威孚高科(000581)2002年年度报告（英文）

2002 ANNUAL REPORT WEIFU HIGH-TECHNOLOGY CO.,LTD. 无锡威孚高科技股份有限公司 (Incorporated in the People’s Republic of China with limited liability) 1 CONTENTS Company Information 1 Key Accounting and Business Data 2 Share Capital and Shareholder 5 Directors, Supervisors, Senior management and Staff 7 CORPORATE SUPERVISORY SYSTEM 10 Shareholders’ Meeting 12 Report of the Board of Directors 14 Report of the Board of Supervisors 21 Significant Events 23 Financial Statements 24 Documents for Reference 60 I MPORTANT: The Directors of Weifu High Technology Co., Ltd. collectively and individually accept full responsibility for the authenticity, accuracy and completeness of the information contained in this report and confirm that there are no false statements and material omissions which would make any statement in this report misleading. The Chairman of the Board, General manager and Principal Treasurer of the Company shall collectively assure of the authenticity and completeness of the financial statements contained in this report. The reader is advised that the 2002 annual report of the Company has been prepared originally in Chinese. In the event of a conflict between this version and the original Chinese version or difference in interpretation between the versions of the report, the Chinese version shall prevail. COMPANY INFORMATION 2 Chinese Name: 无锡威孚高科技股份有限公司 English Name: WEIFU HIGH TECHNOLOGY CO., LTD. Legal Representative: Mr. Xu Liangfei Secretary of the Board: Mr. Liu Yonglin Authorized Representative: Mr. Zhou Weixin Mailing Address: No.107,West Renmin Road ,Wuxi, Jiangsu, China. Tel.: 0510-2719579 Fax: 0510-2751025 E-Mail: Wfjt @ public1.wx.js.cn Registered Address: Plot 46, Wuxi National High-Tech Industrial Development Zone Head Office: No.107,West Renmin Road ,Wuxi, Jiangsu, China.(214031) Homepage: http://www.China-weifu.com Corporate E-Mail webmaster@China-weifu.com Information Disclosure Securities Times, China Securities, Media: HongKong Ta Kung Pao Annual Report for reference: Securities Department of the Company Internet Website: http://www.cninfo.com.cn Stock Listing and Trading: Shenzhen Securities Exchange, China. Stock Name: Weifu High- Tech, Su Weifu-B Stock Code: 000581,200581 Supplementary Information: 1.Original Registration Date: October 22,1988 Address: No.107,West Renmin Road, Wuxi Changed Registration September 28, 1995, Date: July 16, 1998, November 2, 1999 November 22,2000 Address: Plot 46, National High-tech Industrial Development Zone, Wuxi 2.Business Registration No. 3200001103404(2/2) 3.Taxation Registration No. 320208250456967 4.Domestic Auditor: Jiangsu Certified Public Accountant No.28, Liangxi Road, Wuxi International Auditor: PricewaterhouseCoopers Zhong Tian CPAs Co.,Ltd.. 12th Floor, Shui On Plaza,333 Huai Hai Zhong Road,Shanghai,P.R.China 3 KEY ACCOUNTING AND BUSINESS DATA 1. Business Results in 2002 (in RMB’ 000) (1) Profit, Total 216,696 Profit, Net 197,646 Profit, deduct nonrecurring gains and losses 206,344 (2)Profit from main business operation 377,831 (3)Other Operating Income/Expense 246 (4) Operating Profit 125,612 Investment Income 116,573 Income from Subsidies - Non-operating Income/Expense -13,356 (5) Cash Flow from Operating Activities, Net 118,790 (6) Increments on cash and cash equivalents -183,383 Note: Nonrecurring gains and losses: Income arising from capital occupied 227 Donation -2,857 Losses arising from liabilities reorganization -231 Gains/losses from disposal of fixed assets: -5,287 Amortized price differences arising from consolidation -2,081 Income Taxation 1,534 Total -8,695 2. Impact of IAS adjustment on net profit (in RMB’ 000) As reported in the statutory accounts of the Company 204,033 recognition of investment income (loss) under equity accounting -6,387 As restated to IAS 197,646 4 3.Three-year Key Financial and Business Data (as of 31st, Dec.2002, in RMB’000 unless expressed otherwise) Items 2002 2001 2000 Sales 1,511,167 1,025,758 868,218 Net profit 197,646 159,590 130,240 Total assets 2,508,934 2,178,645 1,992,904 Shareholders’ equity 1,894,260 1,781,310 1,708,993 (less minority interests) Earnings per share 0.45 0.37 0.30 (Fully diluted, in RMB ) Earnings per share 0.45 0.37 0.32 (Average weight, in RMB ) Equity per share 4.34 4.08 3.92 (in RMB ) Equity per share 4.33 4.07 3.92 (upon adjustment, in RMB ) Net Cash Flow per share 0.27 0.34 0.02 (in RMB ) Return on net assets (%) 10.43 8.96 7.62 (Fully diluted) Return on net assets (%) 10.51 8.92 10.51 (Average weight) 4. Calculation for Return on net assets and Earnings per share (in accordance with the Regulation (No.9) on Information Disclosure for Listed Company by the State Securities Regulatory Commission, expressed in RMB’000 unless expressed otherwise) Return on net assets (%) Earnings per share (%) Items Profit Fully Weighted Fully Weighted diluted average diluted average Main business 377,831 19.95 20.56 0.87 0.87 operational profit Operating profit 125,612 6.63 6.83 0.29 0.29 Net profit 197,646 10.43 10.75 0.45 0.45 Profit, 206,344 10.89 11.23 0.47 0.47 deduct nonrecurring gains/ losses 5 5.Changes in Shareholders’ Equity (in RMB’ 000) Items Amounts Increment Amounts in the year beginning at the year-end Share Capital 436,366 - 436,366 Capital Reserve 908,919 2,431 911,496 Sulplus Reserve 111,768 31,111 142,879 Statutory Public 36,711 10,370 47,081 Welfare Unappropriated 324,257 79,262 403,519 Profit, Total 1,781,310 112,804 1,894,260 6 SHARE CAPITAL AND SHAREHOLDERS 1.Change in Share Capital (ended on Dec.31st,2002) Beginning Number Increase/Decrease Closing Number Unlisted Shares 1.Promoter’s Shares 121,566,150 - 121,566,150 including: Domestic - Legal Shares 121,566,150 121,566,150 2.Legal Subscription 10,400,000 - 10,400,000 3. Employees’ Shares 24,000,000 -24,000,000 Sub-total 155,966,150 -24,000,000 131,966,150 Listed Shares 1.A Shares 192,000,000 23,838,300 215,838,300 2.B Shares 88,400,000 - 88,400,000 3.Overseas Shares - 4.Other 161,700 161,700 Sub-total 280400000 24,000,000 304,400,000 Total 436,366,150 - 436,366,150 2. Shares In Issue and listing: During the period of 31st October to 10th November,2000,based on the total number of share capital of 303,435,500 shares on the 31st December,1998,the Company has offered an right issue for subscription at the price of RMB 10 per share by allocating 3 shares for every 10 shares, totally 41,900,000 shares, which were listed and traded from 30th November,2000.As a result, the Company’s total share capital reached 436,366,150 shares. 3.Shareholders of the Company 1).Total Number of Shareholders: 91,417 (as of 31st, Dec. 2002 ) 2).Top 10 Shareholders: NAME Number of Percentage Classification Shares (%) 1.WUXI WEIFU GROUP COMPANY LIMITED 121,566,150 27.86 State Legal Person 2. HUAAN INNOVATION FUNDS 16,314,622 3.74 A Share Investor 7 3.ROBERT BOSCH GMBH 14,144,000 3.24 B Share Investor 4. GUOLIAN SECURITIES CO. 6,336,129 1.45 A Share Investor 5. ANSHUEN FUNDS 5,785,130 1.33 A Share Investor 6. KINGTAI FUND 5,643,748 1.29 A Share Investor 7.YUYUAN FUNDS 2,780,946 0.64 A Share Investor 8.WUXI STATE-OWNED ASSETS 2,600,000 0.60 Social Legal INVESTMENT AND DEVELOPMENT CO. Person 9. TONGQIAN FUNDS 2,538,622 0.58 A Share Investor 10. ZHANGPING 2,104,600 0.48 A Share Investor Notes: Among the top ten shareholders, Huaan Innovation Funds and Anshuen Funds are managed by the same funds management company. 3). Majority Holding Shareholder Name: Wuxi Weifu Group Co.,Ltd.. Legal representative Mr.Xu Liangfei Nature Fully State-owned enterprise Registered Capital RMB134,830,000 Establishment December 14,1994 Business scope: Processing and manufacturing of general machinery, instruments and meters, tools and components for electrical products, plastic products, chemical products and raw materials, sales of automobiles and installation kits, repair and maintenance for internal combustion engines, consultancy services for the machinery industry, import and export. 4).Majority Shareholder: The Company’s majority holding shareholder remained unchanged, and no mortgage on its shareholding occured through the year. 8 Directors, Supervisors, Senior management and Staff 1. General Information Name Position Gender Age Term of Office 2002 shareholding (Beginning/End) Xu Liangfei Chairman of the Male 58 2002.6~2005.6 12,800/12,800 Directors Han Jiangming Vice Chairman, Male 51 2002.6~2005.6 12,800/12,800 General Manager Zu Jilin Director Male 60 2002.6~2005.6 12,800/12,800 Li Tonghua Director Male 59 2002.6~2005.6 12,800/12,800 Wang Director Male 37 2002.6~2005.6 8,000/8,000 Weiliang Gao Guoyuan Director, Deputy Male 49 2002.6~2005.6 6,500/6,500 General Manager Ge Songping Director, Deputy Male 48 2002.6~2005.6 16,000/16,000 General Manager Chen Zhaolin Director Male 45 2002.6~2005.6 - Zhang Xiaoyu Independent Male 59 2002.6~2005.6 - Director Ouyang Independent Male 44 2002.6~2005.6 - Minggao Director Chen Qilong Independent Male 52 2002.6~2005.6 - Director Chen Xuejun Chairman of the Male 35 2002.6~2005.6 2,000/2,000 Supervisors Li Guodong Supervisor Male 53 2002.6~2005.6 - Zhang Jiming Supervisor Male 33 2002.6~2005.6 - Wang Chuan Supervisor Male 53 2002.6~2005.6 - Wang Supervisor Male 53 2002.6~2005.6 2,000/2,000 Xiaodong Deng Xijiang Supervisor Male 39 2002.6~2005.6 4,800/4,800 You Jianzhong Supervisor Male 35 2002.6~2005.6 6,400/6,400 Shi Xingyuan Deputy General Male 40 2002.6~2005.6 2,000/2,000 Manager Su Qingxian Principal Female 48 2002.6~2005.6 - Treasurer Liu Yonglin Secretary of the Male 59 2002.6~2005.6 8,000/8,000 Director 9 2.Directors and Supervisors from shareholding Companies Name Shareholding Position Term of Payied by the Companies Office holding companies Xu Liangfei Wuxi Weifu Group Co.,Ltd. Chairman of the Till yes Directors, General now Manager, Secretary of the Party Zu Jilin Wuxi Weifu Group Co.,Ltd. Director,Deputy Till yes Secretary of the Party now Li Tonghua Wuxi Weifu Group Co.,Ltd. Director, Deputy Till yes General Manager now Wang Wuxi Weifu Group Co.,Ltd. Deputy General Till yes Weiliang Manager now Chen Robert Bosch Investment Executive Supervisor Till yes Zhaolin Co.in China now Li Guodong Wuxi Guolian Development Investment Manager Till yes (Group) Co. now Zhang State Investment Machinary Business Manager Till yes Jiming and Light Industrial Co. now Wang China Auto Industry General Section Chief Till yes Chuan Co. Investment and now Development Cor. 3. Annual Remuneration for Directors and Supervisors (in RMB ): Top 3 directors, total 680,000 Top 3 senior managements, total 680,000 Annual remuneration, total 1,625,000 Independent directors subsidized 3 persons Other treatment for independent directors Reimbursement for travel costs upon attending the meetings of the board of directors and shareholders Directors and supervisors unpaid by the 11 persons Company Annual remuneration Numbers of person RMB 25,000-50,000 1 RMB 50,000-100,000 2 RMB 100,000-150,000 1 RMB 150,000-200,000 5 RMB 200,000-280,000 1 10 4.Directors and Supervisors Leaving Posts Name Previous Position Reason for Change Chen Haojun Director Re-election Zhong Xichang Director Re-election Tang Zhenhuan Director Re-election Xu Lin Director Re-election Yang Ankang Director Re-election Li Guodong Director Re-election Zhang Jiming Director Re-election Wang Chuan Director Re-election Zhao Xianshi Chairman of the Supervisors Re-election Ge Songping Supervisor Reappointment Li Weiqing Supervisor Re-election Wang Zhenping Supervisor Re-election Pan Hongying Supervisor Re-election 5. Corporate Staff As at the year-end, the Company employed 3,783 people, which can be classified as follows: Classification Number of Staff Percentage (%) Production 2,750 72.69 Sales and Marketing 165 4.36 Engineering Technology 290 7.67 Finance 23 0.61 Administration 227 6.00 Other 328 8.67 Educational Degree Number of Staff Percentage (%) Senior High School 2,812 74.33 Technical Secondary 436 11.53 School Junior College 365 9.65 University Graduate 130 3.44 Master 36 0.95 Doctor 4 0.11 As of December 31, 2002, total amount of retired employees for whom the Company bears pensions amounted to 789. 