张裕Ａ(000869)张裕Ｂ2002年年度报告（英文版）

YANTAI CHANGYU PIONEER WINE COMPANY LIMITED (A joint stock limited company incorporated in the People’s Republic of China with limited liability) 2002 ANNUAL REPORT Important: The Directors of the Company collectively and individually accept full responsibility for the truthfulness, accuracy and completeness of the information contained in this report and confirm that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading. Mr. Sun Li-qiang (the principal of the Company), Mr. Zhou Hong-jiang (the principal who is in charge of accountancy) and Mr. Jiang Jian-xun (the principal of accountancy) assure the truthfulness and completeness of the financial report in the annual report. The reader is advised that this report has been prepared originally in Chinese. In the event of a conflict between this report and the original Chinese version or difference in interpretation between the versions of the report, the Chinese language report shall prevail. The financial data in the Chinese version is cited from Chinese auditor’s report, while the financial data in the English version is cited from the international auditor’s report. Contents I. BRIEF INTRODUCTION TO THE COMPANY ………………………………….4 II. SUMMARY OF ACCOUNTING AND FINANCIAL INFORMATION………….5 1. Summary of Financial Information for the Year Ended 31st December, 2002 (the Reporting Period)…………………………………………………………………….5 2. Differences in Net Profit under the PRC Financial Reporting Standards and International Financial Reporting Standards………………………………………5 3. Principal Accounting and Financial Information for the Preceding Three Years ended 31st December, 2002……………………………………………………………5 4. Changes of Shareholders’ Equity in the Reporting Period…………………………6 III. CHANGES IN SHARE CAPITAL AND SUBSTANTIAL SHAREHOLDERS ……6 IV. DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND STAFF………...8 1. The basic information of Directors, Supervisors and Senior Management………..8 2. Staff of the Company…………………………………………………………………..9 Ⅴ. THE COMPANY RECTIFYING STRUCTURE………………………………………..9 1. Current Rectifying Structure Situation of the Company …………………………...9 2. The line of duty of the independent Directors ……………………………………….10 3. Personnel, Assets, Finance, Institution and Business Associated with Holding Shareholders……………………………………………………………………………10 4. Performance Evaluation and Encourage to Senior Management…………………..10 Ⅵ. BRIEF INTRODUCTION TO THE SHAREHOLDER’S MEETING………………...11 Ⅶ. BOARD OF DIRECTIOR’S REPORT…………………………………………………..11 1. Business condition……………………………………………………………………...11 2. Investment of the company……………………………………………………………13 3. Financial situation of the company…………………………………………………...16 4. The influence of great change of operation environment and macro-policy……….16 5. Business plan of 2003…………………………………………………………………..16 6. Matters on the work of Board of Directors…………………………………………..17 7. Company’s profit distribution plan of 2002………………………………………….18 8. Other disclosed information…………………………………………………………..19 Ⅷ. BOARD OF SUPERVISORS’ REPORT…………………………………………………19 1. Meeting of the Board of Supervisors…………………………………………………19 2. Report of Board of Supervisors………………………………………………………19 Ⅸ. MATERIAL EVENTS……………………………………………………………………..20 1. The material litigation and arbitration………………………………………………..20 2. The purchase, sell and annex assets……………………………………………………20 3. Related party transaction………………………………………………………………20 4. Material contract and its Executing……………………………………………………20 5. Events the company undertook…………………….…………………………………..20 6. Appointment of Certified Public Accountants…...……………………………………20 7. Examination and administrative punishment by CSRC, criticism notification, public censure by stock exchange……………...……………………………………………….20 8. Other material events………………………………...…………………………………20 Ⅹ. FINANCIAL REPORT…………………………………………………………………….22 Ⅺ. DOCUMENTS AVAILABLE FOR INSPECTION………………………………………54 I. BRIEF INTRODUCTION TO THE COMPANY 1. Legal Name in Chinese: 烟台张裕葡萄酿酒股份有限公司 Legal Name in English: Yantai Changyu Pioneer Wine Company Limited 2. Legal Representative: Sun Li-qiang 3. Secretary to the Board of Directors: Qu Wei-min Contact Address: 174, Shihuiyao Road, Yantai City, Shandong Province, the PRC Telephone: 0086-535-6691268, 6647864 Facsimile: 0086-535-6691268, 6691266 E-Mail: quwm@changyu.com.cn 4. Authorized Representative of the Securities Affairs: Li Ting-guo Contact Address: 174, Shihuiyao Road, Yantai City, Shandong Province, the PRC Telephone: 0086-535-6647864 Facsimile: 0086-535-6691266 E-Mail: stock@changyu.com.cn 5. Registered Address: 56, Dama Road, Yantai City, Shandong Province, the PRC Office Address: 174, Shihuiyao Road, Yantai City, Shandong Province, the PRC Postal Code: 264001 Web Site: http://www.changyu.com.cn E-Mail: webmaster@changyu.com.cn 6. The newspapers in which the Company’s information is disclosed: “China Securities Newspaper”, “Securities Times” in the PRC and “Hong Kong Commercial Daily” outside the PRC. Web Site for carrying the report: http://www.cninfo.com.cn Annual Report kept at: Securities Department of the Company Telephone: 0535-6647864 7. Place of listing of the Shares: Shenzhen Stock Exchange Abbreviation of the Shares: Changyu A, Changyu B Code Number of the Shares: 000869, 200869 8. Other information of the Company: The first registration date: Sep. 18, 1997 The original place of registration: the Business Administration Bureau of Shandong Province The registration amendment date: Oct. 24, 2000 The registration amendment place: the Business Administration Bureau of Shandong Province The business license number: 3700001806012 The registration number of revenue: 37060216500338-1、370601267100035 The international accountant appointed by the Company: Arthur Andersen & Co. The office address of the international accountant appointed by the Company: 25/F, Wing On Center, 111 Connaught Road Central, Hong Kong The Chinese accountant appointed by the Company: Arthur Andersen·Hua Qiang Certified Public Accountants The office address of the Chinese accountant appointed by the Company: Room 1118, office building of international trade center, Beijing, China. 4 II. SUMMARY OF ACCOUNTING AND FINANCIAL INFORMATION 1. Summary of Financial Information for the Year Ended 31st December, 2002(the Reporting Period) Item: Amount RMB’000 Profit before taxation 184,851 Profit after taxation 115,909 Gross profit 466,410 Other income -3,818 Operation profit Investment earnings Subsidy income Net of non-operating income and expenses Net cash flows from operating activities Net increase in cash and cash equivalents -104,098 The amount after detected irregular profit and loss items and involved amounts is: Non-operating income: Non-operating expense: Income-tax refund: Impact of income tax: Total: 2. Differences in Net Profit under the PRC Accounting Standards and International Accounting Standards The net profit of the Company in the reporting period was RMB 127,480,258 as audited by Arthur Andersen·Hua Qiang Certified Public Accountants according to the PRC Accounting Standards and RMB 121,748,709 after adjusted by Arthur Andersen & Co. according to the International Accounting Standards. Major differences in using the International Accounting Standards and the PRC Accounting Standards were as follows: RMB’000 Restated under the International Accounting Standards 115,908,579 Impact to the net profit as stated under the International Accounting Standards: 4,668,016 Deferred tax Net profit as stated under the PRC Accounting Standards 111,240,563 3. Principal Accounting and Financial Information for the Preceding Three Years ended 31st December, 2002 Unit: RMB’000 Item 2002.1-12 2001.1-12 2000.1-12 Sales 859,987 824,849 819,029 Profit after taxation 115,909 163,849 121,748 Total assets 1,849,890 1,669,721 1,626,803 Total shareholders’ equity (minor shareholders’ equity excluded) 1,491,659 1,433,437 1,321,588 Earnings per Share (RMB) Fully diluted 0.45 0.63 0.47 Weighted average Net assets value per Share (RMB) 5.74 5.51 5.08 Return on shareholders’ equity (%) Fully diluted 7.77% 11.43% 9.21％ Weighted average Net cash flows per Share from 0.53 0.20 0.93 operating activities 5 4. Changes of Shareholders’ Equity in the Reporting Period Reserves Statutory Statutory Share Capital Fair value surplus public Retained capital reserve reserve reserve fund welfare fund earnings Total Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Balance at 31 December 2001 260,000 817,169 - 47,880 47,879 260,509 1,173,437 1,433,437 Dividend relating to 2001 - - - - - (65,000) (65,000) (65,000) Revaluation reserve - - 7,313 - - - 7,313 7,313 Net profit for the year - - - - - 115,909 115,909 115,909 Appropriation from retained profits - - - 11,124 11,124 (22,248) - - Balance at 31 December 2002 260,000 817,169 7,313 59,004 59,003 289,170 1,231,659 1,491,659 III. CHANGES IN SHARE CAPITAL AND SUBSTANTIAL SHAREHOLDERS 1. Changes in Share Capital (1) During the reporting period, the Company did not distribute bonus share, allot new share, issue additional share, or transfer other capital to share capital, which would change the total share amount or the share capital structure. The share capital structure of the Company as at 31st December, 2002 was set out below: Amount before Change Amount after this this change (Additional issue) change Allot Distribute Transfer other Issue Sub new bonus capital to share additional others total share share capital share Non-listed shares 1.Promoter’s Shares 140,000,000 140,000,000 including: State Shares 140,000,000 140,000,000 Shares held by domestic legal persons Shares held by foreign legal persons 2.Shares offered to legal persons 3.Shares offered to employees 4.Preferred Shares or others Assigned and rationed Share Total non-listed 140,000,000 140,000,000 Shares Listed Shares Shares listed in the 32,000,000 32,000,000 PRC Shares listed 88,000,000 88,000,000 domestics Shares listed overseas others Total listed shares 120,000,000 120,000,000 Total number of 260,000,000 260,000,000 Share issued (2) Issuing and Listing of Shares On Oct. 23, 2000, for capital increase the Company issued 32 million A Shares with denomination of RMB1.00 per Share to public investors under the permission of the China Securities Regulatory Commission proved by document number ZJGSZ (2000) 148.The issuing price was RMB20.00 per Share. The Company’s A Share was listed on Shenzhen Stock Exchange on Oct. 26, 2000. 6 2. Substantial Shareholders The Company had 36,608 shareholders as at 31st December, 2002, including one state shareholder. The State Shares were held by Yantai Changyu Group Company Limited (hereinafter referred to as the “Group Company”) entrusted by Yantai City’s Administration Bureau of State-owned Assets. There were 22,898 shareholders with respect to A shares and 13,709 shareholders with respect to B Shares listed in the PRC. The respective shareholding of the top 10 shareholders of the Company were as follows: Total number at the end of the The company had 36,608 shareholders. There were 22,898 shareholders with A shares, reporting period and 13,709 shareholders with B shares The top 10 shareholders Name of Shareholders Increase or Number of Percentage Type of Lien or frozen The character of reduce shares hold (%) Shares shares the shareholers Yantai Changyu Group 0 140,000,000 53.8 Non-listed 0 State owned Company, limited shares First Asia Investments 0 1,772,911 0.68 Listed shares 0 B shares Ventures, limited Xia Yu 10,000 1,708,457 0.66 Listed shares 0 B shares Chen Zu De 48,000 1,581,865 0.61 Listed shares 0 B shares Anshun Securities 1,547,900 1,547,900 0.60 Listed shares 0 A shares Investment Funds Crownble Enterprises -1,000 1,438,012 0.55 Listed shares 0 B shares LTD CBNY S/A -328,400 1,421,600 0.55 Listed shares 0 B shares PNC/SKANDIA Select Fund/China Equity AC Anrui Securities 1,341,812 1,341,812 0.52 Listed shares 0 A shares Investment Funds Jinding Securities -451,200 1,332,535 0.51 0 A shares Investment Funds Chen Bao Hui 0 1,227,900 0.47 0 B shares The explanation for the relationship In the top 10 shareholders, Anshun Securities Investment Funds and Anrui Securities and action of the top 10 shareholders Investment Funds both is managed by Hua An Funds Management Company Limited 3. In all the Company’s shareholders, except the 140 million state Shares held by the Group Company unlisted, all the other Shares held by the other shareholders are listed in public already. There are not any other associated relationship between the top 10 shareholders, except Anshun and Anrui Securities Investment Fund are both managed by Hua-an Fund Management Limited Company.. 4. The only legal person holding more than 5% (including 5%) of the Company’s Shares was the Group Company, the Parent Company, which held 140 million Shares, 53.8% of the Company’s Shares. The Group Company was established in 1994, as a sole state-owned limited company, its registered capital was 50 million Yuan. The legal representative of the Group Company is Mr.Sun Li-qiang, the business scope of the Group Company includes the management and administration to the authorized state assets, Chinese medicine, glass products, spirits producing, mineral water and managing, hotel management, canteens serving the Company’s employees, kindergartens, etc. During the reporting period, the number of the Company’s Shares held by the Group Company had not been changed and was not subject to any lien or frozen or under any legal disputes. 