招商地产(000024)招商局2002年年度报告（英文版）

CHINA MERCHANTS SHEKOU HOLDINGS CO., LTD. 2002 ANNUAL REPORT No.: [CMSH] 2003-005 SECTION I. IMPORTANT NOTES AND CONTENTS Important Notes: The Board of Directors of China Merchants Shekou Holdings Co., Ltd. (hereinafter referred to as the Company) and its directors individually and collectively accepts responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions nor errors which would render any statement misleading. Due to certain business, vice chairman of the Board Mr. Fan Jianxiong and independent director Mr. Liu Hongyu were absent from the Board meeting, in which the Annual Report for 2002 was examined, with entrusting director as well as general manager Mr. Lin Shaobin and independent director Mr. Shi Xinping to attend and vote on his behalf respectively. Legal representative of the Company Mr. Sun Chengming, chief financial supervisor of the Company Mr. Huang Peikun and manager of financing dept. Mr. Li Yingxin hereby confirm that the Financial Report of the Annual Report is true and complete. This report has been prepared in Chinese version and English version respectively. In the event of difference in interpretation between the two versions, the Chinese report shall prevail. Deloitte Touche Tohmatsu Certified Public Accountants Ltd. (the former Hujiangdeqin Certified Public Accountants was changed its name in 2002) and Deloitte Touche Tohmatsu Certified Public Accountants respectively audited the Company’s domestic Financial Report and International Financial Report for 2002 and issued standard Auditors’ Report without reserved opinion for the Company. CONTENTS COMPANY PROFILE------------------------------------------------------------------------------------------------------------------1 SUMMARY FINANCIAL HIGHLIGHT AND BUSINESS HIGHLIGHT--------------------------------------------------2 CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS------------------------------4 PARTICULARS ABOUT DIRECTOR, SUPERVISOR, SENIOR EXECUTIVE AND STAFF------------------------6 ADMINISTRATIVE STRUCTURE------------------------------------------------------------------------------------------------11 BRIEF OF THE SHAREHOLDERS’ GENERAL MEETING----------------------------------------------------------------13 REPORT OF BOARD OF DIRECTORS------------------------------------------------------------------------------------------14 REPORT OF SUPERVISORY COMMITTEE-----------------------------------------------------------------------------------21 SIGNIFICANT EVENTS-------------------------------------------------------------------------------------------------------------22 FINANCIAL REPORT----------------------------------------------------------------------------------------------------------------25 DOCUMENTS AVAILABLE FOR REFERENCE----------------------------------------------------------------------------25 SECTION II. COMPANY PROFILE 1. Legal Name of the Company: In Chinese: 招商局蛇口控股股份有限公司 Abbr.: 蛇口控股 In English: CHINA MERCHANTS SHEKOU HOLDINGS CO., LTD. Abbr.: CMSH 2. Legal Representative: Sun Chengming 3. Secretary of Board of Directors: Chen Yu Authorized Representative in Charge of Securities Affairs: Liu Ning Liaison Address: 9/F, New Times Plaza, Shekou Industrial Zone, Nanshan District, Shenzhen Post Code: 518067 Tel: (86) 755-26819600 Fax: (86) 755-26819680 E-mail: investor@cmre.com.cn 1 4. Registered Address: 9/F, New Times Plaza, Shekou Industrial Zone, Nanshan District, Shenzhen Office Address: 9/F, New Times Plaza, Shekou Industrial Zone, Nanshan District, Shenzhen Post Code: 518067 E-mail: investor@cmre.com.cn 5. Newspaper Chosen for Disclosing the Information of the Company: Securities Times, China Securities and Ta Kung Pao Internet Web Site Designated by China Securities Regulatory Commission for Publishing the Annual Report: http://www.cninfo.com.cn The Place Where the Annual Report is Prepared and Placed: Secretariat of Board of Directors of the Company 6. Stock Exchange Listed with: Shenzhen Stock Exchange The 2nd Exchange Listed with: Singapore Stock Exchange Short Form of the Stock: CHINA MERCHANTS - A, CHINA MERCHANTS - B Stock Code: 000024, 200024 7. Other Relevant Information of the Company (1) Initial registration date: Sep. 19, 1990. (2) Initial registration place: Shenzhen. (3) Registration Number of enterprise legal person’s business license: QGYSZ Zi No. 101828 (4) Reference Number of taxation: National Revenue S Zi 440305618845136 Local Tax D Zi 440305618845136 (5) Name and office address of certified public accountants engaged by the Company ①Domestic: Deloitte Touche Tohmatsu Certified Public Accountants Ltd. Address: 30/F, Waitan Centre, Yan’an East Road, Shanghai ②Overseas: Deloitte Touche Tohmatsu Certified Public Accountants Address: 26/F, Wing On Centre, 111 Connaught Road Central, Hong Kong 8. Definition: Unless otherwise stated, the following words and expressions have the following meanings: 1. “the Company”: China Merchants Shekou Holdings Co., Ltd. 2. “CMSIZ”: China Merchants Shekou Industrial Zone Co., Ltd. 3. “CMRE”: Shenzhen China Merchants Real Estate Co., Ltd. 4. “CMPS”: Shenzhen China Merchants Power Supply Co., Ltd. 5. “CMWS”: Shenzhen China Merchants Water Supply Co., Ltd. 6. “CMP”: Shenzhen China Merchants Petrochemicals Co., Ltd. Note: The financial data and amount in this report are expressed in RMB (except for otherwise stated) SECTION III. SUMMARY OF FINANCIAL HIGHLIGHT AND BUSINESS HIGHLIGHT (I) Major profit indexes as of the year 2002 (Unit: In RMB) No. Indexes Amount 1 Total profit 335,760,027 2 Net profit 241,815,815 3 Net profit after deducting non-recurring gains and losses 257,484,344 4 Profit from main business lines 515,421,658 5 Profit from other business lines 981,374 6 Operating profit 377,910,367 7 Investment income -42,501,647 8 Subsidy income 14,606,465 9 Net income/expenditure from non-operating -14,255,158 2 10 Net cash flows arising from operating activities 826,123,694 11 Net increase/decrease in cash and cash equivalent 132,134,604 [Note] In the report year, the total amount of non-recurring gains and losses is RMB –15,668,529, including net income/expenditure from non-operating of RMB –18,587,487; disposal of investment gains and losses of associated companies of RMB –437,078. The aforesaid two items should deduct the influence on income tax and gains and losses of minority shareholders of RMB 3,356,036. (II) Impact of adjustment on profit and net assets under International Accounting Standards (Unit: In RMB ’000) Net profit Net assets As reported under Chinese Accounting Standards 241,816 2,444,371 Adjustment under International Accounting Standards: Dividend distribution - 57,168 Adjustment of assets exchange - 16,838 Adjustment of amortization of goodwill -15,575 -69,298 Adjustment of VAT return as it accrues 14,587 28,187 Adjustment of minority shareholders’ gains and losses 1,565 -21,301 Deferred taxes 2,179 -27,559 Others 2,773 -4,629 Adjusted amount under IAS 247,345 2,423,777 [Note] The net profit as of the year 2002 is RMB 247,345,000 as audited by overseas Certified Public Accountants. The main reason for the difference between the results under CAS and IAS is because the different accounting policies were adopted in the treatment of subsidy income and balance of equity investment. (III) Major accounting date and indexes over the recent past three years (Unit: In RMB) 2001 2000 Items/indexes 2002 (Before adjustment) (After adjustment) (Before adjustment) (After adjustment) Income from main business lines 3,854,153,934 3,320,820,664 3,320,820,664 2,917,231,109 2,917,231,110 Net profit 241,815,815 174,961,781 174,961,781 208,910,553 197,927,141 Total assets 5,268,964,574 4,692,619,143 4,699,053,510 4,888,827,687 4,845,844,183 Shareholders’ equity (excluding minority 2,444,370,973 2,250,277,995 2,250,277,995 2,148,559,123 2,131,455,493 shareholders’ equity) Earning per share（diluted）(RMB/share) 0.508 0.367 0.367 0.439 0.415 Earning per share (weighted) (RMB/share) 0.508 0.367 0.367 0.458 0.434 Earning per share after deducting non-recurring 0.540 0.398 0.398 0.381 0.384 gains and losses （diluted）(RMB/share) Earning per share after deducting non-recurring 0.540 0.398 0.398 0.398 0.401 gains and losses （weighted）(RMB/share) Net assets per share (RMB/share) 5.131 4.724 4.724 4.510 4.474 Net assets per share after adjustment(RMB/share) 5.059 4.656 4.656 4.380 4.411 Return on equity (diluted) 9.89% 7.78% 7.78% 9.72% 9.29% Return on equity (weighted) 10.20% 7.89% 7.89% 10.78% 10.30% Return on equity after deducting non-recurring 10.53% 8.42% 8.42% 8.45% 8.58% gains and losses (diluted) Return on equity after deducting non-recurring 10.86% 8.54% 8.54% 9.37% 9.52% gains and losses (weighted) Net cash flows per share arising from operating 1.734 0.057 0.057 0.474 0.474 activities (RMB/share) (IV) Supplement of statement of profit Return on equity Earning per share (%) (RMB/share) Profit indexes as of the year 2002 (RMB) Fully Weighted Fully Weighted diluted average diluted average Profit from main business lines 515,421,658 21.09 21.74 1.08 1.08 Operating profit 377,910,367 15.46 15.94 0.79 0.79 Net profit 241,815,815 9.89 10.20 0.51 0.51 Net profit after deducting 257,484,344 10.53 10.86 0.54 0.54 non-recurring gains and losses 3 (V) Particulars about changes in share equity during the report period (Unit: In RMB) Statutory Balance in Share Capital Surplus Total public Retained translation Items capital public public shareholders’ welfare profit of foreign (share) reserve reserve equity fund currency Amount at the 476,396,000 1,158,658,038 404,417,156 68,010,828 232,830,054 -22,023,253 2,250,277,995 period-begin Increase in this report ---- 4,912,423 50,102,100 19,266,541 241,815,815 4,532,260 301,362,598 year Decrease in this report ---- ----- ---- ----- 107,269,620 ---- 107,269,620 year Amount at the 476,396,000 1,163,570,461 454,519,256 87,277,369 367,376,249 -17,490,993 2,444,370,973 period-end Note: Reason for changes ① Capital public reserve: in the report period, CMPS, the subsidiary company of the Company, switched subsidy fee of power supply payable into public reserve, and then the Company adjusted and increased capital public reserve according to the equity investment proportion. ② surplus public reserve and statutory public welfare fund: in the report period, the Company and the subsidiaries distributed the profit and withdrew statutory surplus public reserve and statutory public welfare fund; ③ Increase of retained profit was due to the net profit was realized in the report period, decrease of it is because the Company and subsidiaries distributed the profit and withdrew surplus public reserve and distributed the bonus in cash; ④ Balance in translation of foreign currency: at the end of the report period, due to the change of the SGD market rate of exchange, the translation balance was changed accordingly when the accounting statement of foreign currency of the subsidiary company China Merchant Singapore Port Service Co., Ltd. was converted into accounting statement of RMB. SECTION IV. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS (I) Statement of change in share capital (Unit: share) Increase / decrease this time (+, -) Before the After the Allotment Bonus Shares capital transferred Additional change Others change of Shares shares from public reserve issuance I. Unlisted shares 1. Promoters’ shares Including: State-owned shares Domestic legal person’s share 156,906,750 156,906,750 Foreign legal person’s share 52,302,250 52,302,250 Others 2. Raised legal person’s shares 3. Employees’ shares 4. Preference shares or others Total unlisted shares 209,209,000 209,209,000 II. Listed shares 1. RMB ordinary shares 130,965,200 130,965,200 2. Domestically listed foreign shares 136,221,800 136,221,800 3. Overseas listed foreign shares Others Total listed shares 267,187,000 267,187,000 III. Total shares 476,396,000 476,396,000 (II) Issuance and listing The Company grew out of Shekou Industrial Zone Port Service Company. In 1993, the Company reformed and changed its name into China Merchants Shekou Port Service Co., Ltd.. In June 1993, the Company’s A-share and B-shares successfully listed with Shenzhen Stock Exchange for trade, short form of stocks were Shen Zhaogang A and Shen Zhaogang B. The total share capital of the Company was 210,000,000 shares after initial share issuance. In July 2000, the Company’s name was changed into China Merchants Shekou Holdings Co., Ltd., short form of stocks were changed into China Merchants-A and China Merchants-B. Particulars about the share issuance and change of share capital in recent three years ended the report year: 4 The 3rd Extraordinary Shareholders’ General Meeting of 1999 dated Sep. 18, 1999 approved the proposal on issuing additional 80 million domestically public shares (A-shares). As approved by China Securities Regulatory Commission with ZJZ (1999) No. 149 document, the Company additionally issued 80 million circulation shares (A-share) on Feb. 23, 2000. The additional issuance price was RMB 9.06 per share. The aforesaid 80 million shares were listed for trade in Shenzhen Stock Exchange dated May 29, 2000. Thus the total share capital was increase to 476,396,000 shares after additional issuance. There was no change in share capital for the year 2001 and 2002. (III) About shareholders 1. Ended Dec. 31, 2002, the Company had 84,111 shareholders in total, including 65,474 shareholders of A-share and 18,637 shareholders of B-share. 2. About shares held by the top ten shareholders (Unit: share) Amount at the Increase/decrease Amount at the Shareholder’s name Proportion Type period-begin in this period period-end 1. China Merchants Shekou Industrial Zone Co., Domestic promoter’s legal 156,906,750 0 156,906,750 32.94% Ltd. person’s share Foreign promoter’s legal 2. Hong Kong Panorama Investment Ltd. 52,302,250 0 52,302,250 10.98% person’s share 3、Foxtrol International Ltd. 15,400,000 0 15,400,000 3.23% Foreign social public share 4、Orienture Investment Ltd. 14,779,525 0 14,779,525 3.10% Foreign social public share 5、Yangbang International Co., Ltd. 6,256,168 0 6,256,168 1.31% Foreign social public share 6、An Shun Securities Investment Fund 990,574 +2,921,210 3,911,784 0.82% Domestic social public share 7、Hua’an Innovation Securities Investment Fund 0 +3,690,665 3,690,665 0.77% Domestic social public share 8、Tong Sheng Securities Investment Fund 0 +2,624,345 2,624,345 0.55% Domestic social public share 9、CBNY S/A PNC/Skandia Select Fund/China 2,822,964 -324,700 2,498,264 0.52% Foreign social public share Equity AC 10、An Xin Securities Investment Fund 299,923 +1,481,666 1,781,589 0.37% Domestic social public share Note: Hong Kong Panorama Investment Ltd., Foxtrol International Ltd., Orienture Investment Ltd. and Yangbang International Co., Ltd. all are wholly-owned subsidiary companies of Hong Kong China Merchants Holdings (International) Co., Ltd.. Note: The first largest shareholder, CMSIZ is a wholly-owned subsidiary company of China Merchants Holdings Co., Ltd., which is the controlling shareholder of Hong Kong China Merchants Holdings (International) Co., Ltd.. 3. Brief introduction of legal person shareholders holding over 10% (including 10%) of total shares of the Company (1) CMSIZ Legal representative: Fu Yuning Date of foundation: April 1, 1992 Registered capital: RMB 2,236,000,000 Business scope: establishment and management of communication and transportation, industrial manufacturing, finance and insurance, foreign trade, real estate, post and telecommunications, tourism, restaurant, etc.; organization and management of the affiliated enterprises, associated enterprises, foreign-funded enterprises and enterprises in which the Company holds equity interest; dock and warehousing business; overall contracting of water/land construction projects and the related offshore petroleum development projects, and their construction organization and logistics services; product sale of the affiliated enterprises and supply and sale of the required equipment, raw materials and components and parts (where there are state regulations for special operation of special items, handle according to regulations); holding commodity exhibitions, sports games, theatrical performances and cable TV business etc.; and providing technical, operation and legal consultation related to the above business, as well as technology and information services. (2) Hong Kong Panorama Investment Ltd. Legal representative: Du Yongcheng 5 Date of foundation: Aug. 13, 1997 Registered capital: HKD 10,000 Business scope: investment and share holding (3) About the control shareholder of the Company’s control shareholder China Merchants Holdings Co., Ltd. is the controlling shareholder of CMSIZ, whose legal representative is Qin Xiao. The foundation date is in Oct. 1986, as well as registered capital of RMB 800 million. Its business scope include: lease and agency of water/land passenger-cargo transportation, water/land conveyance and facilities; dock and warehousing business; salvage, refloatation and tugboat; construction, repairing, checking and marketing of shipping, offshore petroleum drilling equipment; repairing and checking of drilling platform and container; overall contracting of water/land construction projects and the related offshore petroleum development projects, and their construction organization and logistics services; procurement, supply and sale of water/land communication and transportation equipment; establishment of transportation and industry and commerce; organization and management of finance, insurance and the other relevant business; development, management of Shekou Industrial Zone. (4) During the report year, there was no change in the controlling shareholder of the Company. SECTION V. PARTICULARS ABOUT DIRECTOR, SUPERVISOR, SENIOR EXECUTIVE AND STAFF (I) Particulars about director, supervisor and senior executive 1. Resumes of directors, supervisors and senior executives of the Company in office Mr. Sun Chengming, Chairman of the Company. He now acts as Assistant President of China Merchants Holdings Co., Ltd., concurrently serving as General Manager and deputy secretary of party of CMSIZ. Mr. Sun graduated from the Wuhan Water Transport and Engineering Institute with a Bachelor Degree in Ship Building and Repairing, and carries a professional title of “Senior Engineer”. Mr. Sun served various positions as General Manager of China Merchants Container Services Ltd., General Manager of China Merchants Godown Wharf and Transportation Co., Ltd., Deputy General Manager of China Merchants Transportation Holdings Co., Ltd., Deputy General Manager, General Manager concurrently as Party Branch Secretary of China Merchants Industry Holdings Co., Ltd. Mr. Fan Jianxiong, Vice Chairman of the Board of the Company, Master degree. He now acts as Deputy General Manager of China Merchants Holdings (International) Co., Ltd.. He successively studied in Foreign Language Dept. of Hubei University and MBA Dept. of Maastricht School Of Management. He once held the following positions: Director and General Manager of China Shenzhen Foreign Shipping Agency; General Manager of Shekou China Merchants Port Service Co., Ltd. (original name of the Company); Assistant General Manager and Deputy General Manager of CMSIZ; Deputy General Manager of China Merchants Transportation Inc. (Hong Kong); Director and General Manager of China Merchants Shipping Enterprise Co., Ltd.. Mr. Lin Shaobin, Director and General Manager of the Company, concurrently serving as General Manager of CMRE. He graduated from Tsinghua University, and carries a professional title of “Senior Architect. He successively held the position of General Manager of Shekou CMRE; General Manager of Real Estate Business Department of China Merchants Holdings Co., Ltd.; Assistant General Manager and Deputy General Manager of CMSIZ;. Ms. Wu Zhenqin, senior accountant, Director and Chief Financial Supervisor of the Company, concurrently serving as Chief Financial Supervisor of CMRE. She graduated from Shanghai Maritime University. She successively held the position of Director of Finance Department of Ship Inspection Bureau of the Ministry of Communications and Director of Chief Accountants Office and Manager of Financial Dept. of CMSIZ. 