深粮控股(000019)深深宝2002年年度报告（英文版）

SHENZHEN SHENBAO INDUSTRIAL CO., LTD. 2002 ANNUAL REPORT (B-SHARE) March 2003 1 Important Note: Board of Directors of Shenzhen Shenbao Industrial Co., Ltd. (hereinafter referred to as the Company) and its directors individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions nor errors which would render any statement misleading. Chairman of the Board of the Company Mr. Zeng Pai as well as General Manager of the Company and Ms. Zeng Suyan, person in charge of accounting (namely head of the Plan and Financing Department) hereby confirm that the Financial Report of the Annual Report is true and complete. This report was prepared in both Chinese and English. Should there be any difference in interpretation between the two versions, the Chinese version shall prevail. 2 Content Chapter 1 Company Profile Chapter 2 Abstract of Financial Highlights and Business Highlights Section 1 Profit Index of the Year 2002 Section 2 Principal Accounting Data and Financial Index over Previous Three Years Ended the Report Year Section 3 Changes in Shareholders’ Equity for the Year 2002 and the Causes Chapter 3 Changes in Share Capital and Particulars about Shareholders Section 1 Changes in Shares Section 2 Particulars about the Share Issuance over Previous Three Years Ended the Report Year Section 3 Particulars about Shareholders Chapter 4 Particulars about Directors, Supervisors and Senior Executives and Staffs Section 1 Particulars about the directors, supervisors and senior executives Section 2 About Staffs Chapter 5 Administrative Structure Section 1 Company Administration Section 2 Particulars about Performance of Independent Directors Section 3 Separation between the Company and its Controlling Shareholder in terms of Business, Personnel, Assets, Organization and Finance Section 4 Performance Valuation, Encouragement and Binding Mechanism for Senior Executives Chapter 6 Particulars about Shareholders’ General Meeting Chapter 7 Report of the Board of Directors Section 1 Discussion and Analysis of the Management Section 2 Particulars about Operation Section 3 Investment Section 4 Financial Position and Operation Results Section 5 Impact of production and operation environment, macro-policies, laws and regulations on the Company Section 6 Routine Work of the Board of Directors Section 7 Profit Distribution Project as of 2002 Chapter 8 Report of the Supervisory Committee Chapter 9 Significant Events 3 Section 1 Material Lawsuits and Arbitration Section 2 Purchase and Sales of Assets Section 3 Material Related Transaction Section 4 Material Contract and the Implementation Section 5 Commitment Section 6 Engagement and Disengagement of Certified Public Accountants Section 7 Other Significant Events Chapter 10 Financial Report Section 1 Report of the Auditors Section 2 Accounting Statements Section 3 Notes of Consolidated Financial Report Documents available for reference 4 Chapter 1 Company Profile I. Legal Name of the Company In Chinese: 深圳市深宝实业股份有限公司（Abbr. 深宝） In English: SHENZHEN SHENBAO INDUSTRIAL CO., LTD. (Abbr.: SB) II. Legal Representative: Mr. Zeng Pai III. Secretary of Board of Directors: Mr. Liu Xiongjia Liaison Address: 28/F, B&C Block of Bao’an Plaza, No. 1002 Sungang East Road, Shenzhen Tel: (86)755-25507480 Fax: (86)755-25507480 E-mail: a0019@21cn.com IV. Registered Address of the Company: 28/F, B&C Block of Bao’an Plaza, No. 1002 Sungang East Road, Shenzhen Office Address of the Company: 28/F, B&C Block of Bao’an Plaza, No. 1002 Sungang East Road, Shenzhen Post Code: 518020 Internet Web Site: http://www.sbsy.com.cn E-mail: sbsy@sbsy.com.cn V. Newspapers Chosen for Disclosing the Information of the Company: Securities Times (Domestic) and Ta Kung Pao (Overseas) Internet Web Site for Publishing the Annual Report: http://www.cninfo.com.cn Place Where the Annual Report is Prepared and Placed: Secretariat of the Board of Directors VI. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: SHENSHENBAO – A, SHENSHENBAO-B Stock Code: 000019, 200019 VII. Other Relevant Information of the Company ◆The initial registration date and place: July 30, 1981, Shenzhen The changed registration date and place: Jan. 27, 2003, Shenzhen ◆Registration code for business license of corporation: 4403011024443 Number of taxation registration: GSDZ 440301192180754 Registration code: DSDZ 440303192180754 ◆Name of the domestic certified public accountants engaged by the Company: Shenzhen Dahua Tiancheng Certified Public Accountants Address: 11/F., B Block of Confederation Square, No. 5022 Binhe Av. Futian Dis. Shenzhen 5 Name of the overseas certified public accountants engaged by the Company: K.C.Oh & Company Certified Public Accountants Address: 8/F., New Henry House, No. 10 Ice House Street, Central, Hong Kong Chapter 2 Abstract of Financial Highlights and Business Highlights Section 1 Profit Index as of the Year 2002 I. Profit index of the year 2002 (Unit: RMB ’000) Items Amount Profit before taxation (52,788) Profit held by shareholders (53,394) Operation profit (12,916) Other profit 20,016 Net cash flows arising from operating activities (55,490) Net increase in cash and cash equivalents 1,513 II. Discrepancy and explanation for the difference in the net profit as audited by domestic and international certified public accountants respectively. Net profit of the Company as of the year 2002 was respectively RMB 10,800,000 and RMB (53,394,000) as audited under Chinese Accounting Standard (CAS) and International Accounting Standard (IAS). Difference between the two results was due to RMB (10,499,000) of additional depreciation for workshops and machine facilities; RMB (50,396,000) of loss from guarantees; RMB (1,943,000) of additional land-value and RMB (1,356,000) of amortization of price difference of equity investment. Section 2 Principal Accounting Data and Financial Index over Previous Three Years Ended the Report Year (Unit: RMB ’000) Items 2002 2001 2000 Turnover 77,134 64,086 75,141 Net profit (53,394) (3,387) 3,294 Total assets 455,161 402,677 421,587 Shareholders’ equity 276,142 338,842 286,204 Earnings per share (RMB) (0.2935) (0.0187) 0.0198 Earnings per share (weighted average) (RMB) (0.2935) (0.0187) 0.0198 Net assets per share (RMB) 1.518 1.863 1.717 Return on equity (%) (19.34) (1.00) 1.15 6 Section 3 Changes in Shareholders’ Equity for the Year 2002 and the Causes (Unit: RMB ’000) Share Capital public Surplus public Retained Items Total capital reserve reserve earnings Amount at beginning 181,923 108,700 37,621 1,502 329,746 of the report period Increase in the report 4,011 4,011 period Decrease in the report — 210 4,011 53,394 57,615 period Amount at end of the 181,923 108,490 33,610 (47,881) 276,142 report period Reversal of decrease in interests in surplus reserves profit Reason of changes — associates profit distributed over-transfer in distributed over-provided in previous years previous years Chapter 3 Changes in Share Capital and Particulars about Shareholders Section 1 Changes in Shares 1. Statement of Changes in shares (Ended Dec. 31, 2002. Unit: In shares) Before the Increase / decrease this time (+, -) After the change Allotment Bonus Shares transferred Additional Others Sub-total change of Shares shares from public reserve issuance I. Unlisted shares 1. Promoters’ shares 115,838,611 115,838,611 Including: State-owned shares 105,938,611 105,938,611 Domestic legal person’s share 9,900,000 9,900,000 Foreign legal person’s share Others 2. Raised legal person’s shares 7 3. Employees’ shares 4. Shares held by senior executives 7,752 7,752 5. Preference shares or others Total unlisted shares 115,846,363 115,846,363 II. Listed shares 1. RMB ordinary shares 39,940,725 39,940,725 2. Domestically listed foreign shares 26,136,000 26,136,000 3. Overseas listed foreign shares 4. Others Total listed shares 66,076,725 66,076,725 III. Total shares 181,923,088 181,923,088 Section 2 Particulars about the Share Issuance Over Previous Three Years Ended the Report Year Share allotment plan examined and approved by 1999 Shareholders’ General Meeting has been examined by Shenzhen Securities Supervisory Office with document SZB Zi [1999] No.188, and approved by China Securities Supervisory Committee with document ZJGS Zi [2000] No. 54 for implementation. Rights shares were distributed to all shareholders based on total share capital of 166,707,684 shares as at the end of 1998, at the rate of 3 for 10 with par value of RMB 1.00 per share and placing price of RMB 5.00 per share. Equity record date was Dec. 21, 2000, ex-right date was Dec. 22, 2000, and subscription payment commenced from Dec. 25, 2000 to Jan. 8, 2001 (business date within the period). In the share allotment, shareholders of state-owned share subscribed 5,996,525 shares, the rest shares were given up; shareholder of legal person’s share and shareholder of domestically listed foreign share given up this share allotment, thus, 15,215,404 shares RMB ordinary shares were actually placed in the said share allotment activity. RMB 76,077,000 proceeds were raised from the share allotment all in cash. After deducting the underwriting expenses and charges of SSE, actual proceeds raised from the share allotment reached RMB 73,993,000 (including agency charges and business trip expenses) and all of them were transferred to the designated accounts of the Company. 9,218,879 shares placed in the said share allotment were listed for trade dated Feb. 8, 2001. 8 Section 3 Particulars about Shareholders 1. Ended the report year, the Company had totally 31,231 shareholders, including 24,934 shareholders of A-share, 6,297 shareholders of B-share. 2. Ended Dec. 31, 2002, particulars about shares held by the top ten shareholders Holding shares at Proportion in No. Name of Shareholder the end of report total shares Types year (share) (%) 1 SHENZHEN INVESTMENT HOLDING 115,838,611 63.67% State – owned shares CORPORATION 2 WEN CAN RONG 518,311 0.28% B-share in circulation 3 XIAO LI ZHU 240,000 0.13% B-share in circulation 4 XU ZHUANG GUO 231,384 0.13% B-share in circulation 5 WISEMAX INTERNATIONAL LIMITED 204,000 0.11% B-share in circulation 6 WONG HOI KWAN 200,000 0.11% B-share in circulation 7 LU XIAO 190,000 0.10% B-share in circulation 8 ZENG XIAN BAO 189,700 0.10% B-share in circulation 9 KOTO TRANSPORT LTD. 183,468 0.10% B-share in circulation 10 WANG YU LAN 171,000 0.09% A-share in circulation Notes: (1) 58,347,695 shares of the Company and 3,500,771 shares of the Company allotted from previous allotment share held by Shenzhen Investment Holding Corporation (hereinafter referred to as the Investment Company) were transferred to Shenzhen Agricultural Products Co., Ltd. (hereinafter referred to as the Agricultural Products), whose ownership procedure were still in process at present. On Sep. 25, 2002, Investment Company signed the Agreement for Equity Transfer with Shenzhen Jindazhou Industrial Co., Ltd. (hereinafter referred to as Jindazhou Company), which 53,990,145 shares of the Company held by Investment Company were transferred to Jindazhou Company (For detail, please refer to Public Notice published in Securities Times and Ta Kung Pao dated Sep. 27, 2002.). After accomplishment of the aforesaid two assignment procedures, the Agricultural Products shall hold 61,848,466 shares of the Company, taking 34% of the total shares, as the first largest shareholder of the Company (the Agricultural Products had became the actual control shareholder of the Company); Jindazhou Company shall hold 53,990,145 shares of the Company, taking 29.68% of the total shares, as the second largest shareholder of the Company; Investment Company no longer holds the Company’s shares. The Company shall disclose the progress of the 9 procedure timely and truly. (2) According to Agreement for Cancellation of Equity Exchange signed between Investment Company and China Ping An Insurance Co., Ltd. (hereinafter referred to as Ping An Insurance) in March 1997, 9,900,000 shares of the Company held by Ping An Insurance were all under the name of Investment Company in Nov. 2002 (For detail, please refer to Public Notice published in Securities Times and Ta Kung Pao dated Nov. 22, 2002). (3) In the report year, there was neither pledge nor frozen on the shares held by the shareholders holding over 5% of the total shares of the Company. (4) Investment Company held 4,758,581 shares of the Agricultural Products, taking 2.57% of the total shares of the Agricultural Products, and it was the fifth largest shareholder of the Agricultural Products. (5) There exists no associated relationship among Investment Company, Agricultural Products and No. 2 to No. 10 shareholders listed above the statement, neither are they consistent actionist regulated by the Management Regulation of Information Disclosure on Change of Shareholding for Listed Company; the Company is not aware of their associated relationships among No. 2 to No. 10 shareholder of circulating share, whether belongs to consistent actionist regulated by the Management Regulation of Information Disclosure on Change of Shareholding for Listed Company. 