深赛格(000058)2002年年度报告（英文）

SHENZHEN SEG CO., LTD. 2002 ANNUAL REPORT Important Note: Board of Directors of Shenzhen SEG Co., Ltd. and its direcectors individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions nor errors which would render any statement misleading. Due to business trip, Director Sun Shengdian and Director Shi Dechun were absent from the Board meeting, in which the Annual Report for 2002 was examined, with entrusting Director Zhang Weimin to attend and vote on their behalf and Director Li lifu was absent from the Board meeting in which the Annual Report for 2002 was examined , with entrusting Direct Zhang liying to attend and vote on his behalf. Chairman of the Board of the Company Mr. Zhang Weimin, General Manager Ms. Zhang Liying and Head of Financial Department Mr. Zhang Changhai hereby confirm that the Financial Report of the Annual Report is true and complete. This report was prepared in both Chinese and English. Should there be any difference in interpretation between the two versions, the Chinese version shall prevail. April 16, 2003 -1- CONTENTS . COMPANY PROFILE ----------------------------------------------------------------------------------3 . SUMMARY OF FINANCIAL HIGHLIGHT AND BUSINESS HIGHLIGHT-------------4 . CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS-8 . PARTICULARS ABOUT DIRECTORS, SUPERVISORS, SENIOR EXECUTIVES AND EMPLOYEES--------------------------------------------------------12 . CORPORATE GOVERNANCE---------------------------------------------------------------------15 . BRIEF OF THE SHAREHOLDERS’ GENERAL MEETING-------------------------------19 . REPORT OF BOARD OF DIRECTORS----------------------------------------------------------20 . REPORT OF SUPERVISORY COMMITTEE---------------------------------------------------35 . SIGNIFICANT EVENTS ---------------------------------------------------------------------------37 . FINANCIAL REPORT --------------------------------------------------------------------------------44 . DOCUMENTS AVAILABLE FOR REFERENCE----------------------------------------------78 -2- I. COMPANY PROFILE 1. Legal name of the Company In Chinese: 深圳赛格股份有限公司 In English: SHENZHEN SEG CO., LTD. 2. Legal Representative: Mr. Zhang Weimin 3. Secretary of the Board of Directors: Ms. Zheng Dan Liaison Address: 31/F, Tower A, Star Plaza, 38 Hong Li Road, Fu Tian District, Shenzhen Tel: (86) 755-83747939 Fax: (86) 755-83975237 E-mail: segcl1@baohua.com.cn 4. Registered Address: 16/F, Baohua Tech. Bldg., Huaqiang North Road, Fu Tian District, Shenzhen Office Address: 31/F, Tower A, Star Plaza, 38 Hong Li Road, Fu Tian District, Shenzhen Post Code: 518028 Company’s Internet Website: http://www.segcl.com.cn E-mail: segcl@baohua.com.cn 5. Newspapers Chosen for Disclosing Information of the Company: China Securities and Ta Kung Pao Internet Website Designated by CSRC for Publishing the Annual Report: http://www.cninfo.com.cn The Place Where the Annual Report is Prepared and Placed: Secretariat of Board of Directors, 31/F, Tower A, Star Plaza, 38 Hong Li Road, Fu Tian District, Shenzhen 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: A-share Shen SEG Stock Code: 000058 Short Form of the Stock: B-share Shen SEG-B Stock Code: 200058 7. Other Relevant Information of the Company The initial registration of the Company: Date: July 16, 1996 Address: 16/F, Baohua Tech. Bldg., Huaqiang North Road, Fu Tian District, Shenzhen Registered code of enterprise legal person’s business license: SS Zi N1686 Registered code of taxation: National Revenue: 440301279253776 Local Tax: 440304279253776 Name and address of Certified Public Accountants engaged by the Company: Domestic: Zhongtian Huazheng Certified Public Accountants -3- Address: 13/F, Ai Hua Bldg., Shen Nan Middle Road, Shenzhen International: Ho and Ho & Company Certified Public Accountants Address: Room 304, Arion Commercial Centre, 2-12 Queen’s Rd. W., Hong Kong II. SUMMARY OF ACCOUNTING HIGHLIGHTS AND BUSINESS HIGHLIGHTS (I) Profit indexes of the Company as of the year 2002 Unit: In RMB Total Profit 178,657,224.05 Net Profit 100,817,981.43 Net profit after deducting non-recurring gains and losses (Note) 91,664,149.00 Profit from core business 391,524,527.07 Profit from other business lines 2,019,437.18 Operating profit 111,609,327.10 Investment income 45,222,506.56 Subsidy income 500,000.00 Net income/expenditure from non-operating 21,325,390.39 Net cash flows arising from operating activities 651,830,661.71 Net increase/decrease in cash and cash equivalents 411,628,534.89 Note: Items of non-recurring gains and losses and the related amounts: Unit: In RMB No. Item Amount 1 Profit from deemed disposal of sector or investee company 130,858.23 2 Increase/(decrease) of total profit due to changes in - accounting estimation 3 Funds occupation charges received -347,826.09 4 Subsidy income 433,000.00 5 Income from non-operating 31,871,176.57 6 Expenditure of non-operating -22,933,376.28 Total 9,153,832.43 (II) The explanation on the difference in the net profit as calculated based on different accounting standards and system respectively. As audited by Zhongtian Huazheng Certified Public Accountants in accordance with Chinese Independent Auditing Standards, Accounting System for Enterprises, Accounting Standards for Enterprises and relevant laws and rules, the net profit of the Company as of the year 2002 was RMB 100,817,981.43; while as audited by Ho and Ho& Company Certified Public Accountants in accordance with the International Independent Auditing Standards and International Financial Reporting Standards (IFRS) and relevant laws and rules, the net profit as of the year 2002 was RMB 111,950,000. The reasons for difference of net profit audited by the different accounting standards -4- and systems: In prior year auditors’ report of domestic and overseas, due to the difference in accounting adjustment and accounting estimation of domestic part and overseas part, so prior year difference was switched back in order to unify accounting adjustment and accounting estimation of domestic auditors’ report and overseas auditors’ report, thus, there existed difference in net profit of domestic auditors’ report and overseas auditors’ report. Difference of net profit according to the different accounting standards and systems: Unit: RMB’000 Net profit / (loss) for the year 2002 2001 RMB’000 RMB’000 As reported in the financial statements audited by the PRC auditors 100,818 (338,761) IAS adjustments :- - (Decrease) / increase in provision for doubtful debts (4,855) 59,643 - Decrease in provision for other assets 5,289 12,166 - Loss on deemed disposal of a subsidiary 30,907 - - Share of results of associates 3,640 (22,181) - Negative goodwill arising from acquisition of equity interests in a subsidiary - - - Impairment loss on property, plant and equipment - (290,132) - Written off of property, plant and equipment (44,177) - - Reversal of loss on disposal of property, plant and equipment 9 - - Minority interests (7,543) - - Impairment loss shared by minority shareholders - 126,234 - Provision for staff quarter benefits - (309) - Reversal of unrecognised loss / (gain) on investments 27,862 (40,156) - Others - (8,550) As adjusted in conformity to IFRS 111,950 (502,046) (III) Accounting data and financial indexes over the previous three years at the end of report year -5- In 2001 In 2000 No. Indexes In 2002 Before After Before After adjustment adjustment adjustment adjustment 1 Income from core business 2,206,470,817.69 1,922,248,352.90 1,922,248,352.90 2,274,449,554.40 2,274,449,554.40 (RMB) 2 Net profit (RMB) 100,817,981.43 -338,760,825.56 -338,760,825.56 -162,145,474.11 -158,193,429.48 3 Total assets (RMB) 3,722,484,305.83 3,459,289,772.70 3,463,241,817.33 3,772,300,213.33 3,776,252,257.96 4 Shareholder’s equity 1,257,086,782.47 1,120,309,434.69 1,124,261,479.32 1,496,610,380.79 1,500,562,425.42 (excluding minority interests) (RMB) 5 Earnings per share 0.1388 -0.467 -0.467 -0.223 -0.218 (RMB/share) (Fully diluted) 6 Earnings per share 0.1388 -0.467 -0.467 -0.229 -0.223 (RMB/share) (Weighted average) 7 Earnings per share after 0.1262 -0.182 -0.182 -0.005 0.0004 deducting non-recurring gains and losses (RMB/share) 8 Net assets per share 1.731 1.543 1.548 2.061 2.066 (RMB/share) 9 Net assets per share after 1.661 1.468 1.473 1.91 1.911 adjustment (RMB/share) 10 Net cash flows per share 0.898 0.397 0.397 -0.069 -0.069 arising from operating activities (RMB/share) 11 Return on equity (%) (Fully 8.02 -30.24 -30.13 -10.83 -10.54 diluted) 12 Return on equity (%) 8.58 -25.89 -25.81 -11.06 -11.05 (Weighted average) 13 Weighted return on equity 7.80 -9.34 -9.32 -0.236 0.018 after deducting non-recurring gains and losses (%) Note: retroactive adjustments on net profit as of prior to the year 2001 are set out as follows: -6- Item Adjustment Amout Shenzhen SEG Samsung Co., Ltd., the associated company of the Company, corrected the withdrawal of interests as of prior to the year 2001 as accounting mistake in 2002, and retroactively adjusted profit as of prior to 3,952,044.63 the year 2001, the Company adjusted accordingly based on the equity method. (IV) Supplementary statement of profit in the report year Return on equity and earnings per share as calculated according to Regulations on the Information Disclosure of Companies Publicly Issuing Shares (No. 9) released by CSRC: 2002 2001 2000 Return on equity (%) Earnings per share Return on equity (%) Earnings per share Return on equity (%) Earnings per share Items (RMB) (RMB) (RMB) Fully Weighted Fully Weighted Fully Weighted Fully Weighted Fully Weighted Fully Weighted diluted average diluted average diluted average diluted average diluted average diluted average Profit from 31.15 33.33 0.6256 0.6256 14.80 12.67 0.229 0.229 20.02 20.44 0.413 0.423 core business Operating 8.88 9.50 0.1537 0.1537 -28.08 -24.06 -0.435 -0.435 -2.51 -2.57 -0.052 -0.053 profit Net profit 8.02 8.58 0.1388 0.1388 -30.13 -25.89 -0.467 -0.467 -10.54 -11.05 -0.218 -0.223 Net profit after deducting 7.29 7.80 0.1262 0.1262 -10.87 -9.32 -0.182 -0.182 -0.04 0.05 0.001 0.001 non-recurring gains and losses (V) Particulars about changes in shareholders' equity at the report period Amount at the Increase in Decrease in Amount at Items period-begin the report period the report period the period-end Share capital 726,145,863 ---- ---- 726,145,863 Capital public reserve 610,695,043.06 4,145,867.60 226,189,131.38 388,651,779.28 Statutory surplus public reserve 44,068,838.65 10,081,798.14 44,068,838.65 10,081,798.14 Statutory public welfare fund 52,777,228.24 5,040,899.07 ---- 57,818,127.31 Discretional surplus public reserve 157,178,779.38 ---- 157,178,779.18 ---- Retained profit (423,484,704.78) 528,254,730.84 15,122,697.21 89,647,328.85 unrealized loss on investment (43,119,568.23) 27,861,454.12 ---- (15,258,114.11) Total shareholders’ equity 1,124,261,479.32 575,384,749.77 442,559,446.62 1,257,086,782.47 Causes of change: (1) Decrease of capital public reserve and surplus public reserve as of this year was due to making up the deficits of previous year with capital public reserve and surplus public reserve according to the resolution approved by the 7th Shareholders’ General Meeting dated June 28, 2002. -7- (2) Reasons for increase of retained profit of 2002: (a) retained profit as of this year increased was mainly due to making up the deficits with capital public reserve and surplus public reserve according to the resolution approved by the 7th Shareholders’ General Meeting dated June 28, 2002; (b) retained profit as of this year increased was due to profit as of the year 2002. (3) Reasons for decrease of unrealized loss on investment: net assets of Shenzhen SEG Orient Industrial Development Company which belongs to consolidation scope changed from RMB–25,370,000 in last year to RMB2,080,000 in this year. III. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS (I) Particulars about changes in share capital 1. Statement of change in shares Statement of change in shares Unit: share Increase/decrease of this time (+, - ) Before the After the Items Allotment Bonus Capitalization of Additional Sub- change Others change of share shares public reserve issuance total I. Unlisted Shares 1. Promoters’ shares Including: State-owned share 367,327,898 367,327,898 Domestic legal person’s shares 44,150,000 44,150,000 Foreign legal person’s shares Others 2. Raised legal person’s shares 3. Inner employees’ shares 4. Preference shares or others Including: Transferred / allotted shares Total Unlisted shares 411,477,898 411,477,898 II. Listed Shares 1. RMB ordinary shares 86,626,238 86,626,238 (Including: shares held by (86,630) (86,630) senior executives (note)) 2.Domestically listed foreign 228,041,727 228,041,727 shares 3. Overseas listed foreign shares 4. Others Total Listed shares 314,667,965 314,667,965 III. Total shares 726,145,863 726,145,863 Note: Original deputy general manager of the Company Mr. Zhang Wanzhang has left his post approved by the Board of Directors dated Aug. 15, 2002, and ended Dec. 31, -8- 2002, senior executives’ shares held by him were unfreeze. 2. Issuance and listing of shares Particulars about the issuance of shares over the previous three years at the end the report year Issuance Issuance number Trading number Expiration Type of share Issuance date Date of listing price (share) (share) date Allotment of Apr. 3, 2000 to RMB 6.82 51,377,231 May 8, 2000 35,248,199 - share (A-share) Apr. 17 2000 per share (II) About shareholders 1. Total shareholders at the end of the report year Based on shareholder’s beadroll of the Company provided by China Securities Registration and Clearing Co., Ltd. Shenzhen Branch, ended Dec. 31, 2002, the Company had 88,150 shareholders in total, including 59,131 shareholders of A-share and 29,019 shareholders of B-share. 2. Shares held by major shareholders (1) About changes in shares held by shareholders holding over 5% (including 5%) of the total shares Proportion Increase / Amount at Proportion at the decrease in Amount at Name the at the Type of shares Pledged or frozen year-begin the report the year-end year-begin year-end year (+,-) By the end of the report year, 78,500,000 shares State-owned were frozen, including Shenzhen SEG 367,327,898 50.59% -129,968,232 237,359,666 32.69% legal person’s 63,500,000 shares were Group Co., Ltd. share pledged and 15,000,000 shares were judicially frozen. By the end of the report China Everbright State-owned year, state-owned legal Bank Co., Ltd., 0 0% +129,968,232 129,968,232 17.9% legal person’s person’s shares held by it Guangzhou Branch share were judicially frozen. (2) Ended Dec. 31, 2002, the top ten shareholders of the Company Holding shares at No. Shareholders’ name Proportion Type of shares the year-end (share) 1 Shenzhen SEG Group Co., Ltd. 237,359,666 32.69% State-owned legal person’s shares 2 China Everbright Bank Co, Ltd., Guangzhou Branch 129,968,232 17.9% State-owned legal person’s shares 3 Shanghai Zhongnan Investment Holdings Co., Ltd. 6,300,000 0.87% Domestic legal person’s share 4 Shanghai Qile Economic and Trading Co., Ltd. 6,000,000 0.83% Domestic legal person’s share 5 Shenzhen Shengyi Industrial Development Co., Ltd. 5,000,000 0.69% Domestic legal person’s share -9- Shanghai Taili Science and Technology Development 4,000,000 0.55% 6 Domestic legal person’s share Co., Ltd. 7 Shanghai Xinyuan Investment Co., Ltd. 3,600,000 0.5% Domestic legal person’s share 8 Qinhuangdao Sanyuan Co., Ltd. 3,100,000 0.43% Domestic legal person’s share 9 Shanghai Wantong Painting and Chemical Co., Ltd. 2,450,000 0.34% Domestic legal person’s share 10 Zheng Shao Sheng 2,107,538 0.29% Domestically listed foreign shares (B-share) Notes of the top ten shareholders Among the top ten shareholders as listed above, there exists no associated relationship between Shenzhen SEG Group Co., Ltd. (hereinafter referred to as SEG Group) and the other shareholders, and it does not belong to the consistent actionist regulated by the Management Measure of Information Disclosure on Change of Shareholding for Listed Company with the other shareholders. The Company consults the other shareholders by means of the telecommunication, and confirms that there exists no associated relationship among the No. 2, 6 and 8 shareholders and the other shareholders, and they don’t belong to the consistent actionist with the other shareholders. For the rest shareholders, the Company is unknown whether there exists associated relationship, or whether the rest shareholders belong to the consistent actionist regulated by the Management Measure of Information Disclosure on Change of Shareholding for Listed Company. The Company received (2001) YGFZZ No. 37 Civil Judgment Letter issued by Guangdong Province Higher People’s Court dated Feb. 26, 2002, based on the said judgment letter, SEG Group transferred 129,968,232 state-owned legal person’s shares of the Company (taking 17.9% of the total shares of the Company) held by it to China Everbright Bank Co., Ltd. Guangzhou Branch (hereinafter referred to as Guangzhou Everbright) in order to commute the overdue debts owed by SEG Group. Guangzhou Everbright has transacted the aforesaid equity transfer procedure dated Nov. 18, 2002; the type of shares was still state-owned legal person’s share. Thus, the equity of state-owned legal person’s share held by SEG Group, the first largest shareholder of the Company, was decreased to 32.69% at the period-end from 50.59% at the period-begin. The aforesaid matters were successively disclosed on Page 3 of Securities Times and Page C3 of Ta Kung Pao on July 30, 2002, 2002 Semi-annual Report of Shenzhen SEG Co., Ltd. (for details, please refer to Page 26 of Securities Times and Page A10 of Ta kung Pao dated Aug. 17, 2002), The Third Quarterly Report 2002 of Shenzhen SEG Co., Ltd. (for details, please refer to Page 39 of Securities Times and Page C10 of Ta kung Pao dated Oct. 29, 2002), and on Page 5 of China Securities and Page A10 of Ta Kung Pao dated Jan. 21, 2003. - 10 - 3. The first largest shareholder of the Company The first largest shareholder of the Company: Shenzhen SEG Group Co., Ltd. Legal representative: Mr. Sun Yulin Date of foundation: Aug. 23, 1986 Business scope: Production and research of electronic products, electrical home appliances, electronic toys and electronics chemical; undertake various electronic system project. (Import and export business and exclusive dealings commodities were conducted according to the regulation). Raise development funds and invest credit; development of technology, information service and maintenance; high-floor sightseeing, supporting food and drink, marketplace and exhibition of SEG Plaza. Registered capital: RMB 319.81 million The structure of equity: Shenzhen Investment Holding Corporation holds 100% share equity of SEG Group 4. The controlling shareholder of the first largest shareholder The controlling shareholder of the first largest shareholder: Shenzhen Investment Holding Corporation Legal representative: Li Heihu Date of foundation: Feb. 10, 1988 Business scope: Management and supervision of enterprise’s state assets, financing and property right; to share all kinds of enterprise and turn over investment, to offer credit and assurance; to impose profit after taxation and occupying expenses of assets of state-owned enterprise and the other businesses authorized by municipal government. Registered capital: RMB 2 billion The structure of equity: Shenzhen Municipal People’s Government held its 100% equity. 