粤高速Ａ(000429)粤高速2002年年度报告（英文版）

Guangdong Provincial Expressway Development Co., Ltd. Annual Report for the Year 2002 The Board of Directors of the Company guarantees that there are no significant omissions, fictitious or misleading statements in the Report and we will accept individual and joint responsibilities for the truthfulness, accuracy and completeness of the Report. Chairman of board of directors Mr. You Guojing, General Manager of the Company Mr. Cao Xiaofeng and Chief Accountant of the Company Mr. Xiao Laijiu state: Financial report in the annual report 2002 is true and complete. Contents: I. Company Profile II. Summary of Financial Statements and Financial Indicators III. Changes in Share Capital and Structure of Shareholding IV. Directors, Supervisors, Senior Management and Staff V. Governance Structure of Company VI. Shareholders’ General Meeting VII. Report of the Board of Directors VIII. Report of the Supervisory Board IX. Significant Events X. Report of the Auditors XI. Document for Reference This Report is written in Chinese and English. If the two versions vary in translation, the Chinese version shall prevail. March 2003 1 I. Company Profile (i) Legal Name of the Company Name in Chinese (registered name): 广东省高速公路发展股份有限公司 Name in English: Guangdong Provincial Expressway Development Co., Ltd. Abbreviation in English: GPED (ii) Legal Person Representative: Mr. You Guojing (iii) Secretary of the Board of Directors: Mr. Huo Yanbin Telephone: (020) 83731365 (020)-83731388-230 E- mail: ybhuou@163.net Authorized Representative: Ms. Zuo Jiang Telephone: (020) 83731365 Fax: (020)-83731384 E- mail: zeozj@163.net (iv) Registered address: 85 Baiyun Road, Guangzhou, Guangdong Province Office address: 85 Baiyun Road , Guangzhou, Guangdong Province Postal code: 510100 Web Address: www.gpedcl.com.cn E-mail: gpedcl@21cn.com gpedcl_gzb@21cn.com (v) For information disclosure: Newpapers: Securities Times China Securities Shanghai Securities News Ta Kong Pao (H.K.) Hongkong Commercial Daily Web address for Publication of Annual Report (appointed by the China Securities Regulatory Commission): www.cninfo.com.cn Address for Reference of Annual Reports: 85 Baiyun Road, Guangzhou, Guangdong Province. (vi) Listing Stock Exchange: Shenzhen Stock Exchange Abbreviations and codes for the shares: Yue Gaosu A-000429 Yue Gaosu B-200429 (vii) Relevant information: 1. First Registration Date of the Company: February 9th, 1993Company's First Registered Address: 4/F, 503 Dong Feng Zhong Lu, Guangzhou, Guangdong Province 2 2. Company's Business Registration Number: 企股粤总副字第 002875 3. Company's Tax Registration Number: 440102190352102 4. Company's Auditors: Yangcheng Certified Public Accountants Co., Ltd. Address: 25th Floor, Jian Li Bao Building, 410 Dong Feng Zhong Lu, Guangzhou Ernst & Young Address: Rm.1110-1111, Main Office Tower, Guangdong Int'l Hotel, 339 Huanshi Dong Lu, Guangzhou, China 3 II. Summary of Financial Statements and Financial Indicators 1.Gross Profit and the Components of GPED (hereinafter “the Company”) for Year 2002: Unit: RMB yuan Financial highlights and indicators Year 2002 Gross profit 405,976,517.31 Net profit 171,955,320.42 Net profit less nonrecurring gain or loss 191,140,498.94 Profit from main business 485,892,982.63 Profit from other businesses 10,938,964.23 Profit from operating activities 419,888,295.98 Income from investing activities -8,185,173.38 Income from grant 0.00 Net revenue and expenditure from -5,726,605.29 non-operating activities Net cash flow from operating activities 355,915,982.54 Net increment in cash and cash -329,427,880.86 equivalent Note1: Except for the financial statements audited under PRC Accounting Standards, the Company also prepared financial statements in accordance with International Accounting Standards ("IAS") for the reference of overseas investors. Net profit for the year 2002 is RMB 171,955,320.42 under PRC Accounting Standards audited by domestic Accountant and RMB 141,996,000.00 under IAS audited by International Accountants respectively. Difference of net profit between the two standards is RMB 29,959,320.42. As for the reasons for the difference, please refer to part 4 Supplemental Information on Account (1) in this chapter. Note 2: Deducted nonrecurring gain or loss items and related amount of money: (unit: yuan) Nonrecurring gain or loss items Amount of money I. Includes: i) Gain or loss from related party transactions with fair transaction price ii) Gain or loss by handling share equity of -18,854,014.60 subsidiaries and investment units iii) Gain or loss by assets displacement iv) Tax return, reduction without formal approval 2,640,000.00 within a three-year availability period and other government grant in-aid v) Retroactive adjustment of net profit compared with the former period with change of account policies 4 vi) Others -7,316,627.50 Subtotal -23,530,642.10 II. Besides: i) Gain of loss from inventory shortage and overage of current assets ii) Payable or receivable capital occupancy -7,916,976.14 expense iii) Gain on investments in trust iv) Revenue and expenditure from other -5,726,605.29 non-operating activities Subtotal -13,643,581.43 Total -37,174,223.53 Influence of above items on income tax -17,989,045.01 Amount involved of above items -19,185,178.52 2. Financial statement summary and financial indicators for the profit and loss occurred ended December 31 of Year 2002: Financial 2001 2000 Highlights and 2002 Before After Before After Indicators adjustment adjustment adjustment adjustment Income from main business 753,156,947.00 625,400,744.00 625,400,744.00 251,100,909.99 251,100.909.99 (yuan) Net Profit 171,955,320.42 158,930,022.26 147,973,921.92 127,015,164.94 133,026,565.84 (yuan ) Total Assets 6,140,580,965.34 5,775,201,426.79 5,775,201,426.79 3,791,087,549.15 6,177,940,889.87 (yuan) Stockholders’ Equity(excluding minority 3,366,648,343.28 3,331,314,404.76 3,320,358,304.42 3,276,688,685.57 3,298,096,157.30 Stockholders’ Equity) (yuan) Fully Diluted Earnings Per 0.14 0.13 0.12 0.15 0.16 Share (yuan ) Weighted Earnings Per 0.14 0.13 0.12 0.16 0.17 Share (yuan) Earnings Per Share less Nonrecurring 0.15 0.12 0.11 0.16 0.16 Profit or Loss (yuan) Net Assets Per 2.68 2.65 2.64 3.91 3.94 Share (yuan) 5 Adjusted Net Assets Per Share 2.65 2.63 2.62 3.89 3.91 (yuan) Net Cash Flow Per Share from 0.28 0.38 0.38 0.19 0.19 Operating Activities Fully Diluted Rate of Return 5.11% 4.77% 4.46% 3.88% 4.03% on Net Assets Weighted Rate of Return on Net 5.05% 4.71% 4.39% 4.71% 4.90% Assets Weighted Rate of Return on Net Assets less 5.61% 4.51% 4.19% 4.90% 4.85% Nonrecurring Gain or Loss 3. Changes in Shareholders' Equity during the Year Total Revenue Public Undistributed Description Capital Stock Capital Surplus Reserves Welfare Fund Profit Shareholders’ Equity RMB RMB RMB RMB RMB RMB At Beginning 1,257,117,748.00 1,534,759,970.60 301,599,266.46 53,375,502.84 226,881,319.36 3,320,358,304.42 of Year Increase 46,493.24 25,793,298.06 8,597,784.02 20,450,247.56 46,290,038.86 during Year Decrease during Year At End of 1,257,117,748.00 1,534,806,463.84 327,392,564.52 61,973,286.86 247,331,566.92 3,366,648,343.28 Year Subsidiary received grant and capital Causes of surplus of the Draw of Draw of Earning in Earning in Revenue Public Change Company Reserves Welfare Fund 2002 2002 increased in accordance to shareholding 4. Supplemental Information on Account (1) Reason for difference of net assets and net profits in 2002 audited by domestic and foreign auditors: Unit: RMB one thousand yuan Net Profit Net Assets Under PRC Accounting Standards 171,955 3,366,648 Depreciation Adjustment, net value -6,422 -75,096 Goodwill amortization adjustment 5,479 13,161 6 and net value by purchasing share equity of cooperation companies and subsidiaries Adjustment on Interest from frozen -1,911 - capital Adjustment on non-achieved return 2,259 -41,211 from the transfer of Jiujiang Bridge Adjustment of deferred tax assets -822 3,213 written-off on non-achieved return from the transfer of Jiujiang Bridge Conformation and amortization of -2,859 16,011 other long-term assets Devaluation preparation of - -1,950 construction in progress Market value of short-term -3,452 4,274 investment at the end of period Net value, deferred tax confirmation -12,549 -12,549 of Fokai Expressway Co., Ltd. Extra tax in 2002 required by the -10,956 - Tax Bureau Dividends payable 125,712 Others 1,274 -4,065 Under International Accounting 141,996 3,394,148 Standards (“IAS”) Ernst & Young audited under the “IAS” (2) According to the Regulation on Information Disclosure for List Company No. 9 signed by Chinese Securities Regulatory Committee, Fully Diluted Rate of Return on Net Assets and Weighted Rate of Return on Net Assets of the Company in 2002 are as follows: 2002 Rate of Return on Net Earnings Per Share Profit in 2002 Assets Fully Diluted Weighted Fully Diluted Weighted Main Business Profit 14.43% 14.26% 0.39 0.39 Operating Profit 12.47% 12.33% 0.33 0.33 Net Profit 5.11% 5.05% 0.14 0.14 Net Profit less Nonrecurring Gain or 5.68% 5.61% 0.15 0.15 Loss 7 (3) Detailed Statement of Assets Devaluation Preparation Unit: RMB yuan Indicator Opening Increment in Return in Closing Balance Balance 2002 2002 I. Total of Bad debt provision 1,470,000.00 1,470,000.00 Among which：Receivables Other receivables 1,470,000.00 1,470,000.00 II. Total of devaluation preparation for 1,282,403.04 2,019,720.48 803,163.45 2,498,960.07 short-term investments Among which：Stock investment 1,282,403.04 803,163.45 479,239.59 Bond investment 2,019,720.48 2,019,720.48 III. Total of devaluation preparation for inventories Among which：Goods in stock Raw material IV. Total of devaluation preparation for 15,899,102.17 7,316,627.50 4,163,692.10 19,052,037.57 long-term investment Among which：Long-term share equity 7,316,627.50 7,316,627.50 investments Long-term bond investments Long-term real estate 15,899,102.17 4,163,692.10 11,735,410.07 investment V. Total of devaluation preparation for 7,000,000.00 7,000,000.00 fixed assets Among which：Building and structure Machinery VI. Total of devaluation preparation for immaterial assets Among which：Patent Ownership of trade mark VII. Total of devaluation preparation for construction in progress VIII. Total of devaluation preparation for loan in trust 8 III. Changes in Share Capital and Structure of Shareholding 1. Changes in Share Capital Increase/Decrease (+、-) Stock Share Capital Rights Increas Opening Balance Dividen Converted from Others Total Closing Balance Issue e Issue ds Capital Surplus A.Non-cir culating Share (1)Issue 512,142,945 512,142,945 Person Share Including: State-own 474,780,525 474,780,525 ed Shares Domestic 37,362,420 37,362,420 Legal Persons Shares Foreign Legal Persons Shares Others (2)Legal 166,694,053 166,694,053 Person Shares Domestic 121,694,053 121,694,053 Legal Person Shares Foreign 45,000,000 45,000,000 Legal Person Shares (3)Interna 0 0 l Staff Shares (4)Prefere ntial Shares or Others Total of 678,836,998 678,836,998 Non-Circ ulating Shares B.Circulat ing Shares (1)A 274,530,750 274,530,750 Shares for Domestic Investors (2)B 303,750,000 303,750,000 Shares for Foreign Investors (3) Shares Listed abroad for 9 Foreign Investors (4) Others Total of 578,280,750 578,280,750 Circulatin g Shares C. Total 1,257,117,748 1,257,117,748 2. Issuance of Shares and Listing a) The 1999 annual shareholders’ meeting has discussed and approved the resolution of offering 3 Rights for every 10 shares of 764.2562 million shares ended August 15, 2000 at a price of RMB11 per Right for additional fund, and the China Securities Regulatory Committee has verified and approved the resolution in the Document No. ZJGSZ [2000] 98. The Rights Issue was finished on August 30, 2000. Actual increment of Rights is 73.82225 million shares. (For the details, please refer to “The Rights Issue Prospectus” and “Announcement on Changes in Capital Stock and Listing Time for the Circulating Rights” published in Securities Times, China Securities, Shanghai Securities News, Ta Kung Pao (H.K.) and Hongkong Commercial Daily on August 1, 2000 and September 15, 2000 respectively.) b) There is no change of total share capital and structure in the reporting period. c) There is no internal staff share by the year 2002 ended December 31. 3. General Information about the Shareholders (i) There are 118,844 shareholders by the year 2002 ended December 31. (ii)Principal Shareholders Name of Increase/D Shareholdin Percenta Classificatio State of Nature of Shareholders ecrease in g at the end ge to n of shareholding shareholder 2002 of 2002 total shareholdin (pledged/fro (state-owned 注 share g zen) shareholder/f capital 4 oreign (circulating （％） /non-circula shareholder) ting) Guangdong 474,780,525 37.77% Non-circulat No State-owned Communication ing shares Group Co., Ltd. (“Communication Group”) IJM Overseas 65,055,917 5.18% Note 1 No Foreign legal Ventures Sdn. Bhd. person ("IJM") shares Guangdong 19,377,187 1.54% Non-circulat No Legal person 10 Provincial Freeway ing shares Co., Ltd. ("GPFC") Guangdong Financial 14,062,500 1.12% Non-circulat No Legal person Trust and Investment ing shares Co., Ltd. Shanghai Haitong 9,091,698 0.72% Circulating No Securities Business A shares Center in Shenzhen Xinhui Siqian 5,176,890 0.41% Non-circulat No Legal person Economic Society ing shares Shunde Foreign 4,218,750 0.34% Non-circulat No Legal person Economic Industry ing shares Development Company Nanhai Huaying 3,741,328 0.30% Non-circulat 3,741,328 Legal person Group Company ing shares Shunde 3,515,625 0.28% Non-circulat No Legal person Communication ing shares Development Company Labor Union of 3,353,905 0.27% Non-circulat No Legal person Jiangmen Highway ing shares Bureau (a) Among the top ten shareholders, Communication Group holds 474,780,525 State-owned shares on behalf of the government, while IJM OVERSEAS VENTURES SDN.BHD. holds 45,000,000 legal person shares and 20,055,917 B shares. (b) Among the top ten shareholders, Communication Group is the parent company of GPFC. Other shareholders of the Company are not related parties between each other, neither are they consistent actionist in accordance with the Management Regulation of Information Disclosure on Change of Shareholding for List Companies. (c) Among the top ten shareholders, all shares of the Company held by Nanhai Huaying Group Company were frozen judicially. (iii). Controlling Shareholders Guangdong Communication Group Co., Ltd is the biggest shareholder of GPED with Mr. You Guojing as the Legal Person Representative, which was founded on August 23rd, 2000. Communication Group is a state-owned company with registered capital of RMB 16.8 billion. The principal businesses of Communication Group are share equity management, assets reorganization, configuration optimizing; raising fund by means of mortgage, transfer of property rights, transformation in stock system; project investment, operation and management; communication infrastructure construction; highway and railway operation and technical development, application, consultation, service 11 in related industries; highways and railways passenger transport, as well as freight; shipping industry and related business overseas. 12 IV. Directors, Supervisors, Senior Management and the Staff 1. Directors, Supervisors and Senior Management (1) Shareholdings of Directors, Supervisors and Senior Management are as follows: Term of Opening Closing Name Job Title Sex Age Increase/Decrease office shareholding shareholding Chairman You Guojing of Board of male 59 2002-2005 23,000 23,000 0 Director Vice Chairman Zhu Xiaoling male 49 2002-2005 23,000 23,000 0 of Board of Director Zeng Director Zhaogeng male 45 2002-2005 46,202 46,202 0 Director CaoXiaofeng & General male 37 2002-2005 18,400 18,400 0 Manager Director/ Deputy General Huo Yanbin Manager/ male 36 2002-2005 15,300 15,300 0 Secretary of Board of Director Director/ Deputy General Xiao Laijiu male 38 2002-2005 15,300 15,300 0 Manager/ Chief accountant Su Yongdong Director male 50 2002-2005 15,300 15,300 0 Wang Tao Director male 40 2002-2005 15,300 15,300 0 Loy Boon Director Chen male 52 2002-2005 23,400 23,400 0 Independent Liu Qin male 37 2002-2005 0 0 0 Director Independent He Hongdi female 62 2002-2005 0 0 0 Director Chairman Lu Yongzheng of Board of male 56 2002-2005 18,400 18,400 0 Supervisor Li Dongshan Supervisor male 38 2002-2005 0 0 0 Xu Yan Supervisor female 48 2002-2005 44,550 44,550 0 Li Mei Supervisor female 33 2002-2005 94,050 94,050 0 Tu Huiling Supervisor female 42 2002-2005 43,425 43,425 0 Deputy Dong Guofeng General male 33 2002-2005 43,425 43,425 0 Manager Chief Yun Wujun male 47 2002-2005 15,300 15,300 0 Economist Wang Chief Jiachen male 38 2002-2005 33,580 33,580 0 Engineer Person in Peng Xiaofang charge of female 40 2002-2005 6,100 6,100 0 Internal Audit (2) Term of office of directors and supervisors in the shareholder units: 13 Mr. You Guojing, chairman of board of directors, holds the post of chairman of board of directors as well as secretary of the party committee of Communication Group. Mr. Zhu Xiaoling, vice chairman of board of directors, holds the post of director as well as general manager of Communication Group. Mr. Zeng Zhaogeng, director of the Company, holds the post of director as well as deputy general manager of Communication Group. Mr. Su Yongdong, director of the Company, holds the post of secretary of the party committee and director of GPFC. Mr. Wang Tao, director of the Company, holds the post of vice general manager of Guangdong Financial Trust and Investment Co., Ltd.. Mr. Loy Boon Chen, director of the Company, holds the post of director in IJM. Mr. Lu Yongzheng, chairman of supervisory board, holds the post of director as well as secretary of the discipline committee of Communication Group. Mr. Li Dongshan, supervisor of the Company, holds the post of deputy manager of Plan Finance and Audit Department of Communication Group. Ms. Xu Yan, supervisor of the Company, holds the post of deputy secretary of the party committee and chairlady of supervisory board of GPFC. (3) Annual payment Payment of directors and supervisors had been discussed and decided at the provincial shareholders’ general meeting, 1999. Total annual payment of the directors, supervisors and senior management made by the Company is RMB 1.4992 million. The first three high payment of directors adds up to RMB 420000, and the first three high payment of senior management adds up to RMB 420000. The 20 Directors, Supervisors and Senior Management of the Company draw their remuneration and allowance from the Company, and the classification of annual payment is as follows: Payment (RMB yuan ) Number of persons 40,000-70,000 12 70,000-100,000 4 100,000-150,000 4 (4) Change of directorship, supervisor and senior management in the reporting period and the cause: During the reporting period, the shareholders’ general meeting 2001 approved Mr. Liang Tang’s and Mr. How Seek Hook’s resignation from the directorship because of change of work. (5) Senior management According to the resolutions passed at the first meeting of the fourth board of 14 directors, Mr. Cao Xiaofeng was appointed general manager with a three years’ term of office, Mr. Huo Yanbin was appointed secretary to board of directors with a three years’ term of office, Mr. Xiao Laijiu was appointed deputy general manager and concurrently chief accountant of the company with a three years’ term of office, Mr. Huo Yanbin was appointed deputy general manager with a three years’ term of office, Mr. Dong Guofeng was appointed deputy general manager with a three years’ term of office, Mr. Yun Wujun was appointed chief economist with a three years’ term of office, Mr. Wang Jiachen was appointed chief engineer with a three years’ term of office and Ms. Peng Xiaofang was appointed to the pose of person in charge of internal audit with a three years’ term of office. 