晨鸣纸业(000488)2002年年度报告（英文版）

Annual Report 2002 Shandong Chenming 山东晨鸣纸业集团股份有限公司 SHANDONG CHENMING PAPER HOLDINGS LIMITED Annual Report 2002 March 16, 2003 1 Annual Report 2002 Shandong Chenming Contents Contents......................................................................................................................................................... 2 I. Company Profile ........................................................................................................................................ 4 II. Financial Highlights.................................................................................................................................. 5 (I) Major accounting data (in RMB)...................................................................................................... 5 Subjects.......................................................................................................................... 5 (II) Major accounting data and financial indices of the past 3 years at the end of the report period..... 6 (III) Change of shareholders’ equity and causations in the report term ............................................... 7 III. Change of Share Capital and Shareholders ............................................................................................. 7 (I) Change of shares (in shares) ............................................................................................................. 7 (II) Particulars about share placing and listing ...................................................................................... 8 (III) Particulars about the shareholders.................................................................................................. 8 IV. Particulars About the Directors, Supervisors, Senior Managements, and Employees ............................. 9 (I) Basic information ............................................................................................................................. 9 (II) Annual payroll ................................................................................................................................. 9 (III) Change of directors, supervisors and senior management ........................................................... 10 (IV) The employees ............................................................................................................................. 10 V. Management Structure ............................................................................................................................ 10 (I) Management of the Company......................................................................................................... 10 (II) Independent directors’ fulfilling of job ........................................................................................ 10 (III) Particulars about the separation of businesses, personnel, assets, organizations, and accounting from the controlling shareholder ......................................................................................................... 11 (IV) Assessment and motivating mechanism of the senior management ............................................ 11 VI. The Shareholders’ General Meeting..................................................................................................... 11 (I) Shareholders’ General Meeting 2001 was held during the report term ......................................... 11 (II) Electing and alternating of directors and supervisors.................................................................... 12 VII. Report of the Board of Directors.......................................................................................................... 12 (I) Analyzing of business and financial status for the report term....................................................... 12 (II) Business overview of the company ............................................................................................... 12 (III) Business overview of major share-controlled subsidiaries .......................................................... 14 (IV) Top 5 vendors and buyers .............................................................................................................. 2 (V) Problems and difficulties encountered and solutions ...................................................................... 2 (VI) Fulfilling of the forecast ................................................................................................................ 2 (VII) Investment .................................................................................................................................... 2 (VIII) Financial status and operation results (in RMB) ......................................................................... 3 (IX) Influence on the business operation of the company from the changing of business environment, macro policies, laws and regulations ..................................................................................................... 4 (X) Business plan for the coming year .................................................................................................. 4 (XI) Particulars about the daily work of the Board ............................................................................... 4 (XII) Profit distribution or capitalization of capital public reserves...................................................... 5 (XIII) Other events to be reported ......................................................................................................... 6 VIII. Report of the Supervisory Committee .................................................................................................. 6 (I) The Supervisory Committee held 4 meetings during the report term............................................... 6 (II) The independent comments of the Supervisory Committee............................................................ 7 IX. Significant Events ................................................................................................................................... 7 (I) There is no significant lawsuit or arbitration events occurred in the report term. ............................ 7 (II) At the end of report term, the company invested in establishing of Jiangxi Chenming Paper Co., 2 Annual Report 2002 Shandong Chenming Ltd. and Shanghai Chenming Paper-making Machinery Co., Ltd. For particulars about the above events please refer to item (VII) of the Report of the Board of Directors. ............................................ 7 (III) Jilin Yasong Chenming Pulp & Paper Co., Ltd. – the controlling subsidiary of the company has changed in company name and the other joint party on Jan 30, 2003 as followings:............................ 7 (IV) Significant associated transactions ................................................................................................ 8 (V) Major contracts and their execution................................................................................................ 8 (VI) Inviting and payment to public accountants .................................................................................. 9 For the report period, the company invited Shandong Zhengyuan Hexin Certified Public Accountant as domestic accountant and PriceWaterHouseCoopers as the overseas accountant, which have been the accountants of the company for successively 5 years and 6 years respectively............................... 9 (VII) None of the company, the Board or the Director received any penalty form China Securities Supervisory Committee or any criticize from the Stock Exchange. ...................................................... 9 X. Financial Reports.................................................................................................................................... 10 XI. Documents for Reference...................................................................................................................... 11 Important Declaration： The Board of Directors and the directors of the Company guarantee that there are no significant omissions, fictitious or misleading statements carried in the Report and we will accept individual and joint responsibilities for the truthfulness, accuracy and completeness of the Report. This Report is written both in English and Chinese. In case there exists discrepancy in understanding between the two versions, the Chinese version shall prevail. Directors of Han Wenjian, Xu Xiangdong and Zhao Jinghua absent the Board meeting. The Chairman of the Board – Mr. Chen Hongguo, Chief Accounting Supervisor – Mr. Yu Shiyong, Administrator of the Accounting Department – Mr. Liu Junwu hereby declare: the truthfulness and completeness of the report are guaranteed. 3 Annual Report 2002 Shandong Chenming I. Company Profile Statutory Name in Chinese: 山东晨鸣纸业集团股份有限公司 Statutory Name in English: SHANDONG CHENMING PAPER HOLDINGS LIMITED English short form: SCPH Legal Representative: Chen Hongguo Secretary of the Board of Directors: Hao Jun Security Affairs Representative: Wang Wei Address: Securities Department, No. 595 Shencheng Rd., Shouguang City, Shandong Province Tel.: 0536－5280011 Fax: 0536－5228900 Email: cmzqb@public.wfptt.sd.cn Registered Address and Office Address: No. 595 Shencheng Rd., Shouguang City, Shandong Province Post Code: 262700 Internet Website: http://www.chenmingpaper.com Newspapers for Disclosing the Information: China Securities, Hong Kong Commercial Daily Internet Website Designated by China Securities Supperviosry Committee for Publishing of the Annual Report: http://www.cninfo.com.cn The Place Where the Annual Report is Prepared and Placed: Securities Department of the Company Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stocks: Chenming Paper, Chenming B Stock Code: 000488 200488 Other Relative Information Business registration amended on March 22, 2002 Registered address: No. 595 Shencheng Rd., Shouguang City, Shandong Province Legal Person Registration License: Qi-gu-lu-zong-zi No. 000003 Tax Registration License: 370783613588986 Certified Public Accountants Invited by the Company: Shandong Zhengyuan Hexin Certified Public Accountants Co., Ltd. Office address: Level 4, Liangyou Fulin Hotel, No. 5 Luoyuan Street, Jinan PriceWaterhouseCoopers Office address: 22/F Prince’s Building Central Hongkong 4 Annual Report 2002 Shandong Chenming II. Financial Highlights (I) Major accounting data (in RMB thousand) Subjects Year 2002 Profit before tax 627,711 Net profit 387,163 Profit of major business 1,260,208 Other Business revenue 32,424 Business profit 756,457 Profit from placing of investment transaction 41,949 Cash flow from business operation - net 583,874 Changing of cash and cash-equivalents - net -390,374 For the benefit of both domestic and overseas investors, the company prepared the Financial Report on both of the China Accounting Standard and International Accounting Standard (IAS). As the result of auditing of the domestic auditor, the Net Profit (consolidated) is RMB380,661,000 for the overseas auditors, the Net Profit (consolidated) is RMB387,163,000. The result of overseas auditor is higher than that of the domestic auditor’s by RMB6.502 million. That is because, according to IAS: Deducting of goodwill and relative amortized amounts that evaluated internally, added RMB1.45 million to the profit. Deducting of re-evaluated fixed assets increment and relative income tax, added RMB1.749 million to the profit. Deducting of the public capital reserves generated from governmental allowances, added RMB10.412 million to the profit. Diluting of devaluation reserves for investment on trading purpose, deducted RMB3.079 million from the profit. Surplus of payments from minority shareholders, deducted RMB4.17 million from the profit. Other adjustments increased the profit by RMB0.14 million. 