粤华包Ｂ(200986)2002年年度报告（英文版）

Foshan Huaxin Packaging Co., Ltd. 2002 ANNUAL REPORT April 15, 2003 Foshan Huaxin Packaging Co., Ltd. 2002 Annual Report Important: The Board of Directors and directors of Foshan Huaxin Packaging Co., Ltd. (hereinafter referred to as the “the Company”) hereby confirms that there are no important omissions, fictitious statements or serious misleading information carried in this report, and shall take all responsibilities, individually and/or jointly, for the reality, accuracy and completion of the whole contents. This Report is prepared in both English and Chinese language. Should there be difference in undersanding the two versions, the Chinese version shall prevail. Wang Qi, Chairman of the Board, Tan Shanghui, person in charge of accounting affairs and Mao Zhizhu, manager of Financial Department hereby guarantee that the financial report enclosed in this 2002 Annual Report is a true and complete report. 1 Foshan Huaxin Packaging Co., Ltd. 2002 Annual Report Contents Section 1 Company Profile Section 2 Financial Highlights Section 3 Changes in Share Capital and Particulars about Shareholders Section 4. Directors, Supervisors, Senior Executives and Staff Section 5. Administrative Structure Section 6 Shareholders’ General Meeting Section 7 Report of the Board Section 8 Report of the Supervisory Committee Section 9 Significant Events Section 10 Financial Report Section 11 Documents Available for Inspection 2 Foshan Huaxin Packaging Co., Ltd. 2002 Annual Report I. Company Profile 1. Legal Name in Chinese: 佛山华新包装股份有限公司 Legal Name in English: Foshan Huaxin Packaging Co., Ltd. 2. Legal Representative: Wang Qi 3. Secretary of the Board: Cheng Haiyan Address: 18/F, Jinghua Bldg., Jihua Rd., Foshan Tel: 0757-3981729, 3992076 Fax: 0757-3992026 E-mail: hxchy@21cn.com 4. Registered Address: 20/F, Jinghua Bldg., Jihua Rd., Foshan Office Address: 20/F, Jinghua Bldg., Jihua Rd., Foshan Post Code: 528000 E-mail: Zhuaxin@163.com 5. Newspapers Designated for Disclosing the Information: Securities Times, Hong Kong Commercial Daily Internet Web Site Designated by China Securities Regulatory Commission: http://www.cninfo.com.cn Place Where the Annual Report is Prepared and Placed: The Board Office 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: Foshan Huaxin Pa Code of the Stock: 200986 7. Other Relevant Information 1) Date of first registration: June 21, 1999 Registration with: Guangdong Municipal Administration for Industry and Commerce. 2) Business License No.: 19035257-5 3) Taxation Registration No.: ST Zi No. 440601707682279 4) Certified public accountants engaged: Domestic certified public accountants: Guangdong Zhengzhong Jujiang Certified Public Accountants Address: 10/F, Yuehai Group Bldg., 555#, Dongfeng E. Road, Guangzhou Tel.: (020) 83859808 Fax: (020) 83800977 International certified public accountants: KPMG Certified Public Accountants Address: 8F, Prince’s Building, Hong Kong Tel.: (00852) 28267126 Fax: (00852) 28452588 3 Foshan Huaxin Packaging Co., Ltd. 2002 Annual Report II. Financial Highlights 1. Financial and business Highlights In RMB Total profit 118,482,342.35 Net profit 95,711,067.10 Net profit after deduction of the nonrecurring gain/loss 91,970,921.10 Profit from principal business 149,024,867.65 Profit from other business lines 1,424,996.68 Operating profit 63,986,030.10 Investment income 54,848,850.52 Subsidy income Net amount of non-operating income and expenses -352,538.27 Net cash flows arising from operating activities 111,391,214.81 Net increase of cash and cash equivalents 29,028,373.92 Note: The non-recurring loss in 2002 amounting to RMB 3,740,146.00 consists of the following parts: (1) Investment income from Foshan Huahao Chemical Industry Co.,Ltd amounting to RMB 4,131,966.62; (2) Income tax and minority shareholders’ gains/losses amounting to RMB 229,638.68; (3) Net amount of non-operating income and expenses totaling RMB-621,459.30 2. Net profit as audited respectively by the domestic and international auditors and the differences: In 2002, the net profit as audited according to the Chinese accounting standards (CAS) was RMB 95,711,100.00 , and that was audited according to the international accounting standards (IAS) was RMB 98,572,000.00 . The difference arising therefrom and the causes are as follows: In RMB’000 Net profit Stated according to IAS 98,572.00 Discrepancy of share equity investments to be amortized -849.00 Long term expenses to be amortized -2,655.00 Other +643.00 Stated according to the Enterprise Accounting System 95,711.10 3. Financial highlights over the past three years(consolidated): Items 2002 2001 2000 Before After adjustment adjustment 4 Foshan Huaxin Packaging Co., Ltd. 2002 Annual Report Income from principal businesses 740,610,675.54 511,303,619.01 405,235,060.19 405,235,060.19 Net profit 95,711,067.10 118,696,950.89 113,043,278.87 110,029,733.49 Total assets 1,382,039,889.06 1,301,343,919.70 1,318,182,523.81 1,297,093,878.12 Shareholders’ equity (Excluding minority shareholder’s 854,855,192.89 807,489,125.79 766,522,391.11 747,245,674.90 equity) Earnings per share (Fully Diluted) 0.218 0.270 0.257 0.250 Earnings per share (Weighted average) 0.218 0.270 0.322 0.312 Earnings per share after deduction of non- recurring loss/gains (Fully 0.209 0.160 0.173 0.167 Diluted) Net assets per share 1.95 1.8366 1.744 1.700 Net assets per share after adjustment 1.93 1.8198 1.7166 1.6727 Net cash flow arising from business activities per share 0.25 0.0613 0.1984 0.1984 Net assets-income ratio (Fully Diluted) 11.20% 14.70% 14.75% 14.72% Net assets-income ratio (Weighted average) 11.19% 14.72% 17.12% 17.03% Net assets-income ratio after deduction of the non-recurring 10.76% 8.71% 9.69% 9.54% gains and loss (Fully Diluted) 4. Profit calculated in accordance with the Rules for Public Companies to Disclose Information and Prepare Statements (No. 9) promulgated by China Securities Regulatory Commission (CSRC) as follows: 2002 2001 Net assets-income Earnings per share Net assets-income Earnings per share Profit of report year ratio (%) (In RMB) ratio (%) (In RMB) Fully Weighted Fully Weighted Fully Weighted Fully Weighted diluted average diluted average diluted average diluted average Profit from principal businesses 17.433 17.423 0.33 0.33 10.280 10.291 0.189 0.189 Operating profit 7.485 7.481 0.146 0.146 3.373 3.376 0.062 0.062 Net profit 11.196 11.190 0.218 0.218 14.700 14.716 0.270 0.270 Net profit after deduction of non- recurring loss/gain 10.759 10.752 0.209 0.209 8.711 8.721 0.160 0.160 5. Changes in Shareholders’ Equity in the Report Period In RMB Total of Capital public Surplus Statutory public Undistributed Items Share capital Shareholders’ reserve public reserve welfare fund profit Equity Year beginning 439,500,000.00 250,531,482.00 49,806,032.21 16,602,010.74 67,651,611.58 807,489,125.79 Increase in the report year 14,356,660.07 4,785,553.36 95,711,067.10 110,067,727.17 Decrease in the report year 62,701,660.07 62,701,660.07 Year end 439,500,000.00 250,531,482.00 64,162,692.28 21,387,564.10 100,661,018.61 854,855,192.89 5 Foshan Huaxin Packaging Co., Ltd. 2002 Annual Report Reasons of changes 1) Increasing of surplus public reserves and statutory public welfare fund: was caused by drawing of profit in the current year. 2) Increasing of undistributed profit: was caused by the remains of the undistributed profit of the current year. 3) Increasing of shareholders’ equity: was caused by the remains of the profit of the current year. III. Changes in Share Capital and Particulars about Shareholders 1. Change in Share Capital (1). Statement of Change in the Company’s Shares In share ’000 Increase/Decrease Of the Change + - Shares Before the converted Shares After the Change Shares Bonus Change from public issued Others Subtotal placed shares capital additionally reserve . Non-scirculating shares 1. Promoters’ shares 29000 29000 Including: State-owned shares Domestic legal person shares 29000 29000 Foreign legal person shares Others 2. Raised legal person shares 3. Employees’ shares 4. Preference shares or others Total non-circulating shares 29000 29000 . Listed circulating shares 1. RMB common shares 2. Foreign shares listed 14950 14950 domestically 3. Foreign shares listed abroad 4. Others Total shares listed 14950 14950 . Total shares 43950 43950 (2) Issuing and Listing Previous issuing and listing In RMB’000/’000 shares Year Type Date Price Qty. Listing date Trade Total volume share capital 2000 B shares June 14, 1.78 130,000 Jul.6, 2000 130,000 420,000 2000 2000 B shares issued July, 2000 1.78 19,500 Jul. 2000 19,500 439,500 additionally Approved by China Securities Regulatory Commission with the Document CSRC Issuing Zi [2000] No. 65, the Company issued 149.5 million domestically listed foreign shares (B shares) in 2000. Plus the Company’s promoter’s shares totaling 290 million shares, the Company’s share capital is 439.5 million shares; In the report year, there was no change in the Company’s total share capital or the structure; The Company has no employees’ shares. 6 Foshan Huaxin Packaging Co., Ltd. 2002 Annual Report 2. Shareholders (1) Ended Dec. 31, 2002, the Companry had totally 23041 shareholders. (2) Top 10 major shareholders (Dec. 31, 2002) In shares Listed Unlisted Proportion Share type No Shareholders shares held shares held (%) 1 Foshan Huaxin Development Co., Ltd. 286532200 65.20 Legal person shares 2 CHAN PONG HUANG 1274900 0.29 Circulating B shares 3 Dapu Investment Co., Ltd. 1267190 0.29 Circulating B shares 4 Wu Haoyuan 1122599 0.26 Circulating B shares 5 SUMITOMO/DAIWA CHINA FOUND 740000 0.17 Circulating B shares 6 Chen Yuanfeng 710000 0.16 Circulating B shares 7 Zhang Xubin 705438 0.16 Circulating B shares Luo Manling 690600 0.16 Circulating B shares 9 PIAO JOY GUANGSHI 679400 0.15 Circulating B shares 10 BEST RELIANCE INVESTMENTS 585900 0.13 Circulating B shares LTD Total 7776027 286532200 67.0 Notes: There exists no business relations among the top 10 shareholders and they are not the parties of concerted action. No shares held by any shareholder holding over 5% of the total were ever pledged in the report year. About the control shareholder: Foshan Huaxin Development Co., Ltd. holds 286532200 legal person shares (non-listed shares) of the Company, taking 65.2% of the total share capital. The company was established on May 27, 1993, its legal representative is Liang Weidong, its registered capital is RMB 457.93 million. Business scope: producing, manufacturing, distributing Packaging materials, paper, cable, wires, new materials; distributing Packaging machinery and repairing, amplifiers and parts, decoration materials and beverage; information consulting, etc. Hoshan Huaxin Development Co., Ltd. has 7 legal person shareholders. Of them, Foshan Industrial Investment Management Co., Ltd. has contributed 62.1% of its capital. The actual controller of Foshan Industrial Investment Management Co., Ltd. is Foshan Municipal State Assets Management Commission. IV. Directors, Supervisors, Senior Executives and Employees (I) Basic information: (1). Directors, Supervisors, Senior Executives Name Sex Age Title Office Term Shares held (share) Year Year beginning end Wang Qi Male 49 Chairman of the Board June, 2002 to June, 0 0 2005 Liang Male 40 Vice Chairman of the June, 2002 to June, 0 0 Weidong Board 2005 He Guozhu Male 52 Vice Chairman of the June, 2002 to June, 0 0 7 Foshan Huaxin Packaging Co., Ltd. 2002 Annual Report Board 2005 Tan Shanghui Male 52 Director and General June, 2002 to June, 0 0 Manager 2005 Chen Zeqing Female 51 Director June, 2002 to June, 0 0 2005 Zhang Male 37 Director June, 2002 to June, 0 0 Chaoyang 2005 He Jichang Male 46 Director June, 2002 to June, 0 0 2005 Wu Tie Male 45 Director June, 2002 to June, 0 0 2005 Zhang Zhe Female 45 Director June, 2002 to June, 0 0 2005 Lu Liang Male 30 Director June, 2002 to June, 0 0 2005 Ma Zhengwu Male 39 Independent Director June, 2002 to June, 0 0 2005 Tan Jinsong Male 37 Independent Director June, 2002 to June, 0 0 2005 Chen Guixing Female 49 Chairman of Supervisory June, 2002 to June, 0 0 Committee 2005 Feng Daming Male 36 Supervisor June, 2002 to June, 0 0 2005 Huang Male 50 Supervisor June, 2002 to June, 0 0 Dabiao 2005 Chen Lijie Female 41 Supervisor June, 2002 to June, 0 0 2005 Zhou Qihong Male 35 Deputy General Manager June, 2002 to June, 0 0 2005 Chen Jiali Male 45 Deputy General Manager June, 2002 to June, 0 0 2005 Chen Haiyan Male 37 Deputy General Manager June, 2002 to June, 0 0 and Secretary of the Board 2005 of Directors Note: Position taken by the Directors in the Shareholders Name Shareholders Position Wang Qi Foshan Huaxin Development Co., Ltd. General Manager Liang Weidong Foshan Industrial Investment Management Co., Ltd. General Manager Chen Zeqing Foshan Huaxin Development Co., Ltd. Secretary of Party Committee and Vice General Manager 2. Annual Remuneration 1) The Company practices annual salary system for its directors, supervisors and senior executives with the amount determined by the plan approved by the Board and Shareholders’ General Meeting. The total annual remuneration to directors, supervisors, senior executives in current office is RMB 399 000.00 , the total amount to the three directors enjoying the highest salaries is RMB 225 000.00 , the total amount to the three senior executives enjoying the highest salaries is RMB 144 000.00 . 