6 Mr. Fu Gangfeng, Director of the Company, held Master degree of economics and professional title of senior accountant. He now acts as General Manager of Financial Dept. of China Merchants Holdings Co., Ltd.. He successively held the position of Vice Director of Shenzhen Shekou Zhonghua Certified Public Accountants; Director of Chief Accountants Office and Deputy Chief Accountant of CMSIZ; Chief Financial Supervisor of the Company; Chief Financial Supervisor of CMSIZ. Mr. Hong Xiaoyuan, Director of the Company, held Master degree of economics of Peking University, Master degree of science of Australia State University and Doctor graduate student of economics in Australia State University. He used to work in the State System Restructuring Reform Committee, successively held the position of General Manager of Shenzhen Longfan Company, Assistant General Manager of CMSIZ, and General Manager of the Company. He now acts as Deputy General Manager of CMSIZ and concurrently serving as General Manager of China Merchants Science & Technology Group. Mr. Li Yasheng, Director of the Company, senior economist, held Master degree from UN Population Center (Cairo). He successively held the position of Assistant Director of Population Research Institute of Sichuan University; Director of the Planning and Statistics Bureau of Shekou District, Shenzhen; Director of the Planning and Statistics Office of, Director of Economic Development Office of, Assistant General Manager of and Deputy General Manager of CMSIZ; General Manager of CMP. He now acts as Deputy General Manager of CMSIZ and concurrently serving as General Manager of China Merchants Logistics Group. Mr. Chen Gang, Director of the Company, senior economist, graduated from Tsinghua University and from American New York State University as MBA. He now acts as Deputy Chief Economist of CMSIZ. He formerly held the position of General Manager of Shekou Industrial Zone Investment & Development Co., Ltd.. Mr. Wang Zhengde, Director of the Company, concurrently serving as Chief Economist, senior accountant, held Master degree from Zhongnan University of Economics and certification for training course in English Investment Bank. He successively held the position of General Manager and Vice Chairman of the Board of Shenzhen Peninsular Fund Co., Ltd.; Deputy Chief Accountant of CMSIZ; Director, Deputy General Manager and Chief Financial Supervisor of China Merchants Holdings (International) Co., Ltd. Mr. Yu Zhihan, Director of the Company, senior economist, graduated from Chinese Academy of Social Sciences with Doctor degree of economics. He successively held positions of Assistant of Director of Enterprise Office of CMSIZ; General Manager of Shenzhen Tianyuan Biographical Technology Co., Ltd.; General Manager of Shenzhen Asian Bicycle Co., Ltd.; Deputy General Manager of Shenzhen China Merchants Investment & Development Co., Ltd.; Assistant General Manager of CMRE and concurrenttlu serving as General Manager of Shanghai Xinhe Real Estate Property Development Co., Ltd.. He now holds the position of General Manager of Enterprise Management Dept. of CMSIZ. Mr. Liu Hongyu, Independent Director of the Company. He graduated from Tsinghua University with a Bachelor degree in structure engineering Dept. and Master degree of management engineering Dept.. He successively acts as the tutor of, instructor of and adjunct professor of Civil Engineering Dept. of Tsinghua University and founds Tsinghua University Real Estate Research Institute. He acted as director and professor of Tsinghua University Real Estate Research Institute from 1996. In March 1999, he gained tutorial qualification of doctor graduate of management science and engineering Dept. of Tsinghua University. Since May 2000, he acted as director of construction management Dept. of Tsinghua University; vice president of Tsinghua University International Engineering Management Academe. He was engaged in economic and management of real estate and economic and management of construction. Mr. Li Tiancai, Independent Director of the Company, with nationality as Singapore, graduated from Singapore Nanyang Chemical Academy and American Texas A&M University. He used to work in Dept. of Defense of Singapore and then Singapore Port Authority in charge of storage management and port operation. He now works for Singapore Technical Property Management Pte. Co., Ltd. in charge of logistics management and operation relevant to Singapore and China. 7 Mr. Shi Xinping, Independent Director of the Company, with nationality as Hong Kong. He successively studied in study in Management College of England Lancaster University and Commerce College of England Middlesex University and gained MAB and doctorate of management. He used to be docent in Xi’an Northwestern Polytechnic University and docent and assistant professor in Financial Settlement Dept. of Hong Kong Baptist University. He now acted as adjunct professor of Financial Settlement Dept. of Hong Kong Baptist University. Mr. Zhou Yali, Chairman of the Supervisory Committee, he now acts as secretary of CPC and concurrently serving as Deputy General Manager of CMSIZ. He successively studied in English Dept. of Heilongjiang University and MBA Dept. of China Europe International Business School with master degree. He used to be simultaneous translator of Great Britain London International Maritime Affairs Organization. He successively held director of translation office of Communication Minister Science and Technology Intelligence Research Institute; Sectional Manager of, Deputy General Manager of, General Manager of and concurrent deputy secretary of CPC of China Communication Import & Export Corporation. Mr. Wen Chongping, Supervisor of the Company, graduated from Shanxi University of Finance and Economics with a Bachelor degree, and carries a professional title of “Senior Accountant”. He successively held the position of Deputy Director of Chief Accountants Office of CMSIZ; Director of Financial Dept. of, Deputy General Manager of and Deputy General Manager of Auditing Dept. of China Merchants Holdings Co., Ltd.. He now acts as General Manager of Auditing Dept. of CMSIZ. Mr. Li Feng, Supervisor of the Company, he now acts as person in charge of Financing Dept. of CMSIZ. He successively studied in Hunan University of Finance & Economics and Hunan University and gained bachelor degree of statistics and master degree of accounting early or late. He used to be a teacher of Hunan Chenzhou Business School and acts as director of the staff room. Mr. Hao Yu, employee supervisor of the Company, who graduated in 1989 and held Bachelor degree, successively obtained professional qualification as accountant, auditor, economist, Certified Public Accountant, Certified Taxation Specialist and Certified Real Estate Appraiser, and now acts as the chairman of Labor Union of, vice financial supervisor of Shenzhen Merchants Real Estate Co., Ltd, and director of Research Institute of Shenzhen Local Taxation. Ms. Zhang Linmei, employee supervisor of the Company, financial economist, who graduated from the Economic Center of Fudan University in 1998, majored in real estate management and obtained Bachelor degree. She used to be secretary of general manager of, assistant director of the Administration & H.R. Department of CMRE. She now acts as the assistant general manger of Lease Dept. of CMRE. Mr. Yang Baiqian, Senior Executives of the Company, he now acts as Deputy General Manager of the Company. He graduated from Nankai University. He once worked in Computer Research Institute of Ministry of Communications, Shekou Planning and Statistics Bureau, Economic Development Office of CMSIZ. He once took the position as Deputy General Manager of Shenzhen Peninsula Fund Management Company, Deputy General Manager of enterprise management Dept. of CMSIZ, Deputy General Manager of the Company and planning manager of Reform Center of China Merchants Holdings Co., Ltd.. Mr. Chen Yu, Senior Executives of the Company, He graduated from Architecture Dept. of Chongqing Institute of Architecture and Engineering and Peking University with MBA successively early and late. He had working experiences as follows: engineer of real estate development dept. of Beijing stationed the Group, market manager of Stanley Works, and Assistant of Chairman of the Board of Peking University China Merchants Investment Company. He now acts as Secretary of the Board of Directors of the Company. Mr. Li Shuming, Senior Executives of the Company, senior engineer, graduated from Northeast Institute of Electric Power. He successively held the position of Manager of Operation Dept., Assistant General 8 Manager and Deputy General Manager of CMPS. He now acts as General Manager of CMPS. Mr. Zhu Guohui, Senior Executives of the Company, engineer, graduated from Hydropower Station Dept. of Jiangxi Hydroelectricity College. He successively held the position of Engineer in Technology Dept., Office Director and Deputy General Manager of CMWS. He now acts as General Manager of CMWS. 2. Particulars about shares held by director, supervisor and senior executive (1) About directors Holding Increase/ Holding Name Title Gender Age Office term shares at the decrease in shares at the year-begin this year year-end Sun Chengming Chairman of the Jun. 28, 2002 – 0 0 0 Male 44 Board Jun. 27, 2005 Fan Jianxiong Vice Chairman of Jun. 28, 2002 – 0 0 0 Male 47 the Board Jun. 27, 2005 Lin Shaobin Director, Jun. 28, 2002 – 0 0 0 Male 43 General Manager Jun. 27, 2005 Wu Zhenqin Director, Chief Jun. 28, 2002 – 0 0 0 Financial Female 45 Jun. 27, 2005 Supervisor Fu Gangfeng Director Jun. 28, 2002 – 0 0 0 Male 36 Jun. 27, 2005 Hong Xiaoyuan Director Jun. 28, 2002 – 0 0 0 Male 40 Jun. 27, 2005 Li Yasheng Director Jun. 28, 2002 – 0 0 0 Male 50 Jun. 27, 2005 Chen Gang Director Jun. 28, 2002 – 0 0 0 Male 45 Jun. 27, 2005 Wang Zhengde Director Jun. 28, 2002 – 0 0 0 Male 40 Jun. 27, 2005 Yu Zhihan Director Jun. 28, 2002 – 0 0 0 Male 48 Jun. 27, 2005 Liu Hongyu Independent Jun. 28, 2002 – 0 0 0 Male 41 director Jun. 27, 2005 Li Tiancai Independent Jun. 28, 2002 – 0 0 0 Male 54 director Jun. 27, 2005 Shi Xinping Independent Jun. 28, 2002 – 0 0 0 Male 44 director Jun. 27, 2005 (2) About supervisor Holding Increase/ Holding Name Title Gender Age Office term shares at the decrease in shares at the year-begin this year year-end Zhou Yali Chairman of the Jun. 28, 2002 – 0 0 0 Supervisory Male 48 Jun. 27, 2005 Committee Wen Chongping Supervisor Jun. 28, 2002 – 0 0 0 Male 52 Jun. 27, 2005 Li Feng Supervisor Jun. 28, 2002 – 0 0 0 Male 39 Jun. 27, 2005 Hao Yu Employee Jun. 28, 2002 – 0 0 0 Male 34 Supervisor Jun. 27, 2005 Zhang Linmei Employee Jun. 28, 2002 – 0 0 0 Female 27 Supervisor Jun. 27, 2005 (3) About senior executives Holding Increase/ Holding Name Title Gender Age Office term shares at the decrease in shares at the year-begin this year year-end Lin Shaobin Director, Jun. 28, 2002 – 0 0 0 Male 43 General Manager Jun. 27, 2005 Wu Zhenqin Director, Chief Jun. 28, 2002 – 0 0 0 Financial Female 45 Jun. 27, 2005 Supervisor Yang Baiqian Deputy General Jun. 28, 2002 – 0 0 0 Male 37 Manger Jun. 27, 2005 Chen Yu Secretary of the Jun. 28, 2002 – 0 0 0 Male 31 Board Jun. 27, 2005 9 Li Shuming General Manager Jun. 28, 2002 – 10,388 0 10,388 Male 39 of CMPS Jun. 27, 2005 Zhu Guohui General Manager Jun. 28, 2002 – 0 0 0 Male 54 of CMWS Jun. 27, 2005 Total of holding 10,388 0 10,388 shares Note: Ended Dec. 31, 2002, the total shares held by directors, supervisors and senior executives are 10,388 shares, reducing to 91,070shares from the previous period. Decrease of the holding share is because the reelection of Supervisory Committee, original supervisor Li Yaluo and Zhou Meihua leaved their post. Note: Particulars about the aforesaid directors or supervisors holding the post in Shareholding Company: Sun Chengming held the post of General Manager of CMSIZ; Fan Jianxiong held the post of Director and concurrently serving as Deputy General Manager of China Merchants Holdings (International) Co., Ltd.; Hong Xiaoyuan held the post of Deputy General Manager of CMSIZ; Li Yasheng held the post of Deputy General Manager of CMSIZ; Fu Gangfeng held the post of General Manger of Financing Dept. of China Merchants Holdings Co., Ltd.; Chen Gang held the post of Deputy Chief Economist of CMSIZ; Yu Zhihan held the post of General Manager of Enterprise Management Dept. of CMSIZ; Zhuo Yali held the post of Party Secretary of, the First Deputy General Manger of CMSIZ; Wen Chongping held of the post of General Manager of Auditing Dept. of CMSIZ; Li Feng held the post of person in charge of Financing Dept. of CMSIZ 3. About annual payment There were 10 directors in the Company. Of them, Director as well as General Manager Lin Shaobin, Director as well as Chief Financial Supervisor Wu Zhenqin and Wang Zhengde drew the payment from the Company because Lin Shaobin and Wu Zhenqing concurrently held the post of the Company as the senior executives, and Wang Zhengde worked in the Company. Except for this, the Company hasn’t paid the other remuneration to directors in the report year. There were 3 independent directors in the Company. As approved by the Board of Directors and Shareholders’ General Meeting, they respectively received the allowance of RMB 30,000 per year in the report year. Except for this, the Company hasn’t paid the other remuneration to independent directors in the report year. There were 5 supervisors in the Company. The Company hasn’t paid the payment to supervisors in the report year. According to the relevant regulations of Articles of Association of the Company, the Board of Directors determined the payment of senior executives. In the report year, senior executives of the Company drew their payment from the Company or subsidiaries. The payment of senior executives was confirmed based on accomplishment effect of the Company’s achievements, and the payment situation of the same industry and the comparability enterprises. There are 5 persons (directors, supervisors or senior executives of the Company) draw their payment from the Company (excluding the independent director). The total annual payment is RMB 1,416,200. Total annual payment of the top three senior executives is RMB 971,700. The allowance of Independent directors as of the year 2002 is RMB 30,000 respectively per year. The range of annual payment is as following: Annual salary Number of persons RMB 100,000 to RMB 200,000 1 RMB 200,000 to RMB 300,000 3 Over RMB 300,000 1 Chairman of the Board Mr. Sun Chengming, Vice Chairman of the Board Mr. Fan Jianxiong, Mr. Fu Gangfeng, Director Mr. Hong Xiaoyuan, Mr. Li Yasheng, Mr. Chen Gang, Mr. Yu Zhihan, Chairman of the Supervisory Committee Mr. Zhou Yali, Supervisor Mr.. Wen Chongping, Mr. Li Feng, Hao Yu, Zhang Linmei Senior Executives Mr. Zhu Guohui and Mr. Li Shuming received no payment from the Company. The aforesaid persons draw their annual payment from their respective engaging companies. 10 4. Particulars about changes in directors, supervisors and senior executives (1) In the report year, the office term of the 3rd Board of Director and the 3rd Supervisory Committee has expired, so the Company reelected the Board of Directors and Supervisory Committee. The Company elected new members of the 4th Board of Directors and the 4th Supervisory Committee in 2001 Shareholders’ General Meeting held on Jun. 28, 2002. In the members of the 3rd Board of Directors, Director Ding Keyi and Ma Jikai leaved their post, and the rest members remained in office continually. Sun Chengming and Liu Hongyu were additionally elected as director of the 4th Board of Directors in this shareholders’ general meeting. At present, there are 13 directors in the Company’s Board of Directors. Sun Chengming was elected as Chairman of the Board of the Company in the 1st meeting of the 4th Board of Directors. In the members of the 3rd Supervisory Committee, Wen Chongping remained in office continually, and Supervisor Hu Zheng and Li Yaluo, Employee Supervisor Zhou Meihua and Zhang Mengkang leaved their post. Zhou Yali and Li Feng were additionally elected as supervisors of the 4th Supervisory Committee in this shareholders’ general meeting. Hao Yu and Zhang Linmei were elected as employee supervisors of the 4th Supervisory Committee in extraordinary employee’s representative assembly held on Apr. 14, 2002. At present, there are 5 supervisors in the Company’s Supervisory Committee. Zhou Yali was elected as Chairman of the Supervisory Committee in the 1st meeting of the 4th Supervisory Committee. (2) On Mar. 22, 2002, as approved by the 17th meeting of the 3rd Board of Directors, Mr. Li Hongwu was removed from his post as deputy general manager due to work adjustment. (3) On May 26, 2002, as approved by the 20th meeting of the 3rd Board of Directors, Mr. Zhou Zhiyu was removed from his post as deputy general manager due to work adjustment. (4) In the 1st meeting of the 4th Board of Directors held on June 28, 2002, Mr. Lin Shaobin was engaged as general manager of the Company, Yang Baiqian was engaged as deputy general manager, Ms. Wu Zhenqin was engaged as chief financial supervisor and Chen Yu was engaged as secretary of the Board from June 28, 2002 to June 27, 2005. (II) About employee (of the Company and its wholly-owned subsidiaries) At present, the Company had totally 1122 employees including 156 technicians (of them, real estate: 68 persons, petrochemical: 24 persons, power supply and water supply: 64 persons), 316 salespersons (of them, real estate: 92 persons, petrochemical: 196 persons, power supply and water supply: 28 persons), 68 financial personnel, 78 administrative personnel, 504 production personnel and others. The Company has 52 persons with master degree or above, 436 persons graduated with bachelor degree or graduated from 3-years regular college. Both the Company and its wholly owned subsidiaries need not bear the costs of retiree due to the implementation of Shenzhen Social Insurance Regulation. SECTION VI. ADMINISTRATION STRUCTURE (I) Actual Status of the Company’s Administration Strictly according to Company Law, Securities Law and relevant laws and regulations released by China Securities Regulatory Commission, the Company operated in a standardized way and has established a perfect legal person administrative structure since it was listed. In the report year, the Company carried out self-inspection on establishment of listed company’s modern enterprise system according to the requirement of China Securities Regulatory Commission and State Economic & Trade Commission. 