5 Annual Report 2002 Shandong Chenming (II) Major accounting data and financial indices of the past 3 years at the end of the report period. Indices 2002 2001 2000 Business revenue (in RMB thousand) 4,439,260 2,394,607 2,405,546 Net profit (in RMB thousand) 387,163 149,472 208,600 Total asset (in RMB thousand) 8,669,355 7,386,440 5,353,483 Shareholders’ equity (in RMB thousand) (minority shareholders’ 3,386,787 2,999,624 2,958,145 equity excluded) Gains per share (RMB/share) 0.78 0.30 0.46 Gains per share (weighted) 0.78 0.30 0.54 (RMB/share) Net capital per share (RMB/share) 6.79 6.01 6.52 Net cash flow per share generated by 1.17 0.49 0.38 business operation Net gain/capital ratio (%) (diluted) 11.43 4.98 7.05 Net gain/capital ratio (%) (weighted) 12.12 4.93 14.65 Net gain/capital ratio and net gain per share calculated in accordance with article No. 9 of “The Regulations of Information Disclosing for Public Companies” issued by China Securities Supervisory Committee: 2002 Net gain/capital ratio (%) Gain per share (RMB) Profit of the report term Full Weighted Full Weighted diluted average diluted average Major business profit 37.21 39.47 2.53 2.53 Operation profit 22.34 23.69 1.52 1.52 Net profit 11.43 12.12 0.78 0.78 6 Annual Report 2002 Shandong Chenming (III) Change of shareholders’ equity and causations in the report term(in RMB thousand) Subjects Share Capital Surplus Statutory Un-distributed Total of capital reserves reserves public profit shareholders’ welfare equity Initial 498,738 1,842,849 113,346 93,360 451,331 2,999,624 Increased 10,412 34,939 34,939 306,873 387,163 this term Decreased this term At the end of term 498,738 1,853,261 148,285 128,299 758,204 3,386,787 Causation National Profit Profit Profit bonds drawing drawing increased this allowance term III. Change of Share Capital and Shareholders (I) Change of shares (in shares) Before Changed by (+,-) After Capitalizing of Share alloting New shares distributing Sub-total reserves Others placed Share I. Non-negotiable Shares 1. Promoters’ shares 161,144,754 161,144,754 Including: State-owned shares 156,608,584 156,608,584 Domestic corporate shares 4,536,170 4,536,170 Foreign corporate shares Others 2. Raised corporate shares 3. Employees’ shares 54,112,420 54,112,420 4. Preferred Shares or others Total non-negotiable shares 215,257,174 215,257,174 II. Negotiable Shares 1. RMB conventional shares 77,000,000 77,000,000 2. Domestically listed foreign investment 206,480,550 206,480,550 shares 3. Overseas listed foreign investment shares 4. Others Total negotiable shares 283,480,550 283,480,550 III. Total Shares 498,737,724 498,737,724 7 Annual Report 2002 Shandong Chenming (II) Particulars about share placing and listing 1. Approved by China Security Supervisory Committee with article Zheng-jian-gongsi-zi [2000]151 issued on Sept. 30, 2000, the company issued 70 million A shares to the public at RMB20.80 per share. And approved by Shenzhen Stock Exchange with article Shen-zheng-shang [2000]151, the shares were placed in the market on Nov. 20. 2. In March 1993, the company placed 18,591,500 employees’ shares at RMB1.2 per share. With several times of allotting through the years, it was increased to 54,112,420 shares at the end of 2002. (III) Particulars about the shareholders 1. There are totally 50,720 shareholders at the end of the report term. 2. Share-holding Rank Shareholders’ name Changed Share Shares held at during portion Share property the end of term the year % SHOUGUANG STATE-OWNED 156,608,584 31.40 State-owned shares 1 ASSET ADMINISTRATION 0 (promoter) Fenghe Value Security 10,403,600 2.09 2 +10,403,600 A shares Investment Foundation Yellow River Security Co., 6,610,256 1.33 3 +6,610,256 A shares Ltd. KWONG WAH 6,190,000 1.24 4 INVESTMENT -1,370,000 B shares (SHOUGUANG) LIMITED 2,493,465 0.50 Employees’ shares 5 HAO YUNFENG +18,000 /A shares 6 DENG WENPING 2,120,635 0 0.43 B shares Taihe Security Investment 1,899,877 0.38 7 +1,899,877 A shares Foundation 8 LIN SHENGMOU 1,776,220 -105,000 0.36 B shares Tianyuan Security 1,683,411 0.34 9 +1,683,411 A shares Investment Foundation 1,574,634 0.32 Domestic legal SHANGHAI XINLONG 10 0 person shares INVESTMENT CO., LTD. (promoter) 1) The shareholder holding over 5% of the total shares of the Company is Shouguang State-owned Asset Administration. It takes 156,608,584 shares at the end of the term, and no shares were mortgaged or frozen. 2) Fenghe Value Security Investment Foundation and Taihe Security Investment Foundation are under managing of Jiashi Foundation Management Co., Ltd. The company found no associated relation between any of the other 8 shareholders. 3. The controlling shareholder is Shandong Shouguang State-owned Asset Administration. Its legal representative is Mr. Mao Derong, and its business occupation is managing and supervising of mulnicipal state-owned assets and their accounting and representatives of these properties. The controlling shareholder has not changed during the report term. 8 Annual Report 2002 Shandong Chenming IV. Particulars About the Directors, Supervisors, Senior Managements, and Employees (I) Basic information Shares Shares held at held at the Change Names Position Sex Age Job Term beginning the end of term (share) of term (Share) (Share) Chen Hongguo Chairman Male 38 2001.9-2004.9 29,106 29,106 0 Yin Tongyuan Vice Chairman, GM Male 45 2001.9-2004.9 33,471 33,471 0 Han Wenjian Director Male 49 2001.9-2004.9 33,471 33,471 0 Li Mingren Director Male 43 2001.9-2004.9 0 0 0 Hu Wenhe Director Male 57 2001.9-2004.9 5,821 5,821 0 Guo Xiucheng Director/ Vice GM Male 38 2001.9-2004.9 0 0 0 Wang Zhijun Director Male 42 2001.9-2004.9 13,097 13,097 0 Xia Youliang Director Male 39 2001.9-2004.9 8,731 8,731 0 Hu Changqing Director/ Vice GM Male 37 2001.9-2004.9 0 0 0 Xu Xiangdong Director Female 53 2001.9-2004.9 53,846 53,846 0 Li Ruohe Director Male 52 2001.9-2004.9 0 0 0 Zhao Jinhua Independent Male 41 2002.4-2004.9 0 0 0 Director Liu Xueyan Independent Male 64 2002.4-2004.9 0 0 0 Director Chairman of Male Sun Qiang Supervisory 33 2001.9-2004.9 17,463 17,463 0 Committee Li Xueqin Vice Chairman of Female 40 2001.9-2004.9 Supervisory 2,910 2,910 0 Committee Zhang Jun Supervisor Male 37 2001.9-2004.9 7,276 7,276 0 Zhen Liyong Supervisor Male 37 2001.9-2004.9 11,642 11,642 0 Gao Junjie Supervisor Male 32 2001.9-2004.9 11,642 11,642 0 Sun Ping Vice GM Male 47 2001.9-2004.9 0 0 0 Fang Lijun Vice GM Male 33 2001.9-2004.9 8,731 8,731 0 Zhang Yanjun Vice GM Male 38 2001.9-2004.9 11,642 11,642 0 Hou Huancai Vice GM Male 41 2001.9-2004.9 17,463 17,463 0 Wang Fuzeng Vice GM Male 42 2001.9-2004.9 11,642 11,642 0 Meng Feng Vice GM Male 31 2002.4-2004.9 0 0 0 Guo Xicheng Chief Accountant Male 53 2002.4-2004.9 11,642 11,642 0 Shao Xuejun Chief Engineer Male 37 2002.4-2004.9 5,821 5,821 0 Hao Yun Security of the Male 40 2001.9-2004.9 17,463 17,463 0 Board None of the directors nor the supervisors takes job position in any of the shareholders. (II) Annual payroll The salaries of the directors, supervisors and senior management are decided based upon the policies of municipal government and the business results of the Company as well as the accomplishment of their jobs. The salary and motivation regulations will be subject to the approving of the Shareholders’ General 9 Annual Report 2002 Shandong Chenming Meeting 2002. The sum of annual payroll of current directors, supervisors and managements is RMB6.51 million. The highest 3 directors took RMB2.23 million in total. The highest 3 senior management took RMB1.53 million. The Company paid RMB40000 annually to each independent director as allowance (tax included). Traveling fees and other reasonable expenses of the independent directors that allowed by the Article of Association was covered by the company. Salaries of executive directors, supervisors and senior management are ranged as: 0.6 –1.05 million (2 individuals), 300-500 thousand (7 individuals), 150-300 thousand (7 individuals), less than 150 thousand (10 individuals). Mr. Li Ruohe is the non-executive director, and takes no salary from the company. (III) Change of directors, supervisors and senior management 1. On April 23, 2002, as the resolution of the 2nd meeting of the 3rd term Board of Directors, Mr. Meng Feng was engaged as the vice general manager of the Company, Mr. Shao Xuejun was engaged as the chief engineer, Mr. Guo Xicheng was engaged as the chief accountant, whereas Mr. Li Ruohua was removed from the position of vice general manager. 2. On the Shareholders’ General Meeting 2001 held on June 27, 2002, Mr. Zhao Jinghua and Mr. Liu Xueyan were elected the independent directors of the company for the term end with the 3rd term Board of Directors. (IV) The employees There are totally 15729 employees in the company including 11213 registered permanent employees. Among the them, 10448 are production workers, 490 are sales clerks, 2315 are technicians, 166 are accounting clerks, 1187 are executives, and 1123 other personnel. In education levels, 471 are bachelor degree holders or above, 1799 are college diploma holders, 3682 are intermediate vocational diploma holders, 9777 are technical school or high school graduates or below. There isn’t any retired employee that the company need to pay pensions. Employees of the contracted and share-held subsidiaries are included in the above amounts. V. Management Structure (I) Management of the Company Under the requirement of the Company Law, Security Law and Public Company Management Regulations, the company kept optimizing the management structure and operate the company in a standardized mean to ensure its healthy development. During the report term, the “Article of Association” was revised, “The Rules of Management” was formulated, 2 independent directors was engaged. In the meantime, under the demand of China Security Supervisory Committee and National Economy & Trade Committee, an internal inspection system was established in the company and accepted the routine inspection of Jinan Security Administration Office. The Company will keep on improving the Article of Association and ensure the number of independent directors reaches 1/3 of the total directors in the board before June 30, 2003. Currently nominates of independent directors are raised and will be engaged through statutory procedures. (II) Independent directors’ fulfilling of job In the report term, 2 of the independent directors that engaged by the company were doing their jobs. They presented the board meetings and exercised their judgments on the agendas independently for the legal benefit of the whole company and middle-small shareholders as well. 10 Annual Report 2002 Shandong Chenming (III) Particulars about the separation of businesses, personnel, assets, organizations, and accounting from the controlling shareholder Shandong Shouguang State-owned Assets Administration is the first shareholder of the company. The company is completely separated in businesses, personnel, assets, organizations, and accounting from the controlling shareholder. In the aspect of business: the company has its independent and complete business operation capability. The controlling shareholder is the administrator of state-owned assets, therefore no competition exist between two of the entities by running same or similar businesses. In personnel: None of the managers, vice managers, accountants and senior managements takes job in the shareholding party. The labor management, personnel and salary management are operated independently. In assets: The company owns the assets completely and runs its production, supplying and sales system independently. The trademarks, patent rights and non-patent technologies are completely separated from the controlling shareholder. In organization: The company has a mature and independent organization structure, which completely separated from the controlling shareholder. Collaborated business operation or office activities never happened. In accounting: The company has its own independent accounting division, accounting system, bank account, and exercise its liability of taxation independently. (IV) Assessment and motivating mechanism of the senior management For the purpose of establishing a healthy operation system and optimizing the motivating / discipline mechanism, approved by the Shareholders’ General Meeting 2001, the “Motivating System of Shareholding for Senior Management” was established. But it is not implemented yet. VI. The Shareholders’ General Meeting (I) Shareholders’ General Meeting 2001 was held during the report term The company announced the holding of Shareholders’ General Meeting 2001 by May 28, 2002 issues of China Securities and Hong Kong Commercial Daily. The meeting was held on June 27, 2002 at the 3rd floor meeting room of the Science Building. 76 shareholders (or attorneys) attended the meeting. Among them, 68 are A share holders (or attorneys) and 8 are B share holders (or attorneys). Totally representing 168,812,669 of shares, takes 33.85% of the total capital shares. Among the above, 159,690,161 are A shares, takes 94.6% of the shares presented in the meeting; 9,122,508 are B shares, takes 5.40% of the shares presented the meeting. It goes for according with the regulations of the Company Law, Article of Association and “Standardizing of Shareholders’ General Meeting for Public Companies”. Mr. Chen Weiyong from Beijing Haotian Lawyers’ Office testified the meeting and issued a statement as a lawyer. The following resolutions were passed through voting: 1. Annual Report 2001 of the Board of Directors; 2. Annual Report 2001 of the Supervisory Committee; 3. Financial Settlement 2001; 4. Profit Distribution Proposal for 2001; 5. Proposal of Revising the Article of Association of the Company; 6. Proposal of Establishing “The Rules of Management of Shandong Chenming Paper Holdings Ltd.” ; 7. Proposal of Electing Independent Directors and Allowance Payment for Them; 8. Proposal of Contracts Extending with Public Accountants; 11 Annual Report 2002 Shandong Chenming 9. Proposal of Establishing “Motivating System of Shareholding for Senior Management” The above resolutions were published on the June 28, 2002 issues of China Securities and Hong Kong Commercial Daily. (II) Electing and alternating of directors and supervisors Through examination of the Shareholders’ General Meeting 2001, Mr. Zhao Jinghua and Mr. Liu Xueyan were elected the independent directors of the Company. Their term of job will end with the 3rd term Board of Directors. VII. Report of the Board of Directors (I) Analyzing of business and financial status for the report term 2002 is the highest in the history on technical investment, operation quality and economical efficiency. The 153 thousand ton high-class art paper, which invested by raised fund, was put into full production in August 2002. Its practical annual output reached up to more than 250 thousand ton. The key projects constructed by Wuhan Chenming Hanyang Paper Holdings Co., Ltd. and Shandong Chenming Qihe Paper Board Co., Ltd. was put into production at Jan and May 2002 respectively. In the same time, through technical developing and enforcing of production management, the production cost was lowered. It brought significant increase for the profitability. The overall production scale and economical efficiency was increased greatly. Its profitability was on top of the domestic industry for successive 8 years. At the end of the report term, Jiangxi Chenming Paper Co., Ltd. was established. It will invest in a 200 thousand ton /year low ration coated paper project and 187 thousand ton / year bleaching chemical hot milling machinery pulp technical reforming project. At the same time, Shanghai Chenming Paper Machinery Co., Ltd. was established, and will invest on the “imported large-scale paper replacing project”, which is a key national program invested by national debt. As the next step, the company will enlarge its investment scale on 4 high-class projects such as 300 thousand ton /year coated white paper board project. For the year 2003, the company will focus on construction of new projects in purpose of enforcing the development. (II) Business overview of the company The company is in the paper manufacturing industry, which is a light-industry. The Company is mainly engaged in production and sales of machine-make paper and paperboard, papermaking raw materials, papermaking machinery, power and heat supply. For the report term, the output of machine-made paper was 1.0433 million ton, which was 79.857% over the corresponding period of previous year. The sales volume was RMB4.44 billion, which was 85.39% increased. The net profit was RMB6.28 billion which increased by 142.37%. 