5. In the reporting period, the Parent Company of the Company kept unchanged, still was the Group Company, whose shareholder was Yantai City’s Administration Bureau of State-owned Assets. IV. DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND STAFF 7 1. Directors, Supervisors and Senior Management (1) Basic information NAME POST SEX AGE Term for Post Shares hold at the Shares hold Reason beginning of 2002 at the ends for of 2002 change Sun Liq-iang Chairman to the M 55 2000.8.22-2003.8.21 0 0 Board of Directors Zhou Hong-jiang Vice-chairman to M 38 2002.5.20-2003.8.21 0 0 the Board of Directors and general manager Fu Ming-zhi Director M 49 2000.8.22-2003.8.21 0 0 Leng Bin Director M 40 2000.8.22-2003.8.21 0 0 Qu Wei-min Director, M 45 2000.8.22-2003.8.21 0 0 Vice-general manager and Secretary to the Board of Directors Wang Zhao-lin Independent M 60 2002.5.20-2003.8.21 0 0 Director Wang Shi-gang Independent M 37 2002.5.20-2003.8.21 0 0 Director Wang Shi-liang Chairman to the M 55 2001.5.24-2004.5.23 0 0 Board of Supervisors Zhang Hong-xia Supervisor F 46 2001.5.24-2004.5.23 0 0 Shi Shi-chun Supervisor M 38 2001.5.24-2004.5.23 0 0 Yang Ming Vive-general M 44 --- 0 0 manager Li Ji-ming General Enginee M 36 --- 0 0 Jiang Hua Vice-general M 39 --- 0 0 manager Li Jian-jun Vice-general M 43 --- 0 0 manager Jiang Jian-xun Treasurer M 36 --- 0 0 Norbert Buchonnet Chief Technical M 46 2000.10-2002.10 0 0 Officer Wang Gong-tang Counsellor M 63 --- 0 0 (2) Directors and supervisors who hold posts in shareholder’s company. Name Name of shareholder Post in shareholder’s company Term for the post Paid by shareholder’s company or not Sun Li-qiang The Group Company Chairman of the Board of 2000.2-2003.2 No Directors and general manager Zhong Hong-jiang The Group Company Vice chairman of the Board of 2001.12-2003.2 No Directors Fu Ming-zhi The Group Company Director and vice general 2000.2-2003.2 No manager Leng Bin The Group Company Director and chief accountant 2000.2-2003.2 No Wang Shi-liang The Group Company 2000.5-2003.2 No Zhang Hong-xia The Group Company Chief of audit department Without No (3) Annual Rewards information Total annual rewards amount RMB1,370,000 Total rewards amount of the top three senior RMB 320,000 management Total rewards amount of the top three senior RMB 290,000 management Allowance for independent director 20,000 for each of two independent directors (tax excluded) Other subsidy for independent director No Directors or supervisors who do not get All the directors, supervisors and senior rewards or allowance from the Company management of the Company get rewards from the Company. Range of rewards Number of persons RMB 100,000 to 130,000 2 RMB 80,000 to 100,000 7 RMB 60,000 to 80,000 8 8 (4). Change of directors, supervisors and senior management Passed by the 2001 Shareholders Meeting on May 20th, 2002, it was agreed that Mr. Liang Xian-jiu resigned his post of general manager because of job changing, Mr. Zhou Hong-jiang was engaged as director of the second Board of Directors, and Mr. Geng Zhao-lin and Wang Shi-gang as independent directors of the Company. Passed by the ninth meeting of the Second Board of Directors of the Company, it was agreed that Mr. Li Jian-jun was appointed as vice general manager of the Company, Mr. Jiang Jian-xun as financial principal of the Company, and Mr. Norbert Buchonnet As chief technical officer for winemaking. Mr. Xu Zi-heng and Lin Wen-bing were not appointed as counselors of the Company any more because of their age. 2. Staff of the Company As to 31st December, 2002, the number of the staff of the Company was 1954, including 1219 productive workers, 362 sales persons, 156 technicians, 69 financial members, 148 administrative persons. Among the staff members, 241 persons were university graduates, 160 persons were college graduates, 226 persons were graduates of professional schools and 1,327 persons were graduates of lower than senior middle schools. All the retired staff’s expenses were paid by social security system, not by the Company. V. THE COMPANY RECTIFYING STRUCTURE 1. Current Rectifying Structure Situation of the Company Following the stipulations of the Administration Rules of the Listed Company [2002]1 issued by the China Securities Regulatory Commission and the requirements of the Listing Rules of Shenzhen Securities Exchange and the Corporate Articles of Association, at present the company basically formed a legal person rectifying structure of standardizing operation, effective system and coordinating running. (1) Concerning Shareholders and Shareholders’ meeting: The Company would make sure that all Shareholders especially small and middle Shareholders enjoy equal position with big Shareholders to use their own right. The Company kept communications effectively by multiple ways, carefully accepted the Shareholders’ visits and calls and strengthened the relationship with the investors, consulting to let Shareholders understand the production management and operation situations of the Company. The Company strictly followed the stipulations of the Standard Comments of the Listed Company Shareholders’ Meeting issued by the China Securities Regulatory Commission and the requirements of Discussing Regulation of the Shareholders’ Meeting to preside and call the Shareholders’ meetings. (2) Concerning relationship with holding shareholders: The Company was independent in aspects of personnel, assets, finance and business. The holding shareholders used their rights as contributors by law through shareholders’ meetings and not interrupted the policy making decision and production management activities; the linking trading between holding shareholders had signed relevant agreement to contract each other with fair, just and reasonable pricing and carried out relevant legal procedures without any behavior damaged the benefit of the company. During the link trading voting process, the holding shareholders had avoided. The company did not provide any assurance for the shareholder and the related side. (3) Concerning Directors and the Board of Directors: The Company engaged the Directors strictly according to the Directors’ engaging procedures stipulated in the Corporate Articles of Association; members and personnel of the Company Board of Directors accorded with the requirements of laws, regulations and Articles of Association; the Directors of the Company could attend the Board meetings and shareholding meetings with attitude of responsibility, diligence and honest, were familiar with relevant laws and regulation, and understand the rights, obligations and duties as directors; the Board of Directors set up Discussing Regulation of the Board of Directors, the Information Disclosing Managing Rules of the Company and other management regulations. (4) Concerning Supervisors and the Board of Supervisors: The supervisors of the company had the professional knowledge and experiences on law and accountant. The supervisors, with a responsible attitude to the shareholders, can seriously implement their responsibilities, and supervise the Company’s finance and the legitimate of the directors, managers and other 9 senior personnel implementing their responsibilities. The board of supervisor presided and called the meetings strictly following the stipulation of Articles of Association and the Discussing Regulation of the Board of Supervisors. (5) Concerning performance evaluation, encouraging and restraining system: The Company had set up a just and transparent performance evaluation standard and encouraging and restraining system for the directors, supervisors and managers; and established related encouraging system which linked the reward with the company’s benefit and personal achievement. The hiring of managers was open, transparent and in accordance with relevant laws and regulations. (6) Concerning party with relevant interests: The Company could fully respect and protect the legal rights of creditors, employees, customers, consumers, communities and other parties with relevant interests and cooperated with them actively in order to keep the stable and healthy development of the Company. (7) Concerning information disclosure and transparency: The Company had made up a standard information disclosure system. It could truly, correctly, completely and timely disclose relevant information strictly according to the laws, regulations and Articles of Association. There was not any false record, misleading statement or important omission and it could ensure the same opportunities of all shareholders to get information equally. In the 2002 information disclosure examination to listed companies by Shenzhen Securities Exchange, the Company was evaluated as “Excellent Information Disclosure Company”. 2. The line of duty of the independent Directors According to the requirements of Guidance to Set Up Independent Directors System in Listed Company issued by China Securities Regulatory Commission, the Company appointed two independent directors Mr. Geng Zhaolin and Mr. Wang Shigang during the report period. In this period, the two independent directors strictly carried out their own duty, attended all previous board of directors and shareholders’ meetings, provided valuable professional suggestions to the making of the great decision of the company and improved the science of the decision. At the same time, they supervised effectively the activities of the company’s finance, production and management and showed their function on perfecting the supervise system of the company. 3. Personnel, Assets, Finance, Institution and Business Associated with Holding Shareholders (1). Personnel: The general manager, deputy general manager and other senior management did not assume any administrative position in the holding shareholders’ units and all took payment in the Company; the Company owned independent labor, personnel and salary management system. (2). Assets: There was a definite separation between the Company and the holding shareholders in industrial property rights and non-patent technology. As an independent legal person, the Company had complete legal person property rights, and operated its business independently according to the law; the Company did not provide any guarantee for any shareholder, personal debts, other legal person or natural person with its assets. (3). Finance: The Company had independent finance department, complete, independent and standard financial checking system and had opened an independent bank account. It independently paid taxes according to the law and paid employees’ insurance funds independently. (4). Independent institution: The Company had set up a complete organizational system. The Board of Directors and Board of Supervisors and other inside institutions operated independently and there was no subordinate relationship with the functional departments of holding shareholders. (5). Business: The Company’s business was independent to the holding shareholders. The raw materials purchasing of the Company, production and sales systems were completely independent. No existence of entrusting holding shareholders to purchase or sell on its behalf, or the same industry competition with holding shareholders. 4. Performance Evaluation and Encourage to Senior Management The company has already established the system of evaluating the achievement of senior personnel and the related encouraging system which linked the reward with the company’s benefit and personal achievement. The board of directors set up a salary and reward commission which assumed the responsibility of making and checking the policy and project of the salary and reward. Basing on the production and the operation goal, the commission took the examination to the senior personnel according to their management achievement and index, and took these as grounds of awards or penalties. 10 Ⅵ. BRIEF INTRODUCTION TO THE SHAREHOLDER’S MEETING The Company convened the shareholders’ meeting once during the reporting period. The Company’s Shareholders’ Meeting (the 2001 Annual Meeting) was convened in the company. The public notices regarding the meeting was published on 06th April 2002 in “China Securities Newspaper”, “Securities Times ” and “Hong Kong Commercial Daily”. Three shareholders or proxies, including one state shareholder, one domestic common shareholders or proxies, and one shareholder with respect to foreign shares listed at domestic, presented at the meeting, representing 140,936,263 Shares or 54.21% of the total Shares issued, and it was in conformity with the stipulates in “the Law of Limited Company in the PRC” and “the Articles of Association of the Company”. Mr. Li Zhi-qiang, a security qualified lawyer from Jin Mao Law Office in Shanghai, also presented the meeting and gave his legal position paper. At the meeting, the relevant issues were discussed and the following resolutions were made by public ballot: (1). Passed “the 2001 Work Report of the Board of Directors”; (2). Passed “the 2001 Work Report of the Board of Supervisors”; (3). Passed “the 2001 Annual Report”; (4). Passed “ the 2001 Financial Statement and the 2002 Financial Budget Report”; (5). Passed “the Profit Distribution Plan of 2001”; (6). Passed “the Proposal of adding directors and appointing independent directors”; (7). Passed “the Discussing Regulation of Shareholder’s Meeting”; (8). Passed “the Proposal of establishing special organization of board of director”; (9). Passed “the Proposal of Continuing to Appoint Certified Public Accountants” The resolution announcement of this Shareholders’ Meeting was published on 21 th May, 2002 in “China Securities Newspaper”, “Securities Times” and “Hong Kong Commercial Daily”. Ⅶ. BOARD OF DIRECTIOR’S REPORT 1. Business Condition (1). Principal Business The Company is a light industrial manufacturer of which the principal business is the distilling, producing and distributing of wine, brandy, tonic wine, sparkling wine and cider using grapes and apples as materials, and its major products include dry red wine, dry white wine, XO brandy, VSOP brandy, VO Brandy, VS brandy, Tzepao Sanpien Jiu, Special Quality Sanpien Jiu, Vermouth and sparkling wine. At present, the Company’s colligated output of wine is 55,000 tons. The Company’s sales network covers 29 provinces and municipalities all over the country, and it has nearly one thousand salesmen. For the sales revenue, comprehensive wine sales volume and profit, the