本钢板材(000761)2002年年度报告（英文版）

BENGANG STEEL PLATES CO., LTD. Annual Report 2002 (In Accordance with International Accounting Standard) Important Statements The Board of Directors and the directors of the Company guarantee that there are no significant omissions, fictitious or misleading statements carried in the Report and will accept individual and joint responsibilities for the truthfulness, accuracy and completeness of the Report. Director Yu Tiancheng absent the meeting due to business arrangement, director Chen Jizhuang absent the meeting due to movement of job. Director Zhang Guiyu absent the meeting due to his business trip abroad. PriceWaterHouseCoopers Zhong Tian CPAs Co., Ltd. issued auditor’s report without expressing of opinions. Both of the Board of Directors and the Supervisory Committee produced statements in respect with the relative events. Please refer to hereinafter. The Chairman of the Board –Mr. Li Mohua, the Chief Financial Officer –Mr. Liang Guangde, and the Manager of the Accounting Department – Mrs. Dong Xin hereby declare: the truthfulness and completeness of the report are guaranteed. I. Company Profile 1. Name of the Company in Chinese: 本钢板材股份有限公司 In English: BENGANG STEEL PLATES CO., LTD. 2. Legal Representative: Mr. Li Mohua 3. Secretary of the Board: Mr. Liang Guangde Liaison of stock affair: Mr. Sun Zhongzheng Address: No.16, Renmin Road, Pingshan District, Benxi City, Liaoning Province Tel: 0414－7827344 7828360 Fax: 0414－7827004 7828009 E-mail: bgbcgdl@online.ln.cn 4. Registered address: No.16, Renmin Road, Pingshan District, Benxi City, Liaoning Province Post Code: 117000 E-mail: bgbc761@online.ln.cn bgbctwg@mail.bxptt.ln.cn 5. Information disclosure media stipulated by the company : China Security Daily, Security Times, Hong Kong Commercial Daily Annual reports also published online at: http://www.cninfo.com.cn Place where the annual report is prepared and ready for reference: Stock Affair Department, No.16, -1- Renmin Road, Pingshan District, Benxi City, Liaoning Province 6. Stock listed in: Shenzhen Stock Exchange (1) Short Form of B-Shares: BENGANGBAN-B Stock Code: 200761 (2) Short Form of the Stock of A-Share: BENGANGBANCAI Stock Code: 000761 7. Supplementary information: Business registration renewed on: April 28, 1999 Business registration renewed with: Liaoning Provincial Commerce & Industry Administration Bureau Business license number: 2100001049024 Taxation registration number: 210502242690243 Public accountant invited by the Company: PriceWaterHouseCoopers Zhongtian CPA. #3308 Commercial Tower, Zhongxin Plaza, 233 Tianhe Rd. North, Guangzhou PricewaterhouseCoopers China Co., Ltd. 25 Winon Center, 111 Nuo Rd., Shanghuan, Hong Kong. II. Financial Highlights (I) Major operation indices of the year In RMB thousand Subjects Amount Total profit 545,816 Net profit 346,120 Net profit after deducting of irregular gain/loss 367,368 Major business income 783,908 Operation profit 617,644 Net non-business gain/loss -31,582 Net cash flow generated by business operation 764,227 Net increase of cash and cash equivalents 813,349 Notes: irregular gain/loss is including Non-business gains 44.00 Non-business expenditures 31,626.00 Impact of the above 2 subjects on VAT -10,422.00 Total 21,248.00 -2- (II) Major accountancy data and financial indices of the previous 3 years Year 2002 Year 2001 Year 2000 Items Unit Before adjust After adjust Major business income RMB 7,750,477 5,242,814 5,242,814 6,993,594 Net profit RMB 346,120 266,131 266,131 369,892 Total asset RMB 6,997,687 6,060,014 5,574,148 4,736,564 Shareholders’equity (excluding minority shareholders’equity) RMB 4,172,874 4,026,747 4,026,747 3,438,852 Income per share (diluted) RMB/share 0.30 0.23 0.23 0.33 Income per share (weighted) RMB/share 0.30 0.23 0.23 0.33 Income per share after deducting of irregular gain/loss RMB/share 0.32 0.23 0.23 0.33 Net income/asset ratio (diluted) % 8.29% 6.61% 6.61% 10.76% Net income/asset ratio (weighted) % 8.24% 5.47% 5.47% 10.21% Net income/asset ratio after deducting of irregular gain/loss (diluted) % 8.96% 6.61% 6.61% 10.76% Net cash flow per share generated from business operation RMB/share 0.86 0.08 0.08 0.53 Net asset per share RMB/share 3.6733 3.5447 3.5447 3.0272 Net asset per share adjusted RMB/share 3.6715 3.5422 3.5422 3.0272 Note: Tracing-back adjustment for the year 2001 was increased for pre-collected account amounted to RMB485,866,000, prepayment amounted to RMB485,830,000, and bank savings amounted to RMB36,000 (III) The net income/asset ratio and income per share indices for year 2002 are as followings: Profit for the report term Net income/asset ratio (%) Income per share (RMB) Fully diluted Weighted average Fully diluted Weighted average Major business profit 18.79% 18.67% 0.6901 0.6901 Operation profit 14.80% 14.71% 0.5437 0.5437 Net profit 8.29% 8.24% 0.3047 0.3047 Profit after deducting of irregular gain/loss 8.80% 8.75% 0.3234 0.3234 -3- (IV) Changing of shareholders’equity in the report term (In RMB) Reserves Revaluation Statutory Retained Share capital Share premium reserve reserves earnings Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Note 20) (Note 21) (Note 21) (Note 21) (Note 21) Balance at 1 January 2001 1,136,000 1,072,187 319,843 204,203 706,619 3,438,852 Disposal of revalued property, plant and equipment - - (8,712) - 8,712 - Net profit for the year - - - - 266,131 266,131 Revaluation surplus (Note 21) - - 321,764 - - 321,764 Appropriation from net profit (Note 21) - - - 41,226 (41,226) - Balance at 1 January 2002 1,136,000 1,072,187 632,895 245,429 940,236 4,026,747 Dividends relating to 2001 (Note 21) - - - - (199,993) (199,993) Disposal of revalued property, plant and equipment - - (13,969) - 13,969 - Net profit for the year - - - - 