长安汽车(000625)长安Ｂ2002年年度报告（英文版）

Chongqing Changan Automobile Company Limited 2002 Annual Report Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) I. Important note and contents: The Board of Directors of Chongqing Changan Automobile Co., Ltd. (hereinafter referred to as “the Company”) and the directors guarantee that the information contained in the annual report are free of false records, misguiding statements or significant omissions, and assume individual and joint liabilities for the truthfulness, accuracy and integrity of the annual report. Mr. Zhang Xinyu, Chen Qing, Wang Chongsheng, Keijin Yamauchi, Toshiaki Hashimoto and Koichiro Chikaishi, Directors of the Board and independent director, Mr Guo Konghui,Mr Gao Zhikai were absent; director, Mr. Zhang Xinyu entrusted director, Mr. Li Shouwu and independent director, Mr. Guo Konghui entrusted independent director, Mr. Xia Donglin, Mr. Gao Zhikai entrusted independent director, Mr. Wen Zhongyu to attend and vote on their behalf, respectively. Chairman Mr. Yin Jiaxu, General Manager Mr. Zhao Luchuan and Chief Accountant Mr. Cui Yunjiang guarantee the truthfulness and completeness of the financial statements of the annual report. The annual report shall be presented in both Chinese and English, and should there be any conflicting understanding of the text, the Chinese version shall prevail. Content I. Important note and contents 1 II. General Introduction of the Company 3 III. Extracts of Accounting and Operating Data 4 IV. Changes in Shareholdings and Information on Shareholders 5 V. Information on Directors, Supervisors, Senior Management and Employees 8 VI. Corporate Governance Structure 10 VII. Shareholders General Meeting 11 VIII. Report by Board of Directors 13 1 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) IX. Report by Board of Supervisors 15 X. Important Issues 21 XI. Financial Reports 25 XII. Documents for Inspection 61 2 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) II. General Introduction of the Company 1. The Company’s legal Chinese name: 重庆长安汽车股份有限公司 The Company’s legal English name: Chongqing Changan Automobile Company Limited 2. Legal representative of the Company: Mr. Yin Jiaxu 3. Secretaries of the Board: Mr. Cui Yunjiang, Mr. Ma Jun Securities Matters Representative: Ms. Li Jun Address: No. 260, Jian Xin East Road, Jiang Bei District, Chongqing Telephone: (023) 67591349, 67591568 Fax: (023) 67866055, 67870261 Email address: cazjc@mail.changan.com.cn 4. Registered address: No. 260, Jian Xin East Road, Jiang Bei District, Chongqing Post code: 400023 Office Address: No. 260, Jian Xin East Road, Jiang Bei District, Chongqing Post code: 400023 Internet Website of the Company: http://www.changan.com.cn Email Address of the Company: cazqc@mail.changan.com.cn 5. Publications for information disclosure of the Company: China Securities, Securities Daily, Hong Kong Business Website for information disclosure of the Company: http://www.cninfo.com.cn Annual Report preparation: Office of the Board of Directors 6. Place of listing: Shenzhen Stock Exchange Abbreviated name of the stock: Changan Automobile Changan B Stock Code: 000625 200625 7. The Company was first registered on: October 31, 1996 Registered Address: No. 309, Nan Cheng Road, Nan An District, Chongqing Date of change in registration: December 16, 2002 Registered Address: No. 260, Jian Xin East Road, Jiang Bei District, Chongqing 3 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) Business license number: Yu Zhi 500000218005570 Taxation registration number: State Taxation Chong Zi 51021120286320X, Di Sui Zi 500112736570882 The name and address of the accounting firm for the reporting year: Domestic CPA firm: PricewaterhouseCoopers Zhongtian CPA Address: 12th Floor, Shui On Plaza, 333, Huai Hai Zhong Lu, Shanghai 200021, PRC International CPA firm: PricewaterhouseCoopers Zhongtian CPA Address: 12th Floor, Shui On Plaza, 333, Huai Hai Zhong Lu, Shanghai 200021, PRC III. Extracts of Accounting and Operating Data 1. The Company’s accounting data for the current year (RMB ten thousand): Profit before tax 1,124,537 Net profit 865,146 Profit from operation 2,533,719 Other operation income 41,447 Operating profit 1,119,412 Investment income (48,247) Net non-operating income/loss - Net cash in-flow from operating activities 2,086,356 Net increase in cash and cash equivalents 1,069,507 2. Reconciliation of the net profits presented under the PRC accounting standards and International Financial Reporting Standards (“IFRS”) (RMB thousand) Net Assets Net Profit As reported mode PRC accounting standards: 3,301,363 834,997 1 Staff bonus and welfare fund of Changan Suzuki appropriated from profit after tax - (18,000) 2 Amortization of goodwill arising on consolidation (17,171) 858 4 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) 3 Adjustment for amortization of pre-operating expenses of Changan Suzuki 1,229 - 4 Reversal of revaluation surpluses from of long-term assets relating to revaluation made in 1995 (7,877) - 5 Deferred tax assets 97,212 28,102 6 Reversal of equity share of the loss of Changan Ford Automobile Co., Ltd. in 2001 - 11,000 7 Reversal of capital surplus to other operating income - 8,189 8 Declared dividends in 2002 98,133 - As restated in conformity with IFRS: 3,472,889 865,146 3. Key accounting data and financial indicators of the recent three years Item 2002 2001 2000 Sales (RMB ’000) 9,884,068 7,331,806 6,703,212 Net profit (RMB ’000) 865,146 206,183 134,512 Total assets (RMB ’000) 8,775,246 6,669,305 7,066,654 Shareholders’ equity (RMB ’000) 3,472,889 2,656,809 2,497,239 Earnings per share (yuan/share) 0.71 0.17 0.11 Net assets per share (yuan/share) 2.83 2.17 2.04 Adjusted net assets per share(yuan/shard) 2.79 2.15 1.85 Net cash flow from operating activities per share(yuan/share) 1.70 0.80 0.72 Return on net assets (%) 24.91 7.76 5.49 IV. Changes in Shareholdings and Information on Shareholders 1. Change in shareholdings Change in share capital of the Company (unit: share) Increase/decrease in the reporting period (+, -) Balance Transfer Closing balance before current New change Allotment Bonus from share Others Sub-total after change issuance premium I. Non-circulated shares 1. Promoter 708,666,000 708,666,000 shares 5 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) Including: State-owned legal person shares Domestic legal 708,666,000 708,666,000 person shares Foreign legal person shares Others 2. Legal entity shares raised 3. Employee 21,000 21,000 shares 4. Preference shares and others Sub-total of 708,687,000 708,687,000 non-circulated shares II. Circulated shares 1. Domestic 167,979,000 167,979,000 listed RMB shares 2. Domestic 350,000,000 350,000,000 listed foreign shares 3. Overseas listed foreign shares 4. Others Total circulated 517,979,000 517,979,000 shares III. Total shares 1,226,666,000 1,226,666,000 Note: “Employee shares” refer to shares held by Directors and Supervisors of the Company. 2. Information on the shareholders (1) At the end of the reporting period, the shareholders of the Company totaled 75,941, of which 42,050 were A share shareholders and 33,891 were B share shareholders. 6 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) (2) The largest ten shareholders: Increase/ Shares held at % of Share Pledged/ Shareholders Name of the shareholder the year-end total decrease in Type Frozen shares the year shares 1. Changan Automobile Group 0 708,666,000 57.77 non-circulated 354,333,000 State-owned Limited (“CAC”) 2. Bony A/C CMG CH China 13,299,880 13,299,880 0.011 circulated Public-owned Investment Ltd 3. Newton Oriental Fund 10,127,000 10,127,000 0.008 circulated Foreign 4. BBHBOSTONA/C Gom 9,101,940 9,101,940 0.007 circulated Foreign Emerging markets Fund 5. Beihai Yinhe High Technology 6,356,415 6,356,415 0.005 circulated Public-owned Industrial Co. Ltd. 6. East Asia Securities Company 3,980,000 3,980,000 0.003 circulated Foreign Ltd. 7. China Intlmaring Containers 3,492,000 3,492,000 0.003 circulated Foreign (Hong Kong) Ltd. 8. Shanghai Hong Kong Wanguo 2,110,700 2,649,700 0.002 circulated Foreign Securities Co. Ltd. 9. Liyu Investment Co. Ltd. 2,606,300 2,606,300 0.002 circulated Foreign 10. Wan Mingfang 2,236,500 2,236,500 0.002 circulated Public-owned (3) The largest shareholder of the Company The largest shareholder: Changan Automobile Group Limited Legal representative: Zhao Guohua Date of establishment: October 28, 1996 Business scope and major products: manufacturing, development and sale of Changan series cars and spare parts; manufacturing and sale of firearms for civil use, ammunition, general use machinery, dies, tools etc. Registered capital: RMB 740,000,000 (4) The controlling party of the largest shareholder , CAC The controlling party of CAC: China South Industries Group Legal representative: Wang Dechen Date of establishment: June 29, 1999 Business scope and major products: investment and management of state-owned assets; manufacturing of guns and firearms; engineering prospecting, designing, construction, contracting, construction supervision; equipment installation, etc. Registered capital: RMB 12,645,210,000 7 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) V. Information on Directors, Supervisors, Senior Management and Employees 1. Information on directors, supervisors and senior management Shares held Position At the Reasons for Name Sex Age Term of office By the beginning of changes year-end the year Yin Jiaxu Chairman M 46 2000.05-2003.05 4200 4200 Zhao Luchuan Deputy M 49 2000.05-2003.05 4200 4200 Chairman, General Manager Keijin Deputy M 59 2000.05-2003.05 0 0 Yamauchi Chairman Li Shouwu Director M 36 2000.05-2003.05 0 0 Zhang Xinyu Director M 54 2000.05-2003.05 0 0 Chen Qing Director M 40 2000.05-2003.05 0 0 Wang Director M 44 2000.05-2003.05 4200 4200 Chongsheng Guo Xuewu Director M 46 2000.05-2003.05 0 0 Zhang Baolin Director M 40 2001.05-2003.05 0 0 Toshiaki Director M 54 2000.05-2003.05 0 0 Hashimoto Koichiro Director M 54 2000.05-2003.05 0 0 Chikaishi Guo Konghui Independent M 67 2002.04-2003.05 0 0 Director Xia Donglin Independent M 41 2002.04-2003.05 0 0 Director Gao Zhikai Independent M 40 2002.04-2003.05 0 0 Director Wen Zongyu Independent M 39 2002.04-2003.05 0 0 Director Shi Yubao Organizer of M 49 2001.05-2003.05 0 0 the Board of Supervisors Zhou Xiaying Supervisor F 53 2000.05-2003.05 4200 4200 Peng Minggeng Supervisor M 52 2001.05-2003.05 4200 4200 Cao Dongping Supervisor F 49 2001.05-2003.05 0 0 Xiong Huilin Supervisor F 43 2000.05-2003.05 0 0 Zhu Zhiping Supervisor M 40 2001.11-2003.05 0 0 Hua Dubiao Supervisor M 37 2001.11-2003.05 0 0 Fu Xiangyu Supervisor F 47 2001.11-2003.05 0 0 8 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) Zhu Huarong Deputy M 37 2000.4-2003.04 0 0 General Manager Jia Tingyue Deputy M 39 2001.4-2003.04 0 0 General Manager Cui Xiaomei Deputy F 47 2001.4-2003.04 0 0 General Manager Cui Yunjiang Deputy M 39 2000.4-2003.04 0 0 General Manager, Board Secretary Ma Jun Board M 43 2000.4-2003.04 0 0 Secretary Note: The positions of the Directors and Supervisors in their respective shareholder companies Term of Name Shareholder company Position office Yin Jiaxu Changan Automobile Group Limited Executive Director, President, 1998.7- Deputy Secretary of the Party Committee Wang Changan Automobile Group Limited Director, Vice President, 1996.2- Chongsheng Deputy Secretary of the Party Committee Guo Xuewu Changan Automobile Group Limited Director, Vice President 1999.12- Zhang Baolin Changan Automobile Group Limited Vice President 2001.3- Shi Yubao Changan Automobile Group Limited Chairman of the Worker’s 2000.9- Union, Deputy Secretary of the Party Committee Zhou Changan Automobile Group Limited Secretary to the Planning 1996.1- Xiaying Committee, Deputy Secretary of the Party Committee Peng Changan Automobile Group Limited Vice President 1998.11 Minggeng Cao Changan Automobile Group Limited Director of the Finance 2000.3- Dongping Department 2. Remuneration of the year In 2002, the annual remuneration for the directors, supervisors and senior management has been duly paid by month according to the relevant policy on management salary and by ranks and grades set by China South Industries Group. During the reporting period, total remuneration of directors, supervisors and senior management was 9 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) RMB 358,233. The total remuneration for the three highest paid directors (only one director receives remuneration from the Company) was at RMB 60,629, and total remuneration for the three most highest paid senior managers was RMB 135,301. Of the directors, supervisors and senior managers who receive payment from the Company, four received payment between RMB 25,000 and 35,000, three received payment between 35,000 and 45,000, two received payment 55,000 and 65,000. Remuneration for independent directors was RMB 50,000 (inclusive tax) per person per year. Expenses incurred in the discharge of responsibilities in attending board of directors meetings and shareholders’ meetings and in connection with the Company’s Article of Association are reimbursed by the Company. During the reporting period, Mr. Yin Jiaxu, Mr. Li Shouwu, Mr. Zhang Xinyu, Mr. Chen Qing, Mr. Wang Chongsheng, Mr. Guo Xuewu, Mr. Zhang Baolin, Mr. Shi Yubao, Ms. Zhou Xiaying, Mr. Peng Minggeng, Ms. Cao Dongping and Ms. Xiong Huilin did not receive remuneration from the Company. They received remuneration from shareholder companies or related companies. Mr. Keijin Yamauchi, Mr. Toshiaki Hashimoto, Mr. Koichiro Chikaishi did not receive remuneration from the Company. 3. Based on approval of 2001 shareholders’ meeting, the Company engaged Mr. Guo Konghui, Mr. Xia Donglin, Mr. Gao Zhikai and Mr. Wen Zongyu as Independent Directors. 