2. Staff Information By the end of 2002, the Company has 1027 full-time employees. Among which, 205 are management, 746 are toll collection workers, 33 are highway management and 67 are rear-service personnel. 155 have different kinds of title of a technical or a professional post, accounting for 15% of the total. Among which, 17 have senior title, 64 have middle rank title and 74 have primary title. Among the staff, 11 are graduates, 70 are undergraduates and 398 have a polytechnic school degree. There are 4 retired staff, who draw allowance from the Company. 15 V. Governance Structure of Company 1. Governance on of the Company The Company strictly satisfied the requirements set by Company Law, Securities Law as well as the requirements set by Chinese Securities Regulatory Commission, so as to upgrade legal person governance structure, form modern enterprise system and standardize operation of the Company. In the reporting period, the Company drew up and modified Articles of Association, Regulation on Examination of board of directors, Rules of Procedure for supervisory board and Independent Director System, which were approved by the shareholders general meeting. The Company finished the Self-check Report on List Companies Founding Modern Enterprise System on time. Governance structure of the Company is quite good without any difference between the stipulation set by Chinese Securities Regulatory Commission According to the documents signed by Chinese Securities Regulatory Commission, The Company added two independent directors in the first half of 2002, which accounts for 18% of the directory board. The Company will increase the number of independent director in the first half of 2003, so as to make sure that number of independent directors will accounts for one third of the directory board. 2. Performance of Independent Directors According to the Guild Opinion on Setting Up Independent Director in List Companies signed by Chinese Securities Regulatory Commission, the Company approved the proposal on establishing Independent Director System at the annual shareholders general meeting 2001 and agreed Mr. Liu Qin and Ms. He Hongdi to act as independent directors of the third board of directors. Mr. Liu Qin and Ms. He Hongdi were elected as independent directors of the fourth board of directors at the first provisional shareholders general meeting 2002. The two independent directors attended three shareholders’ general meetings and seven meetings of board of directors. They expressed independent opinion for significant related party transactions. 3. About Separation of Personnel, Assets and Finance between the Company and the Controlling Shareholder Guangdong Communication Group Co., Ltd. is the biggest shareholder of the Company, holding 474,780,525 shares, accounting 37.77% of total shares. The legal person governance of the Company is sound. The business, assets, personnel, finance and organization are managed separately. The Company carries on business and operation independently. 16 1) Independent Business Main business of the Company is toll collection and maintenance of Guangfo Expressway and Fokai Expressway, and investment in Shenzhen Huiyan Expressway Co., Ltd., Guangdong Maozhan Expressway Co., Ltd., Guangdong Guanghui Expressway Co., Ltd., Jingzhu Expressway Guangzhu Section Co., Ltd., Zhongjiang Expressway Co., Ltd. and Guangdong Gaosu Science and Technology Investment Co., Ltd. as well. The Company possesses independent operating capacity with independent and complete business, and the main business is outstanding. Decisions of the Company concerning business were made independently, without any interference from the controlling shareholder. As for the related party transaction, conditions and contents of transactions are based on the rules of fair transactions, not hurting interests of the Company and other shareholders. Information disclosure for the related party transactions is complete, timely and accurate, which did not have negative influence on the Company. 2) Complete Assets Property right of the Company is clear. Assets invested in the Company by the shareholders, independent and complete, are with clear property right. All of the investment is fully paid, and formalities of changing property right have been finished. 3) Independent Personnel As personnel management is concerned, the General Manager, Deputy General Manager and the Secretary of the Board of Directors, each of them has specific full-time responsibilities and none of them has a part-time job in the parent company. All of them are paid by the Company. All of the directors and supervisors of the Company were elected with legal procedures. The general manager, chief accountant, chief economics and chief engineer are employed by the board of directors directly, while the management is employed by the general manager directly. The Company has the power of personnel appointment and removal. 4) Independent Finance In finance, the Company has set up independent financial department with independent accounting system and the finance management systems for its subsidiaries. The Company establishes a separate bank account and pay taxes separately. There is no capital deposited in accounts of finance company or settlement center of the big shareholders. Decisions of the Company concerning finance were made independently, without any interference from the big shareholders. 5) Independent Organization Operation of board of directors, supervisory board and other internal organization is independent, and the frame is complete and independent. 17 4. Establishment and implement of Check, Excitation and Reward System for Senior Management In the reporting period, the Company established and further amplified check system for senior management. The Company carried on regular check according to the clear and definite responsibility and standards for every senior management. The Company submitted the proposal for rewarding senior management based on the operation achievements in the audit report issued by the certified public accountants. The Company will carry out the proposal after it approved by the board of directors and the shareholders’ general meeting. 18 VI. Shareholders' General Meeting 1. The Company convened one annual shareholders' general meeting and two provisional shareholders' general meetings. (1) Annual shareholders’ general meeting, 2001 Convention of the annual shareholders’ general meeting, 2001 of the Company was passed at the twelfth meeting of the third board of directors. The notice of meeting convention had been published in Securities Times, China Securities, Shanghai Securities News, Ta Kung Pao (H.K.) and Hongkong Commercial Daily on March 26th, 2002. The annual shareholders’ general meeting of Guangdong Provincial Expressway Development Co., Ltd. for 2001 was held on April 26, 2002 in the mutifuntuinal meeting room on 4/F Jinlilai Digital Network Building, 138 Ti Yu Dong Lu. There were 9 shareholders or their proxies present at the meeting, representing 573,424,196 shares and 45.61% of the total share capital of 1,257,117,748 shares. Of the shareholders attending the meeting, 6 shareholders holding Domestic Investment Shares and 3 shareholders holding Foreign Investment Shares representing 508,349,079 shares and 65,075,117 shares respectively, in compliance with relevant stipulations set forth in the Company Law and the Articles of Association of the Company. Guangdong Provincial Notary Office notarized the meeting. The meeting examined and adopted the following resolutions by ballot: (i) 2001 Work Report of the board of directors; (ii) 2001 Work Report of the supervisory board; (iii) 2001 Business Report of general manager; (iv) 2001 Final Financial Report; (v) The proposal for 2001 profit distribution; (vi) The annual report and abstract for 2001; (vii) The proposal for Allocating for bonus; (viii) The proposal for purchasing 20% share equity and related shareholders loan of Jingzhu Expressway Guangzhu Section; (ix) The proposal for Constructing Zhongshan-Jiangmen Expressway Project through Cooperation; (x) The proposal for acquiring additional 10% sahre equity of Guangdong Gaosu Sincience and Technology Investment Co., Ltd. (xi) The proposal for enganging Certified Public Accountants; (xii) The proposla for amending part of Articles of the Articles of Association of the Company; (xiii) The proposal for establishing the Rules of Procedures of the shareholders’ general meeting; (xiv) The proposal for establishing Independent Director System; (xv) The proposal for amingding and reformulating the Rules of Procudure of the board of directors; 19 (xvi) The proposal for amending and reformulating of the Rules of Procudure of the supervisory board; (xvii) The proposal for changing part of directors; (xviii) The proposal for nominating the candidates for independent directors of the third board of directors; (xix) The proposal for matters concerning the subsidy and expenses of independent directors; (xx) The proposal for providing guarantee and counter guarantee for issuing convertible corporate bonds; (xxi) The proposal concerning the particulars about the utilization of the funds previously raised and the special auditors’ report; (xxii) The proposal on revision and reworking of the pan for issuing convertible corporate bonds; the meeting examined item by item and adopted the articles of the plan for issuing convertible company bonds; The resolutions were published in Securities Times, China Securities, Shanghai Securities News, Ta Kong Pao (H.K.) and Hongkong Commercial Daily on April 27th, 2002. (2) The first provisional shareholders’ meeting of the Company for 2002 Convention of the first provisional shareholders’ meeting of the Company for 2002 was passed at the fourteenth meeting of the third board of directors. The notice of meeting convention had been published in Securities Times, China Securities, Shanghai Securities News, Ta Kung Pao (H.K.) and Hongkong Commercial Daily on August 19th, 2002. The first provisional shareholders’ general meeting of Guangdong Provincial Expressway Development Co., Ltd. (hereinafter the Company) for 2002 was held on September 27, 2002 in Mahui room, 4/F Guangdong Foreign Businessman Club Center. There were 4 shareholders or their proxies present at the meeting, representing 573,276,129 shares and 45.60% of the total share capital of 1,257,117,748 shares. Of the shareholders attending the meeting, 3 shareholders holding Domestic Investment Shares and 1 shareholder holding Foreign Investment Shares representing 508,220,212 shares and 65,055,917 shares respectively, in compliance with relevant stipulations set forth in the Company Law and the Articles of Association of the Company. Guangdong Provincial Notary Office notarized the meeting. The following resolutions have been reviewed and approved: (i) Proposal on application for bank loan credit granting; (ii) Proposal of the working report of the third board of directors; (iii) Proposal of the working report of the third supervisory board; (iv) Proposal on expiration of term of office of the third board of directors and election of the fourth board of directors of the Company; (v) Proposal on expiration of term of office of the third supervisory board and 20 election of the fourth supervisory board of the Company; (vi) Proposal on remuneration for the directors in the fourth board; (vii) Proposal on remuneration for supervisors of the fourth supervisory board; The resolutions were published in Securities Times, China Securities, Shanghai Securities News, Ta Kong Pao (H.K.) and Hongkong Commercial Daily on September 28th, 2002. (3) The second provisional shareholders’ meeting of the Company for 2002 Convention of the second provisional shareholders’ meeting of the Company for 2002 was passed at the provisional meeting of the third board of directors by telecommunication. The notice of meeting convention had been published in Securities Times, China Securities, Shanghai Securities News, Ta Kung Pao (H.K.) and Hongkong Commercial Daily on September 19th, 2002. Board of directors of Guangdong Provincial Expressway Development Co., Ltd. held the second provisional shareholders general meeting, 2002 on October 21st, 2002 by telecommunication. There were 4 shareholders or their proxies present at the meeting, representing 573,276,129 shares and 45.60% of the total share capital of 1,257,117,748 shares. Of the shareholders attending the meeting, 3 shareholders holding Domestic Investment Shares and 1 shareholder holding Foreign Investment Shares representing 508,220,212 shares and 65,055,917 shares respectively, in compliance with relevant stipulations set forth in the Company Law and the Articles of Association of the Company. Guangdong Provincial Notary Office notarized the meeting. The following resolution has been reviewed and approved: Agreement on circulating of the 45,000,000 non-listed foreign shares of the Company originally held by IJM Overseas Ventures Sdn. Bhd. The proposal will take effect after receiving approvals of Foreign Trade and Economic Cooperation Ministry of P.R.C., Chinese Securities Regulatory Commission and Shenzhen Stock Exchange. After circulating of the shares, total share capital of the Company remains the same. Circulating B shares of the Company will increase from 303,750,000 shares to 348,750,000 shares, which accounts for 27.74% of total share capital of the Company. No. 20 in Articles Association of the Company will be modified accordingly. The resolutions were published in Securities Times, China Securities, Shanghai Securities News, Ta Kong Pao (H.K.) and Hongkong Commercial Daily on October 22nd, 2002. 2. Brief Introduction to the Reelection and change of Directors and Supervisors 1) The annual shareholders’ general meeting of the Company, 2001 discussed 21 and approved the resolution on approval of Mr.Liang Tang ‘s and Mr. How See Hook’s resignation from the directorship because of work transfer, and election of Mr. Wang Tao as directors of the third board of the Company. 2) The annual shareholders’ general meeting of the Company, 2001 discussed and approved Mr. Liu Qin and Ms. He Hongdi as independent directors of the third board of the Company. 3) Since the expiration of term of office of the third board of directors, Mr. You Guojing, Mr. Zhu Xiaoling, Mr. Zeng Zhaogeng, Mr. Cao Xiaofeng, Mr. Huo Yanbin, Mr. Xiao Laijiu, Mr. Su Yongdong, Mr. Wang Tao, Mr. Loy Boon Chen, Mr. Liu Qin, and Ms. He Hongdi are elected director of the fourth board of directors of the Company. Among which, Mr. Liu Qin and Ms. He Hongdi are independent directors. 4) Since the expiration of term of office of the third supervisory board, Mr. Lu Yongzheng, Mr. Li Dongshan and Ms. Xu Yan are elected supervisor of the fourth supervisory board. 5) A meeting for all staff of the Company was held in the meeting room of the Company on August 15, 2002. Ms. Li Mei and Ms. Tu Hui Ling were elected as the supervisors of the fourth Board of Supervisors by votes. 22 VII. Report of the Board of Directors 1.Analysis on operation China achieved a high rate of economic growth in 2002, and Guangdong realized a 10% rate of growth in economy. Together with the growth of district economic growth, traffic volume and toll collection of the expressway projects of the Company achieved big increase accordingly. Traffic Volume Increase of Toll collection Increase of in 2002 Decrease than in 2002 Decrease than (unit: one that of 2001 (unit: RMB that of 2001 million million yuan) vehicles) Guangfo Expressway 29.38 1.42% 287.16 18.59% Fokai Expressway 13.04 5.98% 424.78 22.01% Huiyan Expressway 11.15 23.60% 169.62 23.32% Maozhan Expressway 1.16 32.66% 32.73 31.60% Income from main business of the Company in 2002 is RMB 753 million, which is an increase of 20.43% than that of last year. Net profit of the Company in 2002 is RMB 171 million, which is an increase of 16.21% than that of last year. In the reporting period, cash flow from operating activities is RMB 321 million, while net increase of cash and cash equivalence is RMB –329 million. As ended December 31, 2002, asset liability ratio of the Company is 34.50%, and long-term liability accounts for 80.36% of the total liabilities. The Company possesses sufficient own capital and good assets liability structure without any dead loan, and faced low financial risks. In the reporting period, the Company carried out new assets operation, upgrading assets quality and improving profit-earning capability: The Company purchased 20% share equity of Jingzhu Expressway Guangzhu Section Co., Ltd. and had finished procedures including contract, articles of association, governmental approval and capital investment; the Company invested in Jiangzhong Expressway construction project, holding 15% share equity; the Company sell 25% share equity of Guangdong Jindaoda Expressway Economic Development Co., Ltd. Jingzhu Expressway Guangzhu Section has opened to traffic, which will become the new profit increase project with the high speed increase of traffic volume. Jiangzhong Expressway is under construction now, which is planned to be finished in 2005. In 2002, general financial status of the Company is quite good, and the comprehensive capabilities as well as the operative efficiency have been improved increasingly. In 2003, the Company will further enlarge and 23 strengthen the main business, and enhance the core competition capability. Guangfo Expressway Co., Ltd., the subsidiary of the Company, will carry on a big repair on Guangfo expressway in 2003. Construction time for the repair project is estimated to be one year. The repair project will bring about decrease of traffic volume on Guangfo expressway during the construction. On the other hand, the repair project will lead to the increase of construction expenses. The Company will strengthen project management, control project cost, improve project quality and standardize construction procedure in order to reduce the negative impact to the lowest degree. At the same time, the Company will go on with the matters concerning the transfer of share equity of Maozhan Expressway Co., Ltd. so as to further optimize assets status. 2.Operation of the Company in 2002 (1) Scope of the Main Operation and Summary of Operation Condition The Company belongs to the industry of infrastructure construction, with commercial development and operation of expressway and large bridges as its main business. It is one of the main organizations engaged in developing expressways and large bridges in Expressway System in Guangdong Province. The expressway industry is an industry with special support from the state, and the Company's operation benefits from the support of the industrial policy of the country. Income and profit of the main operation for the year 2002 is RMB 753,156,947.00 and RMB 485,892,982.63 respectively; both come from the toll collection on expressways and very large bridges. Details are as follows: Main Operation Operating Income Percentage (RMB yuan) Fokai Expressway Co., Ltd. 465,998,367.00 61.87% Guangfo Expressway Co., Ltd. 287,158,580.00 38.13% Main Operation Operating Income Percentage (RMB yuan) Fokai Expressway Co., Ltd. 281,329,890.53 57.90% Guangfo Expressway Co., Ltd. 204,563,092.10 42.10% (2) Operation and performance of main holding company and equity participant company: 1) Guangfo Expressway Co., Ltd.: The Company has a 75 percent interest in Guangfo Company, whose registered capital is RMB 200 million. Guangfo Company is in charge of construction and operation of Guangzhou-Foshan Expressway. Operation and management of Guangfo Company is road maintenance, toll collection, vehicle salvage and communication facilities 24 service such as logo and lane. In 2002, total assets of Guangfo Company is RMB 719,549,169.54, and net profit is RMB159,696,448.82. 