statistics from the information office of the General Association of China Light Industry shows that the Company took the first place respectively in the wine field in 2002. According to the commercial investigation statistics made by China Trade Union and National Trade Center of China for the large-scale retail enterprises all over the country, the company owns generally 20.37% in the 2002 wine market and took the first place in the same products. ① Sales and Profits of Principal Business Assorted by Products Type Unit:RMB More or less More or less More or less than Principal Principal Gross Profit than last year of than last year of Product last year of the Sales Cost Ratio (%) the principal the gross profit principal sales(%) cost(%) ratio(%) Wine 533,475,044 225,741,356 307,733,688 4.28% 8.75% -0.38% Brandy 212,158,624 95,922,810 116,235,814 8.79% 6.01% 2.39% Tonic Wine 64,412,686 36,292,612 28,120,074 -18.10% -19.52% 2.34% Sparkling Wine 49,940,547 35,620,120 14,320,427 146.01% 152.79% -6.25% Total 859,986,900 939,576,898 466,410,002 4.26% 5.39% -0.89% Related party No No No No No No transaction ② Sales and Profits of Principal Business Assorted by Territory Distribution Unit:RMB’0000 11 District Principal Sales More or less than last year of the principal sales(%) The coastal region 63,894 3.94% The middle region 11,855 15.64% The western region 10,250 -1.11% Total 85,999 4.77% ③ Operation Situations of Key Products Taking over 10% of the Company’s Sales The wine, brandy and tonic wine’s sales took 10% of the sales of the Company’s principal business, and their sales, sale cost and gross profit ratio were set below: Product Sales (RMB) Sale Cost (RMB) Gross Profit Ratio (%) Wine 533,475,044 225,741,356 57.68 Brandy 212,158,624 95,922,810 54.79 ④ During the reporting period, the Company’s principal business and its structure did not change a lot, compared with that of the last reporting period. (2) . The Major Holding and Sharing Company Registered Sharing Business Major Products Assets Net Profit Company Name Capital Ratio Scope or Services (RMB’0000) (RMB’0000) (USD’0000) To research, Yantai Dry red wine, dry produce and Changyu-Castle white wine and 70% sell wine and 500 4,127 264 Wine Chateau Co., sparking wine of sparkling LTD. Changyu-Castle wine Longfang Castel-Changyu To produce Dry red wine, 49% 300 3,370 66 Wine Company, and sell wine Dry white wine LTD. To produce Yantai Kylin Cork, aluminum and sell Packaging Co., 50% cap, PVC capsule 100 1,368 169 packaging LTD. and so on. material (3). Major Suppliers and Clients Total purchase from 6,757 The proportion in the 21.3% the top 5 suppliers all purchase Total sold products to 12,385 The proportion in the 13.0% the top 5 clients all sold products (4). Problems, Difficulties and Measures Taken in Operation 2002 is our first year to entered WTO, the duty of the wine continued to decline, the import quantity of the wine increased and many domestic companies also took part in this field, herewith the domestic wine market competition became more and more furious. Facing with this situation, the company insisted centering market, giving priority to the product structure adjustment, being energetic and striving forward to guarantee the steady increasing of the main business index. First, to strengthen farther the market sale network management and increase the process of market developing. During the reporting period, the company perfected the competition, quitting, awards and penalties system for the salespersons, strengthened their consciousness of exploiting, serving, management and distribution. At the same time, the company reinforced the development of the strategic markets such as Beijing, Shanghai and Shenzhen and got primary effect. The brand and product name, the cover range and sales increased differently, thereinto the sales of high quality wine such as Chateau wine and Cabernet wine continued to increase, the product structure and market competition strengthened farther which solidified and extended effectively the occupancy of the market. Second, we intensify the inner management, improve the efficiency and quality of operation. During the period of Annual Report, we have successively established a financial system which to access to internet throughout the whole country so as to raise the efficiency in balancing accounts. 12 We also strengthen the degree to balance the accounts that should be called back and reduce the occupation of the funds. As for the operating charges we have them classified and put them in control by quotation, and make the relative measurement for canceling after verification and supervision in use to effectively control the scale of operation charges and improve the use of the funds. In view of quality control we put emphasize on grape growing and purchasing so as to the ensure the material requirement by our wine products at a middle or high degree. Regarding the development of new products, we put forward the “Chardonnay White Wine”， “Three Star Special Fine Brandy”“Bottled Sparkling Wine ”which is over 20, which impressively fulfill the demand of market , promote the market development. Third, Deepen the innovation in labor, human affairs and allocation. In part of income allocation, we implement annual salary for those taking position as at least vice office head; for the sales system, we put out the way of post salary, official rank salary add the commission; for the aspects of producing and management we effect the methods of fixed position in certain group and the position salary, we practice the assessment among the whole staff then the unqualified one will be eliminated through selection. With regard to the human resources, we adhere to the principle of open, just, democracy and progrocedure, promote those professional and capable young men to the post of market and management though competition. Through the series innovation above, our company has established the elementary system of encouraging and control, which impel the enthusiasm and efficiency. The above-mentioned measures ensured the superiority of the Company’s products to the other competitors, and guaranteed the steady benefit increasing of the Company. 2. Investment of the Company (1). The Uses of the Proceeds Collected in the Reporting Period The Company made a public offering of 32 million A Shares for capital increase in October of 2000, and received net proceeds of RMB 613.46 million. The Company invested in those projects as disclosed in the Prospectus. To the end of the reporting period, RMB 477.78 million has been invested, including RMB 114.11 million invested in the current reporting period, which was RMB 114.56 million less than that of the last year, a 50.1% decrease. And the un-invested fund of RMB 155.68. million is on deposit in the company’s bank. The progress situations of investment projects are set out below: Unit: RMB 0000 Total capital collected 61,346 Funds operation this year 11,411 All funds operation 47,778 Promissory Investment Projects Formulated Any Changes Actual Production Comply with the Investment or not Invested profit plan and estimated Amount Amount Amount amount or not ①New projects of 30,000T’s for 27,050 No 16,034 337 Middle and High grade wine Program Included: 3,650 No 2,562 unsettled Yes A.Grape growing base of 30,000 Mu B.program for original wine 2,950 No 3,466 unsettled Yes fermentation of 10,000T’s C.Program for reforming the oak 8,300 No 3,980 unsettled Yes barrels and celars D.Program for producing 3,850 No 4,028 337 Yes Low-Alcohol wine with capacity of 20,000T’s E.Program for middle & high 8,300 No 2,018 0 Yes grade wine with capacity of 10,000T’s in the Western area ②The reform and enlargement for 9,125 No 8,011 3,885 Yes sales system Projects Included: 4,525 No 2,782 3,885 Yes A.the construction of distribution branches B.establishment of computerized 4,600 No 5,229 unsettled Yes information managing ③Construction of technical center 1,000 No 1,015 unsettled Yes 13 at an national level ④Establishment of wine Chateau 3,770 No 4,211 264 Yes ⑤distribution branches in district 4,000 No 2,100 3,017 Yes city coastal ⑥ Environment protection in 450 No 456 unsettled Yes Fermentation Center ⑦ Shareholder of Shenzhen 200 No 200 unsettled Yes Jiadeyu Information Company ⑧ Implementation of operating 15,751 No 15,751 Yes funds Total 61,346 47,778 7,503 The uses of proceeds and the operational situations of the above-mentioned invested projects are stated below: ①. additional 30,000 tons medium to high grade wine project A. Additional 30,000 Mus of vineyard: The Company had invested RMB 25.62 million totally and during the reporting period. RMB 6.12 million was launched in this item and established 21,000 Mus high quality grape vineyard for high-level dry red wine, dry white wine and brandy in Laiyang city, Zhaoyuan city, Penglai City, Longkou City, Laizhou City, Fushan district and Muping district of Yantai. These new vineyard will guarantee the grape supply for the Company’s increasing high quality wine output. The present area of vineyards of the Company now totals 71,000 Mus. The actual invested amount was less than the RMB10.88 million planned. In the investment in some drought areas in north of Shanxi Province, the company decided to change the way of developing wine growing base by investing in Yantai. Relying instead on the local grape materials to reach the requirements for our grape growing base so as to reduce the investment cost and cut down the risks. B.Additional 10,000 tons of raw material wine fermentation capacity: The planned investment for this program was RMB 29.5 million, the actual amount of investment was RMB 34.46 million including RMB 29.93 million investment during the annual report. The actual amount of in this project was RMB 34.46 million including RMB 29.93 million during the annual report. Compared with the planned investment, the actual amount was increased by RMB 4.96 million which was in consideration of replacing some national equipment with imported ones to meet the demand of producing high-quality original wine, thus causing the increase in the equipment investment. The actual rate of progress was in accordance with the planned speed, and was put into production for the September 2002 harvest season of grapes, in which the production capacity of grape material reached 18,000T’s , 12,000T’s more than before. The implementation and operation of this program greatly improved the ability for storing and processing of high-quality wine of our company and at the same time provide the full and strong foundation of materials for producing high quality wine. C.Technology innovation of oak barrel and wine cellar: RMB 83 million was designated to invest in this project, and the Company has invested RMB 39.80 million accumulatively, including the amount for purchasing 540 oaks barrels, and RMB 9.27 million for reinforcing the cellar. During the reporting period, the 540 oak barrels were put into use, which increased the oak barrels’ volume 120,000 liters and greatly improves the output and quality of the Company’s high-grade wine and brandy. After this project is finished, the Company will have 150,000 liters new wine storage volume. These expenditures occurred later than expected and at lower than the expected investment amount., The main reason was ongoing company research into utilization of advanced international wine brewing crafts, based on wine quality to improve the traditional crafts for storing wine so as to reduce the heavy investment in cellar and barrels. D. Low alcohol wine project with an annual output of 20,000 tons: As disclosed, the investment for this project was RMB 38.5 million of which RMB 40.28 million has been invested. This project had been put into full production. The sales volume during the reporting period was 1,102 T’s, the income from sales of products reached RMB 9.35 million with a profit of RMB 3.37 million. The discrepancy between the actual profits and scheduled profits was due to emphasis on sales of middle and high quality wine which had a high gross profit, which limited marketing efforts and therefore the sales volume. Nevertheless, the company is confident in its future market and will gradually reinforce the publicity and spread of the products. E. Medium to high grade wine project with annual output of 10,000 tons built in the west of 14 China: The Company established a winery with an annual output of 5,000 tons at the first stage in Jingyang county, Xianyang city, Shanxi province. The actual investment proceeded behind the plan schedule, because the land purchase slowed this project’s starting. In the reporting period, the Company invested RMB 20.18 million, and finished the complete civil engineering, most of equipment purchasing, making, installing and testing. This project began test-production in March of 2002 and was put into production in the middle of June. We produced 268T’s of wine in that year and realized the sales income of RMB 1.336 million, the profit and expenses were just in balance. ②.Marketing system’s re-building and enlarging project: A. Construction of a distribution company. This project was planned to invested RMB 45.25 million, and the accumulative investment reached RMB 27.82 million during the reporting period, saving RMB17.43 million than expected. The branch companies exclusively distributing the product of the Company were established in 22 municipalities or provincial capitals such as Beijing, Shanghai, Chongqing, Shenyang, Haerbin, and so on. During the reporting period, the sales reached RMB 29.765 million, and net profit was RMB 3.885 million. This project was planned for completion at the end of 2001, but because in the reporting period the Company recomposed the marketing system, the project was delayed. And this project was finished in September of 2002. B.Computerizing information system’s establishment. The investment for this project was RMB 46 