4. The Employees of the Company By the end of the year, total headcount of the Company was at 7,077, including 4,095 production workers, 1,023 salespersons, 748 technicians, 566 finance staff, and 645 administrative staff. Of the total, there were 2 with doctorate degree, 35 with master degree, 843 with bachelor degree, and 1,337 with college education or above. The number of retired employees for which the Company is required to bear their expenses was 1,958. VI. Corporate Governance Structure 1. Corporate governance The Company has been strictly complying with the relevant laws and regulations, including the Company Law, the Securities Law, the Listing Regulation of Shenzhen Stock Exchange and the Regulations for the Governance of Listed Companies by China Securities Regulatory Commission, and continuously improving the corporate governance of the Company, adopting modern best practices and standardizing the management and operations of the Company 10 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) 2. The independent directors The independent directors of the Board have been honest, diligent and industrious in fulfilling their duties and expressed independent opinions on investment, related party transactions , assets acquisition and other significant transactions, thus contributing to the improvement of the decision capabilities of management and the safeguard of the Company’s interest, especially the minority shareholders’ interests. The independent directors also made contributions in areas of innovation, remuneration-system, corporate governance and financial management. 3. The 5 areas of segregation (1) Operation: The main business scope of the Company includes the development, manufacture and sale of automobiles, engines and automobile related parts The main business has been approved by government and is not dependent on other entities. The Company has the technology, production and sales employees related to its business scope and can undertake the operations independently. (2) Assets: The Company has necessary fixed assets, current assets, intangible assets and related departments to meet its operation needs. (3) Employee: The Company signed the labor contracts with their employees based on the registered employee list; they have responsibilities for the employees’ performance, salary, pension, housing fund and other welfare of the employees independently. The directors, supervisors and senior managers are appointed by Changan Automobile Group Limited, the selection and engagement of whom are in conformity with Corporate Laws and Article of Association. The senior managers work for the Company full time and received salary from the Company. (4) Organization: Each entity of the Group is independent of the controlling shareholders and carry out their rights in accordance with the relevant regulations. (5) Finance: The Company has independent financial department and established independent accounting system and financial management system. VII. Shareholders General Meeting During the reporting period, three shareholders general meetings were held. I. The Board of Directors announced the 2001 shareholders general meeting on March 10, 2002 through China Securities, Securities Daily and Hong Kong Business. The meeting was held on April 29, 2002 at Chongqing Changan Hotel. The meeting debated and passed through voting the following resolutions: 11 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) 1. Report of Board of directors 2. Report of Board of Supervisors 3. 2001 Annual Report and Extract 4. Use of funds raised from the previous share issuance 5. Reappointment of the auditor for the Company 6. The profit allocation scheme for 2001 7. Report on writing off bad debts 8. Revision of the Comprehensive Service Agreement and Building and Land Rental Agreement 9. Application for Building Rental Agreement 10. Reappointment of independent directors 11. Revision of the Articles of Association 12. Acquisition of sales subsidiaries from CAC 13. Acquisition of partial equity of Nanjing Changan Automobile Co., Ltd. 14. Investment in Hebei Changan Automobile Co., Ltd. The above resolutions were announced on April 30, 2002 through China Securities, Securities Daily and Hong Kong Business. II. The Board of Directors gave notification of the first extraordinary shareholders general meeting of 2002 on September 13, 2002 through China Securities, Securities Daily and Hong Kong Business. The meeting was held on October 13, 2002 at Chongqing Changan Hotel. The meeting debated and passed through voting the following resolutions: 1. Acquisition of 55 sales subsidiaries from CAC 2. Change of the Company’s registered address 3. Revision of Articles of Association 12 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) The above resolutions were announced on October 14, 2002 through China Securities, Securities Daily and Hong Kong Business. III. The Board of Directors gave notification of the second extraordinary shareholders general meeting of 2002 on December 17, 2002 through China Securities, Securities Daily and Hong Kong Business. The meeting was held on January 20, 2003 at Chongqing Changan Hotel. The meeting debated and passed through voting the engagement of Chongqing Changan Minsheng Logistics Co., Ltd to handle the vehicle distribution. The above resolutions were announced on January 21, 2003 through China Securities, Securities Daily and Hong Kong Business. VIII. Report by Board of Directors I. Operation discussion and analysis In 2002, the rapid growth of the domestic economy, the increasing income of the citizens and the favorable changes in automobile market provided growth opportunities for the automobile industry. The Company seized the opportunity by implementing the “Changan New Star” sales strategy to enhance sales and adjust the product mix. This contributed to the significant increase in profit by 319.60% thus accelerating the development of the Company. The main reasons are as follows: 1. Sales volume and Sales revenue increased proportionally; sales volume increased by 35.13% and sales revenue increased by 34.81%. 2. Sales of high gross margin products increased. The increase in sales of high margin SC6350 were 114,601, an increase of 162.76%. 3. Sales mix changed. In 2002, the sales volume of SC6350 which accounted for 42.58% of total sales, increased by 94.43%. 4. Cost decreased. Due to the implementation of cost project, SC6350 toolings have been fully amortized and components price decreased, thus resulting in significant decrease in the production cost. 5. Financial expense decreased by 402.96%. II. The business operation of the Company 1. The scope of key business lines and a summary of operational activities The Company is mainly engaged in the development, manufacturing and sales of Changan mini cars, Changan Alto mini sedans and Changan Lingyang sedans, and the manufacturing and sales of various types of Jiangling engines for mini car series. 13 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) In 2002, the Company produced 301,852 automobiles and sold 269,136 automobiles, which accounted for 8.29% of whole the domestic automobile market, ranking no.4 and the first of the mini cars market. The following illustrates the production and sales of the top ten automobile manufacturers in China: Name Production Sales Automobile manufacturers (106 in total) 3,251,225 3,248,058 Shanghai Automobile Industry Company 591,704 610,157 First Automobile Work Group 561,787 565,493 Dongfeng Automobile Group 418,481 415,714 Changan Automobile Group Limited 328,910 307,578 Beijing Automobile Industrial Group Limited 180,485 180,531 Harbin Hafei Automobile Company 173,030 175,055 Changhe Aviation Industrial Company 154,941 150,198 Tianjin Automobile Industrial Group Company Limited 94,397 101,799 Jinbei Automobile Company Limited 85,518 84,483 Nanjing Automobile Industrial Group Company Limited 83,937 83,538 Note: The figures are extracted the “Report on the Production and Sales of Automobiles in the Automobile Industry of China” published by China Association of Automobile Manufacturers (CAAM) The production and sales of Changan Automobile Group Limited are the gross figures of the production and sales of the Company and other automobile factories under the Changan Group. Of the total, the Company produced 301,582 automobiles and sold 269,136 automobiles. (1) Turnover of the Company by products for the year ended 31 December 2002 Product types Turnover (RMB ten % thousands) Mini-lorry 61,773 6.25% Mini-van 596,228 60.32% Changan Lingyang 109,968 11.13% Alto sedan 184,813 18.69% Others 35,625 3.61% Total 988,407 100% (2) Sales volume of the Company by product for the year ended December 31, 2002 14 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) Type Product volume(units) Sales volume Mini-lorry Company 28,363 25,059 Nanjing 4,333 4,891 Changan Hebei 2,997 2,216 Changan Mini-van Company 172,473 152,461 Nanjing 25,841 19,491 Gangan Changan Changan 50,147 48,823 Lingyang Suzuki Alto sedan Changan 17,698 16,195 Suzuki Total 301,852 269,136 The figures of Nanjing Changan Automobile Co., Ltd. were calculated beginning from the shares acquisition date. (3) Main products which accounted for 10% of 2002 total sales revenue or profit Type Sales revenue(RMB Sales cost(RMB ten Gross ten thousand) thousand) margin(%) SC6350 464,343 304,896 34.34 Changan 109,968 85,282 22.45 Lingyang Alto sedan 184,813 153,683 16.84 2. Operations and performance of the subsidiaries of the Company Total assets Net profit Registered Shares Name Major business lines (RMB ten (RMB ten capital held thousand) thousand) Chongqing Changan US$ 70 Production and sales of Suzuki Automobile 51% 183,974 19,244 million Alto series and the parts Co., Ltd. Chongqing Changan Export, wholesale and RMB 10 16,050 572 Automobile Import 95% retail of automobiles and million and Export Company parts 15 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) Chongqing Changan RMB 48.5 Sales of automobiles, 5,540 50 Automobile Sales 100% million engines and parts Company Nanjing Changan Manufacture and sale of RMB275 .73 77,997 779 36.55% mini auto-mobiles, Automobile Co., Ltd. million engines and spare parts Hebei Changan Manufacture and sale of RMB 88.98 11,265 -657 40.11% auto mobiles, engines Automobile Co., Ltd. million and spare parts Chongqing Anfu RMB 32 Sales of automobiles, 3,201 0 50% Automobile Co., Ltd. million engines and spare parts 154 Sales RMB 78.09 Sales of automobiles and -2,259 100% 54,940 Subsidiaries million spare parts 3. Major suppliers and clients In 2002, gross purchase by the Company from the top five suppliers accounted for 32.76% of total purchase of the year; gross sales turnover to the top five clients accounted for 12.81% of the total turnover of the Company. 4. Difficulties encountered during operation and solutions (1) Difficulties encountered during operation Following the pressure from accession to WTO and decrease in custom duties, the automobile price decreased which led to price cutting of domestic automobile. The increase in quota of imported automobile and the greater market share they captured have a significant impact on domestic automobile manufacturers. With acceleration in merger and acquisitions, the three largest domestic automobile groups gradually emerged. Multi-requirements increase resulted in change in consumers. The customers’ requirements have changed from single to multi-function, comfort and individuality which lead to market segregation, varying customer requirements and specified design and production becomes the development trend of automobile manufacturers. Mixed competition of domestic automobile manufacture has arrived. The entrance of foreign automobile giants challenged the existence and development of domestic automobile manufacturers. The pace of new product development quickens and the market competition extend to price and quality. Based on forecast, there would be approximately 30 new types of automobile in 2003, which would result in intense competition in price and quality. Brand service is upgrading, the service trade will be the key to victory. The arrival of imported cars brought advanced service concepts and service rules which focus on the brand. These changes bring 16 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) new challenges in service quality, service technology and service management of domestic automobile industry; on the other hand, the high rate of return of service trade also accelerated the competition in service. The regulations become more strict and the standards for safety and environment safeguard were enhanced, especially with the issuance of draft exposure of Automobile recall management rules which will bring challenges to automobile manufacturers. (2) Solutions The Company implemented management innovation philosophy, strengthened basic management and emphasized the “ 3SC Management” and “MLDQ Management”, implemented overall innovation work and encouragement of reasonable suggestions brought notable effects. To strengthen investment management, the Company implemented “ Quota Design, Quota Construction and Limited-period completion “, the Three Limitations rule; strengthened the bidding and management system and sales system management; strengthened assessing work, successfully implemented the changes to responsibility system relating to economic effects. The Company set up technology innovation philosophy, strengthened the research of production strategy and implemented the projects of automobile and engines development and production adjustment. They reinforced the technical cooperation with foreign companies in automobile and engine design and set up new product testing facility and CAE, perfected the product development support system and set up human resource training and incentive programmes. The Company also fulfilled the project management and archive management, enhanced technology innovation, set up cooperative management measures regarding production and research, and introduced the incentive programmes for technical achievement, standardize the procedure for research management, accelerated transfer of the research to production. The Company also enhanced the Knowledge rights management, established intellectual rights and strengthened the application of patent. The Company set up innovative marketing philosophy , emphasizing marketing conception innovation, the operating programmes focus on the marketing of which the entire employee would support the marketing. The Company emphasized the retail manners innovation, pushing sales channel reform, establishing 5 head offices at province level and withdrawing certain sales subsidiaries. They actively carried out Contracts Sales, established distribution channels of Changan automobiles; according to the Company brand strategy, the production marketing channel which was consistent with the product development. The Company emphasized innovation, completed the structure reform of head offices of sales companies and redesigned 30 management flow, fulfilling evaluation of performance related remuneration and competition for positions of manager; and strengthened the marketing financial management and inspection, emphasize service innovation, established strengthened after-sales service departments. Based on the “800” service platform, the Company carried out a series of service promotion to improve the product brand and promote the marketing expansion. They combined the marketing service net, established the three-level service net platform which treated “4S” companies in provincial capital as representative standard companies 17 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) and other repair workshops as complement entities. Further, the Company will sign an agreement with China Everbright Bank to establish the Changan automobile financial service network. 