2) Guangdong Fokai Expressway Co., Ltd.: The Company has a 51 percent interest in Fokai Company, whose registered capital is RMB 340 million. Business of Fokai Company is operation and management of Fokai Expressway, as well as salvage, maintenance, cleaning and spares supply. In 2002, total assets of Fokai Company is RMB 3,494,758,999.58, and net profit is RMB179,657,997.03. 3) Guangdong Gaosu Science and Technology Investment Co., Ltd.: The Company has an 95 percent interest in Science and Technology Company, whose registered capital is RMB 100 million. Business scope of Science and Technology Company is investment in science and technology industry. In 2002, total assets of Science and Technology Company is RMB 94,274,284.33, and net profit is RMB-9,593,545.02. 4) Shenzhen Huiyan Expressway Co., Ltd.: The Company has a 1/3 percent interest in Huiyan Company, whose registered capital is RMB 36 million. Huiyan Company is in charge of management and organization of the construction of Huiyan Expressway Shenzhen Section, and operation, management, repairs, maintenance and toll collection of the Expressway as well. Construction management of road and bridge, as well as project consultation. In 2002, total assets of Huiyan Company is RMB 554,279,069.82, and net profit is RMB 84,500,624.82. 5) Guangdong Maozhan Expressway Co., Ltd.: The Company has a 20 percent interest in Maozhan Company, whose registered capital is RMB 320 million. Business scope of Maozhan Company includes operation, maintenance and management of Dianbai-Zhanjiang Expressway and the association facilities. In 2002, total assets of Maozhan Company is RMB 2,090,339,100.49, and net profit is RMB –88,808,210.03. 6) Jingzhu Nan Expressway Guangzhu Section Co., Ltd.: The Company has a 20 percent interest in Guangzhu Company, whose registered capital is RMB 580 million. Business scope of Guangzhu Company is operation and management of Guangzhou-Zhuhai Expressway, as well as refueling, salvage, maintenance and spares supply. of Dianbai-Zhanjiang Expressway and the association facilities. In 2002, total assets of Guangzhu Company is RMB 5,045,829,890.76, and net profit is RMB –22,802,794.55. (3) Problems and difficulties arising in operation and the corresponding solutions In the reporting period, the main problems for the Company are profit increase 25 could not match the increase of assets as well as low return rate on net assets. After three times share equity financing, net assets of the Company increases at a high speed. Since investment in expressways with the raised capital just realized small profits in early stage, net profit of the Company could not increase simultaneously. Small profit in the early stage is related to the expressway industry itself. Confronted with the problems, the Company will strengthen toll collection management and sell part of assets with low profit-earning capability; on the other hand, the Company will control the expressways strictly in order to reduce operation cost. 3. Investment of the Company (1) Utilization of raised funds In the reporting period, there is no application of capital fund. (2) Progress of projects invested with own funds In the reporting period, the Company invested RMB 826.83 million, which is an increase of 34.30% (RMB 211.1641 million) than that of last year. Detail of the investments are as follows: (i) In accordance with the resolutions passed at the eleventh meeting of the third board of directors, the Company signed the Cooperation Contract on Establishing Zhongjiang Expressway Co., Ltd. and Construction Investment in Zhongjiang Expressway with Guangdong Highway Construction Company on March 21, 2002. Guangdong Highway Construction Company holds 85% share equity of Zhongjiang Expressway Co., Ltd. The Company holds 15% share equity of Zhongjiang Expressway Co., Ltd. The Company had invested RMB 45.23 million as ended December 31, 2002. 36.35% construction of Jiangzhong expressway had been finished. (ii) The company re-signed “The Contract for Cooperation in Construction and Operation of Guanghui Expressway” with Guangdong Changda Development Co., Ltd., Guangdong Zhujiang Highway and Bridge Investment Co. Ltd. and Huizhou Highway Development Company on July 14, 2000. According to the contract, the four parties would make investment jointly in construction and operation of the Guanghui Expressway project and the supporting facilities and service facilities concerned. The total investment is RMB6.7 billion, among which, 35% would be subscribed by each shareholder at one time and made by the shareholders according to the progress of the construction year by year. The registered capital of the project company is RMB 100 million. 30% of the share equity (RMB 30 million) will be invested by the Company. Besides the registered capital, the rest of the investment is to be made by the shareholders in accordance with the share equity percentage. Besides 26 the 35% capital in cash, the rest capital will be financed from the bank on pledge of project equity. In case shortage of bank loan or the budgetary estimate approved by the government is more than the investment estimate, the cooperation parties will, with the approval of board of directors, make further investment in the form of shareholders’ loan or more loans from bank loan in accordance with the share equity percentage. In the reporting period, the Company invested RMB 180 million in the project. The Company had invested RMB 390 million as ended December 31, 2002. 68.45% construction of Guanghui expressway had been finished. (iii) The Company signed the Contract on Share Equity Transfer, whose content is the transferring of 20% share equity and 20% shareholders’ loan of Jingzhu Expressway Guangzhu Section Co., Ltd., with Guangdong Highway Construction Company on March 21, 2002. The transaction price added up to be RMB 591.6 million. The delivery date is 0:00 November 1st, 2002. The contract had been approved by Guangdong Foreign Trade and Economic Cooperation Bureau in the document No. Yuewaijingmaozizi[2002]803. The Company had invested RMB 591.6 million as ended December 31, 2002. In the reporting period, net profit of Guangzhu Company is RMB –22,802,794.55. The Company achieved return on share equity investment RMB –0.3279 million and return on credit investment RMB 3.9152 million, and amortized balance of share equity investment RMB 1.2887 million. (iv) The Company signed Agreement I on Transferring Share Equity of Guangdong Gaosu Science and Technology Investment Co., Ltd. (hereinafter Keji Company) with Guangdong Provincial Highway and Bridge Construction Development Company on February 19, 2002. The Company invested RMB 10 million in purchasing 10% share equity of Keji Company from Guangdong Highway and Bridge Construction Development Company. The Company had invested RMB 10 million as ended December 31, 2002. At present, the Company holds 95% share equity of Keji Company. In the reporting period, net profit of Keji Company is RMB –9,593,545.02. The Company bore investment return RMB –9,038,594.58. 4. Analysis on financial position of the Company (1) Statement about the correcting of accounting errors In the 2002 Financial Statement of the Company, according to the relative articles of “Enterprise Accounting Standard – Changing of Accounting Policies, Accounting Estimating, and Corrections on Accounting Errors, a trace-back correction was undertaken on the calculating of taxations paid for 2001 and occurred during 2002. Correspondingly, the initial amount of 27 the Balance Sheet at Dec. 31, 2002 and the accumulated occurred amount carried in the Profit Allocation Statement of year 2001 were adjusted as described hereinafter. (i) According to the auditing results of enterprise income tax on Guangdong Fokai Expressway Co., Ltd. for year 2001, which carried in the “Report on the Clearing of Enterprise Income Tax for Year 2001” (2002) Yang-Zhuan-Shen-Zi No. 559, the income of RMB45,246,262,94 was subject for income tax by Guangdong Fokai Expressway Co., Ltd., basing upon the legal rate of tax at 33%, RMB14,931,266.77 should be payable for income tax. On preparing of the comparison financial statements for year 2001 and 2002, corrections were undertaken on this error. After deducting of the minorities shareholders’ liabilities, this action deducted the net profit and retained income of 2001 by RMB7,614,946.05. (ii) According to the notification of the taxation administration, Guangfo Expressway Co., Ltd. paid supplementary RMB4,454,872.38 of local income tax at the legal rate of 3% for year 2001. On preparing of the comparison financial statements for year 2001 and 2002, corrections were undertaken on this error. After deducting of the minorities shareholders’ liabilities, this action deducted the net profit and retained income of 2001 by RMB3,341,154.29. According to the above correction on accounting errors, the ‘undistributed profit at the beginning of year’ was deducted by RMB10,956,100.34. The figure after the adjustment was RMB226,881,319.36 (2) Analyses on the financial status and business operation results Unit: RMB yuan Indicators Increase or 2002-12-31 2002-1-1 Decrease (%) Cash and cash 131,937,987.12 461,365,867.98 -71.40% equivalence Long-term share 1,348,547,927.76 884,694,327.67 52.43% equity investment Long-term credit right 486,136,581.82 199,281,710.10 143.94% investment Total of long-term 1,839,829,365.58 1,090,418,890.57 68.73% investment Invisible assets 206,181,693.70 121,075,435.00 70.29% Other payables 31,506,574.56 132,882,590.06 -76.29% Total of long-term 1,702,677,779.24 1,402,925,786.26 21.37% liabilities Shareholders’ equity 3,366,648,343.28 3,320,358,304.42 1.39% Gross Assets 6,140,580,965.34 5,775,201,426.79 6.33% Year 2002 Year 2001 Main Business Profit 485,892,982.63 376,462,942.65 29.07% 28 Finance cost 20,258,839.57 87,931,360.82 -76.96% Operating profit 419,888,295.98 241,025,096.10 74.21% Gross profit 405,976,517.31 239,532,613.11 69.49% Income tax 107,092,278.53 44,734,659.56 139.39% Minority interests 126,928,918.36 46,824,031.63 171.08% Net profit 171,955,320.42 147,973,921.92 16.21% Net Increment of Cash and Cash -329,427,880.86 -367,811,052.01 -10.44% Equivalence a) The main reason for the increase of cash and cash equivalence is due to the purchase of 20% share equity and related shareholders’ loan of Jingzhu Expressway Guangzhu Section Co., Ltd., project investment and 2001 dividends payment. b) The main reason for the increase of long-term share equity investment is due to the purchase of 20% share equity and related shareholders’ loan of Jingzhu Expressway Guangzhu Section Co., Ltd. and investment in Guangdong Guanghui Expressway Co., Ltd. c) The main reason for the increase of long-term credit right investment is due to the purchase of 20% shareholders’ loan of Jingzhu Expressway Guangzhu Section Co., Ltd. d) The main cause for increase of long-term investment is the increase of long-term share equity investment and long-term credit right investment. e) The main cause for the increase of invisible assets is the increase of right of use of Xiebian Flyover. f) The main reason for the decrease of other payables is due to the payment of advance concerning Guangdong Maozhan Expressway Co., Ltd. to Guangdong Communications Industry Investment Company. g) Increase of long-term liabilities is mainly due to the increase of bank loan. h) Increase of shareholders’ equity is mainly due to the increase of net profit. i) Increase of gross assets is mainly due to the increase of bank loan and net profit. j) Increase of profit from main business, operating profit and total profit is due to the adjustment on toll collection standard based on vehicle classification and the increase of traffic volume. k) The main reason for the decrease of finance cost is the shareholders’ loan of Guangdong Fokai Expressway Co., Ltd. is free from interest. l) Increase of income tax is mainly due to the increase of gross profit of 29 Guangdong Fokai Expressway Co., Ltd. m) Increase of minority shareholders’ gain or loss is mainly due to increase of gross profit after the consolidation of financial statements. n) Increase of net profit is mainly due to the adjustment on toll collection standard based on vehicle classification and the increase of traffic volume. o) The decrease of cash and cash equivalence is mainly due to the purchase of 20% share equity and related shareholders’ loan of Jingzhu Expressway Guangzhu Section Co., Ltd. and project investment. 5. Effects of the Change of Operating Environments and Macro-Policies According to the document No. Yuefei[2002]12 “Reply on Unification of Toll Standard on Guangfo Expressway and Fokai Expressway after the Change of Vehicle Classification” signed by Guangdong Price Bureau and Guangdong Communications Bureau. Vehicle classification of Guangfo Expressway (75% share equity held by the Company) and Fokai Expressway (51% share equity held by the Company) changed form July 1st, 2002 on. Because actual toll price increases after the change, traffic volume decreases and toll collection increases accordingly. Combining with the decrease and the increase, change of vehicle classification will not have great impact on operation of the Company. All expressways in Guangdong province will carry out a network system for toll collection in 2003 in accordance with the requirements of Guangdong Government. Part of expressway projects of the Company will invest in remaking the toll-collecting system, which will enlarge operation cost of the Company to a certain extent. 6.Yangcheng Certified Public Accountants Co., Ltd. and Ernst & Young have provided audit report without any reserve for the Company in 2002. 7. Development Plans for the New Year 1) The Company will tighten up expressway operation management, and strengthen plan management, cost management, profit target management, examination system for achievements and efficiencies as well. The Company will enhance check, internal audit and control. Target of main business income in 2003 is RMB 770 million, and cost of main business is RMB 262.51 million. 2) The Company will reinforce management of the projects under construction such as Jiangzhong project, Guanghui project and big repair of Guangfo Expressway so as to fulfill the projects with good quality on time. 30 3) For upgrading governance, the Company will add independent directors, which will account for one third of the fourth board of directors, in accordance with Rules on Governance of List Companies. 4) The Company will give energetic support to Guangdong Gaosu Science and Technology Investment Co., Ltd., subsidiary of the Company, which will take active part in investment in the field of High-tech and New-tech such as environmental protection and agriculture. 8. The Daily Work of the Board of Directors (1) Meetings of board of directors and resolutions in the reporting period: The board of directors convened ten Directors’ Meetings in 2002. The details of the meetings and the resolutions passed are as follows: 1) The eleventh meeting of the third board of directors of the Company was held in Changong Hotel, Panyu on Feb 1st, 2002. All of the ten directors attended the meeting. This is regarded as corresponding with the Corporation Law and the Article of Association of the Company. Mr. You Guojing, chairman of the board presided the meeting. The supervisors and senior management observed the meeting. The following resolutions were examined and adopted at the meeting: (i) 2001 annual report of the board of directors; (ii) 2001 annual report of the general manager; (iii) 2001 annual financial statement of the Company; (iv) Proposal of 2001 profit distribution; (v) Proposal of dividend distribution for year 2002(preplan); (vi) The forecasting of no capital public reserves shall be capitalized in 2002; (vii) 2001 annual report and its summary and approved it to be published; (viii) Proposal of drawing short-term investment depreciation reserves; (ix) Proposal of drawing long-term investment depreciation reserves; (x) Proposal of drawing bad debt reserves; (xi) Proposal of drawing bonus fund; (xii) Proposal of purchasing 20% share equity and related shareholders loan of Jingzhu Expressway Guangzhu SectionCo., Ltd.; (xiii) Proposal of cooperation construction of Zhongshan-Jiangmen Expressway; (xiv) Proposal of increasing the share portion of Guangdong Gaosu Science and Technology Investment Co., Ltd. by 10%. The resolutions were published in Securities Times, China Securities, Shanghai Securities News, Ta Kong Pao (H.K.) and Hongkong Commercial Daily on February 6, 2002. 31 2) The twelfth meeting of the third Board of Directors of the Company was held in the meeting room of the Company on March 22, 2002. 6 of the ten directors of the Company attended the meeting, which is in compliance with relevant stipulations set forth in the Company Law and the Articles of Association of the Company. The chairman of Board of Directors Mr. You Guojing convened and presided over the meeting. All supervisors and the senior management attended the meeting as observers. The following resolutions have been discussed and approved: i. Proposal for engaging certified public accountants; ii. Proposal for amengding part of articles of the Articles of Association of the Company; iii. Proposal for establishing the Rules of Procedure of the Shareholders’ General Meeting and Independent Director System; iv. Proposal for amending and reformulating the Rules of Procedure of the Board of Directors; v. Proposal for changing part of directors; vi. Proposal for nominating the candidates for independent directors of the third board of directors; vii. Proposal of the declaration of independent director candidates; viii. Proposal concerning allowance and expenses of independent directors; ix. Proposal for providing guarantee and counter guarantee for convertible corporation bond issuance; x. Proposal of engaging intermediary agency for credit valuation of the convertible corporation bond issuance; xi. Examined and adopted the proposal for revising and reformulating the preplan for issuing convertible corporation bond item by item; xii. Proposal for revising and reformulating the feasibility report on the utilization of raised funds; xiii. Proposal for holding shareholders’ general meeting, 2001. The resolutions were published in Securities Times, China Securities, Shanghai Securities News, Ta Kong Pao (H.K.) and Hongkong Commercial Daily on March 23, 2002. 3) The third board of directors of the Company held an extraordinary meeting on April 15, 2002. The meeting adopted the following resolutions through voting by means by communication: (i) Proposal on transferring 25% equity of Guangdong Jindaoda Expressway Economic Development Co., Ltd. held by the Company; (ii) Proposal on revising and redrafting the notes to the utilization of the previously raised proceeds and the special audit report of such proceeds. 32 The resolutions were published in Securities Times, China Securities, Shanghai Securities News, Ta Kong Pao (H.K.) and Hongkong Commercial Daily on April 17, 2002. 4) The 13th meeting of the third board of directors of the Company was held in the multifunctional meeting hall on 4/F Jinlilai Digital Network Building, 138 Ti Yu Dong Lu, Guangzhou on April 26, 2002. 11 directors were supposed to attend the meeting and 10 of them were actually present. One director authorized the chairman of the board of directors to attend and vote on his behalf. The meeting complied with relevant provisions of the Company Law and the Articles of Association. The meeting was convened and presided over by the chairman of the board of directors Mr. You Guojing. The supervisors of the Company attended the meeting as non-voting delegates. The meeting examined and adopted the report for the first quarter of 2002. The resolutions were published in Securities Times, China Securities, Shanghai Securities News, Ta Kong Pao (H.K.) and Hongkong Commercial Daily on April 27, 2002. 