江铃汽车(000550)江铃Ｂ2002年年度报告（英文版）

Jiangling Motors Corporation, Ltd. 2002 Annual Report 1 Important Note The Board of Directors is collectively and individually liable for the truthfulness, accuracy and completeness of the information disclosed in the report and undertakes that no major events have been omitted, and that there are no misstatements and material misleading information in this report. Chairman Sun Min, President Lu Shuifang, CFO Manto Wong and Head of Finance Department, Wu Kai, ensure that the Financial Report in this Annual Report is truthful and complete. The Annual Report is prepared in Chinese and English. In case of discrepancy, the Chinese version will prevail. Except that the Financial Report (chapter X) of the English version is drawn up according to the Auditors’ Report prepared in accordance with International Accounting Standards, all financial data are based on Chinese Accounting Standards. Abbreviations: SEVP Senior Executive Vice President EVP Executive Vice President CFO Chief Financial Officer VP Vice President Contents Chapter I Brief Introduction…………………………………………………3 Chapter II Operating Highlight……………………………………………….4 Chapter III Share Capital Changes & Shareholders……………..…………….7 Chapter IV Directors, Supervisors, Senior Management and Employees……...9 Chapter V Corporate Governance……………………………………………..11 Chapter VI Shareholders’ Meeting……………………………………………..13 Chapter VII Report of the Board of Directors…………………………………..14 Chapter VIII Report of the Supervisory Committee……………………………..21 Chapter IX Major Events……………………………………………………….22 Chapter X Financial Reports…………………………………………………..26 Chapter XI Index of Documents for Reference……………………………… 2 Chapter I Brief Introduction Company’s Chinese name: 江铃汽车股份有限公司 English name: Jiangling Motors Corporation, Ltd. Abbreviation: JMC Company legal representative: Mr. Sun Min JMC’s Board secretary: Mr. Xiong Zhongping (Tel: 86-791-5235675) Person for financial information disclosure: Mr. Manto Wong (Tel: 86-791-5235742) JMC’s securities affair representative: Mr. Quan Shi (Tel: 86-791-5232888 extent 6178) Contact address: No. 509, Northern Yingbin Avenue, Nanchang City, Jiangxi Province, P.R.C Fax: 86-791-5232839 E-mail: jmcgh@public.nc.jx.cn Company registered address & headquarters address: No. 509, Northern Yingbin Avenue, Nanchang City, Jiangxi Province, P.R.C Post Code: 330001 JMC’s website: http://www.jmc.com.cn Newspapers for information disclosure: China Securities, Securities Times, Hong Kong Commercial Daily Website designated by CSRC for publication of JMC’s Annual Report: http://www.cninfo.com.cn Place for placing Annual Report: Securities Department, Jiangling Motors Corporation, Ltd. Place of listing: Shenzhen Stock Exchange Share’s name: Jiangling Motors Jiangling B Share’s code: 000550 200550 Other Information: 1. JMC was registered with Nanchang Municipal Bureau of Industrial & Commercial Administration on November 28, 1993. The company registration was changed to be with 3 Jiangxi Provincial Bureau of Industrial & Commercial Administration on January 8, 1997. 2. Business License Registration Number: 002473. 3. Taxation Registration Number: 360100612446943. 4. Accounting Firm appointed by JMC for audit under both Chinese Accounting Standards and International Accounting Standards: Name: PwC Zhong Tian CPAs Co., Ltd. Headquarters address: 325, ShenJiaNong, PuDong New Zone, Shanghai City, P.R.C Chapter II Operating Highlight I. Certain Financial Indexes of the Reporting Year Unit: RMB’000 Total profit 345,919 Net profit 286,760 Net profit after non-recurring income and loss 288,720 Profit from core business 1,066,606 Profit from other business 22,799 Operating profit 345,464 Investment income 2,415 Subsidy income 0 Net income outside of core business -1,960 Net cash flows from operating activities 990,401 Net increase in cash and cash equivalent 210,341 Notes: deducted non-recurring items and amounts involved Unit: RMB’000 Item Amount Net income outside of core business -1,960 Total -1,960 4 Impact of IAS adjustments on the net profit and net assets: Unit: RMB ‘000 Net assets Net profit December 31, 2002 2002 As prepared per CAS # 1,818,132 286,760 Adjustment per IAS: Reversal of investment loss of subsidiary - 12,043 Amortization difference of Housing Fund 26,956 -18,331 Power Capability Upgrade expense -1,642 5,595 Staff bonus and welfare fund of Jiangling - -10,771 Isuzu appropriated from profit after tax Deferred Tax asset 29,377 29,377 Pension defined benefit -90,516 9,284 Reversal of dividends declared 86,321 - Others -1,197 -849 As restated in conformity with IAS 1,867,431 313,108 # Based on the financial statements audited by PwC Zhong Tian CPAs per CAS. II. Main accounting data and financial ratio of recent three years. Unit: RMB’000 Item 2002 2001 2000 Turnover 4,270,869 3,379,072 2,824,840 Net profit 286,760 100,848 55,366 Total assets 3,581,901 3,666,636 4,257,278 Shareholders’ equity (after minority interests) 1,818,132 1,616,364 1,524,418 Earnings per share (RMB) 0.33 0.12 0.06 Net assets per share (RMB) 2.11 1.87 1.77 Adjusted net assets per share (RMB) 1.84 1.51 1.22 Net cash flow per share from operating 1.15 0.79 1.21 activities (RMB) Return on net assets ratio 15.77% 6.24% 3.63% Year 2002 Return on net assets ratio and earnings per share Return on net assets ratio Earnings per share (unit: RMB) Profit of reporting period Diluted Weighted Diluted Weighted Profit from core business 58.66% 62.11% 1.24 1.24 Operating profit 19.00% 20.12% 0.40 0.40 Net profit 15.77% 16.70% 0.33 0.33 Net profit after non-recurring income and loss 15.88% 16.81% 0.33 0.33 5 III. Shareholder’s equity change in year 2002 Unit: RMB ’000 Share Capital Surplus Statutory public Retained Unconfirmed Item capital reserves reserves welfare fund earnings investment loss Total At the beginning of the year 863,214 835,168 58,811 0 -128,786 -12,043 1,616,364 Increase 0 58 23,696 7,899 286,760 310,514 Decrease 0 120,789 -12,043 108,746 At the end of the year 863,214 835,226 82,507 7,899 37,185 0 1,818,132 Cause of Changes: The increase in capital reserves is due to reversal of payables unable to pay. The increase in surplus reserves is due to, after covering the loss of the previous years, the appropriation of statutory surplus reserves and statutory public welfare fund which are 10% and 5% of the 2002 consolidated net profit prepared per CAS respectively. The increase in retained earnings is due to the net profit in 2002. The decrease in retained earnings is due to the appropriation of statutory surplus reserves, of statutory public welfare fund, of staff bonus and welfare fund, and the common share dividends proposed by the Board of the Directors to be distributed. The decrease in unconfirmed investment loss is due to the earnings of a wholly-owned subsidiary of the Company in 2002. Chapter III Share Capital Changes & Shareholders I. Table on the changes of shareholding structure Before the Change (+, -) After the change change Allocate Bonus Reserve-conv New Others Subtotal d Shares Shares erted shares issuance I. Non-listed shares 1. Promotion shares 354,176,000 354,176,000 Including: State-owned shares 354,176,000 354,176,000 Domestic legal-person shares Foreign legal-person shares Others 2. Other legal-person shares 47,438,000 47,438,000 3. Management shares 69,540 69,540 4. Preferred shares or others Subtotal 401,683,540 401,683,540 II. Listed shares 1. A shares 117,530,460 117,530,460 6 2. B shares 344,000,000 344,000,000 Overseas-listed Foreign-invested shares Others Subtotal 461,530,460 461,530,460 3. Total 863,214,000 863,214,000 JMC did not issue shares or derivative securities during the three years ending December 31, 2002. JMC’s total shares and the share structure remained the same in 2002. II. Shareholders 1. JMC had 70,630 shareholders, including 55,122 A-share shareholders and 15,508 B-share shareholders, as of December 31, 2002. 2. The top ten shareholders as of December 31, 2002: No. Name Change in 2002 Shares at the end Ratio in the total Share type (+, -) of 2002 capital stock % 1 Jiangling Motors Company 0 354,176,000 41.03 State-owned (Group) (‘JMCG’) legal-person shares 2 Ford Motor Company 0 258,642,800 29.96 Circulation B (‘Ford’) shares 3 Shanghai Automotive Co., 0 25,970,000 3.01 Domestic Ltd. legal-person shares 4 China Baoan Group Co., Ltd. 0 12,000,000 1.39 Domestic legal-person shares 5 JinYuan Securities 1,987,377 1,987,377 0.23 Circulation A Investment Fund shares 6 Guangdong Securities -253,100 1,544,300 0.18 Circulation B Company shares 7 JingHong Securities 1,424,221 1,424,221 0.17 Circulation A Investment Fund shares 8 YuYuan Securities 1,217,804 1,217,804 0.14 Circulation A Investment Fund shares 9 Guangdong Machinery & 0 1,200,000 0.14 Domestic Electronic Company legal-person shares 10 Shenzhen Airport Terminal 0 1,200,000 0.14 Domestic Building Co., Ltd. legal-person shares Notes: i. JMC legal-person shares of 12 million held by China Baoan Group Co, Ltd were frozen on collateralization, including 7 million shares frozen due to judicial appeal. 7 ii. There is no association among the shareholders who respectively hold more than 5% of JMC’s total shares. iii. JMCG holds the shares on behalf of the state; Ford is a foreign-invested shareholder. 3. Controlling Shareholders The controlling shareholders of JMC are JMCG and Ford, and there is no change in respect of the controlling shareholders in 2002. JMCG, a wholly state-owned enterprise founded on July 27, 1991, is subordinate to the State-owned Assets Administration Bureau of Nanchang. Its registered capital is RMB 420.85 million, and its legal representative is Mr. Sun Min. Main scope of business: manufacture of automobiles, engines, chassis, variant vehicles and automotive components, automotive quality test, sales of self-produced products, as well as related after-sale services. Ford, founded in 1903, is a US-based listed company. Its registered capital is US$ 1.222 billion. Chairman & CEO: William Clay Ford, Jr. Main scope of business: design, manufacturing, assembly and sales of cars, trucks, parts and components, financing, leasing of vehicles and equipment, and insurance business. III. Trading of JMC’s share 1. Jiangling A shares Highest price Closing price Total Total volume First transaction Lowest price of Total amount in Year of the year at the year end transactio in million price (RMB) the year (date) million RMB (date) (RMB) n days shares 2000 4.17 8.00(09/01) 4.01(01/28) 7.12 218 493 3,156 2001 7.10 9.70(04/03) 5.25(10/12) 6.50 239 407 3,297 2002 6.50 10.80(06/28) 5.66(01/18) 7.40 236 698 6,066 2. Jiangling B shares Highest price Closing price Total Total volume First transaction Lowest price of Total amount in Year of the year at the year transaction in million price (HKD) the year (date) Million HKD (date) end (HKD) days shares 2000 1.30 2.05(08/22) 0.95(03/16) 1.94 210 17.96 28 2001 1.94 6.19(05/28) 1.80(01/09) 3.60 234 452.55 2,079 2002 3.61 4.95(07/08) 2.80(01/14) 3.56 236 160.49 614 8 Chapter IV Directors, Supervisors, Senior Management and Employees I. Directors, Supervisors and Senior Management 1. Basic Information Position Name Gender Age Shares at Share Cause of the end of change in share Year 2002 Year 2002 change Directors Chairman Sun Min Male 67 55,080 0 Vice chairman Mei Wei Cheng Male 53 0 0 Director Liu Shanbo Male 60 4,800 0 Director Mark Schulz Male 51 0 0 Director & President Lu Shuifang Male 49 0 0 Director & SEVP Gordon L. Spaulding Male 54 0 0 Director Norbert Kuehne Male 58 0 0 Director Qi Honghao Male 55 0 0 Director Luo Jun Male 52 4,800 0 Independent director Rao Xiaoqiu Male 49 0 0 Independent director Pan Yuexin Male 45 0 0 Supervisors Chief supervisor Wu Yong Male 53 4,860 0 Supervisor Alvin Qing Liu Male 46 0 0 Supervisor Zhu Yi Male 33 0 0 Supervisor Zhang Jianguo Male 46 0 0 Supervisor Jin Wenhui Male 36 0 0 Senior Management: EVP Xiong Chunying Female 39 0 0 EVP Liu Nianfeng Female 40 0 0 VP Eric Hoile Male 61 0 0 CFO Manto Wong Male 40 0 0 VP Wan Hong Male 42 0 0 VP Zhou Yazhuo Male 40 0 0 VP Kevin Whipp Male 36 0 0 Board Secretary Xiong Zhongping Male 40 0 0 The term of office of all the Directors (including independent directors), the Supervisors and the senior management is from June 2002 to June 2005. Positions with shareholder entities held by the JMC directors and the supervisors: Chairman Sun Min is the Chairman of JMCG; Director Liu Shanbo is a Board member and the General Manager of JMCG; Director Lu Shuifang is a Board member of JMCG; 9 Director Luo Jun is a Board member of JMCG, and the Chairman & General Manager of JMCG Finance Co., Ltd. Vice Chairman Mei Wei Cheng is a Vice President of Ford, and the Chairman & CEO of Ford Motor (China), Ltd.; Director Mark Schulz is a Vice President of Ford, and the President of Ford Asia Pacific Operations and Ford South America; Director Norbert Kuehne is retired CFO of Ford Motor (China), Ltd. Director Qi Honghao is an official in the Strategic Committee of Shanghai Automobile Industry Group Company. Chief Supervisor Wu Yong is a Board member of JMCG; Supervisor Alvin Qing Liu is a Vice President of Ford Motor (China), Ltd.; Supervisor Zhu Yi is the head of JMCG Asset & Finance Department. 