1. Formulating of major business income and profit 1) In business categories: For the report term, the company realized major business income by RMB4,454,775,100. Including RMB44.39 billion of machine-made papers, takes 99.13% of the total, while electricity and heating power supplying RMB0.38 billion, takes 0.85% of the total. Major business profit at RMB12.60 billion, including RMB12.36 billion from machine-made papers, takes 98.06%; and RMB thousand 9,616 from electricity and heating power supplying, takes 0.76%. 2) In product categories: For the report term, major business income of RMB thousand 559,616 was realized from one of the major product – light coated paper (takes 12.61%); while RMB thousand 1,169,250 from double plastic paper (takes 26.34%); RMB thousand 521,100 from ordinary paper (takes 12 Annual Report 2002 Shandong Chenming 11.74%); RMB thousand 490,334 from art paper (takes 11.05); RMB thousand 488,877 from press paper (takes 11.01%); RMB thousand 347,676 from paperboard (takes 7.83%). For the report term, major business profit of RMB thousand 123,043 (takes 9.76%) was from light coated paper; RMB thousand 330,123 was from double plastic paper (takes 26.20%); RMB thousand 159,811 was from ordinary paper (takes 12.68%); RMB thousand 115,649 was from art paper (takes 9.18%); RMB thousand 153,319 was from press paper (takes 12.17%); RMB thousand 70,656 was from paperboard (takes 5.61%). 3) In territories: For the report term, (in RMB 10 thousand) Territory Business income Portion Business profit Portion Shandong 252,012.60 56.77%； 67,213.70 53.34% Hubei 165,709.20 37.32%； 53,623.70 42.55% North-east China 26,204.20 5.90%。 5,183.40 4.11% 2. Sales income, sales cost and gross profit ratio (in RMB 10 thousand) Category Sales income Sales cost Gross profit ratio Light coated paper 55,961.62 43,657.33 21.99% Double plastic paper 116,925.09 83,912.79 28.23% Ordinary paper 52,110.08 36,128.89 30.67% Art paper 49,033.43 37,468.58 23.59% Press paper 48,887.75 33,555.82 31.36% Paperboard 34,767.60 27,701.99 20.32% 3. New production capabilities For the operation of new product line – 153 thousand ton / per high-class art paper project, new product of art paper was added to the company’s production capability. Please refer to (VII) - Utilization of raised fund of this section. For the operation of new product line constructed by the controlled subsidiary – Wuhan Chenming Hanyang Paper Holdings Co., Ltd., new product of press paper was added to the company’s production capability. It produced an output of press paper of 111.1 thousand ton and realized RMB481,832,600 of sales income and RMB81,693,700 of profit. For the operation of new product line constructed by Shandong Chenming Qihe Paper Board Co., Ltd., new production capability of 80.5 thousand ton paperboard was added. It outputted 80.5 thousand ton of paperboard for the report term and realized RMB187,489,300 of sales income and RMB4,382,600 of profit. 13 Annual Report 2002 Shandong Chenming (III) Business overview of major share-controlled subsidiaries Registered Total capital capital Outpu Ownership Company name (in RMB 10 Major products (in RMB 10 report thousand) thousand) Wuhan Chenming Hanyang Ordinary paper, press 293 th Controlled subsidiary 21,136.70 218,387.86 Paper Holdings Co., Ltd. paper ton Qihe Paperboard Factory Contracted Shandong Chenming Paper 209.8 Paperboard Controlled subsidiary Group Qihe Paperboard Co., thousa Ltd. Shandong Chenming Power Electricity and Controlled subsidiary 9,955.31 51,499.80 Supply Holdings Co., Ltd. heating power supply Controlled subsidiary Chibi Chenming Paper Co., Ltd. 17,741.94 37,686.14 Double plastic paper 53,041 Hailaer Chenming Paper Co., Controlled subsidiary 1,600.00 7,424.85 Bleached reed board 29,221 Ltd. Xiangfan Chenming Art Paper Controlled subsidiary 3,225.80 9,292.68 Art paper 12,859 Co., Ltd. Wood pulp, Controlled subsidiary Jilin Chenming Paper Co., Ltd. 8,163.30 21,746.87 43,658 machine-made paper Invested by the controlled subsidiary – 178.3 Shandong Chenming Wood Shandong 3,000.00 22,437.52 Wooden floor thousa Board Co., Ltd. Chenming Power meter Supply Holdings Co., Ltd. 14 Annual Report 2002 Shandong Chenming (IV) Top 5 vendors and buyers The purchases of the company from the top 5 vendors are summed to RMB444,376,100, takes 10.28% of the total purchases of the year. The sales of the company to the top 5 buyers are summed to RMB333,156,200, takes 7.84% of the total sales of the year. (V) Problems and difficulties encountered and solutions 1. Year 2002 is the largest-in-the-history in investment scale and number of new projects. The company paid great attention on construction of new projects as the key of rapid growth. Series of measures were undertaken to release the pressure and enforce the management. All of the projects of the company and subsidiaries were constructed and operated smoothly and successfully. 2. The company also predicted the threat from lowering of tariffs bring by WTO, the extraordinary growing of business scale, severe competition, and depression of the international market. The leadership of the company kept approaching the marketing activities and laid great force on sales. Analyzing and researching works were carried out to assist the making of marketing strategies. (VI) Fulfilling of the forecast In Annual Report 2001, the company predicted 850 thousand ton of output and RMB40.5 billion of sales income for the year 2002. Thus the successful completion and operation of newly constructed production lines brought significant profitability, therefore the company realized output of 1043.3 thousand ton and RMB44.39billion of sales income. (VII) Investment 1. Utilizing of fund raised before the report term and continued to this term. Preset investment Actual investment Overall Accumulated Progress project project investment investment 153 thousand ton / year 153 thousand ton / year 1,515,140,000 1,717,438,000 In art paper production line art paper production line production The company placed new A shares to the market in year 2000 for the investment on 153 thousand ton / year art paper production line. RMB1.424 billion raised from the placing of shares was fully utilized in the project. At the end of the report term, the investment was accumulated to RMB1,717,438,000. The production line has been put into full production on August 6 (the raw paper production line was switched on in April 2002). The construction period was 4 months shorter than the schedule and the production capability exceeded that of designed. At the end of the report term, the output of the line reached up to 154.6 thousand ton (including raw paper) and realized sales income of RMB690,704,100 and profit of RMB111,909,400. 2. Utilizing of non-raised fund in the report period 1) Wuhan Chenming Hanyang Paper Holdings Co., Ltd. – the controlled subsidiary of the company: At the end of the report term, RMB670,180,000 has been invested into the high-class offset color printing paper project. The production line was put into operation in Jan 2002 and realized RMB481,832,600 of sales income during the report term, while the net profit was RMB53,776,600. Particulars about this event was published on the Feb 1st, 2002 issues of China Securities and Hong Kong Commercial Daily. 2) Shandong Chenming Qihe Paperboard Co., Ltd – the controlled subsidiary of the company: At the end of the report term, RMB446,590,000 has been invested into the 100 thousand ton / year A-class paperboard project. The production line was put into operation in May 2002 and realized RMB187,489,300 of sales income during the report term, while the net profit was RMB4,382,600. Particulars about this event has been disclosed in Annual Report 2001 and Semi-annual Report 2002. 3) RMB44,400,000 has been invested into the 150 ton /day alkali recycling project till the end of the report term. It was put into operation in April 2002. RMB49,340,000 has been invested into the 200 ton /day reed pulp production line till the end of the report term. It was put into operation in March 2002 and greatly -2- Annual Report 2002 Shandong Chenming reduced the production cost. Particulars about this event has been disclosed in Annual Report 2001 and Semi-annual Report 2002. 4) RMB49,220,000 has been invested into the 60 thousand m3 /day middle section water project till the end of the report term. It was put into operation in May 2002. It greatly increased the waste water treatment capability for the exist factories and new production lines and will benefit the society. Particulars about this event has been disclosed in Annual Report 2001 and Semi-annual Report 2002. 5) In June 2002, the company invested RMB22.5 million in establishing of Beijing Tianbao Jialin Real Estate Development Co., Ltd. jointly with Meilinda Investment Group Ltd., Beijing Hengxinyongsheng Technologies Development Company, Beijing Tiantaitonghe Investment Consulting Co., Ltd., and takes 45% of the capital share as the first shareholder. The major business of the new company is developing and selling of real estates. Particulars about this event has been disclosed in Semi-annual Report 2002. 6) In September 2002, the company invested RMB90 million (raised independently) in establishing of Jiangxi Chenming Paper Co., Ltd. jointly with Jiangxi Paper Holdings Co., Ltd. The registered capital of the new company is RMB100 million and the company takes 90% of its share capital as the controlling shareholder. Jiangxi Paper Holdings Co., Ltd. invests RMB10 million (raised independently) and takes 10% of the share capital. In November 2002, the company invested RMB42.7 million (raised independently) in establishing of Shanghai Chenming Paper-making Machinery Co., Ltd. jointly with Shanghai Heavy Machinery Factory. The registered capital of the new company is RMB70 million and the company takes 61% of the share capital as the controlling shareholder. Shanghai Heavy Machinery Factory invests RMB27.3 million (raised independently) and takes 39% of the share capital. Particulars about these external investments were published on Nov 19, 2002 issues of China Securities and Hong Kong Commercial Daily. 7) The overall investment on special type paper production project is RMB22 million. Among which, RMB20.9 million was invested during the report term. The production line has been put into operation in February 2003. It is expected to make RMB65 million of sales income and RMB12.55 million of taxable profit. (VIII) Financial status and operation results (in RMB thousand) Items 2002 2001 Change(%) Total asset 8,669,355 7,386,440 17.37 Long-term liabilities 1,550,130 1,797,946 -13.78 Shareholders’ equity 3,386,786 2,999,624 12.91 Major business income 4,439,260 2,394,607 85.39 Major business profit 1,260,208 595,099 111.76 Net profit 387,163 149,472 159.02 Net increase of cash & cash equivalents –390,374 -328,136 -18.97 1. Increasing of total asset was caused by increasing of loans raised for new projects and increasing of net profit. 2. Decreasing of long-term liabilities was caused by returning of part of the bank loans. 3. Increasing of shareholders’ equity was caused by increasing of net profit during the report term and increasing of capital reserves from increasing of national debit allowance. 4. Increasing of major business income was caused by completion and running of new production lines and increasing of sales volume. 