5) The third board of directors of the Company took a vote on the proposals concerning the investment in national debt in written form on May 15th, 2002. The resolutions were published in Securities Times, China Securities, Shanghai Securities News, Ta Kong Pao (H.K.) and Hongkong Commercial Daily on May 17, 2002. 6) The fourteenth meeting of the third Board of Directors of the Company was held in the meeting room of the Company on August 16, 2002. The chairman of Board of Directors Mr. You Guojing convened and presided over the meeting. All of the eleven directors of the Company attended the meeting, which is in compliance with relevant stipulations set forth in the Company Law and the Articles of Association of the Company. All supervisors attended the meeting as observers. The following resolutions have been discussed and approved: (i) The interim report, 2002 and abstract for disclosure; (ii) The proposal for interim profit distribution, 2002; (iii) Proposal of withdrawing reserve against decline of short-term investment in price; (iv) Proposal on application for bank loan credit granting; (v) Proposal of the working report of the third board of directors; (vi) Proposal on expiration of term of office of the third board of directors and election of the fourth board of directors of the Company; (vii) Proposal of declaration of the independent director nominator; (viii) Proposal on remuneration for the directors in the fourth board; (ix) Decided to hold the first provisional shareholders’ general meeting, 2002 on September 27, 2002. 33 The resolutions were published in Securities Times, China Securities, Shanghai Securities News, Ta Kong Pao (H.K.) and Hongkong Commercial Daily on August 19, 2002. 7) The third board of directors of the Company held a provisional meeting on September 18, 2002 by telecommunication. The proposal on circulating of the 45,000,000 non-listed foreign shares of the Company originally held by IJM Overseas Ventures Sdn. Bhd. (hereinafter IJM) was reviewed at the meeting. Resolutions passed at the meeting are as follows: (i) Agreement on changing of the 45,000,000 non-listed foreign shares originally held by IJM Overseas Ventures Sdn. Bhd. (hereinafter IJM) into circulating B shares. In accordance with the document waijingmaoziyihan[2002]902 “Supplemental Notice on Changing Non-listed Foreign Shares of Foreign Investment Co., Ltd. into Circulating B Shares”, board of directors of the Company submit the proposal to the shareholders’ general meeting for approval; (ii) Agreed to hold the second provisional shareholders general meeting, 2002 by telecommunication on October 21, 2002. The resolutions were published in Securities Times, China Securities, Shanghai Securities News, Ta Kong Pao (H.K.) and Hongkong Commercial Daily on September 19, 2002. 8) The first meeting of the fourth board of directors of the Company was held in Mahui Room, 4/F, Guangdong Foreign Businessman Club on September 27, 2002. All of the 11 directors of the Company attend the meeting, in compliance with relevant stipulations set forth in the Company Law and the Articles of Association of the Company. Mr. You Guojing convened and presided over the meeting. The following resolutions have been passed: (i) Elected Mr. You Guojing as chairman of the board, and Mr. Zhu Xiaoling as vice chairmen of the board; (ii) Mr. Cao Xiaofeng was appointed general manager with a three years’ term of office; (iii) Mr. Huo Yanbin was appointed secretary to board of directors with a three years’ term of office; (iv) According to the nomination of Mr. Cao Xiaofeng, Mr. Xiao Laijiu was appointed deputy general manager and concurrently chief accountant of the company with a three years’ term of office. Mr. Huo Yanbin was appointed deputy general manager with a three years’ term of office. Mr. Dong Guofeng was appointed deputy general manager with a three years’ term of office. Mr. Yun Wujun was appointed chief economist with a three years’ term of office. Mr. Wang Jiachen was appointed chief engineer with a three years’ term of office; 34 (v) Appointed Ms. Peng Xiaofang to person in charge of internal audit with a three years’ term of office. The resolutions were published in Securities Times, China Securities, Shanghai Securities News, Ta Kong Pao (H.K.) and Hongkong Commercial Daily on September 28, 2002. 9) The second meeting of the fourth Board of Directors of the Company was held in the meeting room of the Company on October 29, 2002. The chairman of Board of Directors Mr. You Guojing convened and presided over the meeting. All of the eleven directors of the Company attended the meeting, which is in compliance with relevant stipulations set forth in the Company Law and the Articles of Association of the Company. All supervisors and senior management team of the Company attended the meeting as observers. The third quarter report has been discussed and passed at the meeting, which was approved to make announcement. The resolutions were published in Securities Times, China Securities, Shanghai Securities News, Ta Kong Pao (H.K.) and Hongkong Commercial Daily on October 30, 2002. 10) Board of directors of the Company held a provisional meeting by telecommunication on November 11, 2002. The following resolutions have been reviewed and approved: (i) Agree Guangdong Gaosu Science and Technology Investment Co., Ltd. to invest in Kunlun Securities Co., Ltd. (ii) Agree Guangfo Expressway Co., Ltd. to carry on the big repair construction of Guangfo Expressway. The resolutions were published in Securities Times, China Securities, Shanghai Securities News, Ta Kong Pao (H.K.) and Hongkong Commercial Daily on November 1st, 2002. (2) The Implementation of the Resolutions of Shareholders’ General Meetings by Board of Directors Implementation of Profit Distribution The annual shareholders’ meeting for 2001 approved the proposal of profit distribution for 2001 as follows: Cash dividends of RMB 1.00 (including tax) for every 10 shares based on the total 1,257,117,748 shares. The distribution and the share capital transfer had been completed in May 2002. 35 9. Proposal for Profit Distribution According to the audited financial statements and net profit of the Company for the year ended December 31, 2002 by the Yangcheng Certified Public Accountants Co., Ltd. in accordance with the PRC Accounting Standards, the Company’s profit after taxation for the year ended December 31, 2002 is RMB 171,955,320.42, the accumulated distributable profit after tax is RMB 398,836,639.78. By the audit of Ernst & Young Accounting Firm in accordance with the International Accounting Standards ("IAS"), the net profit of the Company after the tax in 2002 is RMB 141,996,000.00, the accumulated distributable profit after tax amounts to RMB 282,008,225.20. In accordance with regulations of Chinese Securities Regulatory Commission, related financial system and the Article of Association of the Company, maximum distributable profits for shareholders should be the balance deducted statutory surplus reserve and statutory public welfare fund for the term. 2002 profit is distributed as follows: 1. From the 2002 net profit of RMB 171,955,320.42 audited by Yangcheng Certified Public Accountants Co., Ltd., 10% will be drawn for statutory surplus reserve (RMB 17,195,532.04), 5% for statutory public welfare fund (RMB 8,597,766.02). 2. The Company decides to draw RMB 125,711,774.80 from the distributable profit for cash dividend of 2002. The Board of Directors decides to distribute the year 2002’s profit in form of cash dividends. Cash dividend of RMB 1.00 (including tax) for every 10 shares will be distributed to shareholders based on the total 1,257,117,748 shares, with the total amounting to RMB 125,711,774.80. The undistributed profit will be carried forward as retained earning of the Company. The conversion rate of the cash dividend for shareholders of B Share and overseas legal person shares will be determined by the selling rate of HK Dollars for Renminbi as quoted by the bank, in which foreign exchange is bought, on the foreign exchange bought date within two months after the resolution is passed at the 2002 annual shareholders' general meeting. 10. Newspaper for information disclosure Newspapers for information disclosure: Securities Times, China Securities, Shanghai Securities News, Ta Kong Pao (H.K.) and Hongkong Commercial Daily. 36 VIII. Report of the Supervisory Board 1. Meeting of supervisory board The Board of Supervisors convened four Supervisors’ Meetings in 2002. 1) The 9th meeting of the third board of supervisors of the Company was held on February 1st, 2002 in the meeting room of Business Center, Chang Long Hotel, Panyu. Mr. Lu Yongzheng, chairman of the supervisory board, convened and presided over the meeting. 5 supervisors were supposed to attend the meeting and 4 of them were actually present, in accordance with related regulations in the Company Law. The following resolutions have been discussed and approved: (i) 2001 work report of supervisory committee and submitting it to 2001 general shareholders’ meeting of the Company for examination; (ii) 2001 annual report and its summary; (iii) 2001 profit distribution plan; (iv) Relevant proposals and resolutions of the eleventh meeting of the third board of directors, including the proposal of providing reserve for short-term investment depreciation, the proposal of providing reserve for long-term investment depreciation, the proposal of providing reserve for bad debts and the resolutions of the eleventh meeting of the third board of directors. The resolutions were published in Securities Times, China Securities, Shanghai Securities News, Ta Kong Pao (H.K.) and Hongkong Commercial Daily on February 6, 2002. 2) The tenth meeting of the third board of supervisors of the Company was held on March 22, 2002 in the meeting room of the Company. Mr. Lu Yongzheng, chairman of the supervisory board, convened and presided over the meeting. All of the 5 supervisors of the Company attended the meeting, in accordance with related regulations in the Company Law. The following resolutions have been discussed and approved: (i) Rules of Procedure of the supervisory board after amendment and submitting it to shareholders’ general meeting of the Company for examination; (ii) Proposal for amengding part of Articles of the Articles of Association of the Company. The resolutions were published in Securities Times, China Securities, Shanghai Securities News, Ta Kong Pao (H.K.) and Hongkong Commercial Daily on March 23, 2002. 37 3) The eleventh meeting of the third board of supervisors of the Company was held on March 22, 2002 in the meeting room of the Company. Mr. Lu Yongzheng, chairman of the supervisory board, convened and presided over the meeting. All of the 5 supervisors of the Company attended the meeting, in accordance with related regulations in the Company Law and Articles of Association. The following resolutions have been discussed and approved: (i) Examined and passed the interim report, 2002; (ii) Examined and passed the working report of the third board of supervisors; (iii) Examined and passed the proposal on expiration of term of office of the third board of supervisors and election of the fourth supervisory board of the Company; (iv) Examined and passed the proposal on remuneration for the supervisors in the fourth board. The resolutions were published in Securities Times, China Securities, Shanghai Securities News, Ta Kong Pao (H.K.) and Hongkong Commercial Daily on August 19, 2002. 4) The first meeting of the fourth supervisory board of Guangdong Provincial Expressway Development Co., Ltd. (hereinafter the Company) was held in Mahui Room, 4/F, Guangdong Foreign Businessman Club on September 27, 2002. All of the supervisors of the Company attend the meeting, in compliance with relevant stipulations set forth in the Company Law and the Articles of Association of the Company. Mr. Lu Yongzheng convened and presided over the meeting. Mr. Lu Yongzheng was elected as chairman of the fourth supervisory board of the Company. The resolutions were published in Securities Times, China Securities, Shanghai Securities News, Ta Kong Pao (H.K.) and Hongkong Commercial Daily on September 28, 2002. 2. The Work of the Management in 2002 In 2002, the management of the Company practice democratic decision-making process, and pays attention to opinions from different sides, and follows the regulations of the Company and the authority delegated by the Board of Directors and the Shareholders’ meeting strictly. The Company has established 49 internal controlling rules, including Rules of Procedure of Board of Directors, Rule of Procedure of Supervisory Board, internal controlling system, system of personal responsibility and etc. The Supervisory Board supervised the operating activities of the Board of Directors, the General Manager and the other senior management personnel, finding no unlawful activities or activities contrary to the Company’s Articles of Associations and the benefit of the Company. 38 3. Financial Examination The Board of Supervisors strengthened financial supervision by establishing internal auditor system and internal audit management rules of the Company. The audit found no illegal activities in 2002. Yangcheng Certified Public Accountants Co., Ltd. and Ernst & Young have audited the financial statements of the Company under PRC Accounting Standards and IAS respectively, and have provided audit report without any reserve. Their conclusions are that the financial statements of the Company present fairly, in all material respects, the business performance and the financial status of the Company, and are truthful, objective and reliable. 4. Utilization of capital funds In the reporting period, there is no application of capital funds. 5. Acquisitions and Sale of Assets In 2002, the Company purchased 20% share equity and related shareholders loan of Jingzhu Expressway Guangzhu Section Co., Ltd. from Guangdong Highway Construction Copmany and transferred 25% share equity of Guangdong Jindaoda Expressway Economic Development Co., Ltd. to Guangdong Tongyi Expressway Service Area Co., Ltd. The Board of Supervisor has conclusion that the above-mentioned sales have been evaluated by the intermediary consultants independently, who have confirmed that the price is based on the estimated price and the transaction price is fair; no under table activities are found; thus the purchase does not hurt the interest of the Company and the assets of the Company. 6. Induction on the Related Party Transaction: In 2002, the Company purchased 20% share equity and related shareholders loan of Jingzhu Expressway Guangzhu Section Co., Ltd. from Guangdong Highway Construction Copmany, cooperated with Guangdong Highway Construction Copmany in the construction of Zhongshan-Jiangmen Expressway and transferred 25% share equity of Guangdong Jindaoda Expressway Economic Development Co., Ltd. to Guangdong Tongyi Expressway Service Area Co., Ltd. The Board of Supervisors regards the related transactions are fair, reasonable and won’t hurt the interest of the Company. 39 IX. Significant Events (1) There are no significant litigation and arbitration events in 2002. (2) Significant Transactions Concerning Purchases, Sales or Mergers 1) Purchased 20% share equity and related shareholders loan of Jingzhu Expressway Guangzhu Section Co., Ltd. The Company signed the Contract on Share Equity Transfer, whose content is the transferring of 20% share equity and 20% shareholders’ loan of Jingzhu Expressway Guangzhu Section Co., Ltd., with Guangdong Highway Construction Company on March 21, 2002 and signed the Supplementary Agreement on October 30, 2003. The transaction price added up to be RMB 591.6 million. Delivery date for the transfer is 0:00 November 1st, 2002. The contract had been approved by Guangdong Foreign Trade and Economic Cooperation Bureau in the document No. Yuewaijingmaozizi[2002]803. The resolutions have been published in Securities Times, China Securities, Shanghai Securities News, Ta Kung Pao (H.K.) and Hongkong Commercial Daily on February 6, March 23, April 19, April 27, and November 11, 2002 respectively. 2) Cooperated with Guangdong Highway Construction Copmany in the construction of Zhongshan-Jiangmen Expressway The Company signed the Cooperation Contract on Establishing Zhongjiang Expressway Co., Ltd. and Construction Investment in Zhongjiang Expressway with Guangdong Highway Construction Company on March 21, 2002. The registered capital is RMB 150 million. Guangdong Highway Construction Company holds 85% share equity of Zhongjiang Expressway Co., Ltd. The Company holds 15% share equity of Zhongjiang Expressway Co., Ltd. The resolutions have been published in Securities Times, China Securities, Shanghai Securities News, Ta Kung Pao (H.K.) and Hongkong Commercial Daily on February 6, March 23, April 19, and April 27, 2002 respectively. 3) Transferred 25% share equity of Guangdong Jindaoda Expressway Economic Development Co., Ltd. held by the Company The Company signed the Agreement on transferring 25% share equity of Guangdong Jindaoda Expressway Economic Development Co., Ltd. at the price of RMB 3523400 yuan with Guangdong Tongyi Expressway Service 40 Area Co., Ltd. on April 29, 2002. Delivery date for the transfer is March 1st, 2002. The resolution has been published in Securities Times, China Securities, Shanghai Securities News, Ta Kung Pao (H.K.) and Hongkong Commercial Daily on April 17, 2002. 4) Further purchased 10% share equity of Guangdong Gaosu Science and Technology Investment Co., Ltd. The Company signed Agreement I on Transferring Share Equity of Guangdong Gaosu Science and Technology Investment Co., Ltd. (hereinafter Keji Company) with Guangdong Provincial Highway and Bridge Construction Development Company on February 19, 2002. The Company invested RMB 10 million in purchasing 10% share equity of Keji Company from Guangdong Highway and Bridge Construction Development Company. At present, the Company holds 95% share equity of Keji Company. The resolutions have been published in Securities Times, China Securities, Shanghai Securities News, Ta Kung Pao (H.K.) and Hongkong Commercial Daily on February 6 and April 27, 2002 respectively. (3) Significant Related Party Transactions Related party transactions in the reporting period are: (i) Purchased 20% share equity and related shareholders loan of Jingzhu Expressway Guangzhu Section Co., Ltd.; (ii) Cooperated with Guangdong Highway Construction Copmany in the construction of Zhongshan-Jiangmen Expressway. For the details, please refer to the above mentioned significant transactions and the announcements published in the newspapers. (4) Significant Contract and Performing 1) During the reporting period, no assets trustee, contract or lease of assets was concerned with the Company. 2) There is no guarantee happened during the reporting period. 3) There is no finance in trust during the reporting period. 