武锅B退(200770)武锅Ｂ2002年年度报告（英文版）

WUHAN BOILER COMPANY LIMITED 2002 ANNUAL REPORT March 28, 2003 Contents Ⅰ. Important Notes------------------------------------------------------------------------------ Ⅱ. Company Profile----------------------------------------------------------------------------- Ⅲ. Summary of Financial Highlight and Business Highlight--------------------------- Ⅳ. Changes in Share Capital and Particulars about Shareholders -------------------- Ⅴ. Particulars about Directors, Supe rvisors and Senior Executives and Employees------------------------------------------------------------------------------------------ Ⅵ. Administrative Structure------------------------------------------------------------------ Ⅶ. Brief Introduction to the Shareholders’ General Meeting ------------------------- Ⅷ. Report of the Board of Directors -------------------------------------------------------- Ⅸ. Report of the Supervisory Committee-------------------------------------------------- Ⅹ. Significant Events--------------------------------------------------------------------------- Ⅺ. Financial Report----------------------------------------------------------------------------- Ⅻ. Documents for Reference------------------------------------------------------------------ 2 SECTION I IMPORTANT NOTES Board of Directors of Wuhan Boiler Co., Ltd. (hereinafter referred to as the Company) and its directors individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions nor errors which would render any statement misleading. Wuhan Zhonghuan Certified Public Accountants and PricewaterhouseCoopers (China) Certified Public Accountants audited the financial report of the Company and issued domestic unqualified Auditors’ Report and international unqualified Auditors’ Report for the Company respectively. Chairman of the Board of the Company Mr. Chen Bohu, General Manager and concurrently Chief Financial Supervisor Mr. Xiang Rongwei and Person in Charge of Accounting Ms. Qin Shanlan hereby confirm that the Financial Report of Annual Report is true and complete. 3 SECTION II COMPANY PROFILE 1. Legal Name of the Company In Chinese: 武汉锅炉股份有限公司 In English: WUHAN BOILER COMPANY LIMITED (abbr.: WBC) 2. Legal Representative: Chen Bohu 3. Secretary of the Board of Directors: Liu Chengxiang Authorized Representative in Charge of Securities Affairs: Xu Youlan Liaison Address: No. 586, Wuluo Road, Wuhan, Hubei Liaison Tel: (86) 27-87652719 Liaison Fax: (86) 27-87655152 E-mail: wbgchw@public.wh.hb.cn 4. Registered Address and Office Address: No. 586, Wuluo Road, Wuhan, Hubei Post Code: 430070 Internet Web Site: Http://www.wbcl.com.cn E-mail: wbgchw@public.wh.hb.cn 5. Newspapers Chosen for Disclosing the Information of the Company: Securities Times (Domestic), Ta Kung Pao (Overseas) Internet Website for Publishing the Annual Report: http://www.cninfo.com.cn Place Where the Annual Report is Prepared and Placed: Securities Department of the Company 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: WUGUO – B Stock Code: 200770 7. Other Information of the Company Initial registered date: On Apr.8, 1998, the Company was formally incorporated. Initial registered place: No. 586, Wuluo Road, Wuhan, Hubei New registered date: on Nov. 16, 1998, the Company changed the registration with Bureau of Administration for Industry and Commerce of Hubei Provincial as a Sino-foreign joint-stock limited company. New registered place: No. 586, Wuluo Road, Wuhan, Hubei Registered number of enterprise legal person’s business license: QGEZ Zi No.: 002591 Registered number of taxation: 420106271756432 The Certified Public Accountants engaged by the Company: Domestic: Wuhan Zhonghuan Certified Public Accountants Address: 16/F, Block B, Wuhan International Mansion Overseas: PricewaterhouseCoopers (China) Certified Public Accountants Address: Post Box 1448, New York, U.S.A. SECTION III. SUMMARY OF FINANCIAL HIGHLIGHTS AND BUSINESS HIGHLIGHTS (I) Major accounting data as of the year 2002 Unit: In RMB Total profit 33,218,397.19 Net profit 20,140,959.02 4 Net profit after deducting non-recurring gains and losses 20,581,849.16 Profit from main business lines 134,984,482.59 Profit from other business lines 4,570,352.86 Operating profit 33,413,138.39 Investment income 1,434,230.11 Subsidy income 0 Net income / expenses from non-operating -1,628,971.31 Net cash flows arising from operating activities 157,179,842.77 Net increase / decrease of cash and cash equivalents 308,487,057.45 Note: Item of deducting non-recurring gains and losses and the relevant amount (Unit: In RMB) Profit and loss of current assets 182,190.63 Profit and loss of share equity of investee companies 468,330.00 Net income /expenses from non-operating -1,091,410.78 Total -440,890.14 The net profit is RMB 21,915,000 million as audited by PricewaterhouseCoopers (China) Certified Public Accountants under International Accounting Standards (“IAS”). The impact on the PRC statutory financial statements after adjustment based on IAS and others is as follows: Dec. 31, 2002 Net profit Net assets (RMB’000) (RMB’000) As reported by PRC statutory financial statements 20,141 512,756 - Declared cash dividend after balance sheet date 10,395 Writing off long-term investment revaluation increment (2,229) Deferred tax 1,771 2,579 Others 3 2 As restated after IAS and other adjustments 21,915 523,503 Note: The reason of discrepancy is due to the deferred income tax arsing from temporary discrepancy. (II) Financial indexes over previous three years ended the report period 1. The following data were calculated based on the consolidated accounting statement Unit: In RMB Items 2002 2001 2000 Income from core business 630,500,780.63 404,267,135.91 251,209,679.89 Net profit 20,140,959.02 18,010,499.03 12,584,918.96 Total assets 1,740,339,336.03 1,276,848,449.24 974,949,559.72 Shareholders’ equity (excluding 512,756,336.56 503,010,377.54 492,419,073.12 minority interest) Earnings per share 0.068 0.061 0.0424 Earnings per share (monthly weighted 0.068 0.061 0.0424 average) Earnings per share after deducting 0.069 0.051 0.0455 non-recurring gains and losses Net assets per share 1.726 1.694 1.658 Net assets per share after adjustment 1.632 1.6677 1.606 Net cash flows per share arising from 0.53 0.247 0.0455 operating activities Return on equity (%) 3.93% 3.581% 2.556% 5 2. In accordance with Regulations on the Information Disclosure of Companies Publicly Issuing Shares (No. 9) released by CSRC, return on equity and earning per share as of the year 2002 are calculated based on the method of fully diluted and weighted average are as follows: Supplementary of profit statement as of report period Return on equity (%) Earnings per share (RMB) Profit as of the report period Fully WeightedFully dilutedWeighted average diluted average Profit from main business lines 26.33 26.31 0.45 0.45 Operating profit 6.52 6.51 0.11 0.11 Net profit 3.93 3.93 0.07 0.07 Net profit after deducting non-recurring 4.01 4.01 0.07 0.07 gains and losses (III) Particulars about changes in shareholders’ equity and the reasons during the report period (Unit: In RMB) Share Capital public Surplus public Statutory public Retained Total reserve reserve welfare fund profit Items capital shareholder s’ equity Amount at the 297,000,000 149,674,951.34 15,666,491.00 7,833,245.50 40,668,935.20 503,010,377.54 period-begin Increase in this report 0 0 4,445,613.18 2,222,806.59 20,140,959.02 24,586,572.20 period Decrease in this report 0 0 0 0 14,840,613.18 14,840,613.18 period Amount at the 297,000,000 149,674,951.34 20,112,104.18 10,056,052.09 45,969,281.04 512,756,336.56 year-period Distribution of Distribution of Increase o Increase of profit profit f profit profit IV. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS (I) Changes in Share Capital Unit: In Share Increase / decrease in this time (+ / -) Before the Allotme Bonus Capitalization Other After the Sub- change nt of of public change share s total share reserve I. Unlisted shares 1. Promoters’ shares Including: State-owned shares Domestic legal person’s shares 172000000 172000000 Foreign legal person’s shares Others 2. Raised legal person’s shares 3. Employees’ shares 4. Preference shares or others Total unlisted shares 172000000 172000000 II. Listed shares 1. RMB ordinary shares 2. Domestically listed foreign shares 125000000 125000000 3. Overseas listed foreign shares 4. Others Total listed shares 125000000 125000000 III. Total shares 297000000 297000000 (II) Issuance and listing of share 6 1. On March 20, 1998, the Company placed 125,000,000 domestically listed foreign shares (B shares) to foreign investors at the issuing price of HKD 1.496 per share. The shares were listed in Shenzhen Stock Exchange for trade on April 15, 1998 with the stock code as 200770. 2. In the report period, there are no changes in the total number of share and structure of share capital of the Company. 3. About profit distribution On July 10, 2002, the Company distrib uted cash dividend to all shareholders at the rate of RMB 0.25 (tax included) for every 10 shares and amounted to RMB 7.425 million. (III) About shareholders 1. Ended Dec. 31, 2002, the Company had totally 20,844 shareholders, including 1 promoter shareho lder, namely Wuhan Boiler Group Co., Ltd; 20,843 shareholders of domestically listed foreign shares. 2. Particulars about shares held by the principal shareholders Ended Dec. 31, 2002, the top ten shareholders holding share of the Company are as follows: Holding Increase Proportio Shares at the / n in total No. Name of shareholders Pledged or frozen Type of share period-end decrease shares (share) (+,-) (%) WUHAN BOILER GROUP CO., 91,400,600 shares Domestic legal 1 172,000,000 0 57.9 LTD were frozen person’s share 2,300,000 0 0.77 Circulation 2 MULTI-NATIONAL CO., LTD. share BEST RELIANCE 636,600 60,800 0.21 Circulation 3 INVESTMENTS LTD share 622,700 51,100 0.21 Circulation 4 CHEN QIAN FEN share 620,000 -567,353 0.21 Circulation 5 LI BINLI share TUNK KIN METAL WORKS 465,305 465,305 0.16 Circulation 6 LTD share 450,000 0 0.15 Circulation 7 WANG YAN GUANG share 431,100 431,100 0.15 Circulation 8 WU FAT SANG share 382,755 382,755 0.13 Circulation 9 CUI KAI share 378,601 378,601 0.13 Circulation 10 YAN CHI PING share Note: On Aug. 6, 2002, Shanghai Municipality Higher People’s Court unfrozen 10 million shares of the Company. Presently, 91,400,600 shares were still frozen. Among the top ten shareholders of the Company, Wuhan Boiler Group Co., Ltd., the first largest shareholder of the Company, held non-circulation shares, and shares held by it remained unchanged in the report period; the rest nine shareholders, social public shareholders, held circulation shares, and the change of shares held by them was due to the transaction of the Company’s shares in the secondary market in the report period. Among the top ten shareholders of the Company, there exists no association 7 relationship between Wuhan Boiler Group Co., Ltd. and the other shareholders of circulation share, and it doesn’t belong to the consistent actionist regulated by the Management Regulation of Information Disclosure on Change of Shareholding for Listed Company with the other shareholders. The Company is not aware of their associated relationship among the other shareholders of circulation share, whether belongs to the consistent actionist regulated by the Management Regulation of Information Disclosure on Change of Shareholding for Listed Company. 