress (note 14) - 950,000 Doubtful debts provision (note 4) 1,656,149 1,778,834 Provision for inventories (note 4) 451,698 - Gain on disposal of property, plant and equipment (note 4) 865,694 (681,502) Interest expenses (note 6) 24,934,542 38,355,786 Interest income (note 6) (1,018,003) (1,762,976) Loss/(gain) on disposal of associates 66,526 (10,280,353) Share of results of associates before tax (1,397,913) (1,946,370) Increase in inventories (1,593,271) (1,275,808) Increase in trade receivables, other receivables and prepayments (24,918,249) (7,505,901) Increase in amounts due from related companies (94,680,979) (5,331,806) Increase in trade payables, other payables and accrued expenses 10,643,122 5,980,629 Increase in amount due to holding company 19,523,570 440,919 Gain on disposal of available-for-sale investments (81,140) - Dividend income (1,738,400) - Cash generated from operations 329,339,906 235,739,625 - 31 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 28 Consolidation of a new subsidiary Pursuant to a board resolution of Shenzhen Chiwan Godown Co., Ltd. (“Chiwan Godown”) in which the Group owns a 50% interest, it was resolved that the other joint venture partner has agreed that the Group should take up the overall management of Chiwan Godown’s business operations with effect from 1st January 2002, including the power to govern the financial and operating policies of Chiwan Godown and the appointment of key executives and operation management. In the opinion of the directors, the Group has effective control over Chiwan Godown and accordingly, the results of Chiwan Godown were consolidated by the Group from 1st January 2002. The assets and liabilities related to this subsidiary as at 1st January 2002 were as follows: RMB Cash and cash equivalents 3,222,198 Property, plant and equipment (note 11) 35,843,774 Inventories 47,868 Receivables 5,580,042 Payables (1,588,408) Borrowings (21,600,000) Minority interests (note 25) (10,825,078) Net assets 10,680,396 This subsidiary contributed revenue of RMB13,895,161 and operating profit of RMB1,007,835 to the Group in 2002. Its assets and liabilities at 31st December 2002 were RMB40,223,860 and RMB20,025,752 respectively. - 32 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 29 Related party transactions The Company is controlled by China Nanshan Development (Group) Incorporation (incorporated in the PRC) which owns 58.84% of the Company’s shares. (a) Save as disclosed in other notes in these financial statements, in the normal course of business, the Group had the following material transactions with related companies during the year: 2002 2001 RMB RMB Payment to Nanshan Development, the holding company - lease of docking sites and stacking yards 21,378,320 14,796,466 - rental of office buildings 2,338,806 2,419,946 Proceeds from Nanshan Development, the holding company - disposal of an associate - 29,500,000 Payment to Shenzhen Chiwan Petroleum Supply Base Co., Ltd., a fellow subsidiary - rental of office buildings 589,720 611,306 Payment to Shenzhen Southseas Grains Industries Ltd., a fellow subsidiary - lease of docking sites and stacking yards 2,934,422 - Payment to Shenzhen Haiqin Engineering Supervision Co., Ltd., a fellow subsidiary - fee for engineering supervision 884,781 1,081,760 Receivable from Shenzhen Gangchuang Construction Co,. Ltd, a fellow subsidiary - disposal of property, plant and equipment - 4,400,000 Transactions with the related parties were carried out on commercial terms and conditions at market prices. (b) Amount due to holding company The amount due to holding company is unsecured, interest-free and repayable within one year. (c) Amount due from a related company The amount due from related company is unsecured, interest-free and have no fixed terms of repayment. - 33 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 29 Related party transactions (continued) (d) Loans to a related company In 2002, loans of RMB100,000,000 were advanced to Haihong Industry (Shenzhen) Co. Ltd., a fellow subsidiary of the Group. The loans are repayable within one year bearing interest at a rate of 5.841% per annum and is guaranteed by Shenzhen Investment Management Company. (e) Directors’ remuneration During the years ended 31 December 2001 and 2002, no amounts have been paid by the Group to the Directors of the Company. 