古井贡酒(000596)古井贡Ｂ2002年年度报告（英文版）

ANHUI GUJING DISTILLERY COMPANY LIMITED Annual REPORT 2002 (B-SHARE) April 2, 2003 Important Notices To the best knowledge of the Board of Directors of the Company, there is neither untrue presentation, seriously misleading statements, nor omission of material facts contained in the information herein. The Board of Directors severally and jointly bears responsibility for the correctness, accuracy and completeness of the information contained in this Annual Report. SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED Director Gan Shaoyu could not attend the meeting due to illness. Mr. Yang Guangyuan, chairman of the board, and Mr. Li Peihui, chief accountant, state that the truthfulness and completeness of the financial report contained in this Annual Report is guaranteed. The Annual Report (B-share) of the Company was prepared in Chinese and English. The Chinese version shall prevail over the English version should there be any discrepancy between the two. Contents I. Corporate Information………………………………………………………4 II. Summary of Accounting and Operational Data…………………………….5 III. Capitalization Alteration & Situation of Shareholders………………………7 IV. Particulars of Directors, Supervisors, Senior Management Personnel and Employees...…9 V. Corporate Governance Structure……..……………………………………11 VI. Highlights of the General Meeting………………………………………..13 VII. Report of the Board of Directors………………..………………………...14 VIII. Report of the Supervisory Committee……………………………………..21 IX. Substantial Events…………………………………………………………23 X. Financial Statement………………………………………………………..24 XI. Documents for Further Reference…………………………… 40 1 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED I. Corporate Information 1. Statutory name of the Company In Chinese: 安徽古井贡酒股份有限公司 In English: ANHUI GUJING DISTILLERY COMPANY LIMITED 2. Legal representative: Yang Guangyuan 3. Secretary of Board of Directors: Wang Feng Contact address: Gujing Town, Bozhou City, Anhui Province Tel: (0558) 5710057 5710085 Fax: (0558) 5710006 E-mail: wfeng65@sina.com Authorized securities rep.: Chen Ping Contact Address: Gujing Town, Bozhou City, Anhui Province Tel: (0558) 5710149 Fax: (0558) 5710006 E-mail: cp01@yeah.net 4. Registered address: Gujing Town, Bozhou City, Anhui Province Office address: Gujing Town, Bozhou City, Anhui Province Post code: 236820 Website: http://www.gujing.com E-mail: gujing@mail.ahbbptt.com.cn 5. Newspapers for disclosure of Annual Reports are as follows: Shanghai Securities Daily, Securities Daily and Hong Kong Wen Wei Po 2 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED Website for publishing the Annual Report of the Company: http://www.cninfo.com.cn Place of the Annual Report Filed: Office of Secretary of Board of Directors of the Company 6. Place where the company shares are listed: Shenzhen Stock Exchange Short form of Stock Name: Gujing Distillery A Securities Code: 000596 Short form of Stock Name: Gujing Distillery B Securities Code: 200596 7. Other Related Information: 1) Initial Registration Date of the Company: May 30, 1996 Alteration Registration Data of the Company: September 19, 1996 Initial Registration Authority: Anhui Provincial Administration for Industry and Commerce 2) Registration Number of Business License: 14897271-1 Tax Registration Number of the Company: 341202151940008 3) Names and Addresses of the Accountants Offices Designated by the Company: Domestic: Shanghai Deloitte Touche Tohmatsu CPA Ltd Address: 30/F Bund Center, 222 Yan An Road East, Shanghai 200002, PRC Abroad: Hong Kong Deloitte Touche Tohmatsu CPA Ltd Address: 26th Floor Wing On Centre, 111 Connaught Road, Central, Hong Kong II. Summary of Accounting and Operational Data (I) Accounting Data of 2002 (Unit: RMB thousand yuan) Total Profit 87,416 Net Profit 47,045 Profit from Major Business 195,889 Operating Profit 79,644 Investment Income 10,762 Allowance Income 14,900 Net Cash Flow from Operation 28,528 Activities Net Increase in Cash and Cash -36,678 Equivalents (II) Major Accounting Data and Financial Indices in the Past Three Years Unit: RMB thousand yuan Item Year 2002 Year 2001 Year 2000 Income from Main Operation 526,034 807,393 915,757 Net Profit 47,045 68,714 147,148 Total Assets 1,566,840 1,521,972 1,588,019 Shareholders’ Equity 1,184,910 1,184,261 1,187,715 Earnings Per Share 0.20 0.29 0.63 Net Assets per Share 5.04 5.04 4.75 Adjusted Net Assets Per Share 5.04 5.05 4.74 Net Cash Flow from Operating 0.12 0.25 0.34 Activities Per Share 3 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED Rate of Return on Net Assets（％） 4.05 5.90 13.20 （Diluted） Weighted Average Rate of Return on 4.05 5.80 12.40 Net Assets（％） (III) Deference between International Accounting Standard and Chinese Accounting Standard Unit: RMB thousand yuan Net Profit of Report Assets Net Value at Period the End of Report Period Accounting Financial Amount Compiled 47,045 1,161,410 According to Chinese Accounting Standard Adjustment According to International Accounting Standard Proposed Dividend - 23,500 Financial Report Amount Compiled 47,045 1,184,910 According to International Accounting Standard (IV) Alteration of Shareholders’ Equity in Report Period Capital Surplus Legal Public Undistributed Item Capitalization Total Amount Reserve Reserve Welfare Fund Profit Number at 235,000,000 521,042,894 137,872,364 68,936,182 243,346,023 1,137,261,281 Begin. of the Period Increase in 0 604,125 9,408,922 4,704,461 37,635,684 47,648,731 the Period Decrease 0 in the Period Number at 235,000,000 521,647,019 147,281,286 73,640,643 280,981,707 1,184,910,012 the End of the Period Explanation of the reasons for the changes: 1. Increase of capital reserve is due to donation received by the company and accounts payable that were impossible to be paid; 2. Increase of surplus reserve and legal public welfare fund is due to retentions from net profit of the year; 3. Increase of undistributed profit is due to gains of the year; 4. Increase of shareholders’ equity is due to gains of the year. 4 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED III. Capitalization Alteration & Situation of Shareholders (I) Capitalization Alteration 1. Table of Capitalization Alteration Unit: share Before Increase or Decrease of this After Alteration Alteration Alteration（+、-） Shares rationed Capitalization issues Increased issues Others Sub-total Reserve transferred into shares I. Non-free float 1. The Sponsors’ Shares 155,000,000 155,000,000 Among： State-owned Shares 155,000,000 155,000,000 Shares Held by Domestic Legal Persons Shares Held by Foreign Legal Persons Other 2. Corporation shares offer 3. Shares Held by 24,500 24,500 Employees 4. Preferred Shares or 5 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED Other Total of Non-free float 155,024,500 155,024,500 II. Free float 1. A Shares 19,975,500 19,975,500 2. Foreign Investment 60,000,000 60,000,000 Shares (B Shares) 3. Overseas Listed Foreign Shares 4. Other Total of Free float 79,975,500 79,975,500 III. Total Shares 235,000,000 235,000,000 (Note: The 24,500 employee non-free float shares are held by the directors, supervisors and senior management staff of the company.) 2. Particulars about Stock Issue and Listing (1) Particulars about Stock Issue and Listing in the Past Three Years In the three years before the report period, there is no stock issue or derivative securities of any kind in the company. Note: In May 1996, the company issued 60 million B shares at the par value of HK$3.64 per share, which were listed in Shenzhen Stock Exchange on June 12 of the same year. In September 1996, the company issued 20 million A shares at the par value of RMB8.48 yuan per share, among which 2 million shares are held by employees and the rest 18 million A shares were listed in Shenzhen Stock Exchange on September 27 of the same year. (2) Alteration of Capitalization Structure within the Report Period By the end of the report period, there is no change to the total number of shares of the company. (3) Issuance of Shares Held by Employees The 2 million shares held by employees were subscribed at the par value of RMB8.48 yuan per share when the company listed its A shares in September 1996 were entrusted to the No. 1 Division of Shenzhen Guosen Securities Co., Ltd. Except for 24,500 shares held by the existing directors, supervisors and senior management staff of the company, the rest shares held by employees have already been listed and available for trading. (II) Particulars of Shareholders 1. Total Number of Shareholders by the End of the Report Period By the end of the report period, the total number of shareholders of the company is 25,197, among which there is 1 legal person shareholder of state-owned shares, 6 shareholders of directors, supervisors and senior management staff, 13,166 of share B, and 12,031 public shareholders. 2. Shares Held by Major Shareholders (by the end of December 31, 2002) 6 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED Plac Name of Shareholders Shares Held Proportion Type of Shares e (%) 1st Anhui Gujing Group Company 155,000,000 65.96% State-owned Limited corporate share 2nd Shanghai Securities Co., 1,695,834 0.72％ A share float Ltd 3rd Li Anbai 1,500,371 0.64％ B share float 4th Baoyong Enterprise Co., 602,001 0.27％ B share float Ltd. 5th Zhang Zhen Ou 481,813 0.21％ B share float 6th CHEN KAM TONG 364,400 0.16％ B share float 7th CHEN,YUBIN 358,700 0.15％ B share float 8th Tang Haiming 317,600 0.14％ B share float 9th Shi Tao 300,994 0.13％ B share float 10th Wisdom House Intelligent System 300,000 0.13％ B share float (Hong Kong) Co., Ltd. (1) The shareholder that holds more than 5% of total shares of the Company is ANHUI GUJING GROUP COMPANY LIMITED. The shares it held are state-owned shares, and there is not any change for them during this report period, and no pledge or freezing occurs. (2) The second shareholder of the company is shareholders of A shares, and from the third to tenth shareholders are shareholders of B shares. (3) Except the controlling shareholder, no other shareholders of the Company hold more than 5% shares. 3. About the Controlling Shareholder (1) The controlling shareholder is Anhui Gujing (Group) Co., Ltd. Legal representative: Wang Xiaojin; Incorporated in January 16, 1995; Main business and products: Production and sales of beverage, construction materials, plastic products, state-owned investment, share holding, and capital management within the authorized scope; Registered Capital: RMB 353.38 million yuan; Stock Right Structure: Solely owned by the state, independent operation and management. (2) There is no change of the controlling shareholder during the report period. 4. No other legal person shareholders held more than 10% (including 10%) of shares of the company during the report period. 7 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED IV. Particulars of Directors, Supervisors, Senior Management Personnel and Staff (I) Brief Introduction to the Directors, Supervisors and Senior Management Personnel Shares Shares Held at Held at Name Job Title Sex Age Term of Office Beg. of End of the year the year Yang Male 58 2002.5-2005.5 3,000 3,000 Chairman of the Board Guangyuan Wang Male 54 2002.5-2005.5 3,500 3,500 Director Xiaojin Gan Director, General Male 48 2002.5-2005.5 2,500 2,500 Shaoyu Manager Director, Executive Male 40 2002.5-2005.5 0 0 Liu Junde General Manager Director, Deputy Male 38 2002.5-2005.5 0 0 General Manager, Wang Feng Secretary of the Board of Directors Wang Director, Director of Male 28 2002.5-2005.5 0 0 Subin Market Operations Liu Male 49 2002.5-2005.5 0 0 Independent Director Youpeng Zhuo Male 65 2002.5-2005.5 0 0 Independent Director Wenyan Li Hao Independent Director Male 52 2002.5-2005.5 0 0 Chairman of the Female 55 2002.5-2005.5 1,500 1,500 Yuan Supervisory Qinghua Committee Zhang Male 49 2002.5-2005.5 0 0 Supervisor Jialiang Liang Male 39 2002.5-2005.5 0 0 Supervisor Jinhui Zhang Deputy General Male 55 2002.5-2005.5 2,500 2,500 Zongyi Manager 8 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED Zhu Deputy General Male 37 2002.5-2005.5 0 0 Renwang Manager Lu Deputy General Male 41 2002.5-2005.5 0 0 Jianchun Manager Zhang Deputy General Male 41 2002.5-2005.5 0 0 Jianlin Manager Li Peihui Chief Accountant Male 30 2002.5-2005.5 0 0 Assistant General Male 53 2002.5-2005.5 2,000 2,000 Li Wanlin Manager Note: Employment situations of directors and supervisors in the company 1. Mr. Yang Guangyuan, chairman of the Board of Directors, has been working as general manager and secretary of party committee of Anhui Gujing (Group) Co., Ltd., the share-controlling shareholders of the company since January 1995. 