5. Increasing of major business profit was caused by the enlarging of business scale and increasing of production and sales volume during the report term. 6. Increasing of net profit was caused by the completion and running of new production lines of the company and its subsidiaries and increasing of production and sales volume, as well as the income from management -3- Annual Report 2002 Shandong Chenming of entrusted cash assets. 7. Decreasing of cash and cash equivalents was caused by investment put into the construction of new production lines. (IX) Influence on the business operation of the company from the changing of business environment, macro policies, laws and regulations Starting from the year 2002, the income tax rate of the head quarter of the company increased from 12% to 24%. This influenced the net profit of the company by RMB35.27 million. (X) Business plan for the coming year For the year 2003, the company will push the strategy of global development forward. Aiming on establishing a global trademark, the company will keep enforce the investment and construction of new projects. More effort will be laid on technical innovation, business structure and management system optimizing, and core competitive capability enforcing, to move the company onto a new platform. Business Goal: Production output up to 1.2 million ton and sales income RMB6 billion. Focuses and Measures: 1. Further the optimizing of operation system, leading the management to a breakthrough. First of all, personnel management will be focused on embodying of the people-oriented strategy. The company will enforce the training of backup workforce and enrolling of high-class talents to support the rapid development of the company. Secondly, accounting management will be enforced focusing on full range budget management. The implementing of ERP management system will be speed up. Resource configuration will be optimized to realize maximum efficiency. On the other hand, the company realizes that quality management will be another key aspect of making the products of the company a world-class trademark. 2. The company will also focus its workforce on new construction projects to realize continues technical innovation and breakthrough. Proposed construction projects will be carefully planed to ensure its smooth operation. Investment scale will be extended continuously in purpose of optimizing the business structure and raise new profiting point for the company. 3. Enforcing the developing of marketplace, push the sales onto a new level. Proper marketing strategies will be developed basing upon the movement of the market trend. Strategy of “deliver on payment” will be kept as the rule of sales. Sales credit management will be implemented strictly. The company will also strengthen the management of customer resources to realize optimized configuration of resources. (XI) Particulars about the daily work of the Board The Board held 7 meetings during the report term. (1) The 2nd meeting of the 3rd term board of directors was held on April 23, 2002 in Haitian Hotel, Qingdao. All of the 11 directors presented the meeting. 4 of the supervisors attended the meeting as non-voting delegates. The directors (or attorneys) examined and passed the following proposals: Annual Report 2001 and its summery version; Annual Report 2001 of the Board of Directors; Financial Settlement 2001; Profit Distribution Proposal for 2001 and prediction of profit distribution for 2002; Proposal of revising the Article of Association of the Company; Proposal of establishing “The Rules of Management of Shandong Chenming Paper Holdings Ltd.” ; Proposal of electing independent directors and allowance payment for Them; Proposal of empowering the Chairman of the Board Proposal of altering of senior management Proposal of external investment on the fast-grow poplar base project The 1st Quarterly Report of 2002 The holding date of Shareholders’ General Meeting will be notified separately. The resolutions of the meeting were published on the April 25, 2002 issues of China Securities and Hong Kong Commercial Daily. -4- Annual Report 2002 Shandong Chenming (2) The 3rd meeting of the 3rd term board of directors was held during May 20 –27, 2002 by the mean of fax. All of the 11 directors participated in the voting. The following proposals was examined and adopted as resolutions: The proposal of inviting certified public accountants; The proposal of holding the Shareholders’ General Meeting 2001. The resolutions of the meeting were published on the May 28, 2002 issues of China Securities and Hong Kong Commercial Daily. (3) The 4th meeting of the 3rd term board of directors was held on June 6, 2002 in the 2nd floor meeting room of Chenming Hotel. 10 of the 11 directors attended the meeting. The proposal of “external investment on establishing of a real-estate company” was passed as followings: It was accepted that the company will investe RMB22.5 million in establishing of Beijing Tianbao Jialin Real Estate Development Co., Ltd. jointly with Meilinda Investment Group Ltd., Beijing Hengxinyongsheng Technologies Development Company, Beijing Tiantaitonghe Investment Consulting Co., Ltd., and takes 45% of the capital share as the first shareholder. (4) The 5th meeting of the 3rd term board of directors was held on June 26, 2002 in the 2nd floor meeting room of Chenming Hotel. 9 of the 11 directors attended the meeting and the rest 2 directors voted through fax. “The report of self-inspection on establishing of modern enterprise managing system” was passed as resolution. The resolution was published on the June 28, 2002 issues of China Securities and Hong Kong Commercial Daily. (5) The 6th meeting of the 3rd term board of directors was held on August 12, 2002 in the 2nd floor meeting room of Chenming Hotel. 8 of the 13 directors attended the meeting and the rest 4 directors voted through fax. The following proposals was examined and passed as resolution. The Semi-annual Report 2002 and its summary version. The proposal of half-year profit distribution for year 2002 The report of rectifying plan on the problems discovered by China Securities Supervisory Committee Jinan Securities Supervisory Office during the routine inspection. The resolution was published on the August 15, 2002 issues of China Securities and Hong Kong Commercial Daily. (6) The 7th meeting of the 3rd term board of directors was held on October 27, 2002 in the 2nd floor meeting room of Chenming Hotel. 11 of the 13 directors attended the meeting and 1 director voted through fax. The other 1 director absents the meeting because he was on trip abroad. The 3rd Quarterly Report 2002 was examined and adopted. The resolution was published on the October 29, 2002 issues of China Securities and Hong Kong Commercial Daily. (7) The 8th meeting of the 3rd term board of directors was held on November 17, 2002 in the 2nd floor meeting room of Chenming Hotel. 11 of the 13 directors attended the meeting and 1 director entrusted his representative to vote. The other 1 director absents the meeting because he was on trip abroad. The following proposals was examined and adopted as resolutions. The proposal of investing on establishing of Jiangxi Chenming Paper Co., Ltd. jointly with Jiangxi Paper Holdings Co., Ltd. The proposal of investing on establishing of Shanghai Chenming Paper-making Machinery Co., Ltd. jointly with Shanghai Heavy Machinery Factory. Agreed to undertake the legal procedures related with the establishing of joint ventures. The external investment events were announced on the November 19, 2002 issues of China Securities and Hong Kong Commercial Daily. (XII) Profit distribution or capitalization of capital public reserves -5- Annual Report 2002 Shandong Chenming Through the auditing of Shandong Zhengyuan Hexin Co., Ltd. CPA, the company realized net profit of RMB380,660,696.72, in according with the article of association, 10% of it will be drawn as statutory public reserves amount to RMB34,938,728.22, 10% of it will be drawn as statutory welfare amount to RMB34,938,728.22. The distributable profit for the shareholders realized in the year 2002 was RMB310,783,240.28, plus the un-distributed profit at the beginning of year amount to RMB436,591,277.94, the total profit distributable to the shareholders was amounted to RMB747,374,518.22. Profit distribution preplan 2002 Based upon the total capital share of 498,737,724 shares, distributable profit of RMB747,374,518.22 will be distributed by the means of: 2 bonus shares for each 10 shares, RMB0.50 cash dividend for each 10 shares (tax included). Totally RMB124,684,431.00 will be distributed. The remained distributable profit of RMB622,690,087.22 will be transferred to the coming years. In the same time, based upon the total shares of 498,737,724 shares, 6 shares will be supplemented to each 10 shares by the capital reserves. This preplan is subject to the approving of the Shareholders’ General Meeting 2002. (XIII) Other events to be reported China Securities and Hong Kong Commercial Daily are the official information disclosing media designated by the company. VIII. Report of the Supervisory Committee For the responsibilities assigned by the entire shareholders, the Supervisory Committee undertook its duties properly during the report term. The committee observed the Board meetings and supervised on the accounting activities of the company and the legality of the behaviors of the directors, managers and senior management when fulfilling their duties. The valid interests of the company and shareholders were protected. (I) The Supervisory Committee held 4 meetings during the report term 1) The 2nd meeting of the 3rd term supervisory committee was held on April 23, 2002 in Haitian Hotel, Qingdao. All of the 5 supervisors presented the meeting. 1 supervisor entrusted another supervisor to vote on behalf of him. The supervisors examined and passed the following proposals: Annual Report 2001 and its summery version; Annual Report 2001 of the Supervisory Committee; Financial Settlement 2001; Proposal of revising the Article of Association of the Company; Proposal of establishing “The Rules of Management of Shandong Chenming Paper Holdings Ltd.” ; The 1st Quarterly Report of 2002 2) The 3rd meeting of the 3rd term supervisory committee was held on June 26, 2002 in the 2nd floor meeting room of Chenming Hotel. All of the 5 supervisors attended the meeting. “The report of self-inspection on establishing of modern enterprise managing system” was examined and passed as resolution. 3) The 4th meeting of the 3rd term supervisory committee was held on August 12, 2002 in the 2nd floor meeting room of Chenming Hotel. All of the 5 supervisors attended the meeting. The following proposals was examined and passed as resolution. The Semi-annual Report 2002 and its summary version. The proposal of half-year profit distribution for year 2002 4)The 5th meeting of the 3rd term supervisory committee was held on October 27, 2002 in the 2nd floor meeting room of Chenming Hotel. All of the 5 supervisors attended the meeting. The 3rd Quarterly Report -6- Annual Report 2002 Shandong Chenming 2002 was examined and adopted. (II) The independent comments of the Supervisory Committee 1. The decision-making procedures of the company are valid. The internal controlling system is mature and properly operated. No behaviors that violate the laws or the Article of Association or harming the benefit of the company were found. 2. The committee undertook inspections on the financial status of the company. The committee takes for the auditors’ reports issued by both of Shandong Zhengyuan Hexin Certified Public Accountants and PriceWaterHouseCoopers as reflecting the financial status and business results of the company frankly, objectively, and justly. 3. The company issued new A shares in November 2000 and invested into the project of 153 thousand ton / year art paper production line, which was according with that described in the Stock Inviting Prospectus. The entire fund raised from the share issuing has been put into investment. The production line has been completed and put into production and achieved good profitability. 4. Property acquisitions occurred during the report term was on reasonable price and harmed no interests of the shareholders. 5. Associated transactions occurred during the report term was on a fair and reasonable base, harmed no benefit of the company. IX. Significant Events (I) There is no significant lawsuit or arbitration events occurred in the report term. (II) At the end of report term, the company invested in establishing of Jiangxi Chenming Paper Co., Ltd. and Shanghai Chenming Paper-making Machinery Co., Ltd. For particulars about the above events please refer to item (VII) of the Report of the Board of Directors. (III) Jilin Yasong Chenming Pulp & Paper Co., Ltd. – the controlling subsidiary of the company has changed in company name and the other joint party on Jan 30, 2003 as followings: Before the change: Company name – Jilin Yasong Chenming Pulp & Paper Co., Ltd. Joint shareholders – Jilin Yasong Industrial Holdings Co., Ltd. Changed to: Company name – Jilin Chenming Paper Co., Ltd. Joint shareholders – Yanbian Hengfeng Investment Co., Ltd. Wang Liansheng, Jin Zhongguo, Jin Guangzhu, Wen Shunyu, Zhang Hongmei -7- Annual Report 2002 Shandong Chenming (IV) Significant associated transactions 1. Associated parties Name Location Reg. Capital Major Relationship Share Business Legal Business with the equity category representative company Shouguang Weifang USD8,924,000 Manufacturing Affiliation 26.4% Sino-foreign Sanhao Liben Paper Shouguang and selling of Joint Xiaoyan Co., Ltd. papers venture Qingzhou Qingzhou 3,000,000 Processing of Affiliation 30% Limited Zhou Zhihai Chenming City Amylum liability Denaturation Amylum Co., Ltd. 2. Associated transactions Items Year 2002 Year 2001 Electricity fee collected from Liben Paper Co., Ltd. 8,093,809.03 6,205,322.70 Steam and water fee collected from Liben Paper Co., Ltd. 4,081,021.60 2,740,684.08 Sewage treating fee collected from Liben Paper Co., Ltd. 486,687.08 128,458.70 Annual rents collected from Liben Paper Co., Ltd. 150,000.00 194,535.50 Purchasing of amylum from Qingzhou Chenming 17,780,940.30 10,794,255.00 Denaturation Amylum Co., Ltd. The above associated transactions are on regular price acceptable in the local market. 