5. Explanation of variance to the plans of the Company Due to the optimistic position of domestic automobile market in 2002, the sales of the Company increased 35.13%. Due to the consolidation of Nanjing Changan, Hebei Changan and 146 sales subsidiaries, the sales revenue of the Company reached RMB 9.9 billion, 23.75% more than budget. III. The investments of the Company in the reporting year (1) Analysis of the investments of the Company During the reporting period, the Company acquired 146 sales subsidiaries from CAC, and invested in Nanjing Changan Automobile Co., Ltd., Hebei Changan Automobile Co., Ltd. and Chongqing Anfu Automobile Co., Ltd. The details are shown in section on principal subsidiaries operation and results. (2) The use of proceeds from funds raised (RMB ten thousand) Investment project No. Actual investment Investment Project stage Earnings committed 1. Automobile Automobile production line 5,809 In progress production line upgrade 2. Engine production Engine production 6,401 In progress line line upgrade 3. Technology Construction of the 1,426 In progress Included in the Development Technology overall earnings Center construction Development of the Company Center 4. Additions to Additions to 0 working capital and working capital and repayment of loans repayment of loans Total 13,636 By December 31, 2002, share issue proceeds not utilized stood at RMB 7,746, which has been placed in banks as current or time deposits. The use of these proceeds shall be in line with the shares issuance report and its development needs. (3) The use of funds not derived from share issue (RMB ten thousand) No. Funds Project Investment project Earnings injected stage 18 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) 1. Automobile 1,773 In progress production line 2. Engine production 16,855 In progress line 3 Technology 0 Included in the overall earnings of Development Center In progress the Company construction 4 ERP project 1,143 In progress 5 Industry Area 5,328 In progress Total 25,099 IV. Analysis of financial status and operation results of the Company At December 31, 2002, the total assets, long-term liabilities and shareholders’ equity of the Company in comparison to the previous year are as follows: Variance from Item 2001 2000 the previous year Change reasons Production and Total assets 8,775,246 6,669,305 31.58% sales expansion Shareholder equity 3,472,889 2,656,809 30.72% Profit increase Profits from major business Refer to operation lines 2,533,719 1,432,342 76.89% analysis Refer to operation Net profits 865,146 206,183 319.60% analysis Sales increase and Net increase in cash and cash 1,069,507 303,153 252.79% receivables equivalent collection . V. The impact of significant changes in the productive and operating environment and macro policies and laws and regulations on the Company. For the detailed information, please refer to this section on difficulties encountered during operation and solutions . VI. The work of the Board of Directors (1) The meetings of the Board and the resolutions in the year In the reporting period, nine board meetings had been held: The Seventh Meeting of the Second Board of Directors was held on March 8, 2002 at the multimedia conference room of the Company. The following resolutions were debated and passed : i. Report by the Board of Directors 19 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) ii. Report by the General Manager iii. 2001 annual report and extract iv. Final financial settlements of 2001 and financial budgets of 2002. v. Use of proceeds from the issuance of shares in 2001. vi. Reappointment of the auditor for the Company. vii. Preliminary profit distribution plan for 2001 and the profit distribution policy for 2002. viii. Note on writing off bad debts ix. Selection of candidates of Independent Directors. x. Revision of the Articles of Association xi. Investment in Changan Ford Automobile Co., Ltd. xii. Guarantee on behalf of Changan Ford Automobile Co., Ltd. xiii. On the notification of holding the year 2000 annual shareholders general meeting. The Eighth Meeting of the Second Board of Directors was held on April 1, 2002. The following resolutions were debated and passed: i. Revision of Comprehensive Service Agreement, Building Rental Agreement and Land use Agreement ii. Signing Building Rental Agreement iii. Acquisition of Sales subsidiaries from CAC iv. Acquisition of partial equity of Nanjing Changan Automobile Co., Ltd v. Investment in Hebei Changan Automobile Co., Ltd. The Ninth Meeting of the Second Board of Directors was held on April 25, 2002 . The meeting debated and passed the resolution on 2002 First Quarter report The Tenth Meeting of the Second Board of Directors was held on June 13, 2002 . The meeting debated and passed following resolution: i. Acquisition of 78 sales subsidiaries from CAC ii. Investment in Nanjing Changan Automobile Co., Ltd. The Eleventh Meeting of the Second Board of Directors was held on June 26, 2002 . The meeting debated and passed the resolution on establishing Modern Corporate Reporting System The Twelfth Meeting of the Second Board of Directors was held on August 10, 2002 in multimedia conference room of the Company . The meeting debated and passed the following resolution: 2002 Half year Report and extract Investment of RMB 50 million for purchase of 1000 mu of land. The Thirteenth Meeting of the Second Board of Directors was held on September 12, 2002. The meeting debated and passed following resolution: i. Acquisition of 55 sales subsidiaries from CAC 20 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) ii. Change of Registered Address iii. Revision of Articles of Association iv. Notice for the First Extraordinary Meeting of shareholders The Fourteenth Meeting of the Second Board of Directors was held on October 29, 2002. The meeting debated and passed the resolution on 2002 the Third Quarter Report The Fifteenth Meeting of the Second Board of Directors was held on December 16, 2002. The meeting debated and passed the following resolutions: i. Engagement of Chongqing Changan Minsheng Logistics Co., Ltd to handle the vehicles distribution. ii. Notice for the second extraordinary meeting of shareholders (2) The execution of the resolutions of the shareholders general meetings by the Board During the reporting period, the Board strictly carried out the resolutions of the shareholders, general meetings. Based on the profit distribution scheme approved on April 29, 2002 in the shareholders general meeting, the board announced and carried out dividend distribution and payment plan through China Securities, Securities Daily and Hong Kong Business on June 13, 2002. VII. The draft scheme for the profit distribution of 2002 Net profit of 2002 was at RMB 834,997,465 (RMB 865,146,000 under International Financial Reporting Standards). RMB 96,565,624 was to be appropriated to the statutory reserve, RMB 96,5 47,559 to be appropriated to the statutory common reserve, RMB 18,000,000 to be appropriated to the staff and workers’ bonus and welfare fund of Changan Suzuki, RMB 67,830,000 to be appropriated to the reserve fund, and RMB 18,870,000 to be appropriated to enterprise expansion fund. The distributable profit to shareholders should be the lower of the two in the profit statements prepared by PRC accounting standards and International Financial Reporting Standards respectively, or RMB 649,452,712 (including beginning undistributed profit of RMB 112,268,430 ). A dividend of RMB 0.80 ( including tax ) for every 10 shares shall be distributed to all shareholders amounting to RMB 98,133,280. The remaining RMB 551,319,432 shall be carried forward to the next fiscal year. This profit distribution plan will be discussed in the 2002 Shareholders General Meeting. . Report by Board of Supervisors 1. In the reporting period, two meetings of the Board of Supervisors were been held. (1) The Sixth meeting of the Second Board of Supervisors was held on March 8, 2002 at the mltimedia conference room of the Company. The meeting debated and passed the 2002 report by the Board of 21 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) Supervisors. (2) The Seventh meeting of the Second Board of Supervisors was held on August 10, 2002 at the multimedia conference room of the Company. The meeting debated and passed the 2002 half-year report by the Board of Supervisors and its extract. 2. The supervisors attended all the meetings of the Board of Directors, and exercised their supervisory rights. The Board of Supervisors carried out the following supervisory functions according to the Company Law and the Articles of Association. Supervision of the compliance issues of the Company in its operation and management The Board of Supervisors performed its supervisory duties through attending the meetings of the Board of Directors. The Board of Supervisors was of the view that the decision-making procedures of the Company were in compliance with the Company Law and the Articles of Association, a proper internal control system had been established, and there had been no violations of the laws, regulations and the Articles of Association and acts harmful to the interests of the Company by the directors, supervisors and senior managers in fulfilling their duties. Review of the financial status of the Company Through its review, the Board of Supervisors, was of the view that the financial statements of the Company had been in compliance with relevant standards and regulations and truly reflected the financial status and operatingl performance of the Company. The auditor of the Company, PricewaterhouseCoopers Zhong Tian Certified Public Accountants issued an unqualified audit report. Supervision of the use of proceeds from issuance of shares Through its review of the Board of Supervisors, was of the view that the proceeds from issuance of shares had been properly used in line with the commitments of the prospectus. Supervision of the acquisition and disposal of assets Through its review, the Board of Supervisors, was view that the acquisition prices of sales subsidiaries from CAC and shares of Nanjing Changan Automobile Co., Ltd. were reasonable, and there was no under-table transaction , acts harmful to the interests of the shareholders or loss of the Company assets. Supervision of the related party transactions Through its review, the Board of Supervisors, was of the view that all related party transactions had been conducted fairly with pricing based on the market prices which are fair and there had been no harm done to the interests of the Company. X. Important Matters 1. Major litigations and arbitrations of the year 22 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) In May 2002,the company’s subsidiary Chongqing Changan Automobile Sales Co., Ltd. sued Changan Automobile Trade Co., Ltd. at Shaoyang Intermediate People’s Court in Hunan province for disputes over RMB 1,556,080. Conciliation was reached in July 2002 where RMB 20,000 will be repaid from October. In July 2002, the Company’s subsidiary Changan Automobile Sales Co., Ltd. sued Beifang Pudong Economic and Technology Development Co., Ltd. for disputes over RMB 9,430,000. The Company has received RMB 560,000 value of assets and RMB 910,000 in cash, and the verdict is that the remaining RMB 7,960,000 shall be paid by the defendant. In September 2002, the Company sued Chengdu Materials Company Limited for sale receivables disputes over RMB 11,365,085.79. The verdict is that repayment of RMB 10,395,640.79 shall be made by the defendant. 2. There was no acquisition and disposal of asset, and merger and acquisition during the year. (1) Acquisition The net profit Acquired contributed to the price Transferring Company from Effects on the financial status Acquired Assets (RMB Company acquisition date to the and operating results ten year end (RMB ten thousand) thousand) Changan Shares of 5,232 178 e The Board of Directors was of Group Nanjing Changan the view that the acquisition Changan 13 Sales 404 was related party transaction, -41 which had been conducted Group Subsidiaries fairly with pricing based on the Changan 78 Sales 2,325 377 evaluation price, enhancing the marketing system and Group Subsidiaries competition capabilities. There Changan 55 Sales 0 1,066 had been no unfavorable effects to the financial status and Group Subsidiaries operating results. (2) There was no sale of assets and merger and acquisitions 3. Significant related party transactions For details please refer to the disclosure regarding related parties and related party transactions in the notes to the financial statements. 