11 CORPORATE SUPERVISORY SYSTEM 1. Supervisory System Profile Conformity to the requirements by the Company Law, the Securities Law and the relevant laws and regulations promulgated by the State Securities Regulatory Commission, the Company has amended and improved its Articles of Association, and set up a set of normative working regulations and procedures involving the shareholders’ meeting, the board of directors and the board of supervisors. In accordance with the Guideline for the Appointment of Independent Director among Listed Companies promulgated by the State Securities Regulatory Commission, it has been formally institutionalized in the re-election of board of directors of the company in the shareholders’ meeting held on 4th June, 2002 for the appointment of independent directors and the establishment of the expert committees involving policy decision, auditing, nomination, remuneration and results assessment, among which the independent directors have held majority positions and leadership in the auditing, remuneration and results assessment committees. Upon the great improvement of the Company’s legal supervisory system, the Company has become a fully independent economic entity from its holding company, Wuxi Weifu Group Co., Ltd, in every conceivable aspect involving personnel, assets, financing, organization and operational activities. Consequently, related transactions between two parties have been reduced gradually. It has been up to the relevant requirements on listed companies by the State Securities Regulatory Commission in terms of the corporate supervisory system. 2. Performance of the Independent Directors Conformity to the requirements by the Guideline for the Appointment of Independent Directors among Listed Companies and the Regulatory Criteria on Listed Companies, the Company has appointed 3 independent directors and established the expert committees involving policy decision, auditing, nomination, remuneration and results assessment, among which independent directors held the leadership in the committees of auditing, remuneration and results assessment. Ever since they took office, the Company’s independent directors have consciously performed their duties to express independent opinions with regard to the significant policy decision upon attending the Board meetings and relevant meetings. 3. Independence of Majority Shareholder 1).Operational Activities The Company is mainly engaged in the manufacturing of diesel injection system with its own completed production system, supply chain and sales channels. It is independent of the outer control from its majority shareholder. In October 2002, the 5th meeting of the 4th board of directors resolved to terminate the agreements signed in 12 1995 with Wuxi Weifu Group Co. on the related transactions involving the utilities supply (electricity, water, compressed air, steam, etc.), processing, maintenance, auxiliary facilities and living service. The termination of above agreements is beneficial to the improvement of the profitability of the Company with less related transactions between the two parties. 2).Assets Integrity At the time of the Company’s B Shares issuance, definition and transfer on assets were made clearly, and relevant registration procedures for properties were finished accordingly. As a result, explicit assets relations have been formed between the Company and its majority shareholder. 3).Financial Independence With an integral financial department, the Company has installed and maintained a complete accounting and financial system for internal control and subsidiaries management. The relevant financial functions have been performed independently, including opening accounts with banks, paying taxations as well as making financial decisions. 4). Personnel The Company has its own independent operational and administrative departments, including labor, personnel and wages management. Senior executives, including marketing manager, principal treasurer and secretary of the board of directors, all hold full-time positions and received payment accordingly from the Company. Appointments of directors have all been conducted subject to the nomination by the board of directors and approved by the shareholders’ meeting, subject to no limitation and intervention by and from the holding company or the government institutions. 5).Functional Organization As a legal person, the Company has installed a well-functioned internal organization for its daily operation. 4.Performance Assessment and Incentive Mechanism The Company democratically conducted the performance assessments for its senior managements personnel in terms of the innovation and working results. However, the incentive mechanism system has not been established so far. It is expected to be formulated and implemented in the year 2003 by the results assessment committee of the board of directors of the Company. 13 SHAREHOLDERS’ MEETING The Company convened one annual general meeting and two provisional meetings of shareholders throughout the year. 1. The 1st Provisional Meeting of Shareholders On 19th March, 2002, the Company announced a resolution of provisional Board meeting related to the convene of the 1st provisional shareholders’ meeting of the Company for the year 2002 on “China Securities”, “Shenzhen Securities Times” and “Ta Kung Pao” respectively. On 18th April, this meeting was held at which totally 25 shareholders or their proxies were present, representing 148,485,692 effective voting shares, which accounts for 34.03% of the total share capital of the Company. Resolutions were passed to approve: (1). Amended clauses and proposal for convertible bonds issuance; (2). Statements on the usage of previously raised funds by the board of directors. Above Resolutions were announced on “China Securities”, “Shenzhen Securities Times” and “Ta Kung Pao” on 19th April, 2002. 2. 2001 Annual General Meeting On 23th April, 2002, the Company announced the resolution of the 12th meeting of the 3rd board of directors and a notice on the convene of the annual general meeting for 2001 on “China Securities”, “Shenzhen Securities Times” and “Ta Kung Pao” respectively. On 4th June, the 2001 annual general meeting was held and there were 29 shareholders or their proxies presenting at the meeting, representing 158,855,099 shares, which accounts for 36.4% of the total share capital of the Company. Resolutions were passed to approve: (1). The working report of the Directors for 2001; (2). The working report of the Supervisors for 2001; (3). Final accounts and proposal for annual dividends distribution for fiscal 2001; (4).Re-appointment of Jiangsu Gongzhen Certified Public Accountant Co.and PricewaterhouseCoopers Zhong Tian CPAs Co.,Ltd. Cooper China Limited as the Company’s auditors for fiscal 2002; (5). The amendment of provisions of Articles of Association of the Company; 14 (6).Proposal by the independent directors; (7).Proposal for the re-election of directors and supervisors. Above Resolutions were announced on “China Securities”, “Shenzhen Securities Times” and “Ta Kung Pao” on 5th June, 2002. 3. The 2nd Provisional Shareholders’ Meeting On 6th June, 2002, the Company announced the resolution of the 1st meeting of the 4th board of directors and a notice on the convene of the 2nd provisional shareholders’ meeting of the Company for the year 2002 on “China Securities”, “Shenzhen Securities Times” and “Ta Kung Pao” respectively. This meeting was held on 18th July, 2002. Totally 27 shareholders or their proxies were present and represented 172,761,866 effective voting shares, which accounts for 39.59% of the total share capital of the Company. This meeting resolved to approve the change in the usage of raised funds from right issue, which were announced on “China Securities”, “Shenzhen th Securities Times” and “Ta Kung Pao” on 19 July, 2002. 4.Re-election of Directors and Supervisors Considering the expiry of the term of office of the 3rd board of directors and the 3rd board of supervisors, the new round of board of directors and board of supervisors were elected at the annual general meeting of the Company for 2001 on June 4th, 2001. Mr.Xu Liangfei, Mr.Han Jiangming, Mr.Zu Jilin, Mr.Li Tonghua, Mr.Wang Weiliang, Mr.Gao Guoyuan, Mr.Ge Songping, Mr.Chen Zhaolin, Mr.Zhang Xiaoyu, Mr.Ouyang Minggao, Mr.Chen Qilong were elected as members of the 4th board of directors,and Mr.Chen Xuejun, Mr.Li Guodong, Mr.Zhang Jiming, Mr.Wang Chuan, Mr.Wang Xiaodong, Mr.Deng Xijiang, Mr.You Jianzhong were elected as members of the 4th board of supervisors. 15 REPORT OF THE BOARD OF DIRECTORS 1. Operational Review The year under review witnessed the Company achieving the fastest economic growth in the history. At fiscal year-end sales income from main business operation increased by 47.32 % to RMB 1,511,167,000 over the equivalent period of the previous year, and profit rose 23.85 % to RMB 197,646,000. The Directors and executives attributes these accomplishments in 2002 to the followings: 1. The development of national auto industry in recent years has brought along the rapid progress of fuel injection system for internal combustion engine; 2. The State newly implemented emission control regulations for vehicles has greatly promoted the renewal for traditional auto engines; 3. The Company has given top priority to the establishment of a flexible and efficient marketing mechanism in order to reinforce the promotion of sales and the collection of receivables with the production growth. The ratio of payment collection reached 100% in the year under review; 4. The Company has substantially improved funds utilizing efficiency through controlling and reducing raw materials, in-process goods and finished goods in an idle or unproductive state through optimizing the Company’s logistic and managerial information system. As always, we want to commend our employees for making 2002 such a successful year. Their hard work and dedication underlie the achievements that we have profiled here. 2. Sales Composition Category Sales Domestic market Position in domestic (RMB’000) share (%) marketplace A pump 253,419 50.87 1 PW pump 391,568 37.32 1 I, IW pump 105,627 48.39 1 VE pump 115,506 - 1 Single plunger pump 20,354 31.39 2 Injector 166,015 30.02 1 Precision pump parts 137,106 30.58 1 Source: Statistics Association of China’s Machinery Industry, Fuel Injection Sub-branch (2002) 16 The profit from main business operation increased by 65.82 % over the previous year, which is primarily attributable to the substantial increase in the sales volume of PW pump. In 2001, sales volume of PW pump was 50,618 units. It increased by 197% to 150,335 units in 2002 with the completion of the technical upgrading project. 