2. Mr. Wang Xiaojin, director, has been working as chairman of the Board of Directors of Anhui Gujing (Group) Co., Ltd., the share-controlling shareholders of the company since January 1995. (II) Introduction to Annual Remuneration A complete compensation and reward system has been established in the company. And a yearly salary scheme has been devised for directors, supervisors and senior management personnel. The remuneration of directors and supervisors shall be decided by the shareholders’ general meeting in accordance with the Articles of Association of the company. Yearly appraisals shall be carried out by the Board of Directors for senior management personnel. The supervisory committee shall supervise the performance and routine work of them. And they shall be reviewed and managed by the HR department of the company. The total amount of remuneration including basic salary, bonuses, benefits and other subsidies, received by aforesaid persons is RMB1.21 million yuan. The total amount of the first three directors with highest payment is RMB397,800yuan. Subsidy for independent director is RMB20,000 yuan per year. Among 18 directors, supervisors and senior management personnel, 14 persons are getting remuneration from the company (excluding independent directors), and the total amount of the first three directors with highest payment is RMB397,800 yuan, including 15 persons with annual remuneration over RMB40,000 yuan and 3 persons with annual remunerations lower than RMB40,000 yuan. (III) Particulars about Changes of Directors, Supervisors and Senior Management Personnel 1. In the Annual General Shareholders’ Meeting 2002 of the company held on April 18, 2002, Mr. Wang Xiaojin, Mr. Yang Guangyuan, Mr. Gan Shaoyu, Mr. Liu Junde, Mr. Wang Feng, and Mr. Wang Subin were elected as directors of the 3rd Board of Directors; Mr. Liu Youpeng, Mr. Zhuo Wenyan, and Mr. Li Hao as independent directors of the 3rd Board of Directors; Ms Yuan Qinghua, Mr. Zhang Jialiang, and Mr. Liang Jinhui as supervisors of the 3rd Supervisory Committee. On the first session of the 3rd Board of Directors held on the same day, Mr. Yang Guangyuan was elected as Chairman of the Board; Mr. Gan Shaoyu was appointed 9 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED as General Manager of the company; Mr. Wang Feng as Secretary of the Board of Directors; Mr. Liu Junde as Standing Vice General Manager of the company; Mr. Wang Feng, Mr. Zhang Zongyi, Mr. Zhu Renwang, Mr. Lu Jianchun, and Mr. Zhang Jianlin as Vice General Managers of the company; Mr. Li Peihui as Chief Accountant of the company; Mr. Wang Subin as the Marketing Director; Mr. Li Wanlin as Assistant to General Manager; Mr. Wang Xiaojin, Mr. Gan Shaoyu, and Mr. Liu Junde were elected as members of the Executive Committee of the Board of Directors; Mr. Liu Junde, Mr. Wang Feng, Mr. Liu Youpeng, Mr. Zhuo Wenyan, and Mr. Li Hao were elected as members of the Compensation and Examination Committee of the Board of Directors. On the first session of the 3rd Supervisory Committee held on the same day, Ms Yuan Qinghua was elected as Chairman of the Supervisory Committee. 2. For the detailed information on the change of directors, supervisors and senior management personnel, please refer to the designated newspapers of the company for information disclosure: China Securities Daily, Shanghai Securities Daily, and Hong Kong Wen Wei Po of April 20, 2002. (IV) Introduction to Employees of the Company By December 31, 2002, the present employees of the company appeared in the list amounted to 6,003 with detailed distribution of personnel as follows: Category Number of Percentage in Total persons Number（％） University Degree Holders 240 4 Accor ing to Ｅ ｄ Junior College 350 5.8 ucation ｄ Technical Secondary School 223 3.7 Senior High-school 450 7.5 Junior High-school 4,740 79 Total 6,003 100 Production Staff 4,700 78 Ｆ Accor ing to unctionality Technicians 495 8.2 Financial Personnel 119 2 ｄ Sales Personnel 367 6 Administrative Personnel 352 5.8 Total 6,003 100 V. Corporate Governance Structure (I) Situation of Corporate Governance Corporate governance structure has been continuously normalized, modern enterprise system has been established and standardized operation of the company has been constantly improved in strict accordance with the provisions of Company Law, 10 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED Securities Law, Guidelines for Governance of Listed Companies and Supervisory Opinions on Establishing Independent Director System in Listed Companies. The company has successively formulated and carried out the Articles of Association, Rules of Procedure for Discussion in the General Meeting of Shareholders, in the Board of Directors and Working System of Independent Directors. During the report period, the company amended Articles of Association according to related laws and regulations and elected 3 independent directors (including one person of accounting specialty). At present, actual management situation of the company basically conforms to the documents related to standardization of listed company governance issued by China Securities Regulatory Commission. (II) Situations of Independent Directors Carrying Out Their Duties According to the requirements of provisions specified in Supervisory Opinions on Establishing Independent Director System in Listed Companies issued by China Securities Regulatory Commission, the Board of Directors amended Working System of Independent Directors and elected 3 independent directors including one person of accounting specialty. Independent directors of the company can earnestly carry out their responsibilities, carefully auditing and checking investment items and important matters considered by the Board of Directors, actively consulting opinions of directors, supervisors and senior management personnel and putting forward their opinions to the Board of Directors. (III) The “Five Separations” in terms of Operation, Personnel, Assets, Organization and Finance Between the Company and the Controlling Shareholder 1. Operation Independence The company is mainly engaged in the production and sales of distilled liquor, which has no competitive relation with that of its controlling shareholder. The company has its own production, procurement, supply and sales systems, personnel and clients which are not controlled by the biggest shareholder and independent from that of its shareholders’ organizations. Meanwhile, the company has set up its own product research and development institutes and independent research team in an attempt to ensure its technological innovation and advantage. 2. Personnel Independence Directors, supervisors and senior management personnel have been elected and appointed in strict accordance with Company Law and the Articles of Association of the company through legal procedures. The company has established HR Department that is responsible for management of labor, personnel and reward systems, and formulated a series of bylaws concerning appraisal and punishment of the employees. Senior management personnel, such as general manager, secretary of the Board of Directors, chief accountant, etc. are working full time and receive remuneration for their work. 3. Assets Completeness The main assets of the company include production equipment, land, factory buildings, vehicles, industrial property rights, auxiliary production systems and supporting facilities required by the main operation, “Gujing” trademark, 11 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED “Gujinggong” trademark, other intangible assets such as related industrial property rights and non-patent technology solely owned by the company. The ownership of the assets has been clearly separated, completely independent from the shareholders’ organizations. Therefore, there is no appropriation of corporate property. 4. Organizational Independence The company and the controlling shareholder have their own and separate production and operational places, facilities, offices, labor, personnel and remuneration management departments that perform their powers and duties according to the Articles of Association and independent from the controlling shareholder. The company has complete and independent corporate governance structures with its own Shareholder’s General Meeting, Board of Directors, Supervisory Committee and management organs that are legally established and operated according to standards. The controlling shareholder did not interfere with business activities of the company and business operations and office facilities of the company are separated from the controlling shareholder, without mixed practice of operation office. (IV) Financial Independence Independent financial departments have been established and independent financial personnel have been assigned in the company and the shareholders’ organizations. Independent Accounting Settling System and Detailed Regulations for Financial Management have been established in the company for its own and a strict and unified financial supervision and control over its branches and subsidiary companies with its own account established in the bank, independent operation fund and separate tax payment. The company has not used its assets, rights and interests, or credit as the security for the debts of the shareholders’ organizations. The company has an independent and full control over its own assets. No assets of the company have been misappropriated by its controlling shareholder or corporate interest impaired as a result. VI. Highlights of the General Meeting Two Shareholders’ General Meeting have been convened during the report period. (I) Annual Shareholders’ General Meeting 2001 1. Notice and Convening of Shareholders’ General Meeting Notice for the Annual General Meeting 2001 was published on China Securities Daily, Shanghai Securities Daily and Hong Kong Wen Wei Po on March 12, 2002 by the company and the meeting was held on April 18, 2002 in the Conference Hall, second floor of Gujing Hotel, Bozhou City, Anhui Provice with attendance of 15 shareholders and representatives of shareholders representing equity rights of 156,499,871 shares occupying 66.60% of the total shares of the company. 2. Resolutions Passed in the General Meeting and Their Publication The following items were considered and passed one by one with disclosed ballot voting method: Annual Report 2001 and Summary, Report on the Work of the Board of Directors in 2001, Financial Final report for 2001 and Financial Budget Report for 2002, Report on the Work of the Supervisory Committee in 12 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED 2001, Profit Distribution Plan for 2001 and Profit Distribution Policy to Be Implemented for 2002, Rules of Procedure for Board of Directors, Rules of Procedure for Supervisory Committee, Rules of Procedure for Shareholders’ General Meeting, Proposal for Revision of Articles of Association, Independent Director System of Anhui Gujing Distillery Co., Ltd., Proposal for Subsidy Levels of Independent Directors of the Company, Proposal for Establishment of Remuneration and Appraising Committee, Proposal for Retaining Reward Fund of the Company, Proposal for Appointment of Accountants for the Company, Proposal for Establishing an Executive Committee of the Board of Directors, and directors for the third session of the Board of Directors, supervisors for the third session of the Supervisory Committee were elected. 3. Election and Replacement of Directors and Supervisors Directors for the third session of the Board of Directors and supervisors for the third session of the Supervisory Committee were elected in the General Meeting with votes. Resolutions of the General Meeting and Legal Opinion issued by Jindu Lawyer’s Office were published on China Securities Daily, Shanghai Securities Daily and Hong Kong Wen Wei Po on April 19, 2002. (II) The 1st Interim Session of General Meeting of 2002 1. Notice and Convening of General Meeting On April 30, 2002, the company published a notice for the First Interim Session of General Meeting of 2002 on China Securities Daily, Shanghai Securities Daily and Hong Kong Wen Wei Po (It was found later that China Securities Daily left out the notice on April 30 and published later on May 9.). The meeting was held on June 5, 2002 in the Conference Hall on the second floor of Gujing Hotel, Bozhou City, Anhui Province with attendance of 14 shareholders and representatives of shareholders representing equity rights of 155,030,500 shares, occupying 65.97% of the total shares of the company. 