23 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) 4. Major contracts and their fulfillment (1) There were no major entrustment, contracting and leasing by the Company of the assets of other companies and there were no major entrustment, contracting and leasing of the Company’s assets by other companies. The lease of the assets of other companies by the Company and lease of the assets of the Company was shown as follows: According to the production needs, the Company rented the office building of Changan Sales Company, the total area is 4,560 square metres, the monthly rental is RMB 40 per sq. m., the remaining building is 34,355 square metres and monthly rental is RMB 35 per sq. m. The Company rented land of CAC of 282,352 square metres, monthly rental is RMB 10 per sq. m. The Changan Group rented the offices of 5th ,8th ,9th and 10th floors of the Science and Technology Building of the Company due to office needs, the area is 9,056 square metres and monthly rental is RMB 40 per sq. m. (2) Major guarantees: the company provided joint loan guarantee for Chongqing Changan Ford Co,. Ltd. for RMB 31,200,000. The guarantee was joint liabilities guarantee with a term is from March 27, 2002 to March 30, 2004. (3) The Company entrusted to the care of the Office of Shenyin & Wanguo Securities Chongqing at Chongqing Zhongshan No. 1 Street assets of RMB 5 million for a term of 12 month from September 8, 2001 to September 8, 2002. The company had claimed back RMB 5,052,827 in advance on June 28, 2002. 5. Commitments During the reporting period, there were no commitments of the Company or shareholders who held more than 5% of total shares. 6. During the reporting period, there were no changes of CPA firm. Auditor’s remuneration are shown below: Year Auditor Audit fees Other fees Note 2002 PricewaterhouseCoopers RMB 1,885,000 RMB3,376,620 The Company provided Zhongtian CPA accommodation, but did not bear traveling expenses The other fees paid to were audit fee for the acquisition, which did not affect the independent opinions the CPAs. PricewaterhouseCoopers Zhongtian CPA has provided the audit service to the Company for two years. 7. During the reporting period, the Company, its directors, supervisors and senior managers did not received any audit and investigation, disciplinary punishment, public criticism nor public censure from China Securities Regulatory Commission from the stock exchange. 8. In September, 2001, the Ministry of Finance inspected the implementation of Accounting Laws from 24 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) 1999 to 2000. In September, 2002, the Company was notified of Administrative punishment decision from the Ministry of Finance. The Company was required to correct the acts which are not in compliance with the Accounting Laws and Accounting Regulations in limited period; at the same time, a penalty of RMB10,000 was imported. On September 20, 2002, the Company published this matter on China Securities, Securities Daily and Hong Kong Business; the matter has been reselved. 9. Other important issues: on June 17,2002, the Company signed an agreement for establishing the financial service network of automobile with China Everbright Bank. This was published on China Securities, Securities Daily and Hong Kong Business. 10. In 2003, the company’s operation experiences an upward surge and the forecast operation result of the first three months will increase by 50% in comparison with the same period of 2002. XI. Financial Reports I. Audit report Pwc ZT Shen Zi (2003) No. 1246 Report of the auditors To the shareholders of Chongqing Changan Automobile Co., Ltd. We have audited the accompanying consolidated balance sheet of Chongqing Changan Automobile Co., Ltd. (the Company) and its subsidiaries (the Group) as of 31 December 2002 and the related consolidated income and cash flow statements for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion the consolidated financial statements present fairly in all material respects the consolidated financial position of the Group as of 31 December 2002 and of the consolidated results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards. PricewaterhouseCoopers Zhong Tian CPAs Co., Ltd. 4 April 2003 25 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) II. Financial statements Chongqing Changan Automobile Co., Ltd. Consolidated income statement For the year ended 31 December 2002 Year ended 31 December (all amounts in RMB thousands) Notes 2002 2001 Sales 1 9,884,068 7,331,806 Sales tax and surcharge (350,967) (233,388) Net sales 9,533,101 7,098,418 Cost of sales (6,999,382) (5,666,076) Gross profit 2,533,719 1,432,342 Distribution costs (750,820) (793,989) Administrative expenses (704,934) (452,785) Other operating income and expenses 41,447 103,849 Profit from operations 2 1,119,412 289,417 Finance costs – net 3 53,372 (17,617) Group profit before tax 1,172,784 271,800 Share of result of associates before tax 12 (48,247) (11,000) Profit before tax 1,124,537 260,800 Tax 5 (176,435) 28,157 Group profit before minority interest 948,102 288,957 Minority interest 27 (82,956) (82,774) Net profit 865,146 206,183 Basic earnings per share (RMB per share) 6 0.71 0.17 26 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) Chongqing Changan Automobile Co., Ltd. Consolidated balance sheet As of 31 December 2002 31 December 31 December (all amounts in RMB thousands) Notes 2002 2001 ASSETS Non-current assets Property, plant and equipment 9 2,535,495 2,249,538 Land use rights 10 149,655 83,719 Intangible assets 11 47,553 19,449 Investments in associates 12 156,150 157,589 Available-for-sale investments 13 41,220 54,000 Other non-current assets 14 54,602 32,404 Deferred tax assets 15 97,212 69,110 3,081,887 2,665,809 Current assets Inventories 16 1,715,461 709,521 Receivables and prepayments 17 1,103,997 1,484,131 Trading investments 18 - 5,450 Cash and cash equivalents 19 2,873,901 1,804,394 5,693,359 4,003,496 Total assets 8,775,246 6,669,305 EQUITY AND LIABILITIES Shareholders’ equity Share capital 26 1,226,666 1,226,666 Share premium 26 833,438 833,438 Reserves 28 627,955 348,142 Retained earnings 784,830 248,563 3,472,889 2,656,809 Minority interest 27 829,079 522,797 Non-current liabilities Borrowings 21 150,000 180,000 Retirement benefit obligations 4, 22 27,000 27,000 177,000 207,000 Current liabilities Trade and other payables 20 3,697,083 2,384,801 Current tax liabilities 286,131 355,172 Borrowings 21 216,500 521,750 Provisions 23 96,564 20,976 4,296,278 3,282,699 Total liabilities 4,473,278 3,489,699 Total equity and liabilities 8,775,246 6,669,305 On 4 April 2003, Chongqing Changan Automobile Co., Ltd.’s Board of Directors authorised these consolidated financial statements for issue. 27 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) Chongqing Changan Automobile Co., Ltd. Consolidated statement of changes in shareholders’ equity For the year ended 31 December 2002 Share Share Other Retained (all amounts in RMB thousands) Note capital premium reserves earnings Total (Note 26) (Note 26) (Note 28) Balance at 1 January 2001 1,226,666 833,438 247,622 142,900 2,450,626 Prior year adjustment 7 - - - 46,613 46,613 As restated 1,226,666 833,438 247,622 189,513 2,497,239 Dividend relating to 2000 - - - (46,613) (46,613) Net profit for the year - - - 206,183 206,183 Transfer - - 100,520 (100,520) 0 Balance at 1 January 2002 1,226,666 833,438 348,142 248,563 2,656,809 Dividend relating to 2001 8 - - - (49,066) (49,066) Net profit for the year - - - 865,146 865,146 Transfer - - 279,813 (279,813) 0 Balance at 31 December 2002 1,226,666 833,438 627,955 784,830 3,472,889 28 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) Chongqing Changan Automobile Co., Ltd. Consolidated cash flow statement For the year ended 31 December 2002 Year ended 31 December (all amounts in RMB thousands) Notes 2002 2001 Cashflow from Operating Activities Cash received from sales of goods or rendering of services 13,574,101 9,434,039 Refund of tax 14,692 23,864 Other cash received relating to operating activities 166,497 506,840 Sub-total of cash inflow 13,755,290 9,964,743 Cash paid for goods and services (9,162,031) (7,228,979) Cash paid to and on behalf of employees (316,117) (300,767) Payments of all types of taxes (1,102,880) (783,918) Other cash paid relating to operating activities (1,087,906) (674,899) Sub-total of cash outflow (11,668,934) (8,988,563) Net cashflow from operating activities 30 2,086,356 976,180 Cashflow from Investing Activities Net cash received from disposal of property, plant and equipment 20,635 785 Net cash received from disposal of land use rights 6,492 - Cash received from return on investments 5,000 - Cash received from investment income 0 12,511 Acquisition of subsidiaries, net of cash acquired 29 6,494 - Sub-total of cash inflow 38,621 13,296 Cash paid to acquire property, plant and equipment and construction in progress (602,146) (218,206) Cash paid for investment in associates (46,806) (168,096) Sub-total of cash outflow (648,952) (386,302) Net cashflow from investing activities (610,331) (373,006) Cashflow from financing Activities Cash received from investments by others 26,674 - Proceeds from borrowings 286,950 1,190,254 Cash received relating to other financing activities 0 206,577 Sub-total of cash inflow 313,624 1,396,831 Cash repayment of amounts borrowed (645,250) (1,575,004) Cash payments for interest expenses (25,826) (84,901) Cash payments for distribution of dividends or profits 8 (49,066) (46,613) Cash paid relating to other financing activities - (334) Sub-total of cash outflow (720,142) (1,706,852) Net cashflow from financing activities (406,518) (310,021) Net Increase in cash and cash equivalents 1,069,507 293,153 Cash and cash equivalents at beginning of year 1,794,394 1,501,241 Cash and cash equivalents at end of year 2,863,901 1,794,394 29 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) III. Notes to the financial statements General Information Unless otherwise stated, the consolidated financial statements are presented in Renminbi (hereafter referred to “RMB”) rounded to nearest thousands. Chongqing Changan Automobile Company Limited (hereafter referred to as “the Company”) was established in the People’s Republic of China (hereafter referred to “PRC”) under the Company Law of the PRC on 31 October 1996. As a joint stock limited company, the company issued 506,190,000 shares to its sole sponsor Changan Automobile Group Company Limited (hereafter referred to as “CAC”) in exchange for mini-automobile and engine manufacturing equipment and related assets. The company also issued 250,000,000 B shares to overseas investors, the total share capital was RMB 756,190 on the date of establishment. The Legal Representative’s Operating License issued by Chongqing Industrial and Commercial Administrative Bureau is Yu-Jin No. 28546236-3. On 19 May 1997, with the approval of China Securities Regulatory Commission, the Company issued 120,000,000 A shares to domestic public investors, thereby increasing the total share capital to RMB 876,190. On 26 June 1998, the Company issued bonus shares on the basis of 4 shares for each 10 shares to the existing 876,190,000 shares in issue as at 31 December 1997. The bonus shares were issued as a distribution from the share premium account within shareholders’ equity. As a result, RMB 350,476 was transferred from the share premium account to share capital increasing share capital to RMB 1,226,666. The business scope of the Company includes the development, manufacture and sale of automobiles, engines and automobile related parts, dies and tools. The Company is also involved in the import-export business, mechanical installation projects and technological consulting services. During the year, the Group (comprising the Company and its subsidiaries) acquired 146 companies and partial equity of Nanjing Changan Automobile Co., Ltd. from CAC. Details of the acquisition are mentioned in Note 29. Accounting policies The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below: A Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (hereafter referred to as “IFRS”), which includes International Accounting Standards and Interpretations issued by the International Accounting Standards Board. The consolidated financial statements have been prepared under the historical cost convention except as disclosed in the accounting policies below. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current event and actions, actual results ultimately may differ from those estimates. 30 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) B Group accounting (1) Subsidiaries Subsidiaries, which are those entities in which the Company and its subsidiaries (hereafter referred to as “the Group”) has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies are consolidated. The existence and effect of potential voting rights that are presently exercisable or presently convertible are considered when assessing whether the Group controls another entity. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. The purchase method accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition plus costs directly attributable to the acquisition. The excess of the cost of acquisition over the fair value of the net assets of the subsidiary acquired is recorded as goodwill. See note G for the accounting policy on goodwill. Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless cost cannot be recovered. Where necessary, accounting policies of subsidiaries have been charged to ensure consistency with the policy adopted by the Group. (2) Associates Investments in associates are accounted for by the equity method of accounting. Under this method the company’s share of the post-acquisition profits or losses of associates is recognised in the income statement and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the cost of the investment. Associates are entities over which the Group generally has between 20% and 50% of the voting rights, or over which the Group has significant influence, but which it does not control. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognise further losses, unless the Group has incurred obligations or made payments on behalf of the associates. C Foreign currency translation (1) Measurement currency The consolidated financial statements are presented in RMB, which is the measurement currency of the Company. (2) Transactions and balances Foreign currency transactions are translated into the measurement currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies, are recognised in the income statement. D Property, plant and equipment (1) Owned assets Property, plant and equipment are stated at cost or, in the case of assets injected into the Group at the time of its reorganisation, at valuation less accumulated depreciation representing the deemed cost to the Group, less 31 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) accumulated depreciation and any impairment losses. All direct and indirect costs relating to the acquisition or construction of property, plant and equipment including interest costs on related borrowed funds during the construction period are capitalized as property, plant and equipment. (2) Subsequent expenditure Expenditure incurred to replace a component of an item of property, plant and equipment that is accounted for separately, is capitalized with the carrying amount of the component being written off. Other subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the item of property, plant and equipment. All other expenditure is recognized in the statement of income as an expense as incurred. (3) Depreciation Depreciation is calculated on the straight-line method to write off the cost of each asset, to their residual values over their estimated useful life as follows: Buildings 20-40 years Plant and machinery 10-20 years Equipment and motor vehicles 5-8 years Others 5-22 years (4) Construction in progress Construction of a building or plant is considered to be completed and transferred to property plant and equipment on the date when substantially all the activities necessary to prepare the asset for its intended use are complete notwithstanding any delays in the issue of the relevant commissioning certificate by the appropriate PRC authorities. Interest costs on borrowings to finance the construction of property, plant and equipment are capitalised, during the period of time that is required to complete and prepare the asset for its intended use. All other borrowing costs are expensed. (5) Disposal and impairment Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in operating profit. E Land use rights Amortisation of the land use rights is calculated on a straight-line basis to write off the cost over the lease term ranging from 20 to 50 years. F Investments The Group classified its investments in debt and equity securities into the following categories: trading, held-to-maturity and available-for-sale. The classification is dependent on the purpose for which the investments were acquired. Management determines the classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis. Investments that are acquired principally for the purpose of generating a profit from short-term fluctuation in price are classified as trading investments and included in current assets. Investments with a fixed maturity that management has the intent and ability to hold to maturity are classified as held-to-maturity and are included in non-current assets, except for maturities within 12 months from the balance sheet date which are classified as current assets. Investments intended to be held for an indefinite period of time, which may be sold in response to 32 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) needs for liquidity or changes in interest rates, are classified as available-for-sale; and are included in non-current assets unless management has the express intention of holding the investment for less than 12 months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in current assets. Purchase and sales of investments are recognised on the trade date, which is the date that the Group commits to purchase or sell the asset. Cost of purchase includes transaction costs. Trading, held-to-maturity and available-for-sale investments are carried at cost less impairment. G Intangible assets (1) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisitions has been amortised using the straight-line method over its estimated useful life. Where it cannot be demonstrated that there is future economic benefits to be derived, the goodwill on acquisition will be written off upon acquisition. (2) Industrial property rights and proprietary technology Industrial property rights and proprietary technology are stated at cost and amortized on a straight- line basis over a 10 year expected beneficial period starting from the date of use or over the actual production output. H Deferred assets Deferred assets include utility capacity enhancement expenses that are amortized using the straight-line method over 10 years. I Impairment of long lived assets Property, plant and equipment and other non-current assets, including intangible assets are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount which is the higher of an asset’s net selling price and value in use. 33 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) J Leases (1) A group company is the lessee Leases of land and buildings where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. (2) A group company is the lessor Assets leased out under operating leases are included in property, plant and equipment in the balance sheet. They are depreciated over their expected useful lives on a basis consistent with similar owned property, plant and equipment. Rental income (net of any incentives given to lessees) is recognised on a straight-line basis over the lease term. K Inventories Inventories are stated at the lower of cost or net realisable value. Cost is determined by the weighted average method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity) but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses. L Trade receivables Trade receivables are carried at original invoice amount less provision made for impairment of these receivables. A provision for impairment of trade receivables is established when there is an objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, discounted at the market rate of interest for similar borrowers. M Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand and deposits held at call with banks. N Share capital (1) Share capital consists of A and B shares. (2) Incremental external costs directly attributable to the issue of new shares, other than on a business combination, are shown as a deduction, net of tax, in equity from the proceeds. Share issue costs incurred directly in connection with a business combination are included in the cost of acquisition. O Borrowings Borrowings are recognized initially at the proceeds received, net of any transaction costs incurred. Borrowings are stated at amortized cost using the effective yield method; any difference between proceeds (net of transaction costs) and redemption value is subsequently recognized in the statement of income over the period of the borrowings. 34 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) P Deferred Income tax Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Currently enacted tax rates are used in the determination of deferred income tax. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Q Employee benefits (1) Pension obligations The Group participates in defined employees retirement schemes regarding pension benefit required under existing PRC legislation. The contributions to the schemes are charged to the income statement as and when incurred. The Group’s obligations include contributions to a defined contribution retirement plan administered by a government agency determined at a certain percentage of the salaries of the employees and contributions to a supplementary pension fund of a fixed monthly amount per employee. The Group accounts for these contributions on the accrual basis. The pension obligation not covered by the abovementioned retirement scheme is estimated based on the present value of the estimated future cash outflows discounted using interest rates typically available to the company through bank deposit accounts. (2) Termination benefits Termination benefits are payable whenever an employee’s employment is terminated before the normal retirement date. The Group recognises termination benefits when it is demonstrably committed to either terminate the employment of current employees according to a detailed formal plan without possibility of withdrawal or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after balance sheet date are discounted to present value. R Provisions Provisions, for mainly warranty cost, are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. S Revenue recognition Revenue comprises the invoiced value for the sale of goods and services net of value-added tax, rebates and discounts, and after eliminating sales within the Group. Revenue from the sale of goods is recognised when significant risks and rewards of ownership of the goods are transferred to the buyer. Rental income are recognised on an accrual basis. Interest income is recognised on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the Group. Dividends are recognised when the right to receive payment is established. T Dividends payable Dividends are recorded in the Group’s financial statements in the period in which they are approved by the Group’s shareholders. U Research and development Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the 35 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) project will be a success considering its commercial and technological feasibility, and only if the cost can be measured reliably. Other development expenditures are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs that have been capitalised are amortised from the commencement of the commercial production of the product on a straight-line basis over the period of its expected benefit. V Segment Reporting The Group’s turnover and profit for the year were mainly derived from the manufacture and domestic sale of automobiles and the principal assets employed by the Group are located in the PRC. Accordingly, no segmental analysis by business and geographical segments has been provided for the year W Comparatives Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year. Financial risk management The financial assets of the Group include cash and bank balances, cash and time deposits with a related financial institution, investments, accounts and bills receivable, prepayments and other receivables, and amounts due from related companies. The financial liabilities of the Group include bank loans, accounts and bills payable, receipts in advance, accruals and other payables, accrued staff welfare and benefits and amounts due to related companies. (1) Interest rate risk The Group’s income and operating cash flows are substantially independent of changes in market rates.The interest rates and terms of the repayment of bank borrowings of the Group are disclosed in note 21 to the financial statements. (2) Credit risk i. Cash at bank and in hand For prudent liquidity risk management, substantial amounts of the Group’s cash balances are deposited with Industrial and Commercial Bank of China, Bank of Communications, Ordnance Finance Company, China Merchants Bank, Shanghai Pudong Development Bank, Huaxia Bank, Zhongxin Industrial Bank and Minsheng Bank Corporation. Financial risk management (continued) ii. Receivables The Group does not have a significant exposure to any individual customer or counterparty. Credit risk on receivables has already been accounted for in the financial statements as they are shown net of provisions for bad and doubtful debts. (3) Fair values The fair values of cash and bank balances, cash placed with a related financial institution, short term investments, receivables and prepayments, trade and other payables, current tax liabilities, provisions, are not materially different from their carrying amounts. 36 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) The carrying values of short term borrowings are estimated to approximate their fair values based on the nature or short term maturity of these instruments. The fair values of long term borrowings as estimated by applying a discounted cash flow using current market interest rates for similar financial instruments approximate their carrying values. Fair value estimates are made at a specific point in time and are based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgement, and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. 37 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) Notes to the consolidated financial statements (In the notes all amounts are shown in RMB thousands unless otherwise stated) 1 Sales The Group principally derives its turnover from the manufacture, assembly and sale of automobiles, related spare parts and components. Sales represent the total invoiced value of goods supplied to customers, net of returns and allowances. Sales are made principally in the PRC. 2 Profit from operations The following items have been included in arriving at operating profit: 2002 2001 Depreciation on property, plant and equipment (Note 9) 309,481 288,173 Amortisation of land use rights (Note 10) 4,088 2,748 Impairment of property, plant and equipment (Note 9) - 10,064 Impairment of land use rights (Note 10) 6,700 - Loss on disposal of property, plant and equipment 27,727 4,972 Loss on disposal of land use rights 20,479 - Repairs and maintenance expenditure on property, plant and equipment 70,386 56,821 Amortisation of intangible assets (Note 11) 8,958 2,026 Amortisation of deferred assets (Note 14) 6,473 1,634 Research and development expenditure 340,463 123,579 Operating lease rentals − property 23,073 9,317 Inventory − provision for loss 70,255 27,585 − reversal of inventory provision (51,285) (28,537) Trade receivables − impairment charge for bad and doubtful debts 25,779 92,031 Staff costs (Note 4) 363,111 302,076 Investment loss/(income) − Goodwill written off (Note 29) 19,143 - − Provision for loss on investment (Note 13) 12,780 - − Dividends received - (12,511) 3 Finance costs – net 2002 2001 Interest expense (24,542) (56,817) Interest income 80,130 42,924 Net foreign exchange losses (461) (96) Others (1,755) (3,628) 53,372 (17,617) 38 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) 4 Staff costs 2002 2001 Wages and salaries 279,364 211,571 Social security costs 47,885 33,254 Pension costs − defined contribution plans 35,862 24,251 Other retirement benefits - 33,000 363,111 302,076 The average number of employees in 2002 was 11,419 (2001: 8,360), 1,161 of whom (2001: 434) were part-time. The employees of the Group participate in a defined contribution pension plan organized by the relevant municipal and provincial governments under which the Group was required to make monthly contributions to this plan. Obligation in respect of retirement benefits of RMB 28,956 not covered by the abovementioned retirement scheme is the present value of the unfunded obligations include non-current portion of RMB 27,000 (2001: RMB 27,000). The current portion of RMB 1,956 (2001: RMB 6,000) have been included under other payables. 