3. Particulars about actual controlling shareholders of the Company (1) Name of actual controlling shareholder: Shenzhen Agricultural Products Co., Ltd. Legal representative: Mr. Lin Jiahong Date of foundation: Jan. 14, 1989 Main business and product: the company was engaged in construct market of agricultural products wholesale; deal in market lease and sale; domestic trading, supply and marketing of materials (excluding monopoly products); and offer auxiliary establishment to market of agricultural products wholesale, for instance, rest house, canteen, restaurant, transportation, load and unload, storage, packing (business license of specific item is to be applied in addition); service of information counseling, and wholesale of sugar, tobacco and drink. Registration capital: RMB 184,858,000 (2) The first largest shareholder of the Agricultural Products: Name: Shenzhen Commodity & Trade Investment Holdings Company Legal representative: Mr. Feng Yulin Date of foundation: Apr. 30, 1997 Main business scope: investment and setting up industry (specific item is to be applied in addition), domestic trading and supply and marketing of materials (excluding monopoly 10 products). Registration capital: RMB 800,000,000 (3) Introduction to Shenzhen Jindazhou Industrial Co., Ltd. Legal representative: Mr. Liu Deyuan Date of foundation: Oct. 22, 1993 Main business scope: setting up industry (specific item is to be applied in addition), domestic trading and supply and marketing of materials (excluding monopoly products). Registration capital: RMB 62,380,000 (4) Introduction to Shenzhen Investment Holding Corporation Legal representative: Mr. Li Heihu Date of foundation: Feb. 10, 1988 Main business and product: management and supervision of enterprise’s state assets, financing and property right; to share all kinds of enterprise and turn over investment, to offer credit and assurance; to impose profit after taxation and occupying expenses of assets of state enterprise and the other business authorized by municipal government. Registration capital: RMB 2,000,000,000 Chapter 4 Particulars about Directors, Supervisors and Senior Executives and Staffs Section 1 Particulars about the directors, supervisors and senior executives I. Basic status Number of holding shares (share) Name Gender Age Title Office term At beginning of At end of the the report year report period Zeng Pai Male 32 Chairman of the Board, May 17, 2001 ～ 0 0 General Manager Feb. 18, 2003 Tian Yanqun Male 56 Independent Director Feb. 18, 2000 ～ 0 0 Feb. 18, 2003 Fan Zhiqing Male 54 Independent Director Jul. 29, 2002 ～ 0 0 Feb. 18, 2003 Zhao Guorong Female 52 Director Feb. 18, 2000 ～ 0 0 Feb. 18, 2003 Chen Xiaohua Male 37 Director Feb. 18, 2000 ～ 0 0 Feb. 18, 2003 Yang Shunjiang Male 41 Director Feb. 18, 2000 ～ 0 0 Feb. 18, 2003 Chen Jie Male 47 Director Feb. 18, 2000 ～ 0 0 Feb. 18, 2003 11 Cui Gang Male 30 Director Feb. 18, 2000 ～ 0 0 Feb. 18, 2003 Li Meisheng Male 61 Chairman of Feb. 18, 2000 ～ 0 0 Supervisor Committee Feb. 18, 2003 Peng Ying Male 42 Supervisor Feb. 18, 2000 ～ 0 0 Feb. 18, 2003 Xie Zhenxian Male 48 Supervisor Feb. 18, 2000 ～ 0 0 Feb. 18, 2003 Zuo Heping Female 53 Supervisor, Secretary Feb. 18, 2000 ～ 7680 7680 of Commission for Feb. 18, 2003 Discipline Inspection Guan Lihua Male 49 Deputy General Feb. 18, 2000 ～ 0 0 Manager Feb. 18, 2003 Fang Jianhui Male 37 Deputy General Feb. 18, 2000 ～ 0 0 Manager Feb. 18, 2003 Zhang Wanqing Male 49 Deputy Party Secretary 0 0 Luo Jiehua Female 55 Chairman of labor 71 71 union Liu Xiongjia Male 31 Secretary of the Board 0 0 of Directors Notes: 1. Particulars about directors, supervisors holding the position in Shareholding Company (1) Director of the Company Ms. Zhao Guorong held the position of director and chief financial supervisor of Agricultural Products, with office term from Jun. 2000 to Jun. 2003. (2) Director of the Company Mr. Chen Xiaohua held the position of director and secretary of the Board of Agricultural Products, with office term from Jun. 2000 to Jun. 2003. (3) Director of the Company Mr. Yang Shunjiang held the position of chairman of the Board of Shenzhen Fruitage and Vegetable Trade Co., which is subsidiary company of Agricultural Products. (4) Supervisor of the Company Mr. Peng Ying held the position of assistant general manager of Agricultural Products. (5) Supervisor of the Company Mr. Xie Zhenxian held the position of general manager of Shenzhen Fruitage and Vegetable Trade Co., which is subsidiary company of Agricultural Products. (6) Director of the Company Mr. Chen Jie held the position of deputy general manager of Jindazhou Company. 12 (7) Director of the Company Mr. Cui Gang held the position of assistant general manager of Jindazhou Company. II. Particulars about the annual salaries of directors, supervisors and senior executives In the report year, directors, supervisors and senior executives received salaries from the Company according to Provisional Regulation on Annual Salary of Operator for Shenzhen State-owned Enterprise, released by Shenzhen Municipality Government and other the relevant regulation, as well as other rules relevant to salary management and standards. The Company had 17 directors, supervisors and senior executives. Of them, 8 persons received their salary from the Company totally amounting to RMB 916,870, Among whom 2 persons enjoy an annual salary between RMB 120,000 to RMB 160,000; 5 persons enjoy between RMB 100,000 to RMB 120,000, 1 person enjoys under RMB 70,000. Total remuneration of the top three directors was RMB 257,420; total remuneration of the top three senior executives was RMB 401,830. According to the relevant provision of the Regulations on Listed Company Management and the Company’s actual situation, the Company respectively paid allowance of RMB 50,000 (tax included) to independent directors per year and necessary fees (included but not limited to traffic fees and accommodation etc.), which independent directors attend the shareholders’ general meeting and the board meeting or exercise other authority according to the relevant laws, regulations and Articles of Association of the Company. In the report year, the Company respectively paid RMB 20,800 to Mr. Tian Yanqun and Mr. Fan Zhiqing from Aug. 2002. Directors of the Company Ms. Zhao Guorong, Mr. Yang Shunjiang and Mr. Chen Xiaohua, supervisors of the Company Mr. Peng Ying and Mr. Xie Zhenxian received no remuneration from the Company, but received remuneration from Agricultural Products (the actual controlling shareholder of the Company) or subsidiary company of Agricultural Products. Director Mr. Chen Jie and Mr. Cui Gang received remuneration from Jindazhou Company. III. Particulars about directors, supervisors and senior executives leaving their position during the report year and after period 1. As examined and approved by the 1st Extraordinary Shareholders’ General Meeting 2002 of the Company dated Jul. 29, 2002, Mr. Chen Lei resigned from the position of director of the 4th Board of Directors of the Company due to work transfer, and additionally elected Mr. 13 Fan Zhiqing as independent director of the Company. 2. On Jul. 29, 2002, Mr. Tang Guangzao resigned from the position of deputy general manager of the Company due to work transfer. 3. Mr. Sui Longchu no longer took the position of chief engineer of the Company from Sep. 2002. 4. As examined and approved by the 13th Meeting of the 4th Board of Directors of the Company dated Jan. 8, 2003, Mr. Lin Jiahong resigned from the position of chairman of the Board of the 4th Board of Directors, and elected Mr. Zeng Pai as chairman of the Board of the Company. 5. As examined and approved by the 1st Extraordinary Shareholders’ General Meeting 2003 of the Company dated Feb. 28, 2003, Mr. Lin Jiahong, Mr. Guan Lihua and Mr. Xue Bo respectively resigned from the position of director of the 4th Board of Directors of the Company, and additionally elected Mr. Chen and Mr. Cui Gang as directors of the 4th Board of Directors of the Company. Section 2 About Staffs By the end of the year 2002, the Company had totally 513 on-job staffs. Profession/occupation composition Education Background Profession Number Proportion Education Number Proportion (%) (%) Production members 288 56.14 Postgraduate or higher 5 0.98 Sales persons 56 10.92 Undergraduate 45 8.77 Technicians 41 7.99 3-years regular college 68 13.26 graduate Financial personnel 22 4.29 Polytechnic school 26 5.07 graduate Administrative 56 10.92 Senior middle school 369 71.93 personnel and others graduate or lower Work-off personnel 50 9.75 513 100 Total Total 513 100 In the report year, the Company had not bear the retirees’ cost. 14 Chapter 5 Administrative Structure Section 1 Company Administration The Company strictly implemented the PRC Company Law, the Securities Law as well as the requirements of relevant laws and regulations issued by CSRC, moreover, combined with the Company’s actual situation, so as to continuously perfected its structure of legal person administration and operates the Company in a standardized way. In the report year, according to the Notice on Developing the Self-scrutiny on Listed Company Founding Modern Enterprise System jointly issued by CSRC and State Economic and Trade Commission, the Company seriously made the self-scrutiny work and submitted the Self-scrutiny Report to the CSRC and State Economic and Trade Commission. The details are set out as follows: 1. Shareholders and Shareholders’ General Meeting: The Company operates in accordance with the relevant standards, practically safeguard the interests of the medium and small shareholders, and ensures all shareholders to enjoy their full rights. The Company has established the Rules of Procedures of Shareholders’ General Meeting. In the report year, the Company held two general meeting of shareholder. Furthermore, the Company convened and held shareholders’ general meeting strictly in compliance with the relevant provision of Company Law, Standardized Opinion for Shareholders’ General Meeting of Listed Company and Articles of Association of the Company. 2. Relationship between the controlling shareholder and the listed company: The actual controlling shareholder of the Company operated in line with rules and did not intervene decision or operation of the Company directly or indirectly exceeding authority of the shareholders’ general meeting. The Company is absolutely independent in personnel, assets, finance, organization and business from its controlling shareholder. The Board of Directors, the Supervisory Committee and the management perform their respective functions in an independent way. 3. Directors and the Board of Directors: The Company has elected directors strictly according to the election procedure regulated in Articles of Association, decided to further perfect the election procedure and practise the accumulative voting system. Numbers and qualification of Board of Director are in compliance with requirements of laws and regulations. The Company has established the Rules of Procedures of Board of Directors, the Board meeting was held according to the relevant procedures; all directors attended the Board meetings and shareholders’ general meeting in a positive and responsible manner, and implemented the director’s responsibility of listed company carefully and strictly. The Company has established Rules for Independent Directors and gradually perfected it, and has elected two independent directors based on the relevant regulation and procedure. 4. Supervisors and the Supervisory Committee: Numbers and qualification of Supervisory Committee are in compliance with requirements of laws and regulations. The Company has established the Rules of Procedures of the Supervisory Committee. The supervisors have performed seriously their duties, taken responsible attitude to all the shareholders, and supervised the financial affairs, the duties performed by the Company’s directors, managers and other senior executives in terms of compliance with the laws and regulations. 15 5. Performance valuation, encouragement and binding mechanism: According to requirements of establishing modern enterprise system, the Company has established a fair and transparent performance evaluation plan, and combined with the reformation of remuneration mechanism to set up a reasonable encouragement mechanism of the remuneration. 6. Relevant Beneficiaries: The Company and parties of related interests such as the banks, creditors, employees, consumers, suppliers and community supplemented each other, advanced and developed jointly. The Company has been fully respecting and safeguarding the legal rights of the parties of related interests, cooperated with them, and developed the Company in a consistent and healthy way. 7. Information Disclosure: The Company has established the Rules of Information Disclosure Management and has authorized the secretary of the Board of Directors to take charge of disclosing information, receiving the visit and inquiry of the shareholders. The Company has been disclosing the relevant information in a real, accurate, complete and timely way strictly according to the law, regulations and the Articles of Association, ensured all the shareholders to have equal opportunity to obtain the information. According to Regulations on Listed Company Management, the Board of Directors of the Company considered: the actual management situation of the Company is basically consistent with the requirements of Regulations on Listed Company Management. The Company will further perfect the Rules for Independent Directors based on the requirement of the relevant laws and regulations. Meanwhile, the Company will establish the Special Committee of the Board of Directors in pudding time according to the Company’s actual requirement of development. Section 2 Particulars about Performance of Independent Directors The Company has established Rules for Independent Directors according to Guidelines Opinion on Establishing Independent Director System in Listed Company and Regulation on Listed Company Management. At present, the Company has two independent directors. In the report year, the Company held six Board meeting and two shareholders’ general meeting. Independent director Mr. Tian Yanqun attended five Board meeting and two shareholders’ general meeting, and entrusted another independent director Fan Zhiqing to voting on his behalf once. Mr. Fan Zhiqing attended two Board meeting, after which were held he was elected as independent director of the Company. In the report year, independent directors of the Company seriously performed their duties; practically safeguard the whole interests of the Company and legal rights of the medium and small shareholders according to the requirement of Articles of Association of the Company and the relevant laws and regulations. Section 3 Separation between the Company and its Controlling Shareholder in terms of Business, Personnel, Assets, Organization and Finance. 