5. The other legal person’s shareholder of the Company holding over 10% of the total shares Legal person’s shareholder holding over 10% of the total shares: China Everbright Bank Co., Ltd., Guangzhou Branch Authorized legal representative: Qiu Huofa Date of foundation: March 26, 1997 Business scope: deposit, credit and settlement of RMB; discount on notes; agency marketing of financial bonds, agency marketing, agency cash and sale of government bonds, agency receiving and payable; foreign exchange deposit, foreign exchange loan, foreign exchange remittance, foreign currency exchange, international settlement; settlement of exchange, sale of exchanged, acceptance and discount of foreign exchange; guaranteed foreign exchange authorized by General Bank; investigation, consultation and witness of status; and the other business authored by the People’s Bank of China. Operating capital: Unknown - 11 - IV. PARTICULARS ABOUT DIRECTORS, SUPERVISORS AND SENIOR EXECUTIVES AND EMPLOYEES (I) Director, supervisor and senior executives 1. Basic information Number of Number of Increase / holding shares holding No. Name Gender Age Office term Title decrease at the shares at the (share) year-begin year-end 1 Zhang Weimin Male 52 May 2000 – May 2002 Chairman of the Board 0 0 0 2 Zhang Liying Female 49 May 2000 – May 2002 Director, 0 0 0 General Manager 3 Li Lifu Male 48 May 2000 – May 2002 Director, Deputy General Manager 4 Sun Shengdian Male 48 May 1999 – May 2002 Director 0 0 0 5 Shi Dechun Female 52 May 2000 – May 2002 Director 0 0 0 6 Xin Huanping Male 40 From June 28 2002 Independent Director 0 0 0 7 Su Xijia Male 49 From June 28 2002 Independent Director 0 0 0 8 Wang Li Male 42 May 2001 – May 2002 Chairman of Supervisory 0 0 0 Committee 9 Xu Changhui Male 54 May 1999 – May 2002 Supervisor 0 0 0 10 Chen Degen Male 57 May 2000 – May 2002 Supervisor 0 0 0 11 Fan Qing Female 49 May 1999 – May 2002 Supervisor 34,650 34,650 0 12 Xu Jiqian Male 55 May 1999 – May 2002 Supervisor 0 0 0 13 Zheng Dan Female 38 May 1999 – May 2002 Deputy General Manager, 0 0 0 Secretary of the Board 2. Particulars about directors or supervisors holding the position in Shareholding Company: Chairman of the Board Mr. Zhang Weimin took the post of Chief Economist of SEG Group from May 2000. Director Mr. Sun Shengdian took the post of Deputy General Manager of SEG Group from July 2001. Director Ms. Shi Dechun took the post of Head of Financial Dept. of SEG Group from Aug. 1996. Chairman of the Supervisory Committee Mr. Wang Li took the post of Deputy Chief Accountant of SEG Group from May 2000. Supervisor Mr. Xu Changhui took the post of Vice Secretary of the Party Committee and concurrently Chairman of labor union of SEG Group from Oct. 2000. Supervisor Mr. Chen Degen took the post of Deputy Head of Auditing Dept. of SEG Group from April 1996. Supervisor Ms. Fan Qing took the post of Deputy Head of Human Resource of SEG Group from Oct. 2001. (II) Annual remuneration - 12 - 1. The determinate procedure and basis of the recompense: The Company implemented the position wages system. The annual remuneration for senior executives comprises two parts, namely, the wage (the position wage, floating wage and subsidy) and the year-end bonus. The wage was decided by the Board of Directors and pay in monthly based on the position function and the position wage rules of the Company; the year-end bonus was decided by the Board based on the accomplishment of annual operation targets and working tasks laid out in the Shareholders’ General Meeting. According to the Articles of Association of the Company, the shareholders’ general meeting determined the salary of directors and supervisors, but at present the Company had not practiced. Directors and supervisors only draw their position wage from the Company. 2. Particulars about the annual remuneration of directors, supervisors and senior executives in office No. Name Gender Title Notes 1 Zhang Weimin Male Chairman of the Board Drawing salary from SEG Group 2 Zhang Liyng Female Director, General Manager Drawing salary from the Company 3 Li Lifu Male Director, Deputy General Manager Drawing salary from the Company 4 Sun Shengdian Male Director Drawing salary from SEG Group 5 Shi Dechun Female Director Drawing salary from SEG Group Drawing allowance of independent director 6 Xin Huanping Male Independent Director from the Company Drawing allowance of independent director 7 Su Xijia Male Independent Director from the Company 8 Wang Li Male Chairman of Supervisory Committee Drawing salary from SEG Group 9 Xu Changhui Male Supervisor Drawing salary from SEG Group 10 Chen Degen Male Supervisor Drawing salary from SEG Group Drawing salary from Shenzhen Investment 11 Fan Qing Female Supervisor Holding Corporation 12 Xu Jiqian Male Supervisor Drawing salary from the Company Deputy General Manger, Secretary of the Drawing salary from the Company 13 Zheng Dan Female Board There are 13 directors, supervisors and senior executives in office at present. Of them, 4 persons drew their annual remuneration from the Company and,the total annual remuneration amounted to RMB 946,659. The total annual remuneration of the top two director drawing the highest payment was RMB535,521 ,the total amount of annual remuneration of the top three senior executives drawing the highest payment was RMB 755,079. One enjoys the annual remuneration between RMB 150,000 and 200,000, and three enjoy the annual salary over RMB 200,000 respectively. According to resolution of the 7th Shareholders’ General Meeting, independent director Mr. Su Xijia and Mr. Xin Huanping drew their allowance in monthly from the Company since July 2002 in term of the standard of annual allowance of RMB 50,000 (tax included) respectively per year. The Company reimbursed the reasonable charges - 13 - according to the actual situation which independent directors attended the meeting of the Board, shareholders’ general meeting or exercise their functions and powers in accordance with the relevant laws and regulations and Articles of Association. (III) Directors, supervisors and senior executives leaving the office and the reason in the report year 1. Directors, supervisors and senior executives leaving the office in the report period No. Name Gender Position Causes Date Notes As examined and approved in Work the 19th meeting of the 2nd 1 Li Lifu Male Chief Financial Supervisor Jun. 27, 2002 transfer Board of Directors dated Jun. 27, 2002 As examined and approved in Zhang Personal 2 Male Director Jun. 28, 2002 the 7th Shareholders’ General Wanzhang reason Meeting dated Jun. 28, 2002 As examined and approved in Work 3 Sun Lei Male Director Jun. 28, 2002 the 7th Shareholders’ General transfer Meeting dated Jun. 28, 2002 As examined and approved in Zhang Personal the 20th meeting of the 2nd 4 Male Deputy General Manager Aug. 15, 2002 Wanzhang reason Board of Directors dated Aug. 15, 2002 During the report year, the Company has not dismiss General Manager, Deputy General Manager, person in charge of financial or Secretary of the Board except that Mr. Zhang Wanzhang resigned from the post of deputy general manager of the Company due to personal reason approved by the Board of Directors. 2. Directors, supervisors and senior executives engaged by the Company in the report year No. Name Gender New position Date Note 1 Li Lifu Male Deputy General Manager Jun. 27, 2002 As examined and approved in the 19th meeting of the 2nd Board of Directors dated Jun. 27, 2002 2 Zheng Dan Female Deputy General Manager Jun. 27, 2002 As examined and approved in the 19th meeting of the 2nd Board of Directors dated Jun. 27, 2002 nd 3 Su Xijia Male Independent Director of the 2 Jun. 28, 2002 As examined and approved Board of Directors in the 7th Shareholders’ General Meeting dated Jun. 28, 2002 nd 4 Xin Huanping Male Independent Director of the 2 Jun. 28, 2002 As examined and approved Board of Directors in the 7th Shareholders’ General Meeting dated Jun. 28, 2002 Note: The office term of the aforesaid personnel was the same as the office term of 2nd Board of Directors. - 14 - (IV) About employees (number, Profession composing, education background and retirees) At the end of the report period, The Company had totally 3,364 on-the-job employees and 88 retirees. The annuities, hospitalization insurance of the retirees were planed as a whole. The Company no longer bear the cost of the retirees. The Profession composing and education background of the staff are as follows: Profession Production personnel Salespersons Technicians Administrative personnel composing Number 2658 266 211 229 Education Bachelor 3-years regular Polytechnic school Senior high school Doctor Master background degree college graduate graduate graduate or lower Number 3 55 298 502 1502 1004 V. CORPORATE GOVERNANCE (I) Brief of the Corporate Governance In the report period, according to requirements of laws and legislations of PRC Company Law, Securities Law and Administration Rules of Listed Company, the Company keeps on perfecting its corporate governance and standardizing its operation so as to promote its healthy development. In the report year, the Company had established, modified and improved a series of administrative detailed rules including Articles of Association of Shenzhen SEG Co., Ltd. (“Articles of Association of the Company”), Rules of Procedures of the Shareholders’ General Meeting of Shenzhen SEG Co., Ltd., Rules of Procedures of the Board of Directors of Shenzhen SEG Co., Ltd., Rules of Procedures of the Supervisory Committee, Information Disclosure Rules of Shenzhen SEG Co., Ltd., Working Rules for Secretary of the Board of Directors of Shenzhen SEG Co., Ltd., Rules of Guarantee for Related Beneficiaries of Shenzhen SEG Co., Ltd., and Working Rules for Independent Director of Shenzhen SEG Co., Ltd. (“Working Rules for Independent Director”) etc. Establishment and improvement of the above systems has set a good foundation for the Company’s standardized operation. In the report period, the partial directors took part in the training of director and independent director organized by Shenzhen Stock Exchange. In the report period, the Company mainly concentrated on the following aspects in accordance with the demand of Administration Rules of Listed Company: 1. To implement of accumulative voting system in election of directors On June 28, 2002, the proposal on amending the Articles of Association of the Company was examined and approved in the 7th Shareholders’ General Meeting. In Articles of Association of the Company after amendment, the Company adopted accumulative voting system in election of director, and later implemented accumulative voting system in the election of Independent Directors. 2. To establish Independent Directors System and engage Independent Directors The Company established Working Rules of Independent Directors of the Company, and as examined and approved by the 7th Shareholders’ General Meeting dated June - 15 - 28, 2002. Mr. Su Xijia and Mr. Xin Huanping were elected as Independent Directors of the 2nd Board of Directors, and they began to perform duties of Independent Directors from the date of approval. 3. To establish and develop the self-scrutiny of Modern Enterprise System seriously In the report period, the Company carried out self-scrutiny on the establishment of modern enterprise system in every aspect from May to June 2002 in accordance with the demand of Notice on Scrutiny of Listed Company Establishing Modern Enterprise System (ZJF [2002] No. 32 Document) jointly promulgated by CSRC and State Economic and Trade Commission, and completed Self-scrutiny Report on Establishing Modern Enterprise System of Shenzhen SEG Co., Ltd. and carried out self-rectify and improvement. 4. To promote corporate governance of the Company through the establishment of modern enterprise system in Listed Company implemented by supervisory department The Company received the special scrutiny implemented by Shenzhen Securities Regulatory Office of CSRC (hereinafter referred to as SZSRO) on establishment of modern enterprise system in Listed Company from Aug. 12 to Aug. 14, 2002. In order to coordinate with the special scrutiny task, the Company submitted the relevant documents and reports, and wrote the Rectification and Reform Report and Correction Summary on schedule. The Company timely discovered the problems and shortage in respect of corporate governance of the Company through the said examination, which had maximum promotion role to strengthen and perfect modern enterprises system and promote the standardizing operation of the Company. In view of the relevant problem appeared in scrutiny, all directors, supervisors and senior executives studied and discussed seriously the relevant problem according to laws and rules, including Company Law, Securities Law, Rules on Listing of Share of Shenzhen Stock Exchange, Notice on Providing Guaranty For Other by Listed Company and Articles of Association of the Company. The Board of Directors held two meeting of special subject as this problem, examined and approved Rectification and Reform Plan of Special Scrutiny on Establishing Modern Enterprise System of CSRC of Shenzhen SEG Co., Ltd. by Shenzhen Securities Regulatory Office and Summary Report of Rectification of Special Scrutiny on Establishing Modern Enterprise System of Shenzhen SEG Co., Ltd. by Shenzhen Securities Regulatory Office of CSRC early and later, laid down and fulfilled the correction measure according to the demand of supervisory department. Through the said self-scrutiny and special scrutiny performed by supervisory department, the corporate governance of the company was further perfected and improved, but the Company needs improvement in the following aspects: (1) The Company had not established effective, just, transparent and suitable performance evaluating, inspiring and restricting system for directors, supervisors and senior executives. Measures to improve: The Board of Directors planed to set up Salary and Examination Commission and performance evaluating, inspiring and restricting system for directors, supervisors and senior executives. - 16 - (2) Office term of the 2nd Board of Directors and the 2nd Supervisory Committee has expired, and the Company had not elected new Board of Directors and new Supervisory Committee Measures to improve: Reelection of Board of Directors and Supervisory Committee were postponed due to change in administration team of SEG Group, the first largest shareholder of the Company; therefore, the Company has informed SEG Group by letter for several times, and urged SEG Group to take the name list of candidate of the 3rd Board of Directors and Supervisory Committee. SEG Group has promised to recommend the candidate of the 3rd Board of Directors and Supervisory Committee. (3) Ended Dec. 31, 2002, the first largest shareholder SEG Group still took funds of RMB 128,977,756.08 from the Company. Measures to improve: SEG Group made a commitment that SEG Group will offset the funds of RMB 109,178,965.44 as of the end of 2002 of the Company with the equity of SEG Samsung held by it. The Company now is coordinating and negotiating with SEG Group. The Company is striving for the fulfillment of aforesaid clearance and collection. (4)The first largest shareholder of the Company, SEG Group, is 100% state-owned enterprise. It manage the Company by execute the Reporting system of Property Representatiive . (5)The Company has not signed the engagement contract with manager which is to define rights and obligations for the Company and manager. (III) Performance of Independent Directors: The two independent directors of the Company, namely, Mr. Su Xijia and Mr. Xin Huanping began to perform duties of Independent Directors from the date of approval of the 7th Shareholders’ General Meeting. In the report period, the aforesaid two independent directors actively attended the Board meeting of the Company, carefully read the relevant information provided by the Company, knew the operating situation of the Company actively, seriously examined all proposals, actively expressed the independent opinion and brought the role of the independent director into full play according to the relevant demand of Articles of Association of the Company and Working Rules of Independent Director. In the report period, the independent director expressed the independent opinion on related guaranty and related transaction: 1. Independent director Mr. Xin Huanping issued independent opinion on providing guaranty for bank loan for Shenzhen SEG Samsung Industrial Co., Ltd. (hereinafter referred to as Samsung Industrial). The said position paper was published on Page 20 of Securities Time and Page B3 of Ta Kung Pao dated Sep. 7, 2002. 2. Independent director Mr. Xin Huanping and Mr. Su Xijia expressed independent opinion on the related transaction of purchasing 31/F of Tower A of Star Plaza. The said position paper was disclosed on Page 6 of Securities Times and A21 of Ta Kung Pao dated Sep. 13, 2002. 3. Independent director Mr. Xin Huanping and Mr. Su Xijia expressed independent opinion on the related transaction of reorganization of network business. The said position paper was published on Page 8 of Securities Times and Page C8 of Ta Kung - 17 - Pao dated Nov. 21, 2002. 4. Independent director Mr. Xin Huanping and Mr. Su Xijia expressed independent opinion on providing guaranty for bank loan for Samsung Industrial. The said position paper was disclosed on Page 3 of Securities Times and Page C1 of Ta Kung Pao dated Dec. 7, 2002. (IV) Particulars about the Company’s “Five Separations” from the first largest Shareholder in Respect of Business, Personnel, Assets, Organization and Finance: 1. In respect of business, the Company has integrated business system, keeps independence in operating management, confronts with the market independently during operation, and avoids competition with the Group in same trade. 2. In respect of personnel, the Company’s senior executives including general manager, deputy general manager and secretary of the Board are full time employers in the Company without taking concurrent position in Shareholding Company, and receive salary from the Company. The Company has integrated administration system of labor, human affairs and salaries, and maintains independence of its personnel. 