346,120 346,120 Appropriation from net profit (Note 21) - - - 57,737 (57,737) - Balance at 31 December 2002 1,136,000 1,072,187 618,926 303,166 1,042,595 4,172,874 Note: At the end of December 31, 2002, there is discrepancy between the results of profit after tax according to China Accounting Standard and International Accounting Standard. The followings are the details. Annual net profit ended at December 31 Shareholders’equity ended at December 31 2002 2001 2002 2001 RMB thousand RMB thousand RMB thousand RMB thousand Amount according to statutory 384,915 274,844 3,870,861 3,485,946 accounts Employee transfer costs returned - -9,117 - - Dividend not confirmed as liabilities afterward in the - 199,994 balance sheet Evaluating increment of fixed - - 321,764 321,764 assets Depreciation drawn upon evaluating increment of fixed -44,261 - -44,261 - assets Deferred taxations 5,466 404 24,509 19,043 -4- Relevant figures confirmed by the International Accounting 346,120 266,131 4,172,874 4,026,747 Standard -5- III. Change of Share Capital and Shareholders (I) Change of share capital 1. Change of share capital (at Dec. 31, 2002, in Shares) Before Changed by (+,-) After Share distributing Capitalizing of Share alloting New shares Sub-total reserves Others placed I. Non-negotiable Shares 1. Promoters’shares 616,000,000 616,000,000 Including: State-owned shares 616,000,000 616,000,000 Domestic corporate shares 4,536,170 4,536,170 Foreign corporate shares Others 2. Raised corporate shares 3. Employees’shares 30,000 30,000 4. Preferred Shares or others Total non-negotiable shares II. Negotiable Shares 1. RMB conventional shares 119,970,000 119,970,000 2. Domestically listed foreign investment shares 400,000,000 400,000,000 3. Overseas listed foreign investment shares 4. Others Total negotiable shares 519,960,000 519,960,000 III. Total Shares 1,136,000,000 1,136,000,000 (II) Particulars about the shareholders 1. At December 31, 2002, the Company has 108,277 shareholders. Including 1 state-owned shareholder, 44035 B-share holders, and 64241 A-share holders. 2. The top-ten shareholders Rank Name of shareholders Shares held Portion in the total capital share % 1 Benxi Steel (Group) Co., Ltd. (state-owned legal person shares) 616,000,000 54.23 2 Zhang Xubin 3,590,020 0.32 -6- 3 Fang Yijun 1,815,740 0.16 4 NOMURA TB/NOMURA LTM 1,800,000 0.158 5 Hanxing Security Investment Foundation 1,789,959 0.157 6 Huang Liandi 1,763,924 0.155 7 DEUISCHE BANK AG LONDON 1,695,166 0.149 8 Zhang Zhicheng 1,654,195 0.146 9 CHEN YIK KIAN 1,535,000 0.135 10 BEST RELIANCE INYESTMENTS LTD 1,394,020 0.123 Note: (1) Benxi Steel (Group) Co., Ltd. is the controlling shareholder of the Company. The shares held is not placed in the stock market. (2) Benxi Steel (Group) Co., Ltd., which is one of the top-ten shareholders, has no related relationship with any other shareholders in the list, nor regarded as associated parties stated in “Regulations of information disclosing about changing of shareholdings for public companies”. Related relationship is not found among other shareholders. None of the shareholders are regarded as associated parties stated in “Regulations of information disclosing about changing of shareholdings for public companies”. (3) Benxi Steel (Group) Co., Ltd. is the only shareholder who is holding more than 5% of the share capital of the Company. The shares are not changed during the report term, nor been pledged or frozen. 3. Particulars about the controlling shareholders of the Company Name of shareholder: Benxi Steel (Group) Co., Ltd. Legal representative: Zhang Yingfu Incorporated on: July 10, 1996 Registered capital: RMB4.7 billion Business property: sole state-operated, authorized operation Business range: smelt of steel and iron, mining, steel plate rolling, make of oxygen, making of pipes, power plant, coal chemistry, specialized steel, heating, supplying of water/electricity/air/gas, process of metal, maintaining and building of machinery and equipment, construction and installation, railway and road transportation, cross board trading, tourism, construction materials, fire-resistance materials, electronic instruments, material supplying, real-estate developing, science research, design, information service 4. There was not any other legal person shareholder who was holding more than 10% of the share capital. 5. The practical controller of Benxi Steel (Group) Co., Ltd. is Liaoning Provincial Financial Bureau. -7- IV. Particulars about the Directors, Supervisors, Senior Managements and the Employees. (I) Brief of the directors, supervisors and senior managements Shares held at the Shares held at Name Geneder Age Position Term Notes beginning of year the end of year Li Mohua Male 1949.10 Chairman/GM 2001/5/18-2003/5/18 Yu Tiancheng Male 1953.9 Vice Chairman 2000/5/18-2003/5/18 10000 10000 Receive salary from the shareholder Chen Jizhuang Male 1958.12 Director 2001/5/18-2003/5/18 Receive salary from the shareholder Jie Houfu Male 1945.2 Director 2000/5/18-2003/5/18 Receive salary from the shareholder Director Liang Guangde Male 1955.3 2000/5/18-2003/5/18 10000 10000 Vice GM, Secretary of the Board Li Yu Male 1956.5 Director 2000/5/18-2003/5/18 Receive salary from the shareholder Guo Yanchang Male 1947.12 Director 2000/5/18-2003/5/18 Zou Tianlai Male 1960.8 Director 2002/5/18-2003/5/18 Zhang Guiyu Male 1961.12 Director ″ Guan Dianguo Male 1947.10 Director ″ Zhong Tianli Female 1956.7 Independent director ″ Xue Xiangxin Male 1954.1 Independent director ″ Liu Junyou Male 1953.2 Chairman of the supervisory board 2001/5/18-2003/5/18 Vice Chairman of the supervisory He Xusheng Male 1951.10 2000/5/25-2003/5/18 Receive salary from the shareholder committee Sun Xiao Male 1945.7 Supervisor 2000/5/18-2003/5/18 Receive