3. The controlling shareholder Wuhan Boiler Group Co., Ltd. (“the Group Company”) was the controlling shareholder of the Company, as well as the only shareholder holding over 10% of total shares of the Company. Ended Dec. 31, 2002, the Group Company held 172 million shares of the Company, taking 57.9% of total shares. The Group Company was founded on Aug. 8, 1995, whose legal representative is Mr. Huang Jiang; registered capital is RMB 90.596 million; registered number of enterprise legal person’s business license: 4201001100902; registered place: No. 586 of Wuluo Road, Wuhan, Hubei; business scope: invest and operate the state assets based on the authorization for operation and management; development, design and whole set installing of boiler, pressure vessels and related mechanical and electrical products, and the import and export businesses subject to state for approval; truck transportation; (including the business scope of the subsidiaries) (For the projects as specified by state, the Company can only do the businesses subject to the authorization). Wuhan Boiler Group Co., Ltd., the state-owned sole corporation, is wholly-owned subsidiary company of Wuhan State-owned Assets Regulatory Committee, which took the capital operating and assets management as its primary task. IV. PARTICULARS ABOUT DIRECTORS, SUPERVISORS, SENIOR EXECUTIVES AND EMPLOYEES (I) Directors, supervisors and senior executives Holding share at Holding share at Name Gender Age Title Office term the period-begin the period-end (share) (share) Chen Bohu Male 39 Chairman of the Board Apr. 2001-Apr. 2004 0 0 Xiang Rongwei Male 49 Director, General Manager Apr. 2001-Apr. 2004 0 0 Li Jun Male 44 Director Apr. 2001-Apr. 2004 0 0 Chen Helin Male 53 Director Apr. 2001-Apr. 2004 0 0 Jin Taozhi Female 53 Director Apr. 2001-Apr. 2004 0 0 Liu Chengxiang Male 54 Director, Secretary of the Apr. 2001-Apr. 2004 0 0 Board Wang Zongjun Male 39 Independent Director Apr. 2001-Apr. 2004 0 0 Zhou Maorong Male 57 Independent Director Apr. 2001-Apr. 2004 0 0 Li Donghui Male 35 Independent Director Apr. 2001-Apr. 2004 0 0 Zhang Haiqing Male 53 Convener of the Supervisor Apr. 2001-Apr. 2004 0 0 Committee Wang Haili Male 48 Supervisor Apr. 2001-Apr. 2004 0 0 Zeng Xianping Male 53 Supervisor Apr. 2001-Apr. 2004 0 0 Bai Xixin Male 39 Deputy General Manager Apr. 2001-Apr. 2004 0 0 Hua Lixin Male 38 Deputy General Manager Apr. 2001-Apr. 2004 0 0 Jin Zhicheng Male 43 Deputy General Manager Apr. 2001-Apr. 2004 0 0 Pei Hanhua Male 43 Deputy General Manager Apr. 2001-Apr. 2004 0 0 Notes: (1) Directors, supervisors and senior executives of the Company didn’t hold the share of the Company. (2) The controlling shareholder of the Company is Wuhan Boiler Group Co., Ltd.. 8 Supervisor of the Company Mr. Zeng Xianping took the post of deputy chief accountant of Wuhan Boiler Group Co., Ltd.. The other directors, supervisors and senior executives of the Company had no position in the Shareholding Company. (II) Particulars about the payment received by directors, supervisors and senior executives 1.The Board of Directors determined the payment of directors, supervisors and senior executives based on the wage distribution system and the merit system of economic duty. The wage distribution system implemented in 2002 comprised mainly the position and skill wage; the monthly bonus was determined according to the merit system of economic duty and the completion of various economic indexes and technical targets monthly, and the annual bonus was determined based on the completion of various economic indexes and technical targets yearly. 2. The total amount and range of annual payment There were 11 directors, supervisors and senior executives drew the annual payment from the Company, and the total annual payment drew by them was RMB 347,000. The total payment of the top three directors drawing the highest payment was RMB 122,000, and the total payment of the top three senior executives drawing the highest payment was RMB 90,000. The range of annual salary: RMB 40,000 to RMB 50,000 2 persons RMB 30,000 to RMB 40,000 6 persons RMB 15,000 to RMB 30,000 3 persons 3. Directors, supervisors and senior executives received no pay from the Company Independent Director: Wang Zongjun, Zhou Maorong and Li Donghui Supervisor: Wang Haili and Zeng Xianping (III) Particulars about change in directors, supervisor and senior executives in the report period In the report period, directors, supervisors and senior executives of the Company remained unchanged. (IV) About employees The Company had totally 2766 employees at the end of the report period; the specific information is as follows: Profession/occupation composition: Items Number of person Proportion (%) Production personnel 2061 74.5 Engineers and technicians 417 15.0 Management personnel in a specific field 232 8.4 Administration personnel 56 2.1 Total 2766 100 Education Background: Items Number of person Proportion (%) Undergraduate or above 245 8.9 3-year regular college graduate 652 23.6 Senior high school (including technical 1313 47.5 secondary school and technical school) Junior high school or lower 556 20.0 9 Total 2766 100 Note: At present, the Company had no retiree. The decrease of employees is due to the expiration of employee’s labor contract. SECTION VI COMPANY ADMINISTRATION STRUCTURE (I) Company Administration Strictly according to Company Law, Securities Law, Rules of Listing in Shenzhen Stock Exchange, Rules of Listed Companies’ Administration and other relevant laws and regulations, the Company consummated consistently legal person administration structure of the Company and standardized the Company’s operation. In the report period, according to the documents on companies’ administration promulgated by CSRC, the Company researched and amended Articles of Association, set up the documents on companies’ administration such as Detailed Rules For Work of the Stratagem Committee of the Board of Directors, Detailed Rules For Work of the Audit Committee of the Board of Directors, Detailed Rules For Work of the Nomination Committee of the Board of Directors, ensured the scientific and effective decision- makings by the Board of Directors and further improved the Company’s administration. (II) Implementation of duties of independent directors In the report period, the Company has 3 independent directors in accordance with the requirement of Guide Opinion on Establishing Modern Enterprise System in Listed Companies promulgated by CSRC. The independent directors of the Company implemented patie ntly their duties, checked patiently the investment items and significant events examined by the Board of Directors, consulted and heard actively the opinions of the directors, supervisors and senior executives, expressed independent opinions in the meetings of the Board of Directors and performed a good and active function. Independent director, Mr. Zhou Maorong participated in the study in the 1st Training Class For Independent Directors of Listed Companies organized by Shenzhen Stock Exchange. (III) Separation from the control shareholder in personal, assets, financing, organization and business. The Company has independent personal, financing, organization and business and complete assets compared with the control shareholder, Wuhan Boiler Group Co., Ltd. The Company conducted settlement and undertook responsibilities and risks independently. In respect of personal, the Company established independent labor, personal and salary management system. Senior executives of the Company had full time jobs and received salaries in the Company and there existed no part-time job in the control shareholder. Appointing and removing of personal was conducted strictly according to Company Law and Articles of Association. In respect of assets, the relationship of property right between the Company and the control shareholders is clear and there existed no occupation by control shareholder in terms of assets, capital and other resources. In respect of financing, the Company established independent financing and accounting department and financial settlement system and financial management system, made financing decision independently, conducted upright management of the subsidiaries’ financing according to the requirement of strict accounting system of listed companies. The Company had independent bank account and paid tax 10 independently according to law. In respect of organization, the establishment of organization was independent, integral, and the Company possessed the good efficiency and mechanism of operation; the duties of every organization were clear; the establishment and operation of administration structure of legal person was strictly in accordance with Articles of Association; the production operation and the administration management was completely separate from the control shareholders. The Company has established organization in accordance with the demand of self-development. In respect of business, the Company has independent, integral business and the ability of self-operation. The Company has independent systems of purchase, sale and production, and can complete purchase, production, and sale through our own system of purchase, production and sale. There is no competition relationship in the same industry between the Company and the control shareholder. (IV). Evaluation and encouragement mechanism of senior executives For the purpose of long-term development, the Company established the mechanism of evaluation for senior executives in 2002 and principally evaluated the duties’ implementation and achievement of operation and management based on the evaluation standard of operation aim and settlement plan. The Company sticks to the personal concept of Based on Personal and Getting Together Excellent Personal, amended again the encouragement system such as Detailed Rules of Work of General Manager for senior executives of the Company and standardized all management system. At present, the Company is exploring actively new personal management style, the personal management scope of “Post Duties, Achievement Evaluation, Remuneration Management” will be conducted in the Company. SECTION VII BRIEF INTRODUCTION OF SHAREHOLDERS’ GENERAL MEETING (I) Notification, calling and holding of the Shareholders’ General Meeting In the report period, the Company held 2001 Annual Shareholders’ General Meeting on May 17, 2002 and the time and address of holding, the items examined in the meeting and other events was published on Securities Times and Ta Kung Pao as public notice dated May 18, 2002. 2001 Annual Shareholders’ General Meeting was held in the 2/F meeting room of the Company. Total 5 shareholders and proxies attended the meeting, representing 172,000,000 state-owned legal person shares (domestic shares) and 14,000 B shares in circulation (foreign shares), taking 57.92% of the company's total share capital, which was in conformity with the Company Law of People Republic of China and Articles of Association. The meeting was presided by Chairman of the Board, Mr. Chen Bohu and all directors attended the meeting. The meeting formed the following resolutions by signed votes. 1.Examined and approved 2001 Annual Report and its Summary; 2.Examined and approved 2001 Work Report of the Board of Directors; 3.Examined and approved 2001 Work Report of the Supervisory Committee; 4.Examined and approved 2001 Financial Report; 5.Examined and approved 2001 Profit Distribution Preplan; 6.Examined and approved 2002 Profit Distribution Policy; 7.Examined and approved Rules of Procedure of the Shareholders’ General Meeting; 8.Examined and approved Rules of Procedure of the Board of Directors; 9.Examined and approved Rules of Procedure of the Supervisory Committee; 11 10.Examined and approved System of Independent Directors; 11.Examined and approved Proposal on Reengaging Wuhan Zhonghuan Certified Public Accountants Co., Ltd. and PricewaterhouseCoopers (China) Certified Public Accountants as the Audit Organization of the Company in 2002 and Their Reward; 12.Examined and approved Proposal on Prolonging A Half Year’s Period of Validity of Application for Reissuing RMB Common Share to Public in 2001. The Shareholders’ General Meeting was witnessed and issued legal opinion file by Layer Peng Bo of Hubei Tianyuan Brother Law Firms who considered that the procedure of calling and holding was in conformity with Company Law, Articles of Association and Criterion Opinion of the Shareholders’ General Meeting of Public Companies. The resolutions were published on Securities Times and Ta Kung Pao dated May 18, 2002. (II) Election and change of the directors and supervisors of the Company In the report period, there was no change on the directors and supervisors of the Company. SECTION VIII REPORT OF THE BOARD OF DIRECTORS I. Events with significant influence on the Company in the report period According to the relevant regulations of Ministry of Finance, listed companies no longer enjoyed the preference policy of income tax of levying 33% first and then returning 18% by local finance in terms of corporation income tax commencing from the year of 2002. From Jan. 1, 2002, the Company implemented the rate of corporation income tax of 33%. Facing the new situation of adjustment of preference policy of income tax, the Company brought forward the development thinking of focusing the heart on development, implementing the internal expansion, orientation of three grades and interaction in multi-sides and took varied kinds of means to control cost and increase benefits, which accomplished the operation objectives of the whole year in a comparatively good way and kept the sustainable and stable development of the Company. II. Operation of the Company (1) Scope of principal business and its operation The Company is mainly engaged in the development, production and sales of power station boilers, special boilers, desulfuration equipments and other pressure vessels as well as auxiliary equipments. In the report period, under the correct decision- making of the Board of Directors and the collective efforts of the whole employees, the operation status of the Company was good and kept a sustainable and stable state of healthy development. In the report year, the Company realized an income from principal business of RMB 630,500,780.63, an increase of 55.96% compared with the previous year, a profit from principal business of RMB 134,984,482.59, an increase of 64.55% compared with the previous year and a net profit of RMB 20,140,959.02, an increase of 11.83% compared with the previous year. 1. Distribution of the principal business classified according to industry Industry Income from principal Profit from principal business business Machinery Manufacturing RMB 630,500,780.63 RMB 134,984,482.59 The Company belongs to the industry of machinery manufacturing that provides 12 special equipments for energy and environmental protection industries. 