3. In respect of assets, the equity of the eight enterprises striped from SEG Group to the Company have been audited and assessed by domestic and overseas Certified Public Accountants, and have also been ratified by national administrative authority of state owned assets. The controlling shareholder of these eight enterprises was changed from SEG Group to the Company as registered in Industrial and Commercial Administration Bureau. The Company makes independent registration, establishes independent accounts, and implements business accounting and management independently for the assets so as to keep completeness and independence of these assets. According to the Article No. 5 of Equity Transfer Agreement signed by the Company with SEG Group when the Company was listed, SEG Group agreed to let the Company and its subsidiaries and joint affiliated companies to use the eight trademarks that had been registered in National Trademark Bureau; and SEG Group agreed the Company to use the aforesaid trademarks or similar signs as the Company’s logo and during its operation; but the Company didn’t need to pay any fee to SEG Group for using the aforesaid trademarks or signs. 4. In respect of organization, the Company has set up organization and engaged staff fully in accordance with its own demand of management, and its production management department and administrative department are totally independent from the first largest shareholder. 5. In respect of finance, as an artificial person corporation that independently carries out management, business accounting and assumes sole responsibility for its profits and losses, the Company has independent financial and auditing department, has established independent business accounting system and financial administration system, has independent bank account, pays taxes according to law, and keeps absolute independence in its financial work. (V) Evaluation, Encouragement Mechanism and System for Senior Executives In respect of evaluation, SEG Group made annual performance evaluation towards - 18 - senior executives of the Company according to accomplishment of the assigned annual operating plan targets and other targets. Meanwhile, SEG Group and the Company’s Board of Directors encouraged senior executives of the Company based on the relevant encouragement system under prerequisite of achievement of annual operating plan targets. VI. BRIEFINGS ON THE SHAREHOLDERS’ GENERAL MEETING (I) In the report year, the Company held the Shareholders’ General Meeting once, namely, the 7th Shareholders’ General Meeting (“the Meeting”). (II) The notification and proposals of the 7th Shareholders’ General Meeting were published on Page 27 of Securities Times and Page B8 of Ta Kung Pao dated May 28, 2002. The Meeting was held in the large meeting room on 11/F of SEG Group, No.4 Bldg., SEG Science and Technology Industrial Park, Huaqiang North Road, Shenzhen dated Jun. 28, 2002. There were 12 shareholders and shareholders’ proxies attended the meeting who represented 368,263,434 shares (including 367,437,746 A shares and 825,688 B shares), taking 50.71% of total shares with voting right, which were in line with PRC Company Law, and the Articles of Association of the Company. The following resolutions were examined and approved one by one by means of registered voting in the Shareholders’ General Meeting: 1. Examined and approved Proposal on Amendment of Articles of Association of the Company; 2. Examined and approved 2001 Business Work Report of General Manager; 3. Examined and approved 2001 Work Report of the Board of Directors; 4. Examined and approved 2001 Work Report of the Supervisory Committee; 5. Examined and approved 2001 Financial Settlement Report; 6. Examined and approved 2002 Financial Budget Report; 7. Examined and approved 2001 Preplan of Profit Distribution and Converting Capital Public Reserve into Share Capital; 8. Examined and approved Preplan on 2002 Policy of Profit Distribution and Converting Capital Public Reserve into Share Capital; 9. Examined and approved 2001 Annual Report and its Summary; 10. Examined and approved Proposal on reengaging Shenzhen Pengcheng Certified Public Accountants as the Company’s domestic auditor in 2001 and Paying RMB 300,000 of Auditing Remuneration as of 2001 (the Company needn’t bear allowances for a business trip during the period of auditing); 11. Examined and approved Proposal on reengaging Ho and Ho & Company Certified Public Accountants as the Company’ overseas auditor in 2001 and paying HK$ 450,000 of Auditing Remuneration as of 2001 (The Company bear accommodation allowances and other expenses of RMB 20,000 during the period of auditing); 12. Examined and approved Proposal on Rules of Procedures of Shareholders’ General Meeting of Shenzhen SEG Co., Ltd.; 13. Examined and approved Proposal on Changing of Directors and Engaging Independent Director; (1) Agreed Mr. Zhang Wanzhang resigned from the post of director of the Company; - 19 - (2) Agreed Mr. Sun Lei resigned from the post of director of the Company; (3) Engaged Mr. Su Xijia as independent director of the 2nd Board of Directors of the Company; (4) Engaged Mr. Xin Huanping as independent director of the 2nd Board of Directors of the Company; 14. Examined and approved Proposal on offsetting the deficit of the previous year with public reserve; 15. Examined and approved Proposal on Allowances and Expenses of Independent Director of the Company; 16. Examined and approved Proposal on Working Rules of Independent director of Shenzhen SEG Co., Ltd. The public notice on these resolutions of the Meeting was published on Page 32 of Securities Times and Page B7 of Ta Kung Pao dated Jun. 29, 2002. (III) Election and changing of directors and supervisors in the report year Mr.Zhang wangzhang and Mr.Sun lei have left director approved by the 7th shareholder’s General meeting. Mr. Su Xijia and Mr. Xin Huanping were respectively elected as independent director of the 2nd Board of Directors of the Company in the 7th Shareholders’ General Meeting held on Jun. 28, 2002. The said public notice was disclosed in the newspapers and on the date ditto. VII. REPORT OF THE BOARD OF DIRECTORS (I) Discussion and analysis of the operation In 2002 economy of the world recovered slowly. The growth rate of world economy increased somewhat than that of the previous year and the world trade stopped declining and began to increase, which provided a comparatively stable external environment for the development of our country’s economy. National economy of our country kept a good trend of development and grew steadily. The opportunity arising from China’s entry to WTO provided good condition for economic development. Facing the intensified competition of market, the Company insisted on the work policy of “ reinforcing the management, preempting the market and fighting with the turnover of production and operation well; optimizing the structure, exploiting and innovating and establishing the new platform of sustainable development”, tightly caught the market opportunity and overcame various difficulties and strengthened the cost projects and enlarged the production and sales volume, which made each item of economic index all increase by a big margin. Ended the end of report period, the Company totally accomplished an income from core business of RMB 2,206,471,000, realized a profit from core business of RMB 391,525,000 and realized a net profit of RMB 100,818,000. The great increase of the total amount of profit of the Company in 2002 was mainly because that the total amount of profit of the CPT business of the Company increased by a big margin and the achievement of other core business remained stable. The - 20 - particular reasons mainly included the following three aspects: firstly, the output of 34’’ CPT increased by a big margin compared with the previous year, which diluted the expense and reduced the cost of unit CPT. Secondly, the Company strengthened the management of cost projects and quality projects, which reduced the cost. Thirdly, the Company adjusted the sales structure in time, which exploited the international and domestic market effectively and increased the sales volume by a comparatively big margin, especially increasing the sales volume of 34’’ CPT by a big margin. (II) Operation in the report period 1. Scope of core business and its operation The Company is mainly engaged in the business of scientific research, production and operation of hi-tech electronic and information products including CPT, electronic system engineering, network engineering and communications etc., operation of industry of information service, operation of electronic market, operation and management of real property, bonded warehousing and foreign transportation etc. (1) Formation of income from core business and profit from core business Formation of income from core business and profit from core business classified according to industry: (Unit: RMB) Industry Income from core Profit from core business business 1 Manufacture of CPT 1,939,352,425.37 315,258,781.76 2 Business of foreign transportation and 41,937,747.75 17,052,438.23 bonded warehousing 3 Operation business of electronic market 92,850,165.44 45,826,670.63 4 Business of commerce and trade 119,230,803.21 7,651,349.50 5 Manufacture of products of 13,099,675.92 5,735,286.95 telecommunications Total 2,206,470,817.69 391,524,527.07 In the report period, facing the situation of increase of demand in the market of CPT and decrease of price, the Company strengthened the management of product quality, tried hard to reduce the cost and positively exploited the market, which made both the production and sales of CPT business prosperous. The production and sales rate of 21’’ and 34’’ CPT all exceeded 100% and the technical renovation project of S-HS of production of 34’’ CPT was completed in the 4th quarter and the variety of 34’’ super high square CPT was increased. In the aspect of business of foreign transportation and bonded warehousing, facing the situation of large increase of transportation volume in the inland of Shenzhen and Hong Kong, sustainable decrease of transportation price and insufficiency of transportation force of the Company, through the measures of positively exploiting the new market and enhancing the transportation capability by flexible and various means, the Company made the transportation business create the new historical record. Simultaneously, in the aspect of warehousing business, through the expansion of new business of “ circulating package”, the Company gained - 21 - outstanding achievements in the warehousing business and created the good achievements that the lease rate of warehouse was 100% full warehouse. In the aspect of operation of electronic market, through the means of implementing the brand strategy, preempting the market, expanding the operation scale and enhancing the management level etc., the Company successfully accomplished the work of attracting investors of the 2nd stage market in the report period and the lease rate of counter reached over 90%, which kept a leading status in the industry in the intense competition of market. Besides, keeping the competition advantage in Shenzhen of SEG electronic market, at the same time, the Company also expanded the business of electronic market in the domestic central cities of Xi’an, Beijing, Wuhan and Jinan etc. positively. In the report period, the Company registered and established Xi’an SEG Electronic Market Co., Ltd. with an operating area of 32,000 sq. m., which is the biggest electronic specialty market in Xi’an. In the report period, the competition in the field of commerce and trade and manufacture business of communication products was still furious. Formation of income from core business and profit from core business classified according to sales area of product (CPT) (Unit: RMB) Sales area of product (CPT) Income from core business Profit from core business Domestic 1,076,464,209.50 218,222,896.70 Overseas 862,888,215.87 97,035,885.06 Total 1,939,352,425.37 315,258,781.76 (2) Major products of production and operation and their market share The business taking over 10% of income from core business or profit from core business is CPT business In the report period, the CPT business of the Company continued to keep comparatively high market share in the domestic market: the market share of 21’’ CPT was approximately 17%, taking the 2nd place at home and the market share of 34’’ CPT (flat square) was approximately 45%, taking the 1st place at home (origin of the information: statistics of National Association of CPT Industry). Simultaneously, the Company continued to keep the status of ranking the 1st of export volume of 21’’ CPT at home and ranking the 1st of production and sales volume of 34’’ CPT (flat square) (origin of the information: statistics of National Association of CPT Industry). Statement of production, sales, export and production and sales rate of CPT of the year of 2002: Variety of Output Increase/de- Sales Increase/de- Export Increase/de- Production product (in’0000 crease volume crease volume crease and sales pieces) compared (in’0000 compared (in’0000 compared rate with the pieces) with the pieces) with the correspondi correspondi correspondi ng period of ng period of ng period of the previous the previous the previous - 22 - year (+, -) year (+, -) year (+, -) 21’’ CPT 323.8 +3.16% 324.59 +1.22% 210.1 +52.2% 100.24% 34’’ CPT 68.7 +148.73% 69.87 +101.59% 15.1 +315.98% 101.70% sales income, cost of sales and gross profit ratio of major product (CPT) taking over 10% of the total amount of profit from core business: (Unit: RMB’000) Major products taking over 10% of Sales income Cost of sales Gross profit the total amount of income from core ratio business or profit from core business CPT 1,939,352 1,624,093 16.26% (3) In the report period, the core business and its structure of the Company experienced no comparatively great change compared with the previous report period. In the report period ,the reason of the profit ability from core business experienced comparatively great change compared with the previous report period, please read to the (I)discussion and analysis of the operation. 2. Operation and achievement of major holding companies and share-holding companies Major holding companies: (1) Sino-foreign joint venture-Shenzhen SEG Hitachi Color Monitor Co., Ltd. (hereinafter referred to as “SEG Hitachi”), whose 54.93% equity is held directly by the Company, is mainly engaged in the design, production and sales of 21’’ and 34’’ CPT with a registered capital of USD 113 million. In 2002 this company accomplished a sales income of RMB 1,939,352,000 and realized a net profit of RMB 115,540,000. The total assets of this company amounted to RMB 2,103,659,000 at the end of the year of 2002. (2) Shenzhen SEG Storage and Transportation Co., Ltd. whose 99.59% equity is controlled by the Company, is mainly engaged in the business of foreign transportation and bonded warehousing etc. with a registered capital of RMB 66 million. In the report period, this company realized revenue of RMB 41,938,000, an increase of 55.67% compared with the previous year and realized a net profit of RMB 2,695,000, an increase of 52.78% compared with the previous year. The total assets of this company amount to RMB 109,138,000 at the end of the year of 2002. (3) Shenzhen SEG Bao Hua Electronic Holding Co., Ltd. (hereinafter referred to as “ SEG Bao Hua”), whose 66.58% equity is controlled by the Company, is mainly engaged in the business of operation and management of real property etc. with a registered capital of RMB 30,808,800. In the report period, this company accomplished a sales income of RMB 27,643,000 and realized a net profit of RMB 298,000. The total assets of this company amounted to RMB 112,363,000 at the end of the year of 2002. (4) Shenzhen SEG Commercial Machinery Co., Ltd., whose 99.86% equity is held by the Company, is mainly engaged in the operation and maintenance of office - 23 - equipments of copycats etc. with a registered capital of RMB3 million. In the report period, this company accomplished a sales income of RMB 92,367,000 and realized a profit of RMB21,000. The total assets of this company amounted to RMB 31,487,000 at the end of the year of 2002. (5) Shenzhen SEG Network and Information Co., Ltd. (hereinafter referred to as “ SEG Network”), whose 52.41% equity is controlled by the Company, is mainly engaged in the technology development of system of computer information and network, service of computer network, service of e-business, operation business of international internet of computer information and network and the business of providing transaction service and logistics auxiliary service to manufacturers, distributors, agents and users of electronic products through network etc. with a registered capital of RMB 20 million. This company’s relevant issues of commercial change was finished on Dec. 20, 2002. Major share-holding companies: (1) SEG Samsung, whose 21.44% equity is held by the Company, is a listed company of A share listed in Shenzhen Stock Exchange. This company is mainly engaged in the production and sales of glass shell of CPT with a registered capital of RMB 785.97 million. In 2002 this company totally produced 7.74 million pieces and 11.16 million pieces of screens and wimbles respectively, an increase of 5% and 8% compared with the corresponding period of the previous year respectively and sold 7.82 million pieces and 12.74 million pieces of screens and wimbles respectively, an increase of 7% and 35% compared with the corresponding period of the previous year respectively. In the report period, this company realized a sales income of RMB 1,065,627,000 and a net profit of RMB 121,056,000. In 2002 the total assets of this company amounted to RMB 2,415,626,000 at the end of the year of 2002. (2) Shenzhen SEG Navigation Science and Technology Holding Co., Ltd.,whose 20.25% equity is held by the Company, is mainly engaged in the business of application of Global Satellite Positioning System (GPS) and production and operation of its products with a registered capital of RMB 33 million. In the report period, this company accomplished a sales income of RMB 40,744,000 and a net profit of RMB 3,273,000, an increase of 40.71% and 74.15% compared with the corresponding period of the previous year respectively. The total assets of this company amounted to RMB 50,608,000 at the end of the year of 2002. (3) Shanghai SEG Electronic Market Co., Ltd., whose 35% equity is held by the Company, has a registered capital of RMB5 million and the business scope includes: electronic components and parts, computers and external equipments, electronic equipments of instruments and meters and hardware and alternating current. In the report period, this company accomplished revenue of RMB 15,137,000 and realized a net profit of RMB 2,307,000. The total assets of this company amounted to RMB 14,714,000 at the end of the year of 2002. (4) Xi’an SEG Electronic Market Co., Ltd., whose 65% equity is controlled by the Company, was registered and established on Dec. 18, 2002 with a registered capital of RMB 3 million. This company is mainly engaged in the sales of software and - 24 - hardware of computers, products of communications, instruments and meters, optical, electronic and mechanical integration equipments, electronic components and parts and integrated circuit. 