2}In the report year, the Company further improved the independent director system. The allowance to an independent director is RMB 38,000 per year and the Company shall bear all the expenses incurred from performance of their duties. 3) The annual remuneration to each of directors, supervisors, senior executives in 8 Foshan Huaxin Packaging Co., Ltd. 2002 Annual Report current office :3 enjoy annual remuneration between RMB 50 000.00 to RMB 80 000.00 3 enjoy annual remuneration below RMB50,000.00. 4) Liang Weidong, vice Chairman, Directors Zhang Chaoyang, He Jichang, Wu Tie, Zhang Zhe and Lu Liang do not receive pay from the Company; Supervisors Feng Daming and Mi Baogang receive no pay from the Company either. The aforesaid persons receive remuneration from the companies where they are working for. Note: The salary plan is subject to the examine and adoption of the shareholders’ general meeting before it can be published. 3. Directors, supervisors and senior executives resigned in the report period Name Original titles Reason for resignation Zhu Chenglun Director Election for the new Board Tie Jingfu Director Election for the new Board Chen Qikang Director Election for the new Board Liao Peilin Director Election for the new Board Liu Chongxiao Director Election for the new Board Zhou Guqing Supervisor Election for the new Board Mi Baogang Supervisor Election for the new Board (II) Staff Staff and profession/occupation composition: the Company had totally 2002 staff members in service, including 1278 production workers, 292 salespersons, 369 engineers and technicians, 40 financial personnel and 23 administrative personnel. Of them there were 478 persons graduated from college and university, secondary technical school or higher and 427 retired staff. V. Administrative Structure 1. Company Administration The Company has been continuously improving its legal person based administrative structure and standardizing the business operation strictly in accordance with the PRC Company Law and the PRC Securities Law as well as the regulations of China Securities Regulatory Commission and worked out relevant rules and regulations. In the report period, the Company further worked out the Rules of Procedures of the Board, Work Rules of the Independent Directors, the Information Disclosure System and Amendment of the Rules of Procedures of the Shareholders’ General Meeting on the basis of the existing internal control systems. In accordance with the Standards for Administration of Listed Companies promulgated by China Securities Regulatory Commission and the State Economic and Trade Commission dated January 7, 2002, the Company’s administration is in compliance with the relevant provisions which is summarized as follows: (1) Shareholders and shareholders’ general meeting: The Company ensured all shareholders, especially minority shareholders, enjoy equal position and fully exercise their own rights. The Company stablished the effective channels for communicating with shareholders, worked out Rules of Procedures of the Shareholders’ General Meeting, amd convened and held the Shareholders’ General Meeting strictly according 9 Foshan Huaxin Packaging Co., Ltd. 2002 Annual Report to the Official Opinion on Standardizing the Shareholders’ General Meeting. In the report period, the Company held one Shareholders’ General Meeting. The meeting was held in compliance with the Official Opinion on Standardizing the Shareholders’ General Meeting and the Articles of Association in terms of convening and holding procedures, qualification for the persons attending the meeting and the voting procedures. A lawyer was invited for the meeting as the witness and produced a written legal opinion. (2) The relationship between the controlling shareholder and the Company: Company’s Controlling Shareholder conducts actions in compliance with the regulations, never surpasses the power of the Shareholders’ General Meeting or interefers directly or indirectly with the decision making and operating activites of the Company. The related transactions of the Company were fair and reasonable. The basis for pricing was fully disclosed. The Company is completely independent from its controlling shareholder in respect of personnel, assets, finance, internal structure and business. The Board, the Supervisory Committee and the management were able to operate independently. The Company established sound internal control system.(3) Directors and the Board: The Company elected directors strictly according to the procedures provided by the Articles of Association of the Company. The number and member composition of the Board complied with the law and regulations. The Board has worked out the Rules of Procedures fo the Board and the board meetings were held according to the regulations. All the directors performed their duties faithfully and diligently. The Company has established independent director system according to the provisions of China Securities Regulatory Commission. At present, the Board has engaged two independent directors. The number of independent directors shall be adjusted to comply with one third of the total members of the Board before June, 2003 and the independent directors shall play a better role. (4) Supervisors and the Supervisory Committee: The composition of the Supervisory Committee complies with the law, regulations and the Articles of Association. The members and structure of the Supervisory Committee can ensure the Supervisory Committee able to effectively perform its duties independently and supervise the Company’s business financial position and legality and compliance of directors, managers and other senior executives in performing the duties based on the spirit of responsibility to the shareholders. (5) Performance Assessment and Encouragement and Binding Mechanism: Engagement and disengagement of the senior executives are open and transparent, and comply with the law, regulations and the Articles of Association. The Company is improving its performance assessment and encouragement system for the operators and other senior executives so as to implement more effective encouragement and binding. (6) Interested parties: the Company has fully respected the legal interests to the interest related parties, including banks, creditors, staff, consumers etc. for the purpose of jointly promoting the Company to develop in a sustainable and healthy way. (7) Information Disclosure and Transparency: The Company has designated the 10 Foshan Huaxin Packaging Co., Ltd. 2002 Annual Report secretary of the Board to be responsible for information disclosure, reception of the visiting shareholders and consultation. The Company is truly, accurately, completely and timely disclosing information strictly according to the provisions of laws, regulations, the Articles of Association and the System for Disclosing the Company’s Information. 2. Performance of Independent Directors According to the provisions of China Securities Regulatory Commission, Mr. Ma Zhengwu and Mr. Tan Jinsong were elected independent directors of the second Board. The two independent directors attended all the five board meetings since they took the office, seriously implemented their duties as independent directors, and positively participated in making important decisions of the Board. During the board meetings, they carefully reviewed the meeting documents, expressed their fair and objective opinions on such documents, brought the role of independent director into full play and safeguarded the interests of the Company and the investors. 3. Relations with the Principal Shareholders The Company is completely independent in business, personnel, assets, organization and finance from its controlling shareholder, Foshan Huaxin Development Co., Ltd. The Company has complete and independent business and the ability of autonomous operation. (1) Businesses: The Company is completely independent from its controlling shareholder. The controlling shareholder or its subsidiaries are not engaged in the same or similar business of the Company. (2) Personnel: The Company’s senior executives, including the General Manager and Deputy General Manager, the Board Secretary, and financial personnel all received their salaries from the Company and took no post in any of the Company’s shareholders. (3) Assets: All the assets contributed by the controlling shareholder are exclusive, completed and clear in the ownership. The controlling shareholder has never occupied, controlled or interfered the operation and management of the Company’s assets. (4) Organization: The Company has established its own organization independent from the controlling shareholder. The Board, the Supervisory Committee and internal departments and offices work independently. There exist no subordinate relations between the controlling shareholder/its functional departments and the Company/its functional departments. The number one shareholder’s norms of conduct have never surpassed the Shareholders’ General Meeting, or interfered, directly or indirectly, the Company’s decision making and its operation activities. (5) Finance: The Company has opened its own bank account, is exclusively using the account and making independent accounting. The controlling shareholder has never interfered the Company’s accounting activities. 4. Valuation and Encouragement Mechanism for Senior Executives In the report period, the Company conducted valuation and encouragement of its senior 11 Foshan Huaxin Packaging Co., Ltd. 2002 Annual Report executives based on the principle of valuation according to their performances. The Company hopes to exercise effective and long term encouragement and binding of the senior executives by establishing effective remuneration and equity encouragement system. The aforesaid plan has been approved by the Board and shall be implemented after approval by the Shareholders’ General Meeting of this year. VI. Shareholders’ General Meeting The Company held 2001 Shareholders’ General Meeting on May 23, 2002 at the meeting room of the Company. 1. Process of Holding Shareholders’ General Meeting The Board published the announcement for 2001 Shareholders’ General Meeting on Securities Times and Hong Kong Commercial Daily dated April 16, 2002 based on the more than thirty days in advance. 2001 Shareholders’ General Meeting was convened by the Board. There were 22 shareholders and the shareholders’ authorized representatives present at the meeting, representing 292,409,485 shares, taking 66.53% of the voting bearing shares. Of them 14 were shareholders of B shares in circulation, representing 2,409,485 shares, taking 1.61% of total B-shares. There were 19 valid votes collected, representing 292,401,285 shares. The meeting was held in compliance with the PRC Company Law and the Articles of Association of the Company. 