16 1. In term of business: The Company is completely independent from the controlling shareholder in business and has independent and complete business and autonomous operation capacity. The Company owned independent purchase and sales system. Purchasing Dept. and Marketing Dept. is respectively responsible for purchasing all raw resources and distributing products. R&D, production, purchase and distribution departments are separate from each other. The Company has already been independent juristic person operating in the market. 2. In term of personnel: (1) The Company is absolutely independent in the management of labor, personnel and salaries. Office and production sites are different from those of the controlling shareholder. There is no such situation of operating and working together with controlling shareholder. (2) General manager, deputy general manager, financial supervisor, secretary of the Board and other senior executives work for the Company in full time and draw salary from the Company, without taking concurrent position in the controlling shareholder enterprises. (3) The controlling shareholder recommends directors according to relevant legal procedures. All personnel resolution made in Board meetings and shareholders’ general meetings may be effectively carried out. There is no such situation that the controlling shareholder intervenes the personnel engagement of the Company. 3. In term of assets: The Company is totally independent from its controlling shareholder in term of assets and operates completely independent. The Company not only possesses independent production system, auxiliary production system and complementary facilities, but also enjoys such intangible assets as industrial property right, trademark, non-patent technology, etc. 4. In term of finance: (1) The Company has established independent financial department, independent and complete accounting system and financial management system. (2) The Company has financial decision right independently without interfere of its controlling shareholder. (3) The Company has independent bank account without depositing fund into accounts of the controlling shareholder, financial company or settlement center controlled by related parties 4) The Company pays the duties in compliance with laws. Section 4 Performance Valuation, Encouragement and Binding Mechanism for Senior Executives According to requirements of establishing modern enterprise system, the Company has established a fair and transparent performance evaluation system for senior executives so as confirm the rights and obligations of senior executive, exert the enthusiasm and creativity of senior executives, supervise and urge the senior executives to perform the obligations of being honest and diligent. According to Articles of Association, Rules of Procedures of Board of Directors and Rules of Procedures of Supervisory Committee, the Board and Supervisory Committee carried through the process supervision on the routine performance of the senior executives; the Company implemented the year-end evaluation to the senior executives, whose results were directly related to their 17 salaries and engagement, and made the encouragement and punishment according to the evaluation results. Chapter 6 Particulars about Shareholders’ General Meeting In the report period, the Company held two Shareholders’ General Meeting, namely Shareholders’ General Meeting 2001 and the 1st Extraordinary Shareholders’ General Meeting 2002. I. Shareholders’ General Meeting 2001 1.On Feb 26, 2002, the Company published Notification on Holding Shareholders’ General Meeting 2001 on Securities Times and Hong Kong Ta Kung Pao, which states the date of the Meeting as March 28, 2002 and the topic for discussion. 2.On March 28, 2002, the Company held its Shareholders’ General Meeting 2001 in the conference room of the Company on 27/F, Block B&C, Bao’an Square, No. 1002, Sungang Road East, Shenzhen. Four shareholders and shareholders’ representatives attended the meeting representing 105,946,362 shares (all are A shares), which takes 58.42% of the total share capitals of the Company. The following proposals were examined and approved item by item by means of signed voting in the Meeting: (1). 2001 Report of the Board of Directors; (2). 2001 Report of the Supervisory Committee; (3). 2001 Financial Settlement Report; (4). 2001 Annual Report and its Summary (A and B shares) (5). 2001 Profit Distribution Proposal; (6). 2002 Estimated Profit Distribution Policy; (7). Proposal on Changing the Certified Public Accountants; (8). Proposal on Payment of the Certifies Public Accountants; (9). Proposal on Engaging 2002 Auditors of the Company. 3. Public Notice on Resolutions of Shareholders’ General Meeting 2001 was published on Securities Times and Hong Kong Ta Kung Pao dated March 29, 2002. II. The 1st Extraordinary Shareholders’ General Meeting 2002 1. The Company published Notification on Holding the 1st Extraordinary Shareholders’ General Meeting 2002 on Securities Times and Hong Kong Ta Kung Pao dated June 28, 2002, which states the date of holding the 1st Extraordinary Shareholders’ General Meeting as July 29, 2002 and the topic for discussion. 2. On July 29, 2002, the Company held 1st Extraordinary Shareholders’ General Meeting 2002 in the Conference Room of the Company in 27/F, Block B&C, No. 1002, Sungang Road East, Shenzhen. Three shareholders and authorized representatives attended the Meeting representing 105, 938, 682 shares (all were A shares), which takes 58.32% of the total shares of the Company. The following proposals were examined and approved item by item by means of signed voting in the Meeting: 18 (1) Revision of the Articles of Association (2) Establishment of Rules of Procedures of Shareholders’ General Meeting (3) Establishment of Rules of Procedures of the Board of Directors (4) Establishment of Rules of Procedures of the Supervisory Committee (5) Proposal on Agreement of Mr. Chenlei’s resignation from the post of Director (6) Proposal on Additional Election of One Independent Director (7) Proposal on Standard of payment of Allowance to Independent Director 3. Public Notice on Resolution of the 1st Extraordinary Shareholders’ General Meeting 2002 was published on Securities Times and Hong Kong Ta Kung Pao dated July 30, 2002. Chapter 7 Report of the Board of Directors Section 1 Discussion and Analysis of the Management I. In the report period, the Company further optimized the products structure and gradually adjusted the products structure: (1) the Company gradually reduced the production of traditional LILE soft packing products, gradually eliminate the varieties of sales suspended, no gross interest, low gross interest or entrance into the period of products death and turned the situation of negative gross interest of partial soft packing products compared with the corresponding period of the previous year. The total marginal profits of the products increased and the status of negative gross interest basically disappeared. (2) the Company enforced the research and development of the new products and produced the competitive new products such as Olive Vegetables, Shuangqi Lactobacillus Milk and Yizhi Lactobacillus Milk etc. II. In terms of marketing, based on the consolidation of the original basis of marketing, the Company further strengthened the regional market construction, except for the perfection of the traditional channels of wholesale and retail, positively expanded the sales channels such as modern marketplaces and supermarkets channels, restaurants channels and special channels etc., positively did the work well such as products preparation for marketing, commodities exhibitions, promotion activities and advertising etc., thus the market rate of infiltration of major products increased and the products’ market share enhanced. III. The Company further enhanced the purchase management, exerted the integration advantages, realized the resource share of each manufacturing factory and decreased the repeated purchase, simultaneously, introduced the quality and price competition mechanism, established the information storeroom of on-line purchase, adopted the on-line bidding purchase, thus effectively enhanced the pass rate and timely rate of original information into storeroom, and at the same time effectives lowered the cost of purchase. 19 IV. The Company smoothly finished the work of transferring version of ISO 9000: 2000 and reinforced the management of production, quality and production safety according to the requirement of ISO9001. It smoothly finished the work of authentication of the national symbol “C” quantity calculation insurance system and made the Company become one of enterprises, which had passed the authorizing in the first group in Guangdong province. It passed the registration of export enterprises of Shenzhen Commerce Inspection Bureau, which made complete preparation for the Company’s products entering into the more broad domestic and international market and made the preliminary preparation for implementing the HACCP and ISO14000 Authentication. V. The bank credit and commercial credit standing of the Company was good, the credit of the Company was graded as “AAA”. The Company kept good credit records in banks and thus ensured the smooth financing channels. VI. The Company further deepened the reform of remuneration allocation system, decided the salaries according to posts, implemented the new project of remuneration, carried through the project of gaining rewards according to the labor contributions and decided the remuneration according to the contributions and responsibilities. VII. The Company gradually perfect the employees’ training system, continuously enhanced the comprehensive quality of the employees, helped the employees to develop together with the Company, did the reserve work of talents well and reinforced the construction of operation and management team in support. VIII. The case that the Company took the joint guarantee responsibility resulting from providing guarantee for Shenzhen Nanfang Tongfa Industrial Company to gain loans in 1995 imposed biggish negative impact on the financial position of the Company in the report period. (the details was publish as Public Notice of Material Lawsuit of the Company on Securities Times and Hong Kong Ta Kung Pao dated March 13, 2002. IX. On June 25, 2002, the Company signed the Equity Transfer Agreement with Jinhua Jinwei Property Management Service Co., Ltd. and transferred its 3, 628, 956 raised legal person’s shares of Nanjing Central Storeplace Co., Ltd. to the other party, whose transfer amount totally was RMB 25, 403, 000. The equity transfer resulted RMB 17, 093, 000 shares investment earnings for the Company (the details was published as Public Notice on Securities Times and Hong Kong Ta Kung Pao dated June 26, 2002 and March 12.2003). X. Changes in 2002 accounting policy and accounting estimation as of the year 1. Changes in accounting policy and accounting estimation: In the report year, the Company complementarily withdrew the depreciation to the fixed assets, which had stopped using and thus had not withdrawn the depreciation in the previous years according to Enterprise Accounting Standards---Fixed Assets and CK (2002) No. 18 20 document promulgated by Ministry of Finance. Due to the change of this accounting policy, the net profits as of the year of the Company decreased by RMB 10, 499, 000. 2. Influence of CK (2002) No. 18 document of Ministry of Finance on the Company’s financial position: According to the stipulation of document CK [2002] No. 18 of Ministry of Finance, in the report year the Company recorded the actual accrued amount into the current gain and loss due to the issue of being recovered resulting from providing guarantee for other companies to get loans. Because of the influence, the net profits as of 2002 decreased by RMB 50,396,000. The details were as follows: Items Guarantee amount In 2002 Shenzhen Nanfang Tongfa RMB 30 million RMB32,074,000 * Industrial Company Guangdong Sunrise Holdings RMB 8 million RMB18,322,000 ** Co., Ltd. HKD$ 6 million Total RMB50,396,000 *: In 1995, the Company provided guarantee for Shenzhen Nanfang Tongfa Industrial Company of its loan of RMB 30 million, but Nanfang Tongfa did not repay the loan when the loan term expired. In 2000, Shenzhen Intermediate People’s Court judged the Company to take the joint responsibility of discharge. The Company disobeyed and appealed, simultaneously, the Company estimated the loss of RMB 6 million according to the most reliable estimation and recorded into estimated liabilities. In 2002, upon confirmation of Guangdong Provincial High People’s Court with YGFJEZZI (2001) No.111 Civil Mediation, the Company should bear RMB 38, 074, 000 and pay by stages. The Company has paid RMB 24,371,000 in the report year and will pay the balance in 2003. The Company should confirm the loss and estimate liabilities of 2002 of RMB 38,074,000. In the report year, the Company should retroactively adjusted RMB 32,074,000 after deducting the estimated liabilities of RMB 6 million as of 2000. **: In 1997, the Company provided guarantee for Guangdong Sunrise Holdings Co., Ltd. (the former Shenzhen Lionda Holdings Co., Ltd.) to gain loan of RMB 8 million, but Guangdong Lionda did not repay the loan when the loan term expired. On June 6, 2000 Shenzhen Futian People’s Court judged the Company to take the joint responsibility of discharge. After negotiation with the bank and Guangdong Lionda, the Company paid the interest of RMB 1,400,000 for Guangdong Lionda and continued to provide guarantee for Guangdong Lionda. The Company paid interest of RMB 1 million instead in 2001 and paid RMB 400,000 in the 21 report year, which results into estimated liabilities of RMB 9,400,000 according to the principal and interest of the loan. In 1997, the Company provided guarantee for Guangdong Sunrise Holdings Co., Ltd. (the former Shenzhen Lionda Holdings Co., Ltd.) to get the loan of HKD$6 million, but Guangdong Sunrise did not repay the loan when the loan term expired. On July 26, 2000, Shenzhen Nanshan People’s Court judged the Company to take the joint responsibility of discharge. After negotiation with the bank and Guangdong Sunrise, the Company paid the principal of HKD$1,500,000 and the interest of RMB 2,502,000 for Guangdong Sunrise and continuously provided guarantee for its balance of HKD$4,500,000. The Company paid RMB 3,182,000 in 2001 and paid RMB 925,000 in the report year, which resulted into estimated liabilities of RMB 8,922,000 according to the principal and interest of the loan. According to the stipulation of CK (2002) No.18 document of Ministry of Finance, in the report year the Company should take the responsibility of discharge according to the judgment of the first trial and retroactively adjusted the possible loss estimated in compliance with the principal and interest of the loan to the relevant years related to the first trial judgment. The above change of accounting policy and accounting estimation was in accordance with Enterprise Accounting System and Enterprise Accounting Standards and the relevant regulations of CK (2002) No.18 document of Ministry of Finance, which imposed active impact on the financial position and operation management of the Company and met the interests of the Company and the large shareholders. Section 2 Particulars about Operation I. Main business scope and operation 1. Main business scope: production of food can, beverage and local products; domestic commerce and supply and marketing of materials; import and export business. 