3. Major suppliers and customers In the report period, the amount of purchase to the top five suppliers of the Company was RMB 1031.58 million, taking 70% of the total amount of annual purchase and the amount of sales to the top five customers of the Company was RMB 1115.82 million, taking 57.5% of the total amount of sales. 4. Difficulties and problems arising from the operation and solutions The operating achievement of the Company in 2002 increased by a comparatively big margin compared with the previous year, but it also existed some difficulties and problems, which mainly reflected in: the increase of price of oil price and raw materials etc. and the continuous price war in many years resulted that the profit space of operation of CPT had become very narrow and shall continue to be reduced; CPT, the core business of the Company, had relatively small scale in the same industry at home and its products were simple, whose status was disadvantageous in the competition of the same industry; SEG electronic market, another core business of the Company, faced austere challenge in terms of the leading position of the industry; the foreign transportation business was hard to meet the increasingly rising demand of market due to the comparatively small scale etc.. Therefore, the Company adopted a series of measures to solve the aforesaid difficulties and problems: (1) Organized the production carefully so as to ensure the output of products of core business to reach the highest level in the history (2) Developed the cost projects deeply and tried utmost to offset the loss caused by the falling of price of products of core business Through the means of reinforcing the control and management of materials and finished goods, persisting on purchasing materials by diversified bidding and positively pushing nationalization substitution of materials etc., the Company solved the risks and loss caused by the falling of sales price effectively. (3) Pushed the management of TPM in order to ensure the normal operation of equipments, improve the quality guarantee system, strengthen the management and stabilize the quality of products. (4) Followed the market tightly, adjusted the production structure timely and expanded the domestic and oversea markets positively, which made the export of products of core business gain breakthrough. (5) Increased the service quality, adjusted the operating strategy, expanded the market and extended the view and strengthened the integration of resources, which had stabilized the operating advantage of electronic market, had increased the competition advantage of transportation and warehousing and had resisted the price risks and operation risks. - 25 - 5. The planned sales income of 2002 of the Company ever disclosed in the 2001 Annual Report of the Company was RMB 1800 million and the actual sales income of the year of 2002 was RMB 2,206 million, an increase of 22.56% compared with the planned amount. The main reason of increase was: In 2002, the main reason of increase of sales was the large increase of sales volume of 21’’ CPT and 34’’ CPT especially 34’’ CPT. In 2002 the sales income of CPT was RMB 1940 million and its sales increased by RMB 280 million compared with the actual sales income of RMB 1660 million in 2001, an increase of 16.87%. Besides, the increase of income from the business of bonded warehousing and foreign transportation and lease income of electronic market in a certain extent than the schedule also was the important factor causing the increase of income from core business in the report period. (II) Investment In the report period, the net long-term investment of the Company increased by RMB 51,396,000 compared with the previous year, an increase of 13.48%. For the name of invested companies, principal operating activities and proportion of equity of the invested companies held by the Company etc., please refer to the Notes V-11 of Accounting Statements. 1. Application of the proceeds raised through share offering in the report period In the report period, the Company raised no proceeds through share offering and there existed no such situation that the application of proceeds raised through share offering before the report period continued to the report period. 2. Important projects invested with proceeds not raised through share offering, the progress and earnings in the report period (1) The project of PRT of Shenzhen Hitachi SEG Display Devices Co., Ltd., whose 16.48% equity is indirectly held by the Company, got on smoothly as the scheduled in the report period and had been put into production in Nov. 2002. Since in the report period, this company just started the operation and had amortized large quantities of organization costs, this project incurred a loss of RMB 49,877,000 in 2002 and made the profit of the Company reduce by RMB-8,220,000. (2) The renovation project of production line of HS compatible with S-HS of 34’’ CPT of SEG Hitachi, disclosed in the Page A2 of Securities Times and Page C1 of Ta Kung Pao dated on Dec. 8, 2001 respectively by the Company, was completed in the report period as the scheduled, which realized a total profit of RMB 4.45 million in the report period. (3) After examined and approved by the 3rd Extraordinary Meeting of 2002 of the 2nd Board of Directors held on Nov. 29, 2002, the Company agreed the technical renovation project of 54cm (21’’) Color Projection Tube or Display Tube with middle and high resolving power of SEG Hitachi. For details, please refer to Page 8 of Securities Times and Page A23 of Ta Kung Pao dated on Dec. 3, 2002. In the report period, this project has been given an official and written reply by initiating a project by Shenzhen Economy and Trade Bureau and was examined and approved by the 1st Extraordinary Shareholders’ General Meeting of 2003 held on Jan. 22, 2003. The - 26 - project is started in 2003. (4) After approved by the 3rd Extraordinary Meeting of 2002 of the 2nd Board of Directors held on Nov. 29, 2002, the Company agreed the reforming project of production expansion of 86cm (34’’) CPT of SEG Hitachi. For details, please refer to Page 8 of Securities Times and Page A23 of Ta Kung Pao dated Dec. 3, 2002. In the report period, this project had been given an official and written reply by initiating a project by Shenzhen Economy and Trade Bureau . The project is started in 2003. (III) Analysis of financial status and operating results Analysis of financial status: (Unit: RMB) NO. Item Dec 31, 2002 Dec 31,2001 Increase/decrease (%) 1 Total assets 3,722,484,305.83 3,463,241,817.33 7.49 2 Monetary funds 969,218,809.70 536,573,004.18 80.63 3 Short-term 7,472,731.25 31,500,584.02 -76.28 investment 4 Shareholders’ 1,257,086,782.47 1,124,261,479.32 11.81 equity 5 Capital public 388,651,779.28 610,695,043.06 -36.36 reserve 6 Surplus public 67,899,925.45 254,024,846.27 -73.27 reserve 7 Undistributed 89,647,328.85 -423,484,704.78 121.17 profit item In 2002 In 2001 Increase/decrease (%) 8 Profit of core 391,524,527.07 166,341,435.32 135.37 business 9 Management 157,550,778.06 368,360,939.02 -57.23 expense 10 Operating expense 111,609,327.10 -315,719,972.29 135.35 11 Non-business 42,601,357.51 136,469,110.43 -68.78 income and expenditure 12 Income tax 23,821,023.90 1,792,232.71 1229.13 13 Minority 51,522,927.79 -17,842,313.16 388.77 shareholders’ equity 14 Net profit 100,817,981.43 -338,760,825.56 129.76 15 Net increase of 411,628,534.89 96,010,634.51 418.72 cash and cash equivalents - 27 - Reason of change: (1) Total assets: the total assets as of the end of the report period increased by 7.49% compared with the end of the previous year, which was mainly because that the profit realized by the Company in the report period made the total amount of assets of the Company increase. (2) Monetary funds: the monetary funds of the report year increased by RMB 433 million compared with the previous year, which was mainly due to good sales and accounts recovery of SEG Hitachi in the report year. (3) Short-term investment: the short-term investment of the report year decreased by RMB 24.02 million compared with the previous year, which was mainly due to the investment recovery of the report year. (4) Shareholders’ equity: the shareholders’ equity as of the end of the report period increased by 11.81% compared with the end of the previous year, which was mainly because that the profit realized in the report period made the shareholders’ equity of the Company increase. (5) Capital public reserve: the capital public reserve decreased by 36.36% compared with the previous year and the main reason was that the Company used capital public reserve to offset the loss of the previous year in the report year. (6) Surplus public reserve: the surplus public reserve decreased by 73.27% compared with the previous year and the main reason was that the Company used surplus public reserve to offset the loss of the previous year in the report year. (7) Undistributed profit: the undistributed profit increased by 121.17% compared with the previous year with the main reasons as follows: on the one hand, the Company used capital public reserve and surplus public reserve to offset the loss in the report year, on the other hand, the profit realized in the report year made the undistributed profit increase. (8) Profit of core business: the profit of core business of the report period increased by 135.37% compared with the previous year, which was mainly due to the increase of sales volume of CPT, a main product of the Company. (9) Management expense: the management expense decreased by 57.23% compared with the previous year and the main reason was that the bad debt losses appropriated in the report year decreased. (10) Operating profit: the operating profit of the report year increased by 135.35% compared with the previous year and the main reason was that the profit of core business increased and the management expense decreased by a big margin. (11) Non-business income and expenditure: the non-business income and expenditure decreased by 68.78% compared with the previous year and the main reason was that the estimated loss for loan guarantee of the previous year amounting to RMB 83.88 million made non-business income and expenditure increase. (12) Income tax: the income tax increased by 1229.13% compared with the previous year, which was mainly due to the increase of profit. (13) Minority shareholders’ equity: the minority shareholders’ equity increased by 388.77% compared with the previous year and the main reason was that the large increase of earnings of the report year of SEG Hitachi, whose 54.93% equity is indirectly held by the Company, made minority shareholders’ equity increase. (14) Net profit: the net profit of the report period increased by 129.76% compared - 28 - with the previous year and the main reasons were The management expense declined by a big margin; The business of CPT of the Company realized a comparatively good profit in the report period. (15) Net increase of cash and cash equivalents: the increase of cash and cash equivalents as of the report period increased by 418.72% compared with the corresponding period of the previous year, which was mainly because that the sales of CPT increased in the report period and the situation of recovery of payment for goods was good. (IV) Impact of change of production and operation environment, macro-policies and regulations on the Company In 2002 the world economy resuscitated slowly and the economy of our country continued to grow steadily. The domestic market of color television and CPT recovered. Simultaneously, the structural adjustment of the international industry of CPT and the decrease of oversea production line of CPT made both the production and sales of domestic CPT prosperous. SEG Hitachi, holding enterprise of the Company, strengthened the internal management, tried hard to reduce the cost and increased the production and sales volume by catching the market opportunity tightly, which made the total amount of profit of CPT business increase by a big margin in the report period. The Company turned losses into profits in the operation of the year of 2002. In 2003 due to the outbreak of the war in Iraq, the uncertain factors of international economy increased suddenly and the sales of CPT in the international market is anticipated to be pessimistic in a short time probably, what’s more, other manufacturers at home is also wedging in the limited gap of the international market, thus it will bring some uncertainties to the operation of the Company in 2003 probably. (V) Business plan of the year of 2003 1. Business objectives The Company plans to realize a sales income of RMB 2000 million in 2003 and the cost of core business is estimated to decrease by 4% compared with the previous year. 2. Business plan of the year of 2003 and the main measures: (1) To organize the production and operation carefully so as to ensure the production and sales volume of CPT not less than that of the previous year in the environment that the price competition is still intense and to accomplish the production expansion and technical reforming project of CPT production line with guarantee of quality and quantity strictly according to the plan in order to establish a foundation for enhancing the operation scale of core business and market competitive power. (2) To keep the prosperity of the existing electronic market with the best service, the most normative management and the best operating advantage of industry. To accomplish the annual business plan and objectives of expansion of the electronic market to the inland central cities, increase the market share quickly and keep the leading position of operation. (3) To stabilizing the customers with good credit standing and good service and improve the operating mode of “ developing the warehousing with the transportation, boosting the transportation with the warehousing and combining the warehousing with the transportation”. To prepare the transportation resources and warehousing resources effectively with flexible and accurate measures and create maximum - 29 - operating benefits while the transportation and warehouse is full. To accomplish the objectives of deep extension of transportation between Shenzhen and Hong Kong and business of bonded warehousing and further probe into the approach to the value chain of modern logistics by means of alliance so as to stabilize and enhance the competitive power of industry and establish a foundation for the transformation of the enterprise. (4) To plan the adjustment of market structure elaborately, spare no effort to expand the pre-assembly market of automobile and accomplish the annual construction objectives of running network of Pearl River Delta of “ Global Satellite Positioning Navigation System” in order to increase the quality of products, improve the service system of customers and establish the leading position in the industry. (5) To reinforce the development of industry of information technology, shoot at some breakthrough in the development of projects of wireless communications and intelligent control in the field of transportation and electronic technology industry and enlarge the proportion of this industry in the core business of the Company so as to create condition for increasing the contribution rate of achievement. (6) To further push the optimized reorganization of assets structure and enterprise structure with the increase of assets collocation and use efficiency as the objectives. (7) To fully push the management innovation with the cost project as the main content and the operating innovation with the exploitation and reforming as the main content in order to further enhance and keep the competitive power of core business. (8) Tightly around the business objectives of the whole year, to establish the scientific examination system of achievement, improve the encouragement and binding mechanism, push the high-efficient operation and increase the asset-income ratio. (9) To pay rigorous attention to and seriously analyze the international situation of politics and economy, grasp the development trend of international and domestic market and keep and further broaden the market share with brand advantage and quality and service advantage. (10) To improve the internal management system of enterprise with the financial budget management as the core, establish the scientific decision-making system with the calculation of economic increase value as the core and improve the organization system with the administration of the Company as the core so as to ensure the enterprise’s operation according to law, strict administration, effective management and standardized running. (VII) Routine work of the Board of Directors 1. Meetings and resolutions of the Board of Directors In the report period, the Board of Directors of the Company totally held nine Board meetings with details as follows: (1) The Company held the 17th Meeting of the 2nd Board of Directors on April 16, 2002. Seven directors should be present and actually six attended the Meeting. Due to the reason of work, director Sun Shengdian was absent from the Meeting and entrusted director Shi Dechun to attend the Meeting and exercise the rights of director for him. The following resolutions were formed in the Meeting through examination item by item and show of hands: a. 2001 Business Work Report of General Manager b. 2001 Work Report of the Board of Directors c. 2001 Financial Settlement Report d. 2002 Financial Budget Report e. 2001 Preplan of Profit Distribution and Converting Capital Public Reserve into - 30 - Share Capital f. 2002 Preplan of Policy of Profit Distribution and Converting Capital Public Reserve into Share Capital g. 2001 Annual Report and its Summary h. Proposal on Payment of Remuneration to Domestic Auditor of 2001 Shenzhen Peng Cheng Certified Public Accountants i. Proposal on Payment of Remuneration to Oversea Auditor of 2001 Hong Kong Ho And Ho & Company j. Proposal on Rules of Procedure of Shareholders’ General Meeting of Shenzhen SEG Co., Ltd. (Amendment) k. Proposal on Change of Scope of Consolidated Accounting Statements of 2001 l. Proposal on Withdrawal of Each Item of Impairment Loss of Assets of 2001 m. Proposal on Estimated Loss of Loan Guarantee of 2001 n. Special Explanation of Issues Involved in the Auditors’ Opinion of 2001 o. Proposal on Amendment of Rules of Procedures of Shenzhen SEG Co., Ltd. p. Proposal on Amendment of Rules of Information Disclosure of Shenzhen SEG Co., Ltd. q. Rules of Work of Secretary of the Board of Directors of Shenzhen SEG Co., Ltd. r. Proposal on Engagement of Xinda Lawyers Firm as 2002 Counselor of the Company and Payment of Its Annual Remuneration of RMB 100,000 s. Rules of Guarantee of Related Parties of Interest of Shenzhen SEG Co., Ltd. The resolutions of the Meeting were published on Page 29 and 30 of Securities Times and Page A18 and