salary from the shareholder Zhang Fuchen Male 1950.2 Supervisor 2002/5/18-2003/5/18 Wu Wei Male 1955.8 Supervisor 2000/5/18-2003/5/18 10000 10000 Wang Yunhe Male Supervisor 2000/5/18-2002/5/18 10000 0 1. Supervisor Wang Yunhe has quit from the position of supervisor on May 28, 2002, therefore the shares he held was free. 2. Mr. Li Mohua, the Chairman / GM of the Company is also the director of the Group. Mr. Yu Tianchen, the vice Chairman is the GM of the Group. Mr. Chen Jizhuang, the vice Chairman is also the standing vice GM of the Group, Director Li Yu is the Director of Financial Dept. of the Group, Director Guo Yanchang is the Director of technical center of the Group. Director Zhou Tianlai is the CCP Secretary of the technical center of the Group. Mr. Liu Junyou, the Chairman of Supervisory Committee, is also the Secretary of the Inspection Committee of the Group. Mr. He Xusheng, the vice Chairman of the Supervisory Committee is also the Director of Planning Department of the Group. Supervisor Sun Xiao is the Director of the Auditing Department of the Group. -8- (II) Annual payroll 1. In the report term, the directors, supervisors and senior managements that take salaries from the Company received their salaries monthly according to their levels respectively. 2. The annual payrolls of the directors, supervisors and senior managements are amounted to RMB264709 (including basic salary, bonus, welfare, allowance, housing allowance, and other allowances). The payrolls of top 3 senior managements are amounted to RMB184517. 3. Allowance for independent directors: RMB 20 thousand / year / people. 4. Currently the Company has 17 directors, supervisors and senior managements in total. 6 of them take salaries from the Company (independent directors excluded), among them, *** is ranged between RMB20 thousand ~ RMB40 thousand; **** are ranged between RMB40 thousand ~ RMB60 thousand. (III) Change of directors, supervisors, and senior management Mr. Wang Yunhe quit from the position of supervisor due to change of job. (IV) Employees At December 31, 2002, the Company has 3551 employees in total. 1. Distribution on education levels Master 16 0.45% Bachelor 386 10.87% Associated Degree 816 22.98% Technical Certifications/high school 980 27% Other 1353 38.1% 2. Distribution on professions Engineering & technical 294 8.28% Financial 21 0.59% Sales & marketing 22 0.62% Executive 228 6.24% Production 2986 84.1% V. Management Structure (I) Particulars about the management structure Under the requirement of the Company Law, Security Law and Public Company Management Regulations, the company kept optimizing the management structure and operate the company in a standardized mean to ensure its healthy development. During the report term, the “Article of Association”, “Managing regulations of information disclosing”, “Rules of the Shareholders’General Meeting”, “Rules of the Board Meeting”, and “Rules of the General Manager”were created. Mean of “accumulated voting”was adopted in altering of the Board. On this base, specialized committees were established. -9- (II) Independent directors’fulfilling of job In accordance with “The instruction on establishing independent director system in public companies” issued by China Security Regulatory Commission, the Company invited 2 independent directors through the Shareholders’General Meeting 2001 held on May 28, 2002. In the report term, 2 of the independent directors were doing their jobs by presented the board meetings and protecting the legal benefit of the whole company and middle-small shareholders as well. (III) Particulars about the separation of businesses, personnel, assets, organizations, and accounting from the controlling shareholder 1. In personnel: The labor management, personnel and salary management are operated independently out of the controlling shareholder. Tthe Chairman, GM, Vice GM, Secretary of the Board and other senior managements take salaries from the Company and none of them takes position other than director in the shareholding party. 2. In assets: The company owns the assets completely and runs its production, supplying and sales system independently. 3. In accounting: The company has its own independent accounting division, accounting system, bank account, and exercise its liability of taxation independently. 4. In organization: The company has a mature and independent organization structure, which completely separated from the controlling shareholder. 5. In the aspect of business: the company has its own purchasing, production and sales system with no connection with the controlling shareholder. VI. The Shareholders’General Meeting The Shareholders’General Meeting was held once during the year 2002. (I) Announcing, calling and holding of the Shareholder’s General Meeting The Resolutions of the 7th Meeting of the 2nd Term Board of Directors of Bengang Steel Plates Co., Ltd. and the Announcement on Holding 2001 Shareholders’General Meeting was published by the Board of Directors on April 26, 2002 issues of China Security Daily, Security Times and Hong Kong Commercial Daily. On May 28th, 2002, the 2001 Shareholders’General Meeting was held in Bengang Hotel, Benxi, Liaoning Province. 18 shareholders’(or attorney) presented the meeting representing 616091000 shares, takes 54.233% of the capital share of the Company. Including one holder of B-shares representing 15000 shares takes 0.00375% of the total B-shares. (II) Publishing of the resolutions passed by the shareholders’general meeting The following proposals were adopted as resolutions through voting. 1. 2001 Annual Report of the Board of Directors 2. 2001 Annual Report of the Supervisory Committee 3. 2001 Financial Settlement Report 4. 2001 Profit Distribution Preplan 5. Business Plan for the Year 2002 -10- 6. 