million, including investment for fixed assets RMB 29.5 million. During the reporting period, the Company invested RMB 40.14 million accumulatively, and finished the building of the head office information marketing center , engineering, internal decoration, layout of network and the bidding for soft ware development. Now the Company is purchasing network equipment and developing soft ware. This project began test-using in August of 2002, in the middle of October it passed the system requirements examination of Shangdong Network technology laboratory. The DRP information management system was put into use and strengthened the control and management for the distribution network of the company. The implementation was roughly the same as the plan. ③.Enterprise technology center with nation-level project: The total investment amount of this project was RMB 10 million, while RMB 10.15 million was actually invested, and during the period of annual report, the technical center successfully passed the assessment and check by the relevant departments of the country, the center was listed as “ Enterprises Technical Center at National Level” by six departments including the National Economic and Trade Committee in Dec 2002. ④.Wine Castle project: This project was a joint venture project between French Castel Group Co., Ltd and our company, with 70% of shares owned by the company. The planned investment in this project was RMB 37.7 million, the actual investment amount reached RMB 42.11 million with RMB 2.27 million invested during the reporting period. The inner decoration, auxiliary facilities and other end works were finished. This program was put into use in Sep 2002, and produced 75T’s of high quality wine, realizing the sales income of RMB 8.59 million with the profits of RMB 2.64 million, which became the new increase point of the sales and profits. The actual implementation of this program keeped the same rhythm with the promissory investment . ⑤.Distribution subsidiaries in counties of coastal area: The total investment amount for this project was RMB 40 million, and RMB 21 million hand been invested in the reporting period, saving RMB 19 million than expected. The Company had established some exclusive subsidiaries in 27 cities of Guangdong, Zhejiang, Jiangsu and Shandong province. During the reporting period, the sales reached RMB 231.18 million, net profit was RMB 30.17 million. This project was planned for completion in 2001, but because the Company reformed the marketing system during the reporting period, it was delayed, and it was finished in September of 2002. ⑥ . The fermentation center’s environment protection project: As disclosed, the total investment amount of this project was RMB 4.50 million The actual investment amount for this project was RMB 4.56 million. The project was finished at the end of 2001. After it was put into using during the report period, the new sewage treating capacity can satisfy the demand of the second enlargement project of the fermentation center which increased fermentation capacity by more than 10,000 tons, and it fully meets the sewage-treatment standards. ⑦. To participate the establishment of “Shenzhen Jia De Yu Information Business Co., Ltd.”. The Company undertook to invest RMB 2 million for this project, and already invested all the 15 amount in 2000. The business scope of this company mainly covers information consultation, information technology, venture investment, assets management and commodity (wine and drinks mainly) business & distribution. At present, this company had established successfully a web site named “wine field”(web site is 9xo9.com.), on which business system of wine or drinks and relative products was established. And now it had already begun to invite members to do relevant business. Some of distributors of the Company have tried to buy or wholly sell the Company’s products through the “wine field”. ⑧Complementing operation capital: RMB 157.51 million of floating capitals had been put into operation. The increase of floating capital decreased the Company’s financial expenses and equity-debt ratio. (2). Investment Situations of Non-collected Capital in the Reporting Period Name Amount Schedule Income Sino-French joint USD3,000,000 Put into production RMB660,000 venture, Langfang Castel-Changyu Wine Co., LTD. Total USD3,000,000 RMB660,000 3. Financial Situation of the Company The total assets by the end of the reporting period was RMB 1849.89 million with growth of 10.8% over that of the beginning of the fiscal year, which was mainly caused by the increase of shareholder’s equity. The shareholders’ equity was RMB 1491.659 million, 4.06% growth over that of the beginning of the fiscal year, which was mainly caused by the Company’s operation profit. The profit from principal business was RMB 466.41 million, 3.33% growth over that of the preceding year, which was mainly caused by the increase of the income of the principal business. The net profit was RMB 115.909 million, 29.26% less than that of the preceding year, which was mainly caused by the increase of financial returns of income tax, the percentage growth for mid-high grade products and the gross interests rate. By the end of the reporting period, the net of cash flows from operating activities was RMB 136.636 million. The net cash flow per Share from operating activities was RMB 0.53, which is RMB 0.33 more than that of the beginning of the fiscal year, which was caused mainly by the enlargement of raw material grape purchase and increase in payment of expenses and taxes. The equity-debt ratio was 19.36%, about 5.21% higher than that of the beginning of the fiscal year. The current ratio was 4.10 and the quick ratio was 2.89 (At the beginning of the fiscal year, the current ratio and the quick ratio was 5.83 and 4.44 respectively). During the reporting period, the operation expenses and general and administrative expenses of the Company were basically the same as that of the preceding year, which was the result of strengthening the control on the two kinds of expenses. The financial expenses of the Company were RMB 0.73 million less than that of the preceding year due to increases in interest income from proceeds collected but not invested. 4. The Influence of Great Change of Operation Environment and Macro-policy The influence of canceling the “levy first and return later” income tax policy and China entering WTO are detailed in “8.Other Material Events” of “IX Material Events” in this report. 5. Business Plan of 2003 In the new year 2003, the Board of Directors will continue to concentrate on developing the Company’s central business and try hard to keep the central competition, meanwhile it will care about the investment projects outside the main business that will bring stable return to the Company’s long-term development. The present goal of the Company is still to continuously improve the shareholders’ value through increasing the profit of each share and capital return rate. If there is no unexpected situation happens, the Board of Directors anticipates that, with the increase of China economy and average personal income level, the future wine market of China will keep in stable development. But on the other side, with the decreased customs tariffs level of imported wine, the barrier of foreign wine entering China market is reduced, leading to the fiercer competition in domestic wine market. In order to fit in this situation and to ensure the sales income and total profits to stably increase on the basis of 2001, the Company will take the following actions: (1). Continuously stick to the operation principal of taking market as center and further develop the market management. In the new year, our company we’ll strength the management of sales 16 staff and distributors, accelerate the step of localization of our business men, give free rein to employee’s enthusiasm and creativity in work; speed up the website construction, probe the potential cooperation with new channels such as chain supermarkets, the monopolized stores at the airports, to improve the share of the markets in hotels; make an impressive progress in spreading the markets of high grade wines such as “Carbernet”, “Chateau” and brandy and champagne as well in order to ensure the realization of the index in our company. (2). Accelerate funds collection projects construction and improve the Company’s stamina. In the new year, the Company will pay attention to the construction of A Share investment project, speed the implementation, and ensure to put in production as soon as possible to add new power to the Company’s stable development. (3). Strengthen the finance management, reduce the each cost and improve economy efficiency of the company. In 2003, the company will take further steps in amplifying and perfecting the comprehensive budget of management system., reducing the purchase cost of the material through the way of inviting tenders, improve the efficient operation of funds by compressing the occupation of the two funds; put strict control on the investment budget of publicity so as to ensure the realization of the achievements; reduce the expenses on all aspects and improve the efficiency. (4). Deepen labor, personnel and distribution system reforms and strengthen the energy and competition of the company. The company will carry out the complete innovation in the style of human affairs, advocate the system in fixed staff and fixed post, put into practice the post salary system, put into play every staff’s activity and creativity; implement the competition for post in technical and management fields; provide the training for those unqualified sales staff; let the surplus staff wait for employment inside the company and take training by turn; strengthen the selection, employment and cultivation of the cadres, push on actively the innovation of the management personnel to really formulate the system involving labor, human affairs , and allocation of flexible income , employment of the staff and cadres. 6. Matters on the Work of Board of Directors (1) The Situations and Contents of the Meetings of Board of Directors in the Reporting Period The Company had convened meeting of the Board of Directors seven times during the reporting period. ①The eighth meeting of the second Board of Directors was held on 15nd January, 2002. “The Questionary for the Situation of the Normative Operation” and “The Rectifying and Improvement Scheme for the Problems in the Process of the Normative Operation” were discussed and passed at the meeting, and agreed to report the above documents to CSRC Jinan Securities Supervision Office. ②The Ninth meeting of the second Board of Directors was held on March 27, 2002. At the meeting the following resolutions were discussed and passed: A. “The 2001 Work Report of the Board of Directors” B. “The 2001 Work Report of the General Manager” C. “The 2001 Annual Report and its Summary” D. “The 2001 Financial Statement and the 2002 Financial Budget Report” E. “The Profit Distribution Plan of 2001” F. “The Predicted Profit Distribution Plan of 2002” G. “The Proposal of Appointing Independent Directors” H. “The Proposal of the Change of the Senior Management” I. “The Proposal of Continuous Engagement of the Certified Public Accountant” J. “The Discussing Regulation of Shareholder’s Meeting” K. “The Information Disclosing Managing Rules of the Company” L. “The Scheme About the Yearly Salary Examination for the Senior Management” M. “The Proposal of Canceling the dead account after verification” N. “The Proposal of Relevant Matters on Convening the 2001 Shareholders’ Meeting” The resolution announcement of this meeting was published on March 30, 2002 in “China Securities Newspaper”, “Securities Times” and “Hong Kong Commercial Daily”. ③The tenth meeting of the second Board of Directors was held on 25th April 2002. “The Proposal of 2002 Interim Report ” was discussed and passed. The resolution announcement of this meeting was published on 26th, April, 2002 in “China 17 Securities Newspaper”, “Securities Times” and “Hong Kong Commercial Daily”. ④The eleventh meeting of the second Board of Directors was held on 20th, May, 2002. “The Proposal of Electing Vice Board Chairman of the Company” was discussed and passed and Mr. Zhou Hongjiang was elected as the vice board Chairman of the second Board of Directors of the company. The resolution announcement of this meeting was published on 21th, May, 2002 in “China Securities Newspaper”, “Securities Times” and “Hong Kong Commercial Daily”. ⑤The eleventh meeting of the second Board of Directors was continued on 29th, June, 2002. “The Report of the Listed Company Establishing Modern Enterprise System” was discussed and passed at the meeting and agreed to report to the related CSRC departments. Two independent directors announced their opinion on the maturity and the truth of the report. ⑥The twelfth meeting of the second Board of Directors was held on 10th, August, 2002. “The 2001 Semi-annual Report and its Summary”, “The Semi-year Profit Distribution Plan of 2001” and “The Proposal of deferring investing Tiantong Fund Management Company LTD” were discussed and passed at the meeting. The resolution announcement of this meeting was published on 13th, August, 2002 in “China Securities Newspaper”, “Securities Times” and “Hong Kong Commercial Daily”. ⑦The thirteenth meeting of the second Board of Directors was held on 27th, October, 2002. “The Proposal of the Third Quarter Report of 2002” was discussed and passed at the meeting. The resolution announcement of this meeting was published on 29th, October, 2002 in “China Securities Newspaper”, “Securities Times” and “Hong Kong Commercial Daily”. (2)The Situation of the Board of Directors’ Execution to the Resolutions of the Shareholders’ Meeting At the 2001 Shareholders’ Meeting held on 20th, May, 2002. the 2001 Profit Distribution Plan was discussed and passed. Based on the total capital stock, 260 million Shares at the end of 2001, cash dividends of RMB2.50 were declared to every 10 Shares. The Announcement for this share dividend declaring was published on 7th, June, 2002 in “China Securities Newspaper”, “Securities Times” and “Hong Kong Commercial Daily”. Share right registering date for A Share and the last exchange date for B Share was 14th, June, 2002. The interest’s payment date was 17th June 2002. The cash dividend RMB 65,000,000 distributed was completed before the end of June, 2002. 