2. Resolutions of Shareholders’ General Meeting The Shareholders’ General Meeting examined and adopted 12 resolutions item by item by voting. The public notice of the meeting resolutions was published on Securities Times and Hong Kong Commercial Daily dated May 24, 2002. Lawyer Ma Yunyan from Shenzhen Xinda Law Firm attended the meeting as the witness, and produced a written legal opinion. In the lawyer’s opinion, that Shareholders’ General Meeting complied with law, regulations and the Articles of Association of the Company in terms of the procedures of convening the meeting, qualification of the participants, proposals of the shareholders’ general meeting and the voting procedures; and the resolutions at the Shareholders’ General Meeting were legal and valid. (1) Reviewed and adopted 2001 Work Report of the Board; (2) Reviewed and adopted 2001 Work Report of the Supervisory Committee; (3) Reviewed and adopted 2001 Financial Settlement Report; (4) Reviewed and adopted 2001 Profit Distribution Proposal; (5) Reviewed and adopted 2001 Annual Report and the Summary; (6) Reviewed and adopted 2002 Profit Distribution Policy Report; 12 Foshan Huaxin Packaging Co., Ltd. 2002 Annual Report (7) Reviewed and adopted the Proposal for Revising Company’s Articles of Association; (8) Reviewed and adopted Proposal for Electing Members of the Second Board of Directors; (9) Reviewed and adopted Proposal for Annual Allowances to the Independent Directors; (10) Reviewed and adopted the Proposal for Electing Members of the Second Supervisory Committee; (11) Reviewed and adopted Proposal for Engaging the Certified Public Accountants in 2002; (12) Reviewed and adopted the Rules of Procedures of the Board, the Working Rules of Independent Directors, the System for Information Disclosure, and the proposal for updating the Rules of Procedures of the Shareholders’ General Meeting. 3. Election and Replacement of Directors and Supervisors At 2001 Shareholders’ General Meeting dated May 23, 2002, the three year office term of the 1st Board was terminated and election for the new Board was necessary according to the Articles of Association. Through item-to-item reviewing at the meeting, Mr. Wang Qi, Mr. Liang Weidong, Mr. He Guozhu, Mr. Tan Shanghui, Ms. Chen Zeqing, Mr. Wu Tie, Mr. Zhang Chaoyang, Mr. Lu Liang, Mr. He Jichang, Ms. Zhang Zhe, Mr. Ma Zhengwu and Mr. Tan Jinsong were elected members of the 2nd Board. Of them, Mr. Ma Zhengwu and Mr. Tan Jinsong were the independent directors of the 2nd Board. The resume of the director candidates for the 2nd Board was published on Securities Times and Hong Kong Commercial Daily dated April 16, 2002. At this Shareholders’ General Meeting, the three year office term of the 1st Supervisory Committee was terminated and election for the new Supervisory Committee was necessary according to the Articles of Association. Through item-to-item reviewing at the meeting, Ms. Chen Guixing and Mr. Feng Daming were elected supervisors of the 2nd Supervisory Committee. Added with Ms. Chen Lijie and Mr. Huang Dabiao, the staff representative supervisors elected through democratic election by the staff, these supervisors formed the 2nd Supervisory Committee. The resume of the supervisor candidates for the 2nd Supervisory Committee was published on Securities Times and Hong Kong Commercial Daily dated April 16, 2002. VII. Report of the Board of Directors (I) Financial Analysis In the year 2002, the gross profit from the principal product – high grade coated white board, had a big growth over the previous year which signified the growth of the revenue and profit from the principal business. The Company’s overall earning capacity is relatively stable, which has laid a good foundation for the growth of the regular profit 13 Foshan Huaxin Packaging Co., Ltd. 2002 Annual Report by big margin as well as constructed a solid platform for the Company’s sustainable development. (II) Business Review 1. Business Scope and Operation The Company is engaged in paper-making, packaging and printing industry, mainly producing and selling high-grade and high-quality packaging materials and packaging products including coated white board, soft packing boxes (Tetra Pak box) for liquid food, color-printed packaging, new-typed packing materials, aluminum-plastic compound paper cans, etc. as well and fine chemical products. The Company comes out in front among domestic enterprises in the same sector in terms of production and operation scale, product quality level, technology innovation ability and comprehensive profit-making ability. The Company’s key products include high-grade coated white board, color-printed packaging and aluminum-plastic compound paper cans and fine chemical products. In the report period, the Company enhanced the internal management and endeavored to expand the principal businesses, exerted great efforts to promote the technical innovation, established up-to-date marketing strategy. The Company kept a good development trend in production and operation. In the report year, the income of the Company from the principal business was RMB 740 million , an increase of 44.85 % over the same period of the previous year; its profit from the principal business was RMB 150 million , an increase of 79.53 % over the same period of the previous year; its operative net profit was RMB 95 million , a drop of 19.37 % over the same period of the previous year; the realized net profit was RMB 92 million , an increase of 30.75 % over the same period of the previous year. The composition of the income and profit from the principal business based on the products/sectors is as follows: Classified based on Income from Proportion in Profit from Proportion in product /sectors principal income from principal income from businesses principal businesses businesses principal businesses In ’000 (%) in ’000 (%) high-grade coated white board 477,266.20 64.44 110,139.20 73.90 color printed packaging 52,231.50 7.05 1,529.40 1.03 aluminum-plastic compound paper 2,360.70 0.32 793.5 0.5 cans Fine chemical products 211,361.20 28.54 37,567.9 25.20 The composition of the income and profit from the principal business distributed based on the regions 14 Foshan Huaxin Packaging Co., Ltd. 2002 Annual Report The income and profit from the principal business are most from the region of South China. Production of the leading products that take 10% of the income from the principal businesses The leading products that take 10% of the income from the principal businesses are high-grade coated white board, color-printed packaging and aluminum-plastic compound paper cans and fine chemical products, whose sales income, sales costs and gross profit rate are listed as follows: Products Sales income (in Sales income (in Gross interest rate (%) RMB ’000) RMB ’000) high-grade coated white board 477,266.20 367,127.00 23.08 color printed packaging 52,231.50 50,702.10 2.93 Fine chemical products 211,361.20 173,793.30 17.77 Significant change taken place in the principal business and structure in the report period in comparison with the previous year During the report term, the Company acquired Huahao Chemistry Co., Ltd., new sales income generated from sales of fine chemical products, takes 28.54% of the major business earnings. For the production of color printing packaging paper still in the negative situation, the sales income form it decreased comparing with the previous report term. A big growth in sales volume of high-grade coated white board took place 2. Operation of Principal Associates In the report period, the Company held 25% of the equity in Tetra Pak Huaxin (Foshan) Packing Co., Ltd. The company is mainly engaged in production and marketing of soft packing boxes (Tetra Pak boxes) for liquid food. Due to the rapid growth of high-quality drinks and milk markets, that company’s sales volume increased by a big margin over the previous year which brought about big investment return to the Company. 3. Major Suppliers and Customers In the report period, the accumulative purchase amount from the top five suppliers took 20% of the total; the total sales volume to the top five customers took 12.08% of the total sales income. 4. Problems and difficulties occurred in the operations and the solutions As the color printed packing products were involved in big change of the market during the operation and the product structure was in big adjustment, the Company could not realized the predicted objective in terms of sales income and profit making in the report period. To deal with the problems 15 Foshan Huaxin Packaging Co., Ltd. 2002 Annual Report in the operation of color printed packaging, the Company is reinforcing the internal management and quickening the steps of adjustment of the product structure. (III) Investment in the report period 1. Application of the Proceeds Raised through Share Offering In the report period, the Company raised no proceeds through share offering. Ended the report period, the application of the proceeds raised through B-share offering in 2000 fully complied with the investment projects as committed in the Prospectus; the proceeds already invested took 92.28% of the total. In the report period, there was no new project invested with the proceeds raised through share offering; the unused proceeds amounting to RMB 19.01 million was deposited in the Company’s special bank account and shall be invested in the projects as committed in the plan at right time. The application result of the proceeds was also disclosed in 2001 Annual Report. The big growth of profit from the principal business in 2002 is a combined result from the good projects invested with the proceeds raised through share offering. 2. Investment projects with funds raised not through share offering On January 8, 2002, the Company acquired 70% of the equity in Foshan Huahao Chemical Co., Ltd. at the price of RMB 18.4835 million. In the year 2002, the Company recovered the corresponding investment income amounting to RMB 4.13 million. In the year 2002, the Company invested RMB 13 million for the technical innovation of high grade coated white board, the Company’s leading product. Through three technical innovations of coated white board, the difference in the product quality with the competitors can be narrowed and added value of the products can be further upgraded. This project was completed at the end of 2002 and started the trial run at the beginning of 2003. (IV) Financial Position and Operation Results Main causes of increase/decrease in fulfillment of the financial targets in comparison with the previous year In RMB Items End of 2002 End of 2001 Increase/decrease Increase/decrease proportion % Total assets 1,382,039,889.06 1,301,343,919.70 80,695,969.36 +6.20 Long-term liabilities 44,767,419.71 50,000,000.00 -5,232,580.29 -10.47 Owners’ equity 854,855,192.89 807,489,125.79 +47,366,067.10 +5.87 Profit from principal 149,024,867.65 83,007,814.75 +66,017,052.90 +79.53 businesses 16 Foshan Huaxin Packaging Co., Ltd. 2002 Annual Report Net profit 95,711,067.10 118,696,950.89 -22,985,883.79 -19.37 Net increase of cash and cash 29,028,373.92 -31,881,377.78 +60,909,751.70 equivalents Reason of Change: 1. Increase of total assets and major business profit: enlarging of consolidating range, the gross profit increased. 2. Increase of owners’ equity: The profit of this term. 3. Decrease of long-term liabilities: the bank loans decreased. 4. Increasing of net increase of cash and cash flow: the company undertook strict policies in management of fund, sales income collected on time and increasing of sales volume. (V) 2003 Operation Plan In 2003, the Company shall continue to enhance the internal management, concentrate the resources to develop the core business of the principal business while reinforcing the core competitiveness of the Company so as to lay a good foundation for its future sustainable development. 1. The Company shall focus its principal force to do a good job in the extension project of high grade coated white board of Huafeng Paper Co., Ltd. The Company plans to invest totally RMB 1.2 billion to newly increase the production capacity by 300,000 tons on the basis of the existing capacity of 130,000 tons of high grade coated white board. If this project can be approved at 2002 Shareholders’ General Meeting, it shall start construction on overall basis in 2003. The Company shall complete the project and put it into production in the shortest possible time. 2. Focus on the internal management work of color-printed packaging, develop product market, reduce product cost and improve product quality so as to get out of the difficult position in 2003; meanwhile, attach importance to the world advanced level of environment friendly printed packaging products as well as the up-to-date technology applied both at home and abroad for the purpose of improving the earning power of color-printed packaging products. 