2001 annual shareholders’ general meeting approved the proposal on amendment of Article of Association and further revised it to make it more perfect in compliant with the new requirement of Guide Opinions on Establishing System of Independent Director in Listed Companies and Administrative Rules of Listed Companies. At the same time, the Company did specific and normative work in terms of behavior criterion of control shareholder, independent directors and information disclosure and etc. In 2002, relevant directors participated in the training on directors organized by Shenzhen Stock Exchange. The Board of Directors considered that the administration structure of the Company at present is compliant with the basic requirement in comparison with the normative requirement on listed companies’ administration. 11 (II) Particulars about Performance of Duties by Independent Directors In the report year, 2001 annual shareholders’ general meeting approved and engaged 3 independent directors by voting, adding one compared with last year. In 2002, according to the independent directors performance their duties independently, attended actively the Board of Directors and examined patiently all proposals, participated patiently in the decision-making of significant events, performed the full function of independent directors and Company Law, Securities Law, Article of Association and relevant regulations and expressed independent opinions on the issues which need independent opinions in compliant with relevant regulation. To further improve the Company’s administration structure, the Company planed to increase the independent directors’ proportion in the members of the Board of Directors before June 30, 2003. (III) Independence of Business, Assets, Personnel, Organization and Finance 1.Independence of Business The business of the Company and its control shareholder is completely independent and there is no relationship of same industrial competition between them. The Company enjoyed self-determination and independence on the main sector in the Company’s operation and management. The major subsidiaries of the Company, CMRE, CMPS, CMWS and CMP respectively engaged in real estate development, power supply and water supply and storage and operation of petroleum oil and gas and other businesses with a completely independent operation right. In the Company’s operation and management, all significant operation decision-making and investment events were discussed as fully as possible and given opinions independently by the Board of Directors. Events that should be decided by the Shareholders’ General Meeting were submitted to the Meeting for approval. In the process of operation decision-making, the Company is completely independent with the control shareholder. 2.Independence of Assets The Company separated clearly assets from its control shareholder CMSIZ and the assets of two parties are completely separated. 3.Independence of Personnel The Company adopted a market-oriented recruiting mechanism and had an independent staff group. All employees signed labor contract with the Company and received pay in the Company. Its senior executives like general manager, vice general manager, chief supervisor in charge of financing and secretary of the Board of Directors all drew pays and took full-time jobs in the Company and they all haven’t taken administrative posts in the control shareholders’ companies. The Company was independent in management of labor, personnel and payroll etc. from its control shareholders. 4.Independence of Finance The Company established an independent finance department, established independent accounting assessment system and financial management system, and independently made financial decisions according to the requirement of Enterprise Accounting System and relevant documents. The Company has its own account in bank and paid taxes independently according to laws The Company established independent salary management system and set and managed separate accounts regarding social insurance, payroll and building modification fee, etc. The Company and its control shareholder are completely separated in term of financing. 5.Independence of Organization The Company worked out Rules of Procedures of the Board of Directors, Rules of Procedures of the Supervisory Committee and Rules of Procedures of the Shareholders’ Meeting and other basic management system according to relevant laws and regulations. The company is absolutely independent in production operation and office organization from its control shareholder. There existed no mixed operation and sharing of same office. The Company’s organization was set up independently with power of decision-making and the functional organizations are responsible to relevant supervisors and leaders. The Company’s organization is absolutely separated from its control shareholder. 12 (Ⅳ).Valuation and Encouragement of Senior Executives Annual work plan examined and approved by annual shareholders’ general meeting were answered for with free hand and implemented by the operation managers of the Company. According to the content of the annual work plan, the Company strictly assessed the performance of senior executives and summarized the progress of the work took charge by senior executives quarter by quarter. At the end of the year, the Company valuated synthetically the implementation of annual work plan by senior executives. In respect of encouragement system, the Company elementarily established three series of payroll system including management, sales and specialty technology The Company practiced a modern-oriented payroll system relating with performance level of senior executives and backbone staffs. At the same time, the Company discussed actively all kinds of encouragement and binding system and tried to perfect binding mechanism correspondingly in time of improving continuously encouragement system and make senior executives create more performance for the Company in reasonable encouragement and binding mechanism. SECTION VII. SHAREHOLDERS’ GENERAL MEETING (Ⅰ) Notification, convening and holding of Shareholders’ General Meeting and the relevant resolutions In the report period, the Company totally held one Shareholders’ General Meeting, namely 2001 Shareholders’ General Meeting with details as follows: On May 28, 2002, the Company published the Notification of Holding 2001 Shareholders’ General Meeting on Securities Times, China Securities and Hong Kong Ta Kung Pao. 2001 Shareholders’ General Meeting was held in the Conference Room in 30/F, New Age Square, Shekou, Shenzhen on the morning of June 28, 2002. 16 shareholder’s representatives and agents attended the Meeting representing 23 shareholders and 254,130,452 shares, which take 53.34% of the total share capitals of the Company, including 164,349,193 A shares, taking 57.09% of the total amount of A shares and 89,781,259 B shares, taking 47.62% of the total amount of B shares. Guangdong Huashang Lawyers Firm provided the Legal Position Paper for the Meeting. The following proposals were examined and adopted in the Meeting by voting: (1) 2001 Work Report of the Board of Directors (2) 2001 Work Report of the Supervisory Committee (3) 2001 Financial Settlement Report (4) 2001 Proposal on Profit Distribution ① Withdrawal of 10% of net profit of 2001 calculated as per Chinese Accounting Standards as the statutory public reserve of RMB 17,496,178 ② Withdrawal of 5% of net profit of 2001 calculated as per Chinese Accounting Standards as the statutory welfare fund of RMB 8,748,089 ③ Calculated as the issued 476,396,000 shares, the total amount of cash dividends distributed to all shareholders amounted to RMB 52,403,560 at the rate of cash dividends of RMB 1.10 for every 10 shares. ④ The rest-undistributed profits of 2001 will be converted into discretionary surplus public reserve. ⑤ In the report year, the conversion of capital public reserve into share capital will not be carried out. (5) 2002 Outline of Business Development Plan (6) Proposal on Examination of 2001 Annual Report (7) Proposal on Revision of Articles of Association (8) Proposal on Adjustment of Allowance of Independent Director (9) Proposal on Confirmation of Directors of the 4th Board of Directors (10) Proposal on Confirmation of Supervisors of the 4th Board of Directors 2001 Shareholders’ General Meeting confirmed the members of the 4th Board of Directors and the 4th Supervisory Committee and the office term of this Board of Directors and the Supervisory Committee was from June 28, 2002 to June 27, 2005. The members of the new Board of Directors elected and confirmed by Shareholders’ General Meeting were: Sun Chengming, Fan Jianxiong, Lin Shaobin, Wu Zhenqin, Fu gangfeng, Hong Xiaoyuan, Li Yasheng, Chen Gang, Wang Zhengde, Yu Zhihan, Independent Director Shi Xinping, Independent Director Liu Hongyu and Independent Director Li Tiancai. The Board of Directors conformably elected Mr. Sun Chengming as the Chairman of the Board of Directors of the 13 Company and Mr. Fan Jianxiong as the Vice Chairman of the Board of Directors of the Company. The members of the new Supervisory Committee elected and confirmed by Shareholders’ General Meeting were: Zhou Yali, Wen Zhongping and Li Feng. The members of the new Supervisory Committee elected and confirmed by Employee’s Representatives General Meeting were: Hao Yu and Zhang Linmei. The Supervisory Committee conformably elected Mr. Zhou Yali as the Chairman of the Supervisory Committee of the Company. The aforesaid resolutions were published on Securities Times, China Securities and Hong Kong Ta Kung Pao dated June 29, 2002. SECTION VIII. REPORT OF THE BOARD OF DIRECTORS (I) The principal operation of the Company in the report period 1. Principal business scope and its operation The year 2002 was the first complete fiscal year after the conversion of the Company’s business. After listing on the market, the Company was mainly engaged in the management, operation and development of Shekou Port. During the period from 1998 to 2001, the Company exchanged its self-owned assets such as ports etc. with the equity of CMRE, CMPS and CMWS held by Shekou Industrial Zone, gradually increased the holding of the equity of the aforesaid three companies and made use of the partial proceeds raised through additional issuance to purchase the equity of CMP. By the end of the year 2001, the Company had completed the stripping of the relevant assets of the ports. Presently, the Company was mainly engaged in the development and operation of energy, basic facilities and real estate. At present, the businesses of energy and basic facilities have a sustained development with public utilities and storage and operation of petrochemical oil and gas as representative, the income from the said main business has increased further from the previous year, the proportion of the income from main business lines of the Company reached 76.7%, and provided a stable income source and established a base for sustained growth of outstanding achievement of the Company. At the same time, based on operation structure of continuous growth of operation capability and the lease and sale in business of real estate, the business of real estate created the space for the achievement of the Company. In the report year, basically aiming at increasing the fortune of shareholders at a maximum way, the Company was active and aggressive under the circumstance of more and more intensified market competition and thus achieved a quite good operation. In the report year, the Company realized an income and a profit from principal business of RMB 3,854,153,934 and RMB 515,421,658 respectively, an increase of 16.06% and 3.61% compared with the previous year respectively, of which including the income from the real estate business of RMB 896,414,065 with realization of profit from principal business of RMB 271,162,498. The income from the business of public utilities amounted to RMB 602,123,154 with the realized profit from principal business of RMB 97,433,700 and the income from the business of storage and operation of petrochemical oil and gas amounted to RMB 2,352,688,907 with the realized profit from principal business of RMB 146,609,953. Basic particulars about the business operation taking over 10% of the total amount of the Company’s income from principal business or profit from principal business with details as follows: (Unit: In RMB) Classification of operating Income from Cost of principal Gross Classification of industry activities principal business business interest rate Development of 723,889,309 480,508,536 33.62% Development and operation of commercial house real estate Lease of house 172,524,756 99,706,633 42.21% Development and operation of real estate Public utilities 602,123,154 503,644,422 16.36% Production and supply of electric power and water Storage and operation of 2,352,668,907 2,204,072,284 6.32% Storage and supply of oil and petrochemical oil and gas gas 2. The operation and achievement of major holding companies and share-holding companies In the report period, the Company had four major holding companies, including CMRE, CMPS, CMWS and CMP. The basic particulars and operating achievements of the major holding companies were as 14 follows: (1) CMRE CMRE established on 1984 with a registered capital of RMB 106 million. The holding proportion of the Company was 95%. Ended the report period, the total assets and the net assets of CMRE amounted to RMB 2,525,720,000 and RMB 692,210,000 respectively. As a comprehensive real estate development enterprise with national first class grade, the Company has the business structure of both sales and lease of commercial house with bright feature. In the report year, CMRE newly increased a construction area of 298, 000 sq. m., completed an area of 221,000 sq. m. (including the leasing property with an area of 62,000sq.m.) and carried forward sales area of commercial house of 98,000sq.m.The accumulated leasing area in the report year amounted to 3,209,000 sq. m. and the net profit realized was RMB 200,390,000. In 2002, the sales volume of the commercial housing almost took 3% of the market share in Shenzhen (Origin of the data: Information Web of Real Estate of Shenzhen). In the report year, the project of Yong Hua Fu all sold out and the sales rate of Banshan Sea Villa and Spring Square projects was more than 95%. The sales of Brocade Shore project and Sea Moon 2nd Stage project was continuously prosperous with the sales rate of 40% and 58% respectively and both the two projects got the title of “ The Top 10 Famous Buildings of Shenzhen in 2002”. The Flower Garden 1st Stage project got the authentication of “ Class A1 of Nation’s Ministry of Construction”. CMRE ranked the top three of the Annual Examination of Comprehensive Development Intelligence of Real Estate in Shenzhen in the successive three years. In 2002 the house sales area of CMRE took the third place in Shenzhen and its brand influence had been further expanded with continuously increased strength. In the report year, the construction area of the project reserve planning confirmed by CMRE in Shenzhen was more than 1,500,000 sq.m., of which 340,000 sq.m house area can be leased. Simultaneously, CMRE actively looked for the land reserve in the regions of Shenzhen, Shanghai, Beijing and Nanjing etc. so as to further build up the foundation for the future development in a large scale. Major real estate projects of CMRE in 2001 Planned Area of property Area of property Time of Name of project Geographical place construction started in 2002 completed in actual/estimated area (sq. m.) (sq. m.) 2002 (sq. m.) completion Sea Moon 2nd Stage Shekou, Shenzhen 220,367 159,112 April, 2003 Brocade Shore Shenzhen Hi-tech Park 175,000 Aug., 2003 Rainbow Shore Shenzhen Hi-tech Park June, 2003 161,248 161,248 Banshan Villa Shekou, Shenzhen 31,318 745 Oct., 2003 Spring Square Shekou, Shenzhen 15,221 Jan., 2003 Flower Garden 2nd and Dec., 2004 Shekou, Shenzhen 104,300 3rd Stage Sea Moon 3rd Stage Shekou, Shenzhen 176,800 Mar., 2005 Banshan Sea Garden Shekou, Shenzhen 94,500 94,500 June, 2004 Hushan Flat Shekou, Shenzhen 42,608 42,608 Dec., 2004 Bandao Building Downtown, Shenzhen 14,397 14,397 Aug., 2002 Technology Building Shekou, Shenzhen 46,953 46,953 May, 2002 [Notes] Hushan Flat, Banshan Building and Technology Building are to be leased after completion of construction. The Brocade Shore project and Rainbow Shore project are both named “ Sunshine Cincture· Seaside City” when marketing and advertising. (2) CMPS CMPS was established on Nov. 9, 1980 with a registered capital of RMB 5.7 million. The Company holds 99.75% of its equity. Ended the report period, the total assets of the CMPS was RMB 240,610,000 and its net assets amounted to RMB 220,250,000. In 2002 CMPS realized a net profit of RMB 92,220,000. As the only company with power supply certificate in Shekou, CMPS enjoys an obvious regional advantage and advanced overall planning of power supply network and technical management. During the report year, while strengthening the consciousness of safe power supply, CMPS enhanced the technical reform and strictly controlled the cost to positively further speed up the construction of the 3rd Transformer Substation. In the report period, CMPS completed a volume of power supply of 722 million degrees, which increased by 44 million degrees compared with the plan at the beginning of the year. The 15 business continuously kept a growth trend. (3) CMWS CMWS was established on Oct. 29, 1989 with a registered capital of RMB 43 million. The Company holds 99.75% of its equity. Ended the report period, the total assets of CMWS was RMB 170,130,000 and its net assets amounted to RMB 147,590,000. In 2002, CMWS realized a net profit of RMB 3.57 million. As the only company with water supply certificate in Shekou, CMWS enjoys an obvious regional advantage. In the report period, CMWS attached the first importance on the cost control, safe water supply and the increase of water quality and continuously tried hard to enhance the automatization level of operating management of the water factory. In the report year, CMWS realized a water sales volume of 27,040,000 tons, which was more than that of the business plan. (4) CMP CMP was established on March 7, 1989 with a registered capital of RMB 100 million. The Company holds 75% of its equity. Ended the report period, the total assets of CMP were RMB720.36 million and its net assets amounted to RMB 408.39 million. In 2002, CMP realized the net profit of RMB 48.23 million. CMP is mainly engaged in the sales, distribution and storage of the light oil, heavy oil and LPG products in Shenzhen and its adjacent areas. The Company’s business of heavy oil, light oil and LPG ranks the top in Shenzhen area. In the report period, under the condition of floating price of oils and more and more intensified competition of market, CMP adjusted the operating strategy in accordance with the current situation, quickened the frequency of sales and strictly controlled the operating costs and risks. In the report year, CMP completed a business volume of storage and operation of oil and gas of 1,426,000 tons, including 221,000 tons of LPG, 501,000 tons light oil and 704,000 tons of heavy oil, which successfully completed the business plan of 2002. 