2. Main business of the Company was under the classification of food and beverage industry. In the report period, the Company realized an income from main business lines of RMB 77,134,000 and gross profit of RMB 16,682,000. Income and profit from main business lines classified according to product types: Unit: in RMB’000 Main products Sales revenue Gross profit “San Jing” brand condiments 30,514 11,598 Lactobacillus milk series 10,125 901 Soft packing drinks 25,599 622 22 Tea powder and tea juice series 10,219 2,883 3. Sales of products taking over 10% of sales revenue Sales revenue Sales cost Gross profit Main products (RMB’000) (RMB’000) rate (%) “San Jing” brand condiments 30,514 18,916 38.01 Lactobacillus milk series 10,125 9,224 8.91 Soft packing drinks 25,599 24,977 2.43 Tea powder and tea juice series 10,219 7,336 28.21 4. In the report year, the main business and its structure of the Company were changed due to new-increase consolidation company, namely, Shenzhen Shenbao Huacheng Foods Co., Ltd., which is engaged in production of the string of products such as concentrated tea juice and instant tea powder. Thus, the Company’s revenue of main business increased by RMB 10,219,000, taking 13.21%. 5. In the report period, the Company realized the income from main business lines of RMB 77,134,000 and gross interest of RMB 16,682,000, which increased 20.36% and 28.88% respectively than that of the corresponding period of the previous year. The main reason was that in the report year the Company carried through effective adjustment to the product structure and reinforced the management of purchase cost, which brought about the increase of sales quantities of the products as of the year, and simultaneously the direct benefits was realized due to the drop of the sales cost of the products. II. Business Operation and Achievement of the Company’s Major Holding Companies and Share-holding Companies 1. Shenzhen Shenbao San Jing Food & Beverage Development Co., Ltd.: the Company holds 100% equities of this company, whose registered capital is RMB 25,000,000, legal representative is Mr. Zheng Yuxi. Business scope of this company: production and sales of beverage, by-food, additives (excluding limited items) and operation of import and export business (the details in compliance with SMGZZZI No. 2002-352 Qualification Certificate). In the end of the report period, the total assets of this company reached RMB 107,403,000. In the year 2002, this company realized the income from main business lines of RMB 63,556,000 and net profit of RMB 921,000. 2. Shenzhen Shenbao Industrial and Trade Development Company: as a sole subsidiary of the Company, this company has a registered capital of RMB 5,500,000 and legal representative as Mr. Fang Jianhui. Business scope of this company: food can, beverage, condiment and its packing materials, raw and auxiliary materials, hardware and alternating current, chemical 23 products, daily used china, automobile fittings, electrical products, agricultural byproducts, local products, daily used general merchandise, products of arts and crafts, textiles and operation of import and export business. In the end of the report period, the total assets of this company reached RMB 14,227,000. In the year 2002, this company realized the income from main business lines of RMB 34,465,000 and net profit of (RMB 3,796,000). 3.Shenzhen Pepsi Cola Beverage Co., Ltd.: the Company holds 40% equity of this company, whose registered capital is RMB 12,250,000 and legal representative is Mr. Lin Jiahong. Main business of this company covers production and sales of carbonic acid beverage represented by Pepsi Cola in districts of Shenzhen, Huizhou, Shantou and Meizhou, etc. In the end of report period, the total assets of this company amounted to RMB 417,773,000. In 2002, this company realized the income from main business lines of RMB 523,544,000 and net profit of RMB 52,518,000. 4. Shenzhen Shenbao Huacheng Food Co., Ltd.: The Company holds 51.67% equity of this company, whose registered capital is RMB 30 million and legal representative is Mr. Zeng Pai. The business scope of this company: investment and establishment of industries (the detailed item is to be applied otherwise); information inquiry (excluding limited items); development of food technology, sales of beverages and additives series products such as ginger tea, condensed pumpkin powder, liquid drinks, condensed tea juice, fast tea powder etc. (excluding special operating, special selling and special controlling merchandise); import and export business (the detailed transaction in compliance with qualification certificate). In the end of report period, the total assets of this company reached RMB 63,423,000. In 2002, this company realized the income from main business lines of RMB 10,219,000 and net profit of RMB 33,000. III. Major Suppliers and Customers In the report period, the total purchase amount of the top five suppliers accounted for 67.50% of the Company’s total purchase amount, while the total sales amount of the top five customers accounted for 27.30% of the Company’s total sales amount. IV. Problems, Difficulties and Solutions Occurred During the Company’s Operation 1. Aiming at the situation of existing many brands and intensified competition in the market of dairy products after the products of lactobacillus milks entering into market, the Company shall positively do the products promotion activities well, implement the effective combination of advertise, gifts promotion, performance at roadsides, promotion in the uptown and establish our own brand image so as to enhance the market share. 2. “ San Jing” Brand Condiment headed by oyster oil is the main product of the Company. 24 The gross interest rate is preferably high. It is the best seller in the regions of East China, North China and Hong Kong and Macao. But since the network of national market is not perfect yet, the Company still needs to develop the new market continuously. Besides, the current production capability of the Company is limited. The Company has difficulties to further expand the sales scale. At present, the Company started to move its factories after the basic completion of the adjustment of the product structure and prepared to make use of the opportunity of moving the factories to increase the production capability of condiments and realize the scale production and scale benefit. 3. Since the main industries of the Company faces the slow development due to the continuously intensified competition of industries in these recent year, the Company shall further increase the technology content of the products, produce the new products in compliance with the market demand. The work of preliminary market investigation and production preparation of the new product “ Mingdian One Making Tea” of Shenzhen Shenbao Huacheng Food Co., Ltd., which is the controlling company of the Company has been finished. The Tea has been into the market formally on Feb 28, 2003. Section 3 Investment I. Application of Proceeds Raised through Share Offering In the report period, the Company did not increase the input application of the raised proceeds. Particulars about actual application of proceeds raised through previous share offering: Unit: in RMB’000 Investment project committed in Investment amount Actual Progress Prospectus committed in Prospectus investment (%) Project of Henggang new plant of 29,000 15,606.4 53.82 Shenzhen Pepsi Cola Beverage Co., Ltd. Shenbao Commercial City 58,000 — — There are RMB 58,387,000 proceeds deposited in the bank without using. The project of Henggang new plant of Shenzhen Pepsi: the project of Henggang new plant of Shenzhen Pepsi is under the operating management of Shenzhen Pepsi and its situation of earnings is reflected in the whole achievements of Shenzhen Pepsi. The development trend of Shenzhen Pepsi is good and its net profit in 2002 reached RMB 52,030,000. The part of not invested shall be dicided according to the resolutions of the Board of Directors of Shenzhen Pepsi depending on the expansion situation of Shenzhen Pepsi in the market of East of Guangdong and Dongguan. The project of Shenbao Commercial City: based on the principle of cautious investment, the 25 Company needs to further adjust the product structure according to the market change. Thus the relevant engineering design of the project also needs to be adjusted accordingly and is hard to be implemented as scheduled. So the project has not been invested by the end of the report period. II. Investment of proceeds not raised through share offering in the report period According to the resolution of the 8th Meeting of the 4th Board of Directors, the Company invested RMB 31 million to jointly set up Shenzhen Huacheng Food Co., Ltd. (hereinafter referred to as Shenbao Huacheng) with Guangdong Huacheng Food Co., Ltd. The Company holds 51.67% equity of Shenbao Huacheng and is the control shareholder. Shenbao Huacheng mainly produces the fast tea powder, germfree packing tea condensed juice ( green tea, flower tea, oolong and black tea). Shenbao Huacheng registered and set up formally on April 10, 2002 and started to operate normally. In 2002, Shenbao Huacheng realized the income from main business lines of RMB 10,219,000 and net profit of RMB 33,000. Section 4 Financial Position and Operation Results K. C. Oh & Company Certified Public Accountants issued standard unqualified Auditors’ Report in the report period, details as follows: (1) The total assets of the Company at the end of the report period reached RMB 455,161,000, an increase of 13.03% than that of at the end of the previous period amounting to RMB 402,677,000. The increase was mainly due to the increase of currency fund and intangible assets. (2) Ended the report period, the shareholders’ equity of the Company amounted to RMB 276,142,000, a decrease of 18.5% than that of at the end of the previous period amounting to RMB 338,842,000. The decrease was mainly due to the decrease of the profits. (3) The gross profit of the Company as of the year was RMB 16,682,000, an increase of 28.88% than that of the previous year amounting to RMB 12,944,000. The increase was mainly due to the increase of sales revenue and decrease of the cost. (4) The net profit as of the year was (RMB 53,394,000), a decrease of 1476.44% than that of the previous year amounting to (RMB 3,387,000). The decrease was mainly due to the supplementary withdrawal of depreciation and loss of guarantee (details are stated in the financial statement notes 6). Section 5 Impact of production and operation environment, macro-policies, laws and regulations on the Company 26 In the report period, the production and operation environment, macro-policies and regulations of the Company experienced no important change. Section 6 Routine Work of the Board of Directors I. Board meetings and resolutions in the report year In the report period, the Board of Directors held six Board Meetings: 1. The 7th meeting of the 4th Board of Directors was held on Feb. 22, 2002. The meeting examined and adopted the following resolutions: (1) 2001 Report of the Board of Directors; (2) 2001 Financial Settlement Report; (3) 2001 Annual Report and its Summary (A and B shares); (4) 2001 Profit Distribution Proposal; (5) 2002 Estimated Profit Distribution Policy; (6) Proposal on payment of 2001 Remuneration to the Certified Public Accountants; (7) Proposal on Engaging the 2002 Auditors; (8) Proposal on the Relevant Issues of Holding 2001 Shareholders’ General Meeting; (9) Proposal on engagement of the Secretary of the Board of Directors The aforesaid resolutions were published in Securities Times and Hong Kong Ta Kung Pao respectively dated Feb. 26, 2002. 2. The 8th meeting of the 4th Board of Directors was held on April 1, 2002. The following resolutions were examined and approved in the meeting: (1) Proposal on joint operation of Shenzhen Shenbao Huacheng Food Co., Ltd. (2) Proposal on Authorizing the Management Group to Deal With the Issues Concerning the joint operation of Shenzhen Shenbao Huacheng Food Co., Ltd. The aforesaid resolutions were published in Securities Times and Hong Kong Ta Kung Pao respectively dated April 4, 2002. 