3. Continue to invest more funds for updating and technical innovation of machines and equipment of the Company’s associate, Tetra Pak Huaxin (Foshan) Packaging Co., Ltd. based on the capital contribution proportion together with the cooperative partner for the purpose of greatly improving the production capacity of soft packaging boxes (Tetra Pak Box) for liquid food to satisfy the growing market demand and pursuing greater investment return. 4. Enhance the function of the Packaging Engineering Research and Development Center, establish the Company’s technical innovation system, and do a good job in improving the product structure and upgrading the product grades. 17 Foshan Huaxin Packaging Co., Ltd. 2002 Annual Report In 2003, the Company shall start the whole functions of the Packaging Engineering Research and Development Center, establish the organization structure and corresponding operation mechanism. Based on Huafeng and Color-printed Packaging, promote the technical exchange of packaging through integration of the engineers and technical force, establish the Company’s technical innovation system, unceasingly develop new products, new materials and new technology to upgrade the technical innovation capacity. In 2003, the Company shall focus on adjustment of the product structure and upgrading the existing products, enhance the composite packing function of paper products and printed products, and supporting the technical work of the extension project. 5. Practice the management model of “People plus System”, reinforce the functions of various departments in terms of “Assessment, Supervision, Services and Development” so that they may positively play a promoting role in the next turn of development. (VI) Influence from China’s Joint in WTO on the Company’s Production and OperationThe Company’s leading products are packing materials and packaging products. After China’s joint in WTO, the customs duties shall be reduced and the prices of the imported raw materials shall be also brought down and the product costs shall be lowered correspondingly. This is very favorable for the Company in production and sales of aluminum-plastic compound packaging paper box (Tetra Pak box), color printing and packaging, aluminum-plastic compound paper cans. As for high-grade coated white cardboard, the Company will meet opportunities while facing challenges. Imported similar products may occupy part of domestic market. However, China’s entry to WTO is favorable to the export of Chinese garments, light industry products and small household electrical appliances, which will increase the market demand of high-class white cardboard. As the quality of high-grade coated white cardboard of the Company can rival that of the products of world-famous brands and the Company has competed with them in domestic and international markets for years and accumulated much experience, the Company believes that it is able to resist the impact made by China’s entry to WTO and seize opportunities for further development through giving full play to its characteristic competing advantages. (VII) Routine Work of the Board of Directors 1. Board meetings and resolutions in the report period In the report year, the Company had held eight board meetings. The meetings and resolutions are summarized as follows: 1. 2002 1st meeting of the 1st Board was held on January 8, 2002. The meeting adopted the following resolutions: The Company decided to implement in advance partial projects invested with the proceeds raised by additional issuing of A-shares. According to the original plan, the Company was to acquire 75% equity of Foshan Electrochemical General Plant with the said proceeds amounting to RMB 20.13 million. Later on, the Company changed to acquire 70% equity of Foshan Huahao Chemical Co., Ltd. from Foshan Industrial 18 Foshan Huaxin Packaging Co., Ltd. 2002 Annual Report Investment Management Co., Ltd. with bank loan. (2) 2002 2nd meeting of the first Board was held on April 12, 2002. The meeting examined and adopted the following resolutions: 2001 Work Summary Report of the Company 2001 Annual Report and the Summary; 2001 Work Report of the Board 2001 Financial Auditing Report; 2001 Profit Distribution Proposal; 2002 Work Objectives and Plan Report; Report on 2002 Profit Distribution Policy; Report on Nominating Candidates for Independent Directors; Proposal on Electing Members for the 2nd Board; Proposal for Annual Allowances to the Independent Directors; Proposal on Amendment of the Articles of Association; Proposal on Engaging the Certified Public Accountants for the Year 2002 Report on Preparing the Rules of Procedures of the Board, Rules of Procedures of the Independent Directors, the Information Disclosure System and Amendment of the Rules of Procedures of the Shareholders’ General Meeting; Proposal on of Holding 2001 Shareholders’ General Meeting. (3) 2002 3rd meeting of the 1st Board was held on April 22, 2002. The meeting adopted the following resolution: 2002 1st Quarterly Report. (4) 2002 1st meeting of the 2nd Board was held on May 23, 2002. The meeting adopted the following resolutions: The meeting elected and adopted Chairman and Vice Chairmen of the 2nd Board: the meeting unanimously elected Mr. Wang Qi Chairman of the 2nd Board of Foshan Huaxin Packaging Co., Ltd., Mr. Liang Weidong and Mr. He Guozhu Vice Chairmen of Foshan Huaxin Packaging Co., Ltd. Nominated by Mr. Wang Qi, Chairman of the Board, the Board approved to engage Mr. Chen Haiyan as the Secretary of the 2nd Board. (5) 2002 2nd meeting of the 2nd Board was held on June 13, 2002. The meeting adopted the following resolution: Self-inspection Report on Establishing Modern Enterprise System in the Company prepared by the Company in accordance with the Circular of China Securities Regulatory Commission and the State Economic and Trade Commission on Conducting Inspection over the Establishment of Modern Enterprise System in Listed Companies. (6) 2002 3rd meeting of the 2nd Board was held on July 26, 2002. The meeting adopted the following resolutions: Work Report of the 1st Management of the Company; Report on Engagement of the 2nd Management of the Company; Proposal on Establishing Specialized Committees of the Board. 19 Foshan Huaxin Packaging Co., Ltd. 2002 Annual Report (7) 2002 4th meeting of the 2nd Board was held on August 13, 2002. The meeting examined and adopted the following resolutions: 2002 Semi-Annual Report and Summary; 2002 Semi-Annual Profit Distribution Proposal. (8) 2002 4th meeting of the 2nd Board was held on October 23, 2002. The meeting adopted the following resolution: 2002 3rd Quarterly Report. 2. Implementation of the Resolutions of the Shareholders’ General Meeting by the Board of Directors: In the report year, the Board carried out the work strictly according to the resolutions of the Shareholders’ General Meeting and seriously implemented all the resolutions of the Shareholders’ General Meeting. The importance information of the aforesaid board meetings was timely disclosed and published on Securities Times and Hong Kong Commercial Daily according to the regulations and provisions concerning information disclosure. (VIII) 2002 Profit Distribution Proposal As audited by Guangdong Zhengzhong Pearl River Certified Public Accountants, the Company’s domestic auditor and KPMG Certified Public Accountants, the Company’s international auditor who were both engaged by the Company for the year 2002, according to the Chinese Accounting Standards (CAS) and the International Accounting Standards (IAS), the after-tax profit realized in 2002 was RMB 95,711,067.10 and RMB 98,572,000.00 respectively. According to Detailed Implementations Rules Concerning Domestic-listed Foreign Investment Shares of Joint Stock Limited Companies and “the Articles of Association of the Company”, appropriation of divident is based on the lower of Company’s retained earnings as reported in the financial statement audited by certified public accountants and drawn up according to PRC Financial Reporting Standards and that prepared under the International Financial Reporting Standards. the Company’s net profit of RMB 95,711,067.10 in 2002 is to be taken as the basis for profit distribution. RMB 14,356,660.07 is to be set aside as the statutory public reserve and the statutory public welfare fund.,and plus RMB 67,651,611.58 of the profit undistributed at the beginning of the reporting period, the profit available for distribution to shareholders is RMB 149,006,018.61 . With consideration of the Company’s development and shareholders’ interest, it is recommended to distribute dividends to the whole shareholders at the rate of RMB 1.1 (including tax) for every 10 shares. The total amount of cash would be RMB st 48,345,000.00 available for distribution to shareholders of all 439.5 million Shares on 31 December,2002. The remaining retained profit amounting to RMB 100,661,018.61 would be carried down to the next year for further distribution. The profit distribution proposal is subject to the examination and approval by the Shareholders’ General Meeting. The dividend distribution shall be carried out within 20 Foshan Huaxin Packaging Co., Ltd. 2002 Annual Report two months after this proposal is approved by the Annual Shareholders’ General Meeting. The dividend to the domestic shareholders shall be distributed in Renminbi; the dividend to the shareholders of B-shares shall be calculated and announced in Renminbi but paid in Hong Kong dollars. The conversion rate shall be based on the average of the rate announced by People’s Bank of China on the first business day after this proposal was adopted by the Shareholders’ General Meeting. (IX) Other Matters Necessary to be Reported In the report year, the newspapers chosen by the Company for disclosing its information remain unchanged, namely Securities Times and Hong Kong Commercial Daily. VIII. Report of the Supervisory Committee 1. Work Summary In the year 2002, members of the 1st and 2nd Supervisory Committees attended all the board meetings and the Shareholders’ General Meeting as non-voting delegates, conducted effective supervision over the procedures of holding meetings, decision-making procedures, resolutions, information disclosure as well as the implementation of the resolutions of the Shareholders’ General Meeting by the Board, conducted effective supervision over the work and performances of the directors, managers and senior executives in terms of legality and regulation compliance. The Supervisory Committee has played its due supervisory role. In 2002, the Supervisory Committee held four meetings which are summarized as follows: (1) The 1st meeting of the 1st Supervisory Committee was held on April 12, 2002. 5 supervisors were supposed to attend the meeting and all 5 of them were actually present. The meeting examined and adopted the following resolutions: 2001 Work Repot of the Supervisory Committee; Rules of Procedures of the Supervisory Committee of Foshan Huaxin Packaging Co., Ltd.; 2001 Annual Report and Summary; 2001 Financial Audit Report; 2001 Profit Distribution Proposal; 2002 Profit Distribution Policy; Proposal for Amendment of the Articles of Association;. Proposal on Renewing Engagement of the Certified Public Accountants for the Year 21 Foshan Huaxin Packaging Co., Ltd. 2002 Annual Report 2002; Rules of Procedures of the Board of Directors, Rules of Procedures of the Independent Directors, the revised Rules of Procedures of the Shareholders’ General Meeting; Proposal for Election for the New Supervisory Committee. The aforesaid resolutions were published on Securities Times and Hong Kong Commercial Daily respectively dated April 16, 2002. (2) 2002 2nd meeting of the 1st Supervisory Committee was held on April 22, 2002 at the meeting room of the Company. 5 supervisors were supposed to attend the meeting, 4 of them were actually present and one asked for leave. The meeting examined and adopted the following resolution: 2002 1st Quarter Report. (3) 2002 1st meeting of the 2nd Supervisory Committee was held on May 23, 2002 at the meeting room of the Company. 