7. Company’s Profit Distribution Plan of 2002 The net profit of 2002 was respectively RMB 115,908,579 and RMB 111,240,563 based on the audit performed by Pricewaterhouse Coopers Zhong Tian Certified Public Accountants Company Limited according to the International Financial Reporting Standards and the PRC Financial Reporting Standards. According to “Detailed Implementations Rules Concerning Domestic-listed Foreign Investment Shares of Joint Stock Limited Companies” and “the Articles of the Association of the Company”, appropriation of dividend is based on the lower of the Company’s retained earnings as reported in the financial statement audited by certified public accountants and drawn up according to the PRC Financial Reporting Standards and that prepared under the International Financial Reporting Standards. On the basis of the net profit of RMB 111,240,563 in 2001, after allocating 10% of such amount, i.e. RMB 1,,124,057 to the statutory public reserve, and 10% of such amount, i.e. RMB 11,124,056 to the statutory public welfare fund, and plus RMB 176,517,681 of the profit undistributed at the beginning of the reporting period, the amount available for distribution in 2001 was RMB 265,510,131. Discussed and passed at the fourteenth meeting of the second Board of Directors, the 2002 profit distribution plan was as follows: RMB 52 million was proposed to be appropriated by cash dividend to shareholders of all 260 million Shares on 31st December, 2002 in the ratio of RMB 2.00 for every 10 Shares (For A Share, income tax included). The remaining of RMB 213,510,131 will be carried forward to the next year. And at the same time, the company transfered capital reserve to 52,000,000 shares in the ratio of 2 share for every 10 Shares, then the total shares of the company increased to 312,000,000. The cash dividend distributed to the foreign shareholders will be paid in HK Dollars converted from RMB by the middle ratio announced by the People’s Bank of China on the first working day after the resolution date of the General Shareholders’ Meeting. The above expected plan of company’s profit distribution and the transfer capital reserve to 18 share capital is subject to be considered and approved by the 2002 Shareholders’ Meeting. 8. Other Disclosed Information The newspapers for the Company to disclose information remained the same and are “China Securities Newspaper”, “Securities Times” in home and “Hong Kong Commercial Daily” at abroad. VIII. BOARD OF SUPERVISORS’ REPORT 1. Meeting of the Board of Supervisors The Company convened the meetings of the Board of Supervisors four times during the reporting period: The fourth meeting of the second Board of Supervisors was held on 25th, January, 2002. “The Questionary for the Situation of the Normative Operation” and “The Rectifying and Improvement Scheme for the Problems in the Process of the Normative Operation” were discussed and passed and agreed to report the above documents to CSRC Jinan Securities Supervision Office. The fifth meeting of the second Board of Supervisors was held on 27th, March, 2002. “The 2001 Annual Report and its Summary”, “The 2001 Financial Statement and the 2002 Financial Budget Report”, “The Profit Distribution Plan of 2001”, “The 2001 Work Report of the Board of Supervisors” were discussed and passed. The sixth meeting of the second Board of Supervisors was held on 29th, June, 2002. “The Report of Establishing Modern Enterprise System” was discussed and passed at the meeting, and agreed to report to the related CSRC departments. The seventh meeting of the second Board of Supervisors was held on 10th, August, 2002. “The 2001 Semi-annual Report and its Summary” and “The Semi-year Profit Distribution Plan of 2001” were discussed and passed at the meeting. 2. Report of Board of Supervisors During the reported period, the members of the Board of Supervisors seriously pursued their responsibilities, worked actively, attended all shareholder’s meetings, and performed ongoing supervision and monitoring of activities for the Company’s regulatory operation, finance, related trade and collected funds use. The Board of Supervisors, after thorough discussion, prepared the following independent comments: (1) About the legal operation of the Company: During the reporting period, the directors and high-level managerial personnel demonstrated honesty and integrity, abided by the laws and regulations, seriously implemented the resolutions of shareholders’ meetings and Board of Directors, followed Corporate Law and Articles of Association. They conducted themselves in this manner while implementing their jobs, abiding by state laws, regulations and the Company’s system, and protecting the interests of the Company and all shareholders without violating laws, regulations or Articles of Association or damaging the Company’s interests. (2) Checking the Company’s finance: During the reporting period, all expenses of the Company were reasonable, and related withdrawals and deposits were in accordance with laws, regulations and Articles of Association. The financial structure is good and the assets quality is excellent. Pricewaterhouse Coopers Zhong Tian Certified Public Accountants Company Limited have evaluated the Company’s financial reports in 2001 respectively according to the international audit standards and China audit system, and have presented evaluation report without reservation. The Board of Supervisors believes that the report truly, objectively and correctly reflects the Company’s financial situation and business achievements. (3) About the collected funding use: In October 2000, the Company increased its capital and issued 32 million ordinary A Shares. The actual invested projects of collected funds are in accordance with those committed to in the Share Invitation Statement. No change in invested projects was made, but the investment schedules of individual projects vary from the prospectus investment schedules. (4) Equity of the related trade: During the reporting period, the related trade in the Company proceeds strictly according to the relevant state regulations. The procedures were complete and the trades justified, which protects the interests of the Company and the shareholders. The Board of Supervisors thinks that, during the reporting period, the Board of Directors and managers group solidify and coordinate, advance and develop, deal with concrete things related to work efficiently, and do an efficient job for the further development of the Company and protecting the shareholders’ interests. The Board of Supervisors suggests that in the new year, the 19 company should still focus on market oreintation, deeply develop the market, strengthen the core competition and strive to reach the business targets established by the Board of Directors for the Company’s stable and healthy development. IX. MATERIAL EVENTS 1 During the reporting period, there were no material litigation and arbitration 2. During the reporting period, the Company did not purchase, sell or annex any assets. 3. Related Party Transaction There were no any other related party transactions during the reporting period. But for the related party transactions happened in the previous reporting year and continued to the reporting period, please refer to the “24. Related Parties and its Transaction” of the notes of Financial Statement. 4. Material Contract and its Executing During the reporting period, there were no mortgage or warranty, entrusting or entrusted, contracting or contracted, leasing or leased events for the Company. And there were no events of entrusting other person to manage the cash assets, no matter it occurred in or continued to the reporting period. 5. Events the Company Undertook The Company undertook in the 2001 Annual Report that the share dividend distributed in 2002 would not be less than that of 2001. The Profit Distributing Plan of 2002 discussed and passed by the fourteenth meeting of the second Board of Directors was accordance with this undertaking, and it would be submitted to the 2002 Shareholders’ Meeting to discuss and pass for effecting. The shareholders who held the Shares of the Company more than 5% did not disclose information in the appointed newspaper or net station. 6. Appointment of Certified Public Accountants The Company determined to continually engage Pricewaterhouse Coopers Zhong Tian Certified Public Accountants Company Limited in 2002 as the Company’s international auditor and the domestic certified public auditor at the 2001 Shareholders’ Meeting,. The period of appointment was 1 year. The auditing fee was HKD 0.8 million totally, travel expense and working expense included. For all business of Arthur Andersen & Co and Arthur Andersen·Hua Qiang Certified Public Accountants in Hong Kong and Chinese mainland had been merged into Pricewaterhouse Coopers Zhong Tian Certified Public Accountants Company Limited from 1th June, 2002. The original Arthur Andersen · Hua Qiang Certified Public Accountants was changed into name Pricewaterhouse Coopers Zhong Tian Certified Public Accountants Company Limited. So including the report period Pricewaterhouse Coopers Zhong Tian Certified Public Accountants Company Limited had already provided audit service for the company totaling six years. 7. During the reporting period, none of the Company, the Board of Directors or the directors of the Company was punished administratively, criticized or censured publicly by the supervising departments. In July of 2002, the company accepted the return visit of CSRC Jinan Securities Supervision Office after their routine check to the Company in 2001 and the check for the construction of Modern Enterprise of CSRC Jinan Securities Supervision Office and Shangdong Economy System Reform Office. They reported that the company reached the basic requirements of the modern enterprises system and recommended the company to attend the “Summing-up meeting, namely, the experience communication meeting for the construction of the modern enterprises system of the listed company”. 8. Other Material Events (1). It was the 110th anniversary ceremony of the company from 8th to 10th September 2002. The OIV celebrated the International Vine and Wine Development Forum successfully in the company. Nearly 300 overseas friends and more than 1500 domestic dealers, experts and scholars took part in this forum and ceremony. It is the first time for OIV to hold the international academic meeting in China. The activity improved further the influence of Changyu brand in domestic and overseas market. In September 2002, the company was elected as one of the 16 enterprises which competes internationally and has the ability to become a world name brand by the China Industry and Economy League and China Name Brand Strategy Advance Committee. (2). The influence of the China entering WTO: After China entered into WTO, the Company will 20 be influenced on two aspects. First is the reduction of import tariffs. According to the law document “the reducing table for the farm produce of the PRC”, the import tariff of wine and brandy will be cut down to 44.6% and 46.7% respectively from the date of January 1, 2002, and to 14% and 10% respectively in 2004, which is beneficial to foreign wine and brandy importers. And second, foreign wineries and agents will have the right to import, export and distribute, and could establish distribution channels directly in China. So, for long term, the Company will face increasing competition after China’s entry into WTO. But in the interim period, the Company will perfect its marketing net work, improve research capacity, improve product structure, enlarge market occupation, reduce operation cost to improve the competition power and lessen the competitive pressure on the Company. (3). Income tax policy change: According to the documents of “the Notice of correcting the levy first and refund later income tax policy constituted by local government”, from January 1, 2002 the Company would not continue to enjoy the income tax policy of levy first and refund later. Which meant that the Company paid enterprise income tax at the rate of 33% of the enterprise income before taxation and the local financial department refunded 18% of the enterprise income before taxation to the Company, i.e. the actual income tax of the Company was be 15%, The new income tax of the Company will be 33 which had have some effects on the business performance in 2002. Ⅹ. FINANCIAL REPORT 21 The 2001 Financial Report of the Company had been audited by Pricewaterhouse Coopers Zhong Tian Certified Public Accountants Company Limited, who presented an Auditors’ Report without any qualification: YANTAI CHANGYU PIONEER WINE COMPANY LIMITED AND ITS SUBSIDIARIES (Registered in the People’s Republic of China) CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2002 TOGETHER WITH REPORT OF THE AUDITORS In accordance with International Financial Reporting Standards 22 REPORT OF THE AUDITORS TO THE SHAREHOLDERS OF YANTAI CHANGYU PIONEER WINE COMPANY LIMITED We have audited the accompanying consolidated balance sheet of Yantai Changyu Pioneer Wine Company Limited (the “Company”) and its subsidiaries (the “Group”) as of 31 December 2002 and the related consolidated income statement, cash flow statement and changes in shareholders’ equity for the year then ended. These financial statements set out on pages 2 to 31 are the responsibility of the Group’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of 31 December 2002, and of the results of operations and cash flows of the Group for the year then ended in accordance with International Financial Reporting Standards. 