3. Balance of the transactions between the associated parties At the end of period At the beginning of period Other account receivable – 987,528.92 1,705,218.16 Shouguang Liben Paper Co., Ltd. Account payable – 3,930,218.08 3,390,458.95 Qingzhou Chenming Denaturation Amylum Co., Ltd. (V) Major contracts and their execution Interchange guarantee contracts were engaged with Weifang Yaxing Group Co., Ltd. and Shandong Shouguang United Chemistry Group Co., Ltd. on Dec 20, 1999 and Jan 12, 2002 respectively. (1) Credit Letter can be issued within the credit balance (RMB300 million for Weifang Yaxing, RMB150 million for Shouguang United) (converted on national quotation if in foreign currency) and lower than RMB5 million each. (2) In case of the balance of interchange credit exceeded RMB10 million, or, single Credit Letter exceeded RMB5 million, it will be implemented upon negotiation between two of the parties. (3) The contracts will expire at 2 years after the date of effective. Till Dec 31, 2002, the company provided RMB234,150,000 of credit for Weifang Yaxing Company, and RMB63,050,000 of credit for Shandong Shouguang United Chemistry Group Co., Ltd. On March 8, 2001, the company engaged “National Debt Trading Entrustment Agreement” with Southwest Securities Co., Ltd. With the agreement, the company entrusted Southwest Securities Co., Ltd. to manage the trading of RMB200 million. The duration of entrustment will be one year since the fund arrived. On March 15, 2003, the principal has been withdrawn and RMB14 million of investment profit has been collected during March and November. -8- Annual Report 2002 Shandong Chenming On May 28, 2001, the company engaged “Asset Management Entrustment Agreement” with Beijing Securities Co., Ltd. With the agreement, the company entrusted Beijing Securities Co., Ltd. to manage and operation of RMB100 million for duration of one year. The principal has been withdrawn in June 2002. The above 2 events has been approved by the 1st provisional meeting of the Board in 2001, and announced on the July 24, 2001 issues of China Securities, Security Times, Shanghai Securities, Hong Kong Commercial Daily and Ta Kung Pao, and disclosed in Annual Report 2001, The 1st Quarterly Report 2002 and Semi-annual Report 2002. The company engaged an “Loan Entrustment Agreement” with the consignee – Citic Industrial Bank Jinan Branch and the debtor – Shanghai Tiantong Daoqing Online Financial & Investment Service Co., Ltd. With the agreement, RMB150 million will be provided for 1 year at 10% of annual interest. The loan will be submitted each 3 months. RMB18,916,700 of interest has been collected during year 2001. The principal of the loan has been withdrawn in March 2002. This event has been disclosed by Annual Report 2001, The 1st Quarterly Report 2002 and Semi-annual Report 2002. (VI) Inviting and payment to public accountants For the report period, the company invited Shandong Zhengyuan Hexin Certified Public Accountant as domestic accountant and PriceWaterHouseCoopers as the overseas accountant, which have been the accountants of the company for successively 5 years and 6 years respectively. Accountant Auditing fee for year 2001 Auditing fee for year 2002 Shandong Zhengyuan Hexin RMB600 thousand RMB600 thousand Certified Public Accountant PriceWaterHouseCoopers HKD1 million HKD1 million The company also covers the traveling expenses of the auditors of the public accountants. (VII) None of the company, the Board or the Director received any penalty form China Securities Supervisory Committee or any criticize from the Stock Exchange. During the period between July 8 and July 13, 2002, China Securities Supervisory Committee Jinan Office undertook a routine inspection on the company, and issued “Notification of Rectify in Limited Period” on July 24 upon the problems and shortages discovered during the inspection. On receiving of the notification, the directors, supervisors and senior management reviewed the problem seriously and developed measures on clearing of them. Particulars about this event please refer to the announcement of resolutions published on August 15, 2002 issues of China Securities and Hong Kong Commercial Daily. The measures have been implemented in the mean time. -9- Annual Report 2002 Shandong Chenming X. Financial Reports (I) Auditors’ report INTERNATIONAL AUDITORS’ REPORT TO THE SHAREHOLDERS OF SHANDONG CHENMING PAPER HOLDINGS LIMITED (incorporated as a joint stock limited company in the People’s Republic of China) We have audited the accompanying consolidated balance sheet of Shandong Chenming Paper Holdings Limited (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 set out on pages 2 to 31 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements present fairly in all material respects the financial position of the Group as of 31 December 2002 and the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards. PricewaterhouseCoopers Certified Public Accountants Hong Kong 16 March 2003 (II) Financial statements (enclosed) (III) Notes to financial statements (enclosed) -10- Annual Report 2002 Shandong Chenming XI. Documents for Reference (I) Financial statements carrying the signatures of the legal representative, chief accountant and principal of the accounting department. (II) Auditors’ Report carrying the stamps of the accountant firm and signature of the certified accountants (III) Original text of all documents and announcements that published on the statutory press medias assigned by China Securities Supervisory Committee. The Board of Directors of Shandong Chenming Paper Holdings Ltd. March 16, 2003 -11- Annual Report 2002 Shandong Chenming Notes 2002 2001 RMB’000 RMB’000 Sales 4 4,439,260 2,394,607 Cost of sales (3,179,052) (1,799,508) 1,260,208 595,099 Gross profit Other operating income 4 32,424 52,459 Distribution costs (250,782) (167,147) Administrative expenses (327,342) (188,815) Profit on sale of trading investments 18 41,949 - 5 756,457 291,596 Operating profit Finance costs, net 7 (130,335) (32,097) Share of results before tax of an associate 14 1,589 (514) 627,711 258,985 Profit before tax Income tax expense 8 (145,147) (70,291) 482,564 188,694 Profit after tax Minority interests 27 (95,401) (39,222) 387,163 149,472 Net profit 9 RMB0.7 RMB0.30 Earnings per share - basic The accompanying notes form an integral part of these consolidated financial statements. -12- Annual Report 2002 Shandong Chenming Notes 2002 2001 ASSETS RMB’000 RMB’000 Non-current assets Property, plant and equipment 11 5,107,072 2,018,978 Land use rights 12 157,134 157,536 Construction in progress 13 285,348 1,982,264 Investment in associates 14 42,911 18,822 Available-for-sale investments 15 6,592 5,792 5,599,057 4,183,392 Current assets Inventories 16 527,595 464,837 Receivables and prepayments 17 1,692,459 1,091,614 Prepaid income tax - 7,729 Loan receivable - 150,000 Trading investments 18 - 272,051 Pledged bank deposits 106,900 83,099 Cash and cash equivalents 19 743,344 1,133,718 3,070,298 3,203,048 Total assets 8,669,355 7,386,440 EQUITY AND LIABILITIES Capital and reserves Share capital 25 498,738 498,738 Capital reserves 26 1,853,261 1,842,849 Statutory common reserve fund 29 148,285 113,346 Statutory public welfare fund 29 128,299 93,360 Retained earnings 30 758,204 451,331 3,386,787 2,999,624 Minority interests 27 762,797 710,651 Non-current liabilities Borrowings 21 1,368,772 1,611,586 Deferred income 22 181,358 186,360 1,550,130 1,797,946 Current liabilities Trade and other payables 20 1,229,040 735,545 Borrowings 21 1,689,318 1,142,674 Current tax liabilities 51,283 - 2,969,641 1,878,219 Total liabilities 4,519,771 3,676,165 Total equity and liabilities 8,669,355 7,386,440 The accompanying notes form an integral part of these consolidated financial statements. On 16 March 2003, the Company’s board of directors authorised these consolidated financial statements for issue. -13- Annual Report 2002 Shandong Chenming SHANDONG CHENMING PAPER HOLDINGS LIMITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2002 Statutory Statutory Share Capital common public Retained Notes capital reserves reserve fund welfare fund earnings Total (note 25) (note 26) (note 29) (note 29) RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Balance at 1 January 2001 453,398 1,814,823 100,003 80,016 509,905 2,958,145 Contributed surplus 26 - 28,026 - - - 28,026 Bonus issue 45,340 - - - (45,340) - Net profit - - - - 149,472 149,472 Dividend relating to 2000 - - - - (136,019) (136,019) Transfer from retained earnings to statutory reserve funds 29 - - 13,343 13,344 (26,687) - Balance at 31 December 2001 498,738 1,842,849 113,346 93,360 451,331 2,999,624 Balance at 1 January 2002 498,738 1,842,849 113,346 93,360 451,331 2,999,624 Net profit - - - - 387,163 387,163 Transfer from retained earnings to capital reserves 22 - 10,412 - - (10,412) - Transfer from retained earnings to statutory reserve funds 29 - - 34,939 34,939 (69,878) - Balance at 31 December 2002 498,738 1,853,261 148,285 128,299 758,204 3,386,787 The accompanying notes form an integral part of these consolidated financial statements. -14- Annual Report 2002 Shandong Chenming SHANDONG CHENMING PAPER HOLDINGS LIMITED CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002 Notes 2002 2001 RMB’000 RMB’000 Cash flows from operating activities Cash generated from operations 28 857,411 466,727 Interest paid (187,402) (131,732) Tax paid (86,135) (91,250) Net cash from operating activities 583,874 243,745 Cash flows from investing activities Purchase of property, plant and equipment (247,407) (26,405) Payment for land use rights (7,447) (16,146) Payment for construction costs, excluding interest capitalised (1,455,796) (1,954,819) Proceeds from disposal of property, plant and equipment 8,611 21,933 Receipt/(payment) of loan receivable 150,000 (150,000) Proceeds from sale of/(Purchase of) trading investments 314,000 (300,000) Investment in an associate 14 (22,500) - Purchase of available-for-sale investments 15 (2,000) (1,450) Interest received 27,243 67,089 Government grants received 22 5,410 186,360 Government subsidies received 4 18,864 44,662 Net cash used in investing activities (1,211,022) (2,128,776) Cash flows from financing activities Increase in borrowings 303,830 1,484,203 Dividends paid to group shareholders - (136,019) Dividends paid to minority shareholders by subsidiaries 27 (63,868) (3,684) Capital contribution from minority shareholders 27 20,613 - Bank deposits withdrawn/(pledged) (23,801) 12,395 Deposits withdrawn from a non-bank financial institution - 200,000 Net cash from financing activities 236,774 1,556,895 Net decrease in cash and cash equivalents (390,374) (328,136) Cash and cash equivalents at beginning of year 19 1,133,718 1,461,854 Cash and cash equivalents at end of year 19 743,344 1,133,718 The accompanying notes form an integral part of these consolidated financial statements. -15- SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 1 General information The Company was incorporated in the People’s Republic of China (the “PRC”) as a joint stock limited liability company in May 1993. The Group is principally engaged in paper making. Its main products include double-faced offset printing paper, high grade color offset printing paper, coated art paper, writing paper and paper pulp. During 2002, a coated art paper production line and a high grade color offset printing paper production line were put into use. The Company’s B shares and A shares were listed on the Shenzhen Stock Exchange in 1997 and 2000 respectively. The address of the Company’s registered office is : No.595 Shencheng Street Shouguang City Shandong Province, PRC 2 Accounting policies The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below: A Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS). The consolidated financial statements have been prepared under the historical cost convention. This basis of accounting differs from that used in the management accounts of the Company and its main subsidiaries which were prepared in accordance with generally accepted accounting principles and relevant financial regulations applicable to enterprises in the PRC (“PRC GAAP”). 