4 supervisors were supposed to attend the meeting and all 4 of them were actually present. The supervisors present at the meeting elected Ms. Chen Guixing Chairman of the Supervisory Committee The aforesaid resolution was published on Securities Times and Hong Kong Commercial Daily respectively dated May 24, 2002. (4) 2002 2nd meeting of the 2nd Supervisory Committee was held on August 13, 2002 at the meeting room of the Company. 4 supervisors were supposed to attend the meeting and all 4 of them were actually present. The meeting examined and adopted the following resolution: 2002 Semi-Annual Report and Summary; 2002 Semi-annual Profit Distribution Plan: For the first half year of 2002, the Company decided to neither conduct profit distribution, nor convert the public reserve into share capital. The aforesaid resolution was published on Securities Times and Hong Kong Commercial Daily respectively dated August 16, 2002. II. Opinion on Operation according to the Law In the year 2002, members of the Supervisory Committees attended all the board meetings and the Shareholders’ General Meeting as non-voting delegates, conducted effective supervision over the procedures of holding meetings, decision-making procedures, resolutions, information disclosure as well as the implementation of the resolutions of the Shareholders’ General Meeting by the Board, as well as the work and performances of the directors, managers and senior executives. The Supervisory Committee has played its due supervisory role. In the opinion of the Supervisory 22 Foshan Huaxin Packaging Co., Ltd. 2002 Annual Report Committee: the Company conducted its operation strictly according to such laws and regulations as the PRC Company Law, the PRC Securities Law, the Rules for Administration of Listed Companies and the Articles of Association, and standardized the management. The Company has established various rules and regulations concerning administration of listed companies, further improved its internal control; used legal and valid procedures in making important decision, can fully bring the role of independent directors into full play, and has ensured the Company in steady development. Directors and senior executives have been doing their work with due diligence and in law-abiding and honest and self-regulatory way, and have never been involved in any action against the law, regulations and the Articles of Association or harmful to the Company’s interest in implementing their duties. . Opinion on Inspection over the Company’s Financial Situation In the opinion of the Supervisory Committee, the auditor’s report and the notices to the relevant issues produced by Guangdong Zhengzhong Jujiang Certified Public Accountants and KPMG Certified Public Accountants have truly and objectively reflected the Company’s financial position and operation result of the year. . Opinion on the Project Invested with the Proceeds Raised through Share Offering The Supervisory Committee conducted inspection over the projects invested with the proceeds raised through share offering. In the opinion of the Supervisory Committee, the Company has strictly implemented the Rules concerning Application and Control of the Proceeds Raised through Share Offering. The actual application of the proceeds is in compliance with the Proceeds Application Plan as committed in the Prospectus. The unused proceeds amounting to RMB 19.01 million has been deposited in the Company’s account and shall be invested to the relevant projects when necessary according to the plan. V. Opinion on Other Issues 1. The Company completed the acquisition of the 70% equity of Foshan Huahao Chemical Co., Ltd. held by Foshan Industrial Investment Management Co., Ltd. on January 8, 2002. The said equity transfer belongs to related transaction. However, the transaction was carried out based on the principle of fairness, mutual benefit and free will, without any harm to the rights and interests of the Company as well as its shareholders. The acquisition was disclosed respectively on Securities Times and Hong Kong Commercial Daily dated January 10, 2002. 2. In the report year, the Company had been involved in no material lawsuits or arbitration and offered no guarantee. IX. Significant Events 1. In the report period, the Company was never involved in any material lawsuits or arbitrations. 23 Foshan Huaxin Packaging Co., Ltd. 2002 Annual Report 2. In the report year, the Company offered no material guarantee, entrusted any party to manage, kept as custodian, contracted or leased any other company’s assets and vice versa by contract. 3. In the report period, the Company revised its Articles of Association. The revisions and the resolution of the Shareholders’ General Meeting were fully disclosed on Securities Times and Hong Kong Commercial Daily respectively dated April 16, 2002 and May 24, 2002. 4. Engagement and Disengagement of the Certified Public Accountants and the Remuneration In the report period, as approved at the Shareholders’ General Meeting, the Company renewed engagement of Guangdong Zhengzhong Jujiang Certified Public Accountants and KPMG Certified Public Accountants as the domestic and international auditors. The procedure of deciding the remuneration to the certified public accountants: The Board determined the remuneration for audit based on the authorization of the Shareholders’ General Meeting and according to relevant charging standard and work volume. The auditing fee to the above auditors was: RMB to Guangdong Zhengzhong Jujiang Certified Public Accountants and HK$ 600,000 to KPMG Certified Public Accountants. Their travel and accommodation expenses of the accountants during the auditing were borne by the auditors themselves. 5. With a view to avoiding the operation risks and better centralize the resources to enlarge and improve the principal businesses of packing materials and packaging products, the Company assigned its 70% equity of Foshan Huahao Chemical Co., Ltd. at the price of RMB 19.06 million on March 28, 2003. For the detail about the said transaction, please read the public notice published on Securities Times and Hong Kong Commercial Daily dated April 1, 2003. 6.In the report year, there existed no such events resulted in inspection, administrative punishment or circulating notice of criticism from China Securities Regulatory Commission or public blame from the Stock Exchange against the Company, the Board or any director. 7. In the report period, there was no other significant event in the Company. 24 Foshan Huaxin Packaging Co., Ltd. 2002 Annual Report X. Financial Report Foshan Huaxin Packaging Company Limited 佛山華新包裝股份有限公司 (Incorporated as a joint stock company in the People’s Republic of China with limited liability) 31 December 2002 25 kpmg Report of the auditors to the shareholders of Foshan Huaxin Packaging Company Limited (Incorporated as a joint stock company in the People’s Republic of China with limited liability) Respective responsibilities of directors and auditors We have audited the accompanying consolidated balance sheet of Foshan Huaxin Packaging Company Limited and its subsidiaries (the “Group”) as of 31 December 2002 and the related consolidated statements of income and cash flows for the year then ended on pages 2 to 29. These consolidated financial statements are the responsibility of the directors. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. Basis of opinion We conducted our audit in accordance with International Standards on Auditing as promulgated by the International Federation of Accountants. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the directors, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. Opinion In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as of 31 December 2002, and of the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards promulgated by the International Accounting Standards Board. Certified Public Accountants Hong Kong, 15 April 2003 26 Consolidated income statement for the year ended 31 December 2002 (Expressed in Renminbi Yuan) Note 2002 2001 Rmb’000 Rmb’000 Revenue 2 735,259 513,884 Cost of sales (585,987) (433,376) Gross profit 149,272 80,508 Other operating income, net 3,032 798 Selling expenses (22,286) (11,797) Administrative expenses (50,593) (26,571) Profit from operations 79,425 42,938 Net financing costs 5 (12,817) (15,482) Share of profit of associate 66,819 56,720 Gain on disposal of associate 6 - 50,457 Profit from ordinary activities before taxation 133,427 134,633 Income tax expense 7(a) - company and subsidiaries (8,521) (3,960) - associate (11,551) (6,384) Profit from ordinary activities after taxation 113,355 124,289 Minority interests (14,783) (6,811) Profit attributable to shareholders 20 98,572 117,478 ========= ========= Basic earnings per share 8 Rmb 0.22 Rmb 0.27 ========= ========= No separate consolidated statement of recognised gains and losses has been prepared as the net profit for the year would be the only component of this statement. 27 Consolidated balance sheet at 31 December 2002 (Expressed in Renminbi Yuan) Note 2002 2001 Rmb’000 Rmb’000 Assets Property, plant and equipment 9 721,681 692,274 Lease prepayments 10 41,124 42,003 Intangible assets 11 (3,515) (3,689) Construction in progress 12 28,289 6,250 Investment in associate 14 165,257 160,418 Other investments 15 3,810 3,214 Total non-current assets 956,646 900,470 --------------- --------------- Inventories 16 90,989 88,223 Trade receivables 124,136 95,772 Bills receivable 29,017 24,998 Amount due from immediate holding company 2,843 - Other receivables and prepayments 17 36,209 74,948 Cash and cash equivalents 18 108,092 74,837 Total current assets 391,286 358,778 --------------- --------------- Total assets 1,347,932 1,259,248 ========= ========= 28 Consolidated balance sheet at 31 December 2002 (continued) (Expressed in Renminbi Yuan) Note 2002 2001 Rmb’000 Rmb’000 Equity Share capital 19 439,500 439,500 Reserves 20 428,425 388,306 Total equity 867,925 827,806 --------------- --------------- Minority interests 150,098 127,245 --------------- --------------- Liabilities Non-current liabilities Interest-bearing bank loans 21 25,000 50,000 --------------- --------------- Current liabilities Interest-bearing bank loans 21 133,327 183,000 Taxation 7(c) 9,092 3,960 Amounts due to related companies 22 23,672 1,629 Trade payables 53,240 41,157 Other payables and accrued expenses 85,578 24,451 304,909 254,197 --------------- --------------- Total liabilities 329,909 304,197 --------------- --------------- Total equity, minority interests and liabilities 1,347,932 1,259,248 ========= ========= 29 Consolidated statement of cash flows for the year ended 31 December 2002 (Expressed in Renminbi Yuan) Note 2002 2001 Rmb’000 Rmb’000 Operating activities Profit from ordinary activities before taxation 133,427 134,633 Adjustments for: - Depreciation 47,586 37,134 - Amortisation 421 607 - Interest income (592) (791) - Interest expense 13,326 15,939 - Gain on disposal of associate - (50,457) - Loss on disposal of fixed assets 500 18 - Share of profit of associate (66,819) (56,720) Cash flows from operating activities before changes in working capital 127,849 80,363 Decrease in inventories 22,752 5,341 Decrease/(increase) in trade receivables and bills receivable 2,253 (13,788) (Increase)/decrease in amount due from immediate holding company (2,843) 722 Decrease/(increase) in other receivables and prepayments 78,845 (5,181) Increase in amounts due to related companies 10,444 3,039 Decrease in trade payables (6,885) (1,367) Decrease in other payables and accrued expenses (23,543) (12,505) PRC income tax paid (7,751) (9,945) Cash flows from operating activities 201,121 46,679 --------------- --------------- 30 Consolidated statement of cash flows for the year ended 31 December 2002 (continued) (Expressed in Renminbi Yuan) Note 2002 2001 Rmb’000 Rmb’000 Investing activities Interest received 592 791 Dividends received 50,429 37,125 Payment for acquisitions of fixed assets (39,738) (28,169) Payment for acquisitions of land use rights - (1,791) Acquisition of subsidiaries, net of cash