2. Distribution of principal business classified according to area Area Income from Proportion in income Profit from Proportion in principal from principal principal profit from business business business principal business North area RMB 57.1% RMB 57.6% 360,151,245.93 77,697,173.40 South area RMB 42.9% RMB 42.4% 270,349,534.70 57,287,309.19 Total RMB 100% RMB 100% 630,500,780.63 134,984,482.59 3. Distribution of principal business classified according to product Product Income from Proportion in income Profit from Proportion in profit principal from principal business principal from principal business business business Boiler RMB 100% RMB 100% 630,500,780.63 134,984,482.5 9 4. Briefs about main products Product Market share Sales income Sales cost Gross profit rate Boiler 15% RMB 630,500,780.63 RMB 21.41% 495,516,298.04 (2) Operation and achievement of major holding companies and share-holding companies In the report period, the Company totally had two holding companies, namely Wuhan Special Boiler Whole Set Equipment Co., Ltd. (hereinafter referred to as “ Special Boiler Company) and Wuhan Lanxiang Energy and Environmental Protection Science and Technology Co., Ltd. (hereinafter referred to as “ Lanxiang Company”). The basic situation and operating achievement of these two holding companies was as follows: 1. Special Boiler Company The registered capital of Special Boiler Company is RMB 11.68 million and the Company holds 90% of its equity. The business scope of this company includes: contract of various projects and sales of whole set equipments and auxiliary equipments of various boilers. In the report period, the total amount of assets of this company was RMB 56,610,000 and the income from principal business was RMB 37,260,000 with the net profit of RMB 1,320,000. 2. Lanxiang Company The registered capital of Lanxiang Company is RMB 20 million and the Company holds 70% of its equity. The business scope of this company includes: technology research, design, technology consultation and technology service of boilers, energy and environmental protection products, steel structure, heat energy products and its auxiliary equipments, sales of development products and contract and technology service (The special-purpose projects of the state is to be operated subject to examination and approval) of energy projects (non- land-construction projects). In the report period, the total amount of assets of the Company was RMB 25,600,000 and the income from principal business was RMB 5,760,000 with the net profit of RMB 1,290,000. The Company had no constituent company, share- holding company and other joint 13 venture companies. III. Major suppliers and customers The total purchase amount of the top five suppliers of the Company was RMB 163,470,000, taking 61.61% of the total annual amount of purchase of the Company and the total purchase amount of the top five customers was RMB 322,860,000, taking 53.14% of the total annual amount of sales of the Company. IV. Problems and difficulties arising from the operation and solutions Catching the opportunity in the market of power equipments provided by the important strategy of “ Development in the west” and “ Western power sent to the east” in the planning of “ 10th Five-year Plan” of the country, by right of its advantage of traditional competition in the western market, the Company expanded the market boldly and occupied the market actively, thus gained comparatively large market share. In 2002, the Company achieved historical breakthrough in the production and operation, but also faced some difficulties: 1. Since the suppliers of raw material of boiler changed their marketing strategy and required to take goods while paying the accounts, but most of the users of boiler continued to use the way of payment of 1.8.1, which made the funds circulate hardly and made the financial cost increase. 2. The order cycle of boiler users was shortened. To meet the delivery requirements of the users, on one hand the internal overtime of the Company increased, which made the cost of man-hour enhance, on the other hand partial groupware was contracted to other corporations, which made the cost increase. Aiming at the aforesaid existing problems, the Company adopted the following measures: 1. To strengthen the organization and collaboratio n of the production, establish more thorough production task plan and capital mix plan and reinforce the cooperation with concerted effort of every department and production unit in order to increase the level of input and output and realize the objectives of production and operation. 2. To reinforce the management of the Company, especially the purchase of raw material. To implement batch purchase of comparative price and partial shipment, decrease the occupation of circulating funds and control the purchase cost of raw material so as to enhance the operation benefits. 3. To further strengthen the capital management, increase the use efficiency of capital and develop the credit relationship with bank in order to raise credit funds and safeguard the capital demand of the production and operation. V. Investment of the Company in the report period 1. In the report period, the Company had no proceeds raised through share offering or the application of proceeds raised through previous share offering continued to the report period. 2. Investment of proceeds not raised through share offering In the report period, the Company invested and established Wuhan Lanxiang Energy and Environmental Protection Science and Technology Co., Ltd. with its self-owned capital of RMB 14 million. The procedures of commercial and industrial registration and taxation registration of this company were completed on June 26, 2002 with a registered capital of RMB 20 million. The registration number of the corporation’s legal person’s business license was: 4201001102912 and the registration address was: No. 586, Wuluo Road, Wuchang District, Wuhan City. The business scope of this 14 company is: technology research, design, technology consultation and technology service of boilers, energy and environmental protection products, steel structure, heat energy products and its auxiliary equipments, sales of development products and contract and technology service (The special-purpose projects of the state is to be operated subject to examination and approval) of energy projects (non- land-construction projects). The Company holds 70% of its equity. The details of the aforesaid investment were disclosed in the Securities Times and Ta Kung Pao dated Feb.25, 2002. In the report period, the main operation of Wuhan Lanxiang Energy and Environmental Protection Science and Technology Co., Ltd. was: Since the procedures of commercial and industrial registration and taxation registration were completed on June 26, 2002, this company realized an income from principal business of RMB 5,760,000, a profit from principal business of RMB 1,320,000 and a net profit of RMB 1,290,000 in the report period. VI. Financial status of the Company Unit: RMB Items Dec. 31, 2002 Dec. 31, 2001 Increase/decrease (%) Total assets 1,740,339,336.03 1,276,848,449.24 36.3% Shareholders’ equity 512,756,336.56 503,010,377.54 1.94% In 2002 In 2001 Increase/decrease (%) Profit from principal 134,984,482.59 82,033,984.96 64.5% business Net profit 20,140,959.02 18,010,499.03 11.8% Net increase in cash and 308,487,057.45 41,116,518.56 650.3% cash equivalents Explanation of reason of change of financial status: 1. The increase of total assets was mainly due to the expansion of scale of production and operation 2. The increase of shareholders’ equity was mainly due to the increase of net profit. 3. The increase of profit from principal business was mainly due to the increase of sales income. 4. The increase of net profit was mainly due to the increase of sales income and the control of cost and expenditure. 5. The increase of net increase in cash and cash equivalents was mainly due to the increase of volume of purchase order resulting in the recovery of payment for goods. VII. Business thinking of 2003 The general work thinking of the Company of 2003 is: To study and implement the spirit of “ The 16th NCCPC” in depth, make the satisfaction of the users’ demand as the core and deepen the reform of system of recruitment, property right system and distribution system. To reinforce the management of objectives cost, technology innovation and production and operation etc. and quicken the structural adjustment. To strengthen the construction of corporation culture with the team spirit as the emphasis and realize the over-routine development of the Company. The main measures are as follows: 1. To recognize the situation and establish the confidence. The current development trend of domestic economy pushes us to quicken the development and to do according to the situation is the best time and strategy of the corporation. Since the prosperity index of the industry of electric power increased as a whole, the good situation of distribution ensures that the sales income of the Company increases by degrees year after year, thus the whole employees are confident with the development prosperity of 15 the Company. 2. To deepen the reform of system of recruitment, property right and distribution. 3. To reinforce the management of objectives cost and do the basic management work well. 4. To raise money through various financing channels in order to meet the capital demand of the whole development of the Company. 5. To quicken the structural and strategic adjustment. 6. To strengthen the construction of team spirit of corporation and reinforce the core competitiveness of corporation. VIII. Routine work of the Board of Directors 1. Holding, resolution and information disclosure of the meetings of the Board of Directors in the report period In the report period, the Board of Directors of the Company totally held 6 meetings with the details as follows: 1) On Feb. 10, 2002, the 4th Meeting of the 2nd Board of Directors was held in the Conference Room of the Company. 9 Directors should be present and actually 9 attended the Meeting. The members of the Supervisory Committee and Senior Executives attended the Meeting as nonvoting delegates, which was in accordance with the regulation of Company Law and Articles of Association. The Chairman of the Board of Directors Mr. Chen Bohu presided at the Meeting and the following resolutions were approved after discussed fully by the present Directors: (1) Proposal on Investment and Establishment of Wuhan Lanxiang Energy Environmental Protection Science and Technology Co., Ltd (preparation) The public notice of the resolution of the Meeting was published on Securities Times and Ta Kung Pao dated Feb. 25, 2002. 2) On April 7, 2002, the 5th Meeting of the 2nd Board of Directors was held in the Conference Room of the Company. 9 Directors should be present and actually 9 attended the Meeting, including 3 Independent Directors. 3 Supervisors attended the Meeting as nonvoting delegates, which was in compliance with the regulations of Company Law and Articles of Association. The Chairman of the Board of Directors Mr. Chen Bohu presided at the Meeting and the following resolutions were examined and approved in the Meeting: (1) 2001 Work Report and 2002 Work Plan (2) 2001 Annual Report and its Summary (3) 2001 Work Report of the Board of Directors (4) 2001 Financial Report (5) 2001 Profit Distribution Preplan (6) 2002 Profit Distribution Policy (7) Rules of Procedure of Shareholders’ General Meeting (8) Rules of Procedure of the Board of Directors (9) Rules of Procedure of the Supervisory Committee (10) System of Independent Director (11) Proposal on Renewal of Wuhan Zhonghuan Certified Public Accountants Ltd. and PriceWaterhouseCoopers China Co., Ltd. as Auditors of 2002 and Their Remuneration (12) Proposal on the Extension of Half a Year of Period of Validity of Proposal of Application of Public Raising and Additional Issuance of RMB Ordinary Share in 2001 (13) Proposal on Requesting of Holding 2001 Shareholders’ General Meeting 16 The public notices of resolutions of the Meeting were published in Securities Times and Ta Kung Pao dated April 10, 2002. 3) On April 24, 2002, the 6th Meeting of the 2nd Board of Directors was held in the Conference Room of the Company. 