3. Major suppliers and customers Since the Company is the holding company and the suppliers and customers of its holding subsidiaries exist big difference, the transverse comparison among them is not applicable. Of which, the purchase amount of the real estate business takes a small proportion in the development cost of real estate, while the main objects of sales of commercial house are individual customers. The original power of power supply business is purchased from Hong Kong China Electric Power Company and the sales of power supply of the top five customers takes 39% of the total sales volume of the Company’s electric power. The original water of water supply is supplied by the top three large reservoirs of Shenzhen and the sales of water supply of the top five customers takes 17% of the total sales volume of the Company’s water supply. The business of the top five customers of business of storage and operation of petrochemical oil and gas takes 19% of the total volume of the business of storage and operation of petrochemical oil and gas. 4. Influence of significant events happened in the report period or to happen and problems occurred in the operation on the Company and countermeasure (1) Real estate market of Shenzhen entering into the phase of adjustment: After the rapid growth in the recent years, the competition of real estate market of Shenzhen obviously becomes more and more intensified. During January to September, 2002, Shenzhen City completed to invest RMB 24,638 million into the development of real estate, an increase of 26.01% compared with the corresponding period of the previous year and to construct an area of commercial housing of 18,303,200 sq. m., and increase of 27.05% compared with the corresponding period of the previous year. The Sea Moon 2nd Stage project and Brocade Shore project produced by the Company with the year lie in the rear sea zone of Nanshan District, which is the most intensive area of newly completed buildings in Shenzhen, thus the sales of the above two buildings were affected in the beginning. Facing the pressure, in one hand, the Company continuously improves the aspects such as design and service of the products etc. surrounding the concept of “ Love is with Home” through researching the demand of market and customers in depth and exerts to create the more comfortable and taste outstanding housing for the customers, which makes each building of the Company achieve a good sales performance in the report period. In the other hand, the Company continuously keeps a cautious and optimistic attitude to the middle and long-term development trend of the real estate industry in Shenzhen even in China. There are many residents but few scalpers in the people of purchasing houses, thus at present, the market is under the good adjustment. The Company will make full use of the opportunity of adjustment in the current phase; actively integrate the resources such 16 as land, human resources and capital etc. so as to build up the foundation for the further development. (2) Adjustment of Decrease of the price of power of Shenzhen: The price of power of Shenzhen will be adjusted to decrease in an overall basis in May 2002. CMPS adjusted accordingly in compliance with the actual situation and the average price of power per degree after adjustment decreased by RMB 0.035. The adjustment of the power price affected the income and profits of the business of power supply of the Company in a certain extent. Under this situation, CMPS carried through the active negotiation on the share issues of decrease of price with the supplier of original power Hong Kong China Electric Power Company and further mined the potential of power supply in order to decrease the influence of adjustment of the price of power. (3) Active financing of the Company: in the report year, in order to meet the needs of increasingly development of the business and create the condition for development in a large scale in the next phase, the Company actively raised money through varied kinds of channels and ways. In the report period, the Company planned to issue 880 million convertible corporation bonds and to put all the raised proceeds into the real estate projects with a bright future such as Flower Garden 2nd and 3rd Stage, whose development is estimated to create more returns to the shareholders. Simultaneously, the Company further strengthened the cooperation with each bank, increased the credit line of the bank continuously and enhanced the financing ability of the Company. (4) Push of the integration of Shenzhen and Hong Kong: in the report period, the course of the integration of Shenzhen and Hong Kong was oriented to speed up. It was estimated that getting across the pass between Shenzhen and Hong Kong in the Huanggang Port without time limit would be realized in 2003 and that the project of Across-Sea Bridge between Shenzhen and Hong Kong whose disembarkation is in Shekou would be started in 2003. In the next three or five years, the integration of Hong Kong and Shenzhen will be obviously quickened and it is expected that more Hong Kong peoples will go to Shenzhen to work and live, which will be beneficial to the real estate market of Shenzhen. (II) Investment of the Company as of 2002 1. In the report year, there was no application of proceeds raised through share offering 2. Particulars about the important projects invested with the proceeds not raised through share offering and the progress of the projects (1) In the report period, CMRE mainly invested in the following real estate projects: ① Sea Moon 2nd Stage, in the report year RMB 307,200,000 was invested, which increased by 148% compared with the beginning of the year. Except for four high buildings, others units were all occupied. Sales gross profit of RMB77, 790,000 was realized in the report year. ② Rainbow Shore and Brocade Shore, in the report year RMB 241,290,000 was invested, which increased by 38% compared with the beginning of the year. The main body of the basement of Rainbow Shore has been completed while Brocade Shore has been completed. There was no earning realized in the report year. ③ Banshan Sea Villa, in the report year RMB 36,240,000 was invested, which increased by 18% compared with the beginning of the year. Except for the self-designed villas, other villas were checked and accepted. Sales gross profit of RMB83, 340,000 was realized in the report year. ④ Technology Building, in the report period RMB 39,420,000 was invested, which increased by 48% compared with the beginning of the year and it was all completed. Lease income of RMB2, 710,000 was realized in the report year. ⑤ Banshan Sea Garden, in the report period RMB 57,120,000 was invested, which increased by 268% compared with the beginning of the report year. The underground garage was in the process of construction at present. There was no earning realized in the report year. ⑥ Spring Square, in the report period RMB 30,970,000 was invested, which increased by 354% compared with the beginning of the year and the general check had been completed. There was no earning realized in the report year. (2) In the report period, the Company completed to invest RMB 94,195,000 in the fixed assets, including: CMPS actually completed to invest RMB 17,023,000 in the renewal and reconstruction of the equipments of the electric power, CMWS actually completed to invest RMB 6,915,000 in the renewal and reconstruction of the water supply pipes network and the alteration of the water factory, CMP actually 17 completed to invest RMB 23,409,000 in the reconstruction of the gas station and the increase of transportation equipments and loading and unloading of the machines and CMRE actually completed to invest RMB 46,847,000 in the construction of the Guishan Chamber (or named Meilun Chamber) and the maintenance of real property and the purchase of productions equipments. (III) Analysis of the financial position and operating results of the Company in 2002 (Unit: in RMB’0000) Items Dec. 31, 2002 Dec. 31, 2001 Increase Increase (+)/decrease (-) (+)/decrease (-) rate 1 Total assets 526,896.46 469,905.35 +56,991.11 +12.13% 2 Advance received accounts 58,482.71 13,964.53 +44,518.18 +318.79% 3 Long-term liabilities 29,142.16 81,786.63 -52,644.47 -64.37% 4 Shareholders’ equity 244,437.10 225,027.80 +19,409.30 +8.63% 5 Profits from principal business 51,542.17 49,744.32 +1,797.85 +3.61% 6 Net profit 24,181.58 17,496.18 +6,685.40 +38.21% 7 Net cash flows arising from operating 82,612.37 2,705.54 +79,906.83 +2953% activities 8 Net increase of cash and cash equivalents 13,213.46 -22,534.54 +35,748.00 --- (1) Due to the expansion of the operation scale of the Company, at the end of report period the total assets of the Company increased by 12.13%. (2) Due to the good sales in advance of the buildings, at the end of report period the advance received accounts of the Company increased by 318.79%. (3) At the end of report period, the long-term liabilities of the Company decreased by 64.37% compared with the corresponding period of the previous year, due to the quickened circumfluence of the sales funds and thus the recovery of the partial long-term bank loans. (4) At the end of report period the shareholders’ equity of the Company increased by 8.63% compared with the corresponding period of the previous year, due to the realization of the net profit of the Company in the report year. (5) In the report period the profits from principal business of the real estate of the Company increased by a quite big margin compared with the corresponding period of the previous year, but the quit of the port shipping business at the end of the last year made the profits from principal business of the Company increase by 3.61% compared with the corresponding period of the previous year. (6) In the report period, the net profit of the Company increased by 38.21% compared with the corresponding period of the previous year and the main reason was in the report period the net profit of the real estate business of the Company increased quite a lot compared with the corresponding period of the previous year. (7) The net cash flows arising from the operating activities and the net increase in cash and cash equivalents of the Company increased compared with the corresponding period of the previous year, which is mainly due to the good recovery of advance sales building accounts of the development projects in progress of the Company in the report year. (IV) Arrangement of operation of 2003 The guiding thought of the operation of 2003 of the Company: The Company will tamp the base in 2003. The Company will further lay aside and integrate the resources in terms of assets, land and human resources, promote the steady growth in the business of energy and basic facilities, and provide the stable guarantee of income for the Company’s development. The main measures of the Company’s operation in 2003: In the aspect of project development, the Company will research in depth and grasp the whole development situation of the real estate industry, properly increase the land reserve outside the Zone in the condition of evading the market risks effectively, steadily expand the development scale with the planning of focusing on the breakthrough in the areas of Shenzhen, Shanghai, Nanjing or Beijing etc. and actively look for the opportunity of development in other cities. In the aspect of capital, the Company shall positively raised money through varied kinds of channels and ways so as to provide the capital support with low cost for the estimated expansion of business in a large scale. In the aspect of human resources, the Company will further probe into the advanced encouragement and binding mechanism and gain talents through the way of combination of internal training and external introduction. In the aspect of management, the Company shall establish and improve the system of specialty committee and implement the strict system of 18 objective responsibility. In the aspect of brand, the Company shall further enhance the brand image and goodwill of the Company surrounding the connotation of “ Love is with home” and strengthen the construction of culture as well as spark plugging the concept of “ Persons As the Base and Customers As the First”. The main indexes of the Company’s operation in 2003: In the aspect of the business of real estate, the settlement area is planned to complete 150,000 sq. m. and the leasing area is planned to accumulatively reach 3,200,000 sq. m.. In the aspect of the business of power supply in the Zone, the power sales volume is planned to complete 736 million degrees. In the aspect of the business of water supply in the Zone, the water sales volume is planned to complete 28 million tons. In the aspect of the business of storage and operation of petrochemical oil and gas, the business volume of oil and gas is planned to complete 1.5 million tons. (V) The routine work of the Board of Directors 1. The meeting and resolution of the Board of Directors In the report year, the Board of Directors totally held nine meetings with details as follows: Meeting I: The 17th meeting of the 3rd Board of Directors was held on March 22, 2002 and the following resolutions were examined and approved: (1) Proposal on Lending Assets to China Merchants Harbor (Shenzhen) Co., Ltd. (2) Proposal on CMRE’s Purchase of Assets of Meilun Chamber (3) Proposal on Exemption of Mr. Li Hongwu’s Post of Deputy General Manager The resolutions were published on Securities Times, China Securities and Hong Kong Ta Kung Pao dated March 26, 2002. Meeting II: The 18th meeting of the 3rd Board of Directors was held on April 4, 2002 and the following resolutions were examined and approved: (1) 2001 Work Report of General Manager (2) 2001 Financial Settlement Report (3) 2001 Profit Distribution Preplan (4) Estimation of 2002 Profit Distribution Policy (5) 2002 Outline of Business Development Plan (Draft) (6) 2001 Annual Report and its Summary (Draft) (7) Proposal on Revision of Articles of Association (8) Proposal on Adjustment of Allowance of Independent Directors (9) Proposal on Increase of Additional Sales-back Clause of Company’s Sales-back Clause of Convertible Bonds The aforesaid resolutions were published on Securities Times, China Securities and Hong Kong Ta Kung Pao dated April 8, 2002. Meeting III: The 19th Meeting of the 3rd Board of Directors was held on April 26, 2002 and the following resolutions were examined and approved: (1) The 1st Quarter Report of 2002 (2) Proposal on Postponement of the Holding of 2001 Shareholders’ General Meeting The aforesaid resolutions were published on Securities Times, China Securities and Hong Kong Ta Kung Pao dated April 29, 2002. Meeting IV: The 20the Meeting of the 3rd Board of Directors was held on May 26, 2002 and the following resolutions were examined and approved: (1) Proposal on Exemption of Mr. Zhou Zhiyu’s Post of Deputy General Manager (2) Proposal on Nomination of Director Candidates of the 4th Board of Directors (3) Notice of Holding 2001 Shareholders’ General Meeting The aforesaid resolutions were published on Securities Times, China Securities and Hong Kong Ta Kung Pao dated May 28, 2002. 19 Meeting V: The 1st Meeting of the 4th Board of Directors was held on June 28, 2002 and the following resolutions were examined and approved: (1) Proposal on Election of the Chairman and Vice Chairman of the 4th Board of Directors (2) Proposal on Engagement of General Manager Group of the Company The aforesaid resolutions were published on Securities Times, China Securities and Hong Kong Ta Kung Pao dated June 29, 2002. Meeting VI: The 2nd Meeting of the 4th Board of Directors was held on Aug. 9, 2002 and the 2002 Semi-annual Report and Summary was examined and approved. The aforesaid resolution was published on Securities Times, China Securities and Hong Kong Ta Kung Pao dated Aug. 13, 2002. Meeting VII: The 3rd Meeting of the 4th Board of Directors was held on Oct. 24, 2002 and the 3rd Quarter Report and Summary of 2002 was examined and approved. The aforesaid resolution was published on Securities Times, China Securities and Hong Kong Ta Kung Pao dated Oct. 25, 2002. Meeting VIII: The 4th Meeting of the 4th Board of Directors was held on Nov. 28, 2002 and the Proposal on Postponement of Period of Validity of Issuance of Convertible Corporation Bonds was examined and approved and the period of validity was postponed to Nov. 27, 2003. The aforesaid resolution was published on Securities Times, China Securities and Hong Kong Ta Kung Pao dated Nov. 30, 2002. Meeting Ⅸ: The 5th Meeting of the 4th Board of Directors was held on Dec. 25, 2002 and the Proposal on Renewal of Leasing Assets to China Merchants Harbor (Shenzhen) Co., Ltd. was examined and approved. The aforesaid resolution was published on Securities Times, China Securities and Hong Kong Ta Kung Pao dated Dec. 28, 2002. 2. Implementation of resolutions of Shareholders’ General Meeting by the Board of Directors (1) Implementation of authorization of Shareholders’ General Meeting by the Board of Directors The Board of Directors strictly implemented every resolution of Shareholders’ General Meeting without any material warp and misplay in the report year. The Board of Directors strictly executed and implemented the authorization of Shareholders’ General Meeting to the Board of Directors of the relevant issues on the Company’s transaction of issuance of Convertible Corporation Bonds. (2) Implementation of the Company’s profit distribution proposal The 2001 Profit Distribution Proposal was examined and approved in the 2001 Shareholders’ General Meeting held on June 28, 2002. As calculated based on the issued shares of 476,396,000 shares, the Company distributed cash dividends to all shareholders at the rate of RMB 1.10 (tax included) for every 10 shares. The total cash dividends distributed amounted to RMB 52,403,560. The Company would not convert capital public reserve into share capital in the report year. The Company published Public Notice on Dividend Distribution of 2001 and confirmed that the date of equity registration (the last date of trading for B share) was on Aug. 5, 2002 and the date of ex dividend was on Aug. 6, 2002. The dividend distribution was implemented completely on Aug. 16, 2002. (VI) 2002 profit distribution preplan and preplan of converting capital public reserve into share capital Confirmed by the auditing of Deloitte Touche Tohmatsu Certified Public Accountants Ltd., the net profit of the Company realized in 2002 was RMB 241,815,815. As per the regulation of taking the lower amount of distributable profit audited respectively under 20 Chinese Accounting Standards and International Accounting Standards as the superior limit of distribution, the distributable profit of 2002 amounted to RMB 299,975,609. According to the regulation of Company Law and Articles of Association, the profit distribution preplan of 2002 was as follows: 10% of net profit of 2002 calculated as per Chinese Accounting Standards amounting to RMB 24,181,582 was withdrew as the statutory pubic reserve 5% of net profit of 2002 calculated as per Chinese Accounting Standards amounting to RMB 12,090,791 was withdrew as the statutory welfare fund From the net profit of the report year, based on the issued shares of 476,396,000 shares, the Company distributed cash dividends to all shareholders at the rate of RMB 1.2 (tax included) for every 10 shares. The total cash dividends distributed amounted to RMB 57,167,520. The Company would not convert capital public reserve into share capital in the report year. (VII) The profit distribution policy of 2003 1. The Company planned to carry through one profit distribution at least in 2003 2. The proportion of net profit realized in 2003 and undistributed profit of 2002 used in dividend distribution was not less than 20%. 