acquired 23 (3,048) - Proceeds from disposal of fixed assets 4,582 - Proceeds from disposal of associate - 35,641 Cash flows from investing activities 12,817 43,597 --------------- --------------- Financing activities Interest paid (13,326) (16,548) New bank loans 145,000 230,000 Repayment of bank loans (247,491) (277,109) Dividends paid (58,453) (55,377) Dividends paid to minority interest (6,413) (3,058) Cash flows from financing activities (180,683) (122,092) --------------- --------------- Net increase/(decrease) in cash and cash equivalents 33,255 (31,816) Cash and cash equivalents at 1 January 74,837 106,653 Cash and cash equivalents at 31 December 108,092 74,837 ========= ========= 31 Notes to the consolidated financial statements (Expressed in Renminbi Yuan) 1 Significant accounting policies Foshan Huaxin Packaging Company Limited (the “Company”) is a company incorporated in the People’s Republic of China (the “PRC”). The consolidated financial statements of the Company for the year ended 31 December 2002 comprise the Company and its subsidiaries (together referred to as the “Group”). The Group is principally engaged in the production and sale of paper packaging products, printing and sale of packaging products and production and sale of chemical products. (a) Statement of compliance The accompanying consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) promulgated by the International Accounting Standards Board (“IASB”). IFRS includes International Accounting Standards (“IAS”) and related interpretations. (b) Basis of preparation The consolidated financial statements are presented in Renminbi Yuan, rounded to the nearest thousand. They are prepared on the historical cost basis. The accounting policies have been consistently applied by the Group. The preparation of financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates. (c) Basis of consolidation (i) Subsidiaries Subsidiaries are those enterprises controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. 32 1 Significant accounting policies (continued) (c) Basis of consolidation (continued) (ii) Associate An associate is an enterprise in which the Group has significant influence, but not control, over the financial and operating policies. The consolidated financial statements include the Group’s share of the total recognised gains and losses of the associate on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds the carrying amount of the associate, the carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred obligations in respect of the associate. (iii) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised gains arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with associates are eliminated to the extent of the Group’s interest in the enterprises against the investment in the associate. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. (d) Lease prepayments Lease prepayments represent land use rights paid to the PRC’s land bureau. Land use rights are carried at cost and amortised on a straight-line basis over the period of the rights of 50 years. (e) Intangible assets (i) Goodwill Goodwill arising on an acquisition represents the excess of the cost of acquisition over the fair value of the net identifiable assets acquired. Goodwill is stated at cost less accumulated amortisation and impairment losses (see note 1(m)). Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of 10 years. 33 1 Significant accounting policies (continued) (e) Intangible assets (continued) (ii) Negative goodwill Negative goodwill arising on an acquisition represents the excess of the fair value of the net identifiable assets acquired over the cost of acquisition. To the extent that negative goodwill relates to an expectation of future losses and expenses that are identified in the plan of acquisition and can be measured reliably, but which have not yet been recognised, it is recognised in the income statement when the future losses and expenses are recognised. Any remaining negative goodwill, but not exceeding the fair values of the non-monetary assets acquired, is recognised in the income statement over the weighted average useful life of those assets that are depreciable/amortisable. Negative goodwill in excess of the fair values of the non-monetary assets acquired is recognised immediately in the income statement. Amortisation is credited to the income statement on a straight-line basis over the estimated useful lives of 10 years. (f) Investments Unlisted investments held by the Group are classified as being available-for-sale and are stated at cost, less provision for impairment losses (see note 1(m)). A provision is made where, in the opinion of management, there is an impairment in value of an investment. Investments available-for-sale are recognised/derecognised by the Group on the date it commits to purchase/sell the investments. On derecognition, the difference between the net proceeds received or receivable and the carrying amount of the investments are accounted for in the income statement. (g) Translation of foreign currencies Transactions in foreign currencies are translated to Renminbi Yuan at the exchange rates ruling at the date of transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to Renminbi Yuan at the foreign exchange rates ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. 34 1 Significant accounting policies (continued) (h) Property, plant and equipment (i) Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses (see note 1(m)). The cost of property, plant and equipment constructed by the Group includes the cost of materials, direct labour and an appropriate proportion of fixed and variable overheads. (ii) Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the item of property, plant and equipment. All other expenditure is recognised in the income statement as an expense as incurred. (iii) Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives, after taking into account their estimated residual values, of items of property, plant and equipment. The estimated useful lives are as follows: Buildings 40 years Plant and machinery 20 years Furniture, fixtures and office equipment 5 years Motor vehicles 8 years Assets are depreciated from the date of acquisition or, in respect of internally constructed assets, from the time an asset is substantially completed and ready for its intended use. (iv) On disposal of fixed assets, the profit or loss is determined as the difference between the net sale proceeds and the carrying amount. (i) Construction in progress Construction in progress represents properties under construction and equipment purchased prior to installation, which includes construction and acquisition costs, less impairment losses (see note 1(m)). Capitalisation of these costs ceases and the construction in progress is transferred to fixed assets when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is provided in respect of construction in progress until it is completed and ready for its intended use. 35 1 Significant accounting policies (continued) (j) Inventories Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost of inventories is based on the weighted average principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of work in progress and manufactured inventories, cost includes an appropriate share of production overheads. (k) Trade and other receivables Trade and other receivables are stated at their cost less allowance for any amounts expected to be irrecoverable. All allowance is provided for based upon the evaluation of the recoverability of these accounts at the balance sheet date. (l) Cash and cash equivalents Cash and cash equivalents comprise cash balances, deposits with banks and other financial institutions maturing within three months. (m) Impairment The carrying amounts of the Group’s assets, other than inventories (see note 1(j)) deferred tax assets (see note 1(p)) and financial assets, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement. (i) Calculation of recoverable amount The recoverable amount of assets is the greater of their net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. 36 1 Significant accounting policies (continued) (m) Impairment (continued) (ii) Reversals of impairment An impairment loss in respect of goodwill is not reversed unless the loss was caused by a specific external event of an exceptional nature that is not expected to recur, and the increase in recoverable amount relates clearly to the reversal of the effect of that specific event. In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (n) Interest-bearing borrowings Interest-bearing borrowings recognised initially at cost, less attributable transaction costs, are stated at their carrying amounts. (o) Dividends Dividends are recognised as a liability in the period in which they are declared. (p) Income tax Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly to equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using the tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amounts of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date. 37 1 Significant accounting policies (continued) (p) Income tax (continued) A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. (q) Provisions A provision is recognised in the balance sheet when the Group has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. (r) Revenue recognition Revenue is recognised in the income statement as follows: (i) Revenue from sales of goods is recognised in the income statement when the significant risks and rewards of ownership have been transferred to the buyer, and no significant uncertainties remain regarding recovery of the consideration due, associated costs or the possible return of goods. (ii) Interest income is accrued on a time-apportioned basis on the principal outstanding and at the rate applicable. (s) Expenses (i) Operating lease payments Payments made under operating leases are recognised in the income statement on a straight-line basis over the terms of the respective leases. (ii) Net financing costs Net financing costs comprise interest payable on borrowings, interest receivable on funds invested, foreign exchange gains and losses, that are recognised in the income statement. All interest and other costs incurred in connection with borrowings are expensed as incurred as part of net financing costs, except to the extent that they are capitalised as being directly attributable to the acquisition or construction of an asset which necessarily takes a substantial period of time to get ready for its intended use. 38 1 Significant accounting policies (continued) (t) Retirement benefits The Group participates in a retirement scheme operated by the local authority and the annual cost of providing retirement benefits is charged to the income statement according to the contribution payable as determined by the scheme. (u) Segment reporting A segment is a distinguishable component of the Group that is engaged either in providing products and services (business segment), which is subject to risks and rewards that are different from those of other segments. (v) Discontinuing operations A discontinuing operation is a clearly distinguishable component of the Group’s business that is abandoned or terminated pursuant to a single plan, and which represents a separate major line of business. 2 Segment reporting Segment information is presented in respect of the Group’s business segments. The primary format, business segments, is based on the Group’s management and internal reporting structure. Inter-segment pricing is determined on an arm’s length basis. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly, income-earning assets and revenue, interest-bearing loans, borrowings and expenses, and corporate assets and expenses. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period. The Group’s principal activities are the production and sale of paper packaging products, the printing and sale of packaging products and the production and sale of chemical products in the PRC. The Group’s profits are almost entirely attributable to its manufacture and sale of products in the PRC. Accordingly, no geographical segmental analysis is provided. 