5 Tax 2002 2001 Current tax (204,537) (40,953) Deferred tax (Note 15) 28,102 69,110 (176,435) 28,157 The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the tax rate of the Company as follows: 2002 2001 Profit before tax 1,124,537 260,800 Tax calculated at a tax rate of 15% (2001: 15%) (168,681) (39,120) Income not subject to tax 2,283 13,310 Additional deduction of research and development 19,884 22,730 expenditure Expenses not deductible for tax purposes (44,390) 34,942 Effect of different tax rates for associates and consolidated subsidiaries 14,469 (3,705) Tax (charge)/credit (176,435) 28,157 The income tax rate applicable to the Company, Chongqing Changan Import and Export Co., Ltd. and Chongqing Changan Automobile Sales Co., Ltd. is 15%. As approved by the local tax authorities, the Company and these subsidiaries file a consolidated income tax return. The income tax rate applicable to Changan Suzuki is 15%. Changan Suzuki is fully exempted from income tax for two years starting from the first profitable year, after utilisation of tax loss carry forwards, followed by a 50% exemption for the following three years. This is the third year of 50% tax reduction and the corporate income tax has been provided at the rate of 7.5% based on the taxable income for the year. The income tax applicable to the other subsidiaries is 33%. 39 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) 6 Earnings per share Basic earnings per share is calculated by dividing the net profit attributable to shareholders by the weighted average number of ordinary shares in issue during the year. 2002 2001 Net profit attributable to shareholders (RMB’000) 865,146 206,183 Weighted average number of ordinary shares in issue (thousands) 1,226,666 1,226,666 Basic earnings per share (RMB per share) 0.71 0.17 No diluted earnings per share is presented as there were no potential ordinary share outstanding during the year ended 31 December 2002 and 2001. 7 Prior year adjustment Pursuant to a resolution of the Company’s board of directors on 9 April 2001, dividend of RMB 38 cents (tax included) for every 10 shares was proposed in respect of the year ended 31 December 2000. The Company has recorded the liability of RMB 46,613 as at 31 December 2000. The PRC regulations requires that the appropriation of the net profit of a period depends on the decision of the shareholders. The proposed appropriation by the board of directors did not meet the definition of a provision in IAS 37, in that it is not a “present obligation” of the Company. Hence, the proposed appropriation for dividend payments should not be accrued in the year in which the net profit arose. A prior year adjustment was made to record the dividend of RMB 46,613 in 2001. 8 Dividend per share At the Annual General Meeting on 10 May 2003, a dividend in respect of 2002 of RMB 80 cents per every 10 shares amounting to a total dividend of RMB 98,133 is to be proposed. These financial statements do not reflect this dividend payable, which will be accounted for in shareholders’ equity as an appropriation of retained earnings in the year ending 31 December 2003. The dividends declared in respect of 2001 was RMB 49,066. 40 9 Property, plant and equipment Plant & Construction in Buildings Machinery Vehicles progress Year ended 31 December 2001 Opening net book amount 435,451 1,532,643 14,562 293,765 Additions 8,604 8,762 1,587 246,056 Transfers 31,712 104,272 4,837 (146,829) Disposals (741) (5,556) (289) (5,808) Impairment charge (Note 2) - (10,050) (14) - Depreciation charge (Note 2) (15,914) (262,479) (3,506) - Closing net book amount 459,112 1,367,592 17,177 387,184 At 31 December 2001 Cost or valuation 552,958 2,420,012 30,084 387,184 Accumulated depreciation (93,846) (1,052,420) (12,907) - Net book amount 459,112 1,367,592 17,177 387,184 Year ended 31 December 2002 Opening net book amount 459,112 1,367,592 17,177 387,184 Acquisition of subsidiaries (Note 29) 30,460 67,265 4,029 873 Additions 8,797 8,981 4,009 519,240 Transfers 57,143 320,994 6,185 (387,922) Disposals (10,676) (25,822) (982) (14,763) Depreciation charge (Note 2) (19,727) (274,762) (6,983) - Closing net book amount 525,109 1,464,248 23,435 504,612 At 31 December 2002 Cost or valuation 636,125 2,743,962 40,516 504,612 Accumulated depreciation (111,016) (1,279,714) (17,081) - Net book amount 525,109 1,464,248 23,435 504,612 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) 9 Property, plant and equipment (continued) During 2002, interest expenses of RMB 1,284 (2001: RMB 4,806) were capitalised in the cost of construction in progress at the rate of 6.21%. All of the Group’s buildings are located in PRC. The title to buildings of net book value RMB 75,289 (2001: RMB 106,501) are in the process of being transferred to Changan Suzuki Automobile Co., Ltd. As at 31 December 2002, buildings with a net book value of RMB 8,670 (2001: equipment with a net book value of RMB 493,384) has been pledged as securities for short-term loans (see note 21). The Company was established in the PRC on 31 October 1996 as a joint stock limited company as part of the restructuring of CAC that was a state-owned enterprise. On the same date, the principal business undertakings of CAC together with the relevant assets and liabilities were taken over by the Company. As required by the relevant PRC rules and regulations a valuation of the assets and liabilities to be injected into the Company was carried out at 31 December 1995 and approved by the State-owned Assets Administration Bureau and the injected assets and liabilities were reflected in the accounts on this basis. The 1995 valuation was a one-off exercise that established the deemed cost of the property, plant and equipment injected on the formation of the Company. Subsequent revaluations have not been performed and all further additions have been recorded at cost. 10 Land use rights 2002 2001 At beginning of year 83,719 86,467 Acquisition of subsidiaries (Note 29) 45,537 - Additions 58,158 - Disposals (26,971) - Impairment charge (6,700) - Amortisation charge (4,088) (2,748) At end of year 149,655 83,719 11 Intangible assets Year ended 31 December 2001 Opening net book amount 17,902 Additions 3,573 Amortisation charge (Note 2) (2,026) Closing net book amount 19,449 At 31 December 2001 Cost 23,840 Accumulated amortisation (4,391) Net book amount 19,449 Year ended 31 December 2002 Opening net book amount 19,449 Acquisition of subsidiaries (Note 29) 33,736 Additions 22,469 Amortisation charge (Note 2) (8,958) Write off (19,143) Closing net book amount 47,553 11 Intangible assets (continued) At 31 December 2002 Cost 60,902 Accumulated amortisation (13,349) 42 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) Net book amount 47,553 The above represents Trademark of “Chana” and production technology for the advanced model of the Alto mini-sedan and “Changan Star” automobiles transferred from Nanjing Changan Automobile Co., Ltd. and Suzuki Motor Corporation. 12 Investments in associates 2002 2001 At the beginning of year 157,589 - Increase in investments 46,806 168,589 Share of results (48,245) (11,000) At end of year 156,150 157,589 The principal associates, both of which are unlisted, are: Country of Interest held % incorporation Changan Ford Automobile Corporation Ltd. PRC 26% Chongqing Changan Information Technology Co., Ltd.. PRC 21.43% 13 Available-for-sale investments 2002 2001 Southwestern Securities Co., Ltd. 50,000 50,000 Chongqing Baoteman Biotechnology Co., Ltd 3,000 3,000 Chongqing Certification Authority Co., Ltd 1,000 1,000 Sub-total 54,000 54,000 Less: Provisions (12,780) - Total 41,220 54,000 Southwestern Securities Co., Ltd. (“Southwestern Securities”), is a limited liability company established in PRC as approved by the China Securities Regulatory Committee. The business of Southwestern Securities includes securities purchases and sales, securities underwriting, and investment consulting. The Group holds an equity interest of 3.07% in Southwestern Securities. Provision of RMB 12,780 have been made. The investments are valued at cost less provision. Directors are of the opinion that the realizable value will not fall below the carrying value. 14 Other non-current assets (1) Deferred assets Year ended 31 December 2001 Opening net book amount 5,822 Additions 6,116 Amortisation charge (Note 2) (1,634) Closing net book amount 10,304 43 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) 14 Other non-current assets (continued) At 31 December 2001 Cost 19,030 Accumulated amortisation (8,726) Net book amount 10,304 Year ended 31 December 2002 Opening net book amount 10,304 Acquisition of subsidiaries (Note 29) 3,299 Additions 5,372 Amortisation charge (Note 2) (6,473) Closing net book amount 12,502 At 31 December 2002 Cost 27,701 Accumulated amortisation (15,199) Net book amount 12,502 The above represent utility capacity enhancement fee. (2) Long-term receivable The company has a loan facility for financing of production technology upgrading of RMB 1,200,000 of which RMB 205,000 was granted by the bank to Qingshan Industries Company Limited. As 31 December 2002, loan of RMB 42,100 (2001: RMB 22,100) was made to Qingshan Industries Company Limited. The loan will be repaid in 2008. Interest cost on the bank loan taken to make this loan will be paid by Qingshan Industries Company Limited, who is also responsible for payment of the loan. 15 Deferred tax assets Deferred income taxes are calculated in full on temporary differences under the liability method using a principal tax rate of 15%. The movement on the deferred income tax account is as follows: 2002 2001 At beginning of year 69,110 - Income statement charge (Note 5) 28,102 69,110 At end of year 97,212 69,110 Deferred income tax arose from temporary differences from provisions of RMB 75,478 (2001: RMB 49,785) and impairment of assets of RMB 21,734 (2001: RMB 19,325). 16 Inventories 2002 2001 Raw materials (at net realisable value) 384,026 284,458 Work in progress (at cost) 51,685 36,147 Finished goods (at net realisable value) 1,262,763 384,174 Consumables (at cost) 16,987 4,742 1,715,461 709,521 44 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) 17 Receivables and prepayments 2002 2001 Trade receivables 378,015 1,219,148 Less : Provision for bad and doubtful debts (114,848) (90,664) Trade receivables – net 263,167 1,128,484 Notes receivables 690,350 267,784 Advances to suppliers 78,959 22,759 Other receivables 71,521 65,104 1,103,997 1,484,131 Receivables from related parties are disclosed in note 31. 18 Trading investments As of 31 December 2001, trading investments comprise principally marketable equity securities of RMB 450 and funds placed with investment companies of RMB 5,000. 19 Cash and cash equivalents 2002 2001 Cash at bank and in hand 2,873,901 1,804,394 As of 31 December 2002, cash balances of RMB 90,546 (2001: RMB 83,581) were held as the guaranteed deposits for notes payable and letter of credit. Cash balances of RMB 111,647 (2001: RMB 272,195) can only be used for specific projects. Cash balances of RMB 10,000 (2001: RMB 10,000) were held as security for long term bank borrowings and were excluded from cash and cash equivalents presented in the cashflow statement. 20 Trade and other payables 2002 2001 Trade payables 2,484,661 1,124,129 Notes payable 196,280 552,794 Dividend payable 18,620 - Other payables 265,012 152,388 Accrued expenses 330,611 80,779 Accrued sales compensation 230,989 333,710 Accrued payroll and welfare 65,120 72,278 Advances from customers 105,790 68,723 3,697,083 2,384,801 Payables to related parties are disclosed in note 31. 21 Borrowings 2002 2001 Current Bank borrowings - unsecured 160,000 265,000 - secured 56,500 256,750 216,500 521,750 Non-current Bank borrowings - unsecured 150,000 180,000 45 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) Total borrowings 366,500 701,750 21 Borrowings (continued) Current bank loans as at 31 December 2002 bear interest at rates ranging from 5.04% to 5.85% per annum (2001: 5.58% to 5.85%). Of these loans, RMB 20,000 (2001: RMB120,000) were secured by buildings with net book value of RMB 8,670 (2001: production equipment with net book value of RMB 493,384) and RMB 20,000 (2001: 60,000)were guaranteed by Southwest Ordnance Industries Corporation, a related company. The remaining bank loans were guaranteed by letter of credit. Non-current bank loans bear interest at rates ranging from 5.76% to 6.21% (2001: 6.03%) and were guaranteed by CAC. Maturity of non-current borrowings: 2002 2001 Between 2 and 5 years - 80,000 Over 5 years 150,000 100,000 150,000 180,000 Borrowing facilities The Group has the following undrawn committed borrowing facilities: 2002 2001 Floating rate expiring beyond one year 1,050,000 1,100,000 The facilities have been arranged to help finance specific projects. 