2. Resolutions Passed in the General Meeting and Their Publication The meeting considered the published proposals, voted for decisions and passed Proposal to Shareholders’ General Meeting to Approve Extending the Validity of Capital Increase and A Share Issuing Plan of the Company for 2001. For details, please refer to China Securities Daily, Shanghai Securities Daily and Hong Kong Wen Wei Po on June 6, 2002. 13 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED VII. Report of the Board of Directors (I) Discussions and Analysis of Financial Situation and Other Substantial Events during the Report Period In 2002, operating situation of middle/big enterprises involved in distilled liquor production in China became more severe. Under the guidance of the party and government policies of “pushing reformation of state-owned enterprises further forward”, the company set a strategic target of “Achieving the 3rd enterprise-inauguration to create a new Gujing”, made further adjustment of structures, activated operation mechanism, enhanced strict management, vigorously implemented market strategy and reversed the unfavorable production and operational trend, achieving annual main business income of RMB526.03 millions, and gaining total profit of RMB87.42 millions. Due to the influence of state taxation policy for distilled liquor, the company paid more attention to adjustment of product structure during the report period, resulting in decline main operational revenue and profit of the year compared to that of last year. However, keeping a close contact with the market, the company has developed a series of new products with deep cultural content of Gujing liquor and strength of market competition, further improved product structure of the company and enhanced strength for market competition. Especially, new product development of high-price strategy helped increase profit rate of products and ensured bigger profit margins for the company. (II) Operating Results of the Company during the Report Period 1. Main Operating Scale and Operating Results (1) Main Business Income and Profit Structure Main business income mainly consists of sales revenue of distilled liquor, and products comprising over 10% of main business profit are listed as follows: Unit: RMB Product Grade Main Business Main Business Sales Sales Cost Gross Income Profit Revenue Profit Rate High-grade Liquor 338,424,710 167,433,748 338,424,710 121,099,108 64.22% Intermediate-grade 32,199,724 6,182,347 32,199,724 20,147,195 37.43% Liquor Low-grade Liquor 97,394,803 5,619,680 97,394,803 74,693,618 23.31% Note: As “Gujinggong” takes 50% of main business income and 60% of total profit among various products produced and sold to markets all over China by the 14 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED company, there is no other single product or single region that occupies more than 5% of the revenue and profit of the company. Therefore, we do not list trade, product and regional comparison here. (2) Major Products and Market Situation Main business of the company is production and sales of liquor with major product of Gujinggong, one of the 8 oldest vintage wines of China, and a series of Gujing liquors. Currently, the company has a complete series of products with four brands including “Gujinggong”, “Gujing”, “Wild Sun” and “Laobada”, two major fragrance types including aroma type and faint scent type, different alcoholic contents from 60% to 30%, and different price grades of high, intermediate and low grade, among which, Gujinggong and Gujing series of products are the major products of liquors of the company. Besides, design of production technique for new healthy-style liquor has already been completed and marketing of the product will be promoted quickly in the coming years to reach big-scale production. Beside liquors, the company also has fruit wines and vegetable wines including grape wines such as Gujing Dry Cabernet, Dry White Wine, Gujing Jiebaina Dry Cabernet, Osmanthus Flower Wine, Gujingshan Wine, etc. Fruit and vegetable wines include Kairuide Carrot Wine which is produced by fermenting carrot as material, and more products using fruits and vegetables such as tomatoes, etc. will be produced in succession. 2. Major Controlling Companies and Equity Participated Companies (1) Bozhou Gujing Sales Company Bozhou Gujing Sales Company has registered capital of RMB43,646,000 and the group company holds 99% of the total equity rights. Main business of the sales company is sales of liquor and trade service. According to the audit by Deloitte Touche Tohmatsu CPA Ltd, up to December 31, 2002, total assets of Bozhou Gujing Sales Company is RMB352,139,700 with net profit of RMB165,782,800. Like most of other enterprises involved in production of wines and alcohols, establishment of a sales company specializing in sales of liquors and trade service is favorable for rational and efficient operation of production and sales of Gujinggong. (2) Bozhou Gujing Motor Transport Company Bozhou Gujing Motor Transport Company has registered capital of RMB6,945,000 and the group company holds 99% of the total equity rights. Main business of the transport company is providing transport service. According to the audit by Deloitte Touche Tohmatsu CPA Ltd, up to December 31, 2002, total assets of Bozhou Gujing Motor Transport Company is RMB8,603,000 with net profit of RMB264,300. (3) Bozhou Gujing Glass Product Co., Ltd. Bozhou Gujing Glass Product Co., Ltd. has registered capital of RMB16,000,000 and the group company holds 99% of the total equity rights. Main business of the company is production and sales of glass products. According to the audit by Deloitte Touche Tohmatsu CPA Ltd, up to December 31, 2002, total assets of Bozhou Gujing Glass Product Co., Ltd. is RMB74,861,300 with net profit of 15 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED RMB380,100. (4) Anhui Gujing Shuangxi Wine Co., Ltd. Anhui Gujing Shuangxi Wine Co., Ltd. has registered capital of RMB47,200,000 and the group company holds 64% of the total equity rights. Main business of the company is production and sales of wines, fruit juice wines and non-alcoholic products. According to the audit by Deloitte Touche Tohmatsu CPA Ltd, up to December 31, 2002, total assets of Bozhou Gujing Shuangxi Wine Co., Ltd. is RMB73,321,000 with net profit of RMB-4,319,500. (5) Beijing Jinshengyi Technology Co., Ltd. Beijing Jinshengyi Technology Co., Ltd. has registered capital of RMB50,00,000 and the group company holds 70% of the total equity rights. Main business of the company is development and sales of computer software and peripheral equipment, electronic parts and components. According to the audit by Deloitte Touche Tohmatsu CPA Ltd, up to December 31, 2002, total assets of Beijing Jinshengyi Technology Co., Ltd. is RMB67,118,900 with net profit of RMB297,300. (6) Anhui Laobada Distillery Co., Ltd. Anhui Laobada Distillery Co., Ltd. has registered capital of RMB30,000,000 and the group company holds 93% of the total equity rights. Main business of the company is wholesale and retail of alcoholic products. According to the audit by Deloitte Touche Tohmatsu CPA Ltd, up to December 31, 2002, total assets of Anhui Laobada Distillery Co., Ltd. is RMB31,116,000 with net profit of RMB167,600. 3. Major Suppliers and Customers Total purchase amount from top 5 suppliers of the company is RMB45,520,000 which amounts to 18% of the total purchase amount of the company. Total sales amount to top 5 customers of the company is RMB88,510,000 which amounts to 17% of total business income of the company. 4. Problems Occurred in Operation and Their Solutions Since 1980s, the state government issued some policies successively to restrict disorderly development of liquor industry, such as liquor excise tax, after-tax ad-rate payment, etc. In 2001, the National Taxation Administration adjusted excise tax again, giving unprecedented pressure to liquor producing companies. At the same time, considering from the volume of wine market, liquor proportion is making gradual decline. Along with diversification of beverage and change of consumption style, consumers’ demand for liquor decreased greatly and consumer group of liquor is shrinking year by year. Related information shows that total output of liquor dropped from 6,573,800MT in 1995 to 4,761,100MT in 2000, a decrease of 27.57%. According to incomplete statistics, there are still about 38,000 liquor producers in China, which means that the industrial concentration did not improve obviously. Development of liquor industry is restricted by state restrictions, demand-exceeding supply, low industrial concentration and malignant competition. All of these factors contributed to the decline of main business income and net profit of the company. 16 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED The restrictive policies of the state and the disorderly competition of the market will have unfavorable influence to the profit of the company within a certain period of time. But, in the long run, these factors will further increase sales cost of enterprises that are producing intermediate or low grade liquor and sales market shares of products will drop significantly, which will give a new round of market division for enterprises producing high-quality vintage liquor with bigger market shares. Therefore, the challenge faced by the company is also an opportunity. In order to adapt to the excise tax policy, the company worked out a series of countermeasures to relax the pressure of declining profit, with major measures including: (1) Further maximized product structure and increased proportion of high-quality, high-grade liquor. As RMB0.5/500g of specific excise tax increased sales pressure for intermediate and low grade liquor, the company further maximized product structure and increased the proportions of high-quality and high-grade liquor products to achieve higher added value. Gujinggong is an enterprise producing high-quality and famous liquor. Consequently, the company put the advantage of the quality and fame of the product brand into full play, continuously developed high-quality new products suitable for consumers’ demand, increased the proportions of high-quality and high-grade liquor products so as to relax the pressure of declining profit caused by increased excise tax. (2) Enhanced brand image of the company products and persisted in the approach of quality marketing and brand marketing. The company took further measures to grasp opportunities, economize internal management, make full use of potentials and do the best to eliminate the impact of increased cost due to increase of excise tax; Externally, the company actively expanded market, increased market rate, made up for the increased enterprise cost due to adjusted excise tax with bigger amount of sales, kept and improved profitability of the enterprise consequently, and further enhanced market competition ability of the enterprise. (3) Different countermeasures have been taken for different product types and integrated management has been practiced for liquor products of the company. Based on the cost and selling price situation after excise tax reformation, the company divided current products into 4 groups, such as profitable product to be reserved, deficit product to be reserved, product to be eliminated after using up material, and product to be eliminated, and took different measures to them: For profitable product to be reserved, current marketing policy has been practiced to increase sales quantity and realize scale efficiency with increased total amount of profit. Most of the deficit products to be reserved are major products of the company with big sales volumes. Countermeasures taken for these products are proper adjustment of prices and decrease of preferential policies for them to ensure profitability, no matter how little the profit is. Efforts were given to some of the products to avoid deficit or keep the deficit smaller so as to proportion cost. Countermeasures taken for products to be eliminated after using up material were mainly cut-price sales, enhanced marketing, giving exclusive selling rights to designated areas, etc. to improve sales, protecting some of the main market on one hand, and speeding up material consumption on the other hand to reduce loss of packing material and complete deeper integration of products as soon as possible. Measures taken for products to be eliminated were liquidating repertory and discarding materials. 