2. Annual Compensation The directors and the supervisors who did not concurrently hold other management positions in JMC were not paid by JMC. Directors Sun Min, Liu Shanbo, Luo Jun, Supervisors Wu Yong and Zhu Yi were paid by JMCG. Directors Mei Wei Cheng, Mark Schulz and Norbert Kuehne and Supervisor Alvin Qing Liu were paid by Ford. Director Qi Honghao was paid by Shanghai Automobile Industry Group Company. (1) The compensation for the Chinese-side senior management, according to JMC 2002 Senior Management Compensation Plan approved by the Board, consists of two parts: base salary and position allowance. JMC has six Chinese-side senior management persons. Their total 2002 annual compensation was about RMB 1.7 million. The total annual compensation for the top 3 persons with the highest compensation among these 6 persons was RMB 1 million. One person was paid between RMB 350 thousand and 400 thousand, 2 persons between RMB 250 thousand and 350 thousand, 3 persons between RMB 200 thousand and 250 thousand. Two employee-representative supervisors were paid about RMB 100 thousand per person. The senior management received no other bonus except the abovementioned annual compensation. (2) JMC pays to Ford the annual compensation for Ford-seconded senior management personnel in line with the Personnel Agreement signed between Ford and JMC, and Ford pays the senior management and other foreign personnel seconded to JMC. In 2002, JMC paid US$ 1.8 million, including salary & insurance, etc., to Ford for six Ford secondees. The six foreign secondees include four senior management personnel appointed by the Board of Directors. The annual compensation for these 4 senior management persons averaged US$ 300 thousand per person. (3) The annual compensation for the two JMC independent directors is RMB 30 thousand per person, and JMC bears their travel-related expenses involving JMC’s business. 10 3. Stepping-down of Directors, Supervisors and Senior Management in 2002 Due to re-election of the Board of Directors and Supervisory Committee, the annual Shareholders’ Meeting approved that Mr. Bedi, Mr. Martin R. Leach and Mr. Zou Xing were no longer JMC directors, and Mr. Chen Xiaomu, Mr. Que Zhongming and Mr. Xu Shungen were no longer JMC supervisors. Mr. Zou Xing, the former President of JMC, resigned from President position due to health reason. 4. Appointments or Dismissals of Senior Management Pursuant to a resolution of the special Board meeting held on April 10, 2002, Mr. Lu Shuifang was appointed as the President of JMC, Ms. Liu Nianfeng as EVP, Mr. Kevin Whipp as VP, and at the same time, Mr. Zou Xing was dismissed from the President position, Mr. Lu Shuifang from EVP position, Mr. Bob Bax and Mr. Zhong Wanli from VP position. Owning to re-election of the Board of Directors, the first session of the new Board held on June 19, 2002 passed the following resolutions: appoint Mr. Lu Shuifang as the President of JMC and, based on the chairman’s nomination, appoint Mr. Xiong Zhongping as the Board Secretary; based on the president’s nomination, appoint Mr. Gordon L. Spaulding as SEVP, Ms. Xiong Chunying and Ms. Liu Nianfeng as EVPs, Mr. Eric Hoile Mr. Wan Hong, Mr. Zhou Yazhuo and Mr. Kevin Whipp as VPs, Mr. Manto Wong as CFO. II. Employees At the end of 2002, JMC had a total of 6,246 employees, of whom 4,571 were production workers, 234 sales personnel, 720 technical personnel, 85 finance personnel, 636 administrative staff. The employees with polytechnic school degrees or above accounted for 27.86% of the total. There were 582 persons with junior technical title, 377 with intermediate technical title and 107 with senior technical title, altogether accounting for 17.07% of the total. There were 1,579 early-retired employees and 147 laid-offs. JMC had a total of 1,545 retired employees. Chapter V Corporate Governance 1. Status of the Corporate Governance in JMC According to related requirements stipulated in the Governance Rules for Listed Companies and other regulations, JMC has appointed two independent directors, established independent director regulation, and correspondingly amended the Articles of Association of JMC during the reporting period. JMC plans to appoint another two independent directors prior to June 30, 2003 so that the ratio of independent directors to the total directors is to exceed 1/3, and plans to set up a Compensation Committee under the Board of Directors. 11 JMC’s governance structure is relatively complete and meets the requirements of relevant regulations promulgated by CSRC. 2. Status of Independent Directors in Execution of Duty Since appointed in June 2002, JMC independent directors have diligently fulfilled their duties, attending all the Board meetings and the shareholder’s meeting held during their term and expressing independent opinions on senior management appointment, senior management compensation and key related party transactions. The independent directors have exercised their fiduciary duties regarding the routine work and major decision-making of the Board of Directors to protect the interests of the Company and all shareholders. 3. JMC’s Separation from the Controlling Shareholders in respects of Personnel, Assets and Finance, and Independence concerning the Organization and the Business: (1). In respect of personnel, the chairman position and the president position are held by different persons, JMC’s senior management do not hold positions other than director positions with its controlling shareholders; JMC senior management personnel drew salaries from JMC; the labor, personnel matters and salary management of JMC are completely independent. (2) In respect of assets, JMC assets are complete. The assets, including production system, auxiliary production system and conveyance facilities, and non-patent technology which are mainly utilized by JMC, are owned and/or controlled by JMC. (3) In respect of the finance, JMC has independent finance department and independent accounting system, and has a uniformed and independent accounting system and financial control system for its branches and subsidiaries. JMC has its own bank accounts, and there is no bank account jointly owned by JMC and its controlling shareholders. JMC pays taxes independently. (4). In respect of the organization, JMC’s organization is independent, complete and scientifically established with good operating mechanism and efficiency. The establishment and the operation of JMC’s corporate governance are strictly carried out per the Articles of Association of JMC. The production and administrative management are independent from the controlling shareholders. JMC has set up the organization structure that meets the need for its development. (5). In respect of business, JMC has independent purchasing, production and sale systems. The purchasing, production and sales of main materials and products are carried out through its own purchasing, production & sale functions. There are related party transactions with controlling shareholders only in respects of the purchase of components, e.g. rear axle, transmission and some interior trims, etc. JMC is independent from the controlling shareholders in respect of the business, and has independent & complete business and self-sufficient operation capability. The controlling shareholders engaged in no production or sales of the same products as JMC basically to compete with JMC. 4. Compensation & Incentive Mechanism for Senior Management in the Reporting Period The Board of Directors reviewed and approved Year 2002 JMC Senior Management Compensation Plan on August 27, 2002. This plan was applicable only for the 12 Chinese-side senior management in 2002. Chapter VI Shareholders’ Meeting I. Notification, Convening and Holding of the Shareholders’ Meeting JMC published the Announcement on Holding 2001 Annual Shareholders’ Meeting in China Securities, Securities Times and Hong Kong Commercial Daily on May 16, 2002. The 2001 Annual Shareholders’ Meeting of JMC was held in the conference room on the fourth floor of the Administrative Building of JMC on June 19, 2002. A total of 21 shareholders and proxies attended the meeting, who represented a total of 638,870,360 JMC shares, accounting for 74.01% of the total share capital of JMC. At this meeting, there were 20 A-share shareholders, who held a total of 380,227,560 A shares, accounting for 44.05% of the total share capital, and there was 1 B-share shareholders, who held 258,642,800 B shares, accounting for 29.96% of the total share capital. II. Resolutions passed at the JMC 2001 Annual Shareholders’ Meeting are as follows: 1) approved the 2001 Work Report of the Board of Directors. 2) approved the 2001 Work Report of the Supervisory Committee. 3) approved the 2001 Financial Report. 4) approved the Proposal on Profit Distribution for 2001 and Profit Distribution Policy for 2002. 5) approved the Proposal on the Amendments to Articles of Association of JMC 6) approved the Proposal on Appointment of A-share Auditor . 7) approved the Proposal on Independent Directors’ Remuneration; 8) approved the Proposal on Re-election of the Board of Directors, and 9) approved the Proposal on Re-election of the Supervisory Committee The public announcement on the resolutions of this Shareholders’ Meeting was published in China Securities, Securities Times and Hong Kong Commercial Daily on June 20, 2002. III. Election & Change of the Directors and the Supervisors Due to expiration of three-year term for the third Board and Supervisory Committee, the Board of Directors and the Supervisory Committee were re-elected in accordance with the regulations in the Articles of Association of JMC. Upon the approval of JMC 2001 Annual Shareholders’ Meeting, Mr. Sun Min, Mr. Mei Wei Cheng, Mr. Mark Schulz, Mr. Lu Shuifang, Mr. Qi Honghao, Mr. Liu Shanbo, Mr. Norbert Kuehne, Mr. Gordon L. Spaulding and Mr. Luo Jun were elected as directors of JMC, Mr. Rao Xiaoqiu and Mr. Pan Yuexin as independent directors, and Mr. Wu Yong, Mr. Zhu Yi and Mr. Alvin Qing Liu as supervisors of JMC. Mr. Jin Wen Hui and Mr. Zhang Jianguo were elected in the meeting of employee representatives as members of JMC new Supervisory Committee. 13 Chapter VII Report of the Board of Directors I. Management Discussions and Analysis 1. Operating Results JMC’s core business is production and sales of light vehicles and related components. Its major products include JMC series light trucks and pickups, and Transit series commercial bus. The Company also produces engine, casting and other components. In 2002, JMC achieved record sales of 51,172 vehicles, up 37.2% from 2001. The total company sales of 51,172 units included 23,117 light trucks and microbus, 18,501 pickups and 9,554 Transits. Total production volume was 51,494 units including 23,229 light trucks, microbuses, 18,435 pickups and 9,830 Transits. JMC’s sales increase was primarily due to introduction of the new Baodian pickup, which resulted in an increase of JMC pickup volume by 148% in 2002 compared with 2001. Transit series increased 30%, attributing to RMB 10,000 20,000 price reduction in April and higher demand for its 17 seat model. JMC light truck series sold about 3% more than 2001. In 2002, the Company achieved a market share of about 1.6% of the Chinese automotive market, about the same as 2001. JMC light trucks (including pickup) accounted for 8% of the light truck market, about the same as 2001. Transit achieved about 7.3% of the light bus market (excluding MPV, SUV, chassis cab and quasi-car products), up 0.7% point from 2001. (Date source for above analysis: China Association of Automobile Manufactures and company sales records) The Detailed Table on the Year 2002 Income & Costs From Core Business Unit: RMB’000 Product Turnover Costs in core Core business Profit from Margin business taxes additional Core business I. Vehicles 4,206,152 3,102,066 54,822 1,049,264 24.95% II. Components 64,717 47,375 17,342 26.80% Total 4,270,869 3,149,441 54,822 1,066,606 24.97% 14 2. Operating Results of Subsidiaries Operating Name of Main Registered Assets Turnover Net Profit Business Profit Subsidiaries Products Capital (RMB’000) (RMB’000) (RMB’000) (RMB’000) Jiangling-Isuze N series Light Motors Company, Manufacture Truck, TF series $30 million 606,257 2,675,872 120,658 107,719 Ltd Pickup 3. Main Suppliers and Customers The total amount of the purchase from the top 5 suppliers was RMB 848,104 thousand, accounting for 22.25% of JMC’s total annual purchasing amount. The total sale amount to the top 5 customers was RMB 976,264 thousand, accounting for 22.86% of JMC’s total turnover. 