4) There are no other significant contracts in the reporting period. (5) Commitments The proposal of profit distribution policy for 2002 is passed at the eleventh meeting of the third board of directors: In accordance with the net profit audited by public accountants, the Company plans to carry out profit distribution in cash dividend by the end of 2002. Proportion of the dividend distribution won’t be lower than 40% of the net profit for the year. The 41 undistributed profit of the Company for 2001 will not be distributed in 2002. It is no proposal for share capital transferred from capital surplus in 2002. In the preplan for 2002 dividends distribution passed at the third meeting of the fourth board of directors, the Company planned to use the undistributed profit as ended 2001. In order to maintain the stability of dividends distribution, provide investors with confidence and uphold good enterprise image, the Company changed the pre-proposal on profit distribution passed at the 11th meeting of the third board of directors and adopted one which is more beneficial to shareholders. For details please refer to the preplan for profit distribution of 2002 and the preproposal of share capital transfer from capital surplus. (6) Auditors of the Company The Company continued to invite Yangcheng Certified Public Accountants Co., Ltd. and Ernst & Young as the Company's domestic and overseas auditors respectively. Recompense for the auditors are as follows: Unit: RMB yuan 2002 Continuous audit service for Auditor Finance Audit Other fees the Company Yangcheng Certified Public Accountants 380,000 10 years Co., Ltd. Ernst & Young 880,000 7 years The Company does not bear the traveling expenses of the certified public accountants. (7) During the reporting period, neither the Company nor board of directors or the directors was examined, punished and circulated for criticism by Chinese Securities Regulatory Commission, and denounced by the Stock Exchange. (8) Other Important Events 1) During the reporting period, no changes were made in the controlling shareholders of the Company. 2) During the report period, no changes were made in the name and code of the shares of the Company. 42 X. Report of the Auditors To the members Guangdong Provincial Expressway Development Co., Ltd. (Established in the People’s Republic of China with limited liability) We have audited the accompanying consolidated balance sheet of Guangdong Provincial Expressway Development Co., Ltd. (the “Company”) and its subsidiaries (collectively referred to as the “Group”) as at 31 December 2002 together with the related consolidated income statement and consolidated cash flow statement for the year then ended. These financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements give a true and fair view of the financial position of the Group as at 31 December 2002 and of the results of the Group’s operations and its cash flows for the year then ended in accordance with International Accounting Standards. Hong Kong 5 March 2003 43 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. CONSOLIDATED INCOME STATEMENT Year ended 31 December 2002 2002 2001 Notes RMB’000 RMB’000 Turnover 4 712,896 592,204 Operating costs (241,690) (221,894) Gross profit 471,206 370,310 Other revenue 4 29,912 34,272 Administrative expenses (87,368) (86,577) Other operating expenses (4,407) PROFIT FROM OPERATING ACTIVITIES 5 409,343 313,717 Finance costs 6 (22,922) (98,162) Share of profits less losses of associates 14,681 10,231 PROFIT BEFORE INCOME TAX 401,102 225,786 Income tax expense 7 (152,988) (26,050) PROFIT BEFORE MINORITY INTERESTS 248,114 199,736 Minority interests (106,118) (49,925) NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS 141,996 149,811 Dividends 8 125,712 125,712 EARNINGS PER SHARE - BASIC 9 RMB0.113 RMB0.119 Other than the net profit for the year attributable to shareholders, the Group had no recognised gains or losses. Accordingly, a consolidated statement of recognised gains and losses is not presented in the financial statements. 44 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. CONSOLIDATED BALANCE SHEET 31 December 2002 2002 2001 Notes RMB’000 RMB’000 ASSETS Non-Current Assets Fixed assets 10 4,180,916 4,230,446 Construction in progress 11 55,219 96,533 Goodwill 12 36,340 28,109 Interests in associates 13 1,331,072 595,329 Other investments, unlisted 14 57,638 8,737 Other long term assets 15 25,068 28,732 Bridge operating rights 17 56,352 59,874 Deferred tax assets 7 3,214 4,036 Total Non-Current Assets 5,745,819 5,051,796 Current Assets Cash and cash equivalents 131,938 461,366 Prepayments and other receivables 18 35,853 7,706 Current investment securities 19 137,533 136,105 Inventories 127 128 Due from a related company 20 - 37,630 Total Current Assets 305,451 642,935 TOTAL ASSETS 6,051,270 5,694,731 45 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. CONSOLIDATED BALANCE SHEET (CONTINUED) 31 December 2002 2002 2001 Notes RMB’000 RMB’000 EQUITY AND LIABILITIES Capital and Reserves Issued capital 24 1,257,118 1,257,118 Reserves 25 2,137,030 2,120,746 Total Equity 3,394,148 3,377,864 Minority Interests 640,305 603,329 Non-Current Liabilities Bank loans 22 600,000 240,000 Due to minority shareholders 23 881,567 908,219 Deferred tax liabilities 7 29,044 - Amounts payable 2,077 2,077 Total Non-Current Liabilities 1,512,688 1,150,296 Current Liabilities Bank loan 22 100,000 58,000 Other payables 73,541 62,015 Tax payable 3,909 10,513 Due to related companies 21 16,218 116,861 Due to minority shareholders 23 310,461 315,853 Total Current Liabilities 504,129 563,242 Total Liabilities 2,016,817 1,713,538 TOTAL EQUITY AND LIABILITIES 6,051,270 5,694,731 Director Director 46 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. CONSOLIDATED CASH FLOW STATEMENT Year ended 31 December 2002 2002 2001 Note RMB’000 RMB’000 NET CASH INFLOW FROM OPERATING ACTIVITIES 26 428,899 325,124 CASH FLOW FROM INVESTING ACTIVITIES Interest received 5,014 6,632 Purchases of current investment securities, listed (89,154) (104,847) Proceeds from disposal of equity interests in associates 41,153 37,630 Purchases of fixed assets and additions of construction in progress (74,342) (120,590) Acquisition of equity interest and a shareholders’ loan in an associate (591,600) - Acquisition of an available-for-sale financial asset (45,230) - Acquisition of additional equity interests in subsidiaries (21,293) (137,432) Acquisition of a shareholders’ loan in a subsidiary - (174,803) Prepayment for acquisition of equity interest in a newly- established subsidiary (18,000) - Advance to an associate (180,000) (120,000) Proceeds from disposal of investment properties 1,780 - Proceeds from disposal of fixed assets 433 326 Proceeds from disposal of current investment securities, listed 88,992 135,056 Proceeds from returns of an available-for-sale financial asset - 486 Decrease in time deposits - 12,736 Repayment of a loan to an associate 7,000 17,000 Dividends received from an associate 22,844 21,652 Net cash outflow from investing activities (852,403) (426,154) CASH FLOW FROM FINANCING ACTIVITIES Dividends paid (125,712) (83,808) Minority interests (28,099) (23,450) (Repayment to)/loans from minority shareholders (54,138) 30,000 New bank loans 760,000 80,000 Repayment of bank loans (358,000) (270,000) (Repayment to)/advance from a related company (99,975) 114,250 Repayment of an advance to an associate - (53,333) Net cash inflow/(outflow) from financing activities 94,076 (206,341) DECREASE IN CASH AND CASH EQUIVALENTS (329,428) (307,371) Cash and cash equivalents at beginning of year 461,366 768,737 CASH AND CASH EQUIVALENTS AT END OF YEAR 131,938 461,366 ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash at bank and cash on hand 131,938 461,366 47 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS 31 December 2002 1. CORPORATE INFORMATION The Company was established in the People’s Republic of China (the “PRC”) on 9 February 1993 in the name of Guangdong Foshan-Kaiping Expressway Shareholding Company Ltd. (the “Predecessor Company”) as a joint stock limited company in accordance with the regulations for joint stock limited companies. Pursuant to the approval at the shareholders’ meeting of the Predecessor Company and the approval from the Guangdong Provincial State Asset Bureau in June 1993, Guangdong Provincial Freeway Company (“GPFC”) transferred its 75% equity interest in Guangzhou-Foshan Expressway Company Limited (“Guangfo Company”) and its 100% interest in Jiujiang Bridge to the Company in exchange for shares in the Company. In July 1996, the Company issued for subscription of 135,000,000 B shares by way of private placing with foreign investors. Dealings in the B shares on the Shenzhen Stock Exchange commenced in August 1996. After the completion of the B shares issue, the Company changed its name to Guangdong Provincial Expressway Development Co., Ltd. In January 1998, the Company issued for subscription of 100,000,000 A shares for local PRC investors. Dealings in the A shares on the Shenzhen Stock Exchange commenced in February 1998. In August 2000, the Company issued 30,000,000 listed A shares and 43,822,250 unlisted A shares by way of rights issue on the basis of three new shares of RMB1 each for every 10 existing shares for the shareholders in the register of members on 15 August 2000 at RMB11 per rights share payable in full on acceptance. On 23 April 2001, the Company transferred RMB419,039,249 of share premium and capital surplus to share capital. The ultimate holding company of the Group for the year ended 31 December 2002 was Guangdong Communications Group Company Limited (“GCGC”), a company established in the PRC. With effect from 28 February 2002, upon the completion of the acquisition of additional 10% equity interest in Guangdong Gaosu Science and Technology Investment Company Limited (“Gaosu Company”), the Company aggregately held 95% equity interest in Gaosu Company. The principal activity of Gaosu Company is investment in the industry of science and technology (see note 16). On 8 March 2002, Gaosu Company acquired 99% equity interest in Tibet Zhongke Energy-storage Technology Development Co., Ltd. (“Zhongke Company”). Zhongke Company is an investment holding company and the principal activity of which is investment in the industry of battery manufacturing (see note 16). On 1 August 2002, Gaosu Company acquired 60% equity interest in Guangzhou Proteam Technology Incorporation (“Proteam Incorporation”). The principal activity of Proteam Incorporation is manufacture and sale of telecommunication and network systems (see note 16). Apart from the above, there are no significant changes in the principal activities of the Company and its subsidiaries, Guangzhou-Foshan Expressway Company Limited (“Guangfo Company”) and Foshan-Kaiping Expressway Company Limited (“Fokai Company”) for the year ended 31 December 2002. The principal activity of the Company is investment holding. The principal activity of Guangfo Company is the operation of Guangzhou-Foshan Expressway (“Guangfo Expressway”). The principal activity of Fokai Company is the operation of Foshan-Kaiping Expressway (“Fokai Expressway”) and Jiujiang Bridge (see note 16). 6 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 31 December 2002 1. CORPORATE INFORMATION (continued) The consolidated financial statements of the Group for the year ended 31 December 2002 were authorised for issue in accordance with a resolution of the directors dated 5 March 2003. The registered office of the Company is located at No. 85 Baiyun Road, Guangzhou, Guangdong Province, the PRC. The Group operates in the Guangdong Province of the PRC and employed 1,100 employees as at the end of the financial year. 2. BASIS OF PRESENTATION These consolidated financial statements have been prepared in accordance with International Accounting Standards (“IAS”) issued, or adopted by the International Accounting Standards Board and interpretations issued by its Standing Interpretations Committee. The Group maintains its books and prepares its statutory financial statements in accordance with the relevant accounting principles and financial regulations applicable to joint stock limited companies established by the Ministry of Finance of the PRC. The accounting policies and bases adopted in the preparation of the statutory financial statements differ in certain material respects from IAS. The material adjustments arising from restating the results and net assets to comply with IAS have been made in the preparation of these financial statements, but will not be taken up in the accounting records of the Group. The principal adjustments made to conform to IAS are set out below: - elimination of the unrealised profits arising on the disposal of 100% ownership of the Jiujiang Bridge and related assets to Fokai Company against the Group’s share of 35% equity interest in Fokai Company in 1999; - deferred tax; - goodwill arising on the acquisition of an associate; - interest income on subscription monies received in connection with the issue of A shares; - amortisation of goodwill; - depreciation charges; - amortisation of other long term assets; - impairment loss of fixed assets; - current investment securities at market value; - dividends payable; and - other adjustments in accordance with the prudence concept. Further details with respect to the net impact of these IAS adjustments are included in note 27 to the financial statements. The consolidated financial statements have been prepared on a going concern basis, notwithstanding the net current liabilities position of the Group as at 31 December 2002. This is based on the undertaking that the Group has renewed most of its short term bank loans subsequently after the balance sheet date (see note 22) and has unutilised borrowing facilities of RMB450,000,000 (see note 26(b)) available. Moreover, one of the minority shareholders, one of the major creditors of the Group, has agreed not to demand the amount due to it and to continue to provide adequate financial support to one of the subsidiaries of the Company so that the Group can meet its liabilities as and when they fall due. 7 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 31 December 2002 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries which the Company controlls at the balance sheet date. The results of subsidiaries acquired or disposed of during the period are consolidated from or to their effective dates of acquisition or disposal, respectively. The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies which may exist. All intercompany balances and transactions, and unrealised profits arising from intra-group transactions have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered. (b) Subsidiaries Subsidiaries are companies in which the Company has a long term interest of more than 50% and has effective control over the management of the companies. (c) Interests in associates Associates are companies, not being subsidiaries, in which the Group has a long term interest of not less than 20% of the equity interest and over which it is in a position to exercise significant influence. The Group’s share of the post-acquisition results and reserves of its associates is included in the consolidated income statement and consolidated reserves, respectively. The Group’s interests in its associates are stated in the consolidated balance sheet at the Group’s share of net assets under the equity method of accounting less any impairment losses. Where associates are accounted for using the equity method, unrealised profits and losses resulting from “upstream” and “downstream” transactions between the Group and the associates are eliminated to the extent of the Group’s interests in the associates. Unrealised losses would not be eliminated to the extent that the transaction provides evidence of an impairment of the asset transferred. (d) Related parties Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party, or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities. (e) Foreign currency transactions Foreign currency transactions are recorded at the applicable rates of exchange ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange ruling on that date. Exchange differences are dealt with in the consolidated income statement. 8 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 31 December 2002 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (f) Fixed assets and depreciation Fixed assets are stated at acquisition cost or valuation less accumulated depreciation and any impairment losses. In connection with the Group’s reorganisation, fixed assets as at 31 January 1993 were revalued by Zhongzhou Certified Public Accountants, a firm of certified public accountants in the PRC, on a depreciated replacement cost basis. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use thereafter. Depreciation of expressways and a bridge is calculated to write off their cost on a sum-of-the-units method whereby depreciation is provided based on the share of forecasted traffic volume for a particular period over the projected total traffic volume throughout the remaining operating periods of respective expressways and bridge, the relevant joint venture period or its estimated useful life, whichever is shorter. In addition, the directors would review the projected total traffic volume throughout the operating periods of respective toll expressways and a bridge on a regular basis. An independent professional traffic survey will be obtained if the directors consider appropriate. Appropriate adjustments will be made should there be a material change. All direct and indirect costs relating to the construction of expressways, bridge and office premises, including interest costs on related borrowed funds during the construction period, are capitalised as the costs of fixed assets. Amortisation of improvements relating to the expressways and a bridge is calculated on the straight-line basis to write off the cost over the period, the relevant joint venture period or its estimated useful life, whichever is shorter. Depreciation of other fixed assets is calculated on the straight-line basis to write off the cost or revaluation of each asset, less any estimated residual value, over its estimated useful life. The principal annual rates used for this purpose are analysed as follows: Buildings 3.2 ~ 4.74% Machinery 6.4 ~12% Furniture, fixtures and other equipment 18% ~ 19.4% Motor vehicles 12 ~ 18% The carrying values of fixed assets are reviewed for impairment when events or changes in circumstances indicate that the carrying values may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount. The recoverable amount of fixed assets is the greater of net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognised in the consolidated income statement for the year then ended. 9 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 31 December 2002 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (g) Construction in progress Construction in progress represents costs incurred in connection with the construction of expressways, bridge, office premises and other fixed assets, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises direct costs of construction and capitalised borrowing costs on related bank and other borrowings during the period of construction. No provision for depreciation is made on construction in progress until such time as the relevant assets are put into use. Construction in progress is reclassified to the appropriate category of fixed assets when completed and ready for use. (h) Goodwill Goodwill represents the excess of the cost of acquisition over the fair value of identifiable net assets of subsidiaries and associates at the date of acquisition. Goodwill is amortised on the straight-line basis over five years. It is reviewed by the management of the Group for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. Goodwill is stated at cost less accumulated amortisation and any impairment losses. (i) Investments All investments are initially recognised at cost, being the fair value of the consideration given and including acquisition charges associated with the investments. After initial recognition, investments which are classified as held-for-trading and available-for-sale are measured at fair value. Gains or losses on investments held for trading are recognised in income. Gains or losses on measurement to fair value of available-for-sale investments are recognised as a separate component of equity until the investment is sold, collected or otherwise disposed of, or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in income. Investments in equity interests classified as available-for-sale and trading investments without quoted market price in an active market and whose fair value cannot be reliably measured are stated at cost less any accumulated impairment losses. For investments that are actively traded in organised financial markets, fair value is determined by reference to stock exchange quoted market bid prices at the close of business on the balance sheet date. For investments where there is no quoted market price, fair value is determined by reference to the current market value of another instrument which is substantially the same or is calculated based on the expected cash flows of the underlying net asset base of the investment. 