2001 Annual Report and its Summary Version 7. The proposal of replacing directors 8. The proposal of replacing supervisors 9. The proposal of electing independent directors 10. The proposal of allowance for independent directors 11. The Rules of Shareholders’General Meeting 12. The proposal of revising the Article of Association of the Company 13. The rules for independent directors 14. The proposal of authorizing the Board of Directors to implement the extending of A-share placing issues to another one year. 15. The proposal of inviting PricewaterhouseCoopers Zhongtian CPA and PricewaterhouseCoopers China Ltd. as the auditors for year 2002. The above resolutions were published on the May 29th, 2002 issues of China Security Daily, Security Times, and Hong Kong Commercial Daily. (III) Electing and replacing of directors and supervisors The Shareholders’General Meeting adopted the proposal of replacing directors. Which accepted the resigning of Mr. Zhang Yingfu as the Chairman of the Board. Zou Tianlai, Zhang Guiyu, and Guan Dianguo were elected the new directors. The proposal of electing independent directors was adopted. Ms. Zhong Tianli and Mr. Xue Xiangxin were invited as the independent directors of the Company. The proposal of replacing supervisors was adopted by the meeting. Mr. Wang Yunhe was approved to quit from the position of supervisor, whereas Mr. Zhang Fuchen was elected the new supervisor. VII. Report of the Board of Directors (I) Analyzing business situations 1. Year 2002 is the first year of China joining in WTO. For the year, China was the only country maintains high-speed development. Global market of steel kept as buyers’market. In March 2002, US use “Term 201”to protect its domestic steel industry followed by Japan and EU. It led to price increasing of steel products in the global market. China also adopted anti-dumping policies on imported steel products for term of one year. Temporary protection policies were also adopted for term of 180 days. Final protection policies were adopted for 5 categories of steel products including thin plates for term of 3 years. These policies protected domestic market from dumping of imported steel products, whereas push up the price of steels. On the other side, development of domestic economy maintains high speed, directly brought up the consuming of steel products and their prices. Despite above external factors, the Company utilized the fund raised from share placing right in term of the share placing prospectus, on the technical reforming of continues rolling and casting systems, which laid a solid foundation for the marketing activities. For the year 2002, the -11- Company fulfilled the preplan of the year and achieved good results. The Company realized business turnover of RMB7.75 billion which was 47.83% over that of the previous year; major business profit of RMB0.83 billion, which was 80.95% over that of the previous year; net profit of RMB0.38 billion, which was 40.05% over that of the previous year. 2. According to the analyzing of IMF and DECD, the global economy started recovering slowly during the year 2002. For year 2003, the global increasing speed will gradually back to normal. The holding of the 16th Meeting of People’s Congress layout strategic plan for the full acceleration of economical reconstruction and open policy. In the year 2003, the national government will implement aggressive financial policies and steady monetary policies. It can be predicted that China will keep high speed in development. Positive macro situation will significantly support the development of the Company in the year 2003. (II) Business operation in the report term 1. Major business and operation (1) The Company is primarily involved in the business of steel smelting, plate rolling, and selling of relative products. Its terminal products are primarily hot-rolled plates and continuous casting billet. (2) Major business income and profit distributed on range of products Major business Ratio in the major Major business Ratio in major Product income business income profit business profit Molten steel 153,981,720 1.99% -6,956,787 -0.84% Steel billet 12,348,660 0.16% -3,119,860 -0.38% Continues cast 1,192,765,173 15.39% 46,607,515 5.63% billet Hot plate 6,204,845,236 80.06% 795,192,100 96.02% Scrap materials 96,067,367 1.24% -4,050,772 -0.49% Others 90,468,810 1.17% 497,173 0.06% Total 7,750,476,965 828,169,368 Incl: Related 3,400,487,125 398,007,422 transactions Molten steel 153,981,720 1.99% -6,956,787 -0.84% Hot plate 3,156,036,595 40.72% 404,467,037 48.84% Others 90,468,810 1.17% 497,173 0.06% (3) Major business income and profit distributed geographically Major business Ratio in the major Major business Ratio in major Area income business income profit business profit -12- North 1,005,757,980 12.98% 126,299,687 15.25% North-east 4,726,320,056 60.98% 504,109,714 60.87% East 1,182,139,757 15.25% 140,026,982 16.91% Mid-south 206,209,615 2.66% 26,427,131 3.19% North-west 14,803,724 0.19% 1,897,195 0.23% South-west 417,006 0.01% 53,442 0.01% Exported 614,828,826 7.93% 29,355,218 3.54% Total 7,750,476,965 828,169,368 (4) Geographical contrast of major products Area 2002 2001 Changed on previous year（+） North 1,005,757,980 828,170,282 21.44% North-east 4,726,320,056 3,595,322,573 31.46% East 1,182,139,757 544,810,432 116.98% Mid-south 206,209,615 56,671,970 263.87% North-west 14,803,724 16,066,796 -7.86% South-west 417,006 7,887,336 -94.71% Exported 614,828,826 193,672,655 217.46% Total 7,750,476,965 5,242,602,043 (5) Major products that takes 10% or above from the major business income Products Major business income Major business cost Gross profit ratio Continue cast billet 1,192,765,173 1,142,989,434 4.17% Hot plate 