4. Operational Challenges and Resolutions 2002 was the first year of China’s entry to WTO and it brought both challenges and opportunities. Key challenges to the Company included growing market shares in the highly competitive market place, improving quality and customer satisfaction with increasing consumer sophistication, overcoming production bottlenecks with higher volumes, and managing cost effectively to react to pricing pressure. JMC participates in light bus and light truck segments of the industry. In the light bus segments, JMC Transit increased market shares in 2002.In the light truck segment, which includes cargo truck and pickup, however, JMC achieved about the same market shares as in 2001. Although the Company was able to deliver strong sales growth with its Baodian pickup, JMC light cargo truck grew only 3%, significantly lower than our direct competitors. This was mainly due to the aging of JMC product and entries of lower priced competitors. The Company plans to increase its marketing activities in 2003 and introduce freshened models with new styling and functions to respond to competition. In the areas of quality and customer satisfaction, the Company continued to focus on benchmarking competition and meeting or exceeding customer expectation. Our customers are becoming more sophisticated and competition is intensifying. Some of the Company’s new models and product actions encountered quality issues during 2002, resulting in customer satisfaction concerns. The Management team was able to react quickly with focused effort to resolve these issues on a timely basis. Simultaneously, systematic changes were implemented in our internal product development, manufacturing and customer services processes to improve product quality and customer satisfaction. With regard to production bottlenecks, the Company faced challenges in 2002 in various manufacturing facilities including paint and stamping operations due to higher production 15 volumes. Additional manpower and overtime were used as appropriate to meet sales requirements. Capacity expansion projects are also in progress to support further growth for 2003 and 2004. Finally, the Company also put a lot of effort to reduce costs in a highly competitive environment. JMC reduced prices for its pickup and Transit series in December 2001 to react to competitive pressure. Another price cut for Transit was implemented in April 2002. In order to maintain profit margins, the Company moved aggressively to control costs in all aspects of our business. Even with above mentioned price cuts, the Company was able to achieve a gross margin of 25.0% in 2002, up almost 0.5 point from 2001. 5. Investment in the reporting period (1) In 2002, JMC did not raise equity funding, nor did it use equity funding raised in previous years. (2) Non-raised fund use Program Name Total Investment Progress Planned Job#1 Date Gas Engine Projects RMB 38.85 mil. RMB 23.195 mil. launched From April to September of 2003 Auto-Spray Paint Line RMB 86 mil. Completed Boiler House RMB 13.85 mil. Completed Engine Warehouse RMB 10.94 mil. RMB 4.336 mil. launched First half of 2003 Euro II Program RMB 86.80 mil. RMB 13.798 mil. launched 2003-2004 in models All of the dies have been J116 Light Truck Program RMB 34 mil. May 2003 received and are being tested. 6. Financial Conditions Revenue in 2002 reached a record of RMB 4,271 million, up 26% from year ago. This increase reflects higher sales volume, partially offset by lower selling prices for Transit and pickup series. The Company lowered pickup prices in December 2001 and Transit prices in December 2001 and April 2002. Under Chinese GAAP, net profit was RMB 287 million in 2002, up 184% from year ago. Higher net profit can be attributed to higher sales volume, lower production cost per unit and lower financing cost. Part of the profit increase can also be attributed to significantly lower eight accounting provision in 2002 compared with 2001. Higher profit was partially offset by price reduction, higher marketing and sales expense and higher administrative expenses. Cash flow from operations was positive RMB 990 million, driven by profitability and working capital control. Investment cash flow was negative RMB 150 million, primarily reflecting the Company’s spending for capital goods such as facilities, equipment and tooling. Financing cash flow was negative RMB 663 million, mainly reflecting bank loan reduction and interest expenses. At the end of 2002, the Company had total of RMB 792 million in cash or cash equivalents, compared with RMB 606 million at December 31, 2001. Total liabilities as percent of asset 16 was reduced to 45%, compared with 54% at December 31, 2001. Total asset was RMB 3,582 million, down slightly (2%) from RMB 3,667 million at December 31, 2001. Reduction of assets from depreciation, amortization and lower note and other receivables more than offsets higher cash balance. Total liabilities decreased 19% to RMB 1,601 million, mainly reflecting reduction of bank borrowing offset by increase of payable to suppliers due to higher production volume. Shareholder equity was RMB 1,818 million at December 31, 2002, up RMB 202 million from year end 2001. This increase is mainly due to net profit earned in the reporting period, partially offset by planned profit distribution (subject to Shareholders’ Meeting approval). 7.Impact on JMC’s operation due to policy & statute changes Per state environmental protection catalog announced by State Environmental Protection Administration (SEPA), type approval is needed at present for automobile emission standard. Pursuant to the emission requirements in the catalog, enforcement date for type approval of light vehicles meeting Euro II Emission Standard is July 1, 2004. Enforcement date for production conformity is July 1, 2005. Enforcement date for type approval on engine emission meeting Euro II Emission Standard is September 1, 2003. Enforcement date for production conformity is September 1, 2004. Euro II Emission Standard has been carried out in Beijing since January 1, 2003 and in Shanghai since March 1, 2003. Therefore, sales of certain models of Transit series will be implicated in these areas. JMC has launched several projects to meet the requirements in Euro II Emission Standard: Transit Mitsubishi Gas Engine Program with estimated job#1 in September 2003; Transit Turbo and Non-turbo Diesel Engine Vehicle with estimated job#1 in November 2003; Turbo Inter-cooler Diesel Engine Vehicle with estimated job#1 in April 2003. These projects are expected to increase costs for JMC in the future. Vehicle pass-by noise standard stipulated by SEPA and vehicle safety requirements stipulated by State Economic and Trade Commission may also lead to cost increase for certain models of the Company. 8.2003 Plan The Company intends to build on the momentum of 2002 operating results and continues to grow the business profitably in 2003.All three major product lines will be updated with new models added. Higher marketing and sales efforts are also in the plan to maintain competitiveness and increase market shares for our products. The Company is projecting revenue for 2003 in the range of RMB 4,700 to 5,000 million. Production costs, R&D expenses and capital expenditure for some of our products may be higher in order to meet higher emission and safety standards. Every effort will be made to offset such cost increases to the maximum extent possible. II. Routine Work of the Board of Directors 1. Board Meetings and Resolutions in 2002 The Board of Directors of JMC passed in form of paper meeting the following resolution 17 on February 1, 2002: approved Year 2001-Year 2002 Bank Loan Guarantee and Guarantee Fee Agreement. The Board of Directors approved in form of paper meeting the following resolutions on April 9, 2002: i. approved 2001 annual report of JMC and extracts from 2001 annual report; ii. approved the proposal on profit distribution for Year 2001 and profit distribution policy for Year 2002; and iii. approved the year 2001 audit fee to be paid to the accountant firms by JMC. A special Board meeting was held in the conference center on the second floor of JMC administrative building on April 10, 2002. The following resolutions were passed at the meeting: i. agreed to Mr. Zou Xing’s resignation from the president position; ii. appointed Mr. Lu Shuifang as the president, and simultaneously dismissed him from EVP position; iii. appointed Ms. Liu Nianfeng as an EVP; iv. dismissed Mr. Bob Bax from VP position and appointed Mr. Kevin Whipp as a VP of JMC; v. dismissed Mr. Zhong Wanli fromVP position; vi. reorganized the executive committee. The new executive committee is composed of Mr. Lu Shuifang, Mr. Gordon L. Spaulding, Ms. Xiong Chunying, Ms. Liu Nianfeng and Mr. Eric Hoile; vii. approved the Year 2001 Senior Management Bonus Plan and Performance Evaluation Metrics by JMC Executive Committee; viii. the Board of Directors discussed relevant matters concerning Jiangling-Isuzu Motors Company, Ltd, and suggested that Director Liu Shanbo and Norbert Kuehne discuss the related arrangement on a later occasion; and ix. the Board of Directors decided that the annual compensation for independent directors should be RMB 30 thousand/person, and JMC would bear travel-related expenses regarding JMC’s business. The compensation plan is subject to the approval of JMC Shareholders’ Meeting. The Board of Directors passed the following resolution in form of paper meeting on April 26, 2002: reviewed and passed 2002 1st Quarter Report of JMC. The Board of Directors approved in form of paper meeting the following resolutions on May 16, 2002: i. approved the proposal on amendment to Articles of Association of JMC; ii. approved the list of candidate for the new Board of Directors; and iii. approved the notice on holding 2001 annual shareholder’s meeting of JMC. The 7th session of the third Board of Directors was held in the conference center on the second floor of JMC administrative building on May 17, 2002. The following resolutions were passed at the meeting: i. decided to appoint PwC as JMC’s year 2002-2006 A &B share auditor. This item is subject to the approval of JMC shareholder’s meeting; and ii. approved the Non-turbo Diesel Pickup Euro II Project. 18 The 1st session of the fourth Board of Directors was held in the conference center on the second floor of JMC administrative building on June 19, 2002. The following resolutions were passed at the meeting: i. elected Mr. Sun Min as the chairman of JMC, Mr. Mei Wei Cheng as the vice chairman; ii. approved the Audit Committee under the Board. The Audit Committee consists of Mr. Liu Shanbo, Mr. Norbert Kuehne, Mr. Qi Honghao, Mr. Rao Xiaoqiu, Mr. Pan Yuexin, Mr. Lu Shuifang and Mr. Gordon L. Spaulding. The chairman of the committee is Mr. Liu Shanbo, and the vice chairman is Mr. Norbert Kuehne; iii. appointed Mr. Lu Shuifang as the President; based on the chairman’s nomination, the Board appointed Mr. Xiong Zhongping as the Board secretary; iv. based on the president’s nomination, the Board appointed the following senior management personnel: Mr. Gordon L. Spaulding as the senior executive vice president; Mr. Xiong Chunying as an executive vice president; Mr. Liu Nianfeng as an executive vice president; Mr. Eric Hoile as a vice president; Mr. Manto Wong as the chief financial officer; Mr. Wan Hong as a vice president; Mr. Zhou Yazhuo as a vice president; Mr. Kevin Whipp as a vice president v. based on the president’s nomination, the Board decided that the Executive Committee should be composed of Mr. Lu Shuifang, Mr. Gordon L. Spaulding, Ms. Xiong Chunying, Ms. Liu Nianfeng and Mr. Eric Hoile, and that Mr. Lu Shuifang should be the chairman of the Executive Committee. The Board of Directors passed in form of paper meeting the following resolution on July 18, 2002: approved the proposal on supplying Jiangling Land-wind Autos Co., Ltd. with engine and frame assemblies by JMC. A special Board meeting was held in the conference center on the second floor of JMC administrative building on July 23, 2002. The following resolution was passed at the meeting: approved JMC Self-Audit Report on Establishment of Modern Enterprise System The Board of Directors passed in form of paper meeting the following resolution on August 23, 2002: approved JMC 2002 Half-year Report. A special Board meeting was held in the conference center on the second floor of JMC administrative building on August 27, 2002. The following resolution was passed at the meeting: approved Year 2002 JMC Senior Management Compensation Plan. The Board of Directors passed in form of paper meeting the following resolution on October 29,2002: approved JMC 2002 3rd Quarter Report. The Board of Directors passed in form of paper meeting the following resolution on 19 November 12, 2002: approved JMC to sign a contract with Nanchang Fuel Tank Plant on Nanchang Fuel Tank Plant’s providing JMC with Transit localized metallic fuel tank. The 2nd session of the fourth Board of Directors was held in the conference center on the second floor of JMC administrative building on December 10, 2002. The following resolutions were passed at the meeting: i. agreed to form a new product model-selection leadership team to carry out feasibility study including market, engineering and financial feasibility study. A full product feasibility study report should be submitted to the Board of Directors for review and approval after it is completed; ii. approved JMC 2003 budget; iii. approved the proposal on dealer credit limit increase; iv. approved 2002 Eight Accounting Provision & Write-off proposal; v. approved additional investment for diesel vehicle Euro II program; vi. approved to start the Transit Mitsubishi Gas Engine program; vii. approved the proposal related to 2.8L diesel-converted gas engine; viii. approved additional investment for diesel Transit bus ABS program; and ix. authorized CFO Manto Wong with full power to handle the loan financing between JMC and financial institutions. The duration of the authorization is one year from December 20, 2002 to December 19, 2003. 