17 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED The company classified and integrated hundreds of existing products in two stages. While integrating the products, the company adjusted and put the structure of two big brands and three grades of products into order, drawing a clear major product line and widening strategic way of thinking for new product development. Product integration was a countermeasure for tax reformation of the state, but it was also a strategic action to adapt future development and to speed up adjustment of product structure. By defining major product line of two big brand and three grades, the company could make clear classification of grades of product price levels and got clear vision of major products. In 2002, the company already basically completed strategic construction of product structure. The integrated product structure has clearer product line with more compact structure and more rational distribution. Faced with pressure from macro-policies and difficulties arising from operational management, the company is still persisting in the development strategy of “Adjust, upgrade, reconstruct, remodel to create a new Gujing”, and through upgrading and integrating product images, brand image, employees image, social image, especially through clearing employees’ mentality, checking their habitual behaviors and purifying their mind, put forward the concept of “Creating a new Gujing” and pushed forward the 3rd enterprise-inauguration. (III) Investments of the Company 1. No raised fund has been put into investment in this report period. 2. Non-raised fund investment in the report period: (1) Prophase investment project of 15,000 tons alcohol product line and 15,000 tons of DDGS protein feedstuff project: For various reasons, the process of increasing capital and issuing A Share in 2001 was postponed to this fiscal year. Considering the urgency and necessity of some investment projects to be constructed with fund raised by increasing shares, the company has temporarily used self-owned capital of Rmb 54 million yuan as investment in the initial construction of 15,000 tons alcohol product line and 15,000 tons DDGS protein feedstuff project which was planed as one of the projects to be constructed with the fund raised by increasing shares. (2) Research, development and production of commodity series of fruit and vegetable wine products: In order to give a momentum to new product development of the company and align with the wine product development trend toward low degree, nutrition, health, green and naturalness in China, the company used Rmb 22 million yuan of interest-paying loan to invest in research and production of commodity series of fruit and vegetable wine products. Up to the end of the report period, the project has already entered into trial production stage. (IV) Financial Status of the Company during the Report Period and Analysis of Operation Result by the Board of Directors 1. Financial Status of the Company in the Report Period Financial Index Data of 2002 Increase or Decrease（＋、－） 18 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED （Rmb thousand） Amount of Increase Rate of or Decrease（Rmb Increase of thousand） Decrease Total Assets 1,566,840 44,870 2.95% Long-term Liabilities 44,000 44,000 100% Shareholders’ Equity 1,184,910 650 0.05% Profit from Main Business 195,890 -40,530 -17.14% Net Profit 47,040 -21,670 -31.34% Cash Flow from Operating 28,530 -30,220 -51.44% Activities Increased Amount of Cash and -36,680 -67,530 -218.89% its Equivalent 2. Analysis of the Reasons for the Changes of Major Indexes (1) Significant increase of long-term liabilities in the report period is due to Rmb 44 million yuan of government interest-paying loan received by the company. (2) Main reason for the decreases of main business profit and net profit is decline of sales revenue. (3) Decrease of the net amount of cash flow from operational activities is caused by decrease of sales revenue. (4) Significant decrease of increased amount of cash and its equivalent is because payment for fixed assets purchases of the company in this fiscal year is bigger than operational cash income and raised fund amount. (V) Business Plan for the New Fiscal Year 1. Guiding Ideology and Working Guideline Guiding ideology for work in 2003: Under the guidance of the spirit of “16th Congress” and Economic Working Conference of the Central Committee, with reformation and adjustment as main subject, re-model concept of value and increase risk consciousness; activate enterprise mechanism to create free and comfortable environment; maximize marketing system and make rational configuration of resources; improve management system and make further adjustment of structure; pay attention to improvement, enhance efficient enforcement, comprehensively and systematically increase comprehensive competence of the company, effectively upgrade core competence of the brands and face the reality of fierce competition with completely new angle of vision and concept. Create more value with practical spirit and dedication to push forward the 3rd enterprise-inauguration of Gujing. The company defines the year 2003 as “a year for further reformation” with working guideline of: re-modeling concept of value, activating enterprise mechanism, maximizing marketing system and improving management system. 2. Objectives for Production Operation The gross output of the liquors of 65% by volume shall be 17,531 tons, and gross 19 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED sales of the liquors of all kinds shall be 27,194 tons. 3. The implementing measures. (1) Carry out the spirit of the 16th Party Congress, make active exploration and promote reformation of property right system; (2) Muster to activate enterprise mechanism and vigorously inspire creative spirits by creating free and comfortable internal and external environment; (3) Maximize marketing organizational structure, enhance performance of marketing decision-making system and implementing system and materialize the principle of parity of authority and responsibility. In carrying out new strategies and concept of marketing, make further progress in providing high-quality services and ensure a strong logistic supporting system and platform for market construction; (4) Make further improvement of budget and cost control system, enhance budget and cost control functions to increase market competence of the products and profitability of the enterprise; (5) Persist in construction of quality system of the company, constantly re-model operation flow system, pay attention to continuous improvement to further upgrade product quality, work quality and work efficiency; (6) Make further improvement of performance appraisal system, establish individual ability development evaluation system at the same time and promote further development of human resource; (7) Further improve and implement rewards distribution system and put distribution leverage into full play through multi levels and multi channels; (8) Try the best to establish unique mentality operation system of Gujing style to guide enterprise activities with new value. (VI) Routine Work of the Board of Directors 1. Meetings of the Board of Directors and Content of Resolutions During the report period, the Board of Directors held 8 meetings that were in conformity with Company Law and the Articles of Association of the company. (1) On January 1, 2002, the 28th meeting of the second session of the Board of Directors of the company was held, which considered and passed “Summary of Work in 2001” and “Opinions on Work in 2002”; (2) On March 8, 2002, the 29th meeting of the second session of the Board of Directors of the company was held, which considered and passed “Annual Report 2001 and Summary of Annual Report”, “Report on the Work of the Board of Directors in 2001”, “Report on Work of General Manager in 2001”, “Financial Final report for 2001 and Financial Budget Report for 2002”, “Profit Distribution Plan for 2001 and Profit Distribution Policy to Be Implemented in 2002”, “Proposal for Nomination of Candidates for the 3rd Session of the Board of Directors”, “Rules of Procedure for the Board of Directors (Amendment)”, “Rules of Procedure for Shareholders’ General Meeting (Draft)”, “Proposal for Revision of Article of Association of the Company”, “Independent Director System of Anhui Gujing Distillery Company Limited (Draft)”, “Proposal for Subsidy Level of Independent Directors”, “Proposal for Establishing Salary and Appraisal Committee of the Company”, “Proposal for Drawing for Encouragement Fund of the Company”, “Proposal for Appointment of Accountants for the Company”, “Proposal for Holding Shareholders’ General Meeting 2001 of the Company”. 20 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED Bulletin of the resolutions of the meeting of the Board of Directors was published on China Securities Daily, Shanghai Securities Daily and Hong Kong Wen Wei Po on March 12, 2002. (3) On April 6, 2002, the 30th meeting of the second session of the Board of Directors of the company was held, which considered and passed share ownership transfers concerning sales company, motor transport company, waste company and glass company. Bulletin of resolutions of the meeting of the Board of Directors was published on China Securities Daily, Shanghai Securities Daily and Hong Kong Wen Wei Po on April 18, 2002. (4) On April 18, 2002, the 1st meeting of the 3rd session of the Board of Directors of the company was held and the new session of directors considered and passed the following proposals: Mr. Yang Guangyuan was elected as chairman of the Board of Directors, members of Executive Committee and members of Salary and Appraisal Committee of the Board of Directors were elected, Mr. Gan Shaoyu was elected as general manager, Mr. Wang Feng was elected as secretary of the Board of Directors, other senior administrators and financial principal were appointed, the first quarterly report of 2002 was considered and passed. Bulletin of resolutions of the meeting of the Board of Directors was published on China Securities Daily, Shanghai Securities Daily and Hong Kong Wen Wei Po on April 19, 2002. (5) On April 29, 2002, the 2nd meeting of the 3rd session of the Board of Directors of the company was held, which considered and passed “Proposal to Shareholders’ General Meeting to Approve Extending the Validity of Share Increase and A Share Issuing Plan of the Company for 2001” and proposal of holding the 1st interim session of General Meeting of 2002. Bulletin of resolutions of the meeting of the Board of Directors was published on China Securities Daily, Shanghai Securities Daily and Hong Kong Wen Wei Po on April 30, 2002. (6) On August 7, 2002, the 3rd meeting of the 3rd session of the Board of Directors of the company was held, which considered and passed “Interim Report 2002 and Its Summary”, “Interim Distribution Plan for 2002”, “Using 64 Million yuan of Government Interest-paying Loan on Construction of Gujinggong Direct-sale Company, Computer Information Management System and Research and Production Project of Commodity Series of Fruit and Vegetable Wine Products”, etc. Bulletin of resolutions of the meeting of the Board of Directors was published on China Securities Daily, Shanghai Securities Daily and Hong Kong Wen Wei Po on August 9, 2002. (7) On October 28, 2002, the 4th meeting of the 3rd session of the Board of Directors of the company was held, which considered and passed “The Third Quarterly Report of 2002”, “Proposal for Investment and Share Participation in Hefei Commercial Bank” and “Proposal for Change of Appointment of Accountants’ Office for the Company”. Bulletin of resolutions of the meeting of the Board of Directors was published on China Securities Daily, Shanghai Securities Daily and Hong Kong Wen Wei Po on October 29, 2002. 