10 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 31 December 2002 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (j) Investment properties Investment properties are stated at acquisition cost less accumulated depreciation and any impairment losses. The Group adopts the cost model set out in IAS 40 “Investment property” and the cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and location for its intended use. Expenditure incurred after the asset has been put into operation, such as repairs and maintenance, is normally charged to the income statement in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset, the expenditure is capitalised as an additional cost of the asset. The carrying values of investment properties are reviewed at each balance sheet date by the management of the Group to assess whether the carrying values may not be recoverable, and if carrying values exceeds the estimated recoverable amount, such amounts would be written down to their recoverable amounts and the impairment losses are recognised in the consolidated income statement for the year then ended. Depreciation is calculated on a straight-line basis over the estimated useful life of 20 years. (k) Bridge operating rights Bridge operating rights represent the rights to operate a bridge and are stated at cost less accumulated amortisation. Amortisation is provided on a straight-line basis over the period of the bridge operating rights granted to the Group. (l) Other long term assets Other long term assets represent losses on the disposal of residential apartments to the staff of the Group, and are eliminated by amortisation through the consolidated income statement on the straight-line basis over 10 years, being the average remaining service duration of the staff in the Group. (m) Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand and short term deposits with an original maturity of three months or less. For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash epuivalents as defined above. (n) Inventories Inventories represent, primarily, low value consumables and are stated at the lower of cost and net realisable value. 11 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 31 December 2002 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (o) Interest-bearing loans and borrowings All loans and borrowings are initially recognised at cost, being the fair value of the consideration received and include acquisition charges associated with the borrowings or loans. (p) Retirement benefits The Group is required to make contributions on behalf of its employees to a government administered retirement scheme in accordance with the rules and regulations thereof. The Group’s liability with regard to this retirement scheme is limited to its contributions, which are accounted for on an accrual basis. (q) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e., assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the costs of those assets. The capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs capitalised. (r) Revenue Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, and the following specific recognition criteria must also be met before revenue is recognised: • toll revenue, net of any applicable revenue taxes, when received; • service income, by reference to the stage of completion, which is measured by reference to labour hours incurred to date as a percentage of total estimated labour hours for each contract and where the contract outcome cannot be measured reliably, recognised only to the extent of the expenses recognised that are recoverable; • rental revenue, on a time proportion basis, over the lease terms; • interest income, on a time proportion basis; and • dividend and investment income, when the shareholders’ right to receive payment has been established. 12 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 31 December 2002 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (s) Income taxes PRC income tax is provided at the rates applicable to enterprises, Sino-foreign joint stock limited companies and Sino-foreign co-operative joint venture company in the PRC on the income for financial reporting purposes, adjusted for income and expense items which are not assessable or deductible for income tax purposes, based on existing PRC income tax legislation, practices and interpretations thereof. Tax refunds received are recorded as a reduction of income tax expense upon receipt. Deferred income tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences: • Except where the deferred income tax liability arises from goodwill amortisation or the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor, taxable profit or loss; and • In respect of taxable temporary differences associated with interests in subsidiaries, associates and joint ventures, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, carry-forward of unused tax assets and unused tax losses can be utilised: • Except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit, nor taxable profit or loss; and • In respect of deductible temporary differences associated with interests in subsidiaries, associates and joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. 13 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 31 December 2002 4. TURNOVER AND REVENUE Revenue mainly represents toll income from the operations of toll expressways and a bridge and other revenue, net of relevant revenue taxes. An analysis of turnover and revenue is as follows: 2002 2001 RMB’000 RMB’000 Toll income 753,157 625,401 Less: Revenue taxes (40,261) (33,197) Turnover 712,896 592,204 Interest income 8,930 9,091 Income on current investment securities 1,266 12,898 Service income 7,655 - Dividend income from available-for-sale financial assets - 486 Gain on disposal of equity interest in an associate - 1,500 Gain on disposal of investment properties (see note 14.2) 671 - Rental income 6,517 2,168 Other operating income 4,873 8,129 Other revenue 29,912 34,272 Total revenue 742,808 626,476 The Company and its subsidiaries are subject to the following types of revenue taxes of the PRC: - Business Tax (“BT”), levied at 5% on toll income and other service income; - City Development Tax, levied at 5% to 7% of BT; and - Education Supplementary Tax, levied at 3% of BT. 14 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 31 December 2002 5. PROFIT FROM OPERATING ACTIVITIES The Group’s profit from operating activities is arrived at after charging the following: 2002 2001 RMB’000 RMB’000 Operating cost 241,690 221,894 Depreciation 155,369 Amortisation of bridge operating rights 3,522 3,522 Amortisation of goodwill 12,902 12,031 Amortisation of other long term assets 3,664 3,664 Staff costs: - Wages and salaries 32,792 30,093 - Housing benefits 1,571 1,103 - Retirement benefits 4,689 4,059 - Staff welfare and bonuses 8,303 6,580 Loss on disposal of fixed assets 2,330 288 Loss on disposal of equity interest in an associate 203 - Provision for impairment loss of fixed assets 5,273 - Provision for impairment loss of construction in progress - 3,808 Provision for impairment loss of available-for-sale financial assets 7,651 - Provision for impairment loss of investment properties - 649 Provision for doubtful debts - 147 Rental expenses 1,344 1,040 6. FINANCE COSTS 2002 2001 RMB’000 RMB’000 Interest expense on: - Related party loans and an advance 7,095 73,702 - Bank loans 15,827 24,460 22,922 98,162 15 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 31 December 2002 7. INCOME TAX EXPENSE Major components of income tax expense for the year ended 31 December 2002 are analysed as follows: Note 2002 2001 RMB’000 RMB’000 Current income tax: -Current income tax charge 106,133 25,228 -Adjustments in respect of current income tax of previous periods 7.1 19,386 - Deferred income tax: -Relating to reversal of deductible temporary differences 822 822 -Relating to origination of taxable temporary differences 26,647 - Income tax expense reported in consolidated income statement 152,988 26,050 PRC income tax for the Company and its subsidiaries operating in the PRC has been provided at the applicable income tax rate of 33% on the assessable profits, except for Guangfo Company and Zhongke Company, which are subject to income tax rates of 18% and 15%, respectively. The effective income tax rates applicable to the Company and its subsidiaries are analysed as follows: 2002 2001 The Company 33% * 33% * Guangfo Company 18% ** 18% ** Fokai Company 33% * 33% * Gaosu Company 33% * 33% * Proteam Incorporation 33% * 33% * Zhongke Company 15% *** 15% *** * In accordance with the tax regulations in the PRC, the applicable PRC income tax rate for the Company, Fokai Company, Gaosu Company and Proteam Incorporation is 33%. As Gaosu Company and Proteam Incorporation had accumulated taxable losses as at 31 December 2002, no provision for PRC income tax has been made for the year then ended. 16 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 31 December 2002 7. INCOME TAX EXPENSE (continued) ** According to the request from local tax bureaux in 2002, in addition to the original PRC income tax rate of 15%, applicable to Sino-foreign infrastructure co-operative joint ventures, an additional 3% of local PRC income tax should be applied to Guangfo Company, with effect from 1 January 2001, retrospectively. *** In accordance with the tax regulations in the PRC, the applicable PRC income tax rate to Zhongke Company is 15%. As Zhongke Company had accumulated taxable losses as at 31 December 2002, no provision for PRC income tax has been made. A reconciliation of the expected tax with the actual tax expenses is presented below: Notes 2002 2001 RMB’000 RMB’000 Profit from operating activities before income tax and minority interests 401,102 225,786 Tax at an applicable tax rate of 33% 132,364 74,509 Tax refunds of the Company # (2,640) (13,950) Effect attributable to subsidiaries charged at tax rates of 18% and 15%, respectively (27,784) (26,976) Tax losses of the Company and subsidiaries 11,974 373 Tax exemption from subsidiaries with accumulated taxable losses, additions through business combinations - (14,612) Tax effect of expenses not deductible in determining taxable profits 9,488 6,706 Tax expenses in respect of current year 123,402 26,050 At effective income tax rate of 30.8% (2001: 11.5%) Adjustments in respect of PRC income tax of previous periods: - current income tax 7.1 19,386 - - deferred income tax 7.2 10,200 - Income tax expense included in the consolidated income statement for the year ended 31 December 2002 152,988 26,050 # In accordance with the circular numbered “Yue Cai Fa 2000 76” issued by the Guangdong Provincial Finance Bureau dated 9 September 2000, listed companies in the Guangdong Province with PRC income tax at the rate of 33% were granted an 18% tax refund before 1 January 2002. 17 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 31 December 2002 Accordingly, the remaining tax refund of the Company for 2001 amounting to RMB2,640,000 was received, and was recognised as a reduction of income tax expense for the year ended 31 December 2002. 18 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 31 December 2002 7. INCOME TAX EXPENSE (continued) Deferred income tax Deferred income tax as at 31 December 2002 related to the following: Consolidated Consolidated balance sheet income statement 2002 2001 2002 2001 RMB’000 RMB’000 RMB’000 RMB’000 Deferred income tax liabilities - Depreciation differences between tax base and carrying amount of expressways (29,044) - (26,647) - Deferred income tax assets - Unrealised profit from disposal of fixed assets 3,214 4,036 (822) (822) Deferred income tax charge (27,469) (822) Net deferred income tax liability (29,044) - Net deferred income tax asset 3,214 4,036 According to the requests of local tax bureaux in 2002, the following adjustments have been made in the tax returns for the fiscal year ended 31 December 2001 and the relevant tax expenditures have been included in the consolidated income statement for the year ended 31 December 2002, in accordance with the prudence concept, as management of the Group could not estimate the outcome of negotiation according to the existing information though negotiation for the tax-deductibility of certain items was still in process: 7.1 The additional depreciation charges of RMB61,000,000 of Fokai Company arising from the reclassification of fixed assets pursuant to the Final Verification Report for Fokai Expressway, issued by the Ministry of Communications and the Department of Communications of Guangdong Province of the PRC in 2000, were deemed as non-deductible expenses for PRC income tax purpose. The interest expense of RMB101,000,000 in relation to the shareholders’ loan to Fokai Company for 2000 and 2001, was deemed as a non-deductible tax expense according to the terms stipulated in the circular numbered “Guo Shui Fa 2000 84”, though management of Fokai Company considered that such loan was granted through a financial institution authorised to lend money to PRC companies (see note 23), rather than a loan directly granted by a related party. Accordingly, the adjustment in respect of the current income tax of the previous periods of Fokai Company amounted to RMB14,931,000. In addition, an adjustment in respect of the current income tax of the previous periods of Guangfo Company amounted to RMB4,455,000, arising from an additional 3% of local PRC income tax applied to Guangfo Company, with effect from 1 January 2001, retrospectively (see footnote to the above summary of tax rates). 19 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 31 December 2002 7. INCOME TAX EXPENSE (continued) 7.2 The straight-line basis, instead of the sum-of-the-units method, the previous calculation method of depreciation for tax filing purpose, should be adopted in calculation of depreciation charges of Fokai Expressway for tax filing purpose, with effect from 1 January 2000, retrospectively. Accordingly, deferred tax liabilities amounted to RMB27,535,000, in relation to the difference between tax base and carrying amount of expressways for prior years. In addition, deferred tax assets of RMB17,335,000 have been provided on depreciation difference between tax base and carrying amount of certain fixed assets in Fokai Company as it is expected that Fokai Company will have sufficient profits in the future to enable the deferred tax assets to be recovered. 8. DIVIDENDS PAID AND PROPOSED During the year ended 31 December 2002, a dividend of RMB0.1 per share (totalling RMB125,712,000) was declared and paid. In addition, a further dividend of RMB0.1 per share has been proposed and will be submitted for formal approval at the 2003 annual general meeting. Accordingly, this dividend (totalling RMB125,712,000) has not been recognised as a liability as at 31 December 2002. During the year ended 31 December 2001, a dividend of RMB0.1 per share (totalling RMB83,808,000) was declared and paid. In addition, a further dividend of RMB0.1 per share was proposed and approved at the 2002 annual general meeting, and was paid in 2002 following that approval. Accordingly, that dividend (totalling RMB125,712,000) was not recognised as a liability as at 31 December 2001. 9. EARNINGS PER SHARE The basic earnings per share is calculated by dividing the net profit attributable to shareholders for the year of RMB141,996,000 (2001: RMB149,811,000) by the weighted average number of 1,257,117,749 (2001: 1,257,117,749) shares in issue. No diluted earnings per share were presented as there were no dilutive potential ordinary shares as at the year end. 20 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 31 December 2002 10. FIXED ASSETS Fu Expressways a and bridges Improvements Buildings Machinery eq RMB’000 RMB’000 RMB’000 RMB’000 RM Cost or valuation: At beginning of year 4,426,271 44,148 181,322 130,163 Additions 93,809 - 2,608 15,146 Additions through - - - - business combinations Disposals - - (1,405) (3,993) ( At 31 December 2002 4,520,080 44,148 182,525 141,316 Accumulated depreciation: At beginning of year 450,195 36,667 34,605 76,893 Provided during the year 115,566 1,360 8,963 16,296 Additions through - - - - business combinations Disposals - - (393) (3,591) ( At 31 December 2002 565,761 38,027 43,175 89,598 Provision for impairment loss of fixed assets: At beginning of year - - - - Provided/transferred-in during the year 2,600 - - 5,273 At 31 December 2002 2,600 - - 5,273 Net book value: At 31 December 2002 3,951,719 6,121 139,350 46,445 At 31 December 2001 3,976,076 7,481 146,717 53,270 21 10. FIXED ASSETS (continued) In connection with the Group reorganisation, fixed assets as at 31 January 1993 were revalued by Zhongzhou Certified Public Accountants on a depreciated replacement cost basis. The revaluation surplus of RMB147,600,000 arising from the revaluation has been approved by the Guangdong Provincial State Assets Bureau and reflected in the Group’s financial statements. The 1993 valuation was a one-off exercise which established the deemed cost of the fixed assets injected on the formation of the Company. As a result, the directors consider that the requirements of IAS 16 “Property, plant and equipment” with respect to carrying assets at amounts other than cost less accumulated depreciation are not applicable. Pursuant to Tentative Measures for Management of Guangdong Provincial United Toll Collection System issued in November 2002 by the Guangdong Provincial Government, a province-wide united toll collection system (“Proposed United Toll Collection System”) is proposed to be implemented in the coming year, upon the completion of which, a non-stop toll collection for toll expressway could be foreseen in the Guangdong Province. As a result, certain parts of the existing toll collection systems used by the Group’s expressways, which may not be compatible with the Proposed United Toll Collection System, will be replaced on a piecemeal basis. Accordingly, the impairment losses of RMB5,273,000 have been included in the consolidated income statement for the year ended 31 December 2002. Pursuant to the approval of the directors at the Guangfo Company’s directors’ meeting on 15 November 2000, Guangfo Company entered into an establishment agreement and a supplemental agreement (collectively referred to as the “Establishment Agreement of Xiebian Project Company”) with Foshan City Transportation Development Company (“Foshan Transportation Company”), Nanhai City Transportation Construction Group Company Limited (“Nanhai Transportation Group Company”) and Foshan Municipal Road Bureau of the Guangdong Province to establish Foshan City Xiebian Interchange Project Construction Company Limited (“Xiebian Project Company”) dated 28 December 2000 and 12 October 2001, respectively, and accounted for 33% equity interest accordingly. During the year, Guangfo Company contributed RMB30,949,000 as a shareholders’ loan to Xiebian Project Company. Up to 31 December 2002, Guangfo Company aggregately contributed RMB9,900,000 and RMB83,909,000 as paid-up capital and a shareholders’ loan, respectively. The construction of Xiebian Interchange was completed in October 2002. Pursuant to the Establishment Agreement of Xiebian Project Company, the subsequent management and maintenance of Xiebian Interchange will be handed over to the local government authorities upon completion of construction. The directors of the Group considered that after the completion of construction of Xiebian Interchange, future economic benefits, in excess of the originally assessed standard of performance of Guangfo Expressway, would flow to Guangfo Company, accordingly, the aggregate expenditure for Xiebian Project Company should be accounted for as fixed assets in the consolidated financial statements, rather than interest in an associate in accordance with the accounting principle of substance over form. However, the efforts of maintenance were still made by Xiebian Project Company for the year then ended and the negotiation with local government for the maintenance expenses was still in process. Since management could not estimate the outcome of negotiation according to the existing information, the maintenance expenses of RMB776,000, which is calculated in proportion to Guangfo Company’s equity interest in Xiebian Project Company, have been included in the consolidated income statement for the year ended 31 December 2002, in accordance with the prudence concept. 