3. The profit distribution of 2003 was mainly by means of delivering bonus shares, distributing cash or combination of delivering bonus shares and distributing cash. 4. The Board of Directors should research and decide whether to implement the plan of converting capital pubic reserve into share capital in 2003 according to the actual situation at that time The above profit distribution and converting capital public reserve into share capital was just the estimation, the 2003 proposal of profit distribution and converting capital public reserve into share capital examined by the Board of Directors and approved by Shareholders’ General Meeting would finally prevail. SECTION IX. Report of the Supervisory Committee (I) The routine work of the Supervisory Committee In the report year, the Supervisory Committee of the Company has performed patiently its duty according to Company Law and Article of Association and other relevant regulation. The Supervisory Committee totally held five meetings, attended all meetings of the Board of Directors as non-voting delegates, participated in the discussion about the significant decision-making issues of the Company, examined the interim report and annual report of the Company and expressed their opinions for the position qualification of independent directors. The Supervisory Committee supervised over the procedures of holding and decision-making of the Shareholders’ General Meeting and the Board of Directors, implementation of the resolutions of the Shareholders’ General Meeting by the Board of Directors, duty performance by senior executives as well as the performance of the management system of the Company, legal operation and scientific decision-making of the Board of Directors and ensured the normative operation of the Company’s financing according to relevant laws and regulations. In 2002,the meetings held by the Supervisory Committee of the Company are as follows: Meeting I: The 11th Meeting of the 3rd Supervisory Committee was held on April 3, 2002, in which topics were discussed as follows: 1. 2001 Financial Settlement Report (Draft) 2. 2001 Profit Distribution Proposal 3. 2001 Annual Report and Summary (Draft) The resolutions were published on Securities Times, China Securities and Ta Kung Pao dated April 8,2002, Meeting II: The 12th Meeting of the 3rd Supervisory Committee was held on May 25, 2002, in which topics were discussed as follows: 21 1. Nomination of the Supervisors’ Candidates of the 4th Supervisory Committee 2. Expressing Opinions for Qualification of Independent Directors’ Candidates of the 4th Board of Directors Nominated by the Board of Directors 3. Informing the Election Result of the Supervisors by the Company’s Employees The resolutions were published on Securities Times, China Securities and Ta Kung Pao dated May 28,2002, Meeting III: The 1st Meeting of the 4th Supervisory Committee was held on June 28, 2002 and Mr. Zhou Yali was elected as the Chairman of the Supervisory Committee. The resolution was published on Securities Times, China Securities and Ta Kung Pao dated June 29, 2002. Meeting IV: The 2nd Meeting of the 4th Supervisory Committee was held on Aug. 9,2002 in which 2002 Semi Annual Report and Summary was examined and approved. The resolution was published on Securities Times, China Securities and Ta Kung Pao dated Aug. 13, 2002. Meeting V: The 3rd Meeting of the 4th Supervisory Committee was held on Oct. 24, 2002 in which the Third Quarter Report and Summary for the Year 2002. The resolution was published on Securities Times, China Securities and Ta Kung Pao dated Oct. 25, 2002. (II) The Supervisory Committee expressed independent opinions for the following matters 1. Operation according to Law The Company established legal person administration structure and more perfect internal control system according to relevant laws, regulations and Article of Association. The procedures of decision-making of the Company are compliant with the laws and regulations and there existed no actions of breaking the laws, regulations and Article of Association and harmful to the Company’s interest in terms of implementation of the Company’s duty by the directors and managers. 2. Financial Inspection Deloitte Touche Tohmatsu Certified Public Accountants and Deloitte Touche Tohmatsu Certified Public Accountants Ltd. audited 2002 financial statements of the Company respectively and all issued the auditor’s reports with standard non-reservation opinion. In the opinion of the Supervisory Committee, the financial statements of the Company as of Dec. 31, 2002 factually and objectively reflected the financial situation and operation result of the Company. 3. Application of Raised Funds The last funds were raised from issuing additional 80 million A circulating shares by the Company in 2000. The Supervisory Committee has supervised over the complete process in terms of collecting, using and effects of using of the raised funds. All the raised funds amounting to RMB703.2 million were used strictly according to the arrangement as stated in the Additional Issuance Memorandum, and the effects of using were good. 4. Purchase or Sales of Assets and Correlative Transactions In the report year, the trading prices for purchase or sales of assets were reasonable. Neither inside trading has been found, nor there occurred damage of the interests and rights of some shareholders or loss of the Company’s assets. The Company conducted relevant corrective transactions strictly according to the legal procedures required by the government authority and didn’t damage the listed company’s interest. SECTION X. SIGNIFICANT EVENTS (I) Material Lawsuits and Arbitration 1. With regard to the lawsuit between the Company and Shenzhen Zhongnongshen Materials Production Co., Ltd. (hereinafter referred to as Zhongnongshen), Guangdong Provincial Higher People’s Court made 22 the judgement of the second trial that required the Company to return Zhongnongshen the payment of goods of RMB6.64 million and the interest of RMB0.91 million. The Company had allotted RMB3.8 million provisions for estimated liabilities in 2001 and the rest RMB3.75 million were transferred into expenditure from non-operating and the amount has been repaid completely in the report year. 2. With regard to the lawsuit between the Company and Guangdong Conghua Agricultural Production Materials Co. (hereinafter referred to as Conghua Agricultural Materials), the Company had allotted RMB8 million provision for estimated liabilities in 2001 according to the lawsuit’s progress. In Dec. 2002, Shenzhen Municipal Intermediate People’s Court judged that required the Company to return the payment of goods of RMB13.77 million and the interest. The Company had not settled the repayment yet ended Dec. 31,2002 but allotted RMB9.79 million provisions for estimated liabilities according to the trial result by the court. The final repayment amount is subject to the negotiation between the Company and Conghua Agricultural Materials. Except for the above cases, the Company hadn’t other material lawsuits or arbitrations. (II) Brief Introduction and Progress of Sales and Purchase of Assets, Consolidation and Merger in 2002 In the report year, the Company conducted neither sales and purchase of assets nor consolidation and merge, except for the item stated in (III) -2. (III) Related Transaction 1. The Company and Shenzhen Merchant Harbor Co., Ltd. (hereinafter referred to as Merchant Harbor) signed Assets Lease Contract respectively on Mar. 19, 2002 & Dec. 25, 2002.The Company will lease 92 assets that are relevant with harbor businesses including office building, warehouse, dormitory, road, construction in process, guide sign and other harbor establishment to Merchant Harbor. The rent is RMB884, 156. 56 per month. The pricing of the trade was based on the integrative cost, market demand and market price and other factors of the leased assets and referred to assets’ depreciation and relevant taxation. Relevant land use fee, estate management expense and labor expense and so on will be undertaken. 2. CMRE, the Company’s subsidiary, and Shenzhen Merchant Meilun Chamber Management Service Co., Ltd. (hereinafter referred to as Meilun Chamber) signed Assets Assignment Agreement and CMRE purchased the assets of Meilun Chamber. The price of the purchase amounts to RMB8, 955, 307.21. The aim of the purchase is to turn it into a large and top grade club that can provide all kinds of activities location for the large amount of members of merchant committee and the owners of the villas nearby and other top grade uptown to upgrade the service for the customer. The above corrective transactions were voted according to stipulated procedures and related directors obviated them and independent directors fully expressed independent opinions. 3. Other related transaction (1) CMWS started to provide the Company’s control shareholder, CMSIZ, and its controlled subsidiaries with water for living and production as early as its establishment before being the subsidiary of the Company. All water supplies in Shekou Industrial Zone were undertaken by CMWS at the absolute public market price. (2) CMPS started to provide the Company’s control shareholder, CMSIZ, and its subsidiaries with power for living and production as early as its establishment before being the subsidiary of the Company. All power supplies in Shekou Industrial Zone were undertaken by CMPS at the absolute public market price. (3) Related transaction of land using Facilities, equipments and offices of the Company’s power and water supply business as well as most rented property of the Company were located in Shekou, major bases of the business of storage and operation of petrochemical oil and gas were also within the Shekou Industrial Zone, so the Company and its subsidiaries above-mentioned started to lease the land from CMSIZ since their establishment. In the year 2002, land use fee of the Company and its controlled subsidiaries totaled RMB 37,279,115. 4. Current payment and guarantee between the Company and its subsidiaries (including those out of the consolidation scope) (1) Ended Dec. 31, 2002, CMSIZ provided the Company with guarantee for loan of RMB 355 million; 23 (2) Ended Dec. 31, 2002, the Company owned due payment of RMB 71,301,200 to China Merchants Innovation (Shenzhen) Co., Ltd.; (3) Ended Dec. 31, 2002, the Company owned due payment of RMB 7,487,200 to Shenzhen Merchant Gas Investment Co., Ltd. (4) Ended Dec. 31, 2002, the Company together with its subsidiaries provided Shenzhen Keluo Storage Industrial Co., Ltd. with guarantee for bank loan of USD 4.74 million. The above issues imposed no significant impact on the Company. (IV) Material contract and the implementation 1. The Company did not entrust, contract or lease assets of other companies in the report period. 2. The Company provided no material guarantee to others in the report period. 3. The Company had no entrusted financing in the report period. 4. Other material contract (1) CMRE, a subsidiary of the Company, singed Credit Extension Contract with Bank of China for RMB 450 million commencing from Dec. 31, 2002 to Dec. 30, 2005. (2) CMRE, a subsidiary of the Company, singed Credit Extension Contract with China Merchants Bank for RMB 400 million commencing from Sep. 5, 2002 to Sep. 4, 2003. (3) CMRE, a subsidiary of the Company, singed Credit Extension Contract with China Industrial and Commercial Bank for RMB 10 billion commencing from Dec.19, 2001 to Dec.18, 2003. (4) CMRE, a subsidiary of the Company, singed Credit Extension Contract with China Agricultural Bank for RMB 400 million commencing from July 13, 2001 to July 12, 2004. (5) CMRE, a subsidiary of the Company, singed Credit Extension Contract with Shenzhen Development Bank for RMB 400 million commencing from Dec. 13, 2002 to Dec. 12, 2004. The Company provided guarantees for the above Credit Extension Contracts signed by CMRE and the banks. Except above contracts, the Company had no contracts involving amount over 10% of net assets of the Company. (V) Commitment CMSIZ, the control shareholder of the Company, promised not to engage in any business or activities possibly competing with the Company in terms of business, new commodities and new technology in any forms (including but not limited to direct operation, indirect operation, joint investment). It also promised to urge its wholly or partially (over 50% equity) owned subsidiaries and actually controlled affiliates to follow the promise. In the report period, the control shareholder strictly implemented such commitment. (VI) Engagement and Disengagement of Certified Public Accountants The Company engaged Deloitte Touche Tohmatsu Certified Public Accountants ltd. as domestic auditors and Deloitte Touche Tohmatsu Certified Public Accountants as overseas auditors of the Company from Nov. 30, 2001. They have provided the audit service for the Company for 2 years. In the report period, the Company (VII) Neither the Company, nor its Board or directors were criticized or punished by relevant securities authorities in the report period. (VIII) Other significant matters Shenzhen Merchant Property Management Co., Ltd. (hereinafter referred to as Merchant Property) that is a share-holding subsidiary of CMRE, Shenzhen Merchant Xiangrong Property Management Co., Ltd. (hereinafter referred to as Xiangrong Property) and Shenzhen New Times Property Management Co., Ltd. (hereinafter referred to as New Times Property) that are share-controlling subsidiary of Merchant Property signed Corporation Mergence Agreement on July 31,2002. According to the special item report and property checking result of Shenzhen Zhengfeng Lifu Certified Public Accountants, the investment amount and registered capital of the new company after combination are all RMB11.2 million based on converting of the old and new share equity. The equity proportion is that CMRE holds 41.5% equity and CMSIZ hold 58.5% equity. The agreement will be effective formally after changing equity register in 24 industrial and commercial authorities and has no influence on the profit of the Company in the report period. (Ⅸ).Issues after the report period Mr. Lin Shaobin, Chairman of the Board and General Manager of the Company purchased 10,000 shares of A circulating share of the Company in January, 2003, which has been frozen by Shenzhen Stock Exchange.. The 4th Board of Directors of the Company was held on Feb. 22, 2003 by vote through telecommunication and approved Ms. Wu Zhenqin to quit the chief supervisor in charge of financing of the Company and engage Mr. Huang Peikun as the new chief supervisor in charge of financing. CMRE signed Cooperation Developing Bagualin B310-0030 Land Contract with Shenzhen TCL Investment Co., Ltd. on Feb. 22, 2003. The Company published the public notice on it. SECTION XI. FINANCIAL REPORT (Refer to attachment) SECTION XII. DOCUMENTS AVAILABLE FOR REFERENCE 1. Financial Statements with signatures and seals of the legal representative, Chief Accountant and person in charge of accounting affairs. 2. Original of the Auditors’ Report with seal of Certified Public Accountant and signatures of certified public accountants. 3. Original of all documents and announcements publicly disclosed in the newspapers designated by CSRC within the period of the Report. 4. English version of 2002 Annual Report. Board of Directors of China Merchants Shekou Holdings Co., Ltd. March 18, 2003 25 26 AUDITORS' REPORT TO THE SHAREHOLDERS OF CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 (A joint stock company with limited liability established in The People's Republic of China) We have audited the accompanying balance sheet of China Merchants Shekou Holdings Company, Limited as of December 31, 2002 and the related statements of income, cash flows and changes in equity for the year then ended. These financial statements are the responsibility of the Group's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2002 and the results of its operations and its cash flows for the year then ended, in accordance with International Financial Reporting Standards. Deloitte Touche Tohmatsu March 14, 2003 27 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2002 NOTES 2002 2001 Rmb Rmb Revenue 3 3,805,477,315 3,268,184,561 Cost of sales (3,276,355,782) _____________ (2,727,960,031) _____________ Gross profit 529,121,533 540,224,530 Other operating income 5 11,696,846 13,154,749 Dividends income from investments in securities 2,411,054 - Interest income and foreign exchange gains 8,295,115 15,424,576 Distribution costs (19,559,953) (20,260,195) Administrative expenses (125,029,291) (169,222,548) Other operating expenses 6 (59,403,477) (55,584,147) Impairment loss on goodwill - ____________ (47,050,728) ____________ Profit from operations 7 347,531,827 276,686,237 Finance costs 8 (11,105,927) (42,880,308) Share of results of associates 3,416,702 5,455,457 Amortisation of goodwill of associates (249,737) (249,737) Share of profit of a jointly controlled entity - 366,351 Profit on disposal of discontinuing operations 9 - ____________ 22,121,370 ____________ Profit before tax 339,592,865 261,499,370 Income tax expense 10 (68,637,698) ____________ (49,573,447) ____________ Profit after tax 270,955,167 211,925,923 Minority interest (23,609,987) ____________ (47,215,390) ____________ Net profit for the year 247,345,180 ____________ 164,710,533 ____________ Basic earnings per share - including discontinuing operations 12 0.52 cents ____________ 0.35 cents ____________ - excluding discontinuing operations 12 0.52 cents ____________ 0.15 cents ____________ 28 CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 2002 NOTES 2002 2001 Rmb Rmb ASSETS Non-current assets Property, plant and equipment 13 440,507,871 646,653,064 Construction in progress 14 38,623,829 28,932,259 Investment properties 15 1,105,684,275 669,169,423 Goodwill 16 808,037,055 857,251,991 Negative goodwill 17 (66,760,423) (70,631,593) Land use rights 18 16,444,653 17,628,417 Investments in associates 20 33,277,724 75,844,309 Investments in securities 21 30,181,680 ____________ 33,151,680 ____________ 2,405,996,664 ____________ 2,257,999,550 ____________ Current assets Inventories 22 66,198,918 73,844,130 Completed properties for sale 220,242,811 110,957,905 Properties under development 23 1,598,758,488 1,411,532,624 Trade and other receivables 24 347,101,786 333,675,301 Amounts due from associates 4,165,439 289,471 Bank balances and cash 24 608,134,675 ____________ 476,000,070 ____________ 2,844,602,117 ____________ 2,406,299,501 ____________ Total assets 5,250,598,781 ____________ 4,664,299,051 ____________ 29 NOTES 2002 2001 Rmb Rmb EQUITY AND LIABILITIES Capital and reserves Share capital 25 476,396,000 476,396,000 Reserves 26 1,947,381,467 ____________ 1,747,907,586 ____________ 2,423,777,467 ____________ 2,224,303,586 ____________ Minority interests 200,962,243 ____________ 150,585,258 ____________ Non-current liabilities Bank loans - due after one year 27 281,561,556 806,645,522 Rental received in advance 28 7,660,000 8,770,800 Deferred tax liabilities 29 27,558,521 ____________ 29,737,867 ____________ 316,780,077 ____________ 845,154,189 ____________ Current liabilities Trade and other payables 30 1,198,196,720 809,392,814 Receipts in