2. Board of Directors’ Executing the Resolutions of the Shareholders’ Meeting JMC did not distribute profit or convert capital reserve into share capital in 2002 per the relevant resolution of the 2001 Annual Shareholders’ Meeting. 3. The proposal on year 2002 profit distribution plan The net profit of JMC in 2002 was RMB 286,760 thousand per CAS and RMB 313,108 thousand per IAS. After covering the loss of the previous year, the profit available for distribution in 2002 was RMB 157,974 thousand per CAS and RMB 110,112 thousand per IAS. According to the method of whichever is lower, the profit available for distribution to shareholders in 2002 was RMB 110,112 thousand. The Board of the Directors submitted the proposal on year 2002 profit distribution as the follows: to appropriate 10% of the profit, prepared per CAS, available for distribution to statutory surplus reserves, to appropriate 5% of the profit to statutory public welfare fund, to distribute cash dividend of RMB 1 per 10 shares (including tax) on the basis of share capital of 863,214,000 as of year end 2002, and to carry forward the remained undistributed profit to the next fiscal year. The Board decided not to transfer capital surplus reserve to share capital at this time. B share dividend is to be paid in Hong Kong Dollars exchanged from RMB based on the HKD-to-RMB exchange rate published by the People’s Bank of China on the first working day when the profit distribution proposal is approved at JMC’s Shareholders’ Meeting. The distribution proposal is subject to the approval of Shareholders’ Meeting. 4. Others 20 JMC continues to designate China Securities, Securities Times and Hong Kong Commercial Daily as the newspapers for information disclosure. Chapter VIII Report of the Supervisory Committee I. Work of the Supervisory Committee Pursuant to the relevant regulations in the Company Law, Securities Law and JMC Articles of Association as well as the spirit of being responsible to the shareholders, the Supervisory Committee seriously fulfilled its duties stipulated by the laws and regulations and energetically worked to perform its functions fully. The Chief Supervisor attended all the board meetings as a non-voting attendee, and all the supervisors attended the annual Shareholders’ Meeting. The committee held 3 meetings during the reporting period. The following is the information in regard to the meetings and the subjects at the meetings: 1. The 6th session of the third Supervisory Committee, held in JMC administrative building on April 5, 2002, reviewed and passed the following proposals: i. reviewed and passed the 2001 annual work report of the Supervisory Committee; and ii. reviewed and passed 2001 Annual Report of JMC and the extracts from the annual report. 2. The 7th session of the third Supervisory Committee, held in the JMC administrative building on April 26, 2002, reviewed and passed the following resolutions: i. approved the list of candidates for the new supervisory committee of JMC. Jiangling Motors Company (Group), the largest shareholder of JMC, nominated Mr. Wu Yong and Mr. Zhu Yi as candidates for the fourth supervisory committee. Ford Motor Company, the second biggest shareholder of JMC, nominated Mr. Alvin Qing Liu as a candidate for the fourth supervisory committee. Mr. Jin Wenhui and Mr. Zhang Jianguo were elected by the meeting of employee representatives as employee-representative candidates for the fourth supervisory committee. ii. approved the notice on holding 2001 annual Shareholders’ Meeting. 3. The 1st session of the forth Supervisory Committee, held in the JMC administrative building on June 19, 2002, reviewed and passed the following resolutions: elected Mr. Wu Yong as Chief Supervisor of the forth Supervisory Committee. 4. The Supervisory Committee reviewed and passed in form of paper meeting the following resolution on Aug. 14, 2002: reviewed and passed 2002 Half-year Report of JMC and the extracts from the half-year report. II. Supervisory Committee’s independent opinion on the following matters during the reporting period: 21 1. JMC’s operation in conformity with laws JMC operates in conformity with the laws and regulations, such as Company Law, Securities Law and the Articles of Association. The decision-making procedure was standardized and legal, and a relative complete internal control system was established. No behaviors violating laws, regulations and the Articles of Association or harming JMC’s interest by the Directors, President and other senior management in carrying out their duties were found. 2. JMC’s financial status PwC Zhong Tian audited JMC’s 2002 financial statements and issued unqualified audit reports. We believe the reports reflect JMC’s financial status, operating results and asset change objectively and truly. 3. In 2002, JMC’s procedure for asset sale was legal and the prices were reasonable. There were no insider trading and deals or situations harmful to shareholders’ interest or where a leak of JMC’s assets was detected. 4. JMC’s related transactions: the imported component purchasing applied negotiated arm-length prices. The pricing for localized components was determined through the process of suppliers quote, costing assessment and negotiation between both sides. The prices were adjusted periodically, were fair and reasonable. Chapter IX Major Events 1. JMC had no major litigation or arbitration in 2002. 2. In 2002, JMC did not acquire or sell operation, and there was no merger. 3. Major Related Transactions (1) Related party transactions for purchase of commodities and services A. JMC purchased certain raw materials, auxiliary materials and components from related parties. The ones with annual value over RMB 30 million are listed as follows: Transaction parties Amount (RMB ‘000) Ratio to the transactions of the same kind JMCG 308,391 8.09% Nanchange Gear Co., Ltd 123,924 3.25% Jiangling-Lear Interior Trim Factory 118,916 3.12% Jiangxi FuChang Climate System Co. 90,500 2.37% JMCG Interior Trim Factory 62,477 1.64% Ford 54,994 1.44% JMCG Variant Vehicle Factory 39,225 1.03% JMCG Industrial Co. 31,367 0.82% Settlement: Letter of Credit method for Ford and its designated suppliers; payment on accounts or prepayment for other related parties. Pricing principle: Ford and its designated suppliers applied the negotiated arm-length pricing; the pricing for localized components from related parties were determined through 22 the process of suppliers quote, costing assessment and negotiation between both sides. The prices were adjusted periodically. Necessity and continuity: the purchase of the imported components will immediately stop when the respective localization is achieved, and these components will be substituted by localized ones; some components from other related parties were unique parts for JMC’s Transit series, N series and T series, and other general components were purchased through bid. B. The sales of products by JMC to related parties with annual value over RMB 30 million: Transaction parties Amount (RMB ‘000) Ratio to the transactions of the same kind Jiangxi Jiangling Auto Sales Co. 233,169 5.46% Settlement: cash sales or credit sales within credit limit. Pricing principle: the same prices as other dealers. Necessity and continuity: above related parties all are JMC’s dedicated dealers. JMC will continue to use its sales network to sell products. C. Management Compensations In 2002, JMC paid a total of US$ 1.8 million, including expenses such as salary and insurance, to the Ford-seconded personnel working in JMC in line with the Personnel Agreement and Supplemental Contract to the Personnel Agreement signed by JMC and Ford. D. General Service JMCG bears the middle school and primary school educational fees and retired employees expenses of JMC and its subsidiaries, and provides services such as security, fire control, road maintenance and cable television. In 2002, RMB 16.11 million of the above-mentioned costs was shared by JMC and its subsidiaries in the agreed percentage based on headcount ratio. E. Purchasing Agency Jiangling Import & Export Co., Ltd. was the import agent of JMC for acquiring import materials with a fixed commission rate of 1.5%. In 2002, JMC paid Jiangling Import & Export Co., Ltd. commission totaling RMB 2.22 million. (2) There was no related party transaction resulting from the transfer of assets or stake in 2002. (3) Creditor’s rights, liabilities and guarantees between JMC and related parties. A. Balance of accounts due to or due from main related parties with value over RMB 30 million: Item Related parties Amount Ratio to the balance (RMB ‘000) of the item Accounts and bills payable JMCG Interior Trim Factory 36,556 7.94% B. Deposit At the end of year 2002, JMC had deposit of RMB 90,510 thousand in JMCG Finance Co. Ltd. and charged interest at 0.125-1.89% (simultaneous bank deposit interest rate). JMC received a total of RMB 990 thousand in interest from JMCG Financial Co. in 2002. 23 C. Loan JMC borrowed 3-year loan of US$ 2,500 thousand (equal to RMB 20,700 thousand) at interest rate of 4.3% from JMCG Finance Co. Ltd. on June 22, 2000, and paid interest of RMB 950 thousand in 2002. D. Guarantee JMCG provided guarantee for JMC’s bank loans of US$ 7 million and RMB 426 million, which totaled RMB 483 million. The year 2002 guarantee fee was RMB 4,650 thousand. JMCG Finance Co. Ltd provided guarantee for JMC’s bank loans of US$ 2,280 thousand, which totaled RMB 18,890 thousand. (4) Other major related party transactions in 2002 A. JMC charged rent on the buildings rented by JMCG and the rental income in 2002 was RMB 1,450 thousand. JMC rented houses from JMCG, and paid rent of RMB 1,680 thousand in 2002. B. According to the Joint Development Agreement and the 2nd Amendment Contract to the Joint Development Agreement signed by JMC and Ford, JMC is to pay technology development fee totaling US$ 40 million to Ford. JMC bore the technology development fee of US$ 3,030 thousand (equal to RMB 25,050 thousand) in year 2002 at 1.8% of Transit sales revenue. 4. Major Contracts and the Execution (1) There were neither trust, contract or lease of assets from other companies, nor trust, contract or lease of JMC’s assets to other companies through which profit was generated to exceed 10% of 2002 total profit in the reporting period. (2) JMC had no outside guarantee in the reporting period. (3) JMC did not entrust other people with cash asset management in the reporting period. 5. Neither JMC nor the shareholders holding 5% or above shares disclosed commitments on the designated newspapers or website in 2002. 6. Appointment or Dismissal of Accounting Firms JMC 2001 annual Shareholders’ Meeting approved to replace Zhong Tianqin CPAs with PwC Zhong Tian CPAs as 2001 A-share auditor. Upon the approval of the 7th session of the third Board of Directors, PwC Zhong Tian CPAs was appointed as JMC’s year 2002-2006 A & B share auditor. This item is subject to the approval of JMC Shareholder’s Meeting; 24 The compensation paid to the accountant firms: Accountant Year 2002 Year 2001 Out of Pocket Expense Firm RMB 1 mil. RMB 0.5 mil. In 2001, calculated separately, PwC ZhongTian (Both A & B (A share) reimbursed by JMC; share) In 2002, contained in audit fee. HK$ 1.1 mil. Contained in audit fee. Ernst & Young N/A (B share) 7. Neither JMC nor its Directors or senior management were punished by regulatory authorities in 2002. 