3. The 9th meeting of the 4th Board of Directors was held on April 22, 2002. The following resolutions were examined and approved in the meeting: (1) 2002 1st Quarter Report of the Company The aforesaid resolutions were published in Securities Times and Hong Kong Ta Kung Pao respectively dated April 23, 2002. 4. The 10th Meeting of the 4th Board of Directors was held on June 27, 2002. The Meeting examined and adopted the following resolutions: (1) Proposal on Revision of the Articles of Association (2) Proposal on Establishment of Rules of Procedures of Shareholders’ General Meeting (3) Proposal on Establishment of Rules of Procedures of the Board of Directors (4) Proposal on Establishment of Work Regulations of General Managers (5) Proposal on Establishment of Management System of Information Disclosure (6) Proposal on Agreement of Mr. Chen Lei’s Resignation From the Post of Director (7) Proposal on Additional Election of One Independent Director (8) Proposal on payment of Allowance Standard of Independent Director 27 (9) Self-inspection Report of Establishment of Modern Enterprise System (10) Proposal on Establishment of Remuneration Project of Managers (11) Provisional Project of Salaries of Headquater (12) Relevant Issues of Holding the 1st Shareholders’ General Meeting 2002 The aforesaid resolutions were published on Securities Times and Hong Kong Ta Kung Pao dated June 28, 2002. 5. The 11th Meeting of the 4th Board of Directors was held on July 29, 2002. The Meeting examined and adopted the following resolutions: (1) 2002 Semi-annual Report and its Summary (A and B shares) (2) 2002 Semi-annual Profit Distribution Project (3) Proposal on Mr. Tang Guangzao’s Resignation from the Post of Deputy General Manager of the Company The aforesaid resolutions were published on Securities Times and Hong Kong Ta Kung Pao dated July 31, 2002. 6. The 12th Meeting of the 4th Board of Directors was held on Oct. 22, 2002. The Meeting adopted the following resolutions: (1) 2002 the 3rd Quarter Report The aforesaid resolution was published on Securities Times and Hong Kong Ta Kung Pao dated Oct. 23, 2002. II. Implementation of the Resolutions of the Shareholders’ General Meeting by the Board of Directors: In the report year, the Board of Directors had carefully implemented all the resolutions adopted by the Shareholders’ General Meeting strictly according to the resolutions and authorization of the Shareholders’ General Meeting. The detailed implementation of the Project of Profit Distribution in the report year was as follows: According to the 2001 Project of Profit Distribution, the Company distributed the cash dividend to all shareholders at the rate of RMB 0.5 (including tax) for every 10 shares based on the total share capital of 181,923,088 shares as of Dec 31, 2001. The total distributed cash dividend amounted to RMB 9,096,000. The equity registration date of A shares and the last trading date of B shares was on May 24, 2002 and the 2001 Project of Profit Distribution was completely finished on May, 2002. (The details were published as Public Notice on Implementation of Dividend Distribution on Securities Times and Hong Kong Ta Kung Pao dated May 18, 2002). Section 7 Profit Distribution Project as of 2002 Audited by Dahua Tiancheng Certified Public Accountants according to Chinese Accounting Standards and K.C. Oh & Company Certified Public Accountants according to International Accounting Standards, net profit of the Company as of the year 2002 was RMB 10,800,000 and RMB-53, 394,000 respectively. Pursuant to relevant regulations in Company Law and Articles of Association of the Company, net profit of RMB 10,800,000 of 2002 as audited by Dahua Tiancheng Certified Public Accountants will be chosen as the basis, the deficiency of the previous years (after adjustment) will be offset. After the offsetting, the Company’s 28 undistributed profit as of 2002 was RMB –47,729,000. According to the relevant regulations of Normative Interlocution No.3 of Information Disclosure of Public Issuance Securities---Origin, Procedure and Information Disclosure of Offsetting Deficiency promulgated by Company Law and CSRC, the Company must not distribute dividends to shareholders or convert capital public reserve into share capital before the accumulated deficiency was offset completely. The Board of Directors decided not to distribute the profits or convert capital public reserve into share capital in 2002. The aforesaid proposals should be submitted to 2002 Shareholders’ General Meeting for examination. Chapter 8 Report of the Supervisory Committee I. Particular about work of the Supervisory Committee in the report period In 2002, the Supervisory Committee had held three meetings, examined and adopted and the following resolutions: 1. The 6th meeting of the 4th Supervisory Committee was held on Feb. 22, 2002. The following resolutions were examined and approved in the Meeting: (1) 2001 Annual Report of the Supervisory Committee; (2) 2001 Financial Settlement Report; (3) 2001 Annual Report and its Summary (A share and B share respectively); (4) 2001 Profit Distribution Preplan. The aforesaid resolutions were published in Securities Times and Hong Kong Ta Kung Pao respectively dated Feb. 26, 2002. 2. The 7th meeting of the 4th Supervisory Committee was held on June 27, 2002. The following resolutions were examined and approved in the Meeting: (1) Proposal on Establishment of Rules of Procedures of the Supervisory Committee; (2) Proposal on Self-inspection Report of Establishment of Modern Enterprise System (3) Proposal on Additional Election of a Supervisor The aforesaid resolutions were published in Securities Times and Hong Kong Ta Kung Pao respectively dated June 28, 2002. 3.The 8th meeting of the 4th Supervisory Committee was held on July 29,2002. The following resolutions were examined and approved in the meeting: (1) 2002 Semi-annual Report and its Summary (A share and B share respectively); (2) 2002 Semi-annual Profit Distribution Project The aforesaid resolutions were published in Securities Times and Hong Kong Ta Kung Pao respectively dated July 31, 2002. II. Independent opinion of the Supervisory Committee on certain issues 1. Operation According to the Law In the report period, the Supervisory Committee conducted supervision over the procedures of holding Board meetings and Shareholders’ General Meeting, resolutions, implementation of the resolutions of the Shareholders’ General Meeting by the Board of Directors, status of the senior executives in implementing their duties and the Company’s management system according to the relevant laws and regulations. In our opinion, in 2002, the Board of Directors 29 carried out the operation in a standardized way strictly according to the PRC Company Law, the Securities Law, the Listing Rules, the Articles of Association and other relevant regulations. The directors have been working seriously and with responsibility and made operation decision in a scientific and reasonable way. They have further improved the internal management and control system. We have found no directors or senior executives ever involved in any actions against the law, rules and regulations, or the Articles of Association or harmful to the interest of the Company and the shareholders in the process of implementation of their duties. 2. Financial Inspection We have made careful inspection of the Company’s financial system and financial position. In our opinion, 2002 Financial Report of the Company has truly reflected the Company’s financial position and operation achievements. The auditors’ report and the auditors’ opinion on the relevant issues produced by Dahua Tiancheng Certified Public Accountants and K.C. Oh & Company Certified Public Accountants are objective and fair. 3. The actual investment project funded by the latest proceedings is the same as the commitment. 4. In the report period, the Company’s purchase and sale of assets have been conducted in a fair and reasonable way and there has existed no insider transaction or action harmful to the part shareholders’ right and interest or in connection with loss of the Company’s assets. 5. In the report period, the Company had no significant related transactions and no actions harmful to the interest of the Company. Chapter 9 Significant Events Section 1 Material Lawsuits and Arbitration I. Material lawsuits occurred in the report period Pursuant to the guarantee for the loan of RMB 30 million of Shenzhen Nanfang Tongfa Industrial Company (hereinafter called Nanfang Tongfa) by the Company, Guangdong Provincial High Court has issued 2001 YGFJEZ ZI No.111 Civil Mediation (The details were published as Public Notice on Material Lawsuits of the Company on Securities Times and Hong Kong Ta Kung Pao dated March13, 2002.). The Company has repaid the principal of RMB10 million, the interest of RMB2 million and the first trial lawsuit expense and the property saving charge of RMB371, 000 before March 31,2002 and repaid the principal of RMB 10 million, the interest of RMB 2 million and the new interest calculated to the date of repayment before Oct. 31,2002 according to Civil Mediation. The rest amount will be repaid completely before June 30, 2003. II. Other relevant lawsuits 1. The lawsuit case that the Company provided guarantee for Guangdong Sunrise Holdings 30 Co., Ltd. (the former Shenzhen Lionda Holdings Co., Ltd., hereinafter referred to as Sunrise Company) concerning the loan of HKD$ 3 million, which Sunrise Company asked for a loan from Shenzhen Branch of Industrial and Commercial Bank of China, has been settled through intercession on Dec.17, 2002. The Company in place of Sunrise Company repaid the principal of HKD$ 3 million and the interest of HKD$ 100,000. The rest interest has been exempted. 2. The lawsuit case that the Company provided guarantee for Sunrise Company concerning the loan of HKD$ 6 million, which Sunrise Company asked for a loan from Nantou Branch of Shenzhen Development Bank, has been settled through intercession. The Company in place of Sunrise Company has repaid the principal of HKD$ 1.5 million and the relevant interest. The rest principal of HKD$ 4.5 million has been transferred to the loan and the Company continued to provide the guarantee for it. 3. The lawsuit case that the Company provided guarantee for Sunrise Company concerning the loan of RMB 8 million, which Sunrise Company asked for a loan from Shenzhen Branch of Guangdong Development Bank, has been settled through intercession. The company in place of Sunrise Company has repaid the interest of RMB1.4 million. The Company will pay the rest interest too. Sunrise Company continually asked for a loan for the rest principal and interest of RMB 8.58 million and the Company continually provided the guarantee for it. 4.The lawsuit case of the joint responsibility of the Company that the Company provided the guarantee for Shenzhen Tellus (Group) Co., Ltd. concerning the loan of RMB 5.28 million from Shenzhen International Trust & Investment Company has been settled through Implementation Intercession Agreement among three parties on Jan.31, 2002. The Company in place of Shenzhen Tellus (Group) Co., Ltd. has repaid the principal of RMB 5.28 million to Shenzhen International Trust & Investment Company in Mar. 2002. The aforesaid funds will be repaid to the Company in four stages by Shenzhen Tellus (Group) Co., Ltd.. Ended Jan. 2003 the Company has drawn back the payment of RMB 380,000. 5. With regard to the lawsuit case of the delay repayment of the loan of RMB 7 million that Shenzhen China Bicycle (Holdings) Co., Ltd. (guaranteed by the Company) asked for a loan from Shenzhen Branch of China Construction Bank, the Company undertook the joint responsibility according to the civil judgment with document SZFJYC ZI [1998] No.131 issued by Shenzhen Intermediate People’s Court. Shenzhen Interim People’s Court has issued the execution order. By the end of the report year, the aforesaid judgment has not yet been 31 executed. 6. In June 1996, the Company provided the guarantee of USD$800,000 when Shenzhen China Bicycle (Holdings) Co. Ltd. applied issuance of Letter of Credit for China Bank Shenzhen Branch. Guangdong High People’s Court judged the said lawsuit according to the civil judgment with document YFJYZ ZI [1999] No.26, and the Company undertook the joint responsibility. Shenzhen Intermediate People’s Court has issued the execution order. By the end of the report year, the aforesaid judgment has not yet been executed. Note: With reference of the above lawsuits arisen from its historical guarantee provided for other companies, the Company made great effort in an active and initiative attitude to find the solutions and got the understanding and support of the authorities and relevant departments which relieve the litigation and implementation pressure of banks and courts. Presently, the principal shareholder of Shenzhen China Bicycle (Holdings) Co., Ltd. of the year 2002 has turned into China Huarong Assets Management Company and the reorganization are in process now. Shenzhen China Bicycle (Holdings) Co. Ltd. estimated a profit of the year 2002 so the liability between it and the Company will be solved successfully. Sunrise Company is a listed company whose controlling shareholder is Shenzhen Investment Management Company and it is estimated that its liability will be solved. Section 2 Purchase and Sales of Assets 1. The Company signed Equity Assignment Agreement with Jinhua Jinwei Property Right Management Service Co., Ltd. on Jun.25, 2002 and assigned the raised legal person’ share of 3,628,956 shares of Nanjing Central Marketplace Co., Ltd. to Jinhua Jinwei Property Right Management Service Limited Company. The total amount of the assignment is RMB25, 403,000. The assignment brought stock investment income of RMB17, 093,000 for the Company. (Please refer to the public notice published on Securities Times and Ta Kung Pao dated Jun.26, 2002 and March 12.2003 in detail.). 