9 Directors should be present and actually 8 attended the Meeting including 2 Independent Directors. One Independent Director went on errands due to work. 2 Supervisors attended the Meeting as nonvoting delegates, which was in compliance with the regulations of Company Law and Articles of Association. The Chairman of the Board of Directors Mr. Chen Bohu presided at the Meeting and the following resolution was examined and approved in the Meeting: (1) The 1st Quarter Report of 2002 The public notice of resolution of the Meeting was published in Securities Times and Ta Kung Pao dated April 26, 2002. 4) On July 26, 2002, the 7th Meeting of 2nd Board of Directors was held in the Conference Room of the Company. 9 Directors should be present and actually 9 Directors attended the Meeting, including 3 Independent Directors. 2 Supervisors attended the Meeting as nonvoting delegates, which was in accordance with the regulations of Company Law and Articles of Association. The Chairman of the Board of Directors Mr. Chen Bohu presided at the Meeting and the following resolution was examined and approved in the Meeting: (1) 2002 Semi-annual Report and its Summary The public notice of resolution of the Meeting was published on Securities Times and Ta Kung Pao dated July 31, 2002. 5) On Oct. 25, 2002, the 8th Meeting of the 2nd Board of Directors was held in the Conference Room of the Company. 9 Directors should be present and actually 8 attended the Meeting, including 2 Independent Directors. One Independent Director went on errands due to the work. 3 Supervisors attended the Meeting as nonvoting delegates, which was in compliance with the regulations of Company Law and Articles of Association. The Chairman of the Board of Directors Mr. Chen Bohu presided at the Meeting and the following resolution was examined and approved in the Meeting: (1) The 3rd Quarter Report of 2002 The public notice of resolution of the Meeting was published on Securities Times and Ta Kung Pao dated Oct. 29, 2002. 6) On Dec. 5, 2002, the 9th Meeting of the 2nd Board of Directors was held by means of communication. 9 Directors should be present and 9 attended the Meeting, including 3 Independent Directors, which was in compliance with Company Law and Articles of Association. The following resolutions were examined and approved in the Meeting: (1) Proposal on the Extension of One Year More of Period of Validity Within Half a Year After the Approval Date of Shareholders’ General Meeting of Proposal of Application of Public Raising and Additional Issuance of RMB Ordinary Share in 2001 Approved by 2001 Shareholders’ General Meeting (2) Proposal on Requesting of Holding the 1st Extraordinary Shareholders’ General Meeting of 2003 The public notices the resolutions of the Meeting were published in Securities Times and Ta Kung Pao dated Dec. 6, 2002. 17 2. Implementation of the resolutions of Shareholders’ General Meeting by the Board of Directors In the report period, according to the requirements of the relevant laws and regulations and the resolutions and authorization of Shareholders’ General Meeting, the Board of Directors seriously implemented the relevant resolutions approved by Shareholders’ General Meeting with the details as follows: 1. The Board of Directors organized and implemented the profit distribution plan as of 2001. The Company published Public Notice on 2001 Profit Distribution of Wuhan Boiler Co., Ltd. on Securities Times and Ta Kung Pao dated June 27, 2002. This plan had been completed on July 10, 2002. 2. Proposal on the Extension of Half a Year of Period of Validity of Proposal of Application of Public Raising and Additional Issuance of RMB Ordinary Share in 2001, examined and approved in 2001 Shareholders’ General Meeting was under reporting and examination. IX. Profit distribution plan of this year and estimated profit distribution policy of 2003 1. 2002 profit distribution plan Audited by Wuhan Zhonghuan Certified Public Accountants Ltd. as per Chinese Accounting Standards and PriceWaterhouseCoopers China Co., Ltd. as per International Accounting Standards, the net profit of the Company in 2002 was RMB 20,140,959.02 and RMB 21,915,000 respectively. 10% of the net profit was appropriated as statutory public reserve amounting to RMB 2,222,806.59 and another 10% of the net profit was appropriated as statutory welfare fund amounting to RMB 2,222,806.59. The undistributed profit of 2001 was RMB 40,668,935.21 and the distributable profit of this year was RMB 56,364,281.04. Based on the total share capital of 297 million shares by Dec. 31, 2002, the Company planned to distribute cash dividend to all shareholders at the rate of cash RMB 0.35 (tax included) for every 10 shares. The total distributed profit was RMB 10,395,000.00, and the balance of undistributed profit of RMB 45,969,281.04 was carried down to the next year for distribution. The conversion of capital public reserve into share capital would not be carried out in the report year. This preplan should be submitted to 2002 Shareholders’ General Meeting for examination. 2. The estimated profit distribution policy of 2003 The proportion of net profit realized in 2003 and undistributed profit of 2002 used for dividend distribution is 15-30% and the way of distribution in profit distribution plan of 2003 is mainly in cash dividend. The detailed implementation should be subject to examination and approval of Shareholders’ General Meeting submitted by the Board of Directors in the form of distribution preplan. The Board of Directors reserves the right of adjustment to this policy according to the actual situation of the Company. SECTION IX REPORT OF THE SUPERVISORY COMMITTEE (I) Work of the Supervisory Committee in the report period In 2002, according to Company Law, Securities Law and Articles of Association, in the spirit of being responsible for all shareholders, the Supervisory Committee implemented its duties patiently and performed the function of supervision. The Supervisory Committee totally held 5 meetings, examined annual report, interim report, quarter report and relevant proposals, supervised over the procedure of decision- making of the Board of Directors, urged the legal operation of the Board of 18 Directors and operation and management team and ensured the normative operation of the Company’s financing. (II) Holding, resolutions and information disclosure of the Supervisory Committee in the report period In the report period, the Supervisory Committee totally held 5 meetings and the name, holding, resolutions and information disclosure of all meetings were as follows: 1.The 2nd meeting of the 2nd Supervisory Committee was held in the meeting room of the Company on Apr.7, 2002. All three supervisors should be present attended the meeting in conformity with Company Law and Articles of Association. The meeting was presided by the caller of the Supervisory Committee, Mr. Zhang Haiqing. The meeting examined and approved the following resolutions: (1) Examined and approved 2001 Work Report of the Supervisory Committee (2) Examined and approved 2001 Annual Report and Summary (3) Examined and approved 2001 Financial Report (4) The procedure of the proposals including 2001 Profit Distribution Preplan, 2002 Profit Distribution Policy, Proposal on Rules of Procedure of the Shareholders’ General Meeting, Proposal on Rules of Procedure of the Board of Directors, Proposal on Rules of Procedure of the Supervisory Committee, Proposal on System of Independent Directors, Proposal on Reengaging Wuhan Zhonghuan Certified Pub lic Accountants Co., Ltd. and PricewaterhouseCoopers (China) Certified Public Accountants as the Audit Organization of the Company in 2002 and its Reward, Proposal on Prolonging A Half Year’s Period of Validity of Application for Reissuing RMB Common Share to Public in 2001 and Proposal on Holding 2001 Annual Shareholders’ General Meeting is legal. The resolutions of the Supervisory Committee were published on Securities Times and Ta Kung Pao dated Apr.10, 2002. 2.The 3rd meeting of the 2nd Supervisory Committee was held in the meeting room of the Company on Apr.24, 2002. 3 supervisors should be present, two of them attended the meeting and one of them went aboard due to business in conformity with Company Law and Articles of Association. The meeting was presided by the caller of the Supervisory Committee, Mr. Zhang Haiqing. The meeting examined and approved the following resolutions: (1) The 1st Quarter Report of the Company in 2002 The resolution of the meeting of the Supervisory Committee was published on Securities Times and Ta Kung Pao dated Apr.26, 2002. 3.The 4th meeting of the 2nd Supervisory Committee was held in the meeting room of the Company on July 26, 2002. 3 supervisors should be present, two of them attended the meeting and one of them was on business journey in conformity with Company Law and Articles of Association. The meeting was presided by the caller of the Supervisory Committee, Mr. Zhang Haiqing. The meeting examined and approved the following resolutions: (1) Examined and approved Semi Annual Report and Summary of the year 2002 The of the Supervisory Committee was published on Securities Times and Ta Kung Pao dated July 31, 2002. 4.The 5th meeting of the 2nd Supervisory Committee was held in the meeting room of the Company on Oct.25, 2002. All three supervisors should be present attended the meeting in conformity with Company Law and Articles of Association. The meeting was presided by the caller of the Supervisory Committee, Mr. Zhang Haiqing. The meeting examined and approved the following resolutions: (1) The 3rd Quarter Report of the Company in 2002. 19 The resolution of the meeting of the Supervisory Committee was published on Securities Times and Ta Kung Pao dated Oct.29, 2002. 5.The 6th meeting of the 2nd Supervisory Committee was held by communication on Dec.5, 2002. All three supervisors should be present attended the meeting in conformity with Company Law and Articles of Association. The meeting examined and approved the following resolutions: (1) The procedure of the proposals such as Proposal on Prolonging A Half Year’s Period of Validity Since the Approval of the Board of Directors about Application for Reissuing RMB Common Share to Public in 2001 approved by 2001 Shareholders’ General Meeting and Proposal on Application for Holding the 1st Extraordinary Shareholders’ General Meeting in 2003 was legal. The resolution of the meeting of the Supervisory Committee was published on Securities Times and Ta Kung Pao dated Dec.6, 2002. (III) Operation according to laws According to relevant laws and regulations, the Supervisory Committee of the Company supervised over the procedure of holding the Shareholders’ General Meeting and the Board of Directors, resolution events, implementation of the resolutions of the Shareholders’ General Meeting by the Board of Directors, implementation of duties of senior executives and management system of the Company and considered that the Board of Directors operated normatively strictly according to Company Law, Securities Law, Rules of Listing, Articles of Association and other relevant laws and regulations, worked in a patient and responsible way, make scientific and reasonable decision-makings, further perfected the internal management and internal control system and established internal control mechanism. There found no activities of breaking laws, regulations and Articles of Association of the Company or harmful of the interest of the Company when Chairman of the Board, directors, managers and senior executives implemented their duties. (IV) Inspection of the Company’s financing The Supervisory Committee periodically checked the financing system and financing status of the Company and considered that 2002 financial report reflected truly the financing status and operation result of the Company. The audit opinion issued and assessment on relevant events made by Wuhan Zhonghuan Certified Public Accountants Co., Ltd. and PricewaterhouseCoopers (China) Certified Public Accountants is impersonal and just. (V) Inspection of use of raised capital of the Company In the latest three years (including the report year), the Company has no activities of raising capital. (VI) Related transactions of purchase and sale of assets In the report period, the Company has no related transactions of purchase and sale of assets. (VII) Inspection of related transactions The price of the related transactions occurred in the Company was reasonable and fair and not harmful of the interest of listed company. SECTION X IMPORTANT EVENTS (I) Significant lawsuits and arbitration 20 In the report period, the Company has no significant lawsuits and arbitration. (II) Purchase and sale of assets, consolidation and merge of assets In the report period, the Company has no purchase and sale of assets, consolidation and merge of assets. (III) Related transactions 1.Relation of related parties (1) Related party with control relationship Registered Relation with Company Legal Name of company Main business address the Company type representative Technology development, design and The parent State-owned Wuhan Boiler No.586, Wuluo manufacture of company limited Huang Jiang Group