3.Major Subsidiaries (in RMB’000) Name Nanjing Weifu Wuxi Euro-Asia Diesel Zhonglian Automobile Jinning Co.,Ltd. Fuel Injection Co. Electronics Co. The Company’s 80 48 20 Interests (%) Registered Capital 256,000 253,561 600,620 Total Assets 346,456 391,381 1,044,577 Net Profits in 2002 34,703 116,087 263,806 Business Scope VE pump P series injectors and Automobile Electronic (Main Products) nozzles Control System Majority shareheld A joint venture among A limited company by the Company the Company, Robert jointly sponsored by Nature of Bosch and Japan Bosch Shanghai General Ownership Automobile System Co. Motor, the Company and some domestic companies 4.Main Suppliers and Clients The amount of procurement from top 5 suppliers accounts for 29.87 % of the total occurred in the year. The amount of sales to top 5 customers accounts for 53.82 % of the total sales volume of the Company throughout the year. 5.Investments For the year ended 31st December, 2002, the Company’s investments (mainly for technical upgrading) amounted to RMB 25,937,000, primarily consisting of the project PW2000, etc. 1.Usage of the Proceeds Raised In 2000, the Company offered a right issue for subscription. Net proceeds from the right issue amounted to RMB 405,060,000, which is mainly used for building up an annual production capacity of 2,000,000 sets of auto exhaust catalytic converter. 17 Throughout the year, RMB 12,588,000 has been invested. By the end of the period, accumulated investment in this project has reached RMB 227,430,000 and investment in fixed assets has been completed, and the remaining funds will be partially used as supplement for working capital. Considering this, the 2nd provisional shareholders’ meeting of the Company dated on 18th July, 2002 has resolved to change the usage of the remaining funds of RMB 177,630,000 to form a production capacity of 100,000 units of PW2000 pumps.By the end of this reporting year, RMB14,712,000 has been invested. This production capacity is expected to be formed at the year-end of 2003 upon the completion of total investment. Resolution by the 2nd provisional shareholders’ meeting has been announced on “China Securities”, “Shenzhen Securities Times” and “Hongkong Ta Kung Pao” on 19th July,2002. 2.Other Investment 1).Subject to approval by the 11th meeting of the 3rd board of directors of the Company, the Company proposed to make an additional investment of US$ 3,936,000 for the expansion of the current capacity of Wuxi Euro-Asia Diesel Injection Co. based on the previous 48% equity interests held by the Company. In fiscal 2001and 2002, the Company has completed additional investments of US$ 1,574,400 and US$ 2,361,600 respectively. Also, the Company made a contribution of RMB 24,000,000, a 80% of the total registered capital, to Jiangsu Nano-material Technologies Development Center, which is jointly sponsored by the Company, Nanjing University, Southeast University, Nanjing Industrial University and Jiangsu New Technology Development Center. Above resolution by the board of directors was announced on “China Securities”, “Shenzhen Securities Times” and “Hongkong Ta Kung Pao” on Nov.29th, 2001 respectively. 2).To speed up the establishment of the supplementary parts base for fuel injection systems, subject to approval by the 12th meeting of the 3rd board of directors, the Company proposed to make a contribution of RMB 2,000,000 to jointly establish the Wuxi Weifu Precision Manufacturing Co. along with natural persons with a registered capital of RMB 6,900,000, among which the Company held a 28.99% equity interests. Above resolution was announced on “China Securities”, “Shenzhen Securities Times” and “Hongkong Ta Kung Pao” on April 23th, 2002 respectively. 6.Financial Survey(in RMB’000) Items 2002 2001 Increment over Reason for change 2001(+%) Total assets 2,508,934 2,178,645 15.16 Increase in fixed assets 18 Shareholders’ 1,894,260 1,781,310 6.34 Increase in net profit equity Main business 377,831 248,696 51.92 Increase in sales income profit from main business Profit, net 197,646 159,590 23.85 Increase in sales income from main business Increment on cash -183,383 -148,160 -23.77 Increase in investment in and cash technical upgrading equivalents,net 7.Meetings of the Board of Directors Resolutions by BoD Meetings 1.The 12th meeting of the 3rd board of directors of the Company was held on 19th April, 2002. The meeting considered and passed the following resolutions: 1). Annual Report of the Company for 2001; 2). Proposals for final accounts and annual dividends distribution for 2001(cash dividend of RMB 2 for every 10 shares, including taxation), distribution policy for 2002; 3).The re-appointment of Jiangsu Certified Public Accountant Co. and Pricewaterhouse Coopers Zhong Tian CPAs Co. as the Company’s auditors for the year 2002; 4).The amendment of the Articles of Association of the Company; 5).The annual subsidies for independent directors (RMB 30,000 each annually) and the reimbursement of the travel costs actually occurred when they attend the meeting of board of directors, shareholders’ general meeting and relevant activities; 6).The nomination of candidates for directors and spervisors, the re-election of new round of board of directors and board of supervisors in shareholders’ general meeting for 2001; 7).The working report for the first quarter of 2002; 8).The establishment of Wuxi Weifu Precision Machining Co.with an investment of RMB 2,000,000; and 9).The convening of the annual shareholders’ general meeting for 2001. 19 Above resolution was announced on “China Securities”, “Shenzhen Securities Times” and “Hongkong Ta Kung Pao” on 23th April, 2002 respectively. 2.The 1st meeting of the 4th board of directors of the Company was held on 4th June, 2002. The meeting considered and passed the following resolutions: 1).The appointment of Mr.Xu Liangfei as the chairman of 4th board of directors of the Company, Mr. Han Jiangming as the vice chairman of the board; 2).The appointment of Mr. Xu Liangfei, Mr.Han Jiangming, Mr.Zhang Xiaoyu, Mr.Ouyang Minggao, Mr.Chen Zhaolin, Mr.Wang Weiliang and Mr.Ge Songping as members of the strategic decision-making committee of the Board, in which Mr.Xu Liangfei as the chief commissioner; the appointment of Mr. Chen Qilong, Mr.Zhang Xiaoyu, Mr. Ouyang Minggao, Mr.Ge Songping and Mr.Gao Guoyuan as members of the auditing committee of the Board, in which Mr.Chen Qilong as the chief commissioner; the appointment of Mr. Zhang Xiaoyu, Mr.Xu Liangfei, Mr.Zu Jilin, Mr.Ouyang Minggao and Mr.Chen Qilong as members of the nomination committee of the Board, in which Mr.Zhang Xiaoyu as the chief commissioner; the appointment of Mr.Ouyang Minggao, Mr.Zhang Xiaoyu, Mr.Chen Qilong, Mr.Li Tonghua and Mr.Chen Zhaolin as members of the remuneration and results assessment committee of the Board, in which Mr.Ouyang Minggao as the chief commissioner; 3). The appointment of Mr. Han Jiangming as the General Manger of the Company through nomination by the Chairman of the Board; 4).The appointment of Mr. Liu Yonglin as Secretary of Board of Directors, Mr. Zhou Weixing as the authorized representative through nomination by the Chairman of the Board; 5). The appointment of Mr. Gao Guoyuan, Mr.. Shi Xingyuan and Mr.Ge Songping as Deputy General Manager of the Company, Ms. Su Qingxian as Chief Accountant and Principal Treasurer through nomination by the General Manager; 6). The implementary regulations and working procedures for expert committees involving policy decision, auditing, nomination, remuneration and results assessment; 7). Internal control system for information disclosure; 8).The change in the usage of raised fund; and 9).The convening of the provisional shareholders’ meeting on 10th July,2002 to 20 examine the proposal for change in the usage of raised fund. Above resolutions were announced on “China Securities”, “Shenzhen Securities Times” and “Hongkong Ta Kung Pao” on April 23, 2002 respectively. 3. The 2nd meeting of the 4th Board of Directors of the Company was held on 18th July, 2002 . The meeting considered and resolved the following: 1).The interim report of the Company and its summary for 2002; 2).Proposal for dividends distribution in the middle-term of 2002 Above resolutions were announced on “China Securities”, “Shenzhen Securities Times” and “Hongkong Ta Kung Pao” on July 23, 2002 respectively. 4. The 3rd meeting of the 4th Board of Directors of the Company was held on 28th August, 2002, which resolved to cancel the application for issuance convertible bonds of the Company to the State Securities Regulatory Commission, and this resolution was announced on “China Securities”, “Shenzhen Securities Times” and “Hongkong Ta Kung Pao” on August 29, 2002 respectively. 5. The 4th meeting of the 4th Board of Directors of the Company was held on 21th Sept., 2002. The meeting authorized the Company’s senior management to negotiate with Robert Bosch on the comprehensive cooperation in the field of fuel injection, and to draw up feasibility study and related proposal for cooperation. 6. The 5th meeting of the 4th Board of Directors of the Company was held on 22nd Oct., 2002. The meeting considered and resolved the followings: 1).The report for the 3rd quarter of 2002 ; 2).The termination of agreements on related transactions between the Company and Weifu Group Co.,Ltd. Above resolutions were announced on “China Securities”, “Shenzhen Securities Times” and “Hongkong Ta Kung Pao” on October 24, 2002 respectively. The Implementation of Resolutions of Shareholders’ Meeting 1.The proposal for dividends distribution approved by the 2001 shareholders’ meeting has been implemented fully by 25th July, 2002. 2.The proposal for issuance convertible bonds of the Company approved by the shareholders’ meeting was resolved to be terminated by the 3rd meeting of the 4th 21 Board of Directors. 8.Dividends Distribution for Fiscal 2002 As audited by Jiangsu Gongzhen Certified Public Accountant, the Company’s annual net profit amounted to RMB 204,035,000 for the fiscal year 2002. Together with the unappropriated profit of RMB 228,283,000 carried from the year 2001, the profit available to be distributed amounted to RMB 432,318,000. As reported in the statutory accounts based on the PRC accounting regulations, dividend available to be distributed was RMB 401,207,000 upon the allocation of 10% of the Company’s annual net profit to the statutory surplus reserve (RMB 20,741,000) and 5% to the statutory public welfare (RMB 10,370,000) in accordance with the Articles of Association of the Company. The Board of Directors resolved that a cash dividends for the year 2002 will be distributed by the way of RMB 2 for every 10 shares (including taxation) based on the total amount of the Company’s share capital of 436,366,150 shares at the end of 2002. The retained statutory unappropriated profit will be carried forward to the next year. 22 REPORT OF THE BOARD OF SUPERVISORS 1.Meetings of the Board of Supervisors 1.The 9th meeting of the 3rd Board of Supervisors of the Company was held on April 19, 2002. This meeting examined and approved the followings: 1).Working Report of the board of supervisors of the year 2001; 2).The nomination of Mr. Li Guodong, Mr.Zhang Jiming, Mr.Wang Chuan and Mr.Wang Xiaodong as the candidates for 4th Board of Supervisors of the Company, considering the expiry of the term of the 3rd Board of Supervisors, which will be submitted to the annual general meeting of 2001 for voting. 