A19 of Ta Kung Pao dated April 18, 2002. (2) The Company held the 1st Extraordinary Meeting of 2002 of the 2nd Board of Directors on April 24, 2002. Seven directors should be present and actually five directors attended the Meeting. Due to the reason of work, Chairman of the Board of Directors Zhang Weimin entrusted director Zhang Liying to preside at the Meeting and vote for him in written form. Director Sun Lei went on errands due to the work and entrusted director Shi Dechun to attend the Meeting and vote for him in written form. After examination seriously and show of hands, the following resolution was formed in the Meeting: The Report of the 1st Quarter of 2002 The resolution of the Meeting was published on Page17 of Securities Times and Page A19 of Ta Kung Pao dated April 26, 2002. (3) The Company held the 18th Meeting of the 2nd Board of Directors on the morning of May 27, 2002. Seven directors should be present and actually six directors attended the Meeting. Director Zhang Wanzhang could not attend the Meeting due to some reason and entrusted director Zhang Liying to attend the Meeting and exercise the right of voting for him in written form. The following resolutions were formed in the Meeting after examination item by item and show of hands: a. Proposal on Nomination of Mr. Su Xijia as Independent Director Candidate of the 2nd Board of Directors b. Proposal on Nomination of Mr. Xin Huanping as Independent Director Candidate of the 2nd Board of Directors c. Proposal on Change of Directors d. Proposal on Using Capital Public Reserve to Offset the Loss of the Previous Year e. Proposal on Allowance and Expense of Independent Directors f. Rules of Work of Independent Directors of Shenzhen SEG Co., Ltd. g. Proposal on Amendment of Articles of Association - 31 - h. Proposal on Self-inspection and Self-correction Work Plan of Establishment of Modern Enterprise System of Shenzhen SEG Co., Ltd. i. Proposal on Holding of the 7th Shareholders’ General Meeting of the Company The resolutions of the Meeting were published on Page 27 of Securities Times and Page B8 of Ta Kung Pao dated May 28, 2002. (4) The Company held the 2nd Extraordinary Meeting of 2002 of the 2nd Board of Directors on the afternoon of May 27, 2002. Seven directors should be present and actually six attended the Meeting. Director Zhang Wanzhang could not attend the Meeting due to some reason and entrusted director Zhang Liying to attend the Meeting and exercise the right of voting for him in written form. There was no resolution formed in the Meeting. (5) The Company held the 19th Meeting of the 2nd Board of Directors on June 27, 2002. Seven directors should be present and actually five directors attended the Meeting. Director Su Shengdian went on errands due to the work and could not attend the Meeting and entrusted director Zhang Weimin to attend the Meeting and exercise the right of voting for him in written form. Director Zhang Wanzhang could not attend the Meeting due to some reason and entrusted director Zhang Liying to attend the Meeting and exercise the right of voting for him in written form. The following resolutions were formed in the Meeting after examination item by item and show of hands: a. Self-inspection Report of Establishment of Modern Enterprise System of Shenzhen SEG Co., Ltd. b. Self-inspection Report of Holding Company of Listed Company of the Company as the first large shareholder of Shenzhen SEG Dasheng Co., Ltd. c. As per the nomination of General Manager, decision of engaging Mr. Li Lifu and Ms. Zheng Dan as Deputy General Manager of the Company with the office term as the same as the term of the 2nd Board of Directors. Mr. Li Lifu no longer takes the post of Chief Financial Supervisor of the Company. d. Except for the objection of director Shi Dechun, other directors conformably agreed the Company to continue to provide entrusted pledge guarantee for the loan of circulating funds amounting to RMB10 million of Shenzhen SEG Dasheng Co., Ltd. transacting in Shenzhen Luohu Sub-branch of Guangdong Development Bank with its self-owned HKD10 million and at the same time Shenzhen SEG Dasheng Co., Ltd. implemented counter guarantee pledge with its owned legal person’s shares of other listed companies and office house in the 5/F of Block 2 of SEG Industrial Building with the term of half a year. The resolutions of the Meeting were published on Page 32 of Securities Times and Page B7 of Ta Kung Pao dated June 29, 2002. (6) The Company held the 20th Meeting of the 2nd Board of Directors on Aug. 15, 2002. Seven directors should be present and actually five attended the Meeting. Independent director Mr. Su Xijia could not attend the Meeting because of the disease and entrusted independent director Mr. Xin Huanping to attend the Meeting and exercise the right of voting for him in written form. Director Su Shengdian could not attend the Meeting due to the work and entrusted director Zhang Weimin to attend the Meeting and exercise the right of voting in written form. The following resolutions were formed in the Meeting after examination item by item and show of hands: a. Report of Operation of the 1st First Half Year of 2002 - 32 - b. 2002 Semi-annual Report and its Summary c. Proposal on Mr. Zhang Wanzhang No Longer Taking the Post of Deputy General Manger of the Company d. Proposal on Reduction of Equity of Shenzhen SEG Orient Industrial Development Company The resolutions of the Meeting were published on Page 26 of Securities Times and Page A10 of Ta Kung Pao dated Aug. 17, 2002. (7) The Company held the 21st Meeting of the 2nd Board of Directors on Sept. 11, 2002. Seven directors should be present and actually six attended the Meeting. Director Li Lifu asked for private affair leave and entrusted director Zhang Liying to attend the Meeting and exercise the right of voting for him. The following resolutions were formed in the Meeting after examination item by item and show of hands: a. Rectification and Reform Plan of Establishment of Special Examination of Modern Enterprise System of Shenzhen Securities Regulatory Office of CSRC of Shenzhen SEG Co., Ltd. b. Proposal on Amendment of Articles of Association of the Company c. Proposal on Cancellation of Bad Debt Losses in the Accounts Receivable of the Company d. Proposal on Purchase of 31/F, Tower A of Star Plaza as the New Office of the Company e. Proposal on SEG Group to Cancel Out the Accounts of the Company receivable from SEG Group amounting to RMB 107,557,139.98 with Its Owned Equity of Shenzhen SEG Samsung Co., Ltd. f. Proposal on Controlling Enterprise of the Company (holding 99.59% equity) Shenzhen SEG Storage Co., Ltd. to Invest RMB 2,650,000 to Additionally Purchase Transportation Vehicles for the Development Need of the Transportation Business The resolutions of the Meeting were published on Page 6 of Securities Times and Page A21 of Ta Kung Pao dated Sept. 13, 2002. (8) The Company held on the 22nd Meeting of the 2nd Board of Directors on Oct. 25, 2002. Seven directors should be present and actually six attended the Meeting. Director Su Shengdian went on errands due to the work and entrusted director Zhang Weimin to attend the Meeting and exercise the right of voting. The following resolutions were formed in the Meeting after examination item by item and show of hands: a. Report of the 3rd Quarter of 2002 of Shenzhen SEG Co., Ltd. b. Proposal on Transaction of Renewal Procedure of the Loan of RMB 150 million and the Loan Term of One Year c. Proposal on Establishment of Property Operating Department The resolutions of the Meeting were published on Page39 of Securities Times and PageC10 of Ta Kung Pao dated Oct. 29, 2002. (9) The Company held the 3rd Extraordinary Meeting of 2002 of the 2nd Board of Directors on Nov. 29, 2002. Seven directors should be present and actually four attended the Meeting. The Chairman of the Board Mr. Zhang Weimin asked for private affair leave and entrusted director Mr. Li Lifu to preside at the Meeting and exercise the right of voting in written form. Independent director Mr. Xin Huanping asked for private affair leave and entrusted independent director Mr. Su Xijia to attend the Meeting and exercise the right of voting in written form. Director Ms. Zhang - 33 - Liying asked for leave due to going on errands and entrusted Mr. Li Lifu to attend the Meeting and exercise the right of voting for him in written form. The following resolutions were formed in the Meeting after examination item by item and show of hands: a. Proposal on Technical Reforming Project of 54cm (21’’) Color Projection Tube or Display Tube with Middle and High Resolving Power of Shenzhen SEG Hitachi Color Monitor Co., Ltd. Whose 54.93% Equity is Indirectly Held by the Company b. Proposal on Production Expansion and Reforming Project of Production Line of 86cm (34’’) CPT of Shenzhen SEG Hitachi Color Monitor Co., Ltd. c. Proposal on Change of 2002 Domestic Auditor of the Company d. Proposal on Renewal of Hong Kong Ho And Ho & Company as 2002 Oversea Auditor of the Company e. Provisional Regulation on Relevant Allowance of Headquarter Staff and Directly Related Relatives of Shenzhen SEG Co., Ltd. f. Summary Report of Special Examination and Rectification of Establishment of Modern Enterprise System of Shenzhen Securities Regulatory Office of CSRC of Shenzhen SEG Co., Ltd. g. Proposal on Holding the 1st Extraordinary Shareholders’ General Meeting of 2003 The resolutions of the Meeting were published on Page8 of Securities Times and PageA23 of Ta Kung Pao dated Dec. 3, 2002. 2. Implementation of resolutions of Shareholders’ General Meeting by the Board of Directors (1) In the report period, the Board of Directors of the Company could implement each resolution of the 7th Shareholders’ General Meeting and authorization isssues of Shareholders’ General Meeting in an honest, reliable and responsible way. (2) The 7th Shareholders’ General Meeting examined and approved Preplan of 2001 Profit Distribution and Converting Capital Public Reserve into Share Capital and decided neither to distribute profit of the year of 2001 nor to convert capital public reserve into share capital. In the report period, the Board of Directors neither distributed profit nor converted capital public reserve into share capital as per the resolutions of Shareholders’ General Meeting. (VIII) Preplan of the profit distribution or preplan of converting capital public reserve into share capital As audited by Zhongtian Huazheng Certifited Public Accountants as per Chinese Public Accountants Independent Auditing Standards and Hong Kong Ho And Ho & Company as per International Independent Auditing Standards, the net profit of the Company in 2002 was RMB 100,817,981.43 and RMB 111,950,000 respectively. According to the relevant regulations of Company Law and Articles of Association, the profit distribution of the Company in 2002 was based on the net profit audited by Zhongtian Huazheng Certified Public Accountants. After appropriated 10% of the net profit as statutory surplus public reserve amounting to RMB 10,081,798.14 and 5% of the net profit as statutory public welfare fund amounting to RMB 5,040,899.07,the residue is 85,695,284.22. Ended Dec. 31, 2002, the profit available for distribution for shareholders was RMB 89,647,328.85 with adding the undistributed profit at the beginning of the year after offsetting loss. Due to the capital demand of industry development and cultivation and development of new growth point of profit of the year of 2003, the Company would neither distribute profit nor convert capital public reserve into share capital in 2002. - 34 - This preplan still should be submitted to the 8th Shareholders’ General Meeting for examination and approval. (IX) Explanation on the retroactive adjustment to relevant financial data of prior to the year 2001 by the Board of Directors The undistributed profit at the beginning of the year of 2002 increased by RMB 3,952,044.63 than the report amount at the end of the year of 2001, which was because that SEG Samsung, a related company of the Company under the accounting of equity method, made correction to the interest of overdue loan appropriated excessively in prior to the year 2001 as significant accounting error in 2002, thus the Company adjusted retroactively accordingly, which made the undistributed profit of the Company at the beginning of 2001 increase by RMB 3,952,044.63 and the long-term equity investment at the beginning of 2001 increase by RMB 3,952,044.63. (X) Other report issues: The newspapers of information disclosure designated by the Company in 2002 were Securities Times and Ta Kung Pao. The newspapers of information disclosure designated by the Company in 2003 were China Securities and Ta Kung Pao. VIII. REPORT OF THE SUPERVISORY COMMITTEE (I) Work of the Supervisory Committee In 2002, the Company held altogether five meetings of the Supervisory Committee, in which following resolutions were made: 1.The 13th meeting of the 2nd Supervisory Committee was held on Apr.16, 2002, which examined and approved: (1) Examined and approved 2001 Financial Statement Report; (2) Examined and approved 2002 Financial Budget Report; (3) Examined and approved Preplan of 2001 Profit Distribution and Transferring Capital Public Reserve to Share Capital; (4) Examined and approved 2001 Annual Report and Summary; (5) Examined and approved Preplan on Policy of 2002 Profit Distribution and Transferring Capital Public Reserve to Share Capital; (6) Examined and approved Proposal on Amendment of Rules of Procedure of the Supervisory Committee of the Company; (7) Examined and approved 2001 Work Report of the Supervisory Committee; (8) Independent Opinion on 2001 Operation of the Company Issued by the Supervisory Committee. The public notice on the resolutions of the meeting was published on Page 29 and 30 of Securities Times and on Page A18 and A19 of Ta Kung Pao dated Apr.18, 2002. 2. The 14th meeting of the 2nd Supervisory Committee was held on Aug.15, 2002. The meeting examined item by item, voted by hand and made the following resolutions: (1) Examined and approved Report of Operation of the 1st Half of the Year 2002 of the Company; (2) Examined and approved 2002 Semi Annual Report and Summary of the Company; - 35 - (3) Examined and approved Proposal on Reducing Share Equity of Shenzhen SEG Orient Industrial Development Company Held by the Company. The public notice on the resolutions of the meeting was published on Page 26 of Securities Times and on Page A10 of Ta Kung Pao dated Aug.17, 2002. 3. The 15th meeting of the 2nd Supervisory Committee was held on Sep.11, 2002, which made the following resolutions: (1) Examined and approved Correction Proposal of the Company on Stated Items’ Inspection of Establishing Modern Enterprise System of CSRC Shenzhen Office; (2) Agreed Resolution on Amendment of Articles of Association of the Company Made by the Board of Directors; (3) Agreed Resolution on Writing off Bad Debts Loss in Account Receivable of the Company Made by the Board of Directors; (4) Agreed Resolution on Proposal on Related Transaction of Purchasing 31F, A Block, Star Plaza from Shenzhen SEG Engineering Industrial Co., Ltd. as New Office Sites of the Company; (5) Agreed Resolution on SEG Group’s Offsetting the Account Receivable Owned to the Company Amounting to RMB 107,557,139.98 in Share Equity of SEG Samsung Held by SEG Group. The public notice on the resolutions of the meeting was published on Page 6 of Securities Times and on Page A21 of Ta Kung Pao dated Sep.13, 2002. 4. The 16th meeting of the 2nd Supervisory Committee was held on Oct. 25, 2002, which examined and approved the 3rd Quarter Report of 2002 of the Company. The public notice on the resolutions of the meeting was published on Page 39 of Securities Times and on Page C10 of Ta Kung Pao dated Oct.29, 2002. 5. The 1st extraordinary meeting in 2002 of the 2nd Supervisory Committee was held on Nov. 29, 2002. The meeting examined patiently, voted by hand and made the following resolutions: (1) Agreed Resolution on Changing Domestic Auditing Institution of the Company in 2002 Made by the Board of Directors; (2) Agreed Resolution on Reengaging Hong Kong Ho and Ho & Company Certified Public Accountants as the Company’s Overseas Auditing Institution in 2002 Made by the Board of Directors; (3) Agreed Summary Report of Correction of the Company on Stated Items’ Inspection of Establishing Modern Enterprise System of CSRC Shenzhen Office; The public notice on the resolutions of the meeting was published on Page 8 of Securities Times and on Page A23 of Ta Kung Pao dated Dec.3, 2002. In the report period, supervisors attended the board meeting as non-voting delegates. (II) Independent Opinions Expressed by the Supervisory Committee on the Company’s Management and Operation of 2002: 1. Operation according to Law According to relevant stipulations of national laws, regulations and Articles of Association, the Company has established and improved the corporate governance, established a rather perfect internal control system, and well kept away risks of - 36 - administration and finance; the Company’s decision-making procedures were legitimate. In the report year, the Board of Directors and management team seriously implemented each resolution of the Shareholders’ General Meeting in a diligent and conscientious manner, and didn’t violate laws, regulations and Articles of Association or damage the Company’s interests when performing duties and obligations. 2. Financial Inspection The Supervisory Committee made serious and careful inspection on the Company’s financial system and financial status, and believed 2002 financial report could truly reflect the Company’s financial status and business results. Zhongtian Huazheng Certified Public Accountants and Hong Kong Ho and Ho & Company Certified Public Accountants audited 2002 financial report of the Company according to Independent Auditing Standards of Chinese Certified Public Accountant and International Auditing Standards and issued respectively auditor’s reports with non-reservation opinion and non-explanation which truly reflected the Company’s financial status and business results. 3.In the report period, there has no use of raised capital. 4. Purchase or sales of Assets In the report period, the Company occurred no purchase of assets. The trade price of the assets sold by the Company was reasonable, no inside trading was found, and the transactions hadn’t damaged the rights and interests of shareholders or resulted in runoff of assets. 5.About Correlative Transactions of the Company The correlative transactions interfered in 2002 by the Company were all in accordance with the principle of equity and fairness as checked by the Supervisory Committee. No inside trading was found, and the transactions hadn’t damaged the interests of the Company as well as rights and interests of other shareholders or resulted in runoff of assets. . SIGNIFICANT EVENTS (I) In the report year, the Company has no significant lawsuits and arbitrations. (II) Purchase and sale of assets, consolidation and merge of the Company in the report period 1. In the report period, the Company existed no purchase of assets. 