26 March 2003 23 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED AND ITS SUBSIDIARIES CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in Renminbi (“RMB”) thousands, except for earnings per share) Year ended 31 December Note 2002 2001 RMB’000 RMB’000 Sales, net 859,987 824,849 Cost of sales (393,577) (373,452) Gross profit 466,410 451,397 Distribution costs (206,620) (210,179) Administrative expenses (78,576) (69,840) Other operating (expenses) income, net 3 (3,818) 50,067 Profit from operations 177,396 221,445 Finance income, net 4 7,455 8,184 Profit before tax and minority interest 6 184,851 229,629 Income tax expense 7 (68,099) (65,780) Profit before minority interest 116,752 163,849 Minority interest (843) - Net profit 115,909 163,849 Earnings per share - Basic and diluted 8 RMB 0.45 RMB 0.63 The accompanying notes are an integral part of these consolidated financial statements. 24 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED AND ITS SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF 31 DECEMBER 2002 (All amounts in RMB thousands) Note As of 31 December 2002 2001 RMB’000 RMB’000 ASSETS Non-current assets Leasehold lands, net 9 15,792 6,449 Property, plant and equipment 10 535,520 377,046 Investment in associate 12 703 703 Other long-term investment 13 2,000 2,000 Deferred tax assets 14 9,097 6,333 563,112 392,531 Current assets Inventories 15 380,027 304,048 Trade receivables, net 16 128,073 155,873 Prepayments and other receivables 18 51,731 57,143 Due from related party 24 56,446 72 Bank deposits with maturity over three months 248,356 233,811 Cash and cash equivalents 17 422,145 526,243 1,286,778 1,277,190 Total assets 1,849,890 1,669,721 EQUITY AND LIABILITIES Shareholders’ equity Share capital 19 260,000 260,000 Reserves 20 1,231,659 1,173,437 1,491,659 1,433,437 Minority interests 27,313 1,655 Non-current liabilities Deferred tax liabilities 14 17,229 15,531 Current liabilities Trade payables 146,216 38,962 Other payables and accrued liabilities 21 114,431 100,613 Salaries payable 46,047 49,163 Taxes payable 6,995 30,360 313,689 219,098 Total equity and liabilities 1,849,890 1,669,721 Approved by the board of directors on 26 March 2003 SUN LIQIANG QU WEIMIN Chairman Executive Director 25 The accompanying notes are an integral part of these consolidated financial statements. YANTAI CHANGYU PIONEER WINE COMPANY LIMITED AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands) Reserves Statutory Statutory Share Capital Fair value surplus public Retained Note capital reserve reserve reserve fund welfare fund earnings Total Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Balance at 1 January 2001 260,000 817,169 - 30,714 30,713 182,992 1,061,588 1,321,588 Dividend relating to 2000 - - - - - (52,000) (52,000) (52,000) Net profit for the year - - - - - 163,849 163,849 163,849 Appropriation from retained profits 20 - - - 17,166 17,166 (34,332) - - Balance at 31 December 2001 260,000 817,169 - 47,880 47,879 260,509 1,173,437 1,433,437 Dividend relating to 2001 23 - - - - - (65,000) (65,000) (65,000) Revaluation reserve 10 - - 7,313 - - - 7,313 7,313 Net profit for the year - - - - - 115,909 115,909 115,909 Appropriation from retained profits 20 - - - 11,124 11,124 (22,248) - - Balance at 31 December 2002 260,000 817,169 7,313 59,004 59,003 289,170 1,231,659 1,491,659 The accompanying notes are an integral part of these consolidated financial statements. 26 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED AND ITS SUBSIDARIES CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands) Note Year ended 31 December 2002 2001 RMB’000 RMB’000 CASH FLOWS FROM OPERATING ACTIVITIES Cash generated from operations 25 216,928 146,902 Income tax paid (80,292) (94,288) Net cash generated from operation activities 136,636 52,614 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of leasehold lands (9,538) - Purchase of property, plant and equipment (204,009) (73,847) Increase in bank deposits with maturity over three months (14,545) (118,025) Increase of investments - (2,000) Proceeds from disposals of property, plant and equipment 19,862 1,820 Interest received 7,681 7,065 Net cash used in investing activities (200,549) (184,987) CASH FLOWS FROM FINANCING ACTIVITIES Capital injections of minority interests 24,815 - Dividends paid (65,000) (52,000) Net cash flows used in financing activities (40,185) (52,000) Net decrease in cash and cash equivalents (104,098) (184,373) Cash and cash equivalents at beginning of year 526,243 710,616 Cash and cash equivalents at end of year 422,145 526,243 The accompanying notes are an integral part of these consolidated financial statements. 27 1 ORGANIZATION AND OPERATIONS Yantai Changyu Pioneer Wine Company Limited (the “Company”) was incorporated as a joint stock limited company in accordance with the Company Law of the People’s Republic of China (the “PRC”) on 18 September 1997. As part of the reorganization (the “Reorganization”), the Company issued 88,000,000 domestically listed foreign shares (“B Shares”) to overseas investors. The Reorganization involved a reorganization carried out by Yantai Changyu Group Company Limited (“Changyu Group Company”), the promoter and the parent company of the Company, which injected certain assets and liabilities in relation to the brandy, wine, sparkling wine and cider and tonic wine production and sales businesses to the Company. The Company’s B Shares were listed on the Shenzhen Stock Exchange on 23 September 1997. In October 2000, the Company issued 32,000,000 domestic investment ordinary shares (“A Shares”) to PRC investors. The Company’s A Shares were listed on Shenzhen Stock Exchange on 26 October 2000. The Company and its subsidiaries (the “Group”) are principally engaged in the production and sales of wine, brandy, sparkling wine and cider and tonic wine. The average number of employees in the Group was approximately 2,231 in 2002 and 2,150 in 2001. The registered office address of the Company is 56 Dama Road, Yantai City, Shandong Province, the PRC. The directors of the Company considered Changyu Group Company, a company incorporated in the PRC and owned by the government of the PRC, to be the ultimate parent company. 2 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. The consolidated financial statements have been prepared under the historical cost convention as modified by the revaluation of certain property, plant and equipment. 28 The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current event and actions, actual results ultimately may differ from those estimates. The Group adopted IAS 39 Financial Instruments: Recognition and Measurement and IAS 40 Investment Property in 2001. There was no significant financial impact on the opening balances of the consolidated financial statements resulting from the initial adoption of these standards. This basis of accounting differs from that used in the statutory accounts of the Group companies which are prepared in accordance with the accounting principles and the relevant financial regulations applicable to enterprises in the PRC (“PRC GAAP”). (b) Group accounting (1) Subsidiaries Subsidiaries, which are those 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. 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. 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. 29 (2) Associate Investment in associate is accounted for by the equity method of accounting. Under this method the Company’s share of the post-acquisition profits or losses of associate is recognised in the consolidated income statement and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the cost of the investment. Associate is an entitiy over which the Group generally has between 20% and 50% of the voting rights, or over which the Group has significant influence, but which it does not control. Unrealised gains on transactions between the Group and its associate are eliminated to the extent of the Group’s interest in the associate; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognise further losses, unless the Group has incurred obligations or made payments on behalf of the associate. (c) Foreign currency translations (1) Measurement currency Items included in the financial 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 RMB, which is the measurement currency of the parent. (2) Transactions and balances Foreign currency transactions are translated into the measurement currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. (d) Leasehold lands Leases of lands acquired are classified as operating leases. The prepaid lease payments are amortised over the lease period (50 years) on a 30 straight-line basis. (e) Property, plant and equipment Property, plant and equipment is shown at fair value, based on valuations by external independent valuers, less subsequent depreciation. Other property, plant and equipment acquired subsequent to last valuation is stated at historical cost less depreciation. Increases in the carrying amount arising on revaluation of buildings are credited to fair value and other reserves in shareholders’ equity. Decreases that offset previous increases of the same asset are charged against fair value and other reserves; all other decreases are charged to the income statement. Each year the difference between depreciation based on the revalued carrying amount of the asset (the depreciation charged to the income statement) and depreciation based on the asset’s original cost is transferred from fair value and other reserves to retained earnings. Depreciation is calculated on the straight-line method to write off the cost or revalued amount of each asset to their residual values over their estimated useful lives as follows: Buildings 30-40 years Machinery and equipment 10-20 years Motor vehicles 6-12 years Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in operating profit. When revalued assets are sold, the amounts included in fair value and other reserves are transferred to retained earnings. Repairs and maintenance are charged to the 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. 31 (f) Impairment of long lived assets Property, plant and equipment and leasehold lands 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. (g) Investments Investments in equity securities are classified by the Group as available-for-sale, and included in non-current assets unless management has expressed the intention of holding the investments for less than 12 months from the balance sheet date or unless they will need to be sold to raise operating capital, in which it is included in current assets. Purchase and sale of investments are recognised on the trade date, which is the date that the Group commits to purchase or sell the asset. Cost of the investments include transactions cost and are subsequently carried at fair value. Unrealised gains and losses arising from changes in the fair value of the investments are recognised in equity, and the fair value 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 income statement as gains and losses from investment securities. (h) Operating 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 income statement on a straight-line basis over the period of the lease. (i) Inventories Inventories are stated at the lower of cost or net realisable value. Cost is determined using the weighted average method. The cost of finished goods 32 and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity) but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses. (j) Trade receivables Trade receivables are carried at original invoice amount less provision made for impairment of these receivables. A provision for impairment of trade receivables is established when there is an objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, discounted at the market rate of interest for similar borrowers. (k) Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the consolidated cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are included within borrowings in current liabilities on the balance sheet. (l) Deferred income taxes Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Currently enacted tax rates are used in the determination of deferred income tax. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associate, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. 33 (m) Employee benefits Contribution to pension scheme are recognised as an expense in the consolidated income statement as incurred. Pursuant to the PRC laws and regulations, contributions to the basic pension scheme for the Group’s local staff are to be made monthly to a government agency based on 25% of the standard salary set by the provincial government, of which 20% is borne by the Group and the remainder is borne by the staff. (n) Government grants Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. (o) Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The Group recognises a provision for onerous contracts when the expected benefits to be derived from a contract are less than the unavoidable costs of meeting the obligations under the contract. Restructuring provisions comprise lease termination penalties and employee termination payments, and are recognised in the period in which the Group becomes legally or constructively committed to payment. Costs related to the ongoing activities of the Group are not provided in advance. (p) Revenue recognition Revenue comprises the invoiced value for the sale of goods and services net of value-added tax, rebates and discounts, and after eliminating sales within the Group. Revenue from the sale of goods is recognised when significant risks and rewards of ownership of the goods are transferred to the buyer. Interest income is recognised on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the Group. 