advance and deposit received 584,827,120 139,645,266 Amounts due to associates 2,938,647 13,954,461 Tax liabilities 48,201,620 21,051,157 Bank loans - due within one year 27 474,914,887 ____________ 460,212,320 ____________ 2,309,078,994 ____________ 1,444,256,018 ____________ Total equity and liabilities 5,250,598,781 ____________ 4,664,299,051 ____________ The financial statements on pages 2 to 37 were approved by the board of directors and authorised for issue on March 14, 2003 and are signed on its behalf by: ______________________________ ______________________________ DIRECTOR DIRECTOR 30 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2002 Statutory Discretionary Statutory Share Share surplus surplus public Capital Othe capital premium reserve reserve welfare fund surplus reserv Rmb Rmb Rmb Rmb Rmb Rmb Rm Balance at January 1, 2001 476,396,000 1,075,150,683 201,620,294 116,245,109 61,685,289 66,373,525 4,244 Exchange differences arising on translation of overseas operations not recognised in the income statement - - - - - - Net profit for the year - - - - - - Transfer to (from) reserves - - 15,908,213 96,313,954 16,946,648 - Dividends - ___________ - ____________ - ___________ - ___________ - __________ - __________ ______ Balance at January 1, 2002 476,396,000 1,075,150,683 217,528,507 212,559,063 78,631,937 66,373,525 4,244 Exchange differences arising on translation of overseas operations not recognised in the income statement - - - - - - Net profit for the year - - - - - - Transfer to (from) reserves - - 30,835,559 - 19,266,541 - Dividends - ___________ - ____________ - ___________ - ___________ - __________ - __________ ______ Balance at December 31, 2002 476,396,000 ___________ 1,075,150,683 ____________ 248,364,066 ___________ 212,559,063 ___________ 97,898,478 __________ 66,373,525 __________ 4,244 ______ CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2002 2002 2001 Rmb Rmb OPERATING ACTIVITIES Profit from operations 347,531,827 276,686,237 Adjustments for: Amortisation of goodwill 49,214,936 38,596,779 Depreciation of property, plant and equipment 51,752,893 79,891,619 Depreciation of investment properties 53,985,470 42,912,804 Depreciation of land use rights 654,704 558,804 Dividends received from investments in securities (2,411,054) - Impairment loss on property, plant and equipment 465,163 10,278,075 Reversal of impairment losses on property, plant and equipment (3,009,259) - Impairment loss on goodwill - 47,050,728 Impairment loss on land use rights 529,060 - Impairment loss on investments in securities - 5,471,976 Interest income (7,229,439) (15,276,022) Loss on disposal of investments in securities - 535,600 Loss (profit) on disposal of associates 2,051,414 (525,000) Net loss (profit) on disposal of property, plant and equipment 2,906,930 (1,625,021) Release of negative goodwill (3,871,170) (2,193,297) Recognition of deferred income - ____________ (7,641,607) ___________ Operating profit before working capital changes 492,571,475 474,721,675 Decrease (increase) in inventories 91,852,532 (11,132,994) Decrease in completed properties for sale 359,285,080 490,064,118 Increase in properties under development (808,894,488) (976,383,761) Increase in trade and other receivables (5,775,403) (25,732,077) Increase (decrease) in amounts due from associates (3,875,968) 11,962,947 Decrease in amount due from a shareholder - 1,804,658 (Decrease) increase in rental received in advance (1,110,800) 440,800 Increase in trade and other payables 327,034,104 180,390,072 Increase (decrease) in receipts in advance and deposits received 445,181,854 (55,021,462) (Decrease) increase in amounts due to associates (11,015,814) 9,381,023 Decrease in amount due to a jointly controlled entity - ____________ (846,108) ___________ Cash generated from operations 885,252,572 99,648,891 Income taxes paid (44,200,025) (78,391,818) Interest paid (67,958,402) ____________ (86,052,979) ___________ NET CASH GENERATED FROM (USED IN) OPERATING ACTIVITIES 773,094,145 ____________ (64,795,906) ___________ 32 NOTES 2002 2001 Rmb Rmb INVESTING ACTIVITIES Purchases of property, plant and equipment (72,285,557) (69,595,282) Purchases of investment properties (45,345,051) (17,347,384) Acquisition of investments in securities (500,000) - Acquisition of a subsidiary 31 34,882,586 Interest received 7,229,439 15,276,022 Proceeds on disposal of property, plant and equipment 5,829,431 7,371,037 Dividends received from associates 5,205,576 7,043,625 Dividends received from investments in securities 2,411,054 - Proceeds on disposal of associates 592,700 11,118,120 Net cash inflow from asset restructuring 32 - 38,134,208 Proceeds on disposal of investments in securities - 27,282,859 Proceeds on disposal of investment properties - 4,724,001 Proceeds on disposal of available-for-sale investments - 4,279,482 Acquisition of investments in associates - (5,481,200) Purchases of land use rights - ____________ (110,000) ___________ NET CASH (USED IN) GENERATED FROM INVESTING ACTIVITIES (61,979,822) ____________ 22,695,488 ___________ FINANCING Repayments of bank loans (2,685,381,399) (2,852,996,552) Dividends paid (52,403,561) (61,931,480) Dividends paid to minority shareholders (1,194,758) (68,873,624) New bank loans raised 2,160,000,000 ____________ 2,800,679,179 ___________ NET CASH USED IN FINANCING ACTIVITIES (578,979,718) ____________ (183,122,477) ___________ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 132,134,605 (225,222,895) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 476,000,070 ____________ 701,222,965 ___________ CASH AND CASH EQUIVALENTS AT END OF YEAR Bank balances and cash 608,134,675 ____________ 476,000,070 ___________ 33 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2002 1. GENERAL China Merchants Shekou Holdings Company, Limited is a limited liability company established in the People's Republic of China (the "PRC"). The Company is an investment holding company. The principal activities of its principal subsidiaries are set out in note 19. These financial statements are presented in Renminbi (Rmb) since that is the currency in which the majority of the Group's transactions are denominated. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared in accordance with International Financing Reporting Standards ("IFRS"). The financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are set out below. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and enterprises controlled by the Company (its subsidiaries) made up to December 31 each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee enterprise so as to obtain benefits from its activities. On acquisition, the assets and liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess (deficiency) of the cost of acquisition over (below) the fair values of the identifiable net assets acquired is recognised as goodwill (negative goodwill). The interest of minority shareholders is stated at the minority's proportion of the fair values of the assets and liabilities recognised. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the Group. All significant intercompany transactions and balances between group enterprises are eliminated on consolidation. 34 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Investments in associates An associate is an enterprise over which the Group is in a position to exercise significant influence, but not control, through participation in the financial and operating policy decisions of the investee. The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Investments in associates are carried in the balance sheet at cost as adjusted by post-acquisition changes in the Group's share of the net assets of the associate, less any impairment in the value of individual investments. Any excess (deficiency) of the cost of acquisition over (below) the Group's share of the fair values of the identifiable net assets of the associate at the date of acquisition is recognised as goodwill (negative goodwill). Where a group enterprise transacts with an associate of the Group, unrealised profits and losses are eliminated to the extent of the Group's interest in the relevant associate, except to the extent that unrealised losses provide evidence of an impairment of the asset transferred. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment losses. Depreciation is charged so as to write off the cost of property, plant and equipment, other than construction in progress, over their estimated useful lives, using the straight-line method, on the following bases: Plant and machinery, furniture, fixtures and office equipment 5 - 18 years Buildings, open yards and warehouses 10 - 50 years Ships and motor vehicles 6 - 18 years Water pipes 20 years The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in income. Construction in progress Construction in progress represents properties under construction and equipment purchased prior to installation and is stated at cost including borrowing costs capitalised in accordance with Group's accounting policy. Investment property Investment property, which is property held to earn rentals and/or for capital appreciation, is stated at cost less accumulated depreciation and any recognised impairment losses at the balance sheet date. Depreciation is charged so as to write off the cost of investment properties over their estimated useful lives, using the straight-line method, over a period of 20 years. 35 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Impairment At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the greater of net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately. Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of a subsidiary, associate or jointly controlled entity at the date of acquisition. Goodwill is recognised as an asset and amortised on a straight-line basis over its estimated useful life. Goodwill arising on the acquisition of an associate or a jointly controlled entity is included within the carrying amount of the associate or jointly controlled entity. Goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet. On disposal of a subsidiary, associate or jointly controlled entity, the attributable amount of unamortised goodwill is included in the determination of the profit or loss on disposal. 36 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Negative goodwill Negative goodwill represents the excess of the Group's interest in the fair value of the identifiable assets and liabilities of a subsidiary, associate or jointly controlled entity at the date of acquisition over the cost of acquisition. Negative goodwill is released to income based on an analysis of the circumstances from which the balance resulted. To the extent that the negative goodwill is attributable to losses or expenses anticipated at the date of acquisition, it is released to income in the period in which those losses or expenses arise. The remaining negative goodwill is recognised as income on a straight-line basis over the remaining average useful life of the identifiable acquired depreciable assets. To the extent that such negative goodwill exceeds the aggregate fair value of the acquired identifiable non-monetary assets, it is recognised in income immediately. Negative goodwill arising on the acquisition of an associate or a jointly controlled entity is deducted from the carrying value of that associate or jointly controlled entity. Negative goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet as a deduction from assets. Land use rights Land use rights are stated at cost less depreciation and accumulated impairment losses. Depreciation is charged so as to write off the cost of land use rights, using the straight-line method, over the respective periods of the grants. Investments in securities Investments in securities are recognised on a trade-date basis and are initially measured at cost. At subsequent reporting dates, debt securities that the Group has the expressed intention and ability to hold to maturity (held-to-maturity debt securities) are measured at amortised cost, less any impairment loss recognised to reflect irrecoverable amounts. The annual amortisation of any discount or premium on the acquisition of a held-to-maturity security is aggregated with other investment income receivable over the term of the instrument so that the revenue recognised in each period represents a constant yield on the investment. Investments other than held-to-maturity debt securities are classified as either held-for-trading or available-for-sale, and are measured at subsequent reporting dates at fair value. Where securities are held for trading purposes, gains and losses arising from changes in fair value are included in net profit or loss for the period. For available-for-sale investments, gains and losses arising from changes in value are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in net profit or loss for the period. Inventories Inventories are stated at the lower of cost and net realisable value. Cost, comprises all costs of purchase and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Costs is calculated using the weighted average method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. 37 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Completed properties for sale Completed properties for sale are stated at the lower of cost and net realisable value. Cost is determined by apportionment of the total land and development costs attributable to unsold properties. Net realisable value is determined by reference to management estimates based on prevailing market conditions. Properties under development Properties under development are stated at cost less any recognised impairment loss. Cost includes development expenditure, professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Group's accounting policy. Depreciation of these assets commences when the assets are ready for their intended use. Trade receivables Trade receivables are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts. Trade payables Trade payables are stated at their nominal value. Retirement benefit costs Payments to defined contribution retirement benefit plans are charged as an expense as they fall due. Payments made to state-managed retirement benefit schemes are dealt with as payments to defined contribution plans where the Group's obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit plan. Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill (or negative goodwill) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction which affects neither the tax profit nor the accounting profit. 38 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Taxation - continued Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Provisions Provisions are recognised when the Group has a present obligation as a result of a past event which it is probable will result in the outflow of economic benefits that can be reasonably estimated. Rental received in advance Rental received in advance comprises fee received for granting of operating leases for the use of the Group's properties. The fees received are recognised as revenue over the period of the leases on a straight-line basis from the date of commencement of the leases. Bank borrowings Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption, are accounted for on an accrual basis and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in the net profit or loss in the period in which they are incurred. 39 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Government grants Value added tax refund of imported electricity charges and government grants on water charges are recognised as income over the periods necessary to match them with the related costs and are deducted in reporting the related expense. Operating leases Rentals payable under operating leases are charged to income on a straight line basis over the term of the relevant lease. Foreign currencies Transactions in currencies other than Renminbi are initially recorded at the rates of exchange prevailing on dates of the transactions. Monetary assets and liabilities denominated in such currencies are retranslated at the rates prevailing on the balance sheet date. Profits and losses arising on exchange are included in net profit or loss for the year. On consolidation the assets and liabilities of the Group's Hong Kong and overseas operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the year. Exchange differences arising, if any, are classified as equity and transferred to the Group's exchange reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of. Revenue recognition Sales of goods are recognised when goods are delivered and title has passed. Rental income from investment properties is recognised on a straight-line basis over the terms of the relevant leases. Revenue arising from the development properties for sale is recognised upon the sale of properties or the issuance of the completion certificate by the relevant government authority, whichever is later. Deposits received on properties sold prior to the date of revenue of recognition are included in the balance sheet under current liabilities. Revenue arising from the provision of port services, loading, unloading and warehousing of cargo's inland freights, water supply and electricity supply is recognised on delivery of the services to customers. Interest income is accrued on a time basis, by reference to the principal outstanding and at the interest rate applicable. Dividend income from investments is recognised when the shareholders' rights to receive payment have been established. 40 3. REVENUE An analysis of the Group's revenue is as follows: 2002 2001 Rmb Rmb Continuing operations: Sales of petrochemical products and merchandise 2,350,682,237 1,723,396,546 Property development 685,371,907 616,028,103 Investment property 178,296,965 139,993,050 Electricity supply 537,136,527 499,238,994 Water supply 53,989,679 ____________ 54,559,034 ____________ 3,805,477,315 3,033,215,727 Discontinuing operations: Provision of port services - ____________ 234,968,834 ____________ 3,805,477,315 ____________ 3,268,184,561 ____________ 4. SEGMENT REPORTING Segment information is presented in respect of the Group's business segments. The primary format, business segments, is based on the Group's management and internal reporting structure. The Group's activities are principally performed in the PRC (including Hong Kong) and the overseas segment does not have significant impact on the Group's revenue, results and assets. Inter-segment pricing is determined on prices renegotiated and agreed by both parties. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items mainly comprise corporate assets and expenses. Segment capital expenditure is the total cost incurred during the year to acquire segment assets that are expected to be used for more than one year. Business segments The Group comprises the following main business segments: Trading: Sales of petrochemical products and merchandise. Property development: The construction and development of properties for sales Investment property: Property rental Electricity supply: Supply of electric power electricity Water supply: Supply of water The operation of port services was discontinued upon the completion of the asset restructuring arrangement as of October 31, 2001 (note 9). 