3).Annual report of the Company by the Board of Directors. All supervisors of the Company were presented at the 12th meeting of the 3rd Board of Directors. Above resolutions were announced respectively on “China Securities”, “Shenzhen Securities Times” and “Hongkong Ta Kung Pao” on April 23, 2002 2.The 1st meeting of the 4th Board of Supervisors of the Company was held on 4th June, 2002. Mr. Chen Xuejun was elected as chairman of the 4th Board of Supervisors at the meeting, which was announced on “China Securities”, “Shenzhen Securities Times” and “Hongkong Ta Kung Pao” on June 5, 2002 respectively. 3.The 2nd meeting of the 4th Board of Supervisors of the Company was held on July 18, 2002. This meeting examined and approved the interim working report of the Company and proposal for dividends distribution in the mid-term of 2002, which was announced on “China Securities”, “Shenzhen Securities Times” and “Hongkong Ta Kung Pao” on July 23, 2002 respectively. 4. The 3rd meeting of the 4th Board of Supervisors of the Company was held on October 22, 2002. This meeting examined and approved the Company’s report for the 3rd quarter of 2002 and proposal for the termination of the related transactions agreement between the Company and Wuxi Weifu Group Co., Ltd. 2.Independent Opinion by the Supervisors The Supervisors of the Company attended all meetings of the board of directors as 23 non-voting delegates during this year and are of the view that: 1. All significant decisions were made in strict accordance with the stipulations of working regulations and procedures for the board of directors of the Company. Subject to the approval by the resolutions of the board of directors, all decisions were well implemented. The internal control system of the Company is working properly and efficiently. The directors and executives of the Company have conscientiously performed their duties in accordance with the relevant laws, regulations and the provisions of these Articles of Association of the Company. No such action was found on the part of in performing their duties as to constitute a violation of laws, regulations, Articles of Association of the Company or a detriment to the interests of the Company and its shareholders; 2. The Company’s reports for the first quarter, middle-term and third quarter of the year as well as the auditors’ opinions presented by Jiangsu Gongzhen Certified Public Accountant and Prisewaterhouse Coopers China Limited respectively are authentic and reliable, which fairly reflected the Company’s financial situation and operational results; 3. Net proceeds raised from right issue in 2000 have been applied to the project as committed. By the end of the period, investment in fixed assets for the project has been completed, and the remaining funds will be partially used as supplement for working capital. In order to improve funds using efficiency and to be more responsible for all shareholders of the Company, the Directors resolved to change the usage of the remaining funds of RMB 177,630,000 as investment to the project for the high-pressure fuel injection PW Pump with an annual production capacity of 100,000 units. Subject to the approval by the 2nd provisional Shareholders’ Meeting of the Company on 18th July, 2002, we believe this resolution is in effect lawfully. 4. All related transactions occurred throughout this year were conducted fairly in line with the principle of market transaction, and the number of the related transactions has been reduced substantially. In particular, the termination of the related transactions agreement between the Company and Wuxi Weifu Group Co.,Ltd. approved by the 5th meeting of the 4th Board of directors highly embodies the interests of minority shareholders. 24 SIGNIFICANT EVENTS 1. Major Litigation and Arbitration: There was no significant litigation or arbitration involving the Company during this reporting year. 2. Assets Transactions: The Company was not engaged in any acquisition, reorganization or disposal during this reporting year. 3. Significant Related Transactions: Transactions between the Company and Wuxi Weifu Group Co.,Ltd, the majority shareholder of the Company, during this reporting period are as follows(RMB’000): Items 2002 2001 Procurement of goods 83,305 72,467 Sales of goods 182,801 216,684 Procurement of fixed assets 89,162 8,897 Sales of fixed assets 234 175 Processing expenses 4,181 22,204 Procurement discount income 151 1,446 Land and trademark fees 3,194 2,914 Income from funds occupied 227 749 Transfer of equity interests in Weifu 4,309 - Lida All related transactions above were conducted according to the related contracts strictly and remained unchanged in terms of the pricing, procedures and settlement with a gradually reduced trade volume. 4. Significant Contracts: 1). No assets custody, engagement or leasing occurred between the Company and other companies during this period. 2).The Company was not engaged in any financial guarantee and assets entrustment during this reporting period. 5. Independent Auditors: Jiangsu Gongzhen Certified Public Accountants Co.and PricewaterhouseCoopers Zhong Tian CPAs Co.,Ltd. remained appointed as the independent auditors of the Company for the year 2002. CPA Annual Remuneration Service Year Jiangsu Gongzhen Certified RMB 450,000 9 Public Accountants Co. PricewaterhouseCoopers RMB 770,000 8 Zhong Tian CPAs Co. 25 FINANCIAL STATEMENTS (as of 31st December, 2002) 1. AUDITORS’ REPORT We have audited the accompanying consolidated balance sheet of Weifu High-Technology Company Limited (hereinafter referred to as “the Company”), and its subsidiaries (hereinafter together with the Company referred to as “the Group”) as of 31 December 2002 and the related consolidated statements of income, and cash flows for the year then ended. These consolidated financial statements set out on pages 2 to 40 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 consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of 31 December 2002, and the consolidated results of its operations and its cash flows for the year then ended, in accordance with International Financial Reporting Standards. PricewaterhouseCoopers Zhong Tian CPAs Co., Ltd. 26 WEIFU HIGH-TECHNOLOGY COMPANY LIMITED AND ITS SUBSIDIARIES CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in Renminbi (“RMB”) thousands, except for earnings per share) Notes 2002 2001 Sales, net 4,27 1,499,973 1,019,062 Cost of sales (1,131,609) (771,139) Gross profit 368,364 247,923 Other operating income 4 246 9,000 Distribution costs (91,929) (59,654) Administrative expenses (148,844) (76,820) Other operating expenses (16,055) (5,300) Profit from operations 6 111,782 115,149 Finance cost, net 5 (3,889) 2,768 Share of results of associates before tax 116,573 58,704 Income from unconsolidated subsidiaries 14 4,363 3,301 Impairment loss of investment 15 (12,133) (2,033) Profit before tax and minority interests 216,696 177,889 Income tax expense 7(b) (15,849) (14,829) Profit before minority interests 200,847 163,060 Minority interests 24 (3,201) (3,470) Net profit 197,646 159,590 Earnings per share 8 - Basic RMB 0.45 RMB 0.37 - Diluted Not applicable Not applicable 27 WEIFU HIGH-TECHNOLOGY COMPANY LIMITED AND ITS SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF 31 DECEMBER 2002 (All amounts in RMB thousands) Notes 2002 2001 ASSETS Non-current assets Leasehold land 10 27,792 28,836 Property, plant and equipment 11 903,501 741,121 Intangible assets 12 23,373 26,623 Investments in associates 13 384,787 273,872 Investments in unconsolidated subsidiaries 14 37,826 26,157 Available-for-sale investments 15 43,520 46,878 Total non-current assets 1,420,799 1,143,487 Current assets Inventories, net 16 321,150 190,913 Due from related parties 27(e) 55,865 - Prepayments 8,168 - Trade and other receivables, net 17 326,787 284,697 Trading investments 28,000 - Cash and bank deposits 25(b) 348,165 559,548 Total current assets 1,088,135 1,035,158 Total Assets 2,508,934 2,178,645 EQUITY AND LIABILITIES Shareholders’ equity Ordinary shares 22 436,366 436,366 Reserves 23 1,457,894 1,344,944 Total shareholders’ equity 1,894,260 1,781,310 Minority interests 24 58,519 45,102 Non-current liabilities Long-term bank borrowings 20(b) - 1,500 Long-term payables 21 12,660 - 28 Total non-current liabilities 12,660 1,500 Current liabilities Trade and other payables 18 357,214 166,842 Current-tax liabilities (3,860) 1,418 Due to related parties 27(e) 16,688 17,169 Dividend payable 208 208 Short-term bank borrowings 20(a) 157,500 158,500 Accruals and other current liabilities 19 15,745 6,596 Total current liabilities 543,495 350,733 Total liabilities 556,155 352,233 Total Equity and Liabilities 2,508,934 2,178,645 29 WEIFU HIGH-TECHNOLOGY COMPANY LIMITED AND ITS SUBSIDIAIRIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands) Notes 2002 2001 CASH FLOWS FROM OPERATING ACTIVITIES: Cash generated from operations 25(a) 141,983 163,016 Interest paid (11,115) (7,317) Income tax paid (12,078) (15,326) Net cash from operating activities 118,790 140,373 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of a subsidiary, net of cash and bank balance acquired 26 (2,975) - Purchase of property, plant and equipment (225,948) (320,286) Proceeds from disposals of property, plant and equipment 25(c) 214 1,839 Increase in investments in associates 13 (21,577) (13,050) Increase in available-for-sale investments 15 (13,855) (1,100) Increase in unconsolidated subsidiaries 14 (7,306) - Proceeds from disposal of available-for-sale investments 5,080 - Interest received 17,201 6,929 Dividends from associates 27,106 33,200 Net cash used in investing activities (222,060) (292,468) CASH FLOWS FROM FINANCING ACTIVITIES: Net (decrease) increase in short-term bank borrowings (10,000) 107,000 Repayments of long-term bank borrowings (1,500) (16,000) Dividends paid (87,273) (87,065) Cash injection from minority shareholders 6,000 - Cash received from government grants 12,660 - Net cash from financing activities (80,113) 3,935 Net decrease in cash and cash equivalents (183,383) (148,160) Cash and cash equivalents at beginning of year 559,548 707,708 Cash and cash equivalents at end of year 25(b) 376,165 559,548 30 WEIFU HIGH-TECHNOLOGY COMPANY LIMITED AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands) Reserves Statutory Statutory Discretion- Share Capital surplus public ary surplus Retained Total capital surplus reserve fund welfare fund reserve fund earnings reserves Total equity (Note 22) (Note 23(a)) (Note 23(b)) (Note 23(c)) (Note 23(d)) Balance as at 1 January 2001 436,366 908,919 58,200 29,175 1,785 274,548 1,272,627 1,708,993 Dividends declared after 1 January 2001 from retained earnings as of 