Co., Ltd. Road, Wuhan boiler, pressure of the company vessels and related Company mechanical and electrical products (2) Registered capital of related party with control relation and its change (3) Amount at the Increase in this Decrease in this Amount at the Name of company year-beginning year year year-end Wuhan Boiler 90,596,000.00 90,596,000.00 Group Co., Ltd. (4) Shares (equity) held by related party with control relationship and the change (5) Name of Amount at the year-begin Increase in this year Decrease in this year Amount at the year-end enterprise Amount % Amount % Amount % Amount % Wuhan Boiler 172,000,000.00 57.91 172,000,000.00 57.91 Group Co., Ltd. (6) Related Parties with no Control Relationship Name of companies Relationship with the Company Wuhan Boiler (Group) Valve Manufacture Co., Ltd. controlled by Wuhan Boiler Group Wuhan Boiler (Group) Boyu Complementary Mechanism of controlled by Wuhan Boiler Group Electronic Station Co., Ltd. Wuhan Boiler (Group) Yuntong Co., Ltd. controlled by Wuhan Boiler Group Wuhan Boiler (Group) Boiler Installation Co. controlled by Wuhan Boiler Group Wuhan Boiler (Group) Accessory Manufacture Co., Ltd. controlled by Wuhan Boiler Group Wuhan Boiler (Group) Equipment Parts of Electronic Station Co., controlled by Wuhan Boiler Group Ltd. Wuhan Chengxin Boiler Automatic Control Equipment Co., Ltd. controlled by Wuhan Boiler Group Wuhan Jiangxia Real Estate Company controlled by Wuhan Boiler Group 2. Related Transaction (1) Purchasing of goods The details of acquirement of the components and accessories from following related parties based on the cost price (Unit: RMB’0000) Name of Company Amounts of 2002 Amounts of 2001 Wuhan Boiler (Group) Valve Manufacture Co., Ltd. 1,794.21 160.99 Wuhan Boiler (Group) Boyu Complementary 601.73 Mechanism of Electronic Station Co., Ltd. Wuhan Boiler (Group) Equipment Parts of 134.52 Electronic Station Co., Ltd. 21 Electronic Station Co., Ltd. Wuhan Boiler (Group) Accessory Manufacture Co., 59.63 794.56 Ltd. Wuhan Chengxin Boiler Automatic Control 95.60 Equipment Co., Ltd. Total 2,685.69 955.55 (2) Sale of goods Details of sale of goods to related parties in 2002 and 2001 (Unit: In RMB) 2002 2001 Name of Company Amounts Proportion in the Amounts Proportion in the sale of goods (%) sale of goods (%) Wuhan Boiler Group Co ., Ltd. 12,708,586.70 Wuhan Boiler (Group) Valve 138.82 Manufacture Co., Ltd. 2.02 25,779,276.54 6.58 Wuhan Boiler (Group) Boyu Complementary Mechanism of 206.52 Electronic Station Co., Ltd. Total 12,708,932.04 2.09 25,779,276.54 6.58 (3) The balance of receivable and payable of related parties Balance at the year-end Items 2002 2001 Accounts receivable: Wuhan Boiler Group Co., Ltd. 46,272,996.00 3,581,600.00 Other receivable: Wuhan Boiler (Group) Equipment Parts of Electronic Station 407,507.50 Co., Ltd. Accounts payable: Wuhan Boiler (Group) Boyu Complementary 120,453.77 Mechanism of Electronic Station Co., Ltd. Wuhan Boiler (Group) Boiler Installation Co. 4,941.50 Wuhan Boiler (Group) Valve Manufacture Co., Ltd. 9,086,199.00 Accounts prepaid: Wuhan Boiler (Group) Boyu Complementary 1,476,992.00 Mechanism of Electronic Station Co., Ltd. Wuhan Boiler (Group) Boiler Installation Co. 151,314.00 Wuhan Boiler (Group) Accessory Manufacture Co., 18,644,355.00 Ltd. Wuhan Boiler (Group) Equipment Parts of Electronic 516,428.23 Station Co., Ltd. Wuhan Chengxin Boiler Automatic Control Equipment 2,114,700.00 Co., Ltd. Other payable: Wuhan Boiler Group Co., Ltd. 23,339,667.49 10,328,703.98 Wuhan Boiler (Group) Valve Manufacture Co., Ltd. 322,455.00 Wuhan Boiler (Group) Yuntong Co., Ltd. 3,102,297.99 3,081,053.38 (4). The Guarantee and pledge of the Company offered by the related parties Wuhan Boiler Group Co., Ltd. offered the guarantee for the short-term loans of RMB 236,620,200.00 of the Company. Wuhan Boiler Group Co., Ltd. offered the pledge for the short-term loans of RMB 43,700,000.00 of the Company. (5).Transportation services offered by the related company 22 Wuhan Boiler (Group) Yuntong Co., Ltd. offered the transportation services for the Company, the transportation expense this year and last year was respectively RMB 4,400,000RMB 3,000,000. (6) The Company transferred the accounts receivable RMB 2,379,286.62 to the related party Wuhan Boiler Group Co., Ltd. by means of the book value. (7) The Company rent the land for production of Wuhan Boiler Group Co., Ltd., and the amounts of rent for the year was RMB 1,452,000.00. (8) The Company received the expense of offices and use of vehicle amounting to RMB 2,000,000 from Wuhan Boiler Group Co., Ltd. (9) Wuhan Jiangxia Real Estate Company pledged for the short-term loan of RMB 5,000,000.00 of the Company as its real estate. (IV) Significant contracts and implementation 1.In the report period, neither the Company has entrusted, contracted or leased other companies’ assets nor other companies have entrusted, contracted or leased the Company’s assets. 2.In the report period, the Company has no contracts with guarantee for others. 3.In the report period, the Company has not entrusted others to conduct cash assets management. 4.In the report period, the Company has no significant contracts. (V) In the report period, the Company and the shareholders holding over 5% equity have no commitment items published on non-designated newspapers, magazines and web sites. (VI) Engagement, disengagement of certified public accouants In the report period, the Company continued to engage Wuhan Zhonghuan Certified Public Accountants Co., Ltd. and PricewaterhouseCoopers (China) Co., Ltd. as the audit organization. The reward the Company paid to the certified public accountants in the latest two years is as follows: Annual audit fee of financial report 2002 2001 Overseas: PricewaterhouseCoopers (China) USD USD 75,000 Certified Public Accountants Domestic: Wuhan Zhonghuan Certified RMB RMB 500,000 Public Accountants Co., Ltd. The expense of food and accommodation, business journey, communication, copy and etc. in the process of the audit by Wuhan Zhonghuan Certified Public Accountants Co., Ltd. and PricewaterhouseCoopers (China) Certified Public Accountants is undertaken by themselves. The Company has no unpaid expense that should be paid to the certified public accountants by the end of the year. Wuhan Zhonghuan Certified Public Accountants Co., Ltd. and PricewaterhouseCoopers (China) Certified Public Accountants has provided consistently audit service for the Company for 5 accounting years including the report period. (VII) Being checked and punishment In the report period, there was no administration punishment, public criticism, public condemn of the Exchange Stock by the CSRC within the Company, Board of Director, Directors, senior executives. (VIII) Other significant events of the Company in the report period 23 SECTION XI FINANCIAL REPORT 1.Auditor’s Report WUHAN BOILER COMPANY LIMITED (Incorporated in the People’s Republic of China with limited liability) CONSOLIDATED FINANCIAL STATEMENTS AND INTERNATIONAL AUDITORS’ REPORT FOR THE YEAR ENDED 31 DECEMBER 2002 International Auditors’ Report To the shareholders of Wuhan Boiler Company Limited (Incorporated in the People’s Republic of China with limited liability) We have audited the accompanying consolidated balance sheet of Wuhan Boiler Company Limited (the “Company”) and its subsidiaries (the “Group”) as at 31 December 2002 and the related consolidated income and cash flow statements for the year then ended. These consolidated financial statements set out on pages 2 to 29 are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our aud it 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 management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2002 and of the consolidated results of its operations and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards. PricewaterhouseCoopers 15 March 2003 24 WUHAN BOILER COMPANY LIMITED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002 2002 2001 Notes RMB’000 RMB’000 Sales 3 630,501 404,268 Cost of sales (496,999) (322,182) Gross profit 133,502 82,086 Other operating income/(expenses), net 3,257 (436) Selling expenses (15,875) (12,482) Administrative expenses (68,719) (41,021) Operating profit 4 52,165 28,147 Finance costs, net 6 (18,950) (4,835) Operating profit 33,215 23,312 Income tax 7 (10,789) (4,161) Profit from ordinary activities after tax 22,426 19,151 Minority interests (511) (88) Net profit 21,915 19,063 Basic and diluted earnings per share 8 RMB0.074 RMB0.064 25 WUHAN BOILER COMPANY LIMITED CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2002 2002 2001 Notes RMB’000 RMB’000 ASSETS Non-current assets Prepaid lease 3,838 3,988 Property, plant and equipment 9 171,163 181,954 Construction in progress 10 5,114 3,100 Intangible assets 11 21,682 26,211 Available-for-sale investment 12 15,937 32,337 Deferred tax assets 13 2,579 808 220,313 248,398 Current assets Inventories 14 76,879 111,648 Due from contract customers 15 307,363 334,706 Accounts receivable 16 285,117 123,181 Amount due from parent company 23 20,580 - Amounts due from fellow subsidiaries 17 26,340 13,589 Other receivables, deposits and 18 79,805 118,844 Prepaid income tax - 362 Cash and bank balances 19 501,268 192,781 1,297,352 895,111 Total assets 1,517,665 1,143,509 SHAREHOLDERS’ EQUITY Share capital 20 297,000 297,000 Reserves 21 226,503 212,013 Total shareholders’ equity 523,503 509,013 Minority interests 22 7,580 1,069 LIABILITIES Non-current liabilities Borrowings 26 13,333 - Current liabilities Due to contract customers 15 35,050 1,208 Bills payable 165,703 96,839 Accounts payable 192,739 225,383 Amount due to parent company 23 - 6,747 Amounts due to fellow subsidiaries 24 8,757 ４，７１４ Deposits received from customers 111,204 27,670 Other payables and accrued charges 25 64,440 58,636 Borrowings 26 383,341 212,230 Income tax payable 12,015 - Total current liabilities 973,249 633,427 Total liabilities 986,582 633,427 Total equity and liabilities 1,517,665 1,143,509 26 WUHAN BOILER COMPANY LIMITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2002 Reserves Statutory Statutory Share Capital Share surplus public Retained capital reserve premium reserve funds welfare funds earnings Total (Note 20) (Note 21(a)) (Note 21(a)) (Note 21(b)) (Note 21(b)) (Note 21(c)) RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Year ended 31 December 2001 Balance at 1 January 2001 297,000 89,890 54,741 6,088 6,088 42,083 495,890 Adjustment arising from restatement of retained earnings of statutory books * - - - (131) (131) 262 - Restated balance at 1 January 2001 297,000 89,890 54,741 5,957 5,957 42,345 495,890 Net profit - - - - - 19,063 19,063 Dividends (Note 21 (d)) - - - - - (5,940) (5,940) Transfer from retained earnings to other reserves - - - 1,876 1,876 (3,752) - Balance at 31 December 2001 297,000 89,890 54,741 7,833 7,833 51,716 509,013 Year ended 31 December 2002 Balance at 1 January 2002 297,000 89,890 54,741 7,833 7,833 51,716 509,013 Net profit - - - - - 21,915 21,915 Dividends (Note 21 (d)) - - - - - (7,425) (7,425) Transfer from retained earnings to other reserves - - - 2,223 2,223 (4,446) - Balance at 31 December 2002 297,000 89,890 54,741 10,056 10,056 61,760 523,503 * Due to the adoption of the Accounting Regulations for Business Enterprises of the People’s Republic of China promulgated by the Ministry of Finance with effect from 1 January 2001, a prior year adjustment to write off the pre-operating expenses of RMB1,312,000 has been made in the PRC statutory financial statements. The adjustment has the after-tax effects of decreasing statutory surplus reserve fund and statutory public welfare reserve fund as at 31 December 2000 by approximately RMB131,000 each and increasing retained earnings as at that date by approximately RMB262,000. 27 WUHAN BOILER COMPANY LIMITED CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002 2002 2001 Notes RMB’000 RMB’000 Cash flows from operating activities Cash generated from operations 27 136,594 97,752 Interest paid (24,604) (14,330) Tax paid (184) (6,851) Net cash from operating activities 111,806 76,571 Cash flows from investing activities Acquisition of a subsidiary, net of cash acquired - (2,263) Purchase of property, plant and equipment (5,126) (20,544) Payments for construction in progress (8,240) (21,095) Proceeds from disposal of property, plant and equipment 10 106 Proceeds from disposal of available -for-sale investment 17,099 - Interest received 8,971 3,532 Dividend received 948 1,201 Net cash from/(used in) investing activities 13,662 (39,063) Cash flows from financing activities Cash injection by minority shareholders 6,000 - Increase in deposits used as collateral (134,861) (9,809) Proceeds from borrowings 543,661 9,549 Repayments of borrowings (359,217) - Dividends paid to group shareholders (7,425) (5,940) Net cash from/(used in) financing activities 48,158 (6,200) Net increase in cash and cash equivalents 173,626 31,308 Cash and cash equivalents at beginning of year 77,052 45,744 Cash and cash equivalents at end of year 19 250,678 77,052 28 WUHAN BOILER COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2002 1. General Wuhan Boiler Company Limited (the “Company”) is a joint stock limited company incorporated in the People’s Republic of China (“PRC”) on 8 April 1998. The Company and its subsidiaries (the "Group") are mainly engaged in the manufacturing and sale of boilers. The Company is listed on the Shenzhen Stock Exchange. 