6,204,845,236 5,393,171,822 13.08% Incl: Related transactions 3,400,487,125 2,993,447,326 Molten steel 153,981,720 160,529,501 -4.52% Hot plate 3,156,036,595 2,743,186,492 12.82% Others 90,468,810 89,731,333 0.82% -13- 2. Major vendors and customers The supply from top 5 vendors of the Company are amounted to RMB5,407,120,000, takes 87.63% of the overall purchasing. (in RMB10 thousand) No. 2 iron factory of Bengang Group 326,346 Supplying division of Bengang Group 70,943 Iron Co., Ltd. Bengang Group 67,179 Deposed Iron Factory of Bengang Group 45,433 Spare Part Co., Bengang Group 30,811 Total 540,712 The sales to top 5 buyers are amounted to RMB3,464,520,000, takes 44.70% of the overall sales. (in RMB10 thousand) Bengang Group 261,975 Tianjin Benchu Materials Co., Ltd. 22,390 Wukuang Iron & Steel Co., Ltd. 22,830 Shanghai Baominbao Industrial Co., Ltd. 19,707 Wukuang Tranding Co., Ltd. 19,550 Total 346,452 3. Problems encountered in the operation and solutions (1) Problems and difficulties For year 2002, unpredictable factors made the market situation changed dramatically and the combat became more intensive. On the other hand the Company was facing the test of reconstructed technical equipments and productions. (2) Solutions i. Enforce the production organizing, speed up the testing of new equipments, to ensure the realizing of business target. Following with the completion of the hot continuous rolling system and converter auto-control system, the Company is equipped with essential conditions to become the base of high-class steel plate products. The new equipments are in trial operation period, the employees overcame lots of unexpected difficulties and ensure the equipments reach its technical standards. That brought good economical achievement for the Company. ii. Seizing opportunities of the market, adjust production and market structure; synchronize the exploring of market and economic efficiency increasing. For the year 2002, unpredictable factors increased in the markets. For purpose of keep the Company synchronizing with the movement of -14- market, the sales price is closely following with the market. That makes the sales/production rate reached up to 100%. Depending on the technically reconstructed equipments, take the advance in providing high value-adding products, which are short of supplying in the market. In customer developing, we successfully win the orders from key direct buyers and famous manufacturers such as Yinkou Panpan and Qingdao Haier. In the mean time, we expand our market share hardly and push the export figure up to the best record in the history. iii. Deepen the implementing of cost-deducting strategy, improve the management standard. Since 2002, the implementing of cost-deducting was further stressed on. The management standard is improving steadily. We are targeting at the best performance in the industry and ranked the 3rd in cost efficiency. Energy consuming reduced to 1165kg, which is 80kg lower than that of the previous year. On the other hand, through adopting of quality inspection system, quality dissidence treatment system, and training of quality controlling. The whole quality managing system is improved and passed the examination of ISO9001 2000 version of quality management system certification. The product quality is improving steadily. iv. Works related with issuing of new A-shares were implemented. (III) Investment Using of fund raised from financing activities: The fund raised from previous financing activities has been completely used as disclosed in the Annual Report and Interim Report of year 2000. Using of non-financing fund: (in RMB10 thousand) Project Investment as Project started Project Investment Put into planed completed accumulated at operation at the end of year 2002 1. Reforming 96,920 March 1999 End of 2002 96,432 2002 of hot (including continuous 21,450 raised rolling from previous financing activities) 2. Reforming 8,066 End of 2002 7,828 2002 of 2# Rolling collection machine 3. Reforming 8,858 End of 2002 8,377 2002 of continuous rolling machine 4. Automatic 14,419 End of 2002 13,347 2002 reforming of converter 5. Outer fine 9,884 End of 2002 6,530 2002 -15- smelt engineering 6. Smoke 10,147 End of 2002 9,113 2002 treatment project 7. 9# 225ton 808 2002 717 2003 crane 8. 3# heating 7,800 Under pre-assessment furnace reforming 9. 3# rolling 3,500 Under pre-assessment collecting machine (IV) Financial situations Items 2002 2001 Changed by（%） Total assets 6,997,687 ６，０６０，０１４ １５．４７％ Monetary assets 896,669 83,320 976.17% Fixed assets 3,800,562 3,890,425 -2.31% Shareholders’Equity 4,172,874 4,026,747 3.63% Net cash flow per share from business 0.67 0.08 746.44% operations Notes: Cause of changes 1. Increasing of total assets was caused by increasing of monetary fund and loans during the year. 2. Increasing of monetary fund was caused by the hot sales of hot plate, the sales returns and prepayments from the buyers were increased. 3. Increasing of fixed assets and decreasing of constructions in processing was caused by the increment of the main rolling line reforming engineering and transferring from constructions inn processing into fixed assets. 4. Increasing of shareholders’equity primarily caused by the net profit realized this year. 5. Increasing of net cash flow was caused by increasing of sales volume and price, therefore sales income and prepayment from the buyers increased. Items 2002 2001 Changed by（%） Major business income 7,750,477 5,242,814 47.83% Major business cost 6,966,569 4,795,957 45.26% Major business profit 783,908 446,857 75.43% Periodic expenditures 206,510 148,464 39.10% Net profit 346,120 266,131 30.06% -16- Note: Cause of Changes 1. Increasing of major business income was caused by increasing of sales volume and price. 