31 December 2000 (Note 9) - - - - - (87,273) (87,273) (87,273) Net profit for 2001 - - - - - 159,590 159,590 159,590 Appropriations: - statutory surplus reserve fund - - 15,072 - - (15,072) - - - statutory public welfare fund - - - 7,536 - (7,536) - - Balance as at 31 December 2001 436,366 908,919 73,272 36,711 1,785 324,257 1,344,944 1,781,310 Dividends declared after 1 January 2002 from retained earnings as of 31 December 2001 (Note 9) - - - - - (87,273) (87,273) (87,273) Donation received - 146 - - - - 146 146 Increase in subsidiary’s Capital surplus - debts waived - 2,431 - - - - 2,431 2,431 31 Net profit for 2002 - - - - - 197,646 197,646 197,646 Appropriations: - statutory surplus reserve fund - - 20,741 - - (20,741) - - - statutory public welfare fund - - - 10,370 - (10,370) - - Balance as at 31 December 2002 436,366 911,496 94,013 47,081 1,785 403,519 1,457,894 1,894,260 The accompanying accounting policies and notes form an integral part of these consolidated financial statements 2. NOTES TO THE FINANCIAL STATEMENTS 1 GENERAL INFORMATION Weifu High-technology Company Limited (the “Company”) was incorporated in the People’s Republic of China (the “PRC”) on 22 October 1992 as a joint stock limited company. The Company is principally engaged in the manufacture and sale of fuel injection pumps for use in diesel engines and injectors and components for fuel injection pumps. The registered office of the Company is No.46, Wuxi State Hi-tech Industrial Development Zone, Jiangsu Province, and the Company has approximately 3,783 and 2,437 employees as of 31 December 2002 and 2001 respectively. The Company’s domestic listed foreign investment shares (“B share”) and domestic Renminbi ordinary shares (“A share”) are listed on the Shenzhen Stock Exchange. The Company together with its consolidated subsidiaries are hereinafter collectively referred to as “the Group”. 2. ACCOUNTING POLICIES The principal accounting policies adopted in preparation of these financial statements of the Group are set out below: (a) Basis of presentation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”, which includes International Accounting Standards and Interpretations) as published by the International Accounting Standards Board. These consolidated financial statements have been prepared under the historical cost conversion with the exception of fair value measurement of certain financial instruments. 32 This basis of accounting differs from that used in the Group’s statutory accounts (“Statutory Accounts”) which are prepared in accordance with PRC Accounting Standards for Business Enterprises and the Accounting System for Business Enterprises. The adjustments made to conform the Statutory Accounts of the Group to IFRS are shown in Supplementary Information. The Group adopted IAS 39 Financial Instruments: Recognition and Measurement in 2001. The financial effects of adopting this standard were reported in 2001’s consolidated financial statements. The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect certain 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 could differ from those estimates. (b) Group accounting (1) Subsidiaries Subsidiaries, which are those entities in which the Group has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies, are consolidated. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. 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 or liabilities undertaken at the date of acquisition plus cost directly attributable to the acquisition. The excess of the cost of acquisition over the fair value of net assets of the subsidiary acquired is recorded as goodwill. See Note 2(g) 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 Company. The results of operations and net assets of certain subsidiary companies are not material to those of the Group; hence, they have been excluded from consolidation. Investments in subsidiaries that are excluded from consolidated financial statements are accounted for by the equity method. 33 As of 31 December 2002, the consolidated financial statements include the financial statements of the Company and its subsidiaries as follows: Name of consolidated Place of Registered capital Percentage of equity subsidiary company registration Principal activities (RMB’000) interest 2002 2001 Directly Indirectly Nanjing Weifu Nanjing, Manufacture and sale of Jingning Company PRC diesel engines, machinery, 256,000 256,000 80% - Limited (“Nanjing electronic products and Weifu”) automotive components. Wuxi Weifu Leader Wuxi, PRC Manufacture and sale of Catalytic Converter catalytic converter, catalyser 30,000 - 55% - Company Limited and automotive components (“Weifu Leader”) Jiangsu Weifu Wuxi, PRC Manufacture and sale of Nanometre nanometre material and 30,000 - 80% - Technology Company products Limited (“Weifu Nanometre”) Wuxi Weifu Mashan Wuxi, PRC Manufacture and sale of fuel Fuel Injection injection equipment 12,237 12,237 72.78% - Equipment Factory Wuxi Weifu Chang’an Wuxi, PRC Manufacture and sale of Fuel Injection Co., injection equipment for diesel 21,490 21,490 85% - Ltd. Wuxi Weifu Jida New Wuxi, PRC Manufacture and development Material of metallic and metallic 5,000 5,000 70% - Development Co., materials Ltd. (2) Associates Investments in associates are accounted for by the equity method of accounting. 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. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not to recognise further losses, unless the Group has incurred obligations or made payments on behalf of the associates. (c) Foreign currency translation Items included in the consolidated financial statements of the Group are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to the Group. The consolidated financial statements are presented in RMB, which is the measurement currency of the Group. Transactions in other currencies are translated into Rmb at the exchange rates prevailing at the dates of transactions. Monetary assets and liabilities denominated in other currencies at the consolidated balance sheet date 34 are re-translated at the exchange rates prevailing at that date. Non-monetary assets and liabilities in other currencies are translated at historical rates. Exchange differences arising from changes in exchange rates subsequent to the transaction dates are included in consolidated income statement. (d) Leasehold land Leasehold land represents land use fees paid for long leasehold land and is classified as operating leases. The prepaid lease payments are amortized over the lease periods (thirty to fifty years) on a straight-line basis. (e) Property, plant and equipment and depreciation Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment loss. The initial cost of an asset comprises its purchase price, construction cost and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Depreciation is calculated using the straight-line method to write off the cost, after taken into account the estimated residual value at 3% of cost, of each asset over its expected useful life. The expected useful lives are as follows: Buildings 35 years Machinery and equipment 10-16 years The useful lives of assets and depreciation method are reviewed periodically to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefit from items of property, plant and equipment. Expenditures incurred after the property, plant and equipment have become ready for its intended use, such as repairs and maintenance and overhaul costs, are recognised as expense in the period in which they are incurred. In situations where it is probable that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of the asset beyond its originally assessed standard of performance, the expenditures are capitalised as an additional cost of the asset. When assets are sold or retired, their costs and accumulated depreciation and accumulated impairment losses are eliminated from the accounts and any gain or loss resulting from their disposal is included in the consolidated income statement. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. (f) Construction-in-progress 35 Construction-in-progress represents properties and plant under construction and machinery and equipment under installation and testing, and is stated at cost. This includes cost of construction, site restoration cost, plant and equipment and other direct costs plus borrowing costs which mainly include interest charges arising from borrowings used to finance these projects during the construction period. Construction-in-progress is not depreciated until such time as the assets are completed and ready for their intended use. (g) Intangible assets Intangible assets are measured initially at cost. Intangible assets are recognized if it is probable that the future economic benefits that are attributable to the assets will flow to the Group; and the cost of the asset can be measured reliably. After initial recognition, intangible assets are measured at cost less accumulated amortization and any accumulated impairment losses. Intangible assets are amortized on a straight-line basis over the best estimate of their useful lives. The amortization period and the amortization method are reviewed periodically to ensure that the method and period of amortization are consistent with the expected pattern of economic benefits from intangible assets. (1) Trademarks Amounts paid for trademarks are capitalised and then amortised on a straight-line basis over the expected useful lives. The expected useful life is 30 years. Trademarks are reviewed for impairment at each balance sheet date. The trademark is registered with an unlimited usage period. The management considers the useful life of the trademark will not be less than 30 years, which is the operating period of Nanjing Weifu. (2) Research and development costs Expenditure for research is recognised as an expense when incurred. Expenditure on development is charged against income in the period incurred except for project development costs, which comply strictly with all of the following criteria: • the product or process is clearly defined and costs are separately identified and measured reliably; • the technical feasibility of the product is demonstrated; • the product or process will be sold or used in-house; 36 • the assets will generate future economic benefits (e.g. a potential market exists for the product or its usefulness in the case of internal use is demonstrated); and • adequate technical, financial and other resources required for completion of the project are available. Capitalization of costs starts when the above criteria are first met. Expenditure recognised as an expense in previous accounting periods is not reinstated. The recoverable amount of development costs is estimated whenever there is an indication that the asset has been impaired or that the impairment losses recognised in previous years no longer exist. In the year ended 31 December 2002, there is no capitalized expenditure on development. (3) 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 at the date of acquisition, and is included in intangible assets. Goodwill is amortized using the straight-line method over its estimated useful life of one to five years. Management determines the estimated useful life of goodwill based on its evaluation of the respective companies at the time of 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. (h) Impairment of long lived assets Property, plant and equipment and other non-current assets, including investments in associates 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 levels for which there are separately identifiable cash flows. 