39 Foshan Huaxin Packaging Company Limited Financial statements for the year ended 31 December 2002 2 Segment reporting (continued) The Group comprises the following main business segments. Production and sale Printing and sale Production and sale of packaging products of packaging products of chemical products Consolidated 2002 2001 2002 2001 2002 2001 2002 2001 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Total revenue from external customers 480,188 429,005 52,915 84,879 202,156 - 735,259 513,884 ======= ======= ======= ======= ======== ======== ======== ======= Segment result 75,180 42,645 (593) 3,467 10,069 - 84,656 46,112 ======= ======= ======= ======= ======== ======== Net financing cost - - - - - - (12,817) (15,482) Unallocated expenses - - - - - - (5,231) (3,174) Share of profit of associate 66,819 56,720 - - - - 66,819 56,720 Gain on disposal of associate - 50,457 - - - - - 50,457 Income tax expense - - - - - - (20,072) (10,344) Minority interests - - - - - - (14,783) (6,811) Profit attributable to shareholders 98,572 117,478 ======== ======= Segment assets 827,035 897,979 109,567 116,468 133,802 - 1,070,404 1,014,447 Investment in associate 165,257 160,418 - - - - 165,257 160,418 Unallocated assets 112,271 84,383 Total assets 1,347,932 1,259,248 ======== ======= Segment liabilities 63,272 49,249 11,908 16,577 75,062 - 150,242 65,826 Unallocated liabilities 179,667 238,371 Total liabilities 329,909 304,197 ======== ======= Capital expenditure for the year 31,926 17,261 3,933 13,308 3,879 - 39,738 30,569 ======= ======= ======= ======= ======== ======== ======== ======= Depreciation charge for the year 32,604 30,674 6,601 6,460 8,381 - 47,586 37,134 ======= ======= ======= ======= ======== ======== ======== ======= Amortisation charge/ (credit) for the year 247 432 202 175 (28) - 421 607 ======= ======= ======= ======= ======== ======== ======== ======= 40 3 Discontinuing operations In 2003, the Company entered into a binding agreement for the sale of its subsidiary, Foshan Huahao Chemicals Co. Ltd., which is principally engaged in the production and sale of chemical products, a separate business segment (refer note 2). As at 31 December 2002, the subsidiary had total assets of Rmb147,590,000 and total liabilities of Rmb108,522,000. The amounts of revenue, income tax expenses and the net profit for the year ended 31 December 2002 were Rmb202,156,000, Rmb1,907,000 and Rmb5,885,000 respectively. During 2002, the subsidiary had cash inflows from operating activities of Rmb7,013,000, cash outflows from investing activities of Rmb91,000 and cash outflows from financing activities of Rmb9,054,000. 4 Personnel expenses 2002 2001 Rmb’000 Rmb’000 Wages, salaries and other staff costs 45,536 25,113 Contributions to retirement scheme 1,664 1,289 47,200 26,402 ======= ======== Certain employees of the Group participate in a defined contribution retirement scheme operated by the PRC municipal government. The Group is required to contribute to the staff retirement scheme at a rate of 15% (2001: 14%) of salary costs. Member of the retirement scheme is entitled to pension benefits equal to a fixed portion of the salary at the retirement date. The Group has no obligation to make payments in respect of pension benefits associated with this plan other than the annual contribution described above. 5 Net financing costs 2002 2001 Rmb’000 Rmb’000 Interest expense 13,326 16,548 Less: Amount capitalised as construction in progress - (609) 13,326 15,939 Interest income (592) (791) 12,734 15,148 Net foreign exchange loss 83 83 Other financial expenses - 251 Net financing costs 12,817 15,482 ======== ======== 41 No interest was capitalised during the year. In 2001, the interest capitalisation rate is 6% per annum. 42 6 Gain on disposal of associate On 22 June 1999, the Company disposed of 24% equity interest in an associate, Tetra Pak (Foshan) Packaging Company Limited (“Tetra Pak”). As part of the sale consideration of the 24% equity interest in Tetra Pak, the purchaser reimbursed the Company 24% of the profit after tax of Tetra Pak for the period from 1 January 1999 to 31 December 2001. The amount receivable from the purchaser in respect of 24% of the profit after tax of Tetra Pak for the period from 1 January 1999 to 22 June 1999 has been included in the share of profit of associate for the year ended 31 December 1999, whilst the amount in respect of the period from 23 June 1999 to 31 December 1999, the year ended 31 December 2000 and the year ended 31 December 2001 have been included as part of the gain on disposal of the 24% equity interest in 1999, 2000 and 2001 respectively when the amount could be reasonably ascertained. 7 Income tax expense (a) Taxation in the consolidated income statement represents: 2002 2001 Rmb’000 Rmb’000 Current tax expense Provision for PRC income tax for the year 20,642 10,344 Overprovision of PRC income tax relating to prior years written back (570) - Total income tax expense in the consolidated income statement 20,072 10,344 ======== ======== Except for a major subsidiary which is granted 50% concession from payment of PRC income tax, PRC income tax has been provided at 33% on the estimated assessable profits of the Company and other subsidiaries. No provision for deferred taxation has been made as there have been no material temporary timing differences during 2001 and 2002. 43 7 Income tax expense (continued) (b) Reconciliation of effective tax rate: 2002 2001 Rmb’000 Rmb’000 Profit from ordinary activities before taxation 133,427 134,633 ======== ======== Income tax at standard tax rate of 33% 44,031 44,429 Effect of lower tax rate of subsidiary (13,782) (6,304) Non deductible items/(non-taxable income) 1,892 (17,651) Effect of lower tax rate of an associate (12,028) (12,333) Effect of losses of the Company and subsidiaries 1,367 2,105 Others (1,408) 98 Income tax expense 20,072 10,344 ======== ======== (c) Taxation in the consolidated balance sheet represents: 2002 2001 Rmb’000 Rmb’000 Balance at 1 January 3,960 9,945 Through acquisition of a subsidiary 4,362 - Provision for PRC income tax for the year 8,521 3,960 Payments made during the year (7,751) (9,945) Balance at 31 December 9,092 3,960 ======== ======== 8 Earnings per share Basic earnings per share The calculation of basic earnings per share at 31 December 2002 was based on the profit attributable to shareholders of Rmb98,572,000 (2001: Rmb117,478,000) and the number of shares outstanding at 31 December 2002 of 439,500,000 (2001: 439,500,000). Diluted earnings per share No diluted earnings per share is calculated as there were no dilutive potential shares during 2001 and 2002. 44 9 Property, plant and equipment Furniture, Fixtures Plant and and office Motor Buildings machinery Equipment vehicles Total Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Cost: At 1 January 2002 222,075 553,000 9,662 8,596 793,333 Additions 1,700 5,783 8,376 2,330 18,189 Through acquisition of a subsidiary 19,018 25,561 369 2,134 47,082 Transfer from construction in progress (note 12) 1,711 14,465 628 - 16,804 Disposals (3,281) (7,097) - - (10,378) At 31 December 2002 241,223 591,712 19,035 13,060 865,030 --------------- --------------- --------------- --------------- --------------- Accumulated depreciation: At 1 January 2002 11,392 83,018 3,172 3,477 101,059 Charge for the year 6,536 37,370 2,198 1,482 47,586 Written back on disposal (291) (5,005) - - (5,296) At 31 December 2002 17,637 115,383 5,370 4,959 143,349 --------------- --------------- --------------- --------------- --------------- Net book value: At 31 December 2002 223,586 476,329 13,665 8,101 721,681 ========= ========= ========= ========= ========= At 31 December 2001 210,683 469,982 6,490 5,119 692,274 ========= ========= ========= ========= ========= Security Buildings, plant and machinery with a total carrying value of Rmb5,595,000 were pledged to secure bank loans drawn down in 2002 (note 21). In 2001, buildings, plant and machinery with a total carrying value of Rmb60,110,000 were pledged to secure bank loans which were wholly repaid in 2002. 45 10 Lease prepayments Rmb’000 Cost: At 1 January 2002 and 31 December 2002 43,466 --------------- Accumulated amortisation: At 1 January 2002 1,463 Charge for the year 879 At 31 December 2002 2,342 --------------- Carrying value: At 31 December 2002 41,124 ========= At 31 December 2001 42,003 ========= 11 Intangible assets Negative Goodwill goodwill Total Rmb’000 Rmb’000 Rmb’000 Cost: At 1 January 2002 960 (5,264) (4,304) Additions (note 23) - (284) (284) At 31 December 2002 960 (5,548) (4,588) --------------- --------------- --------------- Accumulated amortisation: At 1 January 2002 32 (647) (615) Charge for the year 96 (554) (458) At 31 December 2002 128 (1,201) (1,073) --------------- --------------- --------------- Carrying value: At 31 December 2002 832 (4,347) (3,515) ========= ========= ========= At 31 December 2001 928 (4,617) (3,689) ========= ========= ========= 12 Construction in progress 2002 2001 Rmb’000 Rmb’000 At 1 January 6,250 5,840 Additions during the year 21,549 20,591 Through acquisition of a subsidiary 17,294 - Transfer to fixed assets (note 9) (16,804) (20,181) At 31 December 28,289 6,250 ======== ======== 46 13 Group companies Control of the Group The Company is a subsidiary of Foshan Huaxin Development Company Limited, the immediate holding company, which in turn is a subsidiary of Foshan Municipal Industrial Investment Management Limited (佛山市工業投資管理有限公司), the ultimate holding company. Details of the Group’s principal subsidiaries Percentage of equity Place of Registered and held by the establishment Principal Name of company paid up capital Group and operation activities 2002 2001 Foshan Huafeng Paper US$49,100,000 75% 75% PRC Manufacture Company Limited and sale of (“Foshan Huafeng”) high value coated white paper board Huaxin (Foshan) Colour US$6,007,688 75% 75% PRC Printing and Printing Company sale of Limited (“Huaxin packaging Colour Print”) products Foshan Huahao Chemicals RMB26,405,000 70% - PRC Manufacture Co., Ltd. (“Huahao”) and sale of (note 26(a)) chemical products 丰淀粉制品(佛山)有限公司 RMB11,194,200 32% - PRC Manufacture (“ 丰淀粉”) (note a) and sale of chemical products (a) As the Group has effective control of 丰淀粉 through the power of governing the financial and operating policies of the economic activity under a management agreement, 丰淀粉 has been accounted for as a subsidiary. 14 Investment in associate 2002 2001 Rmb’000 Rmb’000 Share of net assets of the associate 165,257 160,418 ======== ======== Details of the associates are as follows: Percentage of Place of effective equity establishment held by the Group Principal Name of company and operation 2002 2001 activity Tetra Pak (Foshan) Packaging PRC 25% 25% Manufacture and Company Limited sale of paper package for soft drinks In 2001, the investment in associate was pledged to secure a bank loan which was wholly repaid in 2002. 47 15 Other investments 2002 2001 Rmb’000 Rmb’000 Unlisted equity investments available-for-sale, at cost 3,810 3,214 ======== ======== 16 Inventories 2002 2001 Rmb’000 Rmb’000 Raw materials 46,318 57,711 Work in progress 3,813 3,204 Finished goods 41,904 27,754 Less: general provision for finished goods (1,046) (446) 90,989 88,223 ======== ======== 17 Other receivables and prepayments 2002 2001 Rmb’000 Rmb’000 Sales proceeds on disposal of 24% equity interest in an associate (see note 6) - 50,457 Payment in advance 14,232 12,457 Others 21,977 12,034 36,209 74,948 ======== ======== 18 Cash and cash equivalents Cash and cash equivalents represent cash in hand and at bank. 19 Share capital 2002 2001 Rmb’000 Rmb’000 Registered, issued and paid up capital: 290,000,000 domestic shares of Rmb1 each 290,000 290,000 149,500,000 ‘B’ shares of Rmb1 each 149,500 149,500 439,500 439,500 ======== ======== The registered capital of the Company comprises 290,000,000 domestic shares of Rmb1 each and 149,500,000 ‘B’ shares of Rmb1 each. All shares rank pari passu in all material respects. 