8. Public Announcements Index Item Date for Newspaper (page) Website and search path disclosure Announcement on Feb 1, 2002 China Securities (19th page) http://www.cninfo.com.cn/finalpa guarantee fee Securities Times (16th page) ge/2002-01-31/540461.html Hong Kong Commercial Daily (A6 page) Announcement on the April 9, 2002 China Securities (36th page) http://www.cninfo.com.cn/finalpa resolutions of the Board and Securities Times (40th page) ge/2002-04-08/565599.html the Supervisory Committee Hong Kong Commercial Daily http://www.cninfo.com.cn/finalpa on 2001 annual report and (B7 page) ge/2002-04-08/565219.PDF profit distribution and http://www.cninfo.com.cn/finalpa auditor’ compensation as ge/2002-04-08/566629.PDF well as extracts from 2001 annual report Announcement on the April 13, 2002 China Securities (16th page) http://www.cninfo.com.cn/finalpa th resolution of April 10 Securities Times (5 page) ge/2002-04-12/569007.html special Board meeting on Hong Kong Commercial Daily changes of senior (A11 page) management Announcement on the April 26, 2002 China Securities (58th page) http://www.cninfo.com.cn/finalpa Board’s resolution on 1st Securities Times (19th page) ge/2002-04-25/579428.html quarter report and 1st quarter Hong Kong Commercial Daily http://www.cninfo.com.cn/finalpa report (B3 page) ge/2002-04-25/579255.PDF http://www.cninfo.com.cn/finalpa ge/2002-04-25/579290.PDF Announcement on the May 16, 2002 China Securities (22nd page) http://www.cninfo.com.cn/finalpa th Board’s resolutions on Securities Times (19 page) ge/2002-05-15/598183.PDF amendment to Articles of Hong Kong Commercial Daily Association and (B4 page) Shareholders’ Meeting holding, etc. Announcement on the May 21, 2002 China Securities (5th page) http://www.cninfo.com.cn/finalpa 25 resolutions of 3rd session of Securities Times (2nd page) ge/2002-05-20/599903.html the seventh Board Hong Kong Commercial Daily (B4 page) Announcement on the June 20, 2002 China Securities (21st page) http://www.cninfo.com.cn/finalpa th resolutions of 2001 annual Securities Times (4 page) ge/2002-06-20/609203.html Shareholders’ Meeting and Hong Kong Commercial Daily of the first session of the (C6 page) fourth Board and the fourth Supervisory Committee Announcement on the July 18, 2002 China Securities (16th page) http://www.cninfo.com.cn/finalpa nd Board’s resolution on Securities Times (2 page) ge/2002-07-18/617092.html related transaction Hong Kong Commercial Daily (C6 page) Announcement on the Aug 23, 2002 China Securities (42nd ― 43rd http://www.cninfo.com.cn/finalpa resolutions of the Board and page) ge/2002-08-23/642009.html th the Supervisory Committee Securities Times (28 page) http://www.cninfo.com.cn/finalpa on 2002 half-year report and Hong Kong Commercial Daily ge/2002-08-23/642007.PDF 2002 half-year report (B10 page) http://www.cninfo.com.cn/finalpa ge/2002-08-23/642010.PDF Announcement on the Aug 29, 2002 China Securities (5th page) http://www.cninfo.com.cn/finalpa th Board’s resolution on senior Securities Times (24 page) ge/2002-08-29/646319.html management compensation Hong Kong Commercial Daily (A4 page) Announcement on the Oct 29, 2002 China Securities (36th page) http://www.cninfo.com.cn/finalpa st Board’s resolution on 2002 Securities Times (21 page) ge/2002-10-29/10049059.PDF 3rd quarter report and 2002 Hong Kong Commercial Daily http://www.cninfo.com.cn/finalpa 3rd quarter report (B10 page) ge/2002-10-29/10048651.PDF Clarification announcement Nov 6, 2002 China Securities (2nd page) http://www.cninfo.com.cn/finalpa Securities Times (6th page) ge/2002-11-06/10065538.html Announcement on the Nov 12, 2002 China Securities (3rd page) http://www.cninfo.com.cn/finalpa th Board’s resolution on Securities Times (9 page) ge/2002-11-12/10068999.html related transaction Hong Kong Commercial Daily (C2 page) Announcement on the Dec 12, 2002 China Securities (13rd page) http://www.cninfo.com.cn/finalpa resolutions of the 2nd th Securities Times (4 page) ge/2002-12-12/10086036.html session of the fourth Board Hong Kong Commercial Daily (B6 page) Chapter X Financial Report 26 Jiangling Motors Corporation, Ltd. Consolidated Financial Statements 2002 12th Floor, Shui On Plaza 333 Huai Hai Zhong Lu Shanghai 200021 People's Republic of China Telephone +86 (21) 6386 3388 Facsimile +86 (21) 6386 3300 PwC ZT Shen Zi (2003) No. 692 Report of the auditors To the shareholders of Jiangling Motors Corporation, Ltd. We have audited the accompanying consolidated balance sheet of Jiangling Motors Corporation, Ltd. (“the Company”) and its subsidiaries (“the Group”) as of 31 December 2002 and the related consolidated income and cash flow statements for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion the consolidated financial statements present fairly in all material respects the financial position of the Group as of 31 December 2002 and of the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards. PricewaterhouseCoopers Zhong Tian CPAs Co., Ltd. 28 March 2003 Business is undertaken in the registered name of PricewaterhouseCoopers Zhong Tian CPAs Co., Ltd. JIANGLING MOTORS CORPORATION, LTD. Year ended 31 December 2002 Consolidated income statement Year ended 31 December (All amounts in RMB thousands) Notes 2002 2001 (Restated) Sales 1 4,270,869 3,519,033 Sales tax and surcharge (54,822) (46,241) Net sales 4,216,047 3,472,792 Cost of sales (3,149,441) (2,723,277) Gross profit 1,066,606 749,515 Other operating income 28,883 47,916 Distribution costs (298,333) (221,270) Administrative expenses (407,343) (304,044) Other operating expense (8,044) (78,961) Profit from operations 2 381,769 193,156 Finance costs - net 3 (53,018) (86,309) Share of result of associates before tax 12 2,415 (1,775) Profit before tax 331,166 105,072 Income tax expense 5 6,119 (4,763) Group profit before minority interest 337,285 100,309 Minority interest 24 (24,177) (14,542) Net profit 313,108 85,767 Earnings per share (RMB per share) 6 0.363 0.099 2 JIANGLING MOTORS CORPORATION, LTD. Year ended 31 December 2002 Consolidated balance sheet As at 31 December (All amounts in RMB thousands) Notes 2002 2001 (Restated) ASSETS Non-current assets Property, plant and equipment 8 1,832,525 1,985,538 Land use rights 9 154,899 183,135 Investment property 10 19,507 21,030 Intangible assets 11 7,372 49,943 Investments in associates 12 15,091 11,128 Other non-current assets 13 26,956 45,287 Receivables - 34,588 Deferred tax assets 19 18,860 - 2,075,210 2,330,649 Current assets Inventories 14 436,839 450,888 Deferred income taxes 19 10,518 - Receivables and prepayments 15 297,091 360,797 Held-to-maturity investments 200 400 Cash and cash equivalents 16 816,735 609,365 1,561,383 1,421,450 Total assets 3,636,593 3,752,099 Shareholder’s equity Ordinary shares 23 863,214 863,214 Share premium 23 816,609 816,609 Reserves 23,25 77,496 77,496 Retained earnings 110,112 (202,996) Total shareholders’ equity 1,867,431 1,554,323 Minority interest 24 80,836 69,523 LIABILITIES Non-current liabilities Borrowings 18 404,890 730,802 Retirement benefit obligations 20 80,516 90,516 485,406 821,318 Current liabilities Trade and other payables 17 819,084 699,282 Current tax liabilities 5,637 2,125 Borrowings 18 318,480 584,136 Provisions 49,719 12,108 Retirement benefits obligations 20 10,000 9,284 1,202,920 1,306,935 Total liabilities 1,668,326 2,128,253 Total equity and liabilities 3,636,593 3,752,099 These financial statements have been approved for issuance by the Board of Directors on 28 March 2003. 3 JIANGLING MOTORS CORPORATION, LTD. Year ended 31 December 2002 Consolidated statement of changes in shareholders’ equity Ordinary Share Retained (All amounts in RMB thousands) Notes shares premium Reserves earnings Total Balance at 1 January 2001 - as previously reported 863,214 817,088 164,676 (333,250) 1,511,728 - effect of adopting IFRS19 4 - - - (43,172) (43,172) - reserve on reclassified amounts - (479) 479 - - - as restated 863,214 816,609 165,155 (376,422) 1,468,556 Net profit for the year - as previously reported - - - 142,395 142,395 - effect of adopting IFRS19 4 - - - (56,628) (56,628) - as restated - - - 85,767 85,767 Statutory reserves transferred out in accordance with a directive from the Ministry of Finance - - (87,491) 87,491 - Statutory reserves transferred out upon disposal of Jiangling Motor Import and Export Co. Ltd - - (168) 168 - Balance at 31 December 2001 / 1 January 2002 863,214 816,609 77,496 (202,996) 1,554,323 - as previously reported 863,214 817,088 77,017 (103,196) 1,654,123 - effect of adopting IFRS19 4 - - - (99,800) (99,800) - reserve on reclassified amounts - (479) 479 - - - as restated 863,214 816,609 77,496 (202,996) 1,554,323 Net profit for the year - - - 313,108 313,108 Balance at 31 December 2002 863,214 816,609 77,496 110,112 1,867,431 4 JIANGLING MOTORS CORPORATION, LTD. Year ended 31 December 2002 Consolidated cash flow statement Year ended 31 December (All amounts in RMB thousands) Notes 2002 2001 Cash flows from operating activities Cash generated from operations 26 1,007,424 647,882 Interest paid (57,480) (99,449) Tax paid (19,746) (2,881) Net cash from operating activities 930,198 545,552 Cash flows from investing activities Purchase of property, plant and equipment (124,154) (80,971) Proceeds from sale of property, plant and equipment 26 2,325 2,863 Proceeds from sale of leased assets - 2,886 Proceeds from disposal of held-to-maturity investments 200 430 Proceeds from disposal of interest in an associate - 5,411 Decrease in amounts due from associates - 3,267 Interest received 14,023 13,679 Withdrawal of time deposits placed with a related financial institution - 140,500 Complementary investment in an associate (3,553) - Net cash used in investing activities (111,159) 88,065 Cash flows from financing activities Proceeds from borrowings 444,394 646,155 Repayments of borrowings (1,036,151) (1,287,325) Dividends paid to minority shareholders of a subsidiary 24 (12,864) (2,804) Other cash paid relating to financing activities (6,794) (539) Net cash used in financing activities (611,415) (644,513) Effects of exchange rate changes (254) (8) Net (decrease)/increase in cash and cash equivalents 207,370 (10,904) Cash and cash equivalents at beginning of year 609,365 620,269 Cash and cash equivalents at end of year 816,735 609,365 5 JIANGLING MOTORS CORPORATION, LTD. Year ended 31 December 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In the notes, all amounts are shown in thousands of RMB unless otherwise stated) General information Jiangling Motors Corporation Ltd. (hereafter referred to as “the Company”) was established in the People’s Republic of China (hereafter referred to as “PRC”) under the Company Law of the PRC and under the approval Hongban (1992) No. 005 of Nangchang Revolution and Authorization Group of Company’s Joint Stock as a joint stock limited company to hold certain operational assets and liabilities of the automotive manufacturing business of Jiangxi Motors Manufacturing Factory. The Legal Representative’s Operating License is No. 002473. On 23 July 1993, with the approval of Zhengjianfashen [1993] No. 22 and Zhengjianhan [1993] No.86 of China Securities Regulatory Commission, the Company issued 494,000,000 A share to domestic public investors and PRC legal persons in Shenzhen Stock Exchange on 1 December 1993. On 8 April 1994, with the approval of Board minutes and Ganzhengquan [1994] No. 02 of Jiangxi Securities Regulatory Team, the Company issued 25,214,000 A shares as bonus shares to the existing 494,000,000 shares in issue in July 1993. The bonus shares were issued as a distribution from the retained earning account within shareholders’ equity. In 1995, with the approval Zhengjianfa [1995] No. 144 of China Securities Regulatory Commission and Shenzhengbanfu [1995] No. 92 of Shenzhen Securities Management Office, the Company issued 174,000,000 B shares and additional 170,000,000 B shares in 1998 with the approval Zhengjianfa [1998] No. 19 of China Securities Regulatory Commission. As at 31 December 2002, the total issued shares of the Company are 863,214,000 shares. The business scope of the Company includes the development, manufacture and sale of automobiles, engines and automobile related parts, dies and tools. Accounting policies The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below: A Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (hereafter referred to as “IFRS”). The consolidated financial statements have been prepared under the historical cost convention except as disclosed in the accounting policies below. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current event and actions, actual results ultimately may differ from those estimates. 6 JIANGLING MOTORS CORPORATION, LTD. Year ended 31 December 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In the notes, all amounts are shown in thousands of RMB unless otherwise stated) Accounting policies (continued) B Group accounting (1) Subsidiaries Subsidiaries, which are those entities in which the Company and its subsidiaries (hereafter referred to as “the Group”) has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies are consolidated. The existence and effect of potential voting rights that are presently exercisable or presently convertible are considered when assessing whether the Group controls another entity. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. (2) Associates Investments in associates are accounted for by the equity method of accounting. Under this method the company’s share of the post-acquisition profits or losses of associates is recognised in the income statement and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the cost of the investment. Associates are entities over which the Group generally has between 20% and 50% of the voting rights, or over which the Group has significant influence, but which it does not control. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does recognise further losses, unless the Group has incurred obligations or made payments on behalf of the associates. C Foreign currency translation (1) Measurement currency The consolidated financial statements are presented in RMB, which is the measurement currency of the Company. (2) Transactions and balances Foreign currency transactions are translated into the measurement currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies, are recognised in the income statement. D Property, plant and equipment Property, plant and equipment are stated at cost or, in the case of assets injected into the Group at the time of its reorganisation, at valuation less accumulated depreciation representing the deemed cost to the Group, less accumulated depreciation and any impairment losses. Depreciation is calculated on the straight-line method to write off the cost or the revalued amounts of each assets, to their residual values (10% except for land and moulds, which have no residual values) over their estimated useful lives as follows: 7 JIANGLING MOTORS CORPORATION, LTD. Year ended 31 December 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In the notes, all amounts are shown in thousands of RMB unless otherwise stated) Accounting policies (continued) D Property, plant and equipment (continued) Buildings 20-35 years Plant and machinery 10 years Equipment and Motor Vehicles 6 years Moulds 5 years Others 5 - 7 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. Repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Assets under construction comprises factories, office buildings, plant and machinery under construction including the related furniture, fixtures and equipment, are stated at cost less any impairment losses, and is not depreciated. Construction in progress is transferred to property, plant and equipment when it is ready for its intended use. Interest costs on borrowings to finance the construction of property, plant and equipment are capitalised, during the period of time that is required to complete and prepare the asset for its intended use. All other borrowing costs are expensed. E Land use rights Land use rights are stated at cost less accumulated amortisation and impairment losses. Cost represents consideration paid for the rights to use the land on which various warehouses, container storage areas and buildings are situated for 50 years. Amortisation of land use right is calculated on a straight-line basis over the period of the land use right. F Investment Property Investment property, principally comprising factory building, is held for long-term rental yields and is not occupied by the Group. Investment property is treated as a long-term investment and is stated at cost and are depreciated over the lease terms. G Intangible assets Research and development Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will be a success considering its commercial and technological feasibility, and only if the cost can be measured reliably. Other development expenditures are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs that have been capitalised are amortised from the commencement of the commercial production of the product on a straight-line basis over the period of its expected benefit, not exceeding five years. Accounting policies (continued) 8 JIANGLING MOTORS CORPORATION, LTD. Year ended 31 December 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In the notes, all amounts are shown in thousands of RMB unless otherwise stated) H Impairment of long lived assets Property, plant and equipment and other non-current assets, including intangible assets are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount which is the higher of an asset’s net selling price and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows. I Investments The Group recorded its investments in debt and equity securities as held-to-maturity investments. The classification is dependent on the purpose for which the investments were acquired. Management determines its investments at the time of the purchase. Investments with a fixed maturity that management has the intent and ability to hold to maturity are classified as held-to-maturity and are included in non-current assets, except for maturities within 12 months from the balance sheet date which are classified as current assets. J Other non-current assets Other non-current assets include deferred staff costs. Deferred staff costs represent expenses charged by Jiangling Motors Corporation Group (hereafter referred to as “JMCG”), being the excess of the construction cost of the staff quarters over the proceeds received from staff upon their purchases of the quarters from JMCG. The ownership of the staff quarters may only be transferred or disposed of by the staff after a period of eight years from the date of purchase. The deferred staff costs are amortised at a rate of 25% of the total annual wages. K Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out (FIFO) method. The cost of finished goods and work in progress comprises direct materials, direct labour and an attributable proportion of production overheads. Net realisable value is the estimated selling prices in the ordinary course of business, less the costs of completion and selling expenses. L Trade receivables Trade receivables are carried at original invoice amount less provision made for impairment of these receivables. A provision for impairment of trade receivables is established when there is an objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, discounted at the market rate of interest for similar borrowers. M Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand and deposits held at call with banks. 9 JIANGLING MOTORS CORPORATION, LTD. Year ended 31 December 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In the notes, all amounts are shown in thousands of RMB unless otherwise stated) Accounting policies (continued) N Ordinary shares (1) Ordinary shares with discretionary dividends are classified as equity. (2) Incremental external costs directly attributable to the issue of new shares, other than in connection with business combination, are shown in equity as a deduction, net of tax, from the proceeds. Share issue costs incurred directly in connection with a business combination are included in the cost of acquisition. O Borrowings Borrowings are recognised initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings. P 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. Q Employee benefits (1) Pension obligations The Group participates in defined contribution retirement schemes regarding pension and medical benefit required under existing PRC legislation. The contributions to the schemes are charged to the income statement as and when incurred. The Group’s obligations include contributions to a defined contribution retirement plan administered by a government agency determined at a certain percentage of the salaries of the employees and contributions to a supplementary pension fund of a fixed monthly amount per employee. The Group accounts for these contributions on the accrual basis. In addition, the Group provides certain retirees with post-retirement benefits and the cost of providing the aforementioned post-retirement benefits under the Group’s defined benefit plan is actuarially determined and recognised over the employees’ service period by using the projected unit credit method. Post-retirement benefit expenses recognised in the income statement, include, if applicable, current service cost, interest cost, the expected return on plan assets, amortised actuarial gains and losses, the effect of any curtailment or settlement and past service cost. (2) Early retirement benefits Termination benefits are payable whenever an employee’s employment is terminated before the normal retirement date. The Group recognises termination benefits when it is demonstrably committed to either terminate the employment of current employees according to a detailed formal plan without possibility of withdrawal or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after balance sheet date are discounted to present value. 10 JIANGLING MOTORS CORPORATION, LTD. Year ended 31 December 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In the notes, all amounts are shown in thousands of RMB unless otherwise stated) Accounting policies (continued) R 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. S Revenue recognition Revenue comprises the invoiced value for the sale of goods and services net of value-added tax, rebates and discounts, and after eliminating sales within the Group. Revenue from the sale of goods is recognised when significant risks and rewards of ownership of the goods are transferred to the buyer. Interest income is recognised on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the Group. Dividends are recognised when the right to receive payment is established. T Dividends Dividends are recorded in the Group’s financial statements in the period in which they are approved by the Group’s shareholders. U Segment Reporting The Group’s turnover and profit for the year were mainly derived from the manufacture and domestic sale of automobiles and the principal assets employed by the Group are located in the PRC. Accordingly, no segmental analysis by business and geographical segments has been provided for the year. V Comparatives Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year as follows: (1) Interest income Interest income of RMB13,679 was included in other operating income and reclassified to finance costs – net. (2) Research and development costs Research and development costs of RMB49,402 were included in other operating expense and reclassified to administrative expenses. (3) Construction in progress Construction in progress of RMB121,219 was listed separately and reclassified to be included in property, plant and equipment. 11 JIANGLING MOTORS CORPORATION, LTD. Year ended 31 December 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In the notes, all amounts are shown in thousands of RMB unless otherwise stated) Accounting policies (continued) W Comparatives (continued) (4) Land use rights Land use rights of RMB183,135 was included in property, plant and equipment and reclassified to be listed separately. (5) Investment in associates Investment in Jiangxi FuChang Climate System Co. of RMB6,034 was included in long term investments and reclassified to investments in associates. Due from associates of RMB4,350 was included in interests in associates along with investments in associates and was reclassified to receivables and prepayments. (6) Investment property Investment property of RMB21,030 was included in long-term prepayments and reclassified to investment property. (7) Provision Provision of RMB12,108 was included in trade and other payables and reclassified to provisions. (8) Held-to-maturity investments Held-to-maturity investments of RMB400 was included in long term investments and reclassified to held-to-maturity investments. (9) Reserves Reserves of RMB479 was included in share premium and reclassified to reserves. (10) Prior year adjustment - Retirement benefit obligations (Note 4) 12 JIANGLING MOTORS CORPORATION, LTD. Year ended 31 December 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In the notes, all amounts are shown in thousands of RMB unless otherwise stated) Financial risk management The financial assets of the Group include cash and bank balances, cash and time deposits with a related financial institution, investments, accounts and bills receivable, prepayments and other receivables, and amounts due from JMCG and related companies. The financial liabilities of the Group include bank loans, a loan from a related financial institution, accounts and bills payable, receipts in advance, accruals and other payables, accrued staff welfare and benefits, amounts due to related companies, an amount due to minority shareholders of the company and an amount due to a minority shareholder of a subsidiary. (1) Interest rate risk The interest rates and terms of the repayment of a loan from a related financial institution and bank loans of the Group are disclosed in note 17 to the financial statements, respectively. (2) Credit risk (i) Cash at bank and in hand Substantial amounts of the Group’s cash balances are deposited with the Bank of China, the Industrial and Commercial Bank of China, The Bank of Communications, The Agricultural Bank of China and the People’s Construction bank of China. Cash and time deposits are also placed with Jiangling Motors Corporation Finance Co., Ltd., a subsidiary of JMCG. (ii) Accounts receivable The Group does not have a significant exposure to any individual customer or counterparty. The major concentrations of credit risk arise from exposures to a substantial number of accounts receivable operating in one geographical region, i.e., the PRC. (3) Fair values The fair values of cash and bank balances, cash and time deposits with a related financial institution, investments, accounts and notes receivable, prepayments and other receivables amounts due from JMCG and related companies, accounts and bills payable, receipts in advance, accruals and other payables, accrued staff welfare and benefits, amounts due to related companies, an amount due to minority shareholders and an amount due to a minority shareholder of a subsidiary, are not materially different from their carrying amounts. The carrying values of short term bank loans are estimated to approximate their fair values based on the nature or short term maturity of these instruments. The fair values of long term bank loans as estimated by applying a discounted cash flow using current market interest rates for similar financial instruments approximate their carrying values. Fair value estimates are made at a specific point in time and are based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgement, and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. 