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. In 2002, management changed the estimated useful lives of property, plant and equipment of double-faced offset printing paper production line. The details of effect of the change of the accounting estimate are disclosed in note 11. -6- SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 2. Accounting policies (Continued) B Group accounting (1) Subsidiaries Subsidiaries, which are those entities (including Special Purpose Entities) in which the Group has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies are consolidated. The existence and effect of potential voting rights that are presently exercisable or presently convertible are considered when assessing whether the Group controls another entity. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition plus costs directly attributable to the acquisition. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless cost cannot be recovered. Where necessary, accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the Group. Details of the Group’s subsidiaries are shown in note 32. (2) Associates Investments in associates are accounted for by the equity method of accounting. Under this method the Group’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. The Group’s investment in associates includes goodwill (net of accumulated amortisation) on acquisition. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognise further losses, unless the Group has incurred obligations or made payments on behalf of the associates. Details of the Group’s associates are shown in note 14. -7- SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 2. Accounting policies (Continued) C Foreign currency translation (1) Measurement currency Items included in the financial statements of each entity in the Group are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity (“the measurement currency”). The consolidated financial statements are presented in Renminbi (“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 consolidated income statement. Translation differences on debt securities and other monetary financial assets measured at fair value are included in foreign exchange gains and losses. Translation differences on non-monetary items are reported as part of the fair value gain or loss. D Investments The Group classified its investments in debt and equity securities into the following categories: trading, held-to-maturity and available-for-sale. The classification is dependent on the purpose for which the investments were acquired. Management determines the classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis. Investments that are acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as trading investments and included in current assets; for the purpose of these financial statements short-term is defined as three months. 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; during the year the Group did not hold any investments in this category. Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are classified as available-for-sale; and are included in non-current assets unless management has the expressed intention of holding the investment for less than 12 months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in current assets. Purchases and sales of investments are recognised on the trade date, which is the date that the Group commits to purchase or sell the asset. Cost of purchase includes transaction costs. -8- SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 2. Accounting policies (Continued) D Investments (Continued) Trading and available-for-sale investments are subsequently carried at fair value. Held-to-maturity investments are carried at amortised cost using the effective yield method. Realised and unrealised gains and losses arising from changes in the fair value of trading investments and of available-for-sale investment are included in the income statement in the period in which they arise. The fair value of investments are based on quoted bid prices or amounts derived from cash flow models. Fair values for unlisted equity securities are estimated using applicable price/earnings or price/cash flow ratios refined to reflect the specific circumstances of the issuer. Equity securities for which fair values cannot be measured reliably are recognised at cost less impairment. E Operating leases Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the consolidated income statement on a straight-line basis over the period of the lease. F Property, plant and equipment Property, plant and equipment is stated at historical cost less depreciation and impairment, if any. Depreciation is calculated on the straight-line method to write off the cost of each asset to its residual values, which is 10% of cost, over its estimated useful lives as follows: Buildings 20-40 years Plant and machinery and equipment 5-10 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. 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. Other borrowing costs are expensed. -9- SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 2. Accounting policies (Continued) F Property, plant and equipment (Continued) Repairs and maintenance are charged to the income statement during the financial period in which they are incurred. The cost of major renovations is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset. G Land use rights Land use rights are stated at cost less accumulated amortisation. Land use rights are amortised over their lease terms using the straight-line method. H Construction in progress Construction in progress represents properties under construction and plant and equipment under installation or testing. Construction in progress is stated at cost which includes all expenditure and other direct costs, prepayments and deposits attributable to the construction and interest charges arising from borrowings used to finance the construction during the construction period. Depreciation is not provided on construction in progress until the related asset is completed for intended use and transferred to property, plant and equipment. I Impairment of long lived assets Property, plant and equipment and other non-current 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. J Inventories Inventories are stated at the lower of cost or net realisable value. Cost is determined using the weighted average method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity) but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. K Accounts receivable Accounts receivable are carried at original invoice amount less provision made for impairment of these receivables. Such provision for impairment of accounts receivable is established if there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of 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. 2. Accounting policies (Continued) -10- SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 L 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, other short-term highly liquid investments and borrowings with original maturities of three months or less. M 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 consolidated income statement over the period of the borrowings. N Employee benefits (1) Pension scheme The Group participates in several defined contribution retirement schemes organised by the respective municipal governments where the Group operates. These plans are generally funded by payments from the relevant group companies at a total of 20% to 25% of permanent staff basic salary. The Group’s contributions to the defined contribution retirement schemes are charged to the income statement as and when incurred. (2) Bonus plans A liability for employee benefits in the form of bonus plans is recognised in other payables when there is no realistic alternative but to settle the liability and at least one of the following conditions is met: - there is a formal plan and the amounts to be paid are determined before the time of issuing the consolidated financial statements; or - past practice has created a valid expectation by employees that they will receive a bonus and the amount can be determined before the time of issuing the consolidated financial statements. Liabilities for bonus plans are expected to be settled within 12 months and are measured at the amounts expected to be paid when they are settled. -11- SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 2. Accounting policies (Continued) O Government grants relating to construction of property, plant and equipment Government grants relating to the construction of property, plant and equipment are included in non-current liabilities as deferred income and are credited to the income statement on the straight-line basis over the expected useful lives of the related assets. The grants were recorded as deferred income in the balance sheet to be credited to the income statement on a straight-line basis over the expected useful lives of the related assets. P Income taxes The charge for PRC income tax is based on the result for the year as adjusted for items which are non-taxable or non-deductible and is provided at the rates applicable to the Company and its subsidiaries. Deferred income tax is provided, using the liability method, for temporary timing differences arising between the tax bases of assets and liabilities and their carrying values in the consolidated financial statements. Currently enacted tax rates at the balance sheet date are used to determine 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 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, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. R Revenue recognition Revenue comprises the invoiced value for the sale of goods net of value-added tax, rebates and discounts, and after eliminating sale within the Group. Revenue from the sale of goods is recognised on the transfer of ownership, which generally coincides with the time when delivery is made. Revenue from the sale of electricity is recognised when electricity is transmitted to the power grid operated by the local electric power company. Interest income is recognised on an accrual basis, taking into account the principals outstanding and the interest rates applicable. Government subsidy is recognised when there is reasonable certainty that it can be received and is included as other operating income. -12- SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 2. Accounting policies (Continued) S Dividends Dividends are deducted from equity in the Group’s consolidated financial statements in the period in which they are approved by the Group’s shareholders. T Segment reportings Business segments provide products or services that are subject to risks and returns that are different from those of other business segments. Geographical segments provide products or services within a particular economic environment that is subject to risks and returns that are different from those of components operating in other economic environments. U Comparatives Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year. V Financial instruments Financial assets and financial liabilities carried on the balance sheet include cash and cash equivalents, trade receivables, other receivables, available-for-sale investments, payables and borrowings. The accounting policies on recognition and measurement of these items are disclosed in the respective accounting policies. -13- SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 3 Financial risk management A Credit risk The carrying amount of cash and cash equivalents, trade receivables and other current assets represented the Group’s maximum exposure to credit risk in relation of financial assets. Cash is placed with reputable banks and the weighted average effective interest rate on deposits made by the Group during the year was 1.27%. Majority of the Group’s accounts receivable relate to sales of goods to third party customers. The Group performs ongoing credit evaluations of its customers’ financial condition and generally does not require collateral on trade receivables. The Group maintains a provision for doubtful debts and actual losses have been within management’s expectation. No other financial assets carry a significant exposure to credit risk. B Currency risk Most of the transactions of the Group were settled in RMB and US dollar. RMB is not freely convertible into foreign currencies. In the opinion of the directors, the Group does not have significant foreign currency risk exposure. C Interest rate risk The interest rates of short-term loans of the Group are disclosed in note 21. The directors of the Company and its subsidiaries believe that the exposure to interest rate risk of financial assets and liabilities as of 31 December 2002 was minimum since their deviation from their respective fair values was not significant. D Fair value In assessing the fair value of non-traded derivatives and other financial instruments, the Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. Quoted market prices or dealer quotes for the specific or similar instruments are used for long-term debt. Other techniques, such as option pricing models and estimated discounted value of future cash flows, are used to determine fair value for the remaining financial instruments. The face values less any estimated credit adjustments for financial assets and liabilities with a maturity of less than one year are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate available to the Group for similar financial instruments. -14- SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 4 Sales and other operating income 2002 2001 RMB’000 RMB’000 Analysis of sales (a) Sale of paper products 4,385,194 2,314,211 Sale of electricity 37,530 80,396 Sale of construction materials 12,993 - Others 3,543 - 4,439,260 2,394,607 Analysis of other operating income Government subsidies - expansion subsidy (b) 17,962 41,856 - value-added tax and other taxes refund (c) 902 1,134 - others - 1,672 18,864 44,662 Others 13,560 7,797 32,424 52,459 4,471,684 2,447,066 (a) The Group operates only in the PRC. Business segment information is not shown because the sale of paper products accounted for more than 90% (2001: more than 90%) of the consolidated revenue and results of the Group. (b) During the year, the Company received an expansion subsidy of RMB 4,906,000 (2001: RMB7,142,000) from the local municipal government. Wuhan Chenming Hanyang Paper Company Limited (“Wuhan Chenming”), a subsidiary company, received an expansion subsidy of RMB 11,280,000 (2001: RMB31,289,000) from the Administration of Wuhan Economic and Technology Development Zone. Xiangfan Chenming Copperplate Paper Company Limited, a subsidiary company, received an expansion subsidy of RMB 1,776,000 (2001: 3,425,000) from the local municipal government. (c) Pursuant to various circulars issued by the State Administration of Taxation and local government authorities, the Group received various -15- SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 types of refund on value-added tax and other local taxes. (d) Interest income is disclosed in note 7. 