37 (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 consolidated 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 express 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. 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. For the available-for-sale investments that have a quoted market price in an active market, the fair value is based on quoted bid prices; for available-for-sale investments that does not have a quoted market price, but the fair value can be reliably determined, the fair value is constructed on the basis of the market price of the similar financial instrument or derived from cash flow models; for available-for-sale investments that the fair value can not be reliably determined, are carried at cost less accumulated impairment loss. 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 and available-for-sale investments are included in the consolidated income statement in the period in which they arise. (j) Operating leases 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 consolidated income statement on a straight-line basis over the period of the lease. (k) Inventories 38 Inventories are stated at the lower of cost and net realisable value. Cost, calculated on the weighted average basis, comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. (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 For the purposes of the cash flow statement, cash represents cash on hand and deposits with banks, which can be withdrawn on demand. Cash equivalents represent short-term, highly liquid investments, which are readily convertible into known amounts of cash with original maturity period of three months or less and are subject to an insignificant risk of change in value. (n) Borrowings and borrowing costs Borrowings are initially recognized at the proceeds received, net of transaction costs incurred. They are subsequently stated at amortised costs using the effective yield method; any difference between net proceeds and redemption value is recognized in the consolidated income statement over the period of the borrowings. Borrowing costs include interest charges and other costs incurred in connection with arranging borrowings and exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs. Borrowing costs are expensed as incurred, except when they are directly attributable to the acquisition, construction or production of the property, plant and equipment that necessarily take a substantial period of time to get ready for its intended use in which case they are capitalized as part of the cost of that asset. Capitalization of borrowing costs commences when expenditures for the asset and borrowing costs are being incurred and the activities to prepare the asset for its intended use are in progress. Borrowing costs are capitalized at the weighted average cost of the related borrowings until the asset is ready for its intended use. 39 If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recorded. (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. (P) Pension scheme Pursuant to the PRC laws and regulations, contributions to the basic old age insurance for the Group’s local staff are made monthly to a government agency based on certain percentage of the standard salary set by the provincial government. The government agency is responsible for the pension liabilities relating to such staff on their retirement. The Group accounts for these defined contributions on an accrual basis. The Group has no obligation for the payment of pension benefits beyond the contribution described above. (q) Government grants relating to purchase of property, plant and equipment Grants from the government are recognised in the consolidated balance sheet at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants relating to future costs are deferred and recognised in the income statement over the period necessary to match them with the costs they are intended to compensate. (r) Provisions A provision is recognized when, and only when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable (i.e. more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditures expected to be required to settle the obligation. When a provision is no longer probable that an outflow of resources embodying economic benefit will be required to settle the obligation, the provision will be reversed. 40 ( s) Revenue recognition Revenue comprises the invoiced value for the sales of goods net off rebates and discounts, and after eliminating sales within the Group. Provided it is probable that the economic benefits associated with a transaction will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognized on the following basis: (1) Sales of goods and raw materials Revenue is recognized when the significant risks and rewards of ownership of goods and materials have been transferred to the buyer. (2) Interest income Interest income is recognized on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity. (3) Dividend income Dividend income is recognized when the right to receive payment is established. (t) Dividends Dividends are recorded in the Group’s consolidated financial statements as liability in the period in which they are approved by the Group’s shareholders. (u) Segments 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. The Group conduct the business within one business segment and the Group also operates within one geographical segment because its revenue is primarily generated in the PRC and its assets are located in the PRC. ( v) Subsequent events Post year-end events that provide additional information about the Group’s position at the balance sheet date or those that indicate the going concern assumption is not appropriate (adjusting events), are reflected in the consolidated financial statements. Post year-end events that are not adjusting events are disclosed in the 41 notes when material. (w) Contingencies Contingent liabilities are not recognized in the consolidated financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognized in the consolidated financial statements but disclosed when an inflow of economic benefits is probable. (x) Comparatives Where necessary, comparative figures have been adjusted to conform to changes in presentation in the current year. 3. FINANCIAL RISK MANAGEMENT (a) Financial risk factors and financial risk management The Group activities expose it to a variety of financial risks, including credit risk, liquidity risk, interest rate risk and foreign exchange risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. (1) Credit risks The Group has no significant concentration of credit risk with any single counter party or group counter parties. The Group has policies in place to ensure that sales of products are made to customers with an appropriate credit history. The Group has policies that deposits are put in reputable banks. (2) Liquidity risks 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. (3) 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 long-term interest-bearing assets. 42 The Group policy is to maintain all its borrowings in fixed rate instruments. The interest rates of borrowings are disclosed in Note 20. (4) Foreign exchange risk The Group has no significant foreign exchange risk due to limited foreign currency transactions. (b) Estimation of fair value (1) Cash and cash equivalent The carrying amount of cash and cash equivalents approximates their fair value due to these financial instruments either carry a current rate of interest or have a short period of time between the origination of the cash deposits and their expected maturity. (2) Trade and other receivables and payables The carrying amount of trade and other receivables and payables, which are all subject to normal trade credit terms, approximates their fair value. (3) Due from and due to related parties The carrying amount of due from and due to related parties, which are all subject to normal trade credit terms, approximates their fair value. (4) Borrowings As at 31 December 2002 the carrying amount of borrowings approximates their fair value as these borrowings bear quoted market interest rates. (5) Available-for-sale investments The carrying amount of available-for-sale investments cannot be reliably estimated and disclosed because these investments do not have quoted market prices in an active market and other methods reasonably estimating fair value for these investments are not available. 4. Sales Sales comprised: 43 2002 2001 Sales of goods 1,517,462 1,030,375 Less: surtaxes (6,295) (4,617) Less: cash discount on sales (11,194) (6,696) 1,499,973 1,019,062 Other operating income - Dividend income 246 9,000 5. Finance costs 2002 2001 Interest income - Bank deposits 6,999 9,336 - Loans to Weifu Group Company Limited (“WFGC”) (Note 27(c)) 227 749 7,226 10,085 Interest on - Bank loans 11,115 8,568 Less: amount capitalized in construction-in-progress - (1,251) 11,115 7,317 (3,889) 2,768 6. Profit from operation The following items have been included in arriving at profit from operations: 2002 2001 Depreciation on property, plant and equipment (Note 11) 45,992 32,209 Provide for / (Reversal of) impairment of property, plant and equipment (Note 11) 6,537 (3,029) Loss on disposal of property plant and equipment (Note 25(c)) 11,983 1,192 Amortisation of intangible assets - Goodwill (Note 12) 3,961 2,375 - Trademark (Note 12) 876 876 44 Amortisation of leasehold land (Note 10) 1,044 1,044 Research and development expenditures 40,248 15,012 Repairs and maintenance and overhaul costs of property, plant and equipment 16,235 12,146 Inventory - Cost of inventories recognized as expense 797,550 594,469 - Provision for inventory obsolescence 7,799 3,234 Trade receivables - Impairment charge for bad and doubtful debts and write-off of uncollectable receivables 4,655 12,246 Staff costs - Salary and wages 109,552 74,298 - Staff and workers’ bonus and welfare fund 19,892 10,935 - Contribution to statutory pension scheme 23,670 15,457 - Provision for housing fund 6,270 4,519 The Company and its subsidiaries provide for staff welfare and contributions to the statutory pension fund based on a certain percentage of the total salaries. Staff welfare consists of staff welfare fund, medical insurance fund, housing fund and unemployment insurance etc. The relevant percentages are as follows: Percentage Staff welfare fund 14% Medical insurance fund (included in Staff welfare 8% fund) Housing fund 8% Unemployment fund 2% Statutory pension fund 21%-22% 7. Taxation (a) Value-added Tax (“VAT”) The Company ad its subsidiaries are subject to VAT, which is charged on top of the selling price at a general rate of 17%. Input VAT from purchases of raw materials and other production materials can be netted off against output VAT from sales. VAT payable or receivable is the net difference between periodic output and deductible input VAT. (b) Enterprise