2.Sale of assets (equity) of the Company in the report period According to the operation stratagem of Invigorating Large Enterprises While Relaxing Control over Small Ones, the 20th meeting of the 2nd Board of Directors examined and approved Proposal on Reducing Share Equity of Shenzhen SEG Orient Industrial Development Company (hereinafter referred to as SEG Orient) Held by the Company and agreed to transfer 80% equity of SEG Orient held by the Company (the transfer price is 80% of SEG Orient net assets after liabilities reorganization, namely RMB 1.6 million) to SEG Orient staffs. After the equity transfer, the Company still holds 20% equity of SEG Orient. The equity assignment has no influence on the consistency of the business and - 37 - stability of the management team of the Company. The event was disclosed on Page 26 of Securities Times and Page A10 of Ta Kung Pao dated Aug.17, 2002. 3.Concerning the consolidation and merge issue involved in the reorganization of network business of the Company in the report period, please read the 2nd item, namely Related transaction concerning transfer of assets and equity in (III) Significant Related Transactions of this chapter. 4.Assignment of equity of the Company occurring in previous period but lasting in the report period Share Assignment Agreement on transferring 28% share equity of Shenzhen SEG Dasheng Co., Ltd.(hereinafter referred to as Shenzhen Dasheng) signed by the Company and Xinjiang Hongda Real Estate Development Co., Ltd.(hereinafter referred to as Xinjiang Hongda) on Dec.18, 2000 was approved with CQ[2002] No.505, namely Ministry of Finance’s Reply on Relevant Problem of Part State-owned Shares of Shenzhen Dasheng issued by PRC Ministry of Finance in 2002, which agreed to transfer 40,206,226 shares of total 47,338,194 state-owned shares of Shenzhen Dasheng held by the Company(28% of total shares of Shenzhen Dasheng) to Xinjing Hongda. So far, the issue of the Company’s transferring 40,206,226 state-owned legal person shares of Shenzhen Dasheng to Xinjiang Hongda through agreement has gotten approval of the authority department. After this equity assignment, the Company still holds 7,131,968 state-owned legal person shares, taking 4.97% of the total shares of Shenzhen Dasheng. Ended as of Dec.31, 2002, the Company has received the payment of transferring Shenzhen Dasheng’ share equity amounting to RMB 75.1 million and the balance of RMB 11.7 million will be paid with 15 days after changing the owner of equity in register by Xinjiang Hongda. The Company will cooperate actively with Xinjiang Hongda to conduct relevant procedure of changing the owner of equity in register. Ended as of the date the report was disclosed, relevant procedure of changing the owner of equity in register is still in the process of dealing. The aforesaid issues were disclosed on page No.8 of Securities Times and No.C8 of Ta Kung Pao dated Nov.29, 2002. (III) Material Related Transactions 1. Related Transactions concerning Purchase/Sales of Commodities SEG-HITACHI purchased glass shells from SEG Sumsung. SEG-HITACHI is a subsidiary indirectly controlled by the Company by shareholding (54.93%), with registered capital of USD 113 million, the legal representative of Sun Shengdian. The company is mainly engaged in design, production and sales of 21” and 34” CPT. SEG Samsung: The Company is a shareholder of the company by 21.44%. It is a public company listed with Shenzhen Stock Exchange, with the registered capital of RMB 785,970,000, the legal representative of Zhang Weimin. The company is mainly engaged in production and sales of CPT glass shells. Based on the market fairness principle, in the report year, SEG-HITACHI purchased - 38 - glass shells from SEG Samsung at the fair market price amounting to RMB 1,094,000,000, taking 0.5% of the total glass shells purchased in the report year. This related transaction belongs to continuous related transaction and is settled with commercial invoice. 2. Related Transactions concerning Transfer of Assets and Equity Under the instance of the approval of the two independent directors of the Company and related directors’ avoiding voting, through voting of non-related directors, the Board of Directors of the Company agreed the related transaction of reorganizing three companies (assets) engaging in internet business in the system of SEG Group, namely SEG Network, Shenzhen Online SEG E-commerce Co., Ltd. (hereinafter referred to as Online SEG) and Network Dept. of SEG Baohua into one network company. According to the principle of publicity, fairness and justness, based on Report of Assets Assessment issued by assets assessment institution, as the basic standard of the assessment value of net assets, SEG Network merged Online SEG, the Company’s share-controlling company (after the consolidation, Online SEG was logout). The Company added RMB 8,539,400 investment to SEG Network in the net assets of Network Dept. of SEG Baohua, which is the share-controlling company of the Company, and RMB 1,100,000 cash. After adding investment and enlarging shares, net assets of SEG Network reaches RMB 20,016,500 and the registered capital is RMB 20 million. The Company holds 52.41% of the Company and is the biggest shareholder of SEG Network. The independent directors of the Company, Mr. Su Xijia and Mr. Xin Huanping has expressed independent opinions on this event and believed that this reorganization of network business would reorganize the resources of all parties and be in favor of avoiding the competition in same industry, reducing cost of operation, improving the ability of market competition and performing the advantage of the brand of SEG. Through this reorganization of network business, the Company will become the control shareholder of the newly established company and it will supply the cut-in point of looking for and breeding the amalgamation of e-commerce and the operation business of the present electric market and establish the basis of realizing finally the combination of online trade and offline trade. In the process of voting on this reorganization of network business, the related directors of the Company avoided voting. The price of the trade object of this reorganization of network business is ensured according to the assessment result of assets assessment institution and there existed no actions of damage of the interest of the Company and other shareholders, especially the middle and small shareholders and non-related shareholders. The aforesaid issue and Opinion of Independent Directors were disclosed detailedly on page No.8 of Securities Times and No. C8 of Ta Kung Pao dated Nov.21, 2002. 3. Issues concerning Credit, Liabilities and Guarantees with the Related Parties (1) Credit and Liability Relations with Related Parties - 39 - Accounts Related parties Dec. 31, 2002 Reasons/Type Dec. 31, 2001 Reasons/Types Dividend Cash Cash Shenzhen SEG Sumsung Co., Ltd. 8,398,094.87 5,038,856.98 receivable dividend dividend Other Shenzhen SEG Plaza Inv. & Dev. Co., Loan and 5,479,624.81 48,576,811.79 Loan and interest receivables Ltd. interest Shenzhen SEG Software Technology 7,811,050.90 Loan and interest Co., Ltd. Shenzhen SEG Financial Company 4,784,367.12 Deposit and interest Loan and SEG (Hong Kong) Co., Ltd. 2,963,838.61 2,833,758.42 Loan and interest interest Borrowings of SEG Group and deposit and Loan and Shenzhen SEG Group Co., Ltd. 128,977,756.08 142,956,602.70 interest with the interest Clearing Center of SEG Group Shenzhen SEG Jiamei Science 16,023,144.46 Loan and interest Instrument Co., Ltd. Notes Due payment for raw Shenzhen SEG Sumsung Co., Ltd. 17,156,000.00 payable materials Accounts Aroused by Aroused by purchase Shenzhen SEG Sumsung Co., Ltd. 2,863,574.43 purchase of 11,446,223.96 payable of materials materials Influence of credit and liability with related parties on the Company: Account receivable of the biggest shareholder, SEG Group owned to the Company occupied the Company’s capital and has some influence on the turnover of the Company’s capital and increase of capital cost. Credit and liability with other related companies belongs to normal business and has no significant influence on the operation of the Company. (2) Related guarantee Concerning the guarantee issues between the Company and related parties, please read 2.Significant Guarantee of (IV) Important Contracts and Implementation in this chapter. 4.Other Related Transaction Through the examination and approval of the 21st meeting of the 2nd Board of Directors of the Company, the Company purchased 31/F, A Block, Star Plaza developed by Shenzhen SEG Project Industry Co., Ltd. which is the share-controlling subsidiary of SEG Group as new office sites. The related transaction and Opinion of Independent Directors were disclosed on Page 6 of Securities Times and Page A21 of Ta Kung Pao dated Sep.13, 2002. (IV) Important Contracts and Implementation 1. Material custody, contract and leasing: In the report period, the Company has no significant custody, contract and leasing. 2. Significant Guarantees: (1) Guarantees with Non-related Parties a. On August 11, 2001, through approval by the Board, the Company and Shenzhen Nanguang (Group) Co., Ltd. (hereinafter referred to as “Shenzhen Nanguang”) signed a Mutual Guarantee for Loans with a term of one year with the maximum quota of RMB 150 million which is convertible into HKD and USD. For the detail, please refer to Page 4 of Securities Times and Page C7 of Ta Kung Pao dated August 11, 2001. Guarantee completed implementation with non-related parties in the report period. - 40 - Unit: RMB’0000 Object of Amount Terms of Type of Procedure of decision-making guarantee loan guarantee Shenzhen RMB June 29, Joint liabilities Approved by Annual Shareholders’ Nanguang 3000 2001- General Meeting and implemented June.29, 2002 detailedly by the Board of Directors Shenzhen RMB Mar.16, 2001- Joint liabilities Ditto Nanguang 1500 Mar.16, 2002 Shenzhen RMB Mar.7, 2001- Joint liabilities Ditto Nanguang 3500 Feb.7, 2002 Shenzhen RMB July 31, 2001- Joint liabilities Ditto Nanguang 1000 July 2, 2002 Shenzhen RMB Feb.4, 2002- Joint liabilities Ditto Nanguang 3500 Feb.4, 2003 (the loan was repaid in advance on Dec.31, 2002) Shenzhen Dasheng RMB 700 Feb.27, 2001- Joint liabilities Ditto Feb.4, 2002 Shenzhen Dasheng RMB Sep.25, 2001- Joint liabilities Ditto 1000 Sep. 25, 2002 Shenzhen Dasheng RMB Oct. 31. 2001- Joint liabilities Ditto 4000 Oct. 31, 2002 Shenzhen Dasheng RMB Nov.30, 2001- Pledged as Ditto 1000 June 13, 2002 equivalent HKD Ended as of the report period, five guarantees between the Company and non-related parties was not completed implementation amounting to RMB 74 million. Unit: RMB’0000 Object of Amount Terms of Type of Procedure of decision-making guarantee loan guarantee Shenzhen Nanguang RMB 4000 Apr. 30, Joint liabilities Approved by Annual Shareholders’ 2002- General Meeting and implemented Apr.30, 2003 detailedly by the Board of Directors Shenzhen Dasheng RMB 700 Feb.7, 2002- Joint liabilities Ditto Feb.6, 2003 Shenzhen Dasheng RMB 1000 Dec.23, 2002- Joint liabilities Ditto July 23, 2003 Shenzhen Dasheng RMB 1000 June 8, 2002- Pledged as Ditto Dec.28, 2002 equivalent HKD The reason of guarantee for Shenzhen Dasheng and its influence on the Company: in - 41 - the guarantee amount of RMB 27 million, RMB 17 million was brought forth in the period of controlling correspondingly shares of Shenzhen Dasheng by the Company and the major reason was to support the normal production and operation of Shenzhen Dasheng. Now this loan guarantee was supplied anti-guarantee by Xinjiang Hongda which is the potential biggest shareholder of the Company. RMB 10 million guarantee pledged in equivalent HKD was brought forth in 2001 and the major reason was to ensure the steady transition of Shenzhen Dasheng in the process of share equity’s transfer and support the operation of Shenzhen Dasheng. The loan guarantee was supplied the mortgage of anti-guarantee by Shenzhen Dasheng as legal person shares of three listed companies which were held actually by Shenzhen Dasheng and its own houses. It was estimated that the guarantee of Shenzheng Dasheng had some risk. (2) Guarantees with Related Parties Guarantee completed implementation with related parties in the report period. Object of guarantee Amount (0000) Terms of loan Type of guarantee Procedure of decision-making Samsung Industry RMB 3000 Dec.26, Joint liabilities Approved by 2001-Dec.26, 2002 Annual Shareholders’ General Meeting and implemented detailedly by the Board of Directors Samsung Industry USD 651 Dec.26, 1997-June Joint liabilities Ditto 26, 2000 SEG Samsung RMB 2100 Dec.26, Joint liabilities Ditto 2001-Dec.26, 2002 (The loan was repaid in advance on Nov.7, 2002) SEG Samsung RMB 2625 May 10, 1999-May Joint liabilities Ditto 10, 2004(the loan was repaid in advance on Sept.3,2002) Ended as of the report period, two guarantees between the Company and related parties was not completed implementation amounting to RMB 84 million including: Object of guarantee Amount (0000) Terms of loan Type of guarantee Procedure of decision-making Samsung Industry RMB 5400 Sep.27, Joint liabilities Approved by (Note 1) 2002-Sep.27, 2003 Annual Shareholders’ General Meeting and implemented - 42 - detailedly by the Board of Directors Samsung Industry RMB 3000 Dec.31, Joint liabilities Ditto (Note 2) 2002-Oct.31, 2003 Note 1: The loan guarantee was disclosed on Page 20 of Securities Times and Page B3 of Ta Kung Pao dated Sep.7, 2002 and meanwhile, independent directors expressed independent opinions on the event. Note 2: The loan guarantee was disclosed on Page 3 of Securities Times and Page C1 of Ta Kung Pao dated Dec.7, 2002 and meanwhile, independent directors expressed independent opinions on the event. Concerning the aforesaid guarantee events not completed implementation the Company provided for related parties: The reason of guarantee for Samsung Industry and its influence on the Company: the aforesaid two guarantees provided for Samsung were caused by inheriting from the original shareholder of Shenzhen CNEDC Conic Glass Co. Ltd.(hereinafter referred to as “Zhongkang”), which was the predecessor of Samsung Industry when the Company purchased share equity of Zhongkang Company according to Equity Assignment Agreement and Contract of Bank Loan. 3.In the report period, the Company has not entrusted others to manage cash assets. 4.Other significant contracts: Please refer to 4. Assignment of equity of the Company occurring in previous period but lasting in the report period of (II) Purchase and sale of assets, consolidation and merge of the Company in the report period in this chapter. (V) Commitment issues of the shareholders holding over 5% in the report period or lasting in the report period. 1. The Company disclosed SEG Group, the biggest shareholder of the Company, committed to write off RMB 107,557,139.98 owned to the Company in share equity of SEG Samsung on page No.6 of Securities Times and No.A21 of Ta Kung Pao dated Sep.13, 2002. By the end of 2002, the total principal and interest of the aforesaid payment is RMB 109,178,965.44. At present, the Company is appointing special persons to actively urge and put the aforesaid repayment into effect. 2. The fifth item of Equity Assignment Agreement signed by the Company with SEG Group when listing is that SEG Group agreed the Company and the auxiliary companies, joint-venture companies of the Company to use the eight registered trade marks registered in State Trade Mark Bureau by SEG Group at present and agreed the Company to use the aforesaid trade marks and the familiar marks as the sign of the Company and use the aforesaid trade marks and the familiar marks in the process of operation while the Company need not pay any expense to SEG Group on the use of the aforesaid trade marks and signs. In the report period, the commitment was still implemented according to the stipulation. (VI) Engagement and disengagement of Certified Public Accountants As examined and approved by the 1st Extraordinary Shareholders’ General Meeting of 2003 of the Company held on Jan. 22, 2003, due to the full term of the domestic auditing institution of the Company, namely Shenzhen Pengcheng Certified Public Accountants in 2001, the Company agreed to engage Zhongtian Huazheng Certified - 43 - Public Accountants as the domestic auditing institution of the Company of 2002 and reengage Hong Kong Ho and Ho & Company Certified Public Accountants as the overseas auditing institution of the Company of 2002. Concerning the aforesaid event, please refer to Page 12 of Securities Times and Page A21 of Ta Kung Pao dated Jan.23, 2003. In 2002, Zhongtian Huazheng Certified Public Accountants provided audit service for the Company for the first time. By the end of 2002, Hong Kong Ho and Ho & Company Certified Public Accountants has provided audit service for the Company for consistent three years. The remunerations the Company paid to Certified Public Accountants are as follows: Certified Public Accountants Financing Auditing Expense Zhongtian Huazheng Certified Public Accountants RMB 300,000 Hong Kong Ho and Ho & Company Certified Public Accountants RMB 360,000 Note 1: The Company no longer paid the business trip expense and accommodation expense during the period of auditing Note 2: The 1st Extraordinary Shareholders’ General Meeting of 2003 of the Company agreed to authorize the Board of Directors deciding the payment of the aforesaid auditing expense. ( ) In the report year, there existed no such event 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 of Directors or any directors. ( ) Other important events 1.The Company accepted the special item inspection on Establishing Modern Enterprise System in Listed Companies of CSRC Shenzhen Office from Aug.12, 2002 to Aug.14, 2002. Please read V. Company Administration for details. 