2. Execution of Resolutions of Shareholders’ General Meetings by the Board of Directors During the report period, the Board of Directors of the company executed 21 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED resolutions passed by Shareholders’ General Meetings according to the requirements of related laws and regulation of Company Law, Securities Law and Articles of Association of the company, and strictly within the range of power authorized by Shareholders’ General Meeting. Detailed execution is as follows: (1) Execution of Profit Distribution Plan of 2001 According to profit distribution plan passed by votes in Shareholders’ General Meeting held on April 18, 2002, the company distributed RMB2.0yuan per 10 shares(including tax), total dividends amounting RMB47 million yuan, calculation based on total amount of market capitalization at the end of 2001, and dividends for B shares converting into HK dollars. The dividends distribution plan was published on China Securities Daily, Shanghai Securities Daily and Hong Kong Wen Wei Po on May 21, 2002. A stock right registration date for dividends distribution and final trading date for B shares were May 27, 2002, and ex dividend date was May 28, 2002. (2) Execution of Increasing A Shares Plan The 1st interim session of Shareholders’ General Meeting of 2002 decided one year extension of validity of the resolution of increasing the A shares less than 35 millions in 2001. This year, the company gave a new momentum to increase the shares and has achieved approval of Share Issuing Examination Committee with conditions in November 2002. Further examination and approval is yet to be made to determine whether they can be issued or not. (3) Other Executions This year, the Board of Directors of the company strictly carried out resolutions passed in Shareholders’ General Meeting of 2001, such as “Rules of Procedure for Shareholders’ General Meeting”, “Proposal for Revision of Articles of Association of the Company”, “Independent Director System of Anhui Gujing Distillery Company Limited”, etc. (VII) Profit Distribution Plan or Plan for Transfer of Capital Reserve to Increase Capitalization According to the audit in 2002 by Shanghai Deloitte Touche Tohmatsu CPA Ltd, the accountant of the company, the company achieved net profit of Rmb 47,044,606 in 2002. After retaining legal reserve and public welfare fund of total Rmb 9,408,922 and adding Rmb 243,342,023 of undistributed profit at the beginning of the year, profit for distribution for the year is Rmb 280,981,707; According to the audit by Hong Kong Deloitte Touche Tohmatsu CPA Ltd, international accountant, the company achieved net profit of Rmb 47,044,606 in 2002. After retaining legal reserve and public welfare fund of total Rmb 9,408,922 and adding Rmb 243,346,000 of undistributed profit at the beginning of the year, profit for distribution for the year is Rmb 280,981,684. According to Articles of Association of the company and related stipulations, in case of inconsistency between two audit reports, the smaller amount of undistributed profit shall be adopted as dividend distribution standard. Consequently, profit distributable for this year is Rmb 280,981,684. According to the proposal of the 6th meeting of the 3rd session of the Board of Directors of the company, profit distribution plan for the year is: Dividend of RMB1.0 22 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED yuan per 10 shares and total distributable dividends of RMB23.5 million, calculation based on total capitalization counted at the end of 2002, dividends for B shares shall be converted to Hong Kong dollars, and the remaining profit will be deferred to the next year. No public reserve will be transferred to increase capitalization this year. This distribution plan is subject to the approval by Shareholders’ General Meeting of 2002. (VIII) Other Report Items The company selected Shanghai Securities Daily, Hong Kong Wen Wei Po and Securities Daily for disclosing information in 2003. VIII. Report of Supervisory Committee (I) Meetings of Supervisory Committee 1. During the report period, 4 meetings were held by the Supervisory Committee of the company: (1) The 8th meeting of the 2nd session of the Supervisory Committee of the company was held on March 8, 2002. It was presided over by Ms. Yuan Qinghua, chairman, and attended by all of the supervisors. The meeting considered and passed the following items: “Report on Work of the Supervisory Committee in 2001”, “Annual Report 2001 and Summary of the Annual Report”, “Proposal Concerning Nomination of Supervisory Committee Members of the 3rd Session” and “Proposal for Revision of Articles of Association of the Company” by the Board of Directors. Bulletin of resolutions of the Supervisory Committee was published on China Securities Daily, Shanghai Securities Daily and Hong Kong Wen Wei Po on 23 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED March 12, 2002. (2) The 1st meeting of the 3rd session of the Supervisory Committee was held on April 18, 2002. It was attended by all of the supervisors and considered and passed the following proposals: A. “Proposal for Electing Ms. Yuan Qinghua as Chairman of the 3rd Session of the Supervisory Committee”. B. “The First Quarterly Report of 2002”. Bulletin of resolutions of the Supervisory Committee was published on China Securities Daily, Shanghai Securities Daily and Hong Kong Wen Wei Po on April 19, 2002. (3) The 2nd meeting of the 3rd session of the Supervisory Committee of the company was held on August 7, 2002 and was attended by all of the supervisors. The meeting considered and passed “Interim Report 2002 and Its Summary”. Bulletin of resolutions of the Supervisory Committee was published on China Securities Daily, Shanghai Securities Daily and Hong Kong Wen Wei Po on August 9, 2002. (4) The 3rd meeting of the 3rd session of the Supervisory Committee was held on October 28, 2002 and was attended by all of the supervisors. The meeting considered and passed “The Third Quarterly Report 2002”. Bulletin of resolutions of the Supervisory Committee was published on China Securities Daily, Shanghai Securities Daily and Hong Kong Wen Wei Po on October 29, 2002. (II) Independent Opinions Expressed by the Supervisory Committee on Related Matters In 2002, the Supervisory Committee carried out its duty strictly in accordance with Company Law and Articles of Association of the company to protect the interest of the company and all the shareholders. It practiced effective supervision over legal management, financial status, duties carried out by senior management personnel of the company, etc. 1. Legal Management of the Company In 2002, supervisors attended all previous meetings of the Board of Directors as nonvoting delegates, gave necessary participations and supervision over production and management plan of the company, investment decision-making, authorization by the Board of Directors. The Supervisory Committee unanimously believe that the Board of Directors can organize and hold Shareholders’ General Meetings strictly in accordance with the requirements of Company Law and Articles of Association of the company, fully practice duties and powers authorized by Shareholders’ General Meetings, and carry out all the resolutions of the General Meetings. During the report period, the company had perfect internal control systems which operated according to the law and all of the decision-making procedures were in conformity with the law; Directors and managers of the company could strictly abide by laws, regulations and Articles of Association when they carried out their duties and none of them was found to have any behavior of impairing the interest of the company. 2. Supervision of Financial Status of the Company Shanghai Deloitte Touche Tohmatsu CPA Ltd (Domestic) and Hong Kong 24 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED Deloitte Touche Tohmatsu CPA Ltd (Foreign) were appointed to audit financial status of the company in 2002 and issued audit reports without any reserved opinions. After careful examination financial status of the company, the Supervisory Committee believes that the report is objective, correct and truly reflected financial status and operation result of the company. The company has strict financial system, perfect internal control systems, and no behaviors against financial system or infringing upon the interest of the investors were found. 3. Supervision of Utilization of Raised Fund The company did not raise any fund during the report period. The Supervisory Committee gave a strict supervision over utilization of fund raised at the previous time and found that all of the fund raised in the previous time has been used up according to the requirements of prospectus and the investment projects are gradually producing benefits. 4. Relevant tradings Pricing of relevant tradings occurred in the company was fair, rational and in conformity with related laws, regulations and Articles of Association of the company. The company performed the obligation in information disclosure according to related state laws, regulations, requirements of Shenzhen Securities Exchange and the Articles of Association of the company. IX. Substantial Events (I) In the report period, the Company has not been involved in any substantial lawsuits or arbitral matters. (II) In the report period, substantial assets acquisition, sale, merger have occurred in the company. In the report period, the Company considered the necessity and timeliness to construct two investment projects which was planned to use the fund from capitalization issues, and has utilized the self-owned funds of Rmb 54 million to construct the 15,000 tons alcohol production line and 15,000 ton DDGS protein fodder project. They include purchased alcohol production line from Anhui Jinwan Winery Co., Ltd. and DDGS protein fodder line in progress and other relevant assets of Rmb 30.89 million, which have been appraised by Anhui Huapu Accountants Office and confirmed by the relevant state-owned assets management authority. (III) Important Relevant Trading (For details, please refer to Notes.) (IV) Performance of Important Contracts 1. During the report period, the company did not entrust, contract, lease other companies’ assets, and no assets of the company was entrusted, contracted, leased by other companies. 2. During the report period, the company did not provide any guaranty to any other companies. 3. The company did not entrust any other companies to manage its cash assets. 4. Other Important Contracts On September 3, 2002, the company signed Medium and Long-term Loan Contract with Bozhou Sub-branch of Bank of China and applied to the bank for Rmb 44 million yuan of interest-paying loan with a loan period of 5 years. Anhui Gujing Group Co., Ltd., the biggest shareholder of the company, 25 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED provided credit guarantee for the loan. (V) Commitments made by the company and shareholders holding more than 5%(including 5%) of the shares of the company during the report period For details, please refer to notes on Financial Report. (V) Appointment and Removal of Accountants’ Office Since the company was listed in 1996, Arthur Anderson·Huaqiang Accountants’ Office and Arthur Anderson Inc. had been appointed as domestic and foreign audit institutions. But the long time business cooperation was terminated due to Arthur Anderson’s bankrupt caused by “Enron Event” of the USA, and the 4th meeting of the 3rd session of the Board of Directors passed a resolution for appointing Shanghai Deloitte Touche Tohmatsu CPA Ltd and Hong Kong Deloitte Touche Tohmatsu CPA Ltd as domestic and foreign audit institutions (for 2002). The resolution was approved by the Shareholders’ General Meeting of 2002. The company paid Rmb 600,000 of audit fees to Arthur Anderson · Huanqiang Accountants’ Office and Arthur Anderson Inc. (VI) During the report period, the company, the Board of Directors and directors of the company did not have such occurrences as investigated by China Securities Regulatory Commission, punished or criticized publicly by China Securities Regulatory Commission, or publicly reprehended by Shenzhen Securities Exchange. (VII) Other Substantial Events 1. During the report period, the company had re-election for the Board of Directors and the Supervisory Committee; Mr. Yang Guangyuan was elected as chairman of the Board of Directors and Ms. Yuan Qinghua was elected as chairman of the Supervisory Committee of the company. Related Bulletin was published on China Securities Daily, Shanghai Securities Daily and Hong Kong Wen Wei Po on April 19, 2002. 2. According to the profit distribution plan approved by Shareholders’ General Meeting of 2001 held on April 18, 2002, the company distributed dividends of Rmb 2.0 (including tax) per 10 shares to all of the shareholders on May 28, 2002. Related Bulletin was published on China Securities Daily, Shanghai Securities Daily and Hong Kong Wen Wei Po on May 21, 2002. 3. In accordance with Guiding Opinions Establishing Independent Director System of Listed Companies issued by China Securities Regulatory Commission, the company appointed Mr. Zhuo Wenyan, Mr. Liu Youpeng and Mr. Li Hao as independent directors and formulated Rules of Procedure for Independent Directors. Bulletin was published on China Securities Daily, Shanghai Securities Daily and Hong Kong Wen Wei Po on April 19, 2002. 