2. Principal accounting policies The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below: (a) Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") including International Accounting Standards and Interpretations issued by the International Accounting Standards Board. This basis of accounting differs from that used in the preparation of the Company's statutory financial statements (“PRC statutory financial statements”). The PRC statutory financial statements of the Company and its subsidiaries comprising the Group have been prepared in accordance with relevant accounting principles and regulations applicable to them, as appropriate in the PRC. Appropriate adjustments have been made to the PRC statutory financial statements to conform with IFRS. Differences arising from the restatement have not been incorporated in the statutory accounting records of the Group. The consolidated financial statements are prepared under the historical cost convention. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current events and actions, actual results ultimately may differ from those estimates. (b) Consolidation Subsidiaries, which are those entities (including Special Purpose Entities) in which the Group has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies are consolidated. The existence and effect of potential voting rights that are presently exercisable or presently convertible are considered when assessing whether the Group controls another entity. 29 2. Accounting policies (Cont’d) (b) Consolidation (Cont’d) Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition plus costs directly attributable to the acquisition. The excess of the cost of acquisition over the fair value of the net assets of the subsidiary acquired is recorded as goodwill. See Note 2(g) for the accounting policy on goodwill. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless cost cannot be recovered. Where necessary, accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the Group. Details of the Group’s subsidiaries are set out in Note 32. (c) Foreign currencies (1) Measurement currency Items included in the financia l statements of each entity in the Group are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity (“the measurement currency”). The consolidated financial statements are presented in Renminbi (“RMB”), which is the measurement currency of the Group. (2) Transactions and balances Transactions denominated in foreign currencies are translated into RMB at the exchange rates stipulated by the People’s Bank of China prevailing on the first day of the month in which the transactions took place. Monetary assets and liabilities denominated in foreign currencies are translated into RMB at the exchange rates quoted by the People’s Bank of China ruling at the balance sheet date. Exchange differences are included in the consolidated income statement. (d) Prepaid lease Prepaid lease represents the cost of acquiring rights to use the transformer substation for the Group’s operations which has been recognised as an expense on a straight-line basis over the expected useful life of 30 years. (e) Property, plant and equipment All property, plant and equipment is stated at historical cost less accumulated depreciation and accumulated impairment losses. 30 2. Accounting policies (Cont’d) (e) Property, plant and equipment (Cont’d) Depreciation is calculated to write off the cost of the assets on a straight-line basis over their expected useful lives, taking into account their estimated residual value. The principal annual rates used are: Plant and office premises 2 – 6.5% Production equipment and machinery 3 – 14% Motor vehicles 16% Furniture, fixtures and office equipment 19 – 24% The gain or loss on disposal of property, plant and equipment is the difference between the net sales proceeds and the carrying amount of the relevant asset, and is recognised in the consolidated income statement. Repairs and maintenance are charged to the consolidated income statement during the financial period in which they are incurred. The cost of major renovations is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset. (f) Construction in progress Construction in progress represents premises under construction and production plants, machinery and other equipment under installation and is stated at cost. Cost includes the cost of construction, purchase cost of plant and machinery as well as interest expenses arising from borrowings used to finance the construction during the construction period. Construction in progress for production plants and machinery is transferred to fixed assets on the commissioning date. Plant and machinery are considered to be commissioned when they are capable of producing saleable quality output in commercial quantities on an ongoing basis. (g) Intangible assets (1) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net assets of the acquired subsidiary at the date of acquisition. Goodwill is amortised on a straight-line basis over its estimated useful life of not more than 10 years. Management determines the estimated useful life of goodwill based on its evaluation of the respective companies at the time of the acquisition, considering factors such as existing market share, potential growth and other factors inherent in the acquired companies. At each balance sheet date, the Group assesses whether there is any indication of impairment. If such indications exist, an analysis is performed to assess whether the carrying amount of goodwill is fully recoverable. A write down is made if the carrying amount exceeds the recoverable amount. 31 2. Accounting policies (Cont’d) (g) Intangible assets (Cont’d) (2) Proprietary technology and patent Expenditure on acquired proprietary technology and patent is capitalised and amortised using the straight-line method over their useful lives of not more than 10 years. The carrying amount of each proprietary technology and patent is reviewed annually and adjusted for permanent impairment when it is considered necessary. (3) Research and development Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will be a success considering its commercial and technological feasibility, and only if the cost can be measured reliably. Other development expenditures are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs that have been capitalised are amortised from the commencement of the commercial production of the product on a straight-line basis over the period of its expected benefit, not exceeding five years. (h) Impairment of long lived assets Property, plant and equipment and other non-current assets, including prepaid lease, construction in progress, goodwill and intangible assets are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount which is the higher of an asset’s net selling price and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows. (i) Available-for-sale investments Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are classified as available -for-sale; and are included in non-current assets unless management has the express intention of holding the investment for less than 12 months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in current assets. Purchases and sales of investments are recognised on the trade date, which is the date that the Group commits to purchase or sell the asset. Cost of purchase includes transaction costs. Available -for-sale investments are subsequently carried at fair value. Fair values for unlisted equity securities are estimated using applicable price/earnings or price/cash flow ratios refined to reflect the specific circumstances of the issuer. Equity securities for which fair values cannot be measured reliably are recognised at cost less impairment. When securities classified as available -for-sale are sold or impaired, the accumulated fair value adjustments are included in the consolidated income statement as gains and losses from investment securities. 32 2. Accounting policies (Cont’d) (j) Leases Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the consolidated income statement on a straight-line basis over the period of relevant leases. (k) Inventories Inventories are stated at the lower of cost or net realisable value. Cost of raw materials represents invoiced price calculated using the weighted average costing method. Net realisable value is the estimate of the selling price in the ordinary course of business, less the costs of completion and selling expenses. (l) Construction contract A construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and functions or their ultimate purpose or use. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred where it is probable those costs will be recoverable. Contract costs are recognised when incurred. When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs are recognised over the period of the contract, respectively, as revenue and expenses. The Group uses the percentage of completion method to determine the appropriate amount of revenue and costs to recognise in a given period; the percentage of completion is measured by reference to the relationship that contract costs incurred for work performed to date bear to the estimated total costs for the contract. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. Construction contract cost includes direct materials, subcontracting cost, direct labor and an appropriate proportion of variable and fixed production overheads. In determining costs incurred up to the year-end, any costs relating to future activity on a contract are excluded and shown as contract work in progress. The aggregate of the costs incurred plus the profit less loss recognised on each contract is compared against the progress billings up to the balance sheet date. Where contract costs incurred plus recognised profits less recognised losses exceed progress billings, the balance is shown as due from contract customers. Where progress billings exceed contract costs incurred plus recognised profit less recognised loss, the balance is shown as due to contract customers. 33 2. Accounting policies (Cont’d) (m) Accounts receivable Accounts receivable include progress billings in accordance with the contracts terms and retention monies receivable. Accounts receivable are carried at original invoice amount less provision made for impairment of these receivables. A provision for impairment of accounts receivable is established when there is an objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, discounted at the market rate of interest for similar borrowers. (n) Cash and cash equivalents Cash and cash equivalents are carried in the consolidated balance sheet at cost. For the purposes of the consolidated cash flow statement, cash and cash equivalents comprise cash on hand and deposits held at call with banks. (o) Borrowing costs Borrowing costs that are directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of that asset. All other borrowing costs are charged to the consolidated income statement in the year in which they are incurred. (p) Taxation PRC income taxes are provided for based on the estimated assessable profits and tax rates applicable to the Company and the subsidiaries comprising the Group. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Current enacted tax rates are used in the determination of deferred income tax. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. (q) Retirement scheme The Group has to make defined contributions to a staff retirement scheme in accordance with the rules and regulations set by the local government. Contributions to the retirement scheme are charged to the consolidated income statement in the period to which the contributions are related. 2. Accounting policies (Cont’d) 34 (r) Warranty The Group recognises the estimated liability to repair or replace products still under warranty at the balance sheet date. This provision is calculated based on 2% of the completed contract cost which is determined by reference to past history of the level of repairs and replacements. (s) Revenue recognition Sales relating to construction contracts – see Note 2(l). Interest income is recognised on a time proportion basis, taking into account the principal amount outstanding and the interest rate applicable. Investment income is recognised when the right to receive dividends or other payments is established. (t) Dividends Dividends are recorded in the Group’s consolidated financial statements in the period in which they are approved by the Group’s shareholders. (u) Comparatives Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year. (v) Financial instruments Financial instruments carried on the consolidated balance sheet include cash and bank balances, available-for-sale investment, due from/(to) contract customers, receivables, prepayments, payables and borrowings. Available -for-sale investments and accounts receivable are stated at carrying amounts determined in accordance with Notes 2(i) and 2(m) respectively. Disclosures of financial risk managements are provided in Note 28. Sales Sales recognised in 2002 and 2001 mainly arise from the sale of boilers to third party customers within the PRC. Revenue arising from interest and investment income is disclosed in Note 6. 