41 4. SEGMENT REPORTING - continued The average number of employees for each of the Group's business segments was as follows: 2002 2001 Trading 830 756 Property development 148 148 Investment property 20 20 Electricity supply 94 93 Water supply 109 110 Head office and administration 16 15 Port services - _______ 600 _______ 1,217 _______ 1,742 _______ Segment information about these business is presented below. 42 4. SEGMENT REPORTING - continued Property Investment Electricity Trading development property supply Water supply Port 2002 2001 2002 2001 2002 2001 2002 2001 2002 2001 2002 Rmb Rmb Rmb Rmb Rmb Rmb Rmb Rmb Rmb Rmb Rmb Revenue External 2,350,682,237 1,723,396,546 685,371,907 616,028,103 178,296,965 139,993,050 537,136,527 499,238,994 53,989,679 54,559,034 - Inter- segment sales - ____________ 7,760,499 ____________ ____________ - 2,847,071 ____________ - ___________ - ___________ 9,920,740 ___________ 16,508,364 __________ ___________ 31,177 __________ 782,166 - ________ Total revenue 2,350,682,237 ____________ ____________ 1,731,157,045 ____________ 685,371,907 618,875,174 ____________ 178,296,965 ___________ 139,993,050 ___________ 547,057,267 ___________ 515,747,358 __________ ___________ 54,020,856 __________ 55,341,200 - ________ Results Segment results 74,956,814 ____________ ____________ (5,839,881) ____________ 350,146,206 120,716,753 ____________ 91,089,239 ___________ 27,311,115 ___________ 125,678,160 ___________ 102,445,295 ___________ 5,169,610 __________ 4,908,421 __________ - ________ Unallocated income Unallocated expenses Profit from operations Financing costs - - - - - - - - - - - Share of results of associates 353,278 2,375,708 3,063,424 3,303,809 - - - - - - - Share of profit of a jointly controlled entity - - - - - - - - - - - Amortisation of goodwill of associates - - - - - - - - - - - Profit on disposal of discontinuing operations - - - - - - - - - - - Minority interests - - - - - - - - - - - Income tax - - - - - - - - - - - Net profit for the year Other information Segment assets 695,698,478 751,647,695 2,195,988,786 2,449,795,303 1,493,461,298 554,157,495 422,408,421 414,803,036 98,350,167 84,767,644 - Investments in associates 13,236,573 18,127,980 20,041,151 57,716,329 - - - - - - - Unallocated assets - - - - - - Consolidated total assets Segment liabilities 320,395,750 268,749,370 1,291,767,479 1,170,512,835 336,048,529 264,776,595 25,039,168 29,414,587 19,849,815 24,687,349 - Unallocated liabilities - - - - - - Consolidated total liabilities Capital expenditure 28,831,663 ____________ ____________ 18,398,949 ____________ 227,585,169 10,140,029 ____________ 59,205,440 ___________ 2,293,732 ___________ 12,110,973 ___________ 20,052,253 __________ ___________ 6,918,338 5,892,647 __________ - ________ Depreciation and amortisation 18,202,889 ____________ ____________ 12,694,977 ____________ 52,323,310 36,139,798 ____________ 13,611,716 ___________ 8,175,026 ___________ 10,188,662 ___________ 9,918,171 __________ ___________ 12,066,490 11,584,246 __________ - ________ Amortisation of goodwill 10,346,567 ____________ ____________ 13,276,590 ____________ 22,854,225 15,156,192 ____________ - ___________ - ___________ 16,014,144 ___________ 10,413,734 ___________ - __________ - __________ - ________ Release of negative goodwill - ____________ - ____________ - ____________ - ____________ - ___________ - ___________ - ___________ - ___________ (3,871,170) __________ __________ (2,193,297) ________ - Impairment losses (2,015,036) ____________ ____________ 57,328,803 ____________ - - ____________ - ___________ - ___________ - ___________ - ___________ - __________ - __________ - ________ 5. OTHER OPERATING INCOME 2002 2001 Rmb Rmb Other sundry income 7,163,179 2,304,233 Release of negative goodwill 3,871,170 2,193,297 Profit on disposal of property, plant and equipment 662,497 1,625,021 Overprovision of bad and doubtful debts in prior years - 6,507,198 Profit on disposal of associates - 525,000 __________ __________ 11,696,846 13,154,749 __________ __________ __________ __________ 6. OTHER OPERATING EXPENSES 2002 2001 Rmb Rmb Amortisation of goodwill 49,214,936 38,596,779 Loss on disposal of property, plant and equipment 3,569,427 - Loss on disposal of associates 2,051,414 - Customs duty and value added tax relating to prior years 3,281,700 - Other sundry expenses 820,837 701,717 Impairment loss on property, plant and equipment 465,163 10,278,075 Impairment loss on investments in securities - 5,471,976 Loss on disposal of investments in securities - 535,600 __________ __________ 59,403,477 55,584,147 __________ __________ __________ __________ Because of technical obsolescence of certain property, plant and equipment, the directors consider that there had been an impairment loss on property, plant and equipment in respect of the trading segment. These assets were scrapped and an impairment loss in the amount of their previous carrying amount of Rmb465,163 (2001: Rmb10,278,075) was recognised. Because of unsatisfactory financial performance of some investee companies, the directors considered that there had been an impairment loss on investments in securities in respect of the port services segment. These assets were scrapped and an impairment loss in the amount of their previous carrying amount of Rmb5,471,976 was recognised in 2001. 44 7. PROFIT FROM OPERATIONS 2002 2001 Rmb Rmb Profit from operations has been arrived at after charging (crediting): Depreciation 106,393,067 123,363,227 Provision for litigation claims (note 30): Current year - 11,800,000 Underprovision in prior year 13,536,061 - Value added tax refund of imported electricity charges (33,161,389) (34,944,163) Government grants on water charges - (2,000,000) ___________ ___________ ___________ ___________ Interest income 7,229,439 15,276,022 Foreign exchange gains 1,065,676 148,554 ___________ ___________ 8,295,115 15,424,576 ___________ ___________ ___________ ___________ Staff costs: Wages and salaries 63,343,505 99,863,047 Retirement costs 5,378,858 6,593,405 Other staff costs 10,138,678 11,162,556 ___________ ___________ 78,861,041 117,619,008 ___________ ___________ ___________ ___________ 8. FINANCE COSTS 2002 2001 Rmb Rmb Interest on bank loans and other borrowings 67,765,995 85,827,661 Less: interest capitalised in the cost of qualifying assets (57,358,476) (43,940,498) __________ __________ Interest expenses 10,407,519 41,887,163 Foreign exchange losses 506,001 767,827 45 Other finance costs 192,407 225,318 __________ __________ 11,105,927 42,880,308 __________ __________ __________ __________ Interest capitalised in the cost of qualifying assets during the year arose on specific borrowing for expenditure on such assets. 9. DISCONTINUING OPERATIONS During 2001, the Group entered into an asset restructuring agreement with its major shareholder, China Merchants Skekou Industrial Zone Co., Ltd. ("SIZ"). Under the agreement, the Group acquired an additional 25% interest from SIZ in each of its subsidiaries, 深圳招商供水有限公司("Water Co."), 深圳招 商供電有限公司 ("Electricity Co.") and 深圳招商房地產有限公司 ("Real Estate Co.") by exchanging with SIZ all of its assets engaged in provision of port services business ("Shekou Port Business"). This asset restructuring was completed on October 31, 2001, on which date control of the exchanged companies and assets passed to the acquirers. As a result of this asset restructuring, the Group discontinued its business of provision of port services. 46 9. DISCONTINUING OPERATIONS - continued The results of the provision of port services for the period from January 1, 2001 to October 31, 2001, which have been included in the consolidated financial statements, were as follows: Rmb Revenue 234,968,834 Operating costs (164,531,537) Net financing income (costs) 1,770,237 Share of results of associates (207,627) Share of profit of a jointly controlled entity 429,737 ___________ Profit before tax 72,429,644 Income tax expense (1,380,505) ___________ Profit from ordinary activities after tax 71,049,139 ___________ ___________ During 2001, Shekou Port Business contributed Rmb73 million to the Group's net operating cash flows, paid Rmb39 million in respect of investing activities and paid 54 million in respect of financing activities. The carrying amounts of the assets and liabilities of Shekou Port Business at the date of disposal are disclosed in note 33. A profit of Rmb22,121,370 arose on the disposal of Shekou Port Business, being the aggregate fair value of the 25% interests in Water Co., Electricity Co., Real Estate Co. and the balance payment received less the carrying amount of net assets of Shekou Port Business (note 33). No tax charge or credit arose from the transaction. 10. INCOME TAX EXPENSE 2002 2001 Rmb Rmb Current tax: PRC 71,206,802 55,852,793 Overprovision in prior years: - Overseas (389,758) - __________ __________ 70,817,044 55,852,793 Deferred tax (note 29): 47 - Current year (2,179,346) (6,279,346) __________ __________ 68,637,698 49,573,447 __________ __________ __________ __________ 48 10. INCOME TAX EXPENSE - continued The income tax rates applicable to the entities in the Group are as follows: The Company and its subsidiaries in PRC 15% A subsidiary in Singapore 26% The following is a reconciliation of income tax calculated at the applicable tax rates: 2002 2001 Rmb Rmb Profit before tax 339,592,865 261,499,370 ___________ ___________ ___________ ___________ Income tax computed by applying tax rate of 15% 50,938,930 39,224,960 Income tax attributable to associates (752,791) (1,205,613) Income tax attributable to a jointly controlled entity - (63,386) Effect of non-deductible expenses 19,095,337 14,982,297 Effect of non-taxable income (588,597) (3,318,206) Effect of different tax rates in other jurisdictions (55,181) (46,605) ___________ __________ Income tax expense 68,637,698 49,573,447 ___________ __________ ___________ __________ 11. DIVIDENDS During 2002, a dividend of 11 cents (2001: 13 cents) per share was paid to shareholders. In respect of the current year, the directors propose that a dividend of 12 cents per share will be paid to shareholders. This dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. The total estimated dividend to be paid is Rmb57 million. 49 12. BASIC EARNINGS PER SHARE Including discontinuing operations: The calculation of basic earnings per share is based on net profit for the year of Rmb247,345,180 (2001: Rmb164,710,533). Excluding discontinuing operations: The additional basic earnings per share present earnings data after elimination of the effects of operations discontinued in the period. Earnings figures are calculated as follows: 2002 2001 Rmb Rmb Net profit for the year 247,345,180 164,710,533 Adjustment for: Profit after tax from discontinuing operations - (71,049,139) Profit on disposal of discontinuing operations - (22,121,370) ___________ ___________ Earnings for the purposes of basic earnings per share excluding discontinuing operations 247,345,180 71,540,024 ___________ ___________ ___________ ___________ The number of shares in issue during the year amounting to 476,396,000 (2001: 476,396,000) is used as denominator for the purposes of calculating basic earnings per share. No diluted earnings per share is presented since there are no dilutive potential ordinary shares in existence during the years ended December 31, 2002 and December 31, 2001. 50 13. PROPERTY, PLANT AND EQUIPMENT Plant and machinery, furniture, Buildings, fixtures open yards Ships and and office and motor Water equipment warehouses vehicles pipes Total Rmb Rmb Rmb Rmb Rmb COST At January 1, 2002 201,493,280 528,014,266 49,677,768 164,542,815 943,728,129 On acquisition of a subsidiary 231,457 2,882,755 49,108 - 3,163,320 Additions 9,052,751 43,639,131 19,593,675 - 72,285,557 Transfer from construction in progress 6,186,049 1,800,942 1,416,975 1,645,279 11,049,245 Transfer to investment properties - (289,029,675) - - (289,029,675) Reclassification 18,812,609 (18,812,609) - - - Disposals (3,549,684) (6,812,426) (10,912,282) - (21,274,392) ___________ ___________ ___________ ___________ ____________ At December 31, 2002 232,226,462 261,682,384 59,825,244 166,188,094 719,922,184 ___________ ___________ ___________ ___________ ____________ ACCUMULATED DEPRECIATION At January 1, 2002 82,912,327 123,453,848 33,910,543 56,798,347 297,075,065 Charge for the year 22,077,516 18,538,295 6,109,657 5,027,425 51,752,893 Impairment losses 465,163 - - - 465,163 Reversal of impairment losses - (2,369,720) (639,539) - (3,009,259) Reclassification 4,384,849 (4,384,849) - - - Transfer to investment properties - (54,331,518) - - (54,331,518) Eliminated on disposals (2,237,597) (989,964) (9,310,470) - (12,538,031) ___________ ___________ ___________ ___________ ____________ At December 31, 2002 107,602,258 79,916,092 30,070,191 61,825,772 279,414,313 ___________ ___________ ___________ ___________ ____________ CARRYING AMOUNT At December 31, 2002 124,624,204 181,766,292 29,755,053 104,362,322 440,507,871 ___________ ___________ ___________ ___________ ____________ ___________ ___________ ___________ ___________ ____________ 51 At December 31, 2001 118,580,953 404,560,418 15,767,225 107,744,468 646,653,064 ___________ ___________ ___________ ___________ ____________ ___________ ___________ ___________ ___________ ____________ The Group has pledged certain of its properties with an aggregate net book value of approximately Rmb12 million (2001: Rmb6 million) to banks as security for bank loans. As part of the process of establishing the Company as a joint stock company in 1992, property, plant and equipment was valued by Zhong Hua (Shekou) Certified Public Accountants as at April 30, 1992. Pursuant to the approval document being issued by the Shenzhen Municipal Government Office on January 27, 1993, this valuation has been reflected in these financial statements as the deemed cost base of the assets of the Company upon its formation. Buildings, open yards and warehouses of Rmb77 million are under the process of obtaining land use right certificate as of December 31, 2002. 52 14. CONSTRUCTION IN PROGRESS Buildings Plant and and Water machinery warehouses pipes Total Rmb Rmb Rmb Rmb COST At January 1, 2002 13,667,897 13,481,371 1,782,991 28,932,259 Additions 16,169,456 5,689,154 640,658 22,499,268 Transfer to property, plant and equipment (5,493,834) (5,040,411) (515,000) (11,049,245) Disposals - (1,758,453) - (1,758,453) __________ __________ _________ __________ At December 31, 2002 24,343,519 12,371,661 1,908,649 38,623,829 __________ __________ _________ __________ __________ __________ _________ __________ There was no significant amount of interest capitalised in construction in progress for both years. 15. INVESTMENT PROPERTIES Rmb COST At January 1, 2002 927,493,891 Additions 45,345,051 Transferred from property, plant and equipment 234,698,157 Transfer from completed properties from sales 159,840 Transfer from properties under development 211,582,423 Transfer to completed properties for sales (1,910,126) _____________ At December 31, 2002 1,417,369,236 _____________ ACCUMULATED DEPRECIATION At January 1, 2002 258,324,468 Charge for the year 53,985,470 Eliminated on transfer to completed properties for sales (624,977) _____________ At December 31, 2002 311,684,961 _____________ CARRYING AMOUNT At December 31, 2002 1,105,684,275 _____________ 53 _____________ At December 31, 2001 669,169,423 _____________ _____________ The property rental income earned by the Group from its investment properties, all of which is leased out under operating leases, amounted to approximately Rmb178 million (2001: Rmb139 million). Direct operating expenses arising on the investment properties in the period amounted to approximately Rmb110 million (2001: Rmb80 million). Investment properties of Rmb378 million are under the process of obtaining land use right certificate as of December 31, 2002. The fair values of investment properties as at December 31, 2002 amounted to Rmb1,910,585,000 in accordance with directors' estimation. 54 16. GOODWILL Rmb COST At January 1, 2002 and December 31, 2002 981,181,175 ___________ AMORTISATION At January 1, 2002 123,929,184 Charge for the year 49,214,936 ___________ At December 31, 2002 173,144,120 ___________ CARRYING AMOUNT At December 31, 2002 808,037,055 ___________ ___________ At December 31, 2001 857,251,991 ___________ ___________ Goodwill is amortised over its estimated useful life. The foreseeable life of the goodwill arising on past acquisitions ranges from 12 to 20 years. 17. NEGATIVE GOODWILL Rmb GROSS AMOUNT At January 1, 2002 and December 31, 2002 76,043,294 __________ RELEASED TO INCOME At January 1, 2002 5,411,701 Release during the year 3,871,170 __________ At December 31, 2002 9,282,871 __________ CARRYING AMOUNT At December 31, 2002 66,760,423 __________ __________ At December 31, 2001 70,631,593 55 __________ __________ The negative goodwill is released to income on a straight-line basis over the remaining weighted average useful life of 20 years of the depreciable assets acquired. 56 18. LAND USE RIGHTS Rmb COST At January 1, 2002 21,345,464 Additions - __________ At December 31, 2002 21,345,464 __________ ACCUMULATED DEPRECIATION At January 1, 2002 3,717,047 Charge for the year 654,704 Impairment loss 529,060 __________ At December 31, 2002 4,900,811 __________ CARRYING AMOUNT At December 31, 2002 16,444,653 __________ __________ At December 31, 2001 17,628,417 __________ __________ 19. SUBSIDIARIES Details of the Company's principal subsidiaries at December 31, 2002 are as follows: Place of incorporation Proportion (or registration) of ownership Name of subsidiary and operation interest Principal activity % 深圳招商房地產有限公司 PRC 95 Property development and investment 深圳招商石化有限公司 PRC 75 Trading of petrochemical products 深圳招商供電有限公司 PRC 99.75 Supply of electricity 57 深圳招商供水有限公司 PRC 99.75 Supply of water 招商港務(新加坡)有限公司 Singapore 100 Trading 深圳黃金台實業有限公司 PRC 90 General trading 香港瑞嘉投資實業有限公司 * Hong Kong 100 Trading ("Eureka Investment Co., Ltd.") 蛇口興華實業股份有限公司 PRC 65.07 Property investment * In accordance with PRC regulation, the Company's subsidiaries established in Hong Kong or outside the PRC should be approved by the Ministry of Foreign Trade and Economic Cooperation ("MOFTEC"). As at December 31, 2002, the establishment of Eureka Investment Co., Ltd. has not yet been approved by the MOFTEC. 58 20. INVESTMENTS IN ASSOCIATES 2002 2001 Rmb Rmb Share of net assets other than goodwill 33,277,724 74,096,151 __________ __________ Goodwill, net of amortisation Carrying amount at January 1 1,748,159 1,997,895 Charge for the year (249,737) (249,737) Disposal during the year (1,498,421) - __________ __________ Carrying amount at December 31 - 1,748,158 __________ __________ 33,277,724 75,844,309 __________ __________ __________ __________ Details of the Group's principal associates at December 31, 2002 are as follows: Place of registration Proportion of Name of associate and operation ownership interest Principal activity % 蛇口酒店咨詢培訓服務公司 PRC 42.75 Hotel management and training services 華南液化氣船務公司 PRC 15 Shipping of petrochemical gas products 深圳招商物業管理有限公司 PRC 39.90 Property management ("招商物業") 招商物業 was a former investee company of the Group. In July, the Group transferred its entire interests of two associates, 深圳祥融物業管理公司 and 新時代物業管理有限公司 into 招商物業 under a merger agreement. As a result of the merger, the Group increased its interest in 招商物業 to 39.90%. 