2.Progress of dunning the account payable of Shenzhen Dasheng owned to the Company. The Company and Shenzhen SEG Industry Investment Co., Ltd. controlled 91.79% equity by the Company signed Liabilities Reorganization Agreement with Shenzhen Dasheng respectively on May 4, 2002 and June 28, 2002 which stipulated that Shenzhen Dasheng wrote off the debt of RMB 131,400,000 owned to the Company in Modern Window with 10,602.78 sq.m. and estates with 238.65 sq.m. (Please refer to Page 19 of Securities Times and Page C3 of Ta Kung Pao dated May 29, 2002, Page 32 of Securities Times and Page B7 of Ta Kung Pao dated June 29, 2002.) Ended as of the report period, the real estate certification of the aforesaid estate to be offset debt is in the process of dealing. In addition, Concerning Shenzhen Dasheng’ s writing off the debt payable of RMB 21,615,343.95 owned to SEG-HITACHI in Modern Window with 2228.09 sq.m., by the end of the report period, Shenzhen Dasheng has conducted procedure of registering and putting on records in Shenzhen Land & Resource Bureau. X. FINANICAL REPORT - 44 - REPORT OF THE AUDITORS To the Shareholders of B shares of Shenzhen SEG Co., Limited (Incorporated in the People’s Republic of China with limited liability) We have audited the financial statements on pages 2 to 29. The preparation on these financial statements is the responsibility of the Group’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from 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 management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements give a true and fair view of the state of affairs of the Group as at 31st December, 2002 and of the profit and cash flows for the year then ended and have been prepared in accordance with International Financial Reporting Standards. Ho and Ho & Company Certified Public Accountants Hong Kong 14th April, 2003 - 45 - SHENZHEN SEG CO., LIMITED REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER, 2002 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31ST DECEMBER, 2002 NOTES 2002 2001 RMB’000 RMB’000 Revenue 4 2,206,471 1,922,248 Cost of sales (1,814,946) (1,755,906) Gross profit 391,525 166,342 Other operating income 6 64,525 78,090 Distribution costs (63,654) (53,159) Administrative expenses (205,201) (299,957) Impairment loss on property, plant and equipment - (290,132) Profit / (loss) from operations 7 187,195 (398,816) Finance costs 8 (70,844) (92,547) Loss on disposal of subsidiaries - (6,136) Provision for contingent loss - (83,881) Share of results of associates 51,874 (48,995) Profit / (loss) before taxation 168,225 (630,375) Taxation 9 (26,649) (3,738) Profit / (loss) before minority interests 141,576 (634,113) Minority interests (29,626) 132,067 Net profit / (loss) for the year 111,950 (502,046) Earnings / (losses) per share 10 RMB 0.154 RMB (0.691) - 46 - CONSOLIDATED BALANCE SHEET AS AT 31ST DECEMBER, 2002 NOTES 2002 2001 RMB’000 RMB’000 ASSETS Non-current assets Property, plant and equipment 11 1,322,567 1,317,181 Construction in progress 12 4,438 28,279 Interests in associates 14 382,432 297,345 Other investments 15 16,058 14,790 Other assets 39,719 41,971 1,765,214 1,699,566 Current assets Inventories 16 146,774 162,726 Investments in securities 17 7,473 31,500 Accounts receivable, deposits and prepayments 18(c)(ii) 894,599 1,058,801 Pledged deposits 88,657 62,596 Cash and bank balances 880,562 469,168 2,018,065 1,784,791 Total assets 3,783,279 3,484,357 EQUITY AND LIABILITIES Capital and reserves Share capital 19 726,146 726,146 Reserves 20 530,941 414,845 1,257,087 1,140,991 Minority interests 447,841 418,215 Non-current liabilities Loans 21(a) 169,826 306,780 Current liabilities Loans - due within one year 21(a) 943,670 868,105 Accounts payable, deposits received and accruals 18(c)(iv) 948,391 741,662 Tax payable 16,464 8,604 1,908,525 1,618,371 Total equity and liabilities 3,783,279 3,484,357 The financial statements on pages 2 to 29 were approved by the Board of Directors and authorised for issue on 14th April, 2003 and are signed on its behalf by :- Director Director - 47 - CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31ST DECEMBER, 2002 Reserves Statutory Accumulated Statutory public welfare Exchange profits / Reserve Share capital Capital reserve surplus reserve fund reserve (losses) sub-total Total RMB ‘000 RMB ‘000 RMB ‘000 RMB ‘000 RMB ‘000 RMB ‘000 RMB ‘000 RMB ‘000 Balance at 1st January, 2001 726,146 620,936 219,876 53,600 295 22,184 916,891 1,643,037 Net loss for the year - - - - - (502,046) (502,046) (502,046) Transfer of reserves - - 2,361 2,361 - (4,722) - - Balance at 31st December, 2001 and 1st January, 2002 726,146 620,936 222,237 55,961 295 (484,584) 414,845 1,140,991 Net profit for the year - - - - - 111,950 111,950 1 111,950 Transfer of reserves - (226,189) (191,166) 5,041 - 412,314 - - Provision for unrealised gain on interests in associates - 4,146 - - - - 4,146 4,146 Balance at 31st December, 2002 726,146 398,893 31,071 61,002 295 39,680 530,941 1,257,087 - 48 - CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST DECEMBER, 2002 NOTES 2002 2001 RMB’000 RMB’000 OPERATING ACTIVITIES Cash generated from operations 22 716,320 323,683 Interest paid (70,844) (92,547) Income tax (paid) / refunded (18,789) 880 NET CASH FROM OPERATING ACTIVITIES 626,687 232,016 INVESTING ACTIVITIES Interest received 12,786 27,680 Purchase of property, plant and equipment (167,551) (23,266) Expenditure on construction in progress (35,720) (38,065) Proceeds from disposal of property, plant and equipment 40,565 20,373 Increase in investments in associates - (56,198) Purchase of other investments (1,950) (32,138) Decrease / (increase) in investments in securities 24,027 (20,975) Increase in pledged deposits (26,061) (7,971) Net cash outflow from disposal of subsidiaries - (5,810) NET CASH USED IN INVESTING ACTIVITIES (153,904) (136,370) FINANCING ACTIVITIES New bank and other loans raised 961,500 884,500 Repayment of bank and other loans (1,022,889) (943,446) NET CASH USED IN FINANCING ACTIVITIES (61,389) (58,946) INCREASE IN CASH AND CASH EQUIVALENTS 411,394 36,700 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 469,168 432,468 ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS AT END OF YEAR Cash and bank balances 880,562 469,168 - 49 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2002 1. CORPORATE INFORMATION Shenzhen SEG Co., Limited (the “Company”) and its subsidiaries are collectively referred to the “Group”. The Company, which was approved by the Shenzhen Municipal Government, the People’s Republic of China (the “PRC”) on 10th April, 1996, was established in the name of Shenzhen SEG Co., Limited. The Company obtained a business certificate licence on 16th July, 1996. The Company’s shares have been listed and traded on the Shenzhen Stock Exchange since July, 1996. The holding company of the Company is Shenzhen Electronics Group Ltd. (the “SEG Group”), a state-owned enterprise registered in the PRC and under the direct supervision of the Shenzhen Municipal Government. The Company, its subsidiaries (note 13) and its associates (note 14) are engaged primarily in the production and sales of electronic products of which colour cathode tubes are the major product. 2. PRESENTATION OF FINANCIAL STATEMENTS The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). These financial statements are presented in Renminbi (“RMB”) since that is the currency in which the majority of the Group’s transactions are denominated. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared on the historical cost basis except for the investments in securities and other investments which were stated at fair value. The principal accounting policies adopted are set out below :- (a) Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and enterprises controlled by the Company (“its subsidiaries”) made up to 31st December each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee enterprise so as to obtain benefits from its activities. On acquisition, the assets and liabilities of a subsidiary are measured at their fair value at the date of acquisition. The interest of minority shareholders is stated at the minority's proportion of the fair value of the assets and liabilities recognised. - 50 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2002 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of consolidation - Continued The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those used by other members of the Group. All significant inter-company transactions and balances between group enterprises are eliminated on consolidation. (b) Interests in associates An associate is an enterprise over which the Group is in a position to exercise significant influence, through participation in the decision making on the financial and operating policies of the investee. The results, assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. The carrying amount of such investments is reduced to recognise any impairment in the value of individual investment. Where a group enterprise transacts with an associate of the Group, unrealised profits and losses are eliminated to the extent of the Group’s interests in the relevant associate, except where unrealised losses provide evidence of an impairment of the asset transferred. (c) Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interests in the fair value of the identifiable assets and liabilities of a subsidiary or an associate at the date of acquisition. Goodwill is recognised as an asset and amortised on a straight-line basis following an assessment of its useful life. Goodwill arising on the acquisition of an associate is included within the carrying amount of the associate. Goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet. - 51 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2002 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (c) Goodwill - Continued Negative goodwill, which represents the excess of the Group’s interests in the fair value of the identifiable assets and liabilities of a subsidiary or an associate acquired over the cost of acquisition, is eliminated proportionately against the fair value of the non-monetary assets acquired. Any amount in excess of the fair value of the non-monetary assets acquired should be amortised over the remaining weighted average useful life of the identifiable acquired depreciable or amortisable assets. On disposal of a subsidiary or an associate, the attributable amount of unamortised goodwill or negative goodwill is included in the determination of the profit or loss on disposal. (d) Property, plant and equipment (i) Investment properties Investment property, which is property held to earn rentals and for capital appreciation, is stated at cost less accumulated depreciation and impairment losses. (ii) Other property, plant and equipment Other property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and location for its intended use. Expenditure incurred after the asset has been put into operation, such as repairs and maintenance and overhaul costs, is normally charged to the income statement in the year in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset, the expenditure is captialised as an additional cost of the asset. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement. - 52 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2002 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (d) Property, plant and equipment - Continued Depreciation is calculated to write off the cost of other property, plant and equipment on a straight-line basis over their estimated useful lives as follows :- Leasehold land Over the remaining lease terms Buildings 20 - 40 years Machinery and equipment 5 - 10 years Motor vehicles 5 - 10 years (e) Construction in progress Construction in progress represents properties under construction and equipment purchased prior to installation and is stated at cost. Cost comprises direct costs, attributable overheads and borrowing costs capitalised in accordance with the Group’s accounting policy. No depreciation is provided on construction in progress prior to their completion upon which they will be reclassified into the appropriate categories of property, plant and equipment and depreciation will be provided. (f) Impairment At each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the asset to which the asset belongs. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment loss is recognised as expense immediately, unless the relevant asset is land or buildings at a revalued amount , in which case the impairment loss is treated as a revaluation decrease. - 53 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2002 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (f) Impairment - Continued Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, such that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. (g) Other investments Other investments represent unlisted investments held for long-term purposes. Other investments are stated at cost less impairment. (h) Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price less estimated costs to completion and costs to be incurred in marketing, selling and distribution. (i) Financial instruments Financial assets and liabilities are recognised on the Group’s balance sheet when the Group has become a party to the contractual provisions of the instrument. (i) Accounts receivable, deposits and prepayments Accounts receivable, deposits and prepayments are stated at cost as reduced by appropriate allowances for estimated irrecoverable amounts. - 54 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2002 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued (i) Financial instruments - Continued (ii) Investments in securities Investments in securities are recognised on a trade-date basis and are initially measured at cost. At subsequent reporting dates, debt securities that the Group has the expressed intention and ability to hold to maturity (held-to-maturity debt securities) are measured at amortised cost, less any impairment loss recognised to reflect irrecoverable amounts. The annual amortisation of any discount or premium on the acquisition of a held-to-maturity security is aggregated with other investment income receivable over the terms of the instrument so that the revenue recognised in each year represents a constant yield on the investment. Investments other than held-to-maturity debt securities are classified as either held for trading or available-for-sale and are measured at subsequent reporting dates at fair value. Where securities are held for trading purposes, unrealised gains and losses are included in net profit or loss for the year. For available-for-sale investments, unrealised gains and losses are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the net profit or loss for the year. (iii) Loans Interest-bearing loans are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption, are accounted for on an accrual basis and are added to the carrying amount of the instrument to the extent that they are not settled in the year in which they arise. (iv) Accounts payable, deposits received and accruals Accounts payable, deposits received and accruals are stated at cost. (j) Operating leases Rentals payable under operating leases are charged to the income statement on a straight-line basis over the terms of the relevant lease. - 55 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2002 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued (k) Foreign currencies Transactions in currencies other than RMB are initially recorded at the rates of exchange prevailing on the dates of the transactions. Monetary assets and liabilities denominated in such currencies are re-translated at the rates prevailing on the balance sheet date. Profits and losses arising on exchange are included in net profit or loss for the year. (l) Taxation The charge for current taxation is based on the results for the year as adjusted for items which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred taxation is accounted for using the liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit. In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill (or negative goodwill) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction which affects neither the taxable profits nor the accounting profits. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, except where the Group is able to control the reversal of the timing difference and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax is calculated at the tax rate that are expected to apply to the year when the asset is realised or the liability is settled. Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax asset and liability is offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax asset and liability on a net basis. - 56 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2002 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued (m) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the cost of those assets. All other borrowing costs are recognised in net profit or loss in the year in which they are incurred. (n) Retirement benefit costs The Group participates in retirement funds scheme managed by the local social security bureau in accordance with government regulations. The contributions are charged to the income statement as incurred at rates specified in the rules of the scheme. (o) Provisions Provisions are recognised when the Group has a present obligation as a result of a past event which it is probable that it will result in an outflow of economic benefits that can be reasonably estimated. (p) Revenue recognition (i) Sales of goods are recognised when goods are delivered and title has passed. (ii) Rental income is recognised on a straight-line basis over the respective lease terms. (iii) Transportation and warehousing service income and maintenance fee income are recognised over the relevant period in which the services are rendered. (iv) Interest income is accrued on a time basis, by reference to the principal outstanding and at the interest rate applicable. (v) Income from other investments is accounted for to the extent of dividend income received and receivable during the year. - 57 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2002 4. REVENUE An analysis of the Group’s revenue is as follows:- 2002 2001 RMB’000 RMB’000 Sales of goods 2,062,837 1,808,055 Rental income 87,142 82,478 Transportation and warehousing service income 41,938 30,021 Others 14,554 1,694 2,206,471 1,922,248 5. BUSINESS AND GEOGRAPHICAL SEGMENTS (a) Business segments Since the Group is mainly engaged in the business of production and sales of colour cathode tubes and related products, the analysis of business segments is not presented. (b) Geographical segments The analysis of the Group’s revenue by geographical market is as follows:- 2002 2001 RMB’000 RMB’000 The PRC 1,318,384 1,346,516 Countries other than the PRC (mainly South East Asia countries) 888,087 575,732 2,206,471 1,922,248 Since the Group’s assets are mainly in the PRC, the analysis of geographical segments is not presented. - 58 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2002 6. OTHER OPERATING INCOME An analysis of the Group’s other operating income is as follows:- 2002 2001 RMB’000 RMB’000 Interest income 12,786 27,680 Retention of value-added tax (“VAT”) on products manufactured and sold in Shenzhen (see note below) 20,575 25,695 Gain on disposal of investments in securities - 12,307 Handling fee income 88 2,041 Reversal of unrecognised loss on investments 25,367 - Penalty imposed on customers for late payments 191 5,895 Others 5,518 4,472 64,525 78,090 The Group is subject to assessment of VAT in respect of the sales of its products pursuant to the “Provisional Value-added Tax Regulations of the PRC” and the “Implementation Rules of the Provisional Value-added Tax Regulations of the PRC”. VAT payable on sales is borne by customers. VAT is levied at the rate of 17% on the invoiced value of goods sold. VAT payable by the Group on its purchases can be offset against VAT receivable on its sales. However, the Group is given special treatment in Shenzhen and is allowed to keep the amount of VAT received from customers in excess of their payments of VAT to suppliers for those products manufactured and sold to local manufacturers in Shenzhen by the Group. The Group therefore had net gains in VAT which are included in the item “Retention of VAT on products manufactured and sold in Shenzhen”. 