34 (q) Dividends Dividends are recorded in the Group’s financial statements in the period in which they are approved by the Group’s shareholders. (r) Financial risk management (1) Financial risk factors and financial risk management The Group activities expose it to a variety of financial risks, including credit risk, liquidity risk, interest rate risk and foreign exchange risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. Financial risk management is carried out by the Finance Department under policies approved by the board of directors. (i) Credit risks The Group has no significant concentration of credit risk with any single counterparty or group counterparties. The Group has policies in place to ensure that sales of products are made to customers with an appropriate credit history. (ii) Liquidity risks Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. (iii) Interest rate risk The Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Group has no significant interest-bearing assets. The Group policy is to maintain all its borrowings in fixed rate instruments. (iv) Foreign exchange risk The Group has no significant foreign exchange risk due to limited foreign currency transactions. 35 (2) Fair value estimation The fair value of publicly traded securities is based on quoted market prices at the balance sheet date. In assessing the fair value of non-trading securities and other financial instruments, the Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. The face values less any estimated credit adjustments for financial assets and liabilities with a maturity of less than one year are assumed to approximate their fair values. (s) Comparatives Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year. 3 OTHER OPERATING (EXPENSES) INCOME, NET 2002 2001 RMB’000 RMB’000 Financial refund (Note 7(a)) 3,990 51,780 Loss on disposals of property, plant and equipment (7,830) (4,762) Others 22 3,049 (3,818) 50,067 4 FINANCE INCOME, NET 2002 2001 RMB’000 RMB’000 Interest income 7,681 8,422 Others (226) (238) 7,455 8,184 36 5 STAFF COSTS 2002 2001 RMB’000 RMB’000 Wages and salaries and bonus 103,091 95,737 Provision for staff welfare 8,904 7,253 Defined contribution pension scheme 7,565 11,330 119,560 114,320 6 PROFIT BEFORE TAX AND MINORITY INTEREST Profit before tax and minority interest was determined after crediting and charging the following: 2002 2001 RMB’000 RMB’000 Crediting: Interest income 7,681 8,422 Charging: Depreciation of property, plant and equipment 28,758 27,476 Amortisation of leasehold land 195 130 Advertising expenses 78,276 69,726 Sales commission 3,594 9,365 Freight 32,951 38,679 Trademarks licence (Note 24(b)) 18,564 17,720 Travelling expenses 15,775 13,733 Research and development costs included in general and administrative expenses 3,325 2,807 Operating lease rentals - Lease of machinery, facilities and trademark (Note 24(e)) 3,400 3,400 - Lease of land use rights (Note 24(d)) 550 550 Provision for doubtful debts 8,376 8,874 Loss on disposals of property, plant and equipment 7,830 4,762 37 7 TAXATION (a) Enterprise income tax (“EIT”) Details of taxation charged during the year were as follows: 2002 2001 RMB’000 RMB’000 Current income tax expense 72,767 57,972 Deferred tax (income) expenses relating to the reversal and origination of temporary differences (4,668) 7,808 68,099 65,780 The reconciliation of the applicable tax rate to the effective tax rate is as follows: 2002 2001 RMB’000 % RMB’000 % Accounting profit before tax 184,851 100% 229,629 100% Tax at the statutory tax rate of 33% 61,000 33% 75,778 33% Tax effect of expenses that are not deductible in determining taxable profit: - Provision for doubtful debts 2,764 2% 2,928 1% - Non-deductible advertising expenses 7,061 4% 3,999 2% - Sales commission 1,186 1% 3,090 1% - Others 2,073 1% 1,904 1% Tax effect of income that are not subject to income tax: - Deductible provision for doubtful debts of prior years - - (12,640) (5%) - Financial refund (1,317) (1%) (17,087) (7%) Effect of deferred taxes relating to the reversal and origination of temporary differences (4,668) (3%) 7,808 3% Income tax expense 68,099 37% 65,780 29% 38 The Group is subject to EIT which is levied at a rate of 33% of taxable income based on the PRC statutory accounts. Pursuant to the relevant circulars issued by the Shandong Provincial Municipal Government, the Company was entitled to a financial refund of 18% on its taxable income, commencing from the date of the listing of the Group’s B Shares. Pursuant to the relevant circulars issued by the Ministry of Finance in October 2000, commencing from 1 January 2002, the policies on financial refund in respect of EIT paid implemented by the local governments in the PRC should be terminated. In 2002, the Group received such financial refund amounting to RMB 3,990,000, which was relating to the EIT paid in 2001. (b) VAT The Group is subject to VAT, which is a tax charged on top of the selling price at a general rate of 17%. An input credit is available whereby VAT previously paid on purchases of semi-finished products, raw materials, etc., can be used to offset the VAT on sales to determine the net VAT payable. (c) Sales taxes The Group is subject to consumption tax (“CT”) on its products. CT is levied on the gross turnover of products at rates ranging from 10% to 15%. In addition to the above, the Group is subject to the following types of sales taxes: - city development tax, a tax levied at 7% of CT and net VAT payable, - education supplementary tax, a tax levied at 3% of CT and net VAT payable. 8 EARNINGS PER SHARE The calculation of basic earnings per share is based on the net profit for the year attributable to shareholders of approximately RMB 115,909,000 (2001: approximately RMB 163,849,000), divided by the weighted average number of ordinary shares outstanding during the year of 260,000,000 shares (2001: 260,000,000 shares). Diluted earnings per share equal to basic earnings per share as there are no potentially dilutive shares outstanding. 39 9 LEASEHOLD LANDS, NET 2002 2001 Cost RMB’000 RMB’000 Beginning of year 6,849 6,849 Additions 9,538 - End of year 16,387 6,849 Accumulated amortisation Beginning of year 400 270 Additions 195 130 End of year 595 400 Net book value End of year 15,792 6,449 Beginning of year 6,449 6,579 10 PROPERTY, PLANT AND EQUIPMENT Movements in property, plant and equipment were as follows: Machinery and Construction Buildings equipment Motor vehicles -in-progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Cost/Valuation Beginning of year 153,771 282,233 17,715 103,423 557,142 Additions 13,706 3,884 1,087 185,332 204,009 Transfers 171,019 112,353 3,785 (287,157) - Disposals (29,170) (928) (2,647) - (32,745) Transfer to fair value reserve (39,145) (147,399) (6,342) - (192,886) End of year 270,181 250,143 13,598 1,598 535,520 Accumulated 40 depreciation Beginning of year 38,148 134,735 7,213 - 180,096 Charges 5,288 22,082 1,388 - 28,758 Disposals (2,212) (582) (2,259) - (5,053) Transfer to fair value reserve (41,224) (156,235) (6,342) - (203,801) End of year - - - - - Net book value End of year 270,181 250,143 13,598 1,598 535,520 Beginning of year 115,623 147,498 10,502 103,423 377,046 The buildings, machinery and equipment and motor vehicles of the Group as of 31 December 2002 were revalued by Shandong Zhengyuan Hexin Certified Public Accountants, independent professional valuers. The independent professional valuers determined the fair value of the buildings, machinery and equipment and motor vehicles based on the replacement cost and open market value methods. According to the revaluation result, a revaluation surplus net of applicable deferred income tax of approximately RMB 7,313,000 was credited to the fair value reserve in shareholders’ equity. If property, plant and equipment were carried at cost less accumulated depreciation, the amounts of each category of property, plant and equipment would be as follows: Machinery and Construction Buildings equipment Motor vehicles -in-progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Cost 274,847 327,154 16,607 1,598 620,206 Accumulated depreciation (17,151) (90,198) (2,517) - (109,866) 257,696 236,956 14,090 1,598 510,340 No borrowing costs were capitalised in construction in progress during 2002. 41 11 INVESTMENT IN SUBSIDIARIES As of 31 December 2002, the Group had the following subsidiaries which were all incorporated in the PRC: Percentage of Percentage of Date of equity interest equity interest Paid-in Principal Name of company establishment held directly held indirectly capital activities Yantai Changyu Pioneer Food Co., Ltd. 1 December 1992 100% - RMB 30,000 Sale of fruits Yantai Changyu Pioneer Wine Machine Packaging Co., 1 December 1992 100% - RMB 300,000 Machinery Ltd. sub-contracting and repairing Yantai Changyu Pioneer Vehicular Transport Co., Ltd. 1 December 1992 100% - RMB 300,000 Transportation service Changyu (Jingyang) Pioneer Wine Co., Ltd. 5 December 2001 90% 10% RMB 1,000,000 Production and sales of wine Yantai Changyu Pioneer Wine Sales Co., Ltd. 24 December 2001 90% 10% RMB 8,000,000 Sales of wine Dalian Changyu Sales and Distribution Co., Ltd. 23 January 1998 70% 30% RMB 500,000 Sales of wine Xi’an Changyu Sales and Distribution Co., Ltd. 27 March 1998 70% 30% RMB 500,000 Sales of wine Hangzhou Changyu Sales and Distribution Co., Ltd. 7 April 1998 70% 30% RMB 500,000 Sales of wine Changchun Changyu Sales and Distribution Co., Ltd. 20 January 1998 70% 30% RMB 500,000 Sales of wine Zhengzhou Changyu Sales and Distribution Co., Ltd. 16 January 1998 70% 30% RMB 500,000 Sales of wine Nanjing Changyu Sales and Distribution Co., Ltd. 10 February 1998 70% 30% RMB 500,000 Sales of wine Changsha Changyu Sales and Distribution Co., Ltd. 22 January 1998 70% 30% RMB 500,000 Sales of wine Wuhan Changyu Sales and Distribution Co., Ltd. 12 January 1998 70% 30% RMB 500,000 Sales of wine Nanchang Changyu Sales and Distribution Co., Ltd. 24 March 1998 70% 30% RMB 500,000 Sales of wine Taiyuan Changyu Sales and Distribution Co., Ltd. 20 January 1998 70% 30% RMB 500,000 Sales of wine 42 Percentage of Percentage of Date of equity interest equity interest Paid-in Principal Name of company establishment held directly held indirectly capital activities Shijiazhuang Changyu Sales and Distribution 2 April 1998 70% 30% RMB 500,000 Sales of wine Co., Ltd. Beijing Changyu Sales and Distribution Co., Ltd. 14 July 1998 70% 30% RMB 500,000 Sales of wine Guangzhou Changyu Sales and Distribution Co., 15 May 1998 70% 30% RMB 500,000 Sales of wine Ltd. Zhanjiang Changyu Sales and Distribution Co., 20 Octorber 1998 70% 30% RMB 500,000 Sales of wine Ltd. Yantai Kylin Packaging Co., Ltd. (“Kylin 29 September 1999 50% - USD 1,000,000 Production o Packaging”) (a) packaging materials Yantai Changyu-Castel Wine Chateau Co., Ltd. 3 September 2001 70% - USD 5,000,000 Production and sales of wine Langfang Development Zone Castel-Changyu 1 March 2002 49% - RMB 24,780,000 Production and Wine Co., Ltd. (“Langfang Castel”) (b) sales of wine Changyu (Jingyang) Pioneer Wine Sales Co., 8 April 2002 10% 90% RMB 1,000,000 Sales of wine Ltd. Langfang Changyu Pioneer Wine Sales Co., Ltd. 19 April 2002 10% 90% RMB 1,000,000 Sales of wine (a) The Company has more than one half of voting power in the board of directors of Kylin Packaging and has control over the subsidiary. The subsidiary’s financial statements have been included in the consolidated financial statements. (b) According to management contract signed with Langfang Castel, the Company manages the whole operation of the subsidiary and has control over the subsidiary by providing the foreign partner with guaranteed annual return. The subsidiary’s financial statements have been included in the consolidated financial statements. 43 12 INVESTMENT IN ASSOCIATE As of 31 December 2002, the Company had the following associate which was incorporated in the PRC: Percentage of equity Date of interest held Registered Principal Name of company establishment directly capital activities Yantai Sino-French Pegase Brandy 25 February 40% French Franc Manufacture and Co., Ltd. 1992 1,604,060 sale of brandy 13 OTHER LONG-TERM INVESTMENT 2002 2001 RMB’000 RMB’000 Available-for-sale investment - Unlisted shares 2,000 2,000 Non-current available-for-sale investment comprises a 5% shareholding in Shenzhen Jiadeyu Information Business Co., Ltd.. It is not practicable to determine the fair value of the non-current available-for-sale investment since the investment does not have quoted market price in an active market and other methods reasonably estimating fair value for the investment is clearly inappropriate or unworkable. 14 DEFERRED TAX ASSETS / LIABILITIES Deferred tax assets / liabilities were calculated in full on temporary differences under the liability method using a principal tax rate of 33% (2001: 33%). The movements on the deferred tax assets / liabilities were as follows: Charged Charged to Beginning of (Credited) to fair value Ending of year net profit reserve year RMB’000 RMB’000 RMB’000 RMB’000 Deferred tax assets: - Provision for doubtful debts 6,333 2,764 - 9,097 Deferred tax liabilities: 44 - Revaluation reserve of property, plant and equipment 8,648 (1,904) 3,602 10,346 - General and administrative expenses recorded using the accrual basis 6,883 - - 6,883 15,531 (1,904) 3,602 17,229 (9,198) 4,668 (3,602) (8,132) The deferred tax charged to equity during the year was as follows: 2002 2001 RMB’000 RMB’000 Fair value reserve in shareholders’ equity - property, plant and equipment 3,602 - Deferred taxes arise on the above in the following circumstances: - Provision for doubtful debts is not tax deductible until approved by the local tax bureau; - Property, plant and equipment stated at fair value have different tax bases and carrying amounts because revaluation is done for accounting purpose only; and - Certain accrued expenses are not tax deductible until payments are made. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred taxes relate to the same fiscal authority. The following amounts, determined after appropriate offsetting, were shown in the consolidated balance sheet: 2002 2001 RMB’000 RMB’000 Deferred tax assets to be recovered after more than 12 months 9,097 6,333 Deferred tax liabilities to be settled after more than 12 months 15,238 13,627 45 15 INVENTORIES 2002 2001 RMB’000 RMB’000 Raw materials, at cost 43,218 42,000 Work-in-process, at cost 173,271 124,611 Finished goods, at cost 163,538 137,437 380,027 304,048 Less: Provision for obsolescence - - 380,027 304,048 16 TRADE RECEIVABLES, NET 2002 2001 RMB’000 RMB’000 Accounts receivable 143,163 198,299 Notes receivable 12,476 15,068 155,639 213,367 Less: Provision for doubtful debts (27,566) (57,494) 128,073 155,873 Pursuant to the resolution regarding writing off of doubtful debts approved by the Annual General Meeting held on 20 May 2002, the Group wrote off certain accounts receivable amounting to approximately RMB 38,304,000, for which full provision for doubtful debts had been provided. 17 CASH AND CASH EQUIVALENTS 2002 2001 RMB’000 RMB’000 Cash 110 44 Short term bank deposits 422,035 526,199 422,145 526,243 46 18 PREPAYMENTS AND OTHER RECEIVABLES 2002 2001 RMB’000 RMB’000 Prepayments to suppliers 4,176 7,943 Advances to employees 7,281 13,082 VAT refund receivable on export sales 5,162 3,281 Interest receivable from bank deposits - 1,357 Deposits to suppliers for packaging materials 1,396 1,902 Others 33,716 29,578 51,731 57,143 19 SHARE CAPITAL As of 31 December 2002, the outstanding share capital comprised State-owned Shares, A Shares and B Shares. The B Shares ranked pari passu in all respects with the A Shares except that A Shares can only be owned and traded by investors in the PRC mainland; while B Shares can be owned and traded in foreign currency by both foreign and qualified domestic investors. 2002 2001 2002 2001 Number of shares RMB’000 RMB’000 (in thousands) Issued and fully paid: Listed - A Shares of RMB 1 each 32,000 32,000 32,000 32,000 - B Shares of RMB 1 each 88,000 88,000 88,000 88,000 120,000 120,000 120,000 120,000 Unlisted - State-owned Shares of RMB 1 each 140,000 140,000 140,000 140,000 260,000 260,000 260,000 260,000 20 RESERVES (a) Capital reserve In accordance with the Company’s articles of association, the Company shall 47 record the followings as capital reserve: (i) share premium; (ii) donations; (iii) appreciation arising from revaluation of assets; and (iv) other items in accordance with the articles of association and relevant regulations in the PRC. Capital reserve may be utilised to offset prior years’ losses or for the issuance of bonus shares. (b) Statutory reserves In accordance with the Company Law of the PRC and the Company’s articles of association, the Company is required to appropriate 10% of the net profit reported in the statutory accounts (after offsetting prior years’ losses) to the statutory surplus reserve fund (“SRF”) until the balance of SRF reaches 50% of the Company’s share capital, and thereafter any further appropriation is optional. The SRF can be utilised to offset prior years’ losses or for the issuance of bonus shares. However, such SRF shall be maintained at a minimum of 25% of share capital after such issuance. In accordance with the Company Law of the PRC and the Company’s articles of association, the Company also shall appropriate 5% to 10% of the net profit reported in the statutory accounts (after offsetting prior years’ losses) to the statutory public welfare fund (“PWF”). PWF shall be utilised for collective staff benefits such as building of staff quarters or housing. No distribution of the fund shall be made other than on liquidation of the Company. For the year ended 31 December 2002, the directors of the Company proposed that 10% (2001: 10%) of the net profit as reported in the statutory accounts be appropriated to each of SRF and PWF respectively, totalling approximately RMB 22,248,000 (2001: approximately RMB 34,332,000). The resolution is subject to approval by shareholders in the Annual General Meeting. 21 OTHER PAYABLES AND ACCRUED LIABILITIES 2002 2001 RMB’000 RMB’000 Welfare payable 11,923 13,449 Advances from customers 44,998 25,828 Payables for advertising expenses 25,390 23,820 Others 32,120 37,516 114,431 100,613 48 22 PENSION SCHEME Pursuant to the PRC laws and regulations, contributions to the basic old age insurance for the Group’s local staff are to be made monthly to a government agency based on 25% of the standard salary set by the provincial government, of which 20% is borne by the Group and the remainder is borne by the staff. The government agency is responsible for the pension liabilities relating to such staff on their retirement. The Group accounts for these contributions on an accrual basis (Note 5). 23 DIVIDENDS 2002 2001 RMB’000 RMB’000 Dividends proposed after year-end 52,000 65,000 In accordance with the relevant regulations of the PRC and the articles of association of the Company, the Company declares dividends based on the lower of retained earnings as reported in the PRC statutory accounts and the financial statements prepared in accordance with IFRS. As the statutory accounts have been prepared in accordance with PRC GAAP, the retained earnings as reported in the statutory accounts will be different from the amount reported in the accompanying consolidated financial statements. As of 31 December 2002, the retained earnings before final dividends reported in the statutory accounts were approximately RMB 265,510,000 (2001: approximately RMB 241,518,000). At the meeting of the board of the directors on 26 March 2003, a cash dividend in respect of 2002 of RMB 0.2 per share amounting to a total cash dividend of RMB 52,000,000 (2001: RMB 65,000,000) is to be proposed. In addition, the board of the directors also declared a bonus share dividend of 0.2 share per share, totalling of 52,000,000 bonus shares (2001: nil) by the appropriations of the Company’s capital reserve. The above profit appropriations need to be approved by the Annual General Meeting. These consolidated financial statements do not reflect this dividend payable, which will be accounted for in shareholders’ equity as an appropriation of retained earnings in the year ending 31 December 2003. 49 24 RELATED PARTY TRANSACTIONS For the year ended 31 December 2002, the Company had the following significant related party transactions: (a) Services agreement Pursuant to a service agreement dated 18 May 1997, starting from 18 September 1997 (date of the incorporation), Changyu Group Company has provided facilities and services such as kindergarten and canteen to the Company. An annual service fee of RMB 500,000 is payable by the Company to Changyu Group Company from the date of incorporation, until the end of the fourth accounting year (i.e. 2000). As from the fifth accounting year, the service fee may be adjusted every three years by not more than 10% of the previous annual service fee. The agreement is effective until 31 December 2007. For the year ended 31 December 2002, the Company paid service fee of RMB 500,000 (2001: RMB 500,000) to Changyu Group Company. (b) Trademarks licence Pursuant to a trademark’s licencing agreement dated 18 May 1997, starting from 18 September 1997, the Company may use certain trademarks of Changyu Group Company, which have been registered with the PRC Trademark Office. An annual fee at 2% of the Company’s annual sales is payable to Changyu Group Company. The licence is effective until the expiry of the registration of the trademarks. For the year ended 31 December 2002, the Company paid trademarks fee of approximately RMB 18,564,000 (2001: approximately RMB 17,720,000) to Changyu Group Company. (c) Patents implementation licence Pursuant to a patents implementation licence dated 18 May 1997, starting from 18 September 1997, the Company may use the patents of Changyu Group Company. The annual patents usage fee payable by the Company to Changyu Group Company is RMB 50,000. The contract is effective until 20 December 2005. For the year ended 31 December 2002, the annual patents usage fee payable to Changyu Group Company amounted to RMB 50,000 (2001: RMB 50,000). 50 (d) Agreement for the lease of land use rights Pursuant to an agreement dated 18 May 1997, the Company agreed to lease from Changyu Group Company certain pieces of land for the period from 18 September 1997 to 21 April 2047. The annual rental payable by the Company to Changyu Group Company is approximately RMB 550,000. For the year ended 31 December 2002, the annual rental of land use rights payable to Changyu Group Company amounted to approximately RMB 550,000 (2001: RMB 550,000). (e) Operating lease agreement Pursuant to a lease agreement dated 28 April 1999 and the supplementary agreement, starting from 1 January 1999, Changyu Group Company agreed to lease the machinery, facilities and trademark of “Zhongya” of Yantai Chinese Traditional Medicine Factory, a wholly owned subsidiary of Changyu Group Company, to the Company. An annual leasing fee of RMB 3,400,000 is payable by the Company to Changyu Group Company. The agreement is effective until 28 May 2004. For the year ended 31 December 2002, the Company paid leasing fee of RMB 3,400,000 (2001: RMB 3,400,000) to Changyu Group Company. (f) Agreement for purchase of wine bottles Pursuant to an agreement dated 13 September 2001, the Company agreed to purchase wine bottles from Changyu Group Company starting from 22 October 2001. For the year ended 31 December 2002, the Company purchased wine bottles of approximately RMB 35,263,000 (2001: approximately RMB 47,987,000) from Changyu Group Company. (g) Balance with related party As of 31 December 2002, the balance with related party was amount due from Changyu Group Company, the amount was unsecured and would be repaid by Changyu Group Company before 31 March 2003. On 2 January 2003, Changyu Group Company repaid RMB 30,000,000 to the Group. 51 25 CASH GENERATED FROM OPERATIONS Year ended 31 December 2002 2001 RMB’000 RMB’000 Profit before tax 184,851 229,629 Adjustments for: Loss on disposals of property, plant and equipment 7,830 4,763 Provision for doubtful debts 8,376 8,874 Depreciation and amortization 28,953 27,606 Interest income (7,681) (8,422) Operating profit before changes in working capital 222,329 262,450 Increase in inventories (75,979) (49,319) Decrease (Increase) in trade receivables 19,424 (22,803) Decrease (Increase) in prepayments and other receivables 5,412 (12,643) Decrease in due from related party (56,374) (72) Increase (Decrease) in trade payables 107,254 (10,215) (Decrease) Increase in salaries payable (3,116) 8,370 Decrease in due to related party - (3,986) Increase in other payables and accrued liabilities 13,818 12,844 Decrease taxes other than income tax payable (15,840) (37,724) Cash generated from operations 216,928 146,902 26 SEGMENT INFORMATION The Group conducts its business within one business segment - the business of production and sales of wine products in the PRC. No segment statement of income has been prepared by the Group for the year ended 31 December 2002. The Group also mainly operates within one geographical segment because its revenue is primarily generated in the PRC and its assets are located in the PRC. Accordingly, no geographical segment data is presented. 52 27 CONTINGENT LIABILITIES As of 31 December 2002, the Group had no material contingent liabilities. 28 COMMITMENTS (a) Capital commitments As of 31 December 2002, the Group had the following capital commitments: (1) investment in a subsidiary amounted to approximately RMB 1,450,000; and (2) acquisition of property, plant and equipment amounted to approximately RMB 11,830,000. (b) Operating leases Total future minimum lease payments under non-cancelable operating leases are as follows: 2002 2001 RMB’000 RMB’000 Lease of land use rights - not later than one year 947 550 - later than one year and not later than five years 3,790 2,200 - later than five years 32,656 22,183 37,393 24,933 Lease of machinery, facilities and trademark - not later than one year 3,400 3,400 - later than one year and not later than five years 1,416 4,816 4,816 8,216 53 29 IMPACTS OF IFRS ADJUSTMENTS ON NET PROFIT AND NET ASSETS Net profit for the year Net assets ended 31 December as of 31 December 2002 2001 2002 2001 RMB’000 RMB’000 RMB’000 RMB’000 As reported in the Group’s statutory accounts 111,241 171,657 1,416,019 1,356,778 Impact of adjustments, net - difference in accounting policy with respect to dividends declared after balance sheet date - - 52,000 65,000 - adjustment on administrative expenses using accrual basis - - 20,857 20,857 - revaluation reserve - - 7,313 - - provision for deferred taxes 4,668 (7,808) (4,530) (9,198) As restated in accordance with IFRS 115,909 163,849 1,491,659 1,433,437 Ⅺ. DOCUMENTS AVAILABLE FOR INSPECTION 1.Original copy of the Annual Report signed by the Chairman of the Board of Directors; 2.Financial Statements signed by and under the seal of the legal representative, chief accountant and accounting supervisors; 3.Original copy of the Auditors’ Report under the seal of the accounting firm, and signed by and under the seal of the certified accountants; 4.The “Prospectus” and “Public Listing Notice” related to the issue of domestically listed foreign Shares(B shares) by the Company in 1997; The “Prospectus” and “Notice of Share’s Changing and A Share’s Public listing” related to issuing A Share for capital increase by the company in 2000; 5.All the originals of the Company’s documents and public notice disclosed in the newspapers designated by the Securities Supervision Committee of China in the reporting period. Yantai Changyu Pioneer Wine Company Limited Board of Directors Dated 29th, March, 2003 54