13 JIANGLING MOTORS CORPORATION, LTD. Year ended 31 December 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In the notes, all amounts are shown in thousands of RMB unless otherwise stated) Notes to the consolidated financial statements 1 Sales The Group principally derives its turnover from the manufacture, assembly and sale of automobiles, related spare parts and components. Sales represent the total invoiced value of goods supplied to customers, net of returns and allowances. Sales are made principally in the PRC. 2 Profit from operations The following items have been included in arriving at operating profit: 2002 2001 Depreciation on property, plant and equipment (Note 8) 293,646 274,247 Impairment / (write-back of impairment) - property, plant and equipment (Note 8) 4,271 76,135 - receivables and prepayments (9,733) (19,361) - inventory 1,775 (6,816) Loss on disposal of property, plant and equipment 1,683 1,296 Loss on disposal of leased assets - 1,387 Repairs and maintenance expenditure on property, plant and equipment 48,918 23,586 Amortisation - non-current assets (Note 13) (included in ‘Administrative expenses’) 18,331 20,531 - intangible assets (Note 11) (included in ‘Administrative expenses’) 42,571 50,966 - land use rights (Note 9) (included in ‘Administrative expenses’) 6,335 6,855 - investment properties under operating leases (included in ‘Administrative expenses’) 1,523 1,523 Research and development expenditure 67,016 49,402 Inventory - costs of inventories recognised as expense (included in ‘Cost of Sales’) 2,677,025 2,342,018 Staff costs (Note 4) 193,269 220,795 3 Finance costs – net 2002 2001 Interest expense (Note 26) - Bank loans (59,115) (87,147) - Loan from Jiangling Motors Corporation Finance Co., Ltd. (hereafter referred to as “JMCF”) (955) (1,293) Interest income (Note 26) 14,023 13,679 Net foreign exchange transaction losses (461) (395) Guarantee expense (4,650) (11,009) Others (1,860) (144) (53,018) (86,309) 14 JIANGLING MOTORS CORPORATION, LTD. Year ended 31 December 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In the notes, all amounts are shown in thousands of RMB unless otherwise stated) 4 Staff costs 2002 2001 Wages and salaries 141,987 106,994 Social security costs 19,878 13,954 Pension costs defined contribution plans 23,159 27,722 Pension costs defined benefit (Note 20) - 67,010 Others 8,245 5,115 193,269 220,795 The average number of employees in 2002 was 6,246 (2001: 5,802). The employees of the Group participated in a retirement benefit plan organized by the municipal and provincial governments under which the Group was required to make defined contributions monthly to this plan. In addition, the Company also paid certain pension subsidies to certain retired employees. In accordance with the Company’s early retirement programs, the Company was also committed to make periodic benefit payments to certain early-retired employees until they reach their legal retirement ages. Based on the above assessment and IFRS No. 19, the Company estimated that, at December 31, 2002, a provision of RMB90,516 is sufficient to cover all future retirement-related obligations. As these obligations are effective prior to 2002, a prior year adjustment has been made to restate the payables as at 31 December 2001 and the retained earnings as at 1 January 2001 and 31 December 2001. The related obligations at 31 December, 2001 were estimated at RMB99,800 and the adjustments to retained earnings at 1 January 2001 and 31 December 2001 were RMB43,172 and RMB99,800 respectively. Obligation in respect of retirement benefits of RMB90,516 not covered by the above mentioned retirement plan organized by the municipal and provincial governments is the present value of the unfunded obligations, of which the current portion amounting to RMB10,000 (2001:RMB9,284) has been included under current liabilities. 5 Income tax expense 2002 2001 Current tax (23,259) (4,763) Deferred tax (Note 19) 29,378 - 6,119 (4,763) 15 JIANGLING MOTORS CORPORATION, LTD. Year ended 31 December 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In the notes, all amounts are shown in thousands of RMB unless otherwise stated) 5 Income tax expense (continued) The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the tax rate of the Company as follows: 2002 2001 Profit before tax 331,166 105,072 Tax calculated at a tax rate of 12% (2001 : 12%) (39,740) (12,609) Income not subject to tax 27,058 - Expense not deductible for tax purposes (3,256) (8,855) Utilization of previously unrecognised tax losses 25,454 21,463 Effect of different tax rates for associates and consolidated subsidiaries (3,397) (4,762) Tax credit/ (charge) 6,119 (4,763) The income tax rate applicable to the Company is 12%. With the approval of Hongguoshuiwaifa[2001]No.086, the income tax rate for the year 2002 is determined at 12%. The income tax rate applicable to Jiangling Isuzu Motors Company Limited (herafter refer to as “Jiangling Isuzu”), a subsidiary, is 15%. With the approval of Hongguoshuifa [2002] No. 010, 50% tax exemption was granted to Jiangling Isuzu for the period from January 2001 to December 2003. The income tax rate applicable to Jiangling Motor Sales Company, another subsidiary, is 33%. 6 Earnings per share Basic earnings per share is calculated by dividing the net profit attributable to shareholders by the weighted average number of ordinary shares in issue during the year. 2002 2001 Net profit attributable to shareholders (RMB’000) 313,108 85,767 Weighted average number of ordinary shares in issue 863,214 863,214 (thousands) Basic earnings per share (RMB per share) 0.363 0.099 No diluted earnings per share is presented as there were no potential ordinary share outstanding during the year ended 31 December 2002 and 2001. 7 Dividend per share On 28 March 2003, the Board of Directors proposed a dividend in respect of 2002 of RMB0.10 Yuan per share amounting to a total dividend of RMB86,321 is to be proposed. These financial statements do not reflect this dividend payable, which will be accounted for in shareholders’ equity as an appropriation of retained earnings in the year ending 31 December 2003. The dividends declared in respect of 2001 and 2000 were both nil. 16 JIANGLING MOTORS CORPORATION, LTD. Year ended 31 December 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In the notes, all amounts are shown in thousands of RMB unless otherwise stated) 8 Property, plant and equipment Assets Buildings Plant & machinery Vehicles Moulds constr Year ended 31 December 2001 Opening net book amount 529,950 888,114 16,455 335,542 25 Additions 169 2,697 1,378 4,977 6 Reclassification - (59,211) - - Transfers 3,855 12,335 2,382 (148 Disposals - (663) (126) - (2 Impairment charge (Note 2) (419) (13,194) (564) (15,846) (39 Depreciation charge (Note 2) (14,490) (114,628) (4,613) (80,227) Closing net book amount 519,065 715,450 14,912 244,446 12 At 31 December 2001 Cost 588,105 1,268,435 45,471 526,833 12 Accumulated depreciation (69,040) (552,985) (30,559) (282,387) Net book amount 519,065 715,450 14,912 244,446 12 Year ended 31 December 2002 Opening net book amount 519,065 715,450 14,912 244,446 12 Additions - - 4,584 598 11 Reclassification - net 5,450 10,117 2,372 3,077 Transfers 3,167 77,885 - 17,680 (102 Disposals (188) (2,111) (647) - (6 Impairment charge (Note 2) - 104 (104) (1,243) (1 Depreciation charge (Note 2) (14,578) (115,396) (4,628) (84,147) Closing net book amount 512,916 686,049 16,489 180,411 12 At 31 December 2002 Cost 586,747 1,346,106 45,136 504,880 12 Accumulated depreciation (73,831) (660,057) (28,647) (324,469) Net book amount 512,916 686,049 16,489 180,411 12 JIANGLING MOTORS CORPORATION, LTD. Year ended 31 December 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In the notes, all amounts are shown in thousands of RMB unless otherwise stated) 8 Property, plant and equipment (continued) In connection with the Group’s reorganisation in 1993, the Group’s property, plant and equipment were revalued on 31 December 1992 by Zhonghua (Shenzhen) Certified Public Accountants on a depreciated replacement value basis. The opening accumulated depreciation of the revalued assets was computed using depreciation rates as stipulated by the State regulations, which are generally consistent with those applied by the Group for the preparation of its financial statements. Since this was a special purpose valuation conducted for the purposes of the formation of a joint stock limited company, this became deemed costs of the Company’s property, plant and equipment. Subsequent revaluations have not been performed and all further additions have been recorded at cost. 9 Land use rights 2002 2001 Opening net book amount 183,135 189,990 Reclassification – net (21,901) - Amortisation charge (Note 2) (6,335) (6,855) Closing net book amount 154,899 183,135 Cost 206,239 210,062 Accumulated amortisation (51,340) (26,927) Net book amount 154,899 183,135 10 Investment property 2002 2001 Investment properties under operating leases, net 19,507 21,030 11 Intangible assets 2002 2001 Opening net book amount 49,943 100,909 Amortisation charge (Note 2) (42,571) (50,966) Closing net book amount 7,372 49,943 At 31 December Cost 221,444 221,444 Accumulated amortisation (214,072) (171,501) Net book amount 7,372 49,943 Intangible assets are comprised of research and development costs related to the Transit engineering services. 18 JIANGLING MOTORS CORPORATION, LTD. Year ended 31 December 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In the notes, all amounts are shown in thousands of RMB unless otherwise stated) 12 Investments in associates 2002 2001 At the beginning of year 11,128 10,046 Share of results before tax 2,415 (1,775) Others 1,548 2,857 At end of year 15,091 11,128 The associates, which are unlisted, are: Country of % interest held incorporation Jiangxi Fujiang After-Sales Service Co., Ltd. PRC 20% Jiangxi FuChang Climate System Co. PRC 19.15% In March 1996, the Company entered into a Sino-foreign equity joint venture agreement with Visteon International Holding Co., Ltd. (hereafter referred to as “Visteon”) to form Jiangxi Fuchang Climate Systems Co., Ltd. (hereafter referred to as “Jiangxi Fuchang”). The tenure of Jiangxi Fuchang is thirty years, and its principal activities include manufacture and sale of air-conditioners and spare parts for motor vehicles. Jiangxi Fuchang has a registered capital of US$5.6 million, of which Visteon has an 80.85% interest and the Company has the remaining 19.15% interest. The registered capital of Jiangxi Fuchang was paid up by the Company in the form of buildings, land use rights and electricity usage rights totalling RMB8,934, equivalent to approximately US$1,072. 13 Other non-current assets 2002 2001 Opening net book amount 45,287 65,818 Amortisation provided for the year (Note 2) (18,331) (20,531) Closing net book value 26,956 45,287 At 31 December Cost 150,750 150,750 Amortisation (123,794) (105,463) Net book amount 26,956 45,287 Other non-current assets is comprised of deferred staff cost. 14 Inventories 2002 2001 Raw materials (at net realisable value) 216,859 213,407 Work in progress (at cost) 43,640 38,406 Finished goods (at net realisable value) 176,340 199,075 436,839 450,888 19 JIANGLING MOTORS CORPORATION, LTD. Year ended 31 December 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In the notes, all amounts are shown in thousands of RMB unless otherwise stated) 15 Receivables and prepayments 2002 2001 Trade receivables 75,393 110,920 Less: Provision for impairment of receivables (9,168) (54,476) Trade receivables – net 66,225 56,444 Receivables from associates (Note 27) 3,077 4,400 Other receivables 227,789 299,953 297,091 360,797 16 Cash and cash equivalents 2002 2001 Cash at bank and in hand 793,732 608,304 Short term bank deposits 23,003 1,061 816,735 609,365 As at 31 December 2002, the Group had cash deposits, RMB90,506 (2001: RMB98,913) placed with a related financial institution, JMCF, which is a subsidiary of JMCG, of which RMB2,114 (2001: RMB1,057) was denominated in foreign currencies of US$68 and HK$1,457 (2001: US$68 and HK$463), respectively. The cash deposits, which can be withdrawn at any time on demand, are interest-bearing at 0.125% to 1.89% per annum (2001: 0.99% to 5.94% per annum). 17 Trade and other payables 2002 2001 Trade payables 445,512 371,232 Amount due to associates (Note 27) 14,868 11,776 Accrued expenses 82,058 88,621 Payroll and welfare payable 78,256 29,326 Other payables 198,390 198,327 819,084 699,282 18 Borrowings 2002 2001 Current Bank borrowings - unsecured 69,846 - - guaranteed 227,941 584,136 Loan from JMCF (Note 27) 20,693 - 318,480 584,136 Non-current 2002 2001 Bank borrowings - unsecured 130,000 - - guaranteed 274,890 710,109 Loan from JMCF (Note 27) - 20,693 404,890 730,802 Total borrowings 723,370 1,314,938 20 JIANGLING MOTORS CORPORATION, LTD. Year ended 31 December 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In the notes, all amounts are shown in thousands of RMB unless otherwise stated) 18 Borrowings (continued) Current bank loans as at 31 December 2002 bore interest at 5.31%-5.85% per annum (2001: 3.08%-6.44%). Of these loans, RMB483,941 were guaranteed by JMCG, RMB18,890 were guaranteed by JMCF. Other bank loans were credit term loans. The loan from JMCF was denominated in a foreign currency amounting to US$2,500 (2001: US$2,500), bore interest at 4.3% per annum (2001: 6.25% per annum), repayable on 22 June 2003 and was a credit term loan. Maturity of non-current borrowings: 2002 2001 Between 1 and 2 years 200,000 - Between 2 and 5 years 186,000 709,692 Over 5 years 18,890 21,110 404,890 730,802 19 Deferred tax assets Deferred income taxes are calculated in full on temporary differences under the liability method using a principal tax rate of 12%. The movement on the deferred income tax account is as follows: 2002 2001 At beginning of year - - Income statement charge (Note 5) 29,378 - At end of year 29,378 - Current 10,518 - Non-current 18,860 - 29,378 - 20 Pensions and other post-retirement obligations 2002 2001 At beginning of year 99,800 43,172 Additional provision - 10,382 Further additional provision - 56,628 Payment for the year (9,284) (10,382) At end of year 90,516 99,800 Current 10,000 9,284 Non-current 80,516 90,516 90,516 99,800 The above obligations were actuarially recorded using the projected unit credit method. The material actuarial assumptions used in valuing these obligations are as follows: (1) Discount rate adopted: 1.98% (2) Mortality: average life expectancy of residents in the PRC. 21 JIANGLING MOTORS CORPORATION, LTD. Year ended 31 December 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In the notes, all amounts are shown in thousands of RMB unless otherwise stated) 21 Contingencies At 31 December 2002, the Company did not have any significant contingent liabilities. 