7. PROFIT / (LOSS) FROM OPERATIONS Profit / (loss) from operations has been arrived at after charging:- 2002 2001 RMB’000 RMB’000 Retirement benefit costs (note 27) 12,174 7,950 Loss on disposal of property, plant and equipment 60,197 5,277 Staff costs 140,296 104,979 Depreciation and amortisation 120,419 170,776 Operating lease charges on land and buildings 824 10,747 Provision for bad debts 21,604 157,910 Written off of construction in progress 545 23 - 59 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2002 8. FINANCE COSTS 2002 2001 RMB’000 RMB’000 Interest expenses on bank and other loans 70,844 92,547 9. TAXATION 2002 2001 RMB’000 RMB’000 Income tax - the Company and its subsidiaries 23,821 1,792 - associates 2,828 1,946 26,649 3,738 Income tax represents the provision for the PRC income tax charged for the year. The PRC income tax has been provided for at 15% (2001 : 15%) on the assessable profits of each individual company comprising the Group. Deferred tax has not been provided for in the financial statements as in the opinion of directors, there are no material timing differences which are expected to crystallise in the foreseeable future. 10. EARNINGS / (LOSSES) PER SHARE The calculation of basic earnings / (losses) per share is based on the following data :- 2002 2001 Net profit / (loss) for the year RMB 111,950,000 RMB(502,046,000) Number of issued shares 726,145,863 726,145,863 The Company has no issued shares with potential dilutive effect. Therefore, no diluted earnings / (losses) per share are presented. - 60 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2002 11. PROPERTY, PLANT AND EQUIPMENT Leasehold Machinery Investment land and and Motor properties buildings equipment vehicles Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 COST At 1st January, 2002 57,362 1,079,303 1,432,785 41,500 2,610,950 Additions - 125,809 30,529 11,213 167,551 Transfer from construction in progress (Note 12) - 23,389 35,627 - 59,016 Disposals / written off (10,704) (278,822) (17,311) (7,170) (314,007) At 31st December, 2002 46,658 949,679 1,481,630 45,543 2,523,510 ACCUMULATED DEPRECIATION AND IMPAIRMENT LOSSES At 1st January, 2002 1,399 287,265 980,844 24,261 1,293,769 Charge for the year 1,225 49,173 66,038 3,983 120,419 Written back on disposals / written off (1,369) (172,444) (34,803) (4,629) (213,245) At 31st December, 2002 1,255 163,994 1,012,079 23,615 1,200,943 NET BOOK VALUE At 31st December, 2002 45,403 785,685 469,551 21,928 1,322,567 At 31st December, 2001 55,963 792,038 451,941 17,239 1,317,181 Rental income earned by the Group from its investment properties, all of which are leased out under operating leases, amounted to RMB 21,933,724 (2001: RMB20,086,622). Direct operating expenses arising on the investment properties in the year amounted to RMB 12,294,356 (2001: RMB12,933,737). In the opinion of the directors, the aggregate carrying value of investment properties approximates to their fair value at the balance sheet date. - 61 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2002 12. CONSTRUCTION IN PROGRESS 2002 2001 RMB’000 RMB’000 COST At beginning of year 28,279 3,441 Additions 35,720 38,065 Transfer to property, plant and equipment (Note 11) (59,016) (13,204) Written off (545) (23) At end of year 4,438 28,279 13. SUBSIDIARIES Details of the Company’s principal subsidiaries at 31st December, 2002 are as follows :- Place of incorporation, Effective registration and rate of Name of subsidiary operation equity held Principal activities Shenzhen SEG Communication PRC 99.59% Manufacture and Co., Ltd. installation of communication equipment Shenzhen SEG Store and PRC 99.59% Cargo transportation Transport Enterprise Co., Ltd. and storage Shenzhen Baohua PRC 66.58% Manufacture of Electronic Joint Stock Co., Ltd. electronic consumer products and property investment Shenzhen SEG CNEDC PRC 73.24% Investment holding Color Display Devices Corp. Shenzhen SEG Hitachi Color PRC 54.93% Manufacture of Display Devices Co., Ltd.* colour TV tubes Shenzhen SEG East Industrial PRC 100% Import and export Development Co., Ltd. trading - 62 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2002 13. SUBSIDIARIES - Continued Place of incorporation, Effective registration and rate of Name of subsidiary operation equity held Principal activities Shenzhen SEG Real PRC 91.79% Investment holding Estate Co., Ltd. Shenzhen SEG Business PRC 99.86% Sale of computers, Machine Co., Ltd. equipment and communication devices Shenzhen SEG Net Information PRC 52.41% Trading of and provision Company Limited of services for electronic and communication products * Indirectly held subsidiary 14. INTERESTS IN ASSOCIATES 2002 2001 RMB’000 RMB’000 Unlisted investments in the PRC Share of net assets 376,898 320,878 Amounts due from associates 5,534 50 Amounts due to associates - (23,583) 382,432 297,345 - 63 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2002 14. INTERESTS IN ASSOCIATES – Continued Details of the Company’s principal associates at 31st December, 2002 are as follows :- Place of Effective incorporation, rate of registration equity Name of associate and operation held Principal activities Shenzhen SEG PRC 21.44% Manufacture and sale of cathode Samsung Glass Co., tubes, glass shells and relevant Ltd. (“SEG Samsung”) moulds and tools Shenzhen SEG Navigations PRC 20.25% Development, design and Technology Stock Co., Ltd provision of consultancy services in respect of electronic and communication products 上海賽格電子市場有限公司 PRC 35% Sale of electronic and communication products 深圳日立賽格顯示器 PRC 16.48% Manufacture of colour TV tubes 有限公司 15. OTHER INVESTMENTS 2002 2001 RMB’000 RMB’000 Unlisted investments in the PRC, at fair value 16,058 14,790 16. INVENTORIES 2002 2001 RMB’000 RMB’000 Raw materials 111,099 119,005 Consumables 179 143 Work in progress 19,057 13,180 Finished goods 16,439 30,398 146,774 162,726 At the balance sheet date, raw materials of approximately RMB344,000 (2001: RMB344,000) are stated at net realisable value. Consumables, work in progress and finished goods are stated at cost. - 64 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2002 17. INVESTMENTS IN SECURITIES 2002 2001 RMB’000 RMB’000 Listed shares in the PRC, at fair value 7,473 31,500 Investments in securities represent the Group’s investments in listed equity securities. The Group obtains its return on investments by dividend income and trading gains received. The fair value of investments in securities is based on quoted market prices. 18. FINANCIAL INSTRUMENTS Financial assets of the Group include cash and bank balances, pledged deposits, investments in securities, accounts receivable, deposits and prepayments. Financial liabilities of the Group include bank loans, accounts payable, deposits received and accruals. The Group exposes to credit and interest rate risk arising from the normal course of the Group’s business. (a) Credit risk The Group has a credit policy in place and the exposure to credit risk is monitored on an on-going basis. Credit evaluations are performed on all customers requiring credit over a certain amount. (b) Interest rate risk The interest rates and terms of repayment of the bank loans of the Group are disclosed in note (21). (c) Fair value The carrying amounts of significant financial statements and liabilities approximate to their respective fair values at the balance sheet date. (i) Cash and bank balances and pledged deposits Cash and bank balances and pledged deposits represent cash and short-term deposits placed at bank. The carrying amounts of these assets approximate their respective fair values. - 65 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2002 18. FINANCIAL INSTRUMENTS - Continued (c) Fair value - Continued (ii) Accounts receivable, deposits and prepayments An allowance has been made for estimated irrecoverable amounts of the accounts receivable, deposits and prepayments by reference to past default experience. The directors consider that the carrying amounts of these assets approximate their respective fair value. Amounts receivable, deposits and prepayments included amounts due from holding company, fellow subsidiaries and related companies. The major balances at the balance sheet date are shown in note (28) to the accounts. (iii) Loans The carrying amount of loans approximates its fair value based on the borrowing rates currently available for loans with similar terms and maturity. (iv) Accounts payable, deposits received and accruals Accounts payable, deposits received and accruals are short-term in nature. The carrying amounts of these liabilities approximate their respective fair values. Accounts payable, deposits received and accruals included amounts due to holding company, fellow subsidiaries and related companies. The major balances at the balance sheet date are shown in note (28) to the accounts. 19. SHARE CAPITAL 2002 2001 RMB’000 RMB’000 Registered, issued and fully paid :- 498,104,136 ‘A’ shares of RMB 1 each 498,104 498,104 228,041,727 ‘B’ shares of RMB 1 each 228,042 228,042 726,146 726,146 - 66 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2002 20. RESERVES Statutory Accumulated Statutory public welfare Exchange profits / Capital reserve surplus reserve fund reserve (losses) Total RMB ‘000 RMB ‘000 RMB ‘000 RMB ‘000 RMB ‘000 RMB ‘000 Balance at 1st January, 2001 620,936 219,876 53,600 295 22,184 916,891 Net loss for the year - - - - (502,046) (502,046) Transfer of reserves - 2,361 2,361 - (4,722) - Balance at 31st December, 2001 and 1st January, 2002 620,936 222,237 55,961 295 (484,584) 414,845 Net profit for the year - - - - 111,950 111,950 Transfer of reserves (226,189) (191,166) 5,041 - 412,314 - Provision for unrealised gain on - interests in associates 4,146 - - - 4,146 Balance at 31st December, 2002 398,893 31,071 61,002 295 39,680 530,941 Attributable to :- The Company and subsidiaries 398,893 31,071 61,002 295 (172,762) 318,499 Associates - - - - 212,442 212,442 Balance at 31st December, 2002 398,893 31,071 61,002 295 39,680 530,941 Under the relevant law, regulations and policies in the PRC, the Company is required to make an appropriation of the profit after taxation to the statutory surplus reserve account until the reserve amount has reached 50% of the registered capital of the Company. The Company is also required to make an appropriation to the statutory public welfare fund. Any premium received on the issue of shares (net of issue costs) is treated as capital reserve. The statutory surplus reserve and capital reserve may be applied only for the following purposes:- (i) The statutory surplus reserve may be used to make up losses; and (ii) The reserves may be converted into share capital by the issue of new shares to shareholders in proportion to their existing shareholdings, but when reserves are converted into share capital, the amount remaining in the reserves shall not be less than 25% of the enlarged registered capital. The statutory public welfare fund shall be applied only for the collective welfare of the Company’s employees. Prior to making up the Company’s losses and making the relevant appropriations to the statutory surplus reserve and the statutory public welfare fund, no dividends may be paid. - 67 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2002 21. LOANS (a) The loans are repayable as follows :- 2002 2001 RMB’000 RMB’000 Bank loans - secured 198,996 582,385 - unsecured 912,000 590,000 Other unsecured loans 2,500 2,500 1,113,496 1,174,885 Less : Amount shown under current liabilities (943,670) (868,105) Amount shown under non-current liabilities 169,826 306,780 (b) The weighted average interest rates paid were as follows :- 2002 2001 Bank loans - short-term loans 5.66% 6.41% - long-term loans 6.14% 5.99% Other loans 5.60% 8.19% (c) Bank loans of approximately RMB230,000,000 (2001: approximately RMB260,000,000) were guaranteed by independent third parties. - 68 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2002 22. CASH GENERATED FROM OPERATIONS 2002 2001 RMB’000 RMB’000 Profit / (loss) from operations 187,195 (398,816) Adjustments for :- Depreciation on property, plant and equipment 120,419 170,776 Written off of construction in progress 545 23 Interest income (12,786) (27,680) Loss on disposal of property, plant and equipment 60,197 5,277 Impairment loss on other investments 682 - Amortisation on other assets 2,252 - Provision for contingent loss - (83,881) Impairment loss on property, plant and equipment - 290,132 Decrease in inventories 15,952 170,713 Increase in amount due from associates (29,067) - Decrease in accounts receivable, deposits and prepayments 164,202 7,512 Increase in accounts payable, deposits received and accruals 206,729 189,627 Cash generated from operations 716,320 323,683 - 69 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2002 23. PLEDGE OF ASSETS At 31st December, 2002, certain of the Group’s properties, machinery and equipments, bank deposits and bills receivable with an aggregate net book value of approximately RMB863,813,000 (2001: approximately RMB 736,419,000) were pledged to secure banking and other facilities granted to the Group. 24. CONTINGENT LIABILITIES At the balance sheet date, the Group had contingent liabilities not provided for in the financial statements as follows :- 2002 2001 RMB’000 RMB’000 (a) The Group had given guarantees to bankers in respect of banking facilities utilised by :- An associate – Shenzhen SEG Samsung Glass Co., Ltd. - 58,500 Investee companies - Shenzhen SEG Dasheng Joint Stock Co., Ltd. 27,000 67,000 - Shenzhen SEG Samsung Enterprise Co., Ltd. 83,881 83,881 An independent third party – 深圳南光(集團)股份 有限公司 40,000 70,000 150,881 279,381 Provision made for guarantee given for Shenzhen SEG Samsung Enterprise Co., Ltd. (83,881) (83,881) 67,000 195,500 25. CAPITAL COMMITMENT At 31st December, 2002, the Group had capital commitment contracted for but not provided for in the financial statements in respect of acquisition of property, plant and equipment totalling approximately RMB 2,114,000 (2001 : approximately RMB5,122,000). - 70 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2002 26. OPERATING LEASE COMMITMENT At the balance sheet date, the Group had outstanding commitments under non-cancellable operating leases, which fall due as follows:- 2002 2001 RMB’000 RMB’000 Within one year 703 1,775 In the second to fifth year inclusive 762 1,774 1,465 3,549 27. RETIREMENT BENEFIT PLANS The employees of the Group are members of a state-managed retirement benefit scheme operated by the PRC government. The subsidiaries are required to contribute a specified percentage of their payroll costs to the retirement benefit scheme to fund the benefits. The only obligations of the Group with respect to the retirement benefit scheme are included in the amount disclosed in note (7) to the accounts for contribution to defined retirement benefit plans. 28. RELATED PARTY TRANSACTIONS The followings are the major related party transactions entered by the Group during the year and the corresponding balances at the balance sheet date:- Name of Company Relationship Nature 2002 2001 RMB’000 RMB’000 Shenzhen Electronic Holding - Payment of rental - 13,850 Group Ltd. company - Payment of guarantee charges 400 9,449 - Amount the therefrom 128,978 142,957 深圳市賽格廣場投資 Fellow - Amount due therefrom 5,480 48,577 發展有限公司 subsidiary 深圳市賽格軟件技術 Fellow - Amount due therefrom - 7,811 有限公司 subsidiary 賽格(香港)公司 Fellow - Amount due therefrom 2,964 2,834 subsidiary 深圳巿賽格集團財務 Fellow - Amount due therefrom - 4,784 公司 subsidiary - 71 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2002 28. RELATED PARTY TRANSACTIONS – Continued Name of Company Relationship Nature 2002 2001 RMB’000 RMB’000 Shenzhen SEG Associate - Purchase of raw materials 10,943 94,003 Samsung Glass Co., - Guarantee given - 56,250 Ltd. - Receipt of guarantee charges - 865 - Amount due therefrom / (thereto) 5,534 (23,563) Shenzhen SEG Investee - Guarantee given 83,881 83,881 Samsung Enterprise company Co., Ltd. Shenzhen SEG Investee - Guarantee given 27,000 67,000 Dasheng Joint company - Amount due therefrom 55,086 149,517 Stock Co., Ltd. In the opinion of the directors, the above transactions were undertaken in the normal course of the business and were conducted at prices agreed by each party. - 72 - NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER, 2002 29. IMPACT OF IFRS ADJUSTMENTS ON NET PROFIT / (LOSS) FOR THE YEAR AND NET ASSETS Net profit / (loss) for the year Net assets 2002 2001 2002 2001 RMB’000 RMB’000 RMB’000 RMB’000 As reported in the financial statements audited by the PRC auditors 100,818 (338,761) 1,257,087 1,124,261 Adjustments made for prior year by the PRC auditors - Others - - - (3,952) As restated 100,818 (338,761) 1,257,087 1,120,309 IFRS adjustments :- - (Decrease) / increase in provision for doubtful debts (4,855) 59,643 - - - Decrease in provision for other assets 5,289 12,166 - - - Loss on deemed disposal of a subsidiary 30,907 - - (30,907) - Share of results of associates 3,640 (22,181) - 4,636 - Negative goodwill arising from acquisition of equity interests in a subsidiary - - - 46,953 - Impairment loss on property, plant and equipment - (290,132) - - - Written off of property, plant and equipment (44,177) - - - - Reversal of loss on disposal of property, plant and equipment 9 - - - - Minority interests (7,543) - - - - Impairment loss shared by minority shareholders - 126,234 - - - Provision for staff quarter benefits - (309) - - - Reversal of unrecognised loss / (gain) on investments 27,862 (40,156) - - - Others - (8,550) - - As adjusted in conformity to IFRS 111,950 (502,046) 1,257,087 1,140,991 30. COMPARATIVE FIGURES Certain comparative figures have been reclassified in conformity to the presentation of the financial statements for the year. 31. LANGUAGE The report is originally prepared in Chinese. In the event of a conflict between this English translation and the original Chinese version or difference in interpretation between the two versions of the report, the Chinese language report shall prevail. - 73 - XI. DOCUMENTS FOR REFERENCE (1) Accounting statements carried with the signatures and seals of legal person representative, person in charge of accounting affairs and person in charge of accounting institution. (2) Original of auditor’s report carried with the seal of Certified Public Accountants, the signature and seal of certified public accountants. (3) Originals of documents and manuscripts of public notices disclosed publicly on the newspapers designated by CSRC in the report period. Board of Directors of Shenzhen SEG Co., Ltd. Apr. 16, 2003 - 74 -