2. The Company signed Equity Assignment Agreement of Shenzhen Shenbao Shennei Biological Products Co., Ltd with the following four parties. The Company, Xinjiang Fine Hop Co., Ltd. and Xinjiang Shennei Biological Products Co., Ltd agreed to assign 48%, 46% and 6% of the share equity of Shenzhen Shenbao Shennei Biological Products Co., Ltd held by them respectively to Beijing Tiandi Eastern Super Hard Marterial Co., Ltd and Zhang Huiru on Aug 22, 2002. The total amount of the assignment is RMB15, 168,000. The Company, Xinjiang Fine Hop Co., Ltd. and Xinjiang Shennei Biological Products Co., Ltd distributed the assignment capital according to the proportion of the share equity. (Please 32 refer to the public notice published on Securities Times and Ta Kung Pao dated Aug.24, 2002.). Section 3 Material Related Transaction The Company conducted no material transaction with its related parties in the report period. Section 4 Material Contract and the Implementation 1. Entrustment, contracting and lease The Company has no material transaction of entrustment,contracting and lease. 2. Material guarantee (1) In the report period, Shenzhen Shenbao Sanjing Food & Beverage Investment Co., Ltd applied the loan of RMB20, 000,000 and RMB 40,000,000 from Shenzhen Commercial Bank Jingtian Branch and China Guangda Bank respectively. The total amount of the loan is RMB60, 000,000. The aforesaid loans were provided the guarantee by the Company. (2) After the lawsuit’s judgment of the guarantee for the loan of HKD$ 6 million of Sunrise Company in Shenzhen Development Bank Nantou Branch provided by the Company, except for the principal and the interest repaid by the Company in place of Sunrise Company, the rest principal of HKD$ 4.5 million has been transferred to the loan and the Company continued to supply the guarantee for it. (3) After the lawsuit’s judgment of the guarantee for the loan of RMB 8 million of Sunrise Company in Guangdong Development Bank Shenzhen Branch provided by the Company, except for the principal and the interest repaid by the Company in place of Sunrise Company, the rest principal and interest of RMB8.58 million has been transferred to the loan and the Company continued to supply the guarantee for it. (4) In Dec.1998, the Company provided the guarantee for the loan of HKD$32,000,000 of Sunrise Company in China Bank Shenzhen Branch. The duration of the guarantee was from Dec. 31, 1998 to Oct. 31, 1999. Sunrise Company didn’t repay the loan on schedule. Bank of China Shenzhen Branch issued the Dun Notice of Delayed Loan on Jun. 1, 2000. At present, the aforesaid item is still not in the procedure of lawsuit. 3. Entrusted financing The Company has no entrusted financing in the report period. 33 Section 5 Commitment In the Company’s Shareholders’ General Meeting 2001, Profit Distribution Policy for the year 2002 was examined and approved with the details is as follows: (1) Distribution plan The Company planned to conduct one profit distribution for 2001 (2) Distribution proportion The distribution proportion of the year 2002 from the net profit realized of the Company is not lower than 10%; the distribution proportion of the year 2001 from retained profit is not lower than 10%. (3) Dividend form: the profit would be distributed in the form of cash or bonus share or the combination. Concrete profit distribution for 2002 is subject to the resolution of the Shareholders’ General Meeting proposed by the Board of Directors based the actual situation of the Company. The Board of Directors reserves its rights to adjust the profit distribution policy considering the actual development and profitability of the Company. According to the Company Law and Asking & Answering No.3 of Information Disclosure Criterion of Publicly Issued Securities-the Source, Procedure and Information Disclosure of Fetching Up the Losses, before the cumulate losses are fetched up completely, the listed companies can’t distribute the dividend or transfer the capital public reserve to the share capital. Thus the Board of Director decided to adjust 2002 Profit Distribution Policy as follows: The Company has no profit distribution for the year 2002 and won’t convert the capital public reserve into the share capital. Section 6 Engagement and Disengagement of Certified Public Accountants In 2002,the Company reengaged Shenzhen Dahua Certified Public Accountants as the domestic accountant and K.C.Ho & Company Certified Public Accountants as the international accountant. Remuneration paid to Certified Public Accountants by the Company in recent two years: Unit: RMB’000 Name of Certified Public Financial audit fee Other fee Notes Accountants 2001 2002 2001 2002 Shenzhen Dahua Tiancheng Certified 200 200 -- Public Accountants K.C.Oh & Company Certified Public 180 180 -- Accountants 34 Section 7 Other Significant Events I There were no such situation occurred in the report period that the Company, its Board of Directors or its Directors were checked or administratively punished or publicly criticized by CSRC or condemned publicly Shenzhen Stock Exchange. II. The Company has no other important events occurred which are not disclosed in the provisional report in the report period. Documents available for Reference There are complete following documents in Secretary to the Board of Directors of the Company provided for reference upon demand of China Securities Regulatory Commission, Shenzhen Stock Exchange and the shareholders of the Company: 1. Accounting statements carried with the signatures and seals of legal representative, principal in charge of the accounting and principal in charge of accounting organizations. 2. Original of the Auditors’ Report carried with the seal of Certified Public Accountants as well as the signature and seal of the Public Accountants. 3. Originals of all the documents as disclosed on Securities Times and Hong Kong Ta Kung Pao as well as the manuscripts of the public notices as published in the report period. 4. Original of 2002 Annual Report carried with the autograph of the Chairman of the Board of Directors of the Company. SHENZHEN SHENBAO INDUSTRIAL CO., LTD. Chairman of the Board: Zeng Pai March 13, 2003 35 Shenzhen Shenbao Industrial Co., Ltd. (Incorporated in the People’s Republic of China) Report of the auditors and financial statements for the year ended December 31, 2002 36 Shenzhen Shenbao Industrial Co., Ltd. (Incorporated in the People’s Republic of China) Contents Pages Report of the auditors 1 Consolidated income statement 2 Consolidated balance sheet 3 Consolidated statement of changes in equity 4 Consolidated cash flow statement 5-6 Notes to the financial statements 7 - 23 37 Report of the auditors to the members of Shenzhen Shenbao Industrial Co., Ltd. (Incorporated in the People’s Republic of China with limited liability by shares) We have audited the financial statements on pages 2 to 23. The preparation of these financial statements are the responsibility of the Company’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 presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. In forming our opinion, we have considered the adequacy of the disclosures made in the financial statements concerning the contingent loss the Company may have to suffer in respect of the guarantees it has given to various companies that have defaulted the banks. The defaulting companies are continuing to negotiate with the banks for settlement of the outstanding loans so that the guarantors may not have any eventual loss. Details of the circumstances relating to this fundamental uncertainty are described in note 23 to the financial statements. The Company’s directors are responsible for the disclosure and possible results of the issue and our opinion is not qualified in this respect. In our opinion the financial statements present fairly, in all material respects, the financial position of the Company and its subsidiaries as at December 31, 2002 and the results of their operations and cash flows for the year then ended, in accordance with International Accounting Standards. K. C. Oh & Company Certified Public Accountants Hong Kong : March 11, 2003 1 Shenzhen Shenbao Industrial Co., Ltd. Consolidated income statement for the year ended December 31, 2002 2002 2001 Note RMB’000 RMB’000 Turnover 77,134 64,086 Cost of sales (4a) ( 60,452 ) ( 51,142 ) Gross profit 16,682 12,944 Other revenue (5) 24,011 32,401 40,693 45,345 Distribution costs ( 16,386 ) ( 10,825 ) Administrative expenses ( 37,081 ) ( 43,405 ) Other operating expenses ( 142 ) ( 17 ) Operating loss ( 12,916 ) ( 8,902 ) Finance costs ( 2,508 ) ( 3,793 ) Operation loss before exceptional items ( 15,424 ) ( 12,695 ) Exceptional items (6) ( 57,380 ) - Loss after exceptional items ( 72,804 ) ( 12,695 ) Share of profit from associates 20,016 11,219 Loss before taxation (7) ( 52,788 ) ( 1,476 ) Taxation (8) ( 590 ) ( 1,911 ) Loss before minority interests ( 53,378 ) ( 3,387 ) Minority interests ( 16 ) - Loss attributable to shareholders ( 53,394 ) ( 3,387 ) Retained profit brought forward 1,502 12,670 Profit/(loss) before appropriations ( 51,892 ) 9,283 Appropriations : Transfers from reserves (22) 4,011 1,315 Cash dividends (22) - ( 9,096 ) 4,011 ( 7,781 ) Retained profit/(loss) carried forward ( 47,881 ) 1,502 Loss per share – basic (9) RMB(0.2935) RMB(0.0187) 2 Shenzhen Shenbao Industrial Co., Ltd. Consolidated balance sheet as at December 31, 2002 Note 2002 2001 RMB’000 RMB’000 Non-current assets Fixed assets (10) 47,348 51,073 Intangible assets (11) 40,714 17,685 Deferred assets (12) - 23 Interests in associates (13) 135,484 123,307 Other investments (14) 42,558 58,055 266,104 250,143 Current assets Tax recoverable 1,401 591 Inventories (15) 18,492 13,418 Amounts due from related companies (16) 10,013 4,182 Accounts receivable (17) 28,814 13,104 Prepayments, deposits and others receivable (18) 52,034 52,746 Cash and bank balances 78,303 68,493 189,057 152,534 Current liabilities Dividends payable ( 218 ) ( 218 ) Amount due to a related company (19) ( 6,201 ) ( 3,510 ) Accounts payable ( 10,151 ) ( 11,151 ) Others payable and accrued expenses ( 47,933 ) ( 11,156 ) Short-term bank loans (20) ( 100,000 ) ( 37,800 ) ( 164,503 ) ( 63,835 ) Net current assets 24,554 88,699 Assets less current liabilities 290,658 338,842 Minority interests ( 14,516 ) - Net assets employed 276,142 338,842 Financed by : Share capital (21) 181,923 181,923 Reserves (22) 94,219 147,823 Proposed final dividends - 9,096 Shareholders’ equity 276,142 338,842 The financial statements on pages 2 to 23 were approved and authorised for issue by the board of directors on March 11, 2003 and are signed on its behalf by : Director Director 3 Shenzhen Shenbao Industrial Co., Ltd. Consolidated statement of changes in equity for the year ended December 31, 2002 Retained Share Capital Surplus earnings/ capital reserves reserves (loss) Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 As at January 1, 2001 166,708 51,219 38,936 12,670 269,533 Loss for the year of 2001 - - - ( 3,387 ) ( 3,387 ) Transfer to surplus reserves - - 1,707 ( 1,707 ) - Transfer from surplus reserves as a result of over-transfer in prior years - - ( 3,022 ) 3,022 - Proposed final dividends for 2001 - - - ( 9,096 ) ( 9,096 ) Issue of shares, at premium 15,215 57,481 - - 72,696 As at December 31, 2001 181,923 108,700 37,621 1,502 329,746 As at January 1, 2002 181,923 108,700 37,621 1,502 329,746 Loss for the year of 2002 - - - ( 53,394 ) ( 53,394 ) Transfer from surplus reserves as a result of over-transfer in prior years - - ( 4,011 ) 4,011 - Interests in associates over- provided - ( 210 ) - - ( 210 ) As at December 31, 2002 181,923 108,490 33,610 ( 47,881 ) 276,142 4 Shenzhen Shenbao Industrial Co., Ltd. Consolidated cash flow statement for the year ended December 31, 2002 2002 2001 RMB’000 RMB’000 Cash flow from operating activities Operating loss before taxation ( 52,788 ) ( 1,476 ) Adjustment items : Provision for impairment loss of assets 3,622 27,367 Loss on disposal of fixed assets 38 - Depreciation 19,559 7,576 Amortization of intangible assets 1,207 664 Profit from transfer of land use rights - ( 1,884 ) Amortization of deferred assets 23 520 Share of profit from associates ( 20,016 ) ( 11,219 ) Amortization of premium in associates 1,695 - Provision for impairment loss of other investments - 4,942 Dividends from other investments ( 1,535 ) - Profit from disposal of other investments ( 15,842 ) ( 2,274 ) Interest income ( 744 ) ( 326 ) Interest expense 3,241 4,108 Adjustment of interest in associates ( 210 ) - Decrease in amounts due from associates - 6,440 (Increase)/decrease in inventories ( 5,331 ) 517 Increase in amounts due from related companies ( 5,831 ) ( 4,182 ) (Increase)/decrease in accounts receivable ( 15,912 ) 1,415 Increase in prepayments, deposits and others receivable ( 2,443 ) ( 33,287 ) Decrease in amount due to a related company - ( 83 ) Decrease in accounts payable ( 1,000 ) ( 1,605 ) Increase in others payable and accrued expenses 36,777 3,985 Decrease in notes payable - ( 10,000 ) Net cash outflow from operating activities (A) ( 55,490 ) ( 8,802 ) Income tax payment (B) ( 1,400 ) ( 2,694 ) Returns on investments and servicing of finance Interest received 744 326 Interest paid ( 3,241 ) ( 4,108 ) Dividends received from associates 9,534 12,680 Dividends received from other investments 1,535 - Dividends paid ( 6,405 ) ( 16,453 ) Net cash inflow/(outflow)from investments and servicing of finance (C) 2,167 ( 7,555 ) (to be cont’d) 5 Shenzhen Shenbao Industrial Co., Ltd. Consolidated cash flow statement for the year ended December 31, 2002 (cont’d) 2002 2001 RMB’000 RMB’000 Cash flow from investing activities Purchases of fixed assets ( 16,577 ) ( 287 ) Purchases of intangible assets ( 24,236 ) - Proceeds from disposal of fixed assets 697 - Proceeds from transfer of land use rights - 3,070 Additional investments in associates - ( 15,555 ) Premium paid for investments in associates ( 3,390 ) - Proceeds from disposal of other investments 23,042 3,191 Net cash outflow from investing activities (D) ( 20,464 ) ( 9,581 ) Net cash outflow before financing activities (A+B+C+D) ( 75,187 ) ( 28,632 ) Cash flow from financing activities (Increase)/decrease in short-term bank loans 62,200 ( 64,200 ) Minority interests 14,500 - Proceeds from issue of new share capital - 72,696 Net cash inflow from financing activities 76,700 8,496 Increase/(decrease) in cash and cash equivalents 1,513 ( 20,136 ) Cash and cash equivalents at beginning of year 76,973 97,109 Cash and cash equivalents at end of year 78,486 76,973 Analysis of cash and cash equivalents Cash and bank balances - liquid 78,303 66,991 Bank deposits - frozen - 1,502 Other investments - listed shares 183 8,480 78,486 76,973 6 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2002 1. General information Shenzhen Shenbao Industrial Co., Ltd. (the “Company”), formerly a state-owned enterprise incorporated in the People’s Republic of China (“PRC”) in 1975, obtained approval from the Shenzhen Municipal People’s Government to reorganize to a company limited by shares in 1991. On the approval of the People’s Bank of China, Shenzhen Branch, the Company issued A shares and B shares. They are listed on the Shenzhen Stock Exchange and carry equal rights. The Company is principally engaged in investment holding and the principal activities of its principal subsidiaries include manufacture and trading of food products and beverages. 