35 4. Operating profit The following items have been included in arriving at operating profit: 2002 2001 RMB’000 RMB’000 Depreciation of property, plant and equipment 21,866 19,807 Impairment of property, plant and equipment 66 155 Loss on disposal of property, plant and equipment 201 158 Repairs and maintenance expenditure 8,064 5,450 Amortisation of intangible assets 4,529 3,500 Research and development expenditure 13,919 7,025 Operating lease rentals in respect of property 1,606 1,320 (Reversal of) / provision for inventory losses (79) 124 Provision for bad and doubtful debts 7,134 2,545 Warranty 10,140 4,572 5. Staff costs 2002 2001 RMB’000 RMB’000 Wages and salaries 37,458 22,497 Retirement benefits (Note 29) 7,432 4,544 Other social security costs 7,906 3,608 52,796 30,649 Average number of persons employed by the Group during the year 2,690 2,770 6. Finance cost, net 36 2002 2001 RMB’000 RMB’000 Penalty charged to parent company - 788 Interest income arising from - bank deposits 2,575 6,282 - other deposits 194 - - amount due from parent company - 1,660 2,769 7,942 Investment - dividend income 948 1,201 - gain on disposal of available -for-sale investment 699 - Net foreign exchange transaction gains 24 4 Interest expenses in relation to - bank borrowings (18,973) (12,907) - other payables (3,688) (1,537) (22,661) (14,444) Bank charges (729) (326) (18,950) (4,835) 7. Income tax 2002 2001 RMB’000 RMB’000 Current tax 12,560 4,969 Deferred tax (Note 13) (1,771) (808) Tax charge 10,789 4,161 Income tax has been calculated based on the estimated assessable profits using the tax rates applicable to the Company and its subsidiaries, respectively. According to the “PRC Income Tax Law”, the Company is subject to a unified income tax rate of 33%. Pursuant to a document “Ezhenghan [1998] No.17” issued by the Hubei Provincial Government, the Company was entitled to a tax refund equivalent to 18% of the assessable profits. The refund had been used to reduce the provision for income tax, accordingly, the effective tax rate for the year ended 31 December 2001 was 15%. 7. Income tax (Cont’d) 37 Pursuant to a document “Cai Shui [2000] No.99” jointly issued by the Ministry of Finance and the State Administration of Taxation on 13 October 2000, income tax refund incentives granted by the local authorities was valid until 31 December 2001. Unless there are any other legal and administrative regulations, corporate income tax shall be levied on the official rate of 33% effective from 1 January 2002. Pursuant to a document “Shui Shou Erzi [1998] No.12” issued by the Wuhan Local Tax Bureau regarding collective payment of income tax, income tax of the Company is collectively paid through Wuhan Boiler (Group) Company Limited (the “WHBG”), the parent of the Company. The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the effective tax rate of the Company is analysed as follows: 2002 2001 RMB’000 RMB’000 Profit before tax 33,215 23,312 Tax calculated at the effective rate of 33% (2001:15%) 10,961 3,497 Effect of different tax rates in the subsidiaries (424) 232 Dividend income not subject to tax (313) (180) Expenses not deductible for tax purposes 565 1,053 Effect of increase in tax rate - (441) Tax charge 10,789 4,161 8. Earnings per share The calculation of earnings per share is based on the consolidated profit after tax and after minority interests for the year of RMB21,915,000 (2001: RMB19,063,000) and the weighted average number of shares in issue during the year of 297,000,000 (2001: 297,000,000). The Company has no dilutive ordinary shares and as a result basic and diluted earnings per share are the same. 38 9. Property, plant and equipment Production Furniture, Plant and equipment fixtures and office and Motor office premises machinery vehicles equipment Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Year ended 31 December 2002 Opening net book value 93,767 83,344 2,612 2,231 181,954 Transfer from construction in progress 834 4,039 586 677 6,136 Additions 1,598 115 1,423 1,990 5,126 Disposals - (204) (4) (3) (211) Impairment charge - 52 - (28) 24 Depreciation charge (5,355) (13,748) (838) (1,925) (21,866) Closing net book value 90,844 73,598 3,779 2,942 171,163 At 31 December 2002 Cost 160,920 219,598 12,107 9,695 402,320 Accumulated depreciation (70,076) (145,897) (8,328) (6,725) (231,026) Impairment charge - (103) - (28) (131) Net book value 90,844 73,598 3,779 2,942 171,163 The Company's plant and office premises are located in Wuhan city, Hubei Province, the PRC. The land where the properties are situated is leased from WHBG for a period of 50 years at an annual rental of RMB1,320,000 payable during the period from the date of incorporation of the Company to 2001. Thereafter, the rental charge is subject to an upward review of 10% every 5 years. The rental charge for 2002 was RMB1,452,000. Plant and office premises of the Company have been pledged to a bank for securing loan facilities granted totalling RMB47,289,000. Impairment charge relates to an idle production equipment which would not be used by the Company in the foreseeable future and was calculated based on its estimated recoverable amount. 10. Construction in progress 2002 2001 RMB’000 RMB’000 Opening net book value 3,100 7,296 Additions 8,240 21,095 Transfer to property, plant and equipment (6,136) (25,291) Impairment charge (90) - Closing net book value 5,114 3,100 Construction in progress represents production equipment under installation and is stated at cost. Construction in progress at the year-end includes accumulated interest expenses capitalised of approximately RMB109,140 (2001: RMB121,000). No interest expenses were capitalised in the current year (2001: nil). 11. Intangible assets 39 Proprietary technology Goodwill and patent Total RMB’000 RMB’000 RMB’000 Year ended 31 December 2002 Opening net book value 1,433 24,778 26,211 Amortisation charges (101) (4,428) (4,529) Closing net book value 1,332 20,350 21,682 Cost 1,683 28,300 29,983 Amortisation (351) (7,950) (8,301) Net book value 1,332 20,350 21,682 The Directors of the Company are of the opinion that the underlying fair value of the intangible assets was not less than its carrying amount as at 31 December 2002. 12. Available-for-sale investment 2002 2001 RMB’000 RMB’000 Unlisted investment (at cost) 15,937 32,337 As at 31 December 2002, the Company held certain legal person shares, representing approximately 3% equity interest (2001:6%), in Haibowan Joint Stock Company Limited, a company established in Inner Mongolia Autonomous Region of the PRC. This company is engaged in the operation of power plants. The Directors of the Company are of the opinion that the underlying fair value of the unlisted investment was not less than its carrying amount as at 31 December 2002. 13. Deferred tax assets Deferred taxation is calculated on all temporary differences under the liability method using an enacted tax rate of 33% (2001:33%). The movement on the deferred taxation account is as follows: 2002 2001 RMB’000 RMB’000 At beginning of year 808 1,138 Transfer to income tax payable - (1,138) Income statement credit (Note 7) 1,771 808 At end of year 2,579 808 13. Deferred tax assets (Cont’d) Deferred tax assets and deferred tax credit in the consolidated income statement are 40 attributable to the following items: Credit to income 2001 statement 2002 RMB’000 RMB’000 RMB’000 Deferred income tax assets Temporary difference in respect of provision for impairment loss of fixed assets 52 22 74 Temporary difference in respect of provision for inventories 41 (26) 15 Temporary difference in respect of provision for bad and doubtful debts 715 1,775 2,490 808 1,771 2,579 14. Inventories 2002 2001 RMB’000 RMB’000 Raw materials (at cost) 72,964 102,879 Raw materials (at net realisable value) 3,915 8,769 76,879 111,648 Certain raw materials have been written down by RMB1,463,000 (2001: RMB1,542,000) to their estimated net realizable value. 15. Construction contract work in progress 2002 2001 RMB’000 RMB’000 Contract costs incurred and recognised profits (less losses) 468,431 408,494 Progress billings (196,118) (74,996) 272,313 333,498 Comprising: - Due from contract customers 307,363 334,706 - Due to contract customers (35,050) (1,208) 41 16. Accounts receivable 2002 2001 RMB’000 RMB’000 Trade receivables 306,104 137,709 Less: Provision for bad and doubtful debts (20,987) (14,528) 285,117 123,181 Included in accounts receivable balance as at year-end were retention monies of RMB67,253,000 (2001: RMB21,009,000). 17. Amounts due from fellow subsidiaries 2002 2001 RMB’000 RMB’000 Wuhan Boiler (Group) Boyu Complementary Mechanism of Electronic Station Co., Ltd. 1,477 - Wuhan Boiler (Group) Valve Company Limited - 6,753 Wuhan Boiler (Group) Boiler Accessories Manufacturing Company Limited 23,545 6,809 Wuhan Chengxin Boiler Automatic Control Equipment Manufacturing Company Limited 1,318 - Others - 27 26,340 13,589 Amounts due from fellow subsidiaries are substantially derived from normal trading transactions. The amounts are unsecured, non-interest bearing and with no fixed repayment terms. 18. Other receivables, deposits and prepayments 2002 2001 RMB’000 RMB’000 Other receivables 9,900 11,856 Deposits * 18,380 18,380 Prepayments 51,525 88,608 79,805 118,844 * Represent deposits with an insurance company totalling RMB18,380,000, which were pledged to a bank to guarantee notes payable issued by the Company of RMB11,400,000. The deposits can be withdrawn within one year and bear annual interest rates ranging from 1% to 2.5%. 42 19. Cash and bank balances 2002 2001 RMB’000 RMB’000 Cash at bank and in hand 190,045 45,234 Fixed deposits * 91,093 31,818 Bank guarantee deposits ** 220,130 115,729 501,268 192,781 * The weighted average effective interest rate on fixed deposits was 1.5% (2001: 4%); Fixed deposits have an average maturity of 310 days (2001: 304 days). A fixed deposit of RMB30,460,000 has been pledged to a bank to secure loans totalling RMB29,000,000 provided to the Company. ** Bank guarantee deposits have been pledged to banks to guarantee notes payable issued by the Company and the letters of guarantee issued by banks. For the purposes of the cash flow statement, cash and cash equivalents comprise the following: 2002 2001 RMB’000 RMB’000 Cash and bank balances 501,268 192,781 A fixed deposit for securing a bank loan (30,460) - Bank guarantee deposits (220,130) (115,729) 250,678 77,052 20. Share capital 2002 2001 RMB’000 RMB’000 Registered, issued and fully paid of RMB1 each Domestic legal person shares 172,000 172,000 B shares, listed 125,000 125,000 297,000 297,000 Pursuant to Articles 31 and 35 of the Company's Articles of Association, domestic legal person shares and B shares are registered ordinary shares carrying equal rights. Domestic legal person shares are not listed and not freely transferable , unless specifically approved by the relevant government authorities. 