26 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED X. Financial Statements As of December 31, 2002 (Compiled in accordance with the international standards for financial report) Shareholders of Anhui Gujing Distillery Company Limited: (A stock limited company established in the People’s Republic of China) We have audited combined balance sheet, combined income statement, combined cash flow statement and combined equity change statement of Anhui Gujing Distillery Company Limited and its subsidiary companies (Hereinafter referred to as the Group) attached as of December 31, 2002. The Group is responsible for the financial documents, while our responsibility is to provide opinions on these financial documents according to our audit result. Our audit is performed in accordance with international audit standard. The said standard provides reasonable guarantee for us to plan and execute our audit so as to find out whether there is any substantial incorrect statement in the said financial report. Audit range included spot-checking the amounts recorded in financial report and data related to items disclosed. It also included evaluation of accounting policies used by the management in compiling the financial report and whether important assessments and the overall formulation of the report are appropriately made. We believe that our audit can provide a rational basis for our audit opinions. We believe that the said financial report is compiled in accordance with international standard for financial report and fairly reflected the financial status, operating result and cash flow of the Group as of December 31, 2002 in all of the important aspects. Hong Kong, China XI. Documents for Further Reference 1. Financial Statements carrying signatures and seals of the legal representative, chief accountant and accounting executives. 2. Original Audit Report carrying seals of accountants’ office and signature and 27 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED seal of certified public accountant. 3. All documents published, within this report period, on newspapers designated by China Securities Regulatory Commission. ANHUI GUJING DISTILLERY COMPANY LIMITED Report and Financial Statements for the year ended 31 December 2002 (Prepared under International Financial Reporting Standards) 28 ANHUI GUJING DISTILLERY COMPANY LIMITED REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 (Prepared under International Financial Reporting Standards) CONTENTS PAGE(S) REPORT OF THE AUDITORS 1 CONSOLIDATED INCOME STATEMENT 2 CONSOLIDATED BALANCE SHEET 3 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 4 CONSOLIDATED CASH FLOW STATEMENT 5-6 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 7 – 27 REPORT OF THE AUDITORS TO THE SHAREHOLDERS OF ANHUI GUJING DISTILLERY COMPANY LIMITED (a joint stock limited company incorporated in the People’s Republic of China) We have audited the accompanying consolidated balance sheet of Anhui Gujing Distillery Company Limited and its subsidiaries (collectively referred to as the “Group”) as of 31 December 2002 and the related consolidated statements of income, changes in equity and cash flows for the year then ended. These financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the 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 financial statements present fairly, in all material respects the financial position of the Group as of 31 December 2002 and of the results of its operations and its cash flows for the year then ended, in accordance with International Financial Reporting Standards. Hong Kong, China 2 April 2003 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002 NOTES 2002 2001 RMB’000 RMB’000 Revenue 5 526,034 807,393 Sales taxes (75,273) (118,612) Cost of sales (254,872) (452,367) Gross profit 195,889 236,414 Other operating income 24,562 2,928 Subsidy income 6 14,900 23,140 Distribution costs (49,928) (88,235) Administrative expenses (83,923) (75,146) Other operating expenses (21,856) (2,764) Profit from operations 7 79,644 96,337 Finance costs 8 (2,990) (5,080) Income from investments 9 10,762 15,016 Profit before tax 87,416 106,273 Income tax expense 10 (41,135) (37,790) Profit before minority interests 46,281 68,483 Minority interests 764 231 Net profit for the year 47,045 68,714 Basic earnings per share 11 RMB 0.20 RMB 0.29 2 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2002 NOTES 2002 2001 RMB’000 RMB’000 (Restated) ASSETS Non-current assets Property, plant and equipment 12 432,129 399,036 Land use rights 13 42,185 37,692 Goodwill 14 2,520 3,360 Trademarks and patents 15 19,642 16,897 Investment in associate 17 60,480 60,600 Other investments 1918 100,250 100,250 657,206 617,835 Current assets Inventories 19 569,698 481,942 Trade and other receivables 20 244,380 289,996 Amount due from a related party 31 35 - Bank balances and cash 20 95,521 132,199 909,634 904,137 Total assets 1,566,840 1,521,972 EQUITY AND LIABILITIES Capital and reserves Share capital 21 235,000 235,000 Reserves 22 949,910 949,261 1,184,910 1,184,261 Minority interests 25,836 26,441 Long-term liabilities Bank loan – due after one year 24 44,000 - Current liabilities Trade and other payables 25 200,058 201,756 Income tax liabilities 319 (1,480) Other tax liabilities 26 76,332 86,510 3 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) Amounts due to related parties 31 17,385 484 Short-term bank loans 27 18,000 24,000 312,094 311,270 Total equity and liabilities 1,566,840 1,521,972 4 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2002 Reserves Statutory Statutory Share Capital surplus public welfare Retained Total capital surplus reserve reserve profits reserves Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Restated) (Restated) (Restated) YEAR ENDED 31 DECEMBER 2001 Balance at 1 January 2001 As previously reported 235,000 521,043 61,001 61,001 237,502 880,547 1,115,547 Prior year adjustment (note 4) - - - - 70,500 70,500 70,500 As restated 235,000 521,043 61,001 61,001 308,002 951,047 1,186,047 Net profit for the year - - - - 68,714 68,714 68,714 Appropriations - - 7,935 7,935 (15,870) - - Dividends - - - - (70,500) (70,500) (70,500) Balance at 31 December 2001 235,000 521,043 68,936 68,936 290,346 949,261 1,184,261 YEAR ENDED 31 DECEMBER 2002 Balance at 1 January 2002 As previously reported 235,000 521,043 68,936 68,936 243,346 902,261 1,137,261 Prior year adjustment (note 4) - - - - 47,000 47,000 47,000 As restated 235,000 521,043 68,936 68,936 290,346 949,261 1,184,261 Net profit for the year - - - - 47,045 47,045 47,045 Appropriations - - 4,704 4,704 (9,408) - - Dividends - - - - (47,000) (47,000) (47,000) Other - 604 - - - 604 604 Balance at 31 December 2002 235,000 521,647 73,640 73,640 280,983 949,910 1,184,910 5 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) 6 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002 2002 2001 RMB’000 RMB’000 OPERATING ACTIVITIES Profit from operations 79,644 96,337 Adjustments for: Allowance for doubtful debts 2,763 405 Allowance for inventory obsolescence 13 (871) Depreciation of property, plant and equipment 42,836 33,045 Amortisation of intangible assets 5,914 5,816 Amortisation of goodwill arisen from investment in associate 120 - Loss on disposal of property, plant and equipment 494 882 Operating cash flows before movements in working capital 131,784 135,614 (Increase) decrease in inventories (87,769) 48,218 Decrease in trade and other receivables 42,818 39,424 Decrease in trade and other payables (16,381) (75,730) Cash generated from operations 70,452 147,526 Income taxes paid (39,336) (45,767) Interest paid (2,588) (5,080) Net cash from operating activities 28,528 96,679 INVESTING ACTIVITIES Interest received 762 13,002 Dividends received 10,000 - Purchase of property, plant and equipment (62,623) (17,795) Proceeds from disposal of property, plant and equipment 7,967 4,135 Purchase of intangible assets (12,312) - Acquisition of investment in an associate - (60,600) Acquisition of other investment - (250) 7 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) Proceeds from disposal of trading investments - 40,000 Proceeds from disposal of available-for-sale investments - 1,696 Net cash used in investing activities (56,206) (19,812) (Continued) 8 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002 2002 2001 RMB’000 RMB’000 FINANCING ACTIVITIES Dividends paid (47,000) (70,500) Repayments of borrowings (6,000) - New bank loans raised 44,000 24,000 New loans raised from related parties - 484 Net cash used in financing activities (9,000) (46,016) Net (decrease) increase in cash and cash equivalents (36,678) 30,851 Cash and cash equivalents at beginning of year 132,199 101,348 Cash and cash equivalents at end of year Bank balances and cash 95,521 132,199 9 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 1. GENERAL Anhui Gujing Distillery Company Limited (the “Company”) was incorporated in the People’s Republic of China (the “PRC”) on 30 May 1996 as a joint stock limited company. Its shares are listed on the Shenzhen Stock Exchange. The principal activities of the Company and its subsidiaries (the Group) are the manufacture and sale of distilled spirits, wine, distilling facilities, packaging material, feeds, bottles and computer hardware. The Company’s holding company is Anhui Gujin Group Limited (“AGGL”). As of December 31, 2002, there are 6,003 employees in the Group (2001: 5,248). 2. PRESENTATION OF FINANCIAL STATEMENTS The Company and its subsidiaries maintain their accounting records and prepare their statutory financial statements in accordance with accounting standards and regulations of the People’s Republic of China (“PRC GAAP”). These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). The accounting policies and bases adopted in the preparation of the statutory financial statements differ in certain respects from the IFRS. The differences arising from the restatement of the results of operations and the net assets for compliance with the IFRS are adjusted in the consolidated financial statements but are not taken up in the accounting records of the Company and its subsidiaries. A reconciliation of the Group’s profit and net assets under IFRS and PRC GAAP is set out in note 32. 3. SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are set out below. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and enterprises controlled by the Company (its subsidiaries) made up to 31 December each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee enterprise so as to obtain benefits from its activities. 10 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 3. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED On acquisition, the assets and liabilities of the relevant subsidiaries are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identified net assets acquired is recognised as goodwill. The interest of minority shareholders is stated at the minority’s proportion of the fair values of assets and liabilities recognised. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. When necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those used by other members of the Group. All significant intercompany transactions and balances between group enterprises are eliminated on consolidation. Investment in associates An associate is an enterprise over which the Group is in a position to exercise significant influence, but not control, through participation in the financial and operating policy decisions of the investee. The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Investments in associates are carried in the balance sheet at cost as adjusted by post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual investments. Any excess of the cost of acquisition over the Group’s share of the fair values of the identifiable net assets of the associate at the date of acquisition is recognised as goodwill. Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary or associate at the date of acquisition. Goodwill is recognised as an asset and amortised on a straight-line basis over its estimated useful life. Goodwill arising on the acquisition of an associate is included within the carrying amount of the associate. Goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet. 11 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) On disposal of a subsidiary or associate, the attributable amount of unamortised goodwill is included in the determination of the profit or loss on disposal. 12 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 3. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Revenue recognition Sales of goods are recognised when goods are delivered and title has passed. Interest income is accrued on a time basis by reference to the principal outstanding and at the effective interest rate applicable. Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established. Operating leases Rentals payable by the Group as lessee under operating leases are charged to income on a straight-line basis over the term of the relevant lease. Foreign currencies Transactions in currencies other than RMB are initially recorded at the rates of exchange prevailing on the dates of the transactions. Monetary assets and liabilities denominated in such currencies are retranslated at the rates prevailing on the balance sheet date. Profits and losses arising on exchange are included in net profit or loss for the period. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in net profit or loss in the period in which they are incurred. Subsidy income Subsidy income is recognised when the Group’s right to receive is established. 13 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 3. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Retirement benefit costs The employees of the Group are members of state-managed retirement benefit schemes. Payments made to state-managed retirement benefit schemes are dealt with as defined contribution plans and are charged as expenses as they fall due. Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the 14 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) liability is settled or the asset realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. 15 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 3. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Taxation - continued Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Property, plant and equipment Construction in progress for production, rental or administrative purposes, or for purposes not yet determined, are carried at cost, less any recognised impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Group’s accounting policy. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use. Other property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss. Depreciation is charged so as to write off the cost of property, plant and equipment, other than construction in progress, over their estimated useful lives, using the straight-line method, on the following bases: Buildings 14-18 years Machinery 8-10 years Motor vehicles 8 years Other equipment 8 years The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in income. Land use rights Land use rights are measured at cost and amortised on a straight-line basis over their estimated useful lives. Trademarks and patents Trademarks and patents are measured initially at purchase cost and are amortised on a straight-line basis over their estimated useful lives. 16 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) 17 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 3. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Impairment At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the greater of net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately. Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. 18 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 3. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Financial instruments Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument. Trade receivables Trade receivables are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts. Investments Investments are recognised on a trade-date basis and are initially measured at cost, including transaction costs. At subsequent reporting dates, debt securities that the Group has the expressed intention and ability to hold to maturity (held-to-maturity debt securities) are measured at amortised cost, less any impairment loss recognised to reflect irrecoverable amounts. The annual amortisation of any discount or premium on the acquisition of a held-to-maturity security is aggregated with other investment income receivable over the term of the instrument so that the revenue recognised in each period represents a constant yield on the investment. Investments other than held-to-maturity debt securities are classified as either held-for-trading or available-for-sale, and are measured at subsequent reporting dates at fair value. Where securities are held for trading purposes, gains and losses arising from changes in fair value are included in net profit or loss for the period. For available-for-sale investments, gains and losses arising from changes in fair value are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the net profit or loss for the period. Bank borrowings Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption, are accounted for on an accrual basis and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Trade payables 19 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) Trade payables are stated at their nominal value. 20 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 3. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Financial instruments - continued Equity instruments Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. 4. PRIOR YEAR ADJUSTMENT In previous year, dividends were recognised as liabilities upon proposal for shareholders approval by directors. This treatment is not in accordance with the requirements set out in International Accounting Standards No.10 “Events after balance sheet date”, which requires such dividends to be recognised as liabilities upon approval by shareholders. Since these dividends were approved by the shareholders after the balance sheet date, they should be recognised as liabilities in the year in which they were approved. This treatment is adjusted retrospectively. The cumulative effect of the above matter is RMB 47,000,000, and the effects on the financial statements are summarised below: Retained profits RMB’000 At 1 January 2001 Before prior year adjustment 237,502 Dividends 70,500 After prior year adjustment 308,002 At 1 January 2002 Before prior year adjustment 243,346 Dividends 47,000 After prior year adjustment 290,346 5. REVENUE An analysis of the Group’s revenue is as follows: 20002002 19992001 RMB’000 RMB’000 21 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) Sales of distilled spirit and wine 490,328 742,082 Others 35,706 65,311 526,034 807,393 The Group conducts the majority of its business activities in China and operates one business segment. 22 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 6. SUBSIDY INCOME The subsidy income in 2002 represents financial subsidy received from Bozhou Finance Bureau in order to compensate for the negative impact from changes of market with tight competition and tax policies. The subsidy income in 2001 represented the financial subsidy received from Bozhou Municipal Government in order to compensate for the Company’s short fall in operating results due to imposition of additional consumption tax calculated according to quantity of distilled spirit sales. 7. PROFIT FROM OPERATIONS Profit from operations has been arrived at after charging: 20002002 19992001 RMB’000 RMB’000 Net foreign exchange losses 33 - Staff costs 85,417 81,997 Depreciation and amortisation - Property, plant and equipment 42,836 33,045 - Land use right 1,319 1,221 - Goodwill 840 840 - Trademarks 3,755 3,755 48,750 38,861 Except for property, plant and equipment, all depreciation and amortisation are charged to administrative expenses. Depreciation of property, plant and equipment is charged to cost of sales (RMB 25,447,000) and administrative expenses (RMB 17,389,000). 8. FINANCE COSTS 20002002 19992001 RMB’000 RMB’000 Interest on bank loans 2,990 5,080 23 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 9. INCOME FROM INVESTMENTS 20002002 19992001 RMB’000 RMB’000 Dividends from other investments 10,000 - Interest on bank deposits 762 1,858 Interest on balance due from AGGL - 11,144 Profit on disposal of trading investments - 2,014 10,762 15,016 10. INCOME TAX EXPENSE 20002002 19992001 RMB’000 RMB’000 Enterprise income tax Current year 28,135 37,790 Underprovision in previous years 13,000 - 41,135 37,790 PRC enterprise income tax is calculated at 33% on the estimated assessable profit for the year. The charge for the year can be reconciled to the profit per the income statement as follows: 2002 2001 RMB’000 % RMB’000 % Profit before tax 87,416 106,273 Tax at tax rate of 33% 28,847 33 35,070 33 Tax effect of expenses that are not deductible in determining taxable profit 7,505 8 10,754 10 Tax effect of income that is not taxable in determining taxable profit - subsidy income (4,917) (6) (7,636) (7) - dividend income (3,300) (3) - - 24 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) - others - - (398) (1) (8,217) (9) (8,034) (8) 28,135 32 37,790 35 25 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 10. INCOME TAX EXPENSE - CONTINUED As of 31 December 2002, a subsidiary of the Company has accumulated losses of approximately RMB 25,766,000 (2001: RMB 21,447,000), for which no deferred tax assets is recognised on the balance sheet as it is uncertain that sufficient taxable profits will be available against which the deferred tax assets can be utilised. 11. EARNINGS PER SHARE The calculation of basic earnings per share was based on the profit after taxation and minority interests of approximately RMB 47,045,000 (2001: RMB 68,714,000) divided by the number of shares outstanding during the year of 235,000,000 shares (2001: 235,000,000 shares). The diluted earnings per share was not presented because no dilutive potential ordinary shares existed during the year. 12. PROPERTY, PLANT AND EQUIPMENT Construction Motor Other in progress Buildings Machinery vehicles equipment Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Cost At 1 January 2002 11,379 372,042 157,261 15,792 33,921 590,395 Reclassification - (10,369) 9,937 158 274 - Additions 59,911 178 12,428 1,765 10,108 84,390 Transferred from construction in progress (53,401) 15,386 37,540 191 284 - Disposals - (206) (14,875) (932) (537) (16,550) At 31 December 2002 17,889 377,031 202,291 16,974 44,050 658,235 Accumulated Deprecation At 1 January 2002 - 121,527 53,755 7,848 8,229 191,359 Reclassification - 179 1,645 (2,009) 185 - Charge for the year - 20,137 17,470 1,955 3,274 42,836 Disposals - (56) (7,050) (676) (307) (8,089) At 31 December 2002 - 141,787 65,820 7,118 11,381 226,106 Carrying Amount At 31 December 2002 17,889 235,244 136,471 9,856 32,669 432,129 At 31 December 2001 11,379 250,515 103,506 7,944 25,692 399,036 26 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) The Group has pledged buildings having a carrying amount of approximately RMB 20 million (2001: RMB 26 million) to secure short-term bank loans granted to the Group. 27 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 13. LAND USE RIGHTS 20002002 19992001 RMB’000 RMB’000 Cost At 1 January 43,864 43,864 Additions 5,812 - At 31 December 49,676 43,864 Amortisation At 1 January 6,172 4,951 Charge for the year 1,319 1,221 At 31 December 7,491 6,172 Carrying Amount At 31 December 42,185 37,692 The Group has pledged land use rights having a carrying amount of approximately RMB 3 million (2001: RMB 3.3 million) to secure short-term bank loans granted to the Group. 14. GOODWILL 20002002 19992001 RMB’000 RMB’000 Gross Amount At 1 January and 31 December 4,200 4,200 Amortisation At 1 January 840 - Charge for the year 840 840 At 31 December 1,680 840 Carrying Amount At 31 December 2,520 3,360 Goodwill is amortised over its estimated useful life of 5 years. The foreseeable life of the goodwill arising on past acquisition is 5 years. 28 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 15. TRADEMARKS AND PATENTS 20002002 19992001 RMB’000 RMB’000 Cost At 1 January 37,550 37,550 Additions 6,500 - At 31 December 44,050 37,550 Amortisation At 1 January 20,653 16,898 Charge for the year 3,755 3,755 At 31 December 24,408 20,653 Carrying Amount At 31 December 19,642 16,897 Trademarks are amortised over their estimated useful lives, which are on average 10 years. Patents are amortised over their estimated useful lives, which are on average 5 years. 