2. Basis of presentation of the financial statements The consolidated financial statements have been prepared in accordance with the International Accounting Standards (“IAS”) issued by the International Federation of Accountants. These accounting standards differ from those used in the preparation of the PRC statutory financial statements, which are prepared in accordance with the PRC Accounting Standards. To conform to IAS, adjustments have been made to the PRC statutory financial statements. Details of the impact of such adjustments on the net asset value as at December 31, 2002 and on the operating results for the year then ended are included in note 27 to the financial statements. In addition, the financial statements have been prepared under the historical cost convention except for certain fixed asset items that are recorded at valuation basis. 3. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and of its subsidiaries (the “Group”) made up to December 31 each year. Except for those subsidiaries not consolidated for the reasons stated below, all significant inter-company transactions and balances within the Group have been eliminated on consolidation. (a) Subsidiaries A subsidiary is a company in which the Company holds, directly or indirectly, more than 50% of the equity interest as a long-term investment and/or has the power to cast the majority of votes at meetings of the board of directors/management committee. As at December 31, 2002, the Company held the following subsidiaries, all of which are incorporated in the PRC : 7 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2002 (cont’d) 3. Basis of consolidation (cont’d) (a) Subsidiaries (cont’d) i) Subsidiaries consolidated Effective Year of equity held Company name registration by the Company Principal activities Shenzhen Shenbao Industrial 1989 100% Trading and wholesaling Trading & Development Co., Ltd. Shenzhen Shenbao Properties 1998 100% Property management of Management Co., Ltd. Group’s properties Shenzhen Shenbao Bioproducts 1998 100% Manufacture of healthy Co., Ltd. food and additives, etc. Shenzhen Shenbao Tri-well Food & 1998 100% Manufacture of soft drinks, Beverage Co., Ltd. canned food and additives, etc. Shenzhen Shenbao Huacheng Foods 2002 51.67% Tea concentrates and Co., Ltd. instant brew ii) Subsidiaries not consolidated Effective Year of equity held Company name registration by the Company Principal activities Chaozhou Shenbao Development 1993 70% Property development Co., Ltd. Shenzhen Shenbao Fruit Juice 1994 70% Fruit juice Co., Ltd. Shenzhen Shenbao (Liaoyuan) 1992 53.5% Soft drinks Co., Ltd. Shenzhen Shenbao (Xinmin) 1994 52.05% Soft drinks Duoweijian Co., Ltd. The board of directors is of the opinion that the above subsidiaries not consolidated are not fully put into operation and their operating results and net assets have no significant effect on the Group. Therefore, they have not been included in the consolidation. After taking into consideration the expected impairment loss, investments in above companies are accounted for at cost less provision for diminution in value. 8 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2002 (cont’d) 3. Basis of consolidation (cont’d) (b) Associates An associate is a company in which the Company holds, directly or indirectly, not less than 20% and not more than 50% equity interest as a long-term investment and is able to exercise significant influence on this company. Except for the associate that is shown in note 14, investments in associates are accounted for by the Group using the equity method of accounting. The associates held by the Company as at December 31, 2002 are shown in note 13 to the financial statements. 4. Summary of significant accounting policies (a) Turnover Turnover represents the proceeds from the sales of goods, net of returns, discounts and sales tax, supplied to customers outside the Group. Turnover and profit of the Group are from the manufacture and sale of soft drinks and food products. (b) Fixed assets and depreciation Fixed assets are stated at cost or valuation less accumulated depreciation. Depreciation of fixed assets is provided using the straight-line method over the estimated useful lives, taking into account the estimated residual value of 5% of the cost or revalued amount, as follows : Plant and buildings 5-40 years Machinery and equipment 12 years Motor vehicles 9 years Furniture, fixtures and office equipment 5-6 years Construction-in-progress - Construction-in-progress represents the factory and office buildings under construction and is stated at cost. This includes costs of construction, machinery and furniture as well as interest charges and exchange differences arising from borrowings that are used to finance the construction during the construction period. No depreciation is provided on construction-in-progress prior to its completion. However, for construction-in-progress that are pending for further process and are functionally or technologically obsolete, their carrying amount are reduced to their recoverable amount by reference to the impairment loss. (c) Intangible assets The cost of land use rights is amortized on a straight-line basis over the lease term. The cost of technical know-how is amortized on a straight-line basis over its expected useful life of 20 years. 9 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2002 (cont’d) 4. Summary of significant accounting policies (cont’d) (d) Deferred assets Deferred assets are amortized on a straight-line basis over 5 years. (e) Investments Long-term investments are stated at cost less provision for permanent diminution in value whilst short-term investments are stated at the lower of cost and market value or net realizable value. (f) Cash and cash equivalents Cash and cash equivalents are short-term, highly liquid investments that are readily available to known amounts of cash and which are subject to an insignificant risk of changes in value. (g) Revenue recognition Revenue from the sale of goods is recognized when the risks and rewards of ownership of the goods are transferred to customers. Income from services is recognized when it is probable that the economic benefits associated with the transaction will flow to the Group, the stage of completion of the transaction can be measured reliably and the costs incurred and expected to be incurred for the transaction can be measured reliably. (h) Inventories Inventories are valued at the lower of cost (using weight-average method) and net realizable value. Cost comprises direct materials, direct labor cost and an appropriate portion of overheads. Net realizable value is calculated as the estimated selling price less all further costs of production and the related costs of marketing, selling and distribution. (i) Foreign currency conversion The financial statements are expressed in Renminbi. Transactions in foreign currencies are translated at the rates prevailing at the date of transactions. Monetary assets and liabilities in foreign currencies are translated at the rates prevailing at the balance sheet date. Exchange differences that are attributable to the translation of foreign currency borrowings for the purpose of financing the construction of factory and office buildings, plant and machinery and other major fixed assets for periods prior to their being in a condition to enter into services are included in the cost of the fixed assets concerned. Other exchange differences are dealt with in consolidated income statement. 10 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2002 (cont’d) 4. Summary of significant accounting policies (cont’d) (j) Impairment loss At each balance sheet date, the Group reviews the carrying amounts of its 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. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Any impairment loss arising is recognized as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset 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 recognized for the asset in prior years. A reversal of an impairment loss is recognized as income immediately. (k) Provisions Provisions are recognized when the Group has a present legal or constructive obligation subsequent to a past event, which will result in a probable outflow of economic benefits that can be reasonably estimated. 5. Other revenue 2002 2001 RMB’000 RMB’000 Investment income 17,377 2,274 Transfer from VAT of local-product-local-sale 1,957 2,017 Rental income from equipment 2,559 - Revenue from staff housing scheme 1,831 - Profit from co-operation in land development project - 25,029 Profit from transfer of land use rights - 1,884 Consultancy fee income - 626 Rental income less direct outgoings - 206 Other income 287 365 24,011 32,401 11 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2002 (cont’d) 6. Exceptional items 2002 2001 RMB’000 RMB’000 Loss from guarantees 53,742 - Additional premium of land use rights 1,943 - Amortization of premium in associates 1,695 - 57,380 - Loss from guarantees The Company provided irrevocable guarantees to the banks in respect of the loans advanced to Shenshen South Tongfa Co., Ltd. and Guangdong Sunrise Holdings Co., Ltd. (formerly known as Shenzhen Lionda Holdings Company Limited) that had defaulted payment on maturity. As the court had made the rulings that the Company was jointly liable for the banks’ claims, the Company’s principal and interest payment obligations for these companies were recorded as an expense under exceptional items for the year. Additional premium of land use rights The Company previously transferred part of land use rights to other companies with income being recognized in the period in which the transfer was made. Subsequently and in accordance with the regulations, the Company needed to pay additional premium of land use rights to government. The additional premium payment in relation to the above transferred land use rights was recorded as an expense under exceptional items for the year. Amortization of premium in associates The Company previously transferred certain land use rights as part of investment cost to an associate. In accordance with the regulations, the Company needed to pay additional premium payment of the above land use rights. The resulting difference between the revised cost of investment and the equity interests of this associate was recorded as premium. The premium is amortized on a straight-line basis over the period of 10 year with an annual amortization amount of RMB339,000. The amortization charge for the year was RMB1,695,000 and had included an amount of RMB1,356,000 that should have been charged in prior years. 