Income Tax (“EIT”) (1) Income tax expense in the consolidated income statements comprised: 45 2002 2001 Current tax 15,694 14,829 Share of tax of associates 155 - Income tax expense 15,849 14,829 (2) The reconciliation of the applicable tax rate to the effective tax rate is as follows: 2002 2001 Accounting profit before tax and minority interest 216,696 177,889 Tax calculated at the effective tax rate of 15% (2001: 15%) 32,504 26,683 Utilisation of tax losses of subsidiaries’ - (2,601) Tax effect of expenses that are not deductible in determining taxable profit 8,245 1,660 Tax effect of income that are not taxable in determining taxable profit (18,608) (8,466) Income tax exemption (6,292) (2,447) 15,849 14,829 The Company, being a high-technology enterprise registered in Wuxi Hi-tech Industrial Development Zone, is subject to EIT at a reduced rate of 15%. Nanjing Weifu, being a high-technology company registered in Nanjing Hi-tech Development Zone is also subject to EIT at a reduced rate of 15%. (b) Enterprise Income Tax (“EIT”) (Continued) (2) The reconciliation of the applicable tax rate to the effective tax rate is as follows (Continued): Pursuant to the relevant document issued by Jiangsu Tax bureau, Nanjing Weifu is entitled to a tax exemption for the year ended 31 December 2002 arising from purchasing domestically manufactured equipment for its technical innovation with a total amount of RMB 6,292,473. As of 31 December 2002, the impact of unrecognised timing differences is approximately RMB 7,919 thousands (2001: RMB 6,024 thousands). The timing difference mainly arose from the provision for doubtful accounts and obsolete inventories. The management of the Company consider that the period to obtain the approval from related authorities are uncertain, so no such deferred tax assets was 46 recognized and included in the consolidated financial statements. 8. Earnings per share Basic earnings per share is calculated by dividing the net profit by the weighted average number of ordinary shares in issue during the year. 2002 2001 Net profit 197,646 159,590 Weighted average number of ordinary shares in issue 436,366,150 436,366,150 Basic earnings per share 0.45 0.37 The diluted earnings per share was not calculated, because no potential dilutive shares existed during the year. 9. Dividend per share At the meeting of the board of directors dated 15 April 2003, a dividend in respect of 2002 of RMB 0.20 per share amounting to a total dividend of RMB 87,273,230 was proposed (Note 30). These consolidated financial statements do not reflect this dividend payable, which will be accounted for in shareholders’ equity as an appropriation of retained earnings in the year ending 31 December 2003. The dividends declared in respect of 2001 and 2000 were RMB 87,273,230 and RMB 87,273,230, respectively. 10. Leasehold land 2002 2001 Cost Beginning of year 33,038 33,038 Additions - - End of year 33,038 33,038 Accumulated amortisation Beginning of year 4,202 3,158 Charge for the year 1,044 1,044 End of year 5,246 4,202 Net book value End of year 27,792 28,836 Beginning of year 28,836 29,880 47 Leasehold land represents land use fees paid for the right to use the parcels of land where the Group’s factory buildings in Wuxi and Nanjing are located. Since all land in the PRC is owned by the State or is subject to collective ownership, the risks and rewards of the parcel of land remain with the State. As a result, such lease payment is accounted for under operating leases and is charged to the income statement on a straight-line basis over lease terms of thirty to fifty years. 11. Property, plant and equipment 2002 Machinery and Construction-i Buildings equipment n-progress Total Cost Beginning of year 106,649 457,673 378,429 942,751 Additions 28,000 9,122 99,664 136,786 Purchase from WFGC (Note 27(c)) 41,245 84,862 126,107 Acquisition of a subsidiary (Note 26) 5,740 8,338 2,735 16,813 Disposals (6,595) (45,185) - (51,780) Transfer 22,346 132,529 (154,875) - End of year 197,385 647,339 325,953 1,170,677 Accumulated depreciation Beginning of year 29,048 164,510 - 193,558 Charge for the year 3,796 42,196 - 45,992 Purchase from WFGC (Note 27(c)) 10,611 26,334 - 36,945 Acquisition of a subsidiary (Note 26) 550 2,746 - 3,296 Disposals (1,203) (24,923) - (26,126) End of year 42,802 210,863 - 253,665 Impairment loss Beginning of year - 8,072 - 8,072 Additions - 4,130 2,407 6,537 Acquisition of a subsidiary (Note 26) - 794 - 794 48 Disposals - (1,892) - (1,892) End of year - 11,104 2,407 13,511 Net book value End of year 154,583 425,372 323,546 903,501 Beginning of year 77,601 285,091 378,429 741,121 2001 Machinery and Construction-i Buildings equipment n-progress Total Cost Beginning of year 103,680 371,823 155,201 630,704 Additions 11 605 319,670 320,286 Disposals (612) (7,627) - (8,239) Transfer 3,570 92,872 (96,442) - End of year 106,649 457,673 378,429 942,751 Accumulated depreciation Beginning of year 26,295 139,130 - 165,425 Charge for the year 2,845 29,364 - 32,209 Disposals (92) (3,984) - (4,076) End of year 29,048 164,510 - 193,558 Impairment loss Beginning of year - 11,101 - 11,101 Additions - - - - Reversal - (3,029) - (3,029) End of year - 8,072 - 8,072 Net book value End of year 77,601 285,091 378,429 741,121 Beginning of year 77,385 221,592 155,201 454,178 12. Intangible assets 49 2002 Trademarks Goodwill Total Cost Beginning of year 26,356 11,872 38,228 Additions (Note 26) - 1,587 1,587 End of year 26,356 13,459 39,815 Accumulated amortization Beginning of year 2,701 8,904 11,605 Charge for the year 876 3,961 4,837 End of year 3,577 12,865 16,442 Net book value End of year 22,779 594 23,373 Beginning of year 23,655 2,968 26,623 Nanjing Weifu acquired trademarks from WFGC at a consideration of RMB 26,355,900 for a period of 30 years effective from 20 August 1997. 2001 Trademarks Goodwill Total Cost Beginning of year 26,356 11,872 38,228 Additions - - - End of year 26,356 11,872 38,228 Accumulated amortization Beginning of year 1,825 6,529 8,354 Charge for the year 876 2,375 3,251 End of year 2,701 8,904 11,605 Net book value End of year 23,655 2,968 26,623 Beginning of year 24,531 5,343 29,874 50 13. Investments in associates 2002 2001 Beginning of year 273,872 226,318 Addition of investments in associates 21,577 13,050 Share of results after tax 116,418 58,704 Dividend received (27,080) (24,200) End of year 384,787 273,872 As of 31 December 2002, the Group had the following associates: Place of Percentage of equity Name registration Principal activities Carrying amount interest 31 December 31 December Directly Indirectly 2002 2001 Wuxi, PRC Wuxi Europe Asia Diesel Fuel Manufacture and sale of 172,264 96,645 48% - Injection Co., Ltd. (“Wuxi nozzles holders for Europe Asia”) diesel fuel injection Shanghai, Zhonglian Automobile PRC Manufacture and sale of 210,467 177,227 20% - Electronics Co., Ltd. automobile electronic equipment Wuxi Weifu Mechanism Wuxi, PRC Manufacture and sale of Manufacturing Co., Ltd. diesel fuel injection, 2,056 - 28.98% - (“Weifu Mechanism automotive components Manufacturing”) 384,787 273,872 There were no changes in the interests held in the associates in 2001 and 2002. 14. Investments in unconsolidated subsidiaries 2002 2001 Beginning of year 26,157 23,513 Addition of investments in unconsolidated 7,306 - 51 subsidiaries Share of results 4,363 3,301 Disposals - (657) End of year 37,826 26,157 As of 31 December 2002, the Group had the following unconsolidated subsidiaries: Place of Percentage of equity Name registration Principal activities Carrying amount interest 2002 2001 Directly Indirectly Wuxi Weifu Mashan Fuel Wuxi, PRC Manufacture and sale of fuel Injection Equipment injection equipment 10,671 10,566 72.78% - Factory Wuxi Weifu Chang’an Fuel Wuxi, PRC Manufacture and sale of Injection Co., Ltd. injection equipment for 23,815 12,333 85% - diesel Wuxi Weifu Jida New Wuxi, PRC Manufacture and development Material Development Co., of metallic and non-metallic 3,340 3,258 70% - Ltd. materials 37,826 26,157 15. Available-for-sale investments 2002 2001 At beginning of year 48,911 51,311 Additions 13,855 1,100 Disposals (5,080) (3,500) At end of year 57,686 48,911 Less: Impairment losses (14,166) (2,033) 43,520 46,878 Available-for-sale investments were investments in unlisted legal person shares, including approximately RMB 45,750,000(2001: RMB 35,550,000) of investments in financial institutions. 16. Inventories 31 December 31 December 2001 2002 Raw materials 23,054 5,874 52 Work in progress 90,932 92,662 Finished goods 221,061 95,611 335,047 194,147 Less: Provision for obsolescence (13,897) (3,234) 321,150 190,913 17. Trade and other receivables 31 December 31 December 2002 2001 Notes receivable 66,767 17,652 Accounts receivable 285,948 272,769 Other receivables 12,968 28,142 365,683 318,563 Less: Provision for doubtful accounts (38,896) (33,866) 326,787 284,697 18. Trade and other payables 31 December2002 31 December 2001 Notes payables 80,000 - Trade payables 243,592 123,784 Other payables 33,622 43,058 357,214 166,842 19. Accruals and other current liabilities 31 December 2002 31 December 2001 Accrued expenses 3,326 2,098 Welfare payable 3,691 1,603 Advance from customer 5,496 940 Other levies payable 3,232 1,955 15,745 6,596 20. Borrowings (a) Short-term bank borrowings 53 31 December 2002 31 December 2001 Unsecured bank borrowings 16,500 18,500 Secured bank borrowings 141,000 140,000 157,500 158,500 Short-term bank borrowings bear interest at rates ranging from 4.779% to 5.310% (2001: 5.265% to 6.435%) per annum, of which RMB 91,000,000 were guaranteed by a related company – WFGC (2001: RMB 90,000,000), and RMB 50,000,000 by a third party (2001: RMB 50,000,000). (b) Long-term bank borrowings 31 December 2002 31 December 2001 Long-term bank borrowings - 1,500 Less: Amounts due within one year - - - 1,500 Long-term bank borrowings are guaranteed by non-related third party entities and bear interest at 6.03% per annum. 21. Long-term payables Long-term payables represent the fund granted from government relating to future costs and purchase of property, plant and equipment, which is interest free and without specified terms. 22. Ordinary shares As of 31 December 2002 and 2001, the details of share capital (par value of RMB 1 each) were as follows: Number of shares Amount 31 December 31 December 2002 2001 2002 2001 State-owned legal person shares 121,566,150 121,566,150 121,566 121,566 Legal person shares 10,400,000 10,400,000 10,400 10,400 Employee shares 24,000,000 24,000,000 24,000 24,000 A shares 192,000,000 192,000,000 192,000 192,000 B shares 88,400,000 88,400,000 88,400 88,400 436,366,150 436,366,150 436,366 436,366 54 The B Shares rank pari passu in all respects with the A Shares. 