30 Post balance sheet events (a) Acquisition of additional interest in Chiwan Container Terminal Company Limited (“Chiwan Container Terminal”), a subsidiary of the Group. On 9th January 2003, the Group acquired 1% interest in Chiwan Container Terminal from another shareholder, China Grains and Oils Food Import & Export Co. Ltd. The consideration of RMB15,763,667 was settled in cash on 30th January 2003. On 26th February 2003, an agreement was signed between Hidoney Developments Ltd (“Hidoney”) and Chiwan Wharf Holdings (H.K.) Ltd (“WHK”), a wholly owned subsidiary of the Group. Pursuant to the agreement, WHK acquired from Hidoney 4% equity interest in Chiwan Container Terminal at a consideration of RMB53,000,000. Following the above acquisitions, the Group’s equity interest in Chiwan Container Terminal increased to 55%. (b) Establishment of a new associate Pursuant to an agreement dated 20th February 2003, the Group sets up a new company together with Haihong Industry (Shenzhen) Co., Ltd., a fellow subsidiary of the Group. Paid-in capital of this associate is RMB10,000,000 and the Group has a 40% interest in this associate. The new associate will mainly engage in sea transportation, bonded warehouse operation and goods agency for customers. (c) Disposal of equity interests in Hidoney Developments Limited On 26th February 2003, Grossalan Investment Limited, the Group’s wholly owned subsidiary, disposed of 16.7% interest in Hidoney to MTL Chiwan Holdings Limited at a consideration of RMB53,000,000. MTL Chiwan Holding Limited is a joint venture of China Merchants Holdings (International) Co., Ltd., and Mordern Terminals Limited. Following the disposal, the Group no longer has any equity interest in Hidoney. - 34 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 Principal subsidiaries The principal subsidiaries of the Group at 31st December 2002 are as follows: Place/country of incorporation/ Name establishment Percentage of interest held 2002 2001 Direct subsidiaries Chiwan Wharf Holdings (H.K.) Limited Hong Kong 100% 100% Shenzhen Chiwan Grains Terminal Company Limited PRC 100% 100% Shenzhen Chiwan Harbour Container Company Limited PRC 100% 100% Shenzhen Chiwan International Freight Agency Company Limited PRC 100% 100% Shenzhen Chiwan Shipping and Transportation Company PRC 100% 100% Shenzhen Chiwan Terminal Company Limited PRC 100% 100% Shenzhen Chiwan Transportation Company PRC 100% 100% Shenzhen Zhennan Packaging Company Limited PRC 100% 100% Shenzhen Chiwan Oriental Logistics Co. Ltd. PRC 100% 100% Shenzhen Joint Favour International Marine Shipping Agency PRC 51% 51% Chiwan Container Terminal Company Limited (note (a)) PRC 50% 50% Shenzhen Chiwan Godown Co. Ltd. (note (b)) PRC 50% - Indirect subsidiary Chiwan Shipping (H.K.) Company Limited Hong Kong 100% 100% British Virgin Grossalan Investment Limited Islands 100% 100% (a) As the Group controls over 50% of the voting power of the board of this company, it is treated as a subsidiary. (b) As the Group has power to govern the financial and operating policies, it is treated as a subsidiary. - 35 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 32 Approval of the consolidated financial statements The consolidated financial statements were approved by the board of directors on 16th April, 2003. - 36 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31ST DECEMBER 2002 The impact of IFRS and other adjustments on the PRC statutory financial statements are as follows: Consolidated net Consolidated profit for the year ended net assets as at 31st December 31st December 2002 2002 RMB RMB As per the PRC statutory financial statements 183,599,988 1,187,913,933 Impact of IFRS and other adjustments: Proposed dividend in respect of 2002 to be taken up in 2003 - 109,876,896 Others 276,591 307,660 As restated after IFRS and other adjustments 183,876,579 1,298,098,489 10733/JWE - 37 -