22 Commitments (a) Capital commitments Capital expenditure contracted for at the balance sheet date but not recognised in the financial statements, comprises purchases of buildings, plant and machinery, is as follows: 2002 2001 Contracted 9,860 3,065 Authorised but not contracted 73,600 83,616 83,460 86,681 (b) Royalty fee payable to a minority shareholder On 21 August 1995, the Company entered into a joint development agreement with a minority shareholder, Ford Motor Company (hereafter referred to as “Ford”), in which Ford agreed to provide technical assistance to the Company for the production of automobiles. In return, the Company agreed to pay Ford a total of US$40,000 by the end of the year 2004. On 29 September 2000, an amendment to the development agreement was entered into between the Company and Ford to waive the aforesaid repayment terms, and royalty payment is calculated based on 1.8% of sale value of automobiles. As at 31 December 2002, the outstanding royalty fee committed, but not provided for, amounting to US$29,001 (2001: US$32,027). 23 Ordinary share and share premium Number of shares Ordinary Share Capital (thousands) shares premium reserve Total Balance at 1 January 2002 863,214 863,214 817,088 4,210 1,684,512 Reserves on reclassified amount - - (479) 14,475 13,996 As restated 863,214 863,214 816,609 18,685 1,698,508 Balance at 31 December 2002 863,214 863,214 816,609 18,685 1,698,508 The total authorised number of ordinary shares is 863,214 shares (2001: 863,214 shares) with a par value of RMB 1 per share (2001 : RMB 1 per share). All issued shares are fully paid. 24 Minority interests 2002 2001 At 1 January 69,523 54,981 Share of net profit of subsidiaries (Note 26) 24,177 14,542 Dividend paid (12,864) - At 31 December 80,836 69,523 22 JIANGLING MOTORS CORPORATION, LTD. Year ended 31 December 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In the notes, all amounts are shown in thousands of RMB unless otherwise stated) 25 Statutory and discretionary reserves Statutory Discretionary Statutory public surplus reserve welfare fund reserve Total Balance at 1 January 2001 111,917 41,798 6,751 160,466 Reserves on reclassified amount (38,899) - 24,903 (13,996) As restated 73,018 41,798 31,654 146,470 Statutory reserves transferred out in accordance with a directive from the Ministry of Finance (14,039) (41,798) (31,654) (87,491) Statutory reserves transferred out upon disposal of Jiangling Motor Import and Export Co. Ltd. (168) - - (168) Balance at 31 December 2001 / 1 January 2002 58,811 - - 58,811 Transfers from the statement of income to statutory reserve and statutory public welfare fund were made in accordance with the relevant statutory rules and regulations and the articles of Association of the Company and Jiangling Isuzu. Statutory reserve According to the Company’s Articles of Association, the Company is required to transfer 10% of its profit after tax, as determined under PRC accounting regulations, to the statutory reserve until the reserve balance reaches 50% of the registered capital. The statutory reserve can be used to make good previous years’ losses, if any, and may be converted into share capital by the issuance of new shares to shareholders in proportion to their existing shareholdings. The transfer to this reserve must be made before the distribution of dividends to shareholders while statutory reserve remains no less than 25% of the ordinary shares. Statutory public welfare fund The statutory public welfare fund can only be utilized on capital items for the collective benefits of the Company’s employees such as the construction of dormitories, canteen and other staff welfare facilities. The transfer to this reserve must be made before distribution of dividends to shareholders. This reserve is non-distributable other than in liquidation of the Company. Discretionary surplus reserve According to the Company’s Articles of Association, the Company is required to transfer 5% to 10% of its profit after tax, as determined under PRC accounting regulations, to the discretionary surplus reserve. 23 JIANGLING MOTORS CORPORATION, LTD. Year ended 31 December 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In the notes, all amounts are shown in thousands of RMB unless otherwise stated) 26 Cash generated from operations 2002 2001 (Restated) Net profit 313,108 85,767 Adjustments for: Minority interest (Note 24) 24,177 14,542 Tax (Note 5) (6,119) 4,763 Depreciation (Note 2) 293,646 274,247 Amortisation (Note 2) 68,760 73,137 Impairment charge / (Write-back of impairment) (Note 2) (3,687) 49,958 Loss on sale of property, plant and equipment (Note 2) 1,683 1,296 Loss on sale of leased assets - 1,387 Interest income (Note 3) (14,023) (13,679) Dividend income - (2,444) Interest expense (Note 3) 60,070 88,440 Other finance costs 6,971 11,548 Share of results of associates before tax (Note 12) (2,415) 1,775 Changes in working capital: Inventories 12,274 173,663 Trade and other receivables 105,056 (125,964) Held-to-maturity investments (200) - Payables 119,796 299 Provisions 37,611 9,147 Pensions and other retirement benefits (9,284) - Cash generated from operations 1,007,424 647,882 In the cash flow statement, proceeds from sale of property, plant and equipment comprise: 2002 2001 Net book amount 4,008 8,432 Less: disposals of leased assets - (4,273) 4,008 4,159 Loss on sale of property, plant and equipment (Note 2) (1,683) (1,296) Proceeds from sale of property, plant and equipment 2,325 2,863 24 JIANGLING MOTORS CORPORATION, LTD. Year ended 31 December 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In the notes, all amounts are shown in thousands of RMB unless otherwise stated) 27 Related party transactions The Company is controlled by JMCG (incorporated in the PRC) which owns 41.03% of the Company’s shares. The remaining 58.97% of the shares are widely held. The Directors consider JMCG, a PRC state-owned enterprise to be the ultimate controlling shareholder. The following is a summary of the significant transactions carried out between the Group, its associates, JMCG and its subsidiaries (including Nanchang Gear Co. Ltd. and JMCF), Ford, Isuzu-Motors Corporation of Japan (hereafter referred to as “Isuzu”) and their subsidiaries in the ordinary course of business during the year: i) Sales of goods and provision of services 2002 2001 Sales of goods: Jiangxi Jiangling Auto Sales Co. 233,169 173,419 Beijing Jiangling Economy & Trade Co. - 131,211 Jiangling Import and Export Co., Ltd. 10,932 - 244,101 304,630 Provision of services: JMCG’s subsidiaries Rental Income 1,447 2,070 ii) Purchases of goods and services 2002 2001 Purchases of goods: JMCG 308,391 236,154 Nanchang Gear Co. Ltd. 123,924 95,670 Jiangling-Lear Interior Trim Factory 118,916 87,653 Jiangxi FuChang Climate System Co. 90,500 73,929 JMCG Interior Trim Factory 62,477 72,612 Ford Motor Company 54,994 105,203 JMCG Variant Vehicle Factory 39,225 64,164 JMCG Industrial Co. 31,367 41,866 Nanchang Brake Plant 24,587 28,578 Jiangxi Radiator Plant 17,284 15,510 Nanchang Oil Tank Plant 14,018 760 Jiangxi Forging Co., Ltd. 11,042 7,378 Xinyu Xinling Nonferrous Compression Casting Co., Ltd. 6,323 7,857 Jiangling Chassis Co. - 10,751 Isuzu Motors Company Limited - 2,694 903,048 850,779 25 JIANGLING MOTORS CORPORATION, LTD. Year ended 31 December 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In the notes, all amounts are shown in thousands of RMB unless otherwise stated) 27 Related party transactions (continued) ii) Purchases of goods and services (continued) 2002 2001 Purchases of Services: Jiangling Motor Import and Export Co., Ltd. - Commission expenses 2,224 2,951 JMCG - Guarantee expense 4,650 11,009 - Rental expense 1,684 614 - Management expense 16,110 14,700 22,444 26,323 iii) Year-end balances arising from sales/purchases of goods/services 2002 2001 Receivables from related parties: Nanchang Gear Co., Ltd. 33,311 55,729 Jiangling Import and Export Co., Ltd. 15,473 7,236 Beijing Jiangling Economy & Trade Co. 6,404 6,404 JMCG Industrial Co. 4,788 3,258 Jiangxi Fujiang After-Sales Service Co., Ltd. 3,077 4,400 Jiangxi Radiator Plant 684 183 Nanchang Oil Tank Plant - 303 JMCG - 39,155 Jiangling Chassis Co. - 2,044 Nanchang Brake Plant - 1,061 63,737 119,773 26 JIANGLING MOTORS CORPORATION, LTD. Year ended 31 December 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In the notes, all amounts are shown in thousands of RMB unless otherwise stated) 27 Related party transactions (continued) iii) Year-end balances arising from sales/purchases of goods/services (continued) 2002 2001 Payables to related parties: JMCG Interior Trim Factory 37,531 6,139 Jiangxi FuChang Climate System Co. 14,868 11,776 Ford Motor Company 9,458 21,209 JMCG Variant Vehicle Factory 9,320 5,970 JMCG 6,667 - JMCG Import & Export Co., Ltd. 4,696 - Jiangxi Forging Co., Ltd. 2,114 - Nanchang Gear Co., Ltd. 86 - Nanchang Oil Tank Plant 58 46 Nanchang Brake Plant 14 - Jiangling-Lear Interior Trim Factory - 2,198 5 Subsidiaries including GuangZhou Sales office - 2,016 JMCG Industrial Co. - 658 Jiangling Chassis Co. - 542 Jiangxi Radiator Plant - 388 84,812 50,942 iv) Loans from related parties 2002 2001 Loan from JMCF: 20,693 20,693 The loan from JMCF, which expires on 22 June 2003, bears interest at 4.3% per annum. It was denominated in a foreign currency amounting to US$2,500. v) Directors’ remuneration In 2002 the total remuneration of the directors was RMB60 (2001: nil). 28 Principal subsidiaries Percentage Place and date of of equity Entity incorporation interest held Principal activities Jiangling Isuzu Motors Nanchang, PRC 75% Manufacture and sale of Company Limited 10 March 1993 automobiles and spare parts Jiangling Motors Sales Nanchang, PRC 100% Sale of automobiles, engines Company 31 December 1993 and spare parts 27 JIANGLING MOTORS CORPORATION, LTD. Year ended 31 December 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In the notes, all amounts are shown in thousands of RMB unless otherwise stated) 29 Post balance sheet events On 28 March 2003, the Board of Directors proposed a dividend of RMB0.10 Yuan per share for the year ended 31 December 2002 totaling approximately RMB86,321, and an appropriation to the statutory reserve and statutory public welfare fund of approximately RMB23,695. The proposed dividend distribution and the appropriation to the discretionary surplus reserve fund are subject to shareholders’ approval in the next general meeting. In accordance with the revised IFRS 10, “Events after the Balance Sheet Date”, the dividend and the appropriation to the discretionary surplus reserve fund after the balance sheet date will be recorded in the Group’s financial statements for the year ending 31 December 2003. 28 JIANGLING MOTORS CORPORATION, LTD. Year ended 31 December 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In the notes, all amounts are shown in thousands of RMB unless otherwise stated) Impact of IFRS adjustments on the consolidated profit after tax and shareholders’ fund Net assets Net profit As reported in the accounts of the Group under PRC 1,818,132 286,760 1. Reversal of investment loss of subsidiary - 12,043 2. Amortisation difference of Housing Fund 26,956 (18,331) 3. Power Capability Upgrade expense (1,642) 5,595 4. Staff bonus and welfare fund of Jiangling Isuzu appropriated from profit after tax - (10,771) 5. Deferred Tax asset 29,377 29,377 6. Pension defined benefit (90,516) 9,284 7. Reversal of dividends declared 86,321 - 8. Others (1,197) (849) As restated in conformity with IFRS 1,867,431 313,108 29 Chapter XI Catalog on Documents for Reference 1. Originals of 2002 financial statements signed by legal representative Sun Min and Chief Financial Officer Manto Wong. 2. Originals of the Auditors’ Reports signed by registered accountants and stamped by accountants firms. 3. Originals of all the documents and public announcements disclosed in newspapers designated by CSRC in 2002. Board of Directors Jiangling Motors Corporation, Ltd. March 19, 2003 30