22 11. CONSTRUCTION IN PROGRESS Construction in progress consists of various construction projects in progress. These projects mainly include the Siling Complex and Yayao Interchange located at Nanhai city in the Guangdong Province, the PRC. Pursuant to the approval of the directors at the Guangfo Company’s directors’ meeting on 15 November 2000, Guangfo Company entered into an establishment agreement and a supplemental agreement (collectively referred to as the “Establishment Agreement of Yayao Project Company”) with Foshan Transportation Company, Nanhai Transportation Group Company and Foshan Municipal Road Bureau of the Guangdong Province to establish Nanhai City Yayao Interchange Project Construction Company Limited (“Yayao Project Company”) dated 28 December 2000 and 12 October 2001, respectively, and accounted for 60% equity interest accordingly. During the year, Guangfo Company contributed RMB31,117,000 as a shareholders’ loan to Yayao Project Company. Up to 31 December 2002, Guangfo Company aggregately contributed RMB6,000,000 and RMB42,858,000 as paid-up capital and a shareholders’ loan, respectively. According to the Establishment Agreement of Yayao Project Company, Guangfo Company is subject to the contributions of RMB18,509,000 as shareholders’ loan in the next year. Pursuant to the Establishment Agreement of Yayao Project Company, the subsequent management and maintenance of Yayao Interchange will be handed over to the local government authorities upon completion of construction. The directors considered that after the completion of construction of Yayao Interchange, future economic benefits, in excess of the originally assessed standard of performance of Guangfo Expressway, will flow to Guangfo Company, accordingly, the aggregate expenditure for Yayao Project Company should be accounted for as construction in progress in the consolidated financial statements, rather than interest in a subsidiary, in accordance with the accounting principle of substance over form. 12. GOODWILL RMB’000 Cost: At 1 January 2002 60,156 Additions during the year 20,665 Write-back of negative goodwill on disposal of equity interest in an associate during the year (see note 13) 906 At 31 December 2002 81,727 Accumulated amortisation: At 1 January 2002 32,047 Provided during the year 12,902 Write-back of negative goodwill on disposal of equity interest in an associate during the year (see note 13) 438 At 31 December 2002 45,387 Net book value: At 31 December 2002 36,340 At 31 December 2001 28,109 23 12. GOODWILL (continued) Additions of positive goodwill of RMB20,665,000 arising on the acquisition of 20% equity interest in Beijing-Zhuhai Expressway Guangzhou-Zhuhai Section Company Limited represents the excess of the purchase consideration paid for the equity interest over the fair values ascribed to the net underlying assets acquired at the date of acquisition, and is eliminated by amortisation through the consolidated income statement on the straight-line basis over five years. Write-back of negative goodwill of RMB906,000 mainly represented the excess of the acquired interest in the fair values of the identifiable assets and liabilities over the purchase consideration paid for the equity interest at the date of acquisition, arising from the acquisition of 25% equity interest of Guangdong Jindaoda Expressway Economic Development Company Limited in 1999. 13. INTERESTS IN ASSOCIATES 2002 2001 RMB’000 RMB’000 Share of net assets 527,794 280,749 Due from associates 803,278 314,580 1,331,072 595,329 Particulars of the associates, which operate in the PRC, are analysed as follows: Date of Attributable equity Principal Name establishment interest of the Group activities 2002 2001 Shenzhen Huiyan 20 November 33.33% * 33.33% * Construction and Expressway Company 1991 operation of Limited Huizhou-Yantian (“Huiyan Company”) Port Expressway, Shenzhen section Guangdong Maozhan 8 February 20% * 20% * Construction and Expressway Company 1999 operation of Limited Dianbai-Zhanjiang (“Maozhan Company”) Expressway Guangdong Guanghui 12 August 30% * 30% * Construction and Expressway Company 1999 operation of Limited Guangzhou-Huidong (“Guanghui Company”) Expressway 24 13. INTERESTS IN ASSOCIATES (continued) Date of Attributable equity Principal Name establishment interest of the Group activities 2002 2001 Guangdong Jindaoda 10 November - 25%* Investment and Expressway Economic 1997 development of Development Company properties and Limited accessory facilities (“JDD Company”) alongside expressways in the PRC Beijing-Zhuhai Expressway 13 May 20%* - Construction and Guangzhou-Zhuhai Section 1993 operation of Company Limited Guangzhou-Zhuhai (“Guangzhu Company”) Expressway * The Group’s profit sharing in associates is in proportion to its share of equity interest therein. The Company entered into a disposal agreement (the “Disposal Agreement”) with Guangdong Tongyi Expressway Service District Company Limited (“Tongyi Company”) dated 29 April 2002. The Disposal Agreement was approved by shareholders at a general meeting on 15 April 2002 and relevant authority on 5 June 2002, respectively. According to the Disposal Agreement, the Company disposed of 25% equity interest in JDD Company to Tongyi Company at a consideration of RMB3,523,000, resulting in a loss on disposal of RMB203,000, which was included in the consolidated income statement for the year ended 31 December 2002. Pursuant to the approval of the Company’s shareholders at a general meeting held on 26 April 2002, and the approval from the Bureau of Foreign Trade and Economic Cooperation of Guangdong Province dated 10 December 2002, the Company entered into an acquisition agreement and a supplementary agreement (collectively referred to as the “Acquisition Agreements”) with Guangdong Provincial Road Construction Company Ltd. (the “GPRCC”) dated 21 March 2002 and 30 October 2002, respectively. In accordance with the Acquisition Agreements, the Company acquired 20% equity interest in Guangzhu Company at a consideration of RMB280,067,000 and granted a shareholders’ loan to Guangzhu Company, amounting to RMB311,533,000, with effect from 1 November 2002. Accordingly, goodwill of RMB20,665,000 arose on the acquisition of equity interest in Guangzhu Company, which represents the excess of the purchase consideration paid for the equity interest in Guangzhu Company over the fair values ascribed to the net identifiable assets and liabilities acquired at the date of acquisition. The amounts due from associates mainly represent respective loans to Huiyan Company, Guangzhu Company and an advance to Guanghui Company. 25 13. INTERESTS IN ASSOCIATES (continued) The loan to Huiyan Company represents part of a shareholders’ loan made through Guangdong Financial Trust and Investment Corporation (“GFTIC”), which is a financing institution authorized to lend money to PRC Companies . A formal loan agreement was entered into on 9 November 1998. The loan to Huiyan Company is unsecured, interest-free and has no fixed terms of repayment. Huiyan Company repaid a shareholders’ loan to the Company for the year ended 31 December 2002, amounting to RMB7,000,000. The loan to Guangzhu Company represents part of a shareholders’ loan. In accordance with Guangzhu Acquisition Agreements, the Company granted a shareholders’ loan to Guangzhu Company, amounting to RMB311,533,000 with effect from 1 November 2002, which is unsecured and has no fixed terms of repayment. The nominal interest rate of the loan to Guangzhu Company was 8% per annum (effective interest rate for current year: 8%). The amount of interest receivable from Guangzhu Company as at the year end is calculated by reference to the principal sum which should include the gross amount of the outstanding unpaid interest at the end of the prior year. An advance to Guanghui Company is unsecured, interest-free and has no fixed terms of repayment. During the year, an additional advance of RMB180,000,000 has been granted to Guanghui Company. 14. OTHER INVESTMENTS, UNLISTED 2002 2001 Notes RMB’000 RMB’000 Investments in available-for-sale financial assets 14.1 63,251 5,400 Less: Provision for impairment loss of available-for- sale financial assets (7,651) - 55,600 5,400 Investment properties 14.2 3,970 9,432 Less: Accumulated depreciation and provision for impairment loss of investment properties (1,932) (6,095) 2,038 3,337 57,638 8,737 Notes: 14.1 Pursuant to the approval of the Company’s shareholders at a general meeting held on 26 April 2002, the Company entered into an agreement (the “Agreement”) with GPRCC dated 21 March 2002 to jointly establish Jiangmen-Zhongshan Expressway Company Limited (“Jiangzhong Company”) at a consideration of RMB142,170,000 and accounted for 15% equity interest accordingly. During the year, RMB45,230,000 was contributed by the Company as part of a capital injection, which has been included in the investments in available-for-sale financial assets. The remaining balance of investments in available-for-sale financial assets represents respective investment in equity interest in a battery manufacturing company registered in the PRC (see note 16), and an unlisted 26 securities firm registered in the PRC. For the investments in available-for-sale financial assets as at 31 December 2002, as the directors consider there is no quoted market price in an active market and whose fair value cannot be reliably measured, the investments in available-for-sale financial assets are stated at cost less any accumulated impairment losses. 14.2 Investment properties as at 31 December 2002 mainly represent real estates for rental purpose located at Shunde city in the Guangdong Province, the PRC. During the year, the Company disposed of real estates located at Huizhou city in the Guangdong Province, the PRC, which resulted in a gain on disposal of RMB671,000 (see note 4). For the investment properties as at 31 December 2002, as the directors consider there is no quoted market price in an active market and whose fair value cannot be reliably measured, the investments properties are stated at cost less any accumulated depreciation and impairment losses. 15. OTHER LONG TERM ASSETS RMB’000 Cost: At 1 January 2002 and 31 December 2002 36,633 Accumulated amortisation: At 1 January 2002 7,901 Provided during the year 3,664 At 31 December 2002 11,565 Net book value: At 31 December 2002 25,068 At 31 December 2001 28,732 Other long term assets represent losses on disposal of residential apartments to staff. In accordance with the relevant regulations issued by the State Council of the PRC applicable to companies established in the PRC, the residential apartments of the Group were sold to the staff of the Group at a discounted value according to their remaining duration of service in the Group. 27 16. INVESTMENTS IN SUBSIDIARIES As at 31 December 2002, the Company had five subsidiaries which were established and operating in the PRC. All material intercompany transactions and balances have been eliminated on consolidation. Particulars of the subsidiaries are shown as follows: Date of Paid-up Principal activities Name establishmen capital Attributable equity t interest of the Group RMB’000 2002 2001 Guangzhou-Foshan Expressway Company 7 July 200,000 75% 75% Operation of Limited 1988 Guangfo (“Guangfo Expressway Company”) Guangdong Provincial Foshan-Kaiping 12 March 340,000 51% 51% Operation of Fokai Expressway Limited 1996 Expressway and Liability Company Jiujiang Bridge (“Fokai Company”) Guangdong Gaosu Science and 13 August 100,000 95% 85% Investment in the Technology 2001 industry of science Investment Company and technology Limited (“Gaosu Company”)* Guangzhou Proteam Manufacture Technology 26 October 5,000 57% - and sale of Incorporation 1998 telecommunication (“Proteam and network Incorporation”) systems Tibet Zhongke Energy-storage 22 March 1,000 94% - Investment in the Technology 2001 industry of battery Development Co., manufacturing Ltd. (“Zhongke Company”) * Pursuant to the approval of the Company’s shareholders at a general meeting held on 26 April 2002, the Company entered into an agreement with Guangdong Provincial Road and Bridge Construction and Development Company Limited (the “GRBC”) dated 19 February 2002 to acquire an additional 10% equity interest in Gaosu Company at a consideration of RMB10,000,000, with effect from 28 February 2002. Accordingly, the Company aggregately held 95% equity interest in Gaosu Company with effect from 28 February 2002. 28 16. INVESTMENTS IN SUBSIDIARIES (continued) Acquisition of Proteam Incorporation Pursuant to the resolution of Gaosu Company’s directors’ meeting dated 8 July 2002, Gaosu Company entered into acquisition agreements and a supplemental agreement with four preceding individual investors dated 1 August 2002 to acquire 60% equity interest in Proteam Incorporation, at the consideration of RMB1 and a shareholder’s loan of RMB5,000,000, which is unsecured, interest-free and repayable on or before 30 August 2004. Accordingly, Gaosu aggregately held 60% equity interest in Proteam Incorporation with effect from 1 August 2002. The fair values of the identifiable assets and liabilities of Proteam Incorporation acquired are as follows: RMB’000 Cash on hand 1 Prepayments and other receivables 44 Fixed assets, net 131 Other payables (248) Minority interests 29 Net liabilities acquired (43) Cost of acquisition in excess of the acquired net liabilities 43 Acquisition consideration of equity interest - A shareholder’s loan granted associated with the acquisition 5,000 Cash and cash equivalents acquired with subsidiary (1) Elimination of a shareholder’s loan on consolidation (5,000) Net cash inflows 1 From the date of acquisition, Proteam Company has contributed RMB53,000 to the net profit of the Group. 29 16. INVESTMENTS IN SUBSIDIARIES (continued) Acquisition of Zhongke Company Pursuant to the resolution of Gaosu Company’s directors’ meeting dated 1 March 2002, Gaosu Company entered into an agreement with Tibet Kechuang Investment Management Co., Ltd. to acquire 99% equity interest in Zhongke Company, at a consideration of RMB11,294,000 with effect from 8 March 2002. Zhongke Company is an investment holding company, the principal activity of which is investment in the industry of battery manufacturing. The investment in available-for-sale financial assets included in the acquired assets mainly represents 8% equity interest in a battery manufacturing company (see note 14). The fair values of the identifiable assets and liabilities of Zhongke Company acquired are as follows: RMB ’00 0 Investments in available-for-sale financial assets 12,697 Other payables (1,290) Minority interests (113) Net assets acquired/acquisition consideration of equity interest 11,294 Cash and cash equivalents acquired with subsidiary - Net cash outflows 11,294 From the date of acquisition, Zhongke Company has contributed nil profit or loss to the net profit of the Group. 17. BRIDGE OPERATING RIGHTS RMB’000 Cost: At 1 January 2002 and 31 December 2002 66,918 Accumulated amortisation: At 1 January 2002 7,044 Provided during the year 3,522 At 31 December 2002 10,566 Net book value: At 31 December 2002 56,352 At 31 December 2001 59,874 Fokai Company, a 51% owned subsidiary of the Company as at 31 December 2002, acquired the bridge operating rights to operate the Jiujiang Bridge for the period from 1 January 2000 to 10 June 2018. 30 18. PREPAYMENTS AND OTHER RECEIVABLES Prepayment of RMB18,000,000 mainly represents the prepayment of Gaosu Company for the capital injection to Guangdong Haiyi Port Investment Co., Ltd. (“Haiyi Port Company”) in December 2002 to account for 50% equity interest in Haiyi Port Company, which was established in January 2003. The principal activity of Haiyi Port Company is investment in the real estate industry. According to the establishment agreement of Haiyi Port Company, the prepayment is unsecured, interest-free and has no fixed terms of repayment. The remaining balance of prepayments and other receivables is unsecured, interest-free and has no fixed terms of repayment. 19. CURRENT INVESTMENT SECURITIES 2002 2001 RMB’000 RMB’000 Government bonds, listed 133,601 132,983 Shares, listed 3,932 3,122 137,533 136,105 The amount consists of investments in listed PRC government bonds and listed shares through authorised financial institutions registered in the PRC. The market values of listed government bonds and listed shares as at 31 December 2002 were RMB133,601,000 and RMB3,932,000, respectively. The government bonds held at the balance sheet date have nominal interest rates from 2.6% to 3.3%, receivable annually in arrears and with maturity from 20 August 2007 to 20 September 2017, respectively. The government bonds and listed shares were carried at market value as at 31 December 2002. The losses of RMB2,232,000 and the gains of RMB851,000, arising from the changes in the market values of the government bonds and listed shares dated 31 December 2002, respectively, have been recognised in the consolidated income statement for the year then ended. 20. DUE FROM A RELATED COMPANY The amount due from a related company as at 31 December 2001 represents the remaining receivables for the disposal of 25% equity interest in Guangdong Yuedong Expressway Enterprise Co., Limited to Guangdong Transportation Industrial Investment Company Limited, which was unsecured, interest-free and was fully settled in January 2002. 21. DUE TO RELATED COMPANIES The amounts due to related companies are unsecured, interest-free and have no fixed terms of repayment. During the year, RMB99,975,000 was repaid to a related company, which was unsecured, bore interest at the prevailing market rate of 5.49% per annum (2001: 5.85% per annum) based on the rates quoted by the People’s Bank of China. 31 22. BANK LOANS 2002 2001 RMB’000 RMB’000 Bank loans, unsecured 700,000 298,000 The maturities of the above amount are analysed as follows: Bank loans repayable: Within one year 100,000 58,000 In the second year 100,000 - In the third to fifth years, inclusive 500,000 240,000 700,000 298,000 Long term portion 600,000 240,000 The bank loan of RMB100,000,000 has been drawn down by the Company under the terms and conditions set out in the agreement of offered borrowing facilities. The loan is unsecured, bears interest at 4.779% per annum and is repayable within one year. The bank loan of RMB100,000,000 has been drawn down by Fokai Company under the terms and conditions set out in the agreement of offered borrowing facilities. The loan is guaranteed by GPFC and bears interest at 5.409% per annum with maturity in 2004. The bank loan of RMB500,000,000 has been drawn down by the Company under the terms and conditions set out in the agreement of offered borrowing facilities. The loan is unsecured and bears interest at 4.941% per annum with maturity in 2005. 