22 Retirement benefit obligations 2002 2001 At beginning of year 33,000 - Provisions - 33,000 Payments (4,044) - At end of year 28,956 33,000 Current 1,956 6,000 Non-current 27,000 27,000 28,956 33,000 The above obligations were actuarially recorded using the projected unit credit method. The material actuarial assumptions used in valuing these obligations are as follows: i. Discount rate adopted: 4% ii. Mortality: average life expectancy of residents in the PRC. 46 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) 23 Provisions At beginning of year 20,976 Acquisition of subsidiaries (Note 29) 10,351 Charged for the year 166,571 Utilised during year (101,334) At end of year 96,564 The above represents the warranty costs for repairs and maintenance, which are estimated based on present after-sale service policies and prior years’ experiences on such costs incurred. 24 Contingencies Contingent liabilities The Company has provided a guarantee for bank loan of RMB 31,200 of Changan Ford Automobile Co., Ltd. The period of the guarantee is from 27 March 2002 to 30 March 2004. CAC has also provided a counter-guarantee to the Company on behalf of Changan Ford Automobile Co., Ltd. 25 Commitments (1) Capital commitments Capital expenditure for purchase of property, plant and equipment at the balance sheet date but not recognised in the financial statements is as follows: 2002 2001 Contracted 408,674 610,520 Authorised but not contracted 1,008,331 2,070,190 1,417,005 2,680,710 (2) Operating lease commitments – where a group company is the lessee The future aggregate minimum contracted for at the balance sheet date but not recognised in the financial statements is as follows: 2002 2001 Production technology development fee Not later than 1 year 25,551 37,267 Later than 1 year and not later than 5 years 37,625 69,290 63,176 106,557 Lease of building Not later than 1 year 16,618 - Later than 1 year and not later than 5 years 55,888 - 72,506 - Lease of land Not later than 1 year 3,549 - Later than 1 year and not later than 5 years 12,790 - Later than 5 years 14,286 - 47 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) 30,625 - 26 Share capital and share premium 2002 2001 Share capital 708,687 A shares of par value RMB1 each (non-traded) 708,687 708,687 167,979 A shares of par value RMB1 each (traded) 167,979 167,979 350,000 B shares of par value RMB1 each (traded) 350,000 350,000 At 31 December 1,226,666 1,226,666 Share premium Balance at 1 January and at 31 December 833,438 833,438 All the “A” and “B” shares rank pari passu in all respects. 27 Minority interests 2002 2001 At beginning of year 522,797 471,879 Acquisition of subsidiaries (Note 29) 179,698 - Newly incorporated subsidiaries 62,248 - Share of net profit of subsidiaries 82,956 82,774 Dividend paid (18,620) (31,856) At end of year 829,079 522,797 28 Reserves Retained by the Retained by Chongqing Retained by Nanjing Total Changan Suzuki Changan Automobile Company Automobile Co., Ltd Co., Ltd Statutory Statutory Reserve Enterprise Statutory Statutory reserve common fund expansion reserve common reserve fund fund reserve fund Year ended 31 December 2001 Balance at 1 January 2001 60,061 60,061 89,250 38,250 - - 247,622 Transfers 16,855 16,855 43,860 22,950 - - 100,520 Balance at 31 December 2001 76,916 76,916 133,110 61,200 - - 348,142 Year ended 31 December 2002 Balance at 1 January 2002 76,916 76,916 133,110 61,200 - - 348,142 Transfers 96,530 96,529 67,830 18,870 36 18 279,813 Balance at 31 December 2002 173,446 173,445 200,940 80,070 36 18 627,955 Transfers from the statement of income to statutory reserve and statutory public welfare fund were made in accordance with the relevant statutory rules and regulations and the Articles of Association of the Company, Chongqing Changan Suzuki Automobile Co., Ltd. (hereafter referred to “Changan Suzuki”), a foreign investment enterprise and Nanjing Changan Automobile Co., Ltd. (hereafter referred to “Nanjing Changan”), a domestic enterprise. 48 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) 28 Reserves (continued) Statutory reserve According to their Articles of Association, the Company and Nanjing Changan is required to transfer 10% of its profit after taxation, as determined under PRC accounting regulations, to the statutory reserve until the reserve balance reaches 50% of the registered capital. The statutory reserve can be used to make good previous years’ losses, if any, and may be converted into share capital by the issuance of new shares to shareholders in proportion to their existing shareholdings. The transfer to this reserve must be made before the distribution of dividends to shareholders. No cash distribution is allowed other than in liquidation of the Company and Nanjing Changan. Statutory common reserve fund According to their Articles of Association, the Company and Nanjing Changan is required to transfer 5% to 10% of its profit after taxation, as determined under PRC accounting regulations, to the statutory common reserve fund. The statutory common reserve public welfare fund can only be utilized on capital items for the collective benefits of the Companies’ employees such as the construction of dormitories, canteen and other staff welfare facilities. The transfer to this reserve must be made before distribution of dividends to shareholders. This reserve is non-distributable other than in liquidation of the Company and Nanjing Changan. Reserve fund According to the resolution of the Board of Directors of Changan Suzuki for the 2002 profit appropriation, the amount of RMB 133,000 was transferred to reserve fund from the distributable profits at 31 December 2002. The reserve fund can be used for Changan Suzuki’s working capital purposes and to make good losses incurred. The reserve fund can also be used to increase capital of Changan Suzuki. The transfer to this reserve must be made before the distribution of dividends to investors of Changan Suzuki. No cash distribution is allowed other than in liquidation of Changan Suzuki. Enterprise expansion fund According to the resolution of the Board of Directors of Changan Suzuki for the 2002 profit appropriation, the amount of RMB 37,000 was transferred to enterprise expansion fund from the distributable profits at 31 December 2002. The enterprise expansion fund can be used for Changan Suzuki’s business development purposes and for working capital purposes. The enterprise expansion fund can also be used to increase capital of Changan Suzuki. The transfer to this reserve must be made before the distribution of dividends to investors of Changan Suzuki. No cash distribution is allowed other than in liquidation of Changan Suzuki. 49 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) 29 Acquisition and disposal of subsidiaries (1) Acquisition During the year, the Group acquired Nanjing Changan and 146 sale companies from CAC. The acquisition of Nanjing Changan was made on 30 April 2002 at a consideration of RMB 52,350. The 146 sales companies were acquired in 3 batches. The first batch of 13 companies were acquired on 31 January 2002 at a consideration of RMB 4,040. The second batch of 78 sales companies were acquired on 31 March 2002 at a consideration of RMB 23,254. The third batch of 55 sales companies were acquired on 30 June 2002 at nil consideration due to the aggregate net deficit position of these companies. Details of the companies acquired are as follows: Name of company acquired Equity interest Nanjing Changan Automobile Co., Ltd. 22.56% Foshan Changan Automobile Sales Co., Ltd. 100% Hebei Changan Automobile Sales Co., Ltd. 100% Luoyang Changan Automobile Sales Co., Ltd. 100% Nanyang Changan Automobile Sales Co., Ltd. 100% Pingdingshan Changan Automobile Sales Co., Ltd. 100% Sanmenxia Changan Automobile Sales Co., Ltd. 100% Tianjin Changan Automobile Sales Co., Ltd. 100% Guangzhou Changan Automobile Sales Co., Ltd. 100% Shenzhen Changan Automobile Sales Co., Ltd. 100% Huizhou Changan Automobile Sales Co., Ltd. 100% Nanhai Changan Automobile Sales Co., Ltd. 100% Jiangmen Changan Automobile Sales Co., Ltd. 100% Haikou Changan Automobile Sales Co., Ltd. 100% Dalian Changan Automobile Sales Co., Ltd. 100% Huhehaote Changan Automobile Sales Co., Ltd. 100% Lanzhou Changan Automobile Sales Co., Ltd. 100% Jinghong Changan Automobile Sales Co., Ltd. 100% Zhaotong Changan Automobile Sales Co., Ltd. 100% Nanping Changan Automobile Sales Co., Ltd. 100% Shipingqiao Changan Automobile Sales Co., Ltd. 100% Haerbin Changan Automobile Sales Co., Ltd. 100% Wulumuqi Changan Automobile Sales Co., Ltd. 100% Zhejiang Changan Automobile Sales Co., Ltd. 100% Wuhan Changan Automobile Sales Co., Ltd. 100% Yuxi Changan Automobile Sales Co., Ltd. 100% Hefei Changan Automobile Sales Co., Ltd. 100% Shandong Changan Automobile Sales Co., Ltd. 100% Zhengzhou Changan Automobile Sales Co., Ltd. 100% Dongguan Changan Automobile Sales Co., Ltd. 100% Zhanjiang Changan Automobile Sales Co., Ltd. 100% Shunde Changan Automobile Sales Co., Ltd. 100% Nanchang Changan Automobile Sales Co., Ltd. 100% Fuzhou Changan Automobile Sales Co., Ltd. 100% Shenyang Changan Automobile Sales Co., Ltd. 100% Lianyungang Changan Automobile Sales Co., Ltd. 100% Luohe Changan Automobile Sales Co., Ltd. 100% Fanyu Changan Automobile Sales Co., Ltd. 100% Zhaoqing Changan Automobile Sales Co., Ltd. 100% 50 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) 29 Acquisition and disposal of subsidiaries (continued) (1) Acquisition Maoming Changan Automobile Sales Co., Ltd. 100% Shaoxing Changan Automobile Sales Co., Ltd. 96.67% Anyang Changan Automobile Sales Co., Ltd. 96.11% Binzhou Changan Automobile Sales Co., Ltd. 95% Dongying Changan Automobile Sales Co., Ltd. 95% Laiwu Changan Automobile Sales Co., Ltd. 95% Liaocheng Changan Automobile Sales Co., Ltd. 95% Taian Changan Automobile Sales Co., Ltd. 95% Weifang Changan Automobile Sales Co., Ltd. 95% Langfang Changan Automobile Sales Co., Ltd. 95% Cangzhou Changan Automobile Sales Co., Ltd. 95% Puyang Changan Automobile Sales Co., Ltd. 95% Datong Changan Automobile Sales Co., Ltd. 95% Jincheng Changan Automobile Sales Co., Ltd. 95% Yuncheng Changan Automobile Sales Co., Ltd. 95% Loudi Changan Automobile Sales Co., Ltd. 95% Enshi Changan Automobile Sales Co., Ltd. 95% Zhongshan Changan Automobile Sales Co., Ltd. 95% Guilin Changan Automobile Sales Co., Ltd. 95% Yulin Changan Automobile Sales Co., Ltd. 95% Jiujiang Changan Automobile Sales Co., Ltd. 95% Jilin Changan Automobile Sales Co., Ltd. 95% Xining Changan Automobile Sales Co., Ltd. 95% Yinchuan Changan Automobile Sales Co., Ltd. 95% Weinan Changan Automobile Sales Co., Ltd. 95% Qingdao Changan Automobile Sales Co., Ltd. 95% Xiamen Changan Automobile Sales Co., Ltd. 95% Quanzhou Changan Automobile Sales Co., Ltd. 95% Wenzhou Yuzhou Changan Automobile Sales Co., Ltd. 95% Yichang Changan Automobile Sales Co., Ltd. 95% Xiangfan Changan Automobile Sales Co., Ltd. 95% Tangshan Changan Automobile Sales Co., Ltd. 95% Baoji Changan Automobile Sales Co., Ltd. 95% Shangrao Changan Automobile Sales Co., Ltd. 95% Yichun Changan Automobile Sales Co., Ltd. 95% Ganzhou Changan Automobile Sales Co., Ltd. 95% Sanming Changan Automobile Sales Co., Ltd. 95% Tianshui Changan Automobile Sales Co., Ltd. 95% Nanjing Changan Automobile Sales Co., Ltd. 90% Jining Changan Automobile Sales Co., Ltd. 90% Rizhao Changan Automobile Sales Co., Ltd. 90% Weihai Changan Automobile Sales Co., Ltd. 90% Yantai Changan Automobile Sales Co., Ltd. 90% Dezhou Changan Automobile Sales Co., Ltd. 90% Zibo Changan Automobile Sales Co., Ltd. 90% Baoding Changan Automobile Sales Co., Ltd. 90% Handan Changan Automobile Sales Co., Ltd. 90% Xingtai Changan Automobile Sales Co., Ltd. 90% Chengde Changan Automobile Sales Co., Ltd. 90% Hengshui Changan Automobile Sales Co., Ltd. 90% Qinhuangdao Changan Automobile Sales Co., Ltd. 90% Zhangjiakou Changan Automobile Sales Co., Ltd. 90% 29 Acquisition and disposal of subsidiaries (continued) 51 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) (1) Acquisition Jiaozuo Changan Automobile Sales Co., Ltd. 90% Shangqiu Changan Automobile Sales Co., Ltd. 90% Xinxiang Changan Automobile Sales Co., Ltd. 90% Xinyang Changan Automobile Sales Co., Ltd. 90% Xuchang Changan Automobile Sales Co., Ltd. 90% Zhoukou Changan Automobile Sales Co., Ltd. 90% Zhumadian Changan Automobile Sales Co., Ltd. 90% Linfen Changan Automobile Sales Co., Ltd. 90% Changzhi Changan Automobile Sales Co., Ltd. 90% Jinhua Changan Automobile Sales Co., Ltd. 90% Taizhou Changan Automobile Sales Co., Ltd. 90% Nantong Changan Automobile Sales Co., Ltd. 90% Xuzhou Changan Automobile Sales Co., Ltd. 90% Yancheng Changan Automobile Sales Co., Ltd. 90% Huaian Changan Automobile Sales Co., Ltd. 90% Hengyang Changan Automobile Sales Co., Ltd. 90% Jishou Changan Automobile Sales Co., Ltd. 90% Zhangjiajie Changan Automobile Sales Co., Ltd. 90% Anqing Changan Automobile Sales Co., Ltd. 90% Fuyang Changan Automobile Sales Co., Ltd. 90% Wuhu Changan Automobile Sales Co., Ltd. 90% Chaozhou Changan Automobile Sales Co., Ltd. 90% Shantou Changan Automobile Sales Co., Ltd. 90% Nanning Changan Automobile Sales Co., Ltd. 90% Changchun Changan Automobile Sales Co., Ltd. 90% Jinzhou Changan Automobile Sales Co., Ltd. 90% Chifeng Changan Automobile Sales Co., Ltd. 90% Pingliang Changan Automobile Sales Co., Ltd. 90% Yan’an Changan Automobile Sales Co., Ltd. 90% Zunyi Changan Automobile Sales Co., Ltd. 90% Tongren Changan Automobile Sales Co., Ltd. 90% Nanchong Changan Automobile Sales Co., Ltd. 90% Xi’an Changan Automobile Sales Co., Ltd. 90% Ningbo Changan Automobile Sales Co., Ltd. 90% Hangzhou Yuzhou Changan Automobile Sales Co., Ltd. 90% Guangzhou Changan Automobile Sales Co., Ltd. 90% Linhe Changan Automobile Sales Co., Ltd. 90% Baotou Changan Automobile Sales Co., Ltd. 90% Liuan Changan Automobile Sales Co., Ltd. 90% Bengbu Changan Automobile Sales Co., Ltd. 90% Jiaxing Changan Automobile Sales Co., Ltd. 90% Shiyan Changan Automobile Sales Co., Ltd. 90% Changde Changan Automobile Sales Co., Ltd. 90% Huaihua Changan Automobile Sales Co., Ltd. 90% Zhuzhou Changan Automobile Sales Co., Ltd. 90% Heze Changan Automobile