5 Operating profit The following items have been included in arriving at operating profit: 2002 2001 RMB’000 RMB’000 Cost of inventories recognised as expense (included in cost of sales) 3,179,052 1,799,508 Depreciation of property, plant and equipment 317,153 132,156 Amortisation of land use rights 7,849 2,722 Provision for bad and doubtful debts 47,191 21,436 Repairs and maintenance expenditure on property, plant and equipment 38,120 31,072 Loss on disposal of property, plant and equipment 20,948 13,912 Operating lease rentals on property, plant and equipment 20,200 22,386 Provision of unrealised loss on trading investments and available-for-sale investments 1,200 27,949 Staff costs (note 6) 250,359 158,800 6 Staff costs 2002 2001 RMB’000 RMB’000 Wages and salaries 190,575 121,506 Staff welfare 34,973 19,292 Retirement schemes - defined contributions 24,811 18,002 250,359 158,800 Average number of full time employees of the Group during the year 14,033 11,741 The Company and its subsidiaries participate in certain defined contribution retirement schemes organised by the respective municipal governments where the Group operates, covering all permanent staff of the Group. The Group has no obligation beyond the contributions which are calculated based on 20% to 25% (2001: 20% to 25%) of permanent staff basic salaries. The Group contributed RMB24,811,000 (2001: RMB18,002,000) in total to the schemes during the year. -16- SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 7 Finance costs, net 2002 2001 RMB’000 RMB’000 Interest expense on bank borrowings (184,787) (128,793) Interest expense on other loans (2,615) (2,939) Less: interest capitalised in construction in progress 34,687 38,877 Net interest expense (152,715) (92,855) Interest income 27,243 67,089 Net foreign exchange loss (903) (3,196) Other finance charges (3,960) (3,135) (130,335) (32,097) 8 Income tax expense 2002 2001 RMB’000 RMB’000 Current - PRC income tax 145,147 70,291 (a) PRC income tax of the Group mainly comprises income tax of the Company and certain of its subsidiaries which are calculated at rates applicable to the relevant companies ranging from 24% to 33% (2001: 24% to 33%). (b) Pursuant to the approval of the Shouguang State Tax Bureau, Shandong Chenming Xinli Co-generation Company Limited, a subsidiary company, being a foreign investment enterprise, is exempted from paying PRC income tax for two years starting from the first year with assessable income followed by a 50% reduction in income tax rate in the following three years. This is the third profit-making year of the subsidiary and accordingly, income tax has been provided at 12%. (c) Pursuant to the approval of the Hailaer local government and according to relative regulations issued by PRC Ministry of Foreign Trade and Economic Cooperation, Hailaer Chenming Paper Company Limited, a subsidiary company, is exempted from paying PRC income tax for three years starting from the first year with assessable income followed by a 50% reduction in income tax rate in the following two years. The current year is the third profit-making year of the subsidiary and accordingly, no income tax has been provided. (d) According to relative regulations issued by PRC Ministry of Foreign Trade and Economic Cooperation, Shouguang Liben Paper Making Company Limited (“Shouguang Liben”), the Company’s associate, being a foreign investment enterprise, is exempted from paying PRC income tax for two years starting from the first year with assessable income followed by a 50% reduction in income tax rate in the following three years. The current year is the first profit-making year of the subsidiary and accordingly, no income tax has been provided. -17- SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 8 Income tax expense (Continued) (e) As a result of deferred income taxes arising on temporary differences to 31 December 2002 being insignificant, no deferred income tax has been recognised. (f) The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the basic tax rates applicable to the Group as follows: 2002 2001 RMB’000 RMB’000 Profit before tax 627,711 258,985 Tax calculated at tax rates of 24%-33% (2001: 24%-33%) 157,764 100,855 Effect of tax incentives (38,558) (41,357) Income not subject to tax (16,257) (7,829) Expenses not deductible for tax purposes 26,411 11,762 Provisions not deductible for tax purposes 15,787 6,860 Tax charge 145,147 70,291 9 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) 387,163,000 149,472,000 Weighted average number of ordinary shares in issue 498,738,000 498,738,000 Basic earnings per share (RMB per share) 0.787 0.30 The Company has no dilutive potential shares and as a result there is no information in respect of diluted earnings per share. 10 Dividend per share By a resolution passed on 16 March 2003, the Directors recommended to pay a dividend of RMB0.05 (2001: nil) per ordinary share totalling RMB24,937,000 (2001: nil). The Directors also proposed that a bonus issue in the proportion of 2 shares for every 10 shares from retained earnings and a bonus issue in the proportion of 6 shares for every 10 shares from capital reserves be distributed to the shareholders of the Company. These financial statements do not reflect this proposed dividend payable, which will be accounted for as an appropriation of retained earnings in the year ending 31 December 2003. The above distribution of dividend and bonus issue are still subject to approval by the shareholders of the Company at the next shareholders’ meeting. 11 Property, plant and equipment -18- SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 Buildings Plant and equipment (note(b)) Non- Non- Production production Production production Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Opening net book amount 385,296 86,907 1,491,466 55,309 2,018,978 Transfer from construction in progress 416,634 90,152 2,663,875 16,738 3,187,399 Additions 5,916 7,195 223,023 16,002 252,136 Disposals (2,955) (3,574) (22,199) (5,560) (34,288) Depreciation charge (25,069) (6,008) (274,137) (11,939) (317,153) Closing net book amount 779,822 174,672 4,082,028 70,550 5,107,072 At 31 December 2002 Cost 866,920 200,921 4,674,014 104,053 5,845,908 Accumulated depreciation (87,098) (26,249) (591,986) (33,503) (738,836) Net book amount 779,822 174,672 4,082,028 70,550 5,107,072 At 31 December 2001 Cost 447,660 107,326 1,818,925 78,678 2,452,589 Accumulated depreciation (62,364) (20,419) (327,459) (23,369) (433,611) Net book amount 385,296 86,907 1,491,466 55,309 2,018,978 (a) At 31 December 2002, the ownership certificates of buildings completed during the year with cost totalling RMB328,900,000 are still in progress of being obtained. (b) Included in plant and equipment was RMB16,272,000 (2001: RMB13,297,000) which represented net book value of the costs incurred in respect of the upgrading of certain production facilities pursuant to an agreement entered into between the Group and an unrelated third party (the “lessor”) dated in 1996 under which the Group had agreed to lease the factory premises and production facilities located in Qihe County of Shandong Province from the lessor for a period of ten years commencing from 1 July 1996. The Group had also committed to, at its own cost, upgrade such production facilities for the lessor. Such production facilities will revert to the lessor at the expiry of the lease. The costs incurred in relation to the upgrading of the production facilities were capitalised and amortised on a straight line basis over the unexpired period of the lease. In addition, the Group is required to pay an annual rental of RMB5,000,000 during the lease period. The relevant lease commitments are included in note 24. -19- SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 11 Property, plant and equipment (Continued) (c) In 2002, the Company changed the estimated useful lives of buildings and plant and equipment with cost totalling RMB824,172,000 from 40 years and 20 years to 20 and 10 years respectively in order to reflect the economic substance of the assets. The effect of this change in estimate is to decrease the results of operations for the year ended 31 December 2002 by RMB38,457,000. 12 Land use rights RMB’000 Opening net book amount 157,536 Additions 7,447 Amortisation (7,849) Closing net book amount 157,134 At 31 December 2002 Cost 177,389 Accumulated amortisation (20,255) Net book amount 157,134 At 31 December 2001 Cost 169,942 Accumulated amortisation (12,406) Net book amount 157,536 13 Construction in progress 2002 2001 RMB’000 RMB’000 At beginning of year 1,982,264 331,005 Additions 1,455,796 1,954,819 Capitalised borrowing costs 34,687 38,877 Transferred to property, plant and equipment (3,187,399) (342,437) At end of year 285,348 1,982,264 -20- SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 The actual borrowing costs are calculated at 6.00% (2001: 6.00%) per annum on the loans used to finance the projects. 14 Investment in associates 2002 2001 RMB’000 RMB’000 Opening net book amount (note (a) ) 18,822 19,336 Addition (note (b) ) 22,500 - Share of results before tax 1,589 (514) Closing net book amount 42,911 18,822 (a) Shouguang Liben, an associate, is an unlisted entity in which the Company holds 26.4% of the equity interest. Shouguang Liben is incorporated and operates in the PRC, with its principal activities being manufacture of paper. There was no change in the percentage of ownership interest in Shouguang Liben during the two years ended 31 December 2002 and 2001. (b) In 2002, the Company invested RMB22,500,000 in Beijing Tianbaojialin Real Estate Company Limited (“Tianbaojialin”) which is an unlisted entity. The Company holds 45% of the equity interest therein. Tianbaojialin is incorporated and operates in the PRC, with its principal activities being the development and sale of properties. Tianbaojialin was still in pre-operating stage as at 31 December 2002. 15 Available-for-sale investments 2002 2001 RMB’000 RMB’000 Opening net book amount 5,792 3,892 Additions 2,000 1,900 7,792 5,792 Provision (1,200) - Closing net book amount 6,592 5,792 Available-for-sale investments comprise unlisted investments in the companies incorporated in the PRC in which the Group holds not more than 20% of their paid-up capital or the associates over which the Group cannot exercise significant influence. At 31 December 2002, available-for-sale investments of the Group have -21- SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 neither a quoted market price in an active market nor a fixed maturity, and are measured at cost less provision for impairment, if any. The Directors of the Group are of the opinion that the carrying value of the available-for-sale investment approximated the recoverable amount of the available-for-sale investments as of year end. 16 Inventories 2002 2001 RMB’000 RMB’000 Raw materials 359,216 287,879 Work in progress 30,959 15,020 Finished goods 138,613 161,938 528,788 464,837 Less: Provision for obsolescence (1,193) - 527,595 464,837 As at 31 December 2002, finished goods of RMB16,098,000 (2001: nil) were stated at net realisable value. 