48 20 Reserves Statutory Statutory public Capital surplus welfare Retained reserve reserve reserve earnings Total Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Balance at 1 January 2001 210,233 23,082 11,541 81,349 326,205 Net profit for the year - - - 117,478 117,478 Transfer to PRC statutory reserves, net of minority interests’ share (note (b) & (c)) - 11,748 5,874 (17,622) - Dividends paid - - - (55,377) (55,377) Balance at 31 December 2001 210,233 34,830 17,415 125,828 388,306 ======== ======== ======== ======== ======== Balance at 1 January 2002 210,233 34,830 17,415 125,828 388,306 Net profit for the year - - - 98,572 98,572 Transfer to PRC statutory reserves, net of minority interests’ share (note (b) & (c)) - 9,571 4,786 (14,357) - Dividends paid - - - (58,453) (58,453) Balance at 31 December 2002 210,233 44,401 22,201 151,590 428,425 ======== ======== ======== ======== ======== Notes: (a) Capital reserve This reserve represents the excess of net assets assumed and the net proceeds received from shares issued by the Company, over the nominal value of the shares issued by the Company. (b) Statutory surplus reserve According to the current PRC Company Law and the Company’s articles of association, the Company is required to transfer 10% of its profit after taxation to the statutory surplus reserve until the reserve reaches 50% of the registered capital. For the purpose of calculating the transfer to reserve, the profit after taxation shall be the amount determined under PRC accounting standards. The transfer to this reserve must be made before distribution of dividends to shareholders. Statutory surplus reserve can only be used to make good previous years’ losses, if any, and for capitalisation issue provided that the balance after such issue is not less than 25% of the registered capital. 49 20 Reserves (continued) Notes (continued): (c) Statutory public welfare reserve According to the current PRC Company Law and the Company’s articles of association, the Company is required to transfer 5% to 10% (at the discretion of the Board of Directors) of its profit after taxation (determined under PRC accounting standards) to the statutory public welfare reserve. This reserve can only be used on capital expenditure for the collective benefits of the Company’s employees such as the construction of dormitories, canteens and other staff welfare facilities. This reserve is non-distributable other than in liquidation. The transfer to this reserve must be made before distribution of dividends to shareholders. The Directors have resolved to transfer 5% (2001: 5%) of the current year’s profit after tax to this reserve on 15 April 2003. (d) Distributable retained earnings According to the Company’s Articles of Association, the retained earnings available for distribution are the lower of the amount determined under PRC accounting standards and amount determined under IFRS. As of 31 December 2002, the retained earnings available for distributions were Rmb104,622,000 (2001: Rmb67,375,000), after taking into account of the current year’s proposed final dividend and the transfer to statutory reserves. (e) Dividend (i) The following dividend has not been provided for in the financial statements: 2002 2001 Rmb’000 Rmb’000 Proposed final dividend of Rmb0.11 per ordinary share (2001: Rmb0.133) 48,345 58,453 ======== ======== Pursuant to a resolution passed at the Directors’ meeting held on 15 April 2003, a final dividend of Rmb0.11 per ordinary share totalling Rmb48,345,000 will be payable to shareholders, subject to the approval of the shareholders at the Company’s Annual General Meeting. (ii) Dividend paid during the year is as follows: 2002 2001 Rmb’000 Rmb’000 Final dividend of Rmb0.133 per ordinary Share for the year ended 31 December 2001 (2000: Rmb0.126) 58,453 55,377 ======== ======== 50 21 Bank loans (i) The bank loans of the Group were repayable as follows: 2002 2001 Rmb’000 Rmb’000 Secured Due within 1 year 2,477 183,000 Due after 1 year but within 2 years - - Due after 2 years but within 5 years - 50,000 2,477 233,000 --------------- --------------- Unsecured Due within 1 year 130,850 - Due after 1 year but within 2 years - - Due after 2 years but within 5 years 25,000 - 155,850 - --------------- --------------- 158,327 233,000 ========= ========= At 31 December 2002, certain bank loans were secured over buildings, plant and machinery with a carrying value of Rmb5,595,000 and investments with a carrying value of Rmb3,000,000. In 2001, buildings, plant and machinery with a carrying value of Rmb60,110,000 and interest in the associate with a carrying value of Rmb154,168,000 were pledged to secure bank loans which were wholly repaid in 2002. Included in the loans is an amount of Rmb110,000,000 (2001: Rmb150,000,000) and Rmb20,850,000 (2001: Nil) which are guaranteed by the immediate holding company and a fellow subsidiary respectively. (ii) The interest rates and terms of repayment of bank loans of the Group are as follows: Interest Interest At 31 December rate type 2002 Rmb’000 Renminbi denominated loans - Due in 2003 4.779% - 6.435% Fixed 133,327 Long term bank loans Renminbi denominated loans - Due in 2007 5.022% Variable 25,000 51 22 Amounts due to related companies These amounts are unsecured, interest-free and are repayable on demand. 23 Acquisition of subsidiaries During the year, the Group acquired a subsidiary. The fair value of assets acquired and liabilities assumed were as follows: RMB’000 Property, plant and equipment 47,082 Construction in progress 17,294 Other investments 596 Inventories 25,518 Trade receivables 34,636 Other receivables and prepayments 40,106 Cash and cash equivalents 15,435 Minority interests (14,483) Bank loans (27,818) Income tax payable (4,362) Amounts due to related companies (11,599) Trade payables (18,968) Other payables and accrued expenses (84,670) Net identifiable assets and liabilities acquired 18,767 Negative goodwill on acquisition (284) Total consideration paid 18,483 Less: Cash and cash equivalents acquired 15,435 Net cash outflow 3,048 ======= 52 24 Financial instruments and concentration of risks Financial assets of the Group principally include cash and cash equivalents, trade, bills and other receivables and investments. Financial liabilities of the Group principally include trade and other payables and bank loans. Accounting policies for financial assets and liabilities are set out in note 1. (a) Interest rate risk The interest rates and terms of repayment of the bank loans of the Group are disclosed in note 21. (b) Credit risk Credit risk represents the accounting loss that would be recognised at the reporting date if counterparties failed to perform completely as contracted. The Group does not have significant exposure to any individual customer or counterparty. To reduce exposure to credit risk, the Group performs ongoing credit evaluations of the financial condition of its customers but generally does not require collateral. The Group deposits substantially all the cash and cash equivalents with the four largest state-owned banks of the PRC. The Group is exposed to credit-related losses in the event of non-performance by counterparties to financial instruments but, based on the Group’s credit assessment and the past repayment records of the counterparties, management does not expect any material counterparty to fail to meet its obligations. At balance sheet date there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet. (c) Foreign currency risk The Group incurs foreign currency risk on cash and cash equivalents of Rmb2,058,000 (2001: Rmb1,477,000) that are denominated in Hong Kong dollars and United States dollars. Fluctuation of the exchange rates of Hong Kong dollars and United States dollars against Renminbi Yuan will affect the Group’s financial position. 53 24 Financial instruments and concentration of risks (continued) (d) Fair value The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of IAS 32 and IAS 39. Fair value estimates, methods and assumptions, set forth below for the Group’s financial instruments, are made to comply with the requirements of IAS 32 and IAS 39, and should be read in conjunction with the Group’s consolidated financial statements and related notes. The estimated fair value amounts have been determined by the Group using market information and valuation methodologies considered appropriate. However, considerable judgement is required to interpret market data to develop the estimates of fair values. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Group could realised in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The following summarise the major methods and assumptions used in estimating the fair values of the Group’s financial instruments. The fair values of cash and cash equivalents, trade, bills and other receivables, trade and other payables, and short-term bank loans are not materially different from their carrying values due to the short-term nature of these instruments. There are no quoted market prices for unlisted equity investments. Accordingly, a reasonable estimate of fair value not be made without incurring excessive costs. Unlisted equity investments are stated at cost less impairment losses. The fair value of the long-term bank loan is Rmb24,500,999 (2001: Rmb51,407,431), which differs from its carrying amount of Rmb25,000,000 (2001: Rmb50,000,000) as shown in the balance sheet. The fair value has been determined by discounting the relevant cash flows using current interest rates for similar instruments. 25 Operating lease commitments Minimum lease payments under non-cancellable operating leases in respect of properties are payable as follows: 2002 2001 Rmb’000 Rmb’000 Operating lease charges payable: Within l year 754 146 After 1 year but within 5 years 255 - 1,009 146 ======== ======== The leases typically run for an initial period of one to five years, with an option to renew the lease after that date. Lease payments are increased annually to reflect market rentals. None of the leases includes contingent rentals. During the year ended 31 December 2002, Rmb1,842,000 was recognised as an expense in the income statement in respect of operating leases (2001: Rmb1,952,000). 54 26 Related party transactions The following is a summary of the significant transactions carried out in the normal course of business between the Group and its holding companies: Note 2002 2001 Rmb’000 Rmb’000 Acquisition of Huahao (a) 18,483 - Interest income (b) - 223 Rental expenses (c) 352 352 Bank loans guarantee (d) 110,000 150,000 ======== ======== Notes: (a) Acquisition of Huahao The Company acquired 70% equity interests of Huahao from its ultimate holding company for a cash consideration of Rmb18,483,000. The acquisition was completed on 8 January 2002 and the Company took control of Huahao with effect from the same date. (b) In 2001, interest income received from the immediate holding company arose from a interest-bearing receivable at a rate of 6.4% due from the immediate holding company. The interest-bearing receivable was repaid during 2002. (c) Rental expenses represented the payment to the immediate holding company for the use of office by the Company. (d) Included in the bank loans is an amount of Rmb110,000,000 (2001: Rmb150,000,000) and Rmb20,850,000 (2001: Nil) which are guaranteed by the immediate holding company and a fellow subsidiary respectively. 27 Subsequent events In 2003, the company entered into a binding agreement for the sale of its subsidiary, Foshan Huahao Chemicals Co. Ltd., which is principally engaged in the production and sale of chemical products, for a consideration of Rmb19,020,000. 28 Comparative figures The land use rights have been reclassified from intangible assets to lease prepayments in order to conform with the current year’s presentation. 55 XI. Documents Available for Inspection The following documents and information are available at the Board office for investors and the relevant authorities to consult: 1. Accounting Statements with signatures and seals of the legal representative, Chief Accountant and person in charge of accounting affairs; 2. Auditors’ Report under the seal of the accounting firm and signed by and under the seal of certified accountants. 3. Originals of all documents and manuscripts of Public Notices of the Company disclosed in public in the newspapers as designated by China Securities Regulatory Commission in the report period. 4. Original copy of 2002 Annual Report signed by the Chairman of the Board; Board of Directors of Foshan Huaxin Packaging Co., Ltd. April 15, 2003 56 57