21. INVESTMENTS IN SECURITIES 2002 2001 59 Rmb Rmb Available-for-sale investments: At January 1 33,151,680 52,108,922 Additions during the year 500,000 - Disposals during the year (3,120,000) (13,485,266) Transfer to investments in associates (350,000) - Provision for impairment losses - (5,471,976) __________ __________ At December 31 30,181,680 33,151,680 __________ __________ __________ __________ The available-for-sale investments are unquoted investments in the PRC. The management considers the carrying value approximates their fair values as of the balance sheet date. 60 22. INVENTORIES 2002 2001 Rmb Rmb Raw materials 64,057,935 2,494,249 Finished goods 2,136,357 71,183,568 Spare parts and consumerables 4,626 166,313 __________ __________ 66,198,918 73,844,130 __________ __________ __________ __________ All inventories are carried at cost. 23. PROPERTIES UNDER DEVELOPMENT 2002 2001 Rmb Rmb COST At January 1 1,411,532,624 922,458,191 Additions during the year 808,894,488 976,383,761 Interest capitalised 57,358,476 43,940,498 Transfer to completed properties for sales (467,444,677) (531,249,826) Transfer to investment properties (211,582,423) - ____________ ____________ At December 31 1,598,758,488 1,411,532,624 ____________ ____________ ____________ ____________ 24. OTHER FINANCIAL ASSETS Trade and other receivables comprise: 2002 2001 Rmb Rmb Trade receivables 227,195,653 225,268,514 Other receivables and prepayments 119,906,133 108,406,787 ___________ ___________ 347,101,786 333,675,301 ___________ ___________ 61 ___________ ___________ The average credit period is 30 days. An allowance has been made for estimated irrecoverable receivable of Rmb14 million (2001: Rmb14 million). This allowance has been determined by reference to past default experience. The directors consider that the carrying amount of trade and other receivables approximates their fair value. Bank balances and cash comprises cash and short-term deposits held by the group treasury function. The carrying amount of these assets approximates their fair value. 62 24. OTHER FINANCIAL ASSETS - continued Credit risk The Group's credit risk is primarily attributable to its trade and other receivables. The amounts presented in the balance sheet are net of allowances for doubtful receivables, estimated by the Group's management based on prior experience and their assessment of the current economic environment. The Group generally does not require collateral from its customers and is exposed to credit-related losses in the event of non-performance by customers. However, the Group has no significant concentration of credit risk to individual customers, with exposure spread over a large number of counterparties and customers. The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings. 25. SHARE CAPITAL 2002 & 2001 Rmb Registered, issued and fully paid: A share of Rmb1 each 287,871,950 B share of Rmb1 each 188,524,050 ___________ 476,396,000 ___________ ___________ There were no movement in the share capital of the Company for the both years ended December 31, 2001 and 2002. 26. RESERVES (a) Statutory surplus reserve According to the current PRC company law and the Company's articles of association, the Company is required to transfer between 10% to 50% of its profit after taxation to statutory surplus reserve until the surplus reserve balance reaches 50% of the registered capital. For the purpose of calculating the transfer to this reserve, the profit after taxation shall be the amount determined under PRC accounting standards. The transfer to this reserve must be made before the distribution of dividends to shareholders. 63 Statutory surplus reserve can be used to make good previous years' losses, if any, and for capitalisation issues provided that the balance after such issue is not less than 25% of the registered capital. 64 26. RESERVES - continued (b) Discretionary surplus reserve The transfer to this reserve is subject to the approval by shareholders at general meetings. Its usage is similar to that of statutory surplus reserve. (c) Statutory public welfare fund According to the current PRC company law and the Company's articles of association, the Company is required to transfer 5% to 10% of its profit after taxation to the statutory public welfare fund. For the purpose of calculating the transfer to this reserve, the profit after taxation shall be the amount determined under PRC accounting standards. The transfer to this reserve must be made before the distribution of dividends to shareholders. The statutory public welfare fund can only be used for the collective welfare of the Company's employees such as the construction of staff quarters. The reserve forms part of the shareholders' equity as individual employees can only use these facilities, the titles of which will remain with the Company. (d) The amounts to be transferred to the statutory surplus reserve and statutory public welfare public welfare fund for the year ended December 31, 2002 are to be proposed and approved at the Company's annual general meeting to be held in March 14, 2003. (e) Capital surplus As stated in note 13, property, plant and equipment were valued on April 30, 1992 for the purpose of establishing of the Company as a joint stock company. Capital surplus represents the corresponding surplus arising from this valuation which has been reflected as the deemed cost base of the assets of the Company upon its formation. (f) In accordance with its Articles of Association, the net income for the purpose of appropriation will be deemed to be the lesser of the amounts determined in accordance with (i) PRC accounting standards and regulations and (ii) IFRS. (g) The Company's distributable reserve computed under PRC accounting standards as at December 31, 2002 included in the retained earnings amounted to approximately Rmb367 million. 65 27. BANK LOANS 2002 2001 Rmb Rmb Bank loans - unsecured 749,382,900 1,259,363,400 - secured 7,093,543 7,494,442 ___________ ____________ 756,476,443 1,266,857,842 ___________ ____________ ___________ ____________ The borrowings are repayable as follows: On demand or within one year 474,914,887 460,212,320 In the second year 175,000,000 500,848,920 In the third to fifth years inclusive 106,561,556 305,796,602 ___________ ____________ 756,476,443 1,266,857,842 Less: Amount due for settlement within 12 months (shown under current liabilities) (474,914,887) (460,212,320) ___________ ____________ Amount due for settlement after 12 months 281,561,556 806,645,522 ___________ ____________ ___________ ____________ Over 90% of the unsecured bank loans of Rmb749,382,900 bear interest at 5% to 6% (2001: 5.6% to 6.5%) per annum which approximate to prevailing market rates. Secured bank loans bear interest at the bank prevailing prime rate plus 1% per annum and are repayable in equal monthly instalments by June 2006. It is secured by a legal mortgage over the leasehold properties of a subsidiary with a carrying amount of approximately Rmb12 million (2001: Rmb6 million). The carrying amounts of secured bank loans approximate fair value because they bear interest at floating rates. The carrying amounts of unsecured bank loans approximate to their fair value. The Group's total bank loans outstanding at December 31 are denominated in the following currencies: 2002 2001 Renminbi 94% 96% Hong Kong dollars 5% 3% Singapore dollars 1% 1% _______ _______ Total 100% 100% 66 _______ _______ _______ _______ 67 28. RENTAL RECEIVED IN ADVANCE 2002 2001 Rmb Rmb At January 1 8,770,800 54,315,448 Release to income (1,110,800) (7,641,607) Additions during the year - 440,800 Released upon asset restructuring - (38,343,841) _________ __________ At December 31 7,660,000 8,770,800 _________ __________ _________ __________ 29. DEFERRED TAX The movement for the year in the Group's deferred tax liabilities was as follows: 2002 2001 Rmb Rmb At January 1 29,737,867 36,017,213 Write back during the year (2,179,346) (6,279,346) __________ _________ At December 31 27,558,521 29,737,867 __________ _________ __________ _________ Deferred tax liabilities recognised by the Group are mainly attributable to the temporary differences on property, plant and equipment. There is no significant unprovided deferred taxation for the year or at the balance sheet date. 30. OTHER FINANCIAL LIABILITIES Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period is 61 days. During 2002, the outcome of litigations in respect of claims for compensation brought by third parties against the Group relating to certain fertilizer materials, which had been confiscated by the Customs in Shekou, PRC, had been finalised. The Group has to pay compensations 68 amounting to Rmb25 million and an unpaid amount of Rmb17.8 million is included in trade and other payables. The directors consider that the carrying amount of trade payables approximates to their fair value. 69 31. ACQUISITION OF A SUBSIDIARY On January 1, 2002, the Group acquired an additional 25.56% interest in an associate 蛇口興華實業股份有 限公司 ("興華"). The Company adopted January 1, 2002 as the acquisition date on which 興華 became a subsidiary of the Group. The acquisition was accounted for using the purchase method of accounting. For the period from January 1, 2002 to December 31, 2002,興華 contributed net profit after tax of approximately Rmb10,744,000 to the consolidated results of the Group for the year ended December 31, 2002. Net assets acquired 2002 Rmb Property, plant and equipment 3,163,320 Investments in associates 1,317,222 Inventories 83,797,180 Trade and other receivables 20,326,338 Bank balances and cash 34,882,586 Bank loans (15,000,000) Trade and other payables (48,271,109) Tax liabilities (533,444) Minority interests (27,752,123) __________ Total consideration 51,929,970 __________ __________ Satisfied by: Other receivables 13,227,768 Investments in associates 38,702,202 __________ 51,929,970 __________ __________ Net cash inflow arising on acquisition: Bank balance and cash acquired 34,882,586 __________ __________ 70 32. NET CASH INFLOW FROM ASSET RESTRUCTURING As referred to in note 9, the Group discontinued its provision of port services by disposing Shekou Port Business, as a result of the asset restructuring completed on October 31, 2001. The net assets of Shekou Port Business at October 31, 2001 and December 31, 2000 were as follows: 10.31.2001 Rmb Property, plant and equipment 575,055,065 Construction in progress 9,164,631 Investments in associates 11,042,479 Investment in a jointly controlled entity 2,856,007 Investments in securities 22,628,701 Inventories 5,992,617 Trade and other receivables 158,051,483 Bank balances and cash 12,239,543 Trade and other payables (144,754,204) Tax liabilities (1,106,050) Rental received in advance (38,343,841) Minority interest (2,667,185) ___________ 610,159,246 Goodwill (318,714,067) Negative goodwill 34,750,685 Profit on disposal of discontinuing operations 22,121,370 ___________ Total consideration 348,317,234 ___________ ___________ Satisfied by: Bank balances and cash 50,373,751 Minority interests 297,943,483 ___________ 348,317,234 ___________ ___________ Net cash inflow from asset restructuring: 71 Cash consideration 50,373,751 Bank balances and cash disposed of (12,239,543) ___________ 38,134,208 ___________ ___________ The impact of the discontinuing operation on the Group's results in the prior period is disclosed in note 9. 72 33. CONTINGENT LIABILITIES 2002 2001 Rmb Rmb Bills of exchange discounted with recourse 243,863,875 191,528,000 Guarantees given to banks in respect of: - mortgages entered by customers 1,064,178,184 617,838,979 - banking facilities utilised by an investee company 39,212,598 39,212,598 ____________ ___________ 1,347,254,657 848,579,577 ____________ ___________ ____________ ___________ 34. CAPITAL COMMITMENTS 2002 2001 Rmb Rmb Contracted for but not provided in the financial statements in respect of: - acquisition of property, plant and equipment 7,970,000 2,542,210 - construction of properties under development 270,765,000 327,063,810 ___________ ___________ 278,735,000 329,606,020 ___________ ___________ ___________ ___________ 35. OPERATING LEASE ARRANGEMENTS 2002 2001 Rmb Rmb Minimum lease payments under operating leases recognised in income for the year 37,279,115 29,115,827 __________ __________ __________ __________ At the balance sheet date, the Group had outstanding commitments under non-cancellable operating leases, which fall due as follows: 2002 2001 Rmb Rmb 73 Within one year 33,506,000 33,088,000 In the second to fifth years inclusive 3,466,000 9,137,000 After five years 7,969,000 7,652,000 __________ __________ 44,941,000 49,877,000 __________ __________ __________ __________ 74 35. OPERATING LEASE ARRANGEMENTS - continued Operating lease payments represent rentals payable by the Group for certain of its office properties. Leases are negotiated for a range of 3 to 18 years and rentals are fixed for an average of 3 years. Property rental income earned during the year was approximately Rmb178 million (2001: Rmb139 million). The Group's properties held for rental purposes are expected to generate rental yields of 15 per cent on an ongoing basis. All of the properties held have committed tenants for a range of 1 to 15 years. At the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments: 2002 2001 Rmb Rmb Within one year 166,573,500 94,295,221 In the second to fifth years inclusive 2,666,800 2,666,800 After five years 4,996,500 5,663,200 ___________ ___________ 174,236,800 102,625,221 ___________ ___________ ___________ ___________ 36. RETIREMENT BENEFITS PLANS Defined contribution plans The employees of the Group in PRC are members of state-managed retirement benefit schemes operated by the PRC government. The Group is required to contribute a specified percentage of their payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the Group with respect to the retirement benefit scheme is to make the specified contributions. The total cost charged to income of Rmb5,378,858 (2001: Rmb6,593,405) represents contributions payable to these schemes by the Group at rates specified in the rules of the schemes. 75 37. RELATED PARTY TRANSACTIONS Parties considered to be related to the Company include parties that have the ability, directly or indirectly through one or more intermediaries, to control or exercise significant influence over the financial and operating policies of the Company, or vice versa, or where the Company and the parties are subject to common control or common significant influence. Details of the related parties identified and their relationship with the Company are as follows: Name of Company Relationship with the Company SIZ Major shareholder 深圳市招商創業有限公司 ("招商創業") A subsidiary of SIZ 招商港務(深圳)有限公司 ("招商港務") A subsidiary of SIZ 深圳市招商燃氣投資有限公司 ("招商燃氣") A subsidiary of SIZ 深圳招商美倫酒店管理有限公司 ("美倫酒店管理") A subsidiary of SIZ a) During 2002, a guarantee of Rmb355 million (2001: Rmb485 million) has been given by SIZ to secure bank loans of the Group. b) During 2002, the Group has paid Rmb37 million (2001: Rmb62 million) rental expenses to 招商創 業. c) During 2002, the Group received Rmb11 million (2001: Rmb2 million) rental income from 招商港務. d) At December 31, 2002, there are amounts due to subsidiaries of SIZ of Rmb79 million, which are included in trade and other payables account. These amounts are unsecured, interest free and have no fixed repayment terms. e) During 2002, a subsidiary of the Group purchased property, plant and equipment, 美倫山莊, from 美倫酒店管理 at a consideration of Rmb9 million. The directors are of the opinion that these transactions were concluded based on terms negotiated and agreed with both parties and were entered into in accordance with the relevant agreements. In addition to the above, remuneration paid to directors during the year was Rmb1 million (2001: Rmb0.6 million). 38. POST BALANCE SHEET EVENT On February 22, 2003, a subsidiary of the Group entered into an agreement with 深圳市 TCL 投資有限公司 with regard to a property development project. It is estimated that the Group will contribute Rmb1.4 billion to the project. 76 WILL BE DELETED Investment in a jointly controlled entity A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity which is subject to joint control. Where a group company undertakes its activities under joint venture arrangements directly, the Group's share of jointly controlled assets and any liabilities incurred jointly with other venturers are recognised in the financial statements of the relevant company and classified according to their nature. Liabilities and expenses incurred directly in respect of interests in jointly controlled assets are accounted for on an accrual basis. Income from the sale or use of the Group's share of the output of jointly controlled assets, and its share of joint venture expenses, are recognised when it is probable that the economic benefits associated with the transactions will flow to/from the Group and their amount can be measured reliably. Joint venture arrangements which involve the establishment of a separate entity in which each venturer has an interest are referred to as jointly controlled entities. The Group reports its interests in jointly controlled entities using proportionate consolidation – the Group's share of the assets, liabilities, income and expenses of jointly controlled entities are combined with the equivalent items in the consolidated financial statements on a line-by-line basis. Where the Group transacts with its jointly controlled entities, unrealised profits and losses are eliminated to the extent of the Group's interest in the joint venture, except to the extent that unrealised losses provide evidence of an impairment of the asset transferred. * At July 31, 2002, an investment of the Group, 深圳招商物業管理有限公司 (" 招商物業 "), and associates of the Group, 深圳祥融物業管理公司 ("祥融物業") and 新時代物業管理有限公司 ("新時 代物業"), entered into a merger agreement. Under the agreement, the Group transferred entire interest in 祥融物業 and 新時代物業 to 招商物業. The Group had an additional 36.5% interest in 招商物 業 as a result of the merge. The merger was completed on December 31, 2002, on which date control of the exchange companies and assets phased to the acquirer. 39. RESERVES 77 Statutory Discretionary Statutory Share surplus surplus public Capital Other Exchange Retained premium reserve reserve welfare fund surplus reserves reserve profits Total Rmb Rmb Rmb Rmb Rmb Rmb Rmb Rmb Rmb At January 1, 2001 1,075,150,683 201,620,294 116,245,109 61,685,289 66,373,525 4,244,819 (6,870,851) 131,423,752 1,649,872,620 Net profit for the year - - - - - - (4,744,087) 164,710,533 159,966,446 Transfer to (from) reserves - 15,908,213 96,313,954 16,946,648 - - - (129,168,815) - Dividend paid - 2001 - - - - - - - (61,931,480) (61,931,480) ____________ ___________ ___________ __________ ___________ _________ _________ ___________ ____________ At December 31, 2001 1,075,150,683 217,528,507 212,559,063 78,631,937 66,373,525 4,244,819 (11,614,938) 105,033,990 1,747,907,586 Net profit for the year - - - - - - 5,525,941 163,559,958 169,085,899 Transfer to (from) reserves - 6,653,977 - 7,175,750 - - - (13,829,727) - Dividend paid - 2002 - - - - - - - (52,403,561) (52,403,561) ____________ ___________ ___________ __________ ___________ _________ _________ ___________ ____________ At December 31, 2002 1,075,150,683 224,182,484 212,559,063 85,807,687 66,373,525 4,244,819 (6,088,997) 202,360,660 1,864,589,924 ____________ ___________ ___________ __________ ___________ _________ _________ ___________ ____________ ____________ ___________ ___________ __________ ___________ _________ _________ ___________ ____________ 78