17 Receivables and prepayments 2002 2001 RMB’000 RMB’000 Trade and bills receivables 1,353,509 896,775 Other receivables 122,613 57,561 Deposits and prepayments 216,337 137,278 1,692,459 1,091,614 18 Trading investments Prior year trading investments balance mainly represented investments entrusted in two securities companies in the PRC. During the year, all such investments were disposed of by the Group, resulted in a profit on sale amounted to RMB41,949,000. -22- SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 19 Cash and cash equivalents 2002 2001 RMB’000 RMB’000 Cash in banks and on hand 743,344 1,133,718 20 Trade and other payables 2002 2001 RMB’000 RMB’000 Trade and bills payables 725,970 424,336 Advances from customers and other payables 413,309 282,475 Accrued expenses 27,035 8,559 Value-added tax and other taxes payable 30,869 20,175 Employee bonus provision (note (a)) 31,857 - 1,229,040 735,545 (a) Employee bonus was provided based on Director’s recommendations and expected to be settled in full within twelve months from the balance sheet date. -23- SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 21 Borrowings 2002 2001 RMB’000 RMB’000 Borrowings from banks and other financial institutions Guaranteed borrowings (note (a)) - Current 493,555 426,037 - Non-current 1,050,000 1,198,963 1,543,555 1,625,000 Secured borrowings - current (note (b)) 180,000 83,000 Unsecured borrowings - Current 1,004,763 622,637 - Non-current 285,792 374,150 1,290,555 996,787 3,014,110 2,704,787 Borrowings from a minority shareholder (note (c)) - Current 11,000 11,000 - Non-current 32,980 38,473 43,980 49,473 Total borrowings 3,058,090 2,754,260 Total borrowings - at fixed rates (note (d)) 2,943,417 2,444,056 - at floating rates (note (e)) 114,673 310,204 3,058,090 2,754,260 (a) Of the amounts, RMB184,000,000 were guaranteed by two unrelated PRC enterprises to whom the Group has provided cross-guarantees (note 23), and RMB1,359,555,000 were guaranteed by three unrelated PRC enterprises to whom the Group did not provide cross-guarantees. (b) The full amount of RMB180,000,000 (2001: RMB83,000,000) was pledged by fixed bank deposits with a total value of RMB106,900,000 (2001: RMB83,099,000) as at 31 December 2002. (c) Amount represented an unsecured loan obtained from Hong Kong Daybreak Holdings Limited, a minority shareholder of a subsidiary company, Shandong Chenming Xinli Co-generation Company Limited. Interest is charged at a rate of 5.94% per annum. The borrowing is being repaid in ten equal installments commenced from 31 December 2000, with the final payment due on 31 December 2009. -24- SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 21 Borrowings (Continued) (d) Fixed interest rate borrowings are charged at the rates ranging from 0% to 6.83%. The effective weighted average annual rate for the year ended 31 December 2002 was 5.46% (2001: 5.76%). (e) Interest on borrowings at floating rates are calculated based on 1.0% to 1.5% over the London Inter-bank Borrowing Rates (2001: 1.0% to 1.5% over the London Inter-bank Borrowing Rates). The carrying amounts of borrowings approximate their fair values. The fair values are based on discounted cash flows using a discount rate based upon the borrowing rates which the Directors expect would be available to the Group at the balance sheet date. Maturity of borrowings: 2002 2001 RMB’000 RMB’000 Current portion 1,689,318 1,142,674 Between 1 and 2 years 666,514 371,470 Between 2 and 5 years 612,166 1,120,116 Over 5 years 90,092 120,000 1,368,772 1,611,586 Total borrowings 3,058,090 2,754,260 22 Deferred income During the year, the Group obtained government grants in relation to the construction of property, plant and equipment amounting to RMB5,410,000 (2001: RMB186,360,000) from local municipal governments. The grants were recorded as deferred income in the balance sheet to be credited to the income statement on a straight-line basis over the expected useful lives of the related assets. In 2002, an amount of RMB10,412,000 (2001: nil) was credited to the income statement and, in accordance with the terms of the grants, the same amount was transferred from retained earnings to capital reserve. 23 Contingent liabilities At 31 December 2002, the Group had contingent liabilities of RMB297,200,000 (2001: RMB236,760,000) in respect of cross-guarantees to banks for loans granted to two unrelated PRC enterprises. In the opinion of the directors, these cross-guarantees had no significant risk to the Group. -25- SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 24 Commitments Capital commitments Capital expenditure contracted for at the balance sheet date but not recognised in the consolidated financial statements is as follows: 2002 2001 RMB’000 RMB’000 Purchase of plant and equipment 14,000 585,047 Operating lease commitments At 31 December 2002, the future minimum lease payments under non-cancellable operating leases in respect of buildings, plant and equipment are as follows: 2002 2001 RMB’000 RMB’000 Not later than 1 year 14,227 13,423 Later than 1 year and not later than 5 years 47,923 47,000 Later than 5 years 43,936 31,631 106,086 92,054 25 Share capital Number of State-owned PRC legal Employees shares shares person shares shares B shares B shares Total RMB’000 RMB’000 RMB’000 RMB’00 RMB’000 RMB’00 0 At 31 December 2001 and 2002 498,737,724 156,609 4,536 54,112 206,481 77,000 498,738 (a) All issued shares are authorised, issued and fully paid with a par value of RMB1 each. The state-owned shares, the PRC legal person shares, employees’ shares, A and B shares carry equal voting rights. (b) Apart from the A shares and B shares which are listed on the Shenzhen Stock Exchange, all the other types of shares are not allowed to be transferred unless approvals are obtained from the relevant authorities. -26- SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 26 Capital reserves Capital reserves mainly comprise the following: (a) surplus between the appraised value of the net assets and the value of shares issued when the Company was converted from a state-owned enterprise to a joint stock limited company; (b) the placing of 115,000,000 B shares at a premium of RMB3.75 per share; (c) the placing of 70,000,000 A shares at a premium of RMB19.8 per share; (d) contributed surplus arising from injection of capital from minority shareholders ; and (e) transfers from retained earnings (note 22). Contributed surplus represents the Group’s share of the excess amount of the fair value of assets over the amount of capital required to be injected by the minority shareholders in the establishment of subsidiaries. 27 Minority interests 2002 2001 RMB’000 RMB’000 At beginning of year 710,651 563,655 Capital contributions from minority shareholders 20,613 111,458 Share of results of subsidiaries 95,401 39,222 Dividends paid to minority shareholders by subsidiaries (63,868) (3,684) At end of year 762,797 710,651 -27- SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 28 Cash generated from operations Reconciliation of net profit to cash generated from operations: 2002 2001 RMB’000 RMB’000 Net profit 387,163 149,472 Minority interest 95,401 39,222 Income tax expense 145,147 70,291 Government subsidies (18,864) (44,662) Depreciation of property, plant and equipment 317,153 132,156 Amortisation of land use rights 7,849 2,722 Amortisation of government grants received (10,412) - Loss on disposal of property, plant and equipment 20,948 13,912 Interest income (27,243) (67,089) Interest expense 152,715 92,855 Share of results of associates (1,589) 514 (Profit on sales of)/unrealised loss on trading investments (41,949) 27,949 Unrealised loss on available-for-sale investments 1,200 - Provision on inventories 1,193 - Provision for bad and doubtful debts 47,191 21,436 Changes in working capital: - receivables and prepayments (648,036) (274,270) - inventories (63,951) 115,068 - trade and other payables 493,495 187,151 Cash generated from operations 857,411 466,727 29 PRC statutory reserve funds In accordance with relevant PRC regulations applicable to joint stock limited companies and the Company’s Articles of Association, the Group is required to allocate its profit after tax to the following reserves: (a) Statutory common reserve fund Each year to transfer 10% of the profit after tax as reported under the PRC statutory financial statements to the statutory common reserve fund until the balance reaches 50% of the paid-up share capital. This reserve can be used to make up prior years’ losses or to increase share capital. Except for the reduction of losses incurred, any other usage should not result in this reserve balance falling below 25% of the registered capital. -28- SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 29 PRC statutory reserve funds (Continued) (b) Statutory public welfare fund Each year to transfer between 5% to 10% of the profit after tax as reported under the PRC statutory financial statements to the statutory public welfare fund which is restricted to finance capital expenditure for staff welfare facilities which are owned by the Group. The statutory public welfare fund is not available for distribution to shareholders (except in liquidation). Once the capital expenditure on staff welfare facilities has been made, an equivalent amount will be transferred from the statutory public welfare fund to the discretionary common reserve fund. (c) Discretionary common reserve fund The discretionary common reserve fund can be set up by means of appropriation from the retained profits or transfer from the statutory public welfare fund. Subject to the approval of shareholders in general meeting, the reserve can be used to make up any losses, to increase share capital or to pay dividends. The Group has not made any appropriation for the retained profits or transfer from the statutory public welfare fund to the discretionary common reserve fund. 30 Distributable profits Pursuant to PRC regulations and the Company’s Articles of Association, the profit available for distribution as dividends is determined based on the lower of the distributable profits as reported in the PRC statutory financial statements and the distributable profit adjusted according to IFRS. 31 Related party transaction (a) The following significant transaction was carried out at cost with its associated company, Shouguang Liben: 2002 2001 RMB’000 RMB’000 Sale of electricity 6,918 6,205 (b) Directors’ remuneration In 2002, the total remuneration of the Directors amounted to approximately RMB4,400,000 (2001: RMB2,700,000). -29- SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 32 Subsidiary companies Place of incorporation Principal Attributable and operation activities equity interest Directly held by the Company Shandong Chenming Electric Power PRC Investment holding 51.00% Generation Holdings Company Limited Wuhan Chenming Hanyang Paper Company PRC Manufacturing of paper 50.93% Limited Hailaer Chenming Paper Company Limited PRC Manufacturing of paper 75.00% Shandong Chenming Paper Group Qihe Linerboard Paper PRC Manufacturing of 99.57% Company Limited (“Qihe Linerboard”) paper Yasong Chenming Paper Company PRC Manufacturing 51.00% Limited (“Yasong Chenming”) of paper pulp Shouguang Chenming Tianyuan Arboriculture Company Limited PRC Arboriculture of tree 68.00% (“Tianyuan Arboriculture”) Jiangxi Chenming Paper Company Limited (“Jiangxi PRC Manufacturing of 90.00% Chenming”) paper Indirectly held by the Company Xiangfan Chenming Copperplate Paper PRC Manufacturing of paper 35.79% Company Limited (“Xiangfan Chenming”) Chibi Chenming Paper Company Limited (“Chibi Chenming”) PRC Manufacturing of paper 35.79% Shandong Chenming Xinli Co-generation Company Limited PRC Generation of electricity 26.01% (“Xinli Co-generation”) Manzhouli Kelin Paper Development PRC Manufacturing of 60.00% Company Limited (“Manzhouli Kelin”) paper Wuhan Chenming Qianneng Electric Power PRC Generation of 25.97% Generation Company Limited (“Wuhan Qianneng”) electricity Shandong Chenming Panels Company Limited (“Chenming PRC Manufacturing of 50.49% Panels”) decoration materials Shouguan Chenming Cements Company Limited (“Chenming PRC Manufacturing of 45.90% Cements”) cements Shouguang Xinyuan Coal Company Limited (“Xinyuan Coal”) PRC Sale of coal 50.49% Wuhan Chenjian New-style Wall Materials Company Limted PRC Manufacturing of 25.97% (“Wuhan Chenjian”) construction materials -30- SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 32 Subsidiary companies (Continued) (a) The Group holds 51% of the voting rights in the following companies: Xiangfan Chenming Chibi Chenming Xinli Co-generation Wuhan Qianneng Chenming Cements Wuhan Chenjian Consequently, they have been consolidated. (b) All holdings are in the form of paid-up capital in the companies concerned. Tianyuan Arboriculture, Jiangxi Chenming, Chenming Panels, Chenming Cements, Xinyuan Coal and Wuhan Chenjian are companies newly established during the year. Holdings in the remaining companies did not change significantly from 2001. . -31- SHANDONG CHENMING PAPER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 The impact of IFRS and other adjustments on the PRC statutory financial statements are as follows: Consolidated Consolidated net profit net assets for the year as at ended 31 31 December December 2002 2002 RMB’000 RMB’000 As per the PRC statutory financial statements 380,661 3,535,288 Impact of IFRS and other adjustments:- Elimination of internally generated trademark and reversal of corresponding amortisation 1,450 (6,525) Reversal of revaluation surplus on property, plant and equipment and adjustment of tax charge on revaluation and depreciation 1,749 (15,383) Provision for bad and doubtful debts - (13,862) Contributed surplus arising from capital contributed by minority shareholders (4,170) 31,792 Reclassification of government grants relating to construction of property, plant and equipment from capital reserve to deferred income 10,412 (165,193) Reversal of unrealised loss on trading investments (3,079) - Dividend relating to 2002 - 24,937 Others 140 (4,267) As restated after IFRS and other adjustments 387,163 3,386,787 -6-