12 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2002 (cont’d) 7. Loss before taxation 2002 2001 RMB’000 RMB’000 Loss before taxation has been arrived at : After charging : Provision for impairment loss of fixed assets 8 27,367 Loss on disposal of fixed assets 38 - Amortization of deferred assets 23 520 Provision for impairment loss of other investments - 4,942 Provision for obsolete inventories 257 - Provision for bad debts 3,357 - Loss from guarantees 53,742 - Additional premium of land use rights 1,943 - Amortization of premium in associates 1,695 - Depreciation 19,559 7,576 Amortization of intangible assets 1,207 664 Interest expense 3,241 4,108 Exchange loss 2 1 and after crediting : Profit from disposal of other investments 15,842 2,274 Dividends from other investments 1,535 - Profit from transfer of land use rights - 1,884 Reversal of provision for obsolete inventories - 3,330 Reversal of bad debt provision - 1,427 Interest income 744 326 8. Taxation PRC income tax is determined by reference to the profit reported in the audited financial statements under PRC Accounting Standards, and after adjustments for income and expense items that are not assessable or deductible for income tax purposes. It is provided at the rate of 15% on the estimated assessable income for the year. 9. Loss per share The calculation of the basic loss per share is based on the current year’s loss of RMB53,394,000 (2001 - loss of RMB3,387,000) attributable to the shareholders and on the weighted average number of 181,923,088 shares (2001 - 181,506,228 shares) in issue during the year. 13 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2002 10. Fixed assets Furniture, Plants & Machinery Motor fixtures & buildings & equipment vehicles office equipment RMB’000 RMB’000 RMB’000 RMB’000 Cost/valuation Balance as at January 1, 2002 52,466 91,304 12,183 3,505 Increase 3,075 7,424 1,919 1,385 Decrease ( 702 ) ( 147 ) ( 581 ) ( 21 Balance as at December 31, 2002 54,839 98,581 13,521 4,869 Accumulated depreciation Balance as at January 1, 2002 ( 27,245 ) ( 78,725 ) ( 8,775 ) ( 3,015 Increase ( 239 ) ( 17,623 ) ( 1,292 ) ( 413 Decrease 54 110 552 - Reclassification ( 21,285 ) 21,351 - ( 66 Balance as at December 31, 2002 ( 48,715 ) ( 74,887 ) ( 9,515 ) ( 3,494 Net book value Balance as at December 31, 2002 6,124 23,694 4,006 1,375 Balance as at December 31, 2001 25,221 12,579 3,408 490 The Group’s fixed assets were revalued by Shenzhen Assets Valuation Office on July 31, 1991. The revaluation surplus had been credited to capital reserve 14 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2002 (cont’d) 11. Intangible assets Land use rights Others Total RMB’000 RMB’000 RMB’000 Cost Balance as at January 1, 2002 20,593 - 20,593 Restatement 3,019 - 3,019 Increase 7,236 17,000 24,236 Balance as at December 31, 2002 30,848 17,000 47,848 Accumulated amortization Balance as at January 1, 2002 ( 2,908 ) - ( 2,908 ) Restatement ( 3,019 ) - ( 3,019 ) Increase ( 470 ) ( 737 ) ( 1,207 ) Balance as at December 31, 2002 ( 6,397 ) ( 737 ) ( 7,134 ) Net book value Balance as at December 31, 2002 24,451 16,263 40,714 Balance as at December 31, 2001 17,685 - 17,685 Land use rights : (1) Land use rights for land of 74,528 square meters located at Henggang Town, Shenzhen : These have a useful life of 50 years up to December 2043. The increase of the value was additional premium for land use rights. (2) Land use rights for land of 3,000 square meters located at the center of Longgang Town, Shenzhen : This piece of land is for commercial use and has a total construction area of 5,856 square meters. The land use rights have a useful life of 70 years up to February 2063 and their entitlement was due to an exchange of land use rights for land located at Huaqiao Village, Henggang Town, Shenzhen, which had been taken back by the local government. 15 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2002 (cont’d) 12. Deferred assets Total RMB’000 Cost 1,383 Accumulated amortization ( 1,383 ) Net book value at December 31, 2002 - Net book value at December 31, 2001 23 13. Interests in associates 2002 2001 RMB’000 RMB’000 Share of net assets 133,789 123,307 Premium in associates 3,390 - Amortization of premium ( 1,695 ) - 1,695 - Interest in associates 135,484 123,307 As at December 31, 2002, particulars of the associates are set out as follows : Effective Year of equity held Company name registration by the Company Principal activities Shenzhen Pepsi-Cola Beverage Co., Ltd. Shenzhen 40% Pepsi-Cola beverages Shenzhen Agriculture Business Co., Ltd. Shenzhen 20% Agricultural technology and consultancy, internet development, etc. 14. Other investments 2002 2001 RMB’000 RMB’000 Subsidiaries not consolidated, at cost 42,887 50,087 Associates not accounted for under equity method 2,870 2,870 Listed shares, at cost 183 8,480 Unlisted shares, at cost 17,809 17,809 63,749 79,246 Provision for impairment loss ( 21,191 ) ( 21,191 ) 42,558 58,055 16 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2002 (cont’d) 14. Other investments (cont’d) Unconsolidated subsidiaries Chaozhou Shenbao Development Co., Ltd. with registered share capital of RMB14,280,000, was planned to be a property development enterprise. The actual investment of RMB21,026,000, which had been fully paid by the Company, had exceeded the agreed 70 percent of its share capital. However, it has not been put into normal operation since its establishment. Currently, Chaozhou Shenbao Development Co., Ltd. owns a piece of land of 72,000 square meters at cost of RMB17,753,000 with a useful life until December 2043. It also owns fixed assets, including properties, at cost of RMB2,070,000. The Company has made an impairment loss provision on this investment based on the anticipated loss. Shenzhen Shenbao Fruit Juice Co., Ltd. with registered share capital of RMB16,500,000, was planned to be involved in fruit juice production. The Company fully paid the investment amounting to RMB16,500,000, which had exceeded the agreed 70 percent of its share capital. However, it has not been put into actual production after its establishment. Currently, Shenzhen Shenbao Fruit Juice Co., Ltd. owns a set of fruit juice production facilities. The Company has made an impairment loss provision on this investment based on the anticipated loss. Shenzhen Shenbao (Liaoyuan) Co., Ltd. is registered at Liaoyuan. The effective equity interest held by the Company is 53.5%. The main business activity is soft drinks production. It has been dormant since its establishment because of the lack of capital. Thus, impairment loss has been fully provided. Shenzhen Shenbao (Xinmin) Duoweijian Co., Ltd. is registered at Xinmin. The effective equity interest held by the Company is 52.05%. The main business activity is soft drinks production. It has been dormant since its establishment because of the lack of capital. Thus, impairment loss has been fully provided. An associate not accounted for under equity method The Company held an effective equity interest of 49.14% in Shenzhen Shenbao (Xinmin) Food Co., Ltd. It has been dormant since its establishment because of the lack of capital. Thus, impairment loss has been fully provided. 17 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2002 (cont’d) 15. Inventories 2002 2001 RMB’000 RMB’000 Raw materials 6,694 5,846 Packing materials 8,025 6,338 Finished goods 4,763 2,565 Work-in-progress 1,042 - Sub-contracting, consignment and other materials 5,583 6,027 Provision for obsolescence ( 7,615 ) ( 7,358 ) 18,492 13,418 16. Amounts due from related companies 2002 2001 RMB’000 RMB’000 Guangdong Sunrise Holdings Co., Ltd. 8,853 4,182 (formerly known as Shenzhen Lionda Holdings Company Limited Shenzhen Agricultural Products Co., Ltd. 1,160 - 10,013 4,182 17. Accounts receivable 2002 2001 RMB’000 RMB’000 Amounts receivable 44,247 28,335 Provision for bad debts ( 15,433 ) ( 15,231 ) 28,814 13,104 18. Prepayments, deposits and others receivable 2002 2001 RMB’000 RMB’000 Advance payments 1,764 275 Prepayments 27 296 Others receivable 71,240 70,017 73,031 70,588 Provision for bad debts ( 20,997 ) ( 17,842 ) 52,034 52,746 18 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2002 (cont’d) 19. Amount due to a related company 2002 2001 RMB’000 RMB’000 Shenzhen Investment Administration Co. 6,201 3,510 20. Short-term bank loans 2002 2001 Note RMB’000 RMB’000 Bank loans - secured 25 40,000 13,800 Bank loans - unsecured but guaranteed 60,000 24,000 100,000 37,800 The above loans bear interest at normal commercial lending rates. 21. Share capital 2002 2001 RMB’000 RMB’000 Registered, issued and paid-up A shares of RMB1 each 155,787 155,787 B shares of RMB1 each 26,136 26,136 181,923 181,923 A shares, listed and tradable 39,941 39,941 B shares, listed and tradable 26,136 26,136 66,077 66,077 A shares, listed but temporarily not tradable 115,846 115,846 181,923 181,923 19 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2002 (cont’d) 22. Reserves According to the corporation law and relevant regulations of a joint stock limited company, the Company’s specified profit should be classified as capital reserves, which include share premium, surplus on revaluation of fixed assets and other investments, etc. Capital reserves are normally used for issue of new shares, or for write-off or permanent provision when foreign investments are revalued. Statutory surplus reserves comprise statutory reserve and statutory public welfare fund. The Company is required to transfer an amount of not less than 10% of the profit after making up the accumulated loss to statutory reserve until it is up to 50% of the registered share capital. Statutory reserve can be used to cover current year loss or for issue of new shares. The amount of statutory reserve to be utilized for issue of new shares should not exceed an amount such that the balance of the reserve will fall below 25% of the registered share capital after the issue of new shares. The Company is also required to transfer 5% of the profit after making up the accumulated loss to statutory public welfare fund. Statutory public welfare fund shall only be applied for the collective welfare of the Company’s employees. The movements of reserves and retained earnings during the year are as follows : Statutory Retained Capital surplus earnings reserves reserves /(loss) Total RMB’000 RMB’000 RMB’000 RMB’000 As at January 1, 2002 108,700 37,621 1,502 147,823 Loss for the year - - ( 53,394 ) ( 53,394 ) Transfer from reserves as a result of over- transfer in prior years (1) - ( 4,011 ) 4,011 - Reversal of capital reserves over-provided in prior years (2) ( 210 ) - - ( 210 ) As at December 31, 2002 108,490 33,610 ( 47,881) 94,219 (1) There has been an opening adjustment on statutory surplus reserves in the financial statements for the year ended December 31, 2002 under the PRC Accounting Standards, within which the sums of RMB2,674,000, and RMB1,337,000 from statutory reserve and statutory public welfare fund respectively are transferred back to retained earnings. The total sum transferred backwards is RMB4,011,000. (2) It represents reversal of interests in associates in the amount of RMB210,000 that was previously over-provided in prior years. 20 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2002 (cont’d) 23. Contingent liabilities As at December 31, 2002, the Company had provided irrevocable guarantees for bank loans granted to other related companies as set out below : Name of related company Guaranteed loans Total RMB HK$ US$ RMB ’000 ’000 ’000 ’000 Shenzhen China Bicycle Company (Holdings) Limited (1) 7,000 - 800 13,640 Guangdong Shengrun Holding Co., Ltd. (2) - 32,000 - 34,240 7,000 32,000 800 47,880 (1) Shenzhen China Bicycle Company (Holdings) Limited is a listed company. It is undergoing corporate reorganization and the major shareholder has now been changed to China Huarong Asset Management Corporation. Although, this listed company is still in the process of debt restructuring process, a profit for the year has been anticipated. The Company expected that the debt issue could be properly resolved. (2) Guangdong Sunrise Holdings Co., Ltd. (formerly known as Shenzhen Lionda Holdings Company Limited) is a listed company. Its major shareholder Shenzhen Investment Administration Co. is also the Company’s registered major shareholder. The Company expected that the debt issue could be properly resolved. 24. Related parties and transactions The Company had the following material transactions with the following related parties : 2002 2001 Name of company Particulars RMB’000 RMB’000 Shenzhen Pepsi-Cola Beverage Steam supply - 3,221 Co., Ltd. Rental income - 5,040 Guangdong Sunrise Holdings Loan principal and Co., Ltd. interest payment for this company 4,671 4,182* (receivable at year end) 8,853 4,182* Shenzhen South Tongfa Loan principal and Co., Ltd. interest payment for this company 24,371 - (receivable at year end) - - * Formerly known as Shenzhen Lionda Holdings Company Limited 21 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2002 (cont’d) 25. Pledge of assets The Company pledged fixed deposits RMB40,000,000 to secure the short-term bank loans of RMB40,000,000. 26. Financial instruments Financial assets of the Group include cash and bank balances, accounts receivable, others receivable, prepayments, deposits and amounts due from related companies. Financial liabilities include short-term bank loans, accounts payable, others payable, amount due to a related company and accrued expenses. (a) Credit risk Cash and bank balances : The Group’s bank balances are mainly deposited in the banks and financial institutions situated in the PRC. They do not have a significant exposure to credit risk. Accounts receivable : As adequate provision has been made, the Group does not have a significant exposure to any individual customer or counterpart. The major concentrations of credit risk arise from exposures to a substantial number of accounts receivable that are mainly located in the PRC. (b) Fair value The fair value of financial assets and financial liabilities is not materially different from their carrying amount. The carrying value of short-term borrowings is estimated to approximate its fair value based on the borrowing terms and rates of similar loans. Fair value estimates are made at a specific point in time and based on relevant market information and information about the financial instruments. These estimates are subjective in nature and involve uncertainties on matters of significant judgement, and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. 22 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2002 (cont’d) 27. Impact on profit/(loss) attributable to shareholders and net asset value as reported by the PRC Certified Public Accountants Profit/(loss) attributable to Net shareholders asset value RMB’000 RMB’000 As reported by PRC Certified Public Accountants 10,800 274,202 Adjustments to conform to IAS : Loss from guarantees ( 50,396 ) - Additional depreciation for unused fixed assets ( 10,499 ) - Additional premium of land use rights ( 1,943 ) - Amortization of premium in associates ( 1,356 ) - Unidentified payable reversed as income - 1,067 Interest capitalization on land use rights - 873 As restated in conformity with IAS ( 53,394 ) 276,142 28. Language The translated English version of the financial statements is for reference only. Should any disagreement arise, the Chinese version shall prevail. 29. Comparative figures Certain comparative figures have been reclassified so as to conform to the current year’s presentation. 23