23. Reserves (a) Capital surplus 31 December 2002 31 December 2001 Share premium 908,919 908,919 Other capital surplus 2,577 - 911,496 908,919 In accordance with the provisions of the Company’s articles of association, the Company shall record the following as capital surplus: (i) Share premium arising from the issue of shares in excess of par value; (ii) Surpluses arising from revaluation of assets; and (iii) Other items in accordance with the Company’s articles of association and relevant regulations in the PRC. Capital surplus can be utilised to offset prior years’ losses or for the issuance of bonus shares. Share premium mainly represents total proceeds from the issuance of A and B shares and the rights issue in excess of par value, net of expenses relating to the issuance of the shares such as underwriting commissions, fees for professional advisors and promotional expenses. Share premium can be utilized to offset prior years’ losses or to issue bonus shares. The increase of capital surplus in the year ended 31 December 2002 mainly included donation received and debts waived of subsidiaries. (b) Statutory reserves In accordance with the Company Law and the Company’s articles of association, the Company and its subsidiaries shall appropriate 10% of their annual statutory net profit (after offsetting any prior years’ losses) to the statutory surplus reserve fund account. When the balance of such reserve reaches 50% of each entity’s share capital, any further appropriation is optional. The statutory surplus reserve can only be utilised, upon approval by the relevant authority, to offset prior years’ losses or increase capital. However, such statutory surplus reserve must be maintained at a minimum of 25% of share capital after such issuance. 55 (c) Statutory public welfare fund According to the relevant financial regulations of the PRC and the articles of association of the Company, the Company and its subsidiaries are also required to appropriate 5% to 10% of their annual statutory net profit (after offsetting any prior year’s losses) to a statutory public welfare fund to be utilized to build or acquire capital items, such as dormitories and other facilities for the Company and its subsidiaries’ employees, and can not be used to pay for staff welfare expenses. Title to these capital items will remain with the Company and its subsidiaries. (d) Retained earnings According to the articles of association of the Company, the earnings available for distribution are the lower of the amount determined under the PRC accounting standards and the amount determined under IFRS. As of 31 December 2002, the earnings available for distribution were RMB 401,207,000 (2001: RMB 315,556,000) 24. Minority interests 2002 2001 Beginning of year 45,102 41,632 Acquisition of a subsidiary (Note 26) 2,227 - Cash injection from minority shareholders 6,000 - Share of net profit of subsidiaries 3,201 3,470 Increase in subsidiaries’ capital surplus 1,989 - End of year 58,519 45,102 25. Cash generated from operations (a) Reconciliation from net profit to cash generated from operations: 2002 2001 Net profit 197,646 159,590 Adjustments for: Minority interest 3,201 3,470 Income tax 15,849 14,829 Provision for doubtful debts and write-off of uncollectible accounts receivable 4,655 12,246 Provision for inventory obsolescence 7,799 3,234 Loss on disposal of property, plant and equipment 11,983 1,192 Depreciation of property, plant and 45,992 32,209 56 equipment (Reversal of) provision for impairment loss of property, plant and equipment 6,537 (3,029) Amortization of intangible assets 4,837 3,251 Amortization of leasehold land 1,044 1,044 Loss on disposal of available-for-sale investments - 173 Share of results of associates before tax (116,573) (58,704) Income from unconsolidated subsidiaries (4,363) (3,301) Provision for impairment loss of available-for-sale investments 12,133 2,033 Dividend income (246) (9,000) Interest expense 11,115 7,317 Interest income (7,226) (10,085) Changes in working capital (excluding the effects of acquisition of subsidiaries) 194,383 156,469 Increase in inventories (125,957) (42,606) (Increase) decrease in trade and other receivables (36,128) 22,524 (Increase) decrease in prepayments (8,049) 102 Increase due from related parties (51,088) - Increase in trade and other payables 189,632 49,304 Decrease in due to related companies (481) (16,915) Decrease in taxes payable (8,412) (1,065) Decrease in accrual and other current liabilities (11,917) (4,797) Cash generated from operations 141,983 163,016 (b) Analysis of the balances of cash and cash equivalents 31December 31 December 2002 2001 Cash on hand 272 21 Bank deposits 347,893 559,527 348,165 559,548 Trading investments with maturity within three months 28,000 - Cash and cash equivalents 376,165 559,548 (c) Other information Proceeds from sale of property, plant and equipment comprise 57 2002 2001 Net book value 23,762 4,163 Less: Loss on sale of property plant and equipment (11,983) (1,192) Less: Increase in trade and other receivables (10,824) - Less: Increase in due from related parties (211) (1,132) Less: Decrease in trade and other payables (530) - Proceeds from sale of property plant and equipment 214 1,839 26. Acquisition On 1 January 2002, the Company acquired 55% of the equity interest in Weifu Leader from WFGC. The acquired business contributed revenue of RMB 14,775,259 and operating loss of RMB 2,583,233 to the Group for the period from 1 January 2002 to 31 December 2002, and its assets and liabilities as of 31 December 2002 were respectively RMB 71,051,519 and RMB 69,962,837. Details of net assets acquired and goodwill are as follows: Total purchase consideration 4,309 Fair value of net assets acquired (2,722) Goodwill (Note 12) 1,587 The fair value of assets and liabilities arising from the acquisition are as follows: Property, plant and equipment, net (Note 11) 12,723 Inventories, net 12,079 Prepayments 119 Trade and other receivables, net 9,549 Cash and cash equivalents 1,334 Trade and other payables (1,273) Current tax liabilities 483 Short-term bank borrowings (9,000) Accruals and other current liabilities (21,065) Minority interests (Note 24) (2,227) Fair value of net assets acquired 2,722 Goodwill 1,587 Total purchase consideration 4,309 Less: cash and cash equivalents in subsidiary (1,334) 58 acquired Cash outflow on acquisition 2,975 The fair value of the net assets approximated to the book value of the net assets acquired. There were no acquisitions in the year ended 31 December 2001. 27. Related party transactions Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party, or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. (a) Name of related companies and relationship Name Relationship WFGC Shareholder which owns a 27.86% equity share of the Company Wuxi Europe Asia Associated company Zhonglian Automobile Electronics Company Associated company Limited Weifu Mechanism Manufacturing Associated company (b) The Company and WFGC have entered into the following agreements: (1) Six service agreements These agreements include sales agent agreement, repairing service agreement, purchase agent agreement, cargo freight agreement, employee welfare agreement and labour service agreement. These agreements are each for a ten-year term with effect from 1 January 1995 for various services provided by WFGC to support the Company’s business operations. (2) Two utilities supply agreements These agreements are each for a ten-year term with effect from 1 January 1995 for electricity, water, compressed air and steam supplied by WFGC. (3) Trademark licensing agreement The agreement is for a ten-year term with effect from 1 May 1995. The Company shall pay WFGC a license fee of 0.3% of the sales value of the Company’s products 59 bearing the licensed trademark, with an annual minimum fee of RMB 1,200,000. (b) The Company and WFGC have entered into the following agreements (continued): (4) Land use right leasing agreement The agreement is for a term of 50 years with effect from 1 April 1995. The annual rental for the first year is RMB 327,285, which is subject to an annual increment of 10%. At a meeting of board of directors dated 22 October 2002, the board of directors resolved to terminate seven agreements from 1 January 2002 with WFGC in advance and the sales agent agreement; trademark licensing agreement and land use right agreement are maintained. (c) Significant transactions with WFGC for the year ended 31 December 2002 are as follows: Except as disclosed in Note 12, Note 20 and Note 26, significant transactions with WFGC for the year ended 31st December, 2002 are as follows: 2002 2001 Purchases of materials 54,384 74,267 Sales of products 182,800 216,684 Purchases of property, plant and equipment 89,162 - Interest income - From the amounts due from WFGC, net (i) 227 749 - Cash discount on material purchases 151 1,446 Processing expenses 4,292 22,204 Fees for use of land and trademark 3,914 2,914 (i) The amounts due to WFGC as at 31 December 2002 and 2001 represented the unpaid balances arising from the above transactions. The amounts due from WFGC bear interest at 1.98% (2001: 2.25%) per annum. (d) Significant transactions with other related companies for the year ended 31 December 2002 are as follows: 2002 2001 Purchase of materials from - Wuxi Europe Asia 86,526 42,164 60 Sales of products to - Wuxi Europe Asia 43,735 28,647 (e) Balances with related parties 31 December 2002 31 December 2001 Due to related parties - WFGC - 13,933 - Wuxi Europe Asia 16,688 3,236 16,688 17,169 Due from related parties - WFGC 38,032 - - Weifu Mechanism Manufacturing 17,833 - 55,865 - Except as mentioned in Note 27(b), the amounts due to/from related companies arose from the above transactions and were unsecured, interest-free and had no fixed repayment terms. 28. Contingent liabilities As of 31 December 2002, the Group had no significant contingent liabilities. 29. Commitments As of 31 December 2002, the Group had the following significant commitments: (a) Commitment to acquire property, plant and equipment amounting to approximately RMB 270,000,000 (2001: RMB 80,000,000); (b) Commitment to obtain leasehold land under the following payment terms: 31 December 2002 Within 1 year 2,500 Over 1 year but within 5 years 17,000 19,500 30. Subsequent events At the meeting of the board of directors dated 15 April 2003, a dividend in respect of 2002 61 of RMB 0.20 per share amounting to a total dividend of RMB 87,273,230 was proposed (Note 9). 31. Approval of financial statements The consolidated financial statements were approved for issuance by the board of directors of the Company on 15 April 2003. Impact of IFRS adjustments on profit after taxation and minority interests and net assets Net profit Shareholders’ equity 31 December 31 December 2002 2001 2002 2001 As reported in the statutory accounts 204,033 150,720 1,804,674 1,685,337 Reversal of doubtful debts - 3,000 - - Adjustment for intangible and deferred assets without future benefit - 472 - - Adjustment for income from associates (6,387) 5,398 2,313 8,700 Dividend proposed in subsequent period - - 87,273 87,273 As restated under IFRS 197,646 159,590 1,894,260 1,781,310 DOCUMENTS FOR REFERENCE 1. Financial Statements affixed therewith the signatures and stamps of the Company’s legal representative, principal treasurer and chief accountant; 2. Original Auditors’ Report affixed therewith the stamps of the accounting firms ,the signatures and stamps of the certified public Accountants; 3. Originals of all released documents and announcements disclosed on the press designated by the State Securities Regulatory Commission during this reporting year. By order of Board of Directors of Weifu High Technology Co., Ltd. 62 April 18,2003 63