23. DUE TO MINORITY SHAREHOLDERS The amounts due to minority shareholders at the balance sheet date are unsecured and are analysed as follows: 2002 2001 RMB’000 RMB’000 Interest-bearing borrowings: Current portion 10,000 214,301 Non-current portion 15,000 908,219 25,000 1,122,520 Non-interest-bearing borrowings: Current portion 300,461 101,552 Non-current portion 866,567 - 1,167,028 101,552 1,192,028 1,224,072 32 23. DUE TO MINORITY SHAREHOLDERS (continued) The maturities of the amounts due to minority shareholders as at the balance sheet date are analysed as follows: 2002 2001 RMB’000 RMB’000 Amounts repayable: Within one year or no fixed terms of repayment 310,461 315,853 In the second year 79,882 54,031 In the third to fifth years, inclusive 167,886 163,000 Beyond five years 633,799 691,188 1,192,028 1,224,072 A formal loan agreement (the “Loan Agreement”) was entered into dated 18 June 1996 for the loan of RMB1,092,520,000 from GPFC by Fokai Company made through GFTIC. According to the Loan Agreement, the principal is repayable semi-annually over 25 years commencing from 1 January 1997. The Loan Agreement was renewed dated 25 December 2000. According to the renewed Loan Agreement, the said loan was unsecured, and bore interest at 6.21% per annum in 2001. Pursuant to the resolution of Fokai Company’s directors at a meeting held on 30 July 2002, the said loan was exempted from interest, effective from 1 January 2002, retrospectively. In 2002, Fokai Company had repaid RMB34,788,000 to GPFC. The loan of RMB25,000,000 from Chu Kong is unsecured, bears interest at the prevailing market rates based on the rates quoted by the People’s Bank of China but not less than 5.5% per annum with final maturity in 2004. The applicable interest rate for the outstanding loan as at 31 December 2002 was 5.5% per annum (2001: 5.85% per annum). The remaining balance of the amount due to minority shareholders is unsecured and interest-free. 24. ISSUED CAPITAL 2002 2001 RMB’000 RMB’000 Registered, issued and fully paid: - 633,836,999 unlisted A shares of RMB1 each 633,837 633,837 - 45,000,000 unlisted foreign investment shares of RMB1 each 45,000 45,000 - 303,750,000 listed B shares of RMB1 each 303,750 303,750 - 274,530,750 listed A shares of RMB1 each 274,531 274,531 1,257,118 1,257,118 In July 1996, the Company issued for subscription of 135,000,000 B shares by way of private placing with foreign investors. Dealings in the B shares on the Shenzhen Stock Exchange commenced in August 1996. 33 24. ISSUED CAPITAL (continued) Pursuant to the resolution at a shareholders’ general meeting in May 1997, the Company distributed a scrip dividend of 1.7 shares for every 10 shares of RMB1 and a bonus issue of 3.3 shares for every 10 shares of RMB1 to shareholders in the register of members dated 20 June 1997. In January 1998, the Company issued for subscription of 100,000,000 A shares for local PRC investors. Dealings in the A shares on the Shenzhen Stock Exchange commenced in February 1998. Pursuant to the approval of the Company’s shareholders at a general meeting held on 22 August 2000, the Company issued 30,000,000 listed A shares and 43,822,250 unlisted A shares by way of rights issue on the basis of three new shares of RMB1 each for every 10 existing shares for the shareholders in the register of members on 15 August 2000 at RMB11 per rights share payable in full on acceptance. Pursuant to the approval of the Shenzhen Stock Exchange and China Securities Regulatory Commission (“CSRC”), dealings of 53,020,500 unlisted A shares on the Shenzhen Stock Exchange commenced on 5 February 2001. Pursuant to the approval of the Company’s shareholders at a general meeting held on 23 April 2001, the Company transferred RMB419,039,249 of share premium and capital surplus to share capital in the financial statements for the year ended 31 December 2001. Pursuant to the approvals of CSRC and the Ministy of Foreign Trade and Economic Cooperation dated 16 January 2003 and 5 Novemeber 2002, respectively, the existing 45,000,000 unlisted foreign investment shares will commence dealing on the Shenzhen Stock Exchange in January 2004. 25. RESERVES Share premium Statutory and Statutory public Discretionary capital surplus welfare surplus Retained surplus reserve fund reserve profits Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 At beginning of year 1,534,761 133,658 72,038 114,565 265,724 2,120,746 Net profit for the year - - - - 141,996 141,996 Cash dividends - - - - (125,712) (125,712) Transfer to reserves - Statutory surplus reserve - 17,196 - - (17,196) - - Statutory public welfare fund - - 8,598 - (8,598) - - Discretionary surplus reserve - - - - - - 1,534,761 150,854 80,636 114,565 256,214 2,137,030 34 25. RESERVES (continued) In accordance with the Company Law of the PRC and the Company’s articles of association, the Company is required to transfer part of the profit after tax as reported in the Group’s statutory financial statements, to the statutory surplus reserve and the statutory public welfare fund. In addition, the board of directors may determine to appropriate part of the profit after tax to the discretionary surplus reserve. At the board of directors’ meeting held on 5 March 2003, the directors proposed to transfer RMB17,196,000 and RMB8,598,000 to each of the statutory surplus reserve and the statutory public welfare fund, respectively. These represent 10% and 5% of the profit after tax as reported in the Group’s statutory financial statements for the year ended 31 December 2002. According to the relevant regulations in the PRC, the retained profits available for distribution as dividends is the lower of the amounts determined under PRC accounting regulations and the amounts determined under IAS. 35 26. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (a) Reconciliation of profit before income tax to net cash inflow from operating activities 2002 2001 RMB’000 RMB’000 Profit before income tax 401,102 225,786 Adjustments for: Share of profits less losses of associates (14,681) (10,231) Depreciation 155,369 153,764 Loss on disposal of fixed assets 2,330 288 Provision for doubtful debts - 147 Provision for impairment loss of construction in progress - 3,808 Provision for impairment loss of fixed assets 5,273 - Provision for impairment loss of an available-for-sale financial asset 7,651 - Provision for impairment loss of investment properties - 649 Amortisation of goodwill 12,902 12,031 Amortisation of bridge operating rights 3,522 3,522 Amortisation of other long term assets 3,664 3,664 Interest expense 22,922 98,162 Interest income (8,930) (9,091) Gain on disposal of investment properties (671) - Dividend income from available-for-sale financial assets - (486) Loss/(gain) on disposal of equity interests in an associate 203 (1,500) Income on current investment securities, listed (1,266) (12,898) Operating profit before working capital changes 589,390 467,615 Decrease in inventories 1 219 Increase in prepayments and other receivables (9,958) (1,807) (Decrease)/increase in amounts due to related companies and minority shareholders (4,116) 650 Increase in other payables 12,208 10,586 Cash generated from operations 587,525 477,263 Interest paid (28,900) (113,417) Income taxes paid (129,726) (38,722) Net cash inflow from operating activities 428,899 325,124 36 26. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (continued) (b) Unutilised borrowing facilities As at 31 December 2002, the unutilised borrowing facilities available to settle the Group’s capital commitment for investment and construction amounted to RMB450,000,000 (2001: RMB 500,000,000). The above borrowing facilities as at 31 December 2002 were made available in accordance with the terms and conditions set out in the offered borrowing facilities as follows: 2002 2001 RMB ’000 RMB ’000 Amounts to be drawn down: Within one year 250,000 500,000 In the second to fifth years, inclusive 200,000 - 450,000 500,000 27. IMPACT OF IAS ADJUSTMENTS ON CONSOLIDATED PROFIT ATTRIBUTABLE TO SHAREHOLDERS AND CONSOLIDATED NET ASSETS Consolidated profit Consolidated attributable to shareholders net assets as at Year ended 31 December 31 December 2002 2001 2002 RMB’000 RMB’000 RMB’000 As reported under PRC accounting principles 171,955 158,930 3,366,648 IAS and other adjustments, net * (29,959) (9,119) 27,500 As restated under IAS 141,996 149,811 3,394,148 * The adjustments include, primarily, adjustments for the elimination of the unrealised profits arising on the disposal of 100% ownership of the Jiujiang Bridge and related assets to Fokai Company against the Group’s share of 35% equity interest in Fokai Company in 1999, deferred tax, goodwill arising on the acquisition of an associate, interest income on subscription monies received in connection with the issue of A shares, amortisation of goodwill, depreciation charges, amortisation of other long term assets, the provision for impairment loss of fixed assets, current investment securities at market value, dividends payable and other adjustments in accordance with the prudence concept. 37 28. COMMITMENTS AND CONTINGENT LIABILITIES (a) Capital expenditure commitments The Group had capital expenditure commitments not provided as at the balance sheet date as follows: 2002 2001 RMB’000 RMB’000 Authorised, but not contracted for 147,640 753,000 Contracted for 1,536,023 1,590,568 1,683,663 2,343,568 (b) Operating lease commitments – the Group as lessee As at 31 December 2002, the Group did not have any significant operating lease commitments. (c) Contingent liabilities As at 31 December 2002, the Group did not have any significant contingent liabilities. 29. RETIREMENT BENEFITS AND HOUSING BENEFITS (a) Retirement benefits As stipulated by the regulations issued by the State Council of the PRC, the Group participates in a defined contribution retirement plan organised by the Guangdong Provincial Government. All staff are entitled to an annual pension which is equal to a fixed proportion of their final basic salary on retirement. The Group is required to make contributions to the retirement plan at rates ranging from 15% to 18% (2001: 15% to 18%) of the basic salaries of its staff. The Group has no obligations for the pension benefits beyond the annual contributions as described above. During the year, contributions to registered insurance companies made by the Group under the defined contribution retirement scheme amounted to RMB4,689,000 (2001: RMB4,059,000). (b) Housing benefits In accordance with the PRC housing reform regulations, the Group is required to make contributions to the government administered housing fund schemes at rates ranging from 8% to 20% of the 38 specified salary amounts of the PRC employees. The employees are required to make a contribution equal to the Group’s contributions out of their payroll. The employees are entitled to claim the entire sum of the fund under certain specified withdrawal circumstances. The Group has no further obligation for housing benefits beyond the said contributions. For the year ended 31 December 2002, the Group contributed RMB1,571,000 (2001: RMB1,103,000) to the said housing fund schemes. 39 30. RELATED PARTY DISCLOSURE (a) Related party transactions The following is a summary of the significant transactions carried out between the Group and its related parties in the ordinary course of business during the year: 2002 2001 RMB’000 RMB’000 Repayment of an advance to a related company (see note 21) 99,975 - Advance from a related company (see note 21) - 114,250 Interest expense payable to a related company 2,004 2,000 Final payment for acquisition of an additional equity interest and a shareholder’s loan in a subsidiary from GPFC - 360,665 Loan from Chu Kong (see note 23) - 30,000 Repayment of loan from Chu Kong (see note 23) 19,350 - Repayment of loan from GPFC (see note 23) 34,788 - Construction fees payable to GPFC - 27,483 Interest expenses payable to minority shareholders: - Chu Kong (see note 23) 1,178 1,316 - GPFC (see note 23) - 70,386 Acquisition of equity interest in a subsidiary from GRBC (see note 16) 10,000 - Acquisition of equity interest and a shareholders’ loan in an associate from GPRCC (see note 13) 591,600 - Construction fees payable to a related company 21,252 24,740 Disposal of equity interest in an associate to a related party (see note 13) 3,523 75,260 Expressway maintenance and repair expenses payable to related companies 17,784 21,103 Rental expenses payable to related companies 1,399 1,040 Advance to an associate (see note 13) 180,000 120,000 The advance from a related company is unsecured, bears interest at the prevailing market rates based on the rates quoted by the People’s Bank of China and has no fixed terms of repayment. The loan from Chu Kong is unsecured, bears interest at the prevailing market rates based on the rates quoted by the People’s Bank of China but not less than 5.5% per annum with final maturity in 2004. The applicable interest rate for the outstanding loan as at 31 December 2002 is 5.5% per annum. The loan from GPFC is unsecured, bears interest at 6.21% per annum in 2001 and is repayable semi-annually over 25 years commencing from 1 January 1997. Pursuant to the resolution of Fokai Company’s directors at a meeting held on 30 July 2002, the said loan was exempted from interest, effective from 1 January 2002, retrospectively. Construction fees payable to a related company were based on actual costs incurred and under normal commercial terms and conditions. 40 Pursuant to an agreement between GRBC and the Company, the Company acquired an additional 10% equity interest in Gaosu Company at a consideration of RMB10,000,000, with effect from 28 February 2002. Accordingly, the Company aggregately held 95% equity interest in Gaosu Company with effect from 28 February 2002. 41 30. RELATED PARTY DISCLOSURE (continued) (a) Related party transactions (continued) Pursuant to an agreement between GPRCC and the Company, the Company acquired 20% equity interest in Guangzhu Company at a consideration of RMB280,067,000 and granted a shareholders’ loan to Guangzhu Company, amounting to RMB311,533,000, with effect from 1 November 2002. The shareholders’ loan is unsecured and has no fixed terms of repayment and the nominal interest rate of which was 8% per annum (effective interest rate for current year: 8%). The amount of interest receivable from Guangzhu Company as at the year end is calculated by reference to the principal sum which should include the gross amount of the outstanding unpaid interest at the end of the prior year. Pursuant to the Disposal Agreement entered into between Tongyi Company and the Company, the Company disposed of its 25% equity interest in JDD Company in April 2002 under normal commercial terms and conditions. Expressway maintenance and repair expenses payable to a related company were based on actual costs incurred and under normal commercial terms and conditions. Rental expenses payable to related companies were based on actual costs incurred and under normal commercial terms and conditions. The advance to an associate is unsecured, interest-free and has no fixed terms of repayment. (b) Directors’ remuneration During the year, the executive members of the board of directors received remuneration, inclusive of basic salaries, bonuses and allowances, totalling RMB5,098,000 (2001: RMB5,619,000). The Company contributed RMB2,067,000 (2001: RMB67,000) to defined contribution retirement schemes administered by registered insurance companies for the executive directors. 31. FINANCIAL INSTRUMENTS AND CONCENTRATION OF RISKS The Group conducts its major operations in the PRC and exposes to market risks from changes in interest. In addition, they are also subject to special considerations and risks including risks associated with, inter alia, the political, economic and legal environment and restrictions pertaining to the setting of a stable toll tariff. Financial assets of the Group include cash, investments, prepayments and other receivables. Financial liabilities of the Group include bank loans, amounts due to related companies, other payables and amounts due to minority shareholders. 42 31. FINANCIAL INSTRUMENTS AND CONCENTRATION OF RISKS (continued) (a) Credit risk Substantial amounts of the Group’s cash balances are deposited with the China Construction Bank, the Bank of China, the Agriculture Bank of China, the China International Trust and Investment Company Industrial Bank, the Shenzhen Development Bank, the Industrial and Commercial Bank of China, the China Everbright Bank and Huaxia Bank, the Bank of Communications, the Shanghai Pudong Development Bank, the Guangdong Development Bank, China Minsheng Banking Corp., Ltd., the China Merchants Bank and the Guangzhou Commercial Bank. The Group has no significant concentration of credit risk with any single counterparty or group counterparties. (b) Liquidity risks The Group policy is to maintain sufficient cash and cash equivalents or have available funding through an adequate amount of committed annual credit facilities from banks to meet its commitments over the next year in accordance with its strategic plan. (c) Interest rate risk The Group’s exposure to interest rate risk relates principally to its bank loans and amounts due to minority shareholders. The Group’s income and operating cash flows are substantially independent of changes in market interest rate prices. (d) Foreign exchange risk The Group has no significant foreign exchange risk due to limited foreign currency transactions. (e) Fair values The fair values of cash, investments, prepayments, other receivables, amounts due to related companies, other payables and amounts due to minority shareholders are not materially different from their carrying amounts. Investments held for trading, are estimated by reference to their quoted market prices at the balance sheet date. Available-for-sale financial assets are measured at cost less impairment losses, if appropriate, as there are no quoted market prices in an active market and whose fair values cannot be reliable (see note 14). Fair value estimates are made at a specific point in time and based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgement and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. 43 32. SEGMENT INFORMATION The Group’s revenue and profit for the year were almost entirely derived from the management and operations of toll expressways and a bridge, which are located in the Guangdong Province, the PRC. Accordingly, no segmental analysis by activity and geographical area is provided. 33. POST BALANCE SHEET EVENTS Pursuant to the approval of the Company’s directors at a meeting held on 15 December 2000, approval from the Bureau of Foreign Trade and Economic Cooperation of the Guangdong Province dated 23 December 2002 and Guangdong Provincial Development and Planning Commission dated 28 January 2003, the Company will acquire 25% equity interest in Zhaoqing Guangzhou-Zhaoqing Expressway Company Limited at a consideration of RMB204,575,000. 34. COMPARATIVE AMOUNTS Certain comparative amounts in the prior year have been reclassified so as to conform to the current year’s presentation. 35. APPROVAL OF THE FINANCIAL STATEMENTS The financial statements were approved and authorised for issue by the board of directors on 5 March 2003. 44 XI. Document for Reference 1) The financial statement with original signatures and seals of the legal person, the chief accountant and the head of accounting organizations. 2) Original audit report with the seal of the accounting firm, the signature and seal of certified accountant. 3) Original copies of all the documents and announcements disclosed in the newspapers specified by the State Securities Regulatory Commission. 45