43 21. Reserves (a) Capital reserve and share premium Capital reserve comprises surplus arising on the difference between the nominal value of state shares issued to WHBG, in exchange for the value of the transfer of boiler business related assets and liabilities to the Company. Share premium represents the premium on the issue of B shares to the foreign investors. Pursuant to the relevant PRC regulations, capital reserve and share premium can only be used to increase share capital. (b) Reserve funds In accordance with the relevant PRC regulations applicable to joint stock limited companies and the Company’s Articles of Association, the Group is required to allocate its profit after tax to the following reserves: (i) Statutory surplus reserve funds The Group is required each year to transfer 10% of the profit after tax as reported under the PRC statutory financial statements to the statutory surplus reserve funds until the balance reaches 50% of the registered share capital. This reserve can be used to make up any losses incurred or to increase share capital. Except for the reduction of losses incurred, any other usage should not result in this reserve balance falling below 25% of the registered capital. (ii) Statutory public welfare funds The Group is required each year to transfer 10% of the profit after taxation as reported under the PRC statutory financial statements to the statutory public welfare funds. This reserve is restricted to capital expenditure for employees' collective welfare facilities that are owned by the Group. The statutory public welfare funds are not available for distribution to shareholders (except on liquidation). According to a document issued by the Ministry of Finance, when the statutory public welfare fund is utilised, an amount equal to the lower of cost of the assets and the balance of the statutory public welfare fund is transferred from the statutory public welfare fund to the discretionary surplus reserve. On disposal of the relevant assets, the original transfers from the statutory public welfare fund are reversed. (c) Profit distributable to shareholders Pursuant to a document issued by the Ministry of Finance, the profit after appropriation to reserves and available for distribution as dividend shall be the lower of the amount as stated in the PRC statutory financial statements and the financial statements prepared under IFRS. At 31 December 2002, the Group's retained earnings according to the PRC statutory financial statements amounted to RMB45,969,000 (2001: RMB40,669,000) after taking into account of the cash dividends as detailed in Note 21 (d). Pursuant to a Board resolution of WHBG, on 27 November 1997, the profits generated from 1 October 1997 and onwards are distributable to all shareholders and profits generated before 1 October 1997 are distributable to WHBG, only. Retained earnings as at 31 December 2002 include RMB28,515,000 of profits generated before 1 October 1997. 21. Reserves (Cont’d) 44 (d) Dividend Pursuant to a Board resolution on 7 April 2002, a cash dividend of RMB0.025 per share for the fiscal year 2001, amounting to a total dividend of RMB7,425,000, was declared and paid during the year. (2001: RMB5,940,000) Pursuant to a Board resolution on 28 March 2003, a cash dividend of RMB0.035 per share for the fiscal year 2002, amounting to dividends totalling RMB10,395,000, was declared. The consolidated financial statements have not reflected this dividend payable, which will be accounted for in shareholders’ equity as an appropriation of retained earnings in 2003. 22. Minority interests 2002 2001 RMB’000 RMB’000 At beginning of year 1,069 - Acquisition - 981 Set up of new subsidiary (Note 32) 6,000 - Share of net profit of subsidiaries 511 88 At end of year 7,580 1,069 23. Amount due from / (to) parent company The amount due from/(to) parent company, WHBG, was derived from the transactions as set out in Note 31. The amount is unsecured, non-interest bearing and with no fixed repayment terms. 24. Amounts due to fellow subsidiaries These represent current account balances arising on transactions entered into in the normal course of business. The amounts are unsecured, non-interest bearing and with no fixed repayment terms. 2002 2001 RMB’000 RMB’000 Wuhan Jiangxia Real Estate Company - 700 Wuhan Boiler (Group) Valve Company Limited 5,086 - Wuhan Boiler (Group) Yuntong Company Limited 3,102 3,081 Others 569 933 8,757 4,714 45 25. Other payables and accrued charges 2002 2001 RMB’000 RMB’000 Other payables 55,040 52,883 Warranty provision * 8,194 3,686 Accrued charges 1,206 2,067 64,440 58,636 * The Company provides one to three years’ warranties in respect of the sale of boilers and undertakes to repair or replace items that fail to perform satisfactorily. The provision is estimated by reference to the expected warranty claims calculated at 2% of the completed construction contract cost, after taking into account the past experience of the level of repairs and returns. 26. Borrowings 2002 2001 RMB’000 RMB’000 Current - Secured bank borrowings * 111,656 61,000 - Unsecured bank borrowings ** 271,685 151,230 383,341 212,230 Non-current - Secured bank borrowings * 13,333 - Total borrowings 396,674 212,230 * The borrowings include secured bank borrowings totalling RMB124,989,000 (2001: 61,000,000). The bank borrowings are secured over certain buildings of the Group (Note 9), certain buildings of Wuhan Jiangxia Real Estate Company amounting to RMB15,797,000, fixed deposits of WHBG totalling RMB46,222,000 and a fixed deposit of the Company (Note 19). ** The unsecured bank borrowings are supported by guarantees provided by the following parties: 2002 2001 RMB’000 RMB’000 Parent company WHBG 236,620 131,230 Third parties Nan Shan Group - 20,000 Shandong Weiqiao Textile (Group) Company Limited 35,000 - Other 65 - Total guaranteed borrowings 271,685 151,230 46 26. Borrowings (Cont’d) The interest rate exposure of the borrowings of the Company is as follows: 2002 2001 RMB’000 RMB’000 Total borrowings - at fixed rates 396,674 212,230 Weighted average effective interest rate - bank borrowings 5.52% 6.08% There are no material differences between the fair value and carrying amount of the Group’s borrowings. The fair values are based on discounted cash flows using a discount rate similar to the borrowing rate that the Directors believe would be available to the Group at the balance sheet date. Maturity of non-current borrowings: Secured bank borrowings 2002 2001 RMB’000 RMB’000 Between 1 and 2 years 6,666 - Between 2 and 5 years 6,667 - 13,333 - 47 27. Cash generated from operations (a) Reconciliation of net profit to cash generated from operations 2002 2001 RMB’000 RMB’000 Net profit 21,915 19,063 Adjustments for: Minority interest (Note 22) 511 88 Tax charge (Note 7) 10,789 4,161 Depreciation (Note 9) 21,866 19,807 Cost of prepaid lease recognised as expenses 150 150 Impairment loss of property, plant and equipment (Note 9) (24) 155 Impairment loss of construction in progress (Note10) 90 - Loss on disposal of property, plant and equipment (Note 4) 201 158 Amortisation of intangible assets (Note 11) 4,529 3,500 Investment income (1,647) (1,201) Provision for bad and doubtful debts 7,134 2,545 Interest expenses (Note 6) 22,661 14,444 Interest income and penalty (Note 6) (2,769) (8,730) Changes in working capital: Decrease / (increase) in inventories 34,769 (2,200) Increase in due from contract customers, accounts receivable, amount due from parent company, amounts due from fellow subsidiaries, other receivables, deposits and prepayments (148,968) (87,563) Increase in due to contract customers, bills payable, accounts payable, amounts due to fellow subsidiaries, deposits received from customers, other payables and accrued charges 165,387 133,375 Cash generated from operations 136,594 97,752 (b) Major non-cash items The principal non-cash transactions are settlements of debtors amounting to RMB9,850,000 with certain creditors under debt-offsetting agreements. 48 28. Financial risk managements (a) Interest rate risk The interest rates and repayment terms of bank borrowings are disclosed in Note 26. Other financial assets and financial liabilities do not have material interest rate risk. (b) Credit risk Amounts due from contract customers and accounts receivable of the Group are spread among a number of customers in the PRC and cash is deposited with registered banks in the PRC. The carrying amounts of the financial assets after deducting the provision for bad and doubtful debts best represent their maximum credit risk exposure as at 31 December 2002. (c) Foreign currency risk Transactions of the Group are mainly settled in Renminbi. In the opinion of the Directors of the Company, the Group does not have significant foreign currency risk exposure. (d) Fair value The carrying amounts of the following financial instruments approximate to their fair values: cash and bank balances, due from/(to) contract customers, receivables, payables, prepayments and borrowings. Information on the fair value of borrowings and interest rate exposure is included in Note 26. 29. Retirement scheme The Group participates in a defined contribution retirement scheme organised by the Wuhan Municipal Government for all employees. The Group's contribution to the scheme is provided at 20% (2001: 20%) of the total salary for permanent employees. The contribution to the retirement scheme for the year ended 31 December 2002 amounted to RMB7,432,000 (2001: RMB4,544,000). Other than the above, the Group has no other retirement benefit obligations. 30. Commitments Capital commitments Capital expenditure contracted for at the balance sheet date but not recognised in the consolidated financial statements is as follows: 2002 2001 RMB’000 RMB’000 Construction in progress 6,243 948 49 30. Commitments (Cont’d) Operating lease commitments The future total minimum lease payments under non-cancellable operating leases in respect of the leasing arrangement as mentioned in Note 9 are as follows: 2002 2001 RMB’000 RMB’000 Not later than 1 year 1,721 1,452 Later than 1 year and not later than 5 years 6,065 5,808 Later than 5 years 89,730 91,327 97,516 98,587 31. Related party transactions and relationships (a) Apart from those related party transactions disclosed in other notes above, the Group had the following material transactions with its related parties during the year: WHBG 2002 2001 RMB’000 RMB’000 - Sale of boilers * 12,829 25,779 - Purchase of property, plant and equipment * - 19,169 - Interest receivable according to prevailing bank lending interest rate - 1,660 - Penalty charge - 788 - Operating lease payment * 1,452 1,320 - Acquisition of a subsidiary – Wuhan Special Boiler Complete Equipment Engineering Company Limited - 10,512 - Assignment of debts to WHBG 2,329 10,445 - Payments of income tax through WHBG - 6,851 - Payments by WHBG on behalf of the Company 6,990 8,502 - Rental income * 2,000 - Subsidiaries of WHBG - Purchases of boiler parts and sub-contracting charges paid * 26,299 9,556 - Sales of boilers, raw materials and boiler parts * 4,175 1,022 - Payments for installation and transportation services * 6,291 5,355 * In the opinion of the Directors of the Company, these transactions were carried out on normal commercial terms and the prices as agreed between the contracting parties. 50 31. Related party transactions and relationships (Cont’d) (b) Relationships In the opinion of the Directors of the Company, the ultimate parent company of the Company is WHBG, a state-owned enterprise incorporated in the PRC. (c) Directors’ remuneration A listing of the members of the Board of Directors is shown in the 2002 Annual Report. The total remuneration of the Directors approximated RMB208,000 (2001: RMB169,000) for the year. (d) Litigation Pursuant to a verdict issued by the Shanghai Second Intermediate People’s Court on 21 November 2000, the Company was obliged to settle the outstanding amount due to Shanghai Steel Tube Company Limited (“SHSTCL”) of approximately RMB59,319,000, the related penalty charge thereon of approximately RMB5,467,000, interest of approximately RMB479,000 and handling fee charged by the court of approximately RMB646,000 by 30 June 2001. Pursuant to an agreement entered into between SHSTCL, WHBG and the Company on 27 March 2001, WHBG has agreed to assume the payment of interest, penalty charge and handling fee. As at 31 December 2002, the amount due to SHSTCL was RMB29,206,591. A supplementary agreement was entered into between the Company and SHSTCL on 23 January 2003 whereby the Company agreed to settle the outstanding amount before 30 June 2003. 51 32. Subsidiaries As at the balance sheet date, the Company directly held equity interests in the following PRC established subsidiaries: Attributable Name equity interest Principal activities 2002 2001 % % Wuhan Special Boiler Complete Equipment 90 90 Manufacturing and sale Engineering Company Limited of special boilers Wuhan Lan Xiang Power Environmental 70 0 Consultancy, research Protection Technology Company Limited and design of boilers (“Lan Xiang”) and environmental projects. Pursuant to a Board resolution dated 10 February 2002, the Company entered into an agreement with other companies and individuals to jointly establish Lan Xiang. According to the agreement, the Company contributed cash of RMB14,000,000 and other companies and individuals contributed cash totalling RMB6,000,000, which account for 70% and 30% of the equity interests in Lan Xiang respectively. Lan Xiang was established on 4 June 2002 and its registered capital was verified by Hubei Zhongxin Public Accountants Firm Ltd. on 27 May 2002. 33. Approval of consolidated financial statements The consolidated financial statements were approved by the Board of Directors on 28 March 2003. 52 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2002 The impact of IFRS and other adjustments on the PRC statutory consolidated financial statements is as follows: Net profit Net assets RMB’000 RMB’000 As per the PRC statutory consolidated financial statements 20,141 512,756 IFRS and other adjustments - Reversal of investment revaluation gain - (2,227) - Declared cash dividend after balance sheet date - 10,395 - Deferred tax 1,771 2,579 - Others 3 - As restated after IFRS and other adjustments 21,915 523,503 53