16. SUBSIDIARIES Details of the Company’s subsidiaries at 31 December 2002 are as follows: Place of Proportion of registration ownership interest Name of subsidiary and operation and voting power held Principal activity Bozhou Gujing Sales Company Bozhou Anhui, 100% Provision of trading PRC services to the Company Bozhou Gujing Transport Bozhou Anhui, 100% Provision of transportation Company PRC services to the Company Bozhou Gujing Glass Co., Ltd. Bozhou Anhui, 100% Manufacture and sale PRC of glass products Anhui Gujing Double Happiness Xiaoxian Anhui, 80% Manufacture and sale Wine Co., Ltd. PRC of wine and other beverages 29 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) Xiaoxian Gujing Double Xiaoxian Anhui, 64% Provision of trading service Happiness Wine Sales PRC of wine and beverages Company Anhui Gujing Waste Bozhou Anhui, 100% Colled and sale of Recycle Co., Ltd. PRC recycled bottle glasses Anhui Old Big Eight Bozhou Anhui, 93% Sale of wine and Distillery Co., Ltd. PRC other products Beijing Winward Beijing, PRC 70% Sales and development of Technology Co., Ltd. computer hardware, software and assessors 30 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 17. INVESTMENT IN ASSOCIATE 20002002 19992001 RMB’000 RMB’000 Cost of investment 60,600 60,600 Amortisation of goodwill (120) - 60,480 60,600 Goodwill is amortised over its estimated useful life. The foreseeable life of the goodwill arising on past acquisitions is 5 years. Details of the Group’s associate at 31 December 2002 are as follows: Place of Proportion Name of incorporation of ownership interest Principal associate and operation and voting power held activity Shenzhen China PRC 20% Investment in Science Merchants high-tech Investment Co., Ltd. industries 18. OTHER INVESTMENTS 20002002 19992001 RMB’000 RMB’000 Unlisted shares 100,250 100,250 Details of the Group’s major other investments at 31 December 2002 is as follows: Place of registration Proportion of Name of Company and operation ownership interest Principal activity Hua An Securities PRC 5.87% Brokerage and Co., Ltd. trading of securities The directors consider that the carrying amount of unlisted shares approximates their fair value. 31 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 19. INVENTORIES 20002002 19992001 RMB’000 RMB’000 Raw materials and packaging materials 166,936 95,453 Work-in-process and semi-finished goods 331,370 299,290 Finished goods 69,383 85,509 Low value consumables 2,009 1,690 569,698 481,942 Included in the inventories, an amount of RMB 26,967,000 (2001: RMB 17,700,000) was carried at net realisable value. 20. OTHER FINANCIAL ASSETS Trade and other receivables at the balance sheet date comprise amounts receivable from the sale of goods of RMB 128 million (2001: RMB 137 million). The average credit period taken on sales of goods is 90 days. An allowance has been made for estimated irrecoverable amounts from the sale of goods of RMB 8 million (2001: RMB 4 million). This allowance has been determined by reference to past default experience. The directors consider that the carrying amount of trade and other receivables approximates their fair value. Bank balances and cash comprise cash and short-term deposits held for treasury function. The carrying amount of these assets approximates their fair value. Credit risks The Group’s credit risk is primarily attributable to its trade and other receivables. The amounts presented in the balance sheet are net of allowances for doubtful receivables, estimated by the Group’s management based on prior experience and their assessment of the current economic environment. The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers. The credit risk on liquid funds is limited because the counterparties are approved banks and financial institutes in the PRC. 32 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 21. SHARE CAPITAL As of 31 December 2002, the details of share capital (par value of RMB 1 each) are as follows: 2002 and 2001 Number of Amount shares(’000) (RMB’000) Registered, issued and fully paid: State-owned shares of RMB 1 each 155,000 155,000 A shares of RMB 1 each 20,000 20,000 B shares of RMB 1 each 60,000 60,000 235,000 235,000 All the shares rank pari pssu with each other in all respects except that A shares and B shares are both listed on the Shenzhen Stock Exchange but state-owned shares are unlisted. 22. RESERVES (a) Reserves of the Group include capital surplus, statutory surplus reserve, discretionary surplus reserve and statutory public welfare reserve, which form part of shareholders’ equity. Capital surplus Capital surplus principally represents excess of the deemed cost of the net assets injected into the Company on its formation in 1996 over nominal par value of issued capital received when the Company issued state shares. Statutory surplus reserve / Discretionary surplus reserve In accordance with relevant PRC company laws and regulations and the Company’s Articles of Association, the Company is required to appropriate 10% of its profit after taxation reported in its statutory financial statements prepared under the PRC GAAP to the statutory surplus reserve. Allocation to a discretionary surplus reserve shall be approved by the shareholders in general meeting. The appropriation of statutory surplus reserve may cease to apply if the balance of the statutory surplus reserve has reached 50% of the Company’s registered capital. Surplus reserves may be used to make up losses or for conversion into share capital. The Company may, upon the approval by a resolution of shareholders’ general meeting, convert its surplus reserves into share capital by issuing new shares to existing shareholders in proportion to their 33 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) original shareholdings or by increasing the nominal value of each share. However, when converting the Company’s statutory surplus reserve into share capital, the amount of such reserve remaining unconverted must not be less than 25% of the registered capital. 34 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 22. OTHER RESERVES - continued (a) Reserves of the Group include capital surplus, statutory surplus reserve, discretionary surplus reserve and statutory public welfare reserve, which form part of shareholders’ equity. - continued Statutory public welfare reserve In accordance with relevant PRC Company laws and regulations and the Company’s Articles of Association, the Company is required to appropriate 5% to 10% of the profit after tax as reported in its statutory financial statements prepared under the PRC GAAP to the statutory public welfare reserve. The statutory public welfare reserve shall only apply to collective welfare of staff and workers and welfare facilities remain as properties of the Group. The statutory public welfare reserve is non-distributable. When the statutory public welfare reserve is utilized, an amount equal to the cost of the assets acquired is transferred to discretionary surplus reserve. On disposal of the relevant asset, the original transfers from the reserve are reversed. There is no utilisation during the year (2001: Nil). (b) Basis for profit distribution In accordance with the Company’s Articles of Association, profit available for distribution to shareholders should be based on the lower of the amount determined in accordance with the PRC accounting standards and regulations and that determined under IFRS after deduction of the current year’s appropriation to the statutory reserves. The retained profits carried forward available for distribution to shareholders as at 31 December 2002 based on the IFRS financial statements, amounted to approximately RMB 280,983,000. 23. DIVIDENDS In accordance with the Company’s Articles of Association, dividend appropriation shall be determined based on the lower of the unappropriated profits determined under the accounting principles and financial regulations applicable in the PRC and that determined under IFRS. Pursuant to a resolution of board of directors dated 2 April 2003, the board of directors of the Company proposed to distribute a cash dividend of RMB 0.1 (2001: 0.2) per share, which are subject to the approval by shareholders at the shareholders’ meeting. 35 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 24. BANK LOAN – DUE AFTER ONE YEAR 2002 2001 RMB’000 RMB’000 Bank loan 44,000 - The above bank loan is denominated in RMB and bears interest rate of 5.58% per annum. It is guaranteed by AGGL and is wholly repayable in September 2007. The directors consider that the carrying amount of the bank loan approximates their fair value. 25. OTHER FINANCIAL LIABILITIES Trade and other payables comprise amounts outstanding for trade purchase and ongoing costs. The directors consider that the carrying amount of trade and other payables approximates their fair value. 26. other tax liabilities 20002002 19992001 RMB’000 RMB’000 Consumable tax 60,216 55,300 Value added tax 12,446 19,481 Business tax 823 109 City maintained tax 2,843 11,623 Others 4 (3) 76,332 86,510 27. SHORT-TERM BANK LOANS 2002 2001 RMB’000 RMB’000 Short-term bank loans 18,000 24,000 The above bank loans are denominated in RMB and have a weighted average interest rate of 36 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) 4.779% (2001: 5.85%) per annum. The loans are secured by certain buildings and land use rights of the Group (see notes 12 and 13). The directors consider that the carrying amount of the bank loans approximates their fair value. 37 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 28. CAPITAL COMMITMENTS 2002 2001 RMB’000 RMB’000 Commitments for the acquisition of property, plant and equipment, but not provided in the financial statements 6,861 - 29. OPERATING LEASE ARRANGEMENTS 2002 2001 RMB’000 RMB’000 Minimum lease payments paid under operating leases recognised in income for the period 1,493 1,018 At the balance sheet date, the Group had outstanding commitments under non-cancellable operating leases, which fall due as follows: 2002 2001 RMB’000 RMB’000 Within one year 1,493 1,018 In the second to fifth year inclusive 666 2,159 2,159 3,177 Operating lease payments represent rentals payable by the Group for certain of its office premises. Leases are negotiated for an average term of three years and rentals are fixed for an average term of five year. 30. RETIREMENT BENEFITS PLANS Defined contribution plans The employees of the Group are members of a state-managed retirement benefit scheme operated by the local government. The Group is required to contribute a specified percentage of the payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the Group with respect to the retirement benefit scheme is to make the specified contributions. 38 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) The total cost charged to income of approximately RMB 3.8 million (2001: RMB 3.7 million) represents contributions payable to the scheme by the Group at rates specified in the rules of the scheme. 39 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 31. RELATED PARTY TRANSACTIONS (a) Name of related party and relationship Name Relationship AGGL Parent company Anhui Gujing Service Company Ltd. Subsidiary of AGGL Bozhou Zhenlihenbao Company Ltd. Subsidiary of AGGL Gujing Tianshi Printing Company Ltd. Subsidiary of AGGL (b) Significant transactions with related parties Significant related party transactions are as follows: 20002002 19992001 RMB’000 RMB’000 Anhui Gujing Service Company Ltd. 6,068 6,865 Bozhou Zhenlihenbao Company Ltd. 247 3,769 Gujing Tianshi Printing Company Ltd. 14,624 18,166 20,939 28,800 Interest income received from AGGL - 11,144 Payment of service fees to AGGL 6,000 6,000 Pursuant to an agreement, the Group should pay service fees amounting to RMB 6,000,000 annually to AGGL from 1 January 2000 for the facilities provided by AGGL. (b) Significant transactions with related parties – continued As of 31 December 2002: 20002002 19992001 RMB’000 RMB’000 Due from related party Gujing Tianshi Printing Company Ltd. 35 - Due to related parties AGGL 13,760 484 Anhui Gujing Service Company Ltd. 2,457 - Gujing Tianshi Printing Company Ltd. 1,146 - 40 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) Bozhou Zhenlihenbao Company Ltd. 22 - 17,385 484 The amount due to AGGL is unsecured and has no fixed repayment date. 41 Anhui Gujing Distillery Company Limited Annual Report 2002 (B Share) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 32. IMPACT OF IFRS ADJUSTMENTS ON PROFIT AFTER TAXATION AND MINORITY INTERESTS AND NET ASSETS Profit after taxation and minority interests Net assets 2002 2001 2002 2001 RMB’000 RMB’000 RMB’000 RMB’000 As reported in the statutory financial statements of the Group 47,045 67,047 1,161,410 1,137,261 Proposed dividends - - 23,500 47,000 Adjustment for fixed asset depreciation - 1,667 - - As restated for the Group to IFRS 47,045 68,714 1,184,910 1,184,261 33. POST BALANCE SHEET EVENT In accordance with a resolution passed in a Directors’ Meeting dated 2 April 2003, the Company plans to sell its entire 80% equity interest in Auhui Gujing Double Happiness Wine Co., Ltd. to AGGL at a consideration of RMB 17.43 million. The planned disposal is not expected to give rise to any significant gain or loss arising from the disposal. 34. APPROVAL OF THE FINANCIAL STATEMENTS The financial statements were approved by the board of directors on 2 April 2003. * * * THE END * * * 42