Sales Co., Ltd. 90% Beihai Changan Automobile Sales Co., Ltd. 90% Yining Changan Automobile Sales Co., Ltd. 90% Hami Changan Automobile Sales Co., Ltd. 90% Kuitun Changan Automobile Sales Co., Ltd. 90% Bazhou Changan Automobile Sales Co., Ltd. 90% Xinjiang Akesu Changan Automobile Sales Co., Ltd. 90% 29 Acquisition and disposal of subsidiaries (continued) 52 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) (1) Acquisition Baoshan Changan Automobile Sales Co., Ltd. 90% Guanghan Changan Automobile Sales Co., Ltd. 90% Shaoguan Changan Automobile Sales Co., Ltd. 90% Linyi Changan Automobile Sales Co., Ltd. 80% The acquired business contributed revenues of RMB 2,347,924 and operating loss of RMB 9,256 to the Group for the period from acquisition date to 31 December 2002, and its assets and liabilities at 31 December 2002 were RMB 1,302,314 and RMB 1,031,262 respectively. Details of net assets acquired and goodwill are as follows: i. Purchase consideration: Cash paid 79,644 Fair value of net assets acquired 60,501 Goodwill 19,143 ii. The assets and liabilities arising from the acquisition are as follows: Cash and cash equivalents 86,138 Property, plant and equipment (Note 9) 103,666 Land use rights (Note 10) 45,537 Intangible assets (Note 11) 33,736 Other non-current assets (Note 14) 3,299 Inventories 715,760 Receivables 266,393 Payables (971,397) Provisions (Note 23) (10,351) Tax payable (9,532) Borrowings (23,050) Minority interests (Note 27) (179,698) Fair value of net assets acquired 60,501 Goodwill (Note 2) 19,143 Total purchase consideration paid 79,644 Less: Cash and cash equivalents in subsidiaries acquired (86,138) Cash inflow on acquisition (6,494) (2) Disposal 53 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) On 18 March 2002, the Company disposed the equity of Chongqing Jiangling Electro-mechanical Company (“Jiangling”) to Chongqing Changan Support Services Company Limited at the selling price of RMB 10. At 28 February 2002, Jiangling’s total assets were RMB 10,314, total liabilities were RMB 9,279. Total assets included accumulated losses of RMB 2,127 which are booked as receivable due from the Company in accordance with the profit distribution agreement. If this receivable is excluded, net assets will be RMB –1,092. 54 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) 30 Cash generated from operations 2002 2001 Profit before tax 1,124,537 260,800 Provision for bad debt and bad debt written off (Note 2) 25,779 92,031 Provision for stocks (Note 2) 18,970 (952) Impairment of property, plant and equipment (Note 9) - 10,064 Impairment of land use rights (Note 10) 6,700 - Depreciation of property, plant and equipment (Note 9) 309,481 288,173 Amortisation of Land use rights (Note 10) 4,088 2,748 Amortisation of intangible assets (Note 11) 8,958 2,026 Amortisation of deferred assets (Note 14) 6,473 1,634 Loss on disposal of property, plant and equipment (Note 2) 27,727 4,972 Loss on disposal of land use rights (Note 2) 20,479 - Financial expenses (Note 3) 24,542 56,817 Investment loss/(income) (Note 2) 31,923 (12,511) Share of results of associates (Note 12) 48,245 11,000 Change in working capital (excluding the effects of acquisition of subsidiaries) - - (Increase)/Decrease in inventories (987,696) 193,884 (Increase)/Decrease in operating receivables 499,782 707,687 Increase/(Decrease) in operating payables 916,368 (642,193) Cash generated from operations 2,086,356 976,180 In the cash flow statement, proceeds from sale of property, plant and equipment comprise: 2002 2001 Net book amount of property, plant and equipment (Note 9) 52,508 12,455 Less: Loss on disposal of property, plant and equipment (27,727) (4,972) Receivables - (6,698) Net book amount of property, plant and equipment used for investment (4,146) - Proceeds from sale of property, plant and equipment 20,635 785 31 Related party transactions The Company is controlled by CAC (incorporated in PRC), which owns 57.78% of the Company’s shares. The remaining 42.22% of the shares are widely held. The ultimate parent of the Group is China South Industries Group (“CSIG”, incorporated in PRC). Related parties, other than subsidiaries, and their relationship with the Company are as follows: Related parties’ name Relationship Chongqing Lear Changan Automobile Decorating Co., Ltd. Subsidiary of CAC Changan Automobile Manufacturing Factory Subsidiary of CAC Changan Mini Vehicles Parts Factory Subsidiary of CAC Chongqing Changan Mini Vehicles Parts Sales Company Subsidiary of CAC Chongqing Changan Automobile Machinery Factory Subsidiary of CAC 55 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) Chongqing Changan Transportation Company Subsidiary of CAC Changqing Changan Trading Company Subsidiary of CAC Chongqing Changan Kuayue Automobile Co., Ltd. Subsidiary of CAC Changan Kuayue Parts Sales Company Subsidiary of CAC Changan Machinery Factory Subsidiary of CAC Changan Automobile Rubber Parts Factory Subsidiary of CAC 56 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) 31 Related party transactions (continued) Chongqing Changan Construction Co., Ltd. Subsidiary of CAC Chongqing Jiangli Machinery Factory Subsidiary of CAC Chongqing Jiangchuan Machinery Factory Subsidiary of CAC Chongqing Jiangchao Engine Industry Co., Ltd. Subsidiary of CAC Chengdu Wanyou Economic Technological Development Co., Ltd. Subsidiary of CSIG Chongqing Changan Minsheng Logistics Co., Ltd. Subsidiary of CAC Changan Shengli Automobile Company Subsidiary of CAC Chongqing Changan Design Academy Subsidiary of CAC Chongqing Changan Construction Supervision Co., Ltd. Subsidiary of CAC Chongqing Changan Support Services Co., Ltd. Subsidiary of CAC Ordnance Finance Company Subsidiary of CSIG Chongqing Changan Information Technology Co., Ltd. Associate Changan Ford Automobile Co., Ltd. Associate Southwest Ordnance Industries Corporation Subsidiary of CSIG The following significant transactions were carried out with related parties: (1) Sales of goods and services 2002 2001 Sales of goods: Nanjing Changan Automobile Co., Ltd. 296,860 123,971 CAC and its related companies 884,204 2,459,030 Chengdu Wanyou Economic Technological Development Co., Ltd. 431,468 258,032 1,612,532 2,841,033 Interest income: CAC and its related companies 6,185 - Rental income: CAC 4,347 - (2) Purchases of goods and services 2002 2001 Purchases of goods: Chongqing Lear Changan Automobile Decorating Co., Ltd 231,434 114,753 Chongqing Changan Kuayue Automobile Co., Ltd 63,303 42,615 Changan Automobile Manufacturing Factory 42,814 52,059 CAC and its related companies 549,365 257,837 Chongqing Jiangli Machinery Factory 74,243 44,294 Chongqing Jiangchuan Machinery Factory 59,919 27,348 Chongqing Jiangchao Engine Industry Corp. 16,803 8,883 Changan Automobile Rubber Parts Factory 12,291 - Changan Mini Vehicles Parts Factory 4,910 - 1,055,082 547,789 Purchases of services: 2002 2001 CAC Trademark fee 12,050 9,182 Land use rights 2,824 1,694 Building rental fee 16,618 7,623 Management services 135,778 115,840 Construction fee 7,621 - 57 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) 31 Related party transactions (continued) (2) Purchases of goods and services (continued) 2002 2001 Chongqing Changan Minsheng Logistics Co., Ltd. Transportation fee 146,294 - Chongqing Changan Information Technology Co., Ltd. Construction fee 12,347 - Chongqing Changan Construction Co., Ltd. Construction fee 25,593 - Chongqing Changan Design Academy Construction fee 1,712 - Chongqing Changan Transportation Company Construction fee 210 - Chongqing Changan Construction Supervision Co., Ltd. Construction fee 298 - 361,345 134,339 (3) Year-end balances arising from sales/purchases of goods/services Receivables from related parties: 2002 2001 CAC and its related companies 17,277 876,473 Chengdu Wanyou Economic Technological Development Co., Ltd. 72,824 109,828 Southwest Ordnance Industries Corporation 16,000 - Changan Ford Automobile Co. Ltd. 761 - 106,862 986,301 Payables to related parties: 2002 2001 Chongqing Lier Changan Automobile Decorating Co., Ltd. 102,588 41,493 Chongqing Changan Kuayue Automobile Co., Ltd. 22,439 16,523 Changan Automobile Manufacturing Factory 3,249 345 Chongqing Jiangli Machinery Factory 14,866 6,689 Chongqing Jiangchuan Machinery Factory 9,082 3,018 Chongqing Jiangchao Engine Industry Corporation 3,984 1,032 Changan Automobile Rubber Parts Factory 4,483 - Changan Mini Vehicles Parts Factory 1,231 - Chongqing Changan Minsheng Logistics Co. Ltd. 36,543 - CAC and its related companies 4,798 - Chongqing Changan Information Technology Co. Ltd. 50 - 203,313 69,100 (4) Deposits with related companies As at 31 December 2002, the Company had deposits of RMB 235,137 (2001: RMB 352,074) with Ordnance Finance Company. (5) Director’s remuneration In 2002 the total remuneration of the directors was RMB 358 (2001: RMB 31). 58 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) 32 Principal subsidiaries Entity Country of Principal activities incorporation Chongqing Changan Import and Export Co., Ltd PRC Import and export of automobiles wholesale and (95%) retail of automobile spare parts Chongqing Changan Automobile Sales Co., Ltd PRC Sale of automobiles, engines and spare parts (100%) Chongqing Changan Suzuki Automobile Co., Ltd PRC Manufacture and sale of automobiles and engines (51%) Nanjing Changan Automobile Co., Ltd (36.55%) PRC Manufacture and sale of mini auto-mobiles, engines and spare parts Hebei Changan Automobile Co., Ltd (40.11%) PRC Manufacture and sale of auto-mobiles, engines and spare parts Chongqing Anfu Automobile Co., Ltd (50%) PRC Sale of automobiles, engines and spare parts . The Company is deemed to have effective control over Nanjing Changan because the shareholders who held 23.45% of the equity has entrusted the management of Nanjing Changan to the Company. The Company is deemed to have effective control over Hebei Changan Automobile Co.,Ltd. (hereafter referred to “Hebei Changan”) because the shareholders held 39% of the equity have entrusted the management of Hebei Changan to the Company. The Company is deemed to have effective control over Chongqing Anfu Automobile Co., Ltd because it determines the strategy and assigns its management team to participate in the management of the Company. 33 Post balance sheet events (1) Vehicle logistics agreement On 8 January 2003, the Company signed a vehicle logistics agreement with Chongqing Changan Minsheng Logistics Co. Ltd., which is a related company of CAC. The agreement will be in effect for 3 years. The latter will render vehicle distribution services to the Company. Transportation charges by the latter will be dependent on the mode of distribution, the product type and the distance covered. (2) The Board of Directors have given approval for the Company to make the following investments in 2003: i. RMB 25,000 will be invested in Nanjing Changan for upgrading in skills and working capital. After the investment, the Company's equity interest will be increased to 41.92%. ii. RMB 81,000 will be invested in Hebei Changan for upgrading in skills, purchase of production facilities and toolings, etc. After the investment, the Company's equity interest will be increased to 68.65%. The above is subject to approval in the shareholders’ meeting. 33 Post balance sheet events (continued) (3) The Board of Directors have given approval for the Company to acquire the 24% equity interest in Changan Ford Automobile Co Ltd from CAC in 2003. The consideration will be at appraisal value. After the acquisition, the Company's equity interest will be 50%. Further, Changan Ford Automobile Co., Ltd. plan to increase its capital by RMB 80,000 in 2003 of which the Company will invest RMB 40,000. The above is subject to approval in the shareholders’ meeting. 59 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) 34 Reclassification of comparative figures (1) Cash and cash equivalents: Temporary deposits of RMB 5,000 previously included in receivables and prepayments are presented in cash and cash equivalents. (2) Other non-current assets A loan of RMB 22,100 made to Qingshan Industries Company Limited previously included in receivables and prepayments are presented under other non-current assets. (3) Intangible assets Intangible assets of RMB 19,449 previously included in other non-current assets are separately presented. (4) Provisions Provisions for warranty costs of RMB 20,976 previously included in trade and other payables-accrued expenses are separately presented. 60 Chongqing Changan Automobile Company Limited 2002 Annual Report (B Share) Impact of IFRS adjustments on the consolidated profit after taxation and shareholders’ fund  Net assets Net profit As reported in the accounts of the Group under PRC accounting regulations 3,301,363834,997 9 Staff and worker’s bonus and welfare fund of Changan Suzuki charged against profit after taxation - (18,000) 10 Amortisation of goodwill arising on consolidation (17,171) 858 11 Adjustment of amortisation of pre-operating expenses in Changan Suzuki 1,229 - 12 Reversal of revaluation surpluses of long term assets relating to the revaluation in 1995 (7,877) - 13 Deferred tax assets 97,212 28,102 14 Reversal of equity share of the loss of Changan Ford Automobile Co., Ltd. in 2001 - 11,000 15 Reversal of capital surplus to other operating income - 8,189 16 Dividend declared in 2002 98,133 - As restated in conformity with IFRS 3,472,889 865,146 XII. Documents for inspection I. Financial statements with signatures and stamps of the legal representative, the head of the accounting and the head of accounting departments. II. The original copy of audit report with the stamp of the CPA firm and the signature and stamp of the Certified Public Accountant. III. All the original documents and manuscripts of the Company which has been disclosed in the reporting period in the newspapers designated by China Securities Regulatory Commission. IV. Annual reports published in other securities markets. Chairman of the Board of Directors: Mr. Yin Jiaxu General Manager: Mr. Zhao Luchuan Chongqing Changan Automobile Company Limited April 8, 2003 61