2. Increasing of major business cost was caused by increasing of sales volume. 3. Increasing of major business profit was caused by increasing of sales volume and price. 4. Increasing of periodic expenditures was caused by the increment of the main rolling line reforming engineering in April, and stopping of capitalizing of interests, while increased the financial expenses. 5. Increasing of net profit was caused by increasing of major business profit. (V) In respect of the auditors’ report without issuing of opinion issued by PriceWaterHouseCoopers Zhong Tian CPA, and relative events 1. The auditors’statements “during the year ended 31 December 2002, the Company identified under-recording of advances from customers, prepayments to Benxi Iron and Steel (Group) Limited, the Parent Company, and bank balances as of 31 December 2001 by approximately RMB 485,866,000, RMB 485,830,000 and RMB 36,000 respectively. The understatement was corrected and accounted for retrospectively. The adjustments did not have any impact on the net asset value of the Company as at 31 December 2001 and the profit for the year then ended. The Company entered into various related party transactions with the Parent Company and the fellow subsidiaries. The details of certain related party transactions were provided by the Parent Company, and the related ledgers and supporting documents were kept by the Parent Company. As there were understatements of prepayment to the Parent Company and we were not able to examine the related accounting records and financial statements of the Parent Company and the fellow subsidiaries in detail, we were therefore not able to obtain the relevant audit evidence to assess the completeness and accuracy of the above-mentioned adjustments, the related party transactions with the Parent Company and the fellow subsidiaries and their impact on the financial statements for the year ended 31 December 2002.” 2. The opinion of the Board of Directors and the impact of this event on the Company. The facts in relation with the auditors’ report with explanatory statement issued by PriceWaterHouseCoopers Zhong Tian CPA are as the followings: 1) At the end of year 2001, the Company transferred customer prepayment accounts and relative fund amounted to RMB485,866,369 to the controlling shareholder – Bengang Group. Bengang Group was entrusted to do equipment and spare parts purchasing, and installation engineering for the continuous rolling projects on behalf of the Company. Beside, at the end of year 2001, due to miss-operation of accounting clerk, an sum of RMB35,980 of bank savings has not been booked into accounting statements. That led to error in the accounting statements. 2) The aforesaid accounts and funds were transferred to Bengang Group, therefore relative accounting evidence appeared in the books of the Group. The Board of Directors takes for, reflecting in the accounting statements of the aforesaid records at the -17- end of year 2001 is a miss- judgment of the accounting policy. As for the another event, it was a miss-operation of the accountant. The above events made no impact on the shareholders’equity nor the profit for the year ended December 31, 2001. For error correcting were undertaken for the year 2002 and financial statement produced upon this strictly complying with the terms stated in the Agreement of Related Transactions, therefore the financial statement issued for the year ended December 31, 2002 is reflecting the financial situation of the Company frankly and objectively. The business and production of the Company stays in normal operation and received no impact. The Board of Directors hereby express it’s recognizing of its responsibility on these events and will practically enforce the management of accounting department complying with the Company Law, Security Law, and Accounting Law. With stressing on its duties, the best returning will be brought to the shareholders. (VI) Major process of year 2003 1. Targeting on develop our potential to achieve higher quality and production volume, enlarge product range, to guarantee the steady growing of profitability. For the year 2003, adjust the production of major products base upon the cost-efficiency principal. Push the production steel up to 4.3 million ton and hot rolling plate reach 3.6 million ton. The annual assessment and salary system for the leadership will be connected with the achieving of operation goals. 2. To follow up with the changing market, tune our marketing policies in stress on key points and expanding the territory. We will keep close watching on movement of the market, to provide accurate and reliable information for making of right decisions. On the instructional strategy of economical and reasonable, divide the sales territory reasonably. Emphasis will be laid on the area of 500KM around the Company location. Further optimizing the structures of production and customers, improve the high value-adding products; increase the contracts with key and famous enterprises up to 50% of the overall contracts. Developing of new products and market will be pushed forward to renew the image of the Company and the brand name. Customer satisfaction will be put at the fist place and implement through out the production and sales processes. 3. Enforce the management and assessment to ensure the accomplishing of business goals. Consolidating the quality control system and fulfill the requirement of ISO 9001 in managing of marketing, purchasing, equipments, personnel, product developing and production processes. Cost management will target on the advanced level of the industry to lower the cost and energy-consuming standard. Scientific logistics system will be established for the balance of materials, facilities and energy supply. Measures will be undertaken to maintain production equipment in good operational condition and maintain in full speed and steady condition. 4. Push forward technical progress, fully develop the potential productivity, and enforce new product developing ability. Upgrade the processes of production stage by stage to meet with the demands of reconstructed major equipments and fully adopt the advantages of the new equipments. Keep optimizing the development system of new products following with the requirement of the market. Form a straight system of new product developing system with core of the technical center and cooperation of the sales and production divisions. (VI) Daily work of the Board of Directors 1. The Board of Directors held 7 meetings during the report term, the resolutions are as the followings: (1) On Feb 25th, 2002, the 2nd term Board of Directors held its 6th meeting in the 1st meeting room of the Group. All of the 8 directors presented the meeting. The supervisory committee observed the -18- meeting. Mr. Zhang Yingfu, the Chairman hosted the meeting and the following resolutions were passed. ① The resigning application of Mr. Zhang Yingfu to quit from the position of director and Chairman of the Board was accepted. He was removed from the position of the Chairman. His quitting from the position of director is subject to the approval of the Shareholders’General Meeting. The new Chairman of Board and director will be elected through the Shareholders’ General Meeting 2001. Before the new Chairman was elected, Mr. Li Mohua, the Vice Chairman will take his place temporarily to execute the duty of the Chairman. ② Mr. Li Mohua, the General Manager of the Company presented the plan of setup purchasing department in the meeting, the directors accepted his report and plan to setup the purchase department. The above resolutions were published on the Feb 27th, 2002 issues of China Security Daily, Security Times and Hong Kong Commercial Daily. (2) The 7th meeting of the 2nd term Board of Directors was held on April 22nd, 2002 in the 1st meeting room of the Group. 5 of the 7 directors presented the meeting. Mr. Li Mohua, the Vice Chairman hosted the meeting. 4 of the supervisors observed the meeting and the following resolutions were passed. a. 2001 Annual Report of the Board of Directors b. 2001 Financial Settlement Report c. 2001 Profit Distribution Preplan d. Predicting policies of the profit distribution for year 2002 e. Business Plan for the Year 2002 f. 2001 Annual Report and its Summary Version g. The proposal of replacing directors h. The proposal of electing independent directors i. The proposal of allowance for independent directors j. The Rules of Shareholders’General Meeting k. The Rules of the Board Meetings l. The rules for independent directors m. The Rules of the General Manager n. The proposal of revising the Article of Association of the Company o. The proposal of inviting Arthur Anderson Huaqiang CPA and Arthur Anderson International Ltd. as the auditors for year 2002. p. The proposal of authorizing the Board of Directors to implement the extending of A-share placing issues to another one year. q. The proposal of holding the 2001 Shareholders’General Meeting. The above resolutions were published on the April 26th, 2002 issues of China Security Daily, Security Times, and Hong Kong Commercial Daily. (3) The 8th meeting of the 2nd term Board of Directors was held on April 23rd, 2002 in the 1st meeting room of the Group. 5 of the 7 directors presented the meeting. Mr. Li Mohua, the Vice Chairman hosted the meeting. The supervisors observed the meeting and the 1st Quarterly Report 2002 was passed. The above resolution was published on the April 26th, 2002 issues of China Security Daily, Security Times, and Hong Kong Commercial Daily. (4) The 9th meeting of the 2nd term Board of Directors was held on May 28th, 2002 in Bengang Hotel. -19- All of the 12 directors presented the meeting and 3 supervisors observed the meeting. The following resolutions were passed. ① Electing Mr. Li Mohua the Chairman of the Board. ② The Rules of Information Disclosing. ③ The Managing Regulations of Raised Fund. The above resolution was published on the May 29th, 2002 issues of China Security Daily, Security Times, and Hong Kong Commercial Daily. (5) The 10th meeting of the 2nd term Board of Directors was held on June 20th, 2002 in Bengang Hotel. 10 of the 12 directors presented the meeting and 4 supervisors observed the meeting. The report of auto-inspection on establishing of modern enterprise managing system of the Company was passed by the meeting. The above resolution was published on the June 21st, 2002 issues of China Security Daily, Security Times, and Hong Kong Commercial Daily. (6) The 11th meeting of the 2nd term Board of Directors was held on August 8th, 2002 in the 2nd floor meeting room of the Company. 9 of the 12 directors presented the meeting and all of the supervisors observed the meeting. Mr. Li Mohua, the Chairman, hosted the meeting. The 2002 Interim Report and its summary version were examined and passed. The above resolution was published on the August 13th , 2002 issues of China Security Daily, Security Times, and Hong Kong Commercial Daily. (7) The 12th meeting of the 2nd term Board of Directors was held on October 28th, 2002 in the 2nd floor meeting room of the Company. All of the 12 directors presented the meeting and the supervisors observed the meeting. Mr. Li Mohua, the Chairman, hosted the meeting. The 3rd Quarterly Report 2002 was examined and passed. The above resolution was published on the October 29th, 2002 issues of China Security Daily, Security Times, and Hong Kong Commercial Daily. 2. Executing of the resolutions of the Shareholders’General Meeting (1) Executing of the profit distribution plan for year 2001 The profit distribution plan for year 2001 was adopted by the 2001 Shareholders’General Meeting held on May 28th, 2002. Basing on the total share capital of 1,136,000,000 shares, RMB1.76 will be distributed to each 10 shares (tax included for A-shares). The dividend are calculated with RMB. Dividend for A-shares will be in RMB, RMB1.408 was actually distributed to each 10 shares after deducting of tax. RMB1.76 was distributed to each 10 B-shares after converted into HKD. The Board of Directors published the Announcement on Dividend Distribution on July 18th 2002 issues of China Security Daily, Security Times and Hong Kong Commercial Daily. Registration date for the distribution was July 23, 2002, the last transaction date for B-shares was July 23, 2002, whereas the ex-dividend date was July 24, 2002. The dividend for B-shares was transferred to the bank account of the shareholders on July 29, 2002. (2) Implementing of new A-shares issuing The 2000 Shareholders’General Meeting held on May 25th, 2001 passed the proposal of issuing up to 400 million A-shares. The Board of Directors was authorized to undertake the procedures on the issuing of new shares. Under the resolution and authorization of the Shareholders’General Meeting, the Board applied to China Securities Regulatory Commission for the relative procedures. On May 28, 2002, the 2001 Shareholders’General Meeting extended the valid period of the application for issuing -20- of new A-shares to another one year. (VIII) Profit distribution preplan for current term For the year 2002, the Company realized net profit of RMB384,915,214.44. After drawing of statutory public reserves of RMB38,491,521.44 at 10% and statutory public welfare of RMB19,245,760.72 at 5%, the profit distributable of the year is amounted to RMB327,177,932.28, and the accumulated profit distributable is amounted to RMB1,034,761,624.19. No profit distribution nor capitalization of reserves will be implemented for the year 2002. The preplan is subject to the examination of the 2002 Shareholders’General Meeting. VIII. Report of the Supervisory Committee (I) Meetings of the Committee The committee held 4 meetings during the report term. 1. On Feb 25th, 2002, the 2nd term Supervisory Committee held its 6th meeting in the 1st meeting room of the Group. All of the 5 supervisors presented the meeting. Mr. Liu Junyou the Chairman hosted the meeting. The supervisors takes for the resolutions adopted by the 6th meeting of the 2nd term Board of Directors about the resigning of Mr. Zhang Yingfu from his position of Chairman and director of Board and the setup of purchasing department in the Company will benefit the standardization of the operation. All of the supervisors agree with the above 2 resolutions. The above resolutions were published on the Feb 27th, 2002 issues of China Security Daily, Security Times and Hong Kong Commercial Daily. 2. On April 22nd, 2002, the 2nd term Supervisory Committee held its 7th meeting in the 1st meeting room of the Group. 4 of the 5 supervisors presented the meeting. Mr. Liu Junyou the Chairman hosted the meeting. The following proposals were adopted as resolutions of the meeting. 1) 2001 Annual Report of the Supervisory Committee, and submit for the approval of the Shareholders’General Meeting 2) The Rules for the Meetings of the Supervisory Committee, and submit for the approval of the Shareholders’General Meeting 3) The proposal of supervisors replacing 4) 2001 Annual Report and its Summary Version 5) 2001 Financial Settlement Report 6) 2001 Profit Distribution Preplan 7) Predicting policies of the profit distribution for year 2002 8) Business Plan for the Year 2002 9) The proposal of replacing directors 10) The proposal of allowance for independent directors 11) The Rules of Shareholders’General Meeting 12) The Rules of the Board Meetings 13) The rules for independent directors 14) The Rules of the General Manager 15) The proposal of revising the Article of Association of the Company 16) The proposal of authorizing the Board of Directors to implement the extending of A-share placing issues to another one year. 17) The proposal of inviting Arthur Anderson Huaqiang CPA and Arthur Anderson International Ltd. as the auditors for year 2002. -21- The above resolutions were published on the Feb 26th, 2002 issues of China Security Daily, Security Times and Hong Kong Commercial Daily. 3. On May 28th, 2002, the 2nd term Supervisory Committee held its 8th meeting in the 1st meeting room of the Group. 3 of the 5 supervisors presented the meeting. The following proposals were adopted as resolutions of the meeting. 1) The Rules of Information Disclosing. 2) The Managing Regulations of Raised Fund. The supervisors took for the above regulations will benefit the standardization of the operation and speed up the establishing of modern enterprise managing system. The above resolutions were published on the May 29th, 2002 issues of China Security Daily, Security Times and Hong Kong Commercial Daily. 4. On May 28th, 2002, the 2nd term Supervisory Committee held its 8th meeting in the 2nd floor meeting room of the company. All of the 5 supervisors presented the meeting. Mr. Liu Junyou hosted the meeting and the 2002 Interim Report was passed. The resolution was published on the August 13th, 2002 issues of China Security Daily, Security Times and Hong Kong Commercial Daily. (II) Independent opinions of the Supervisory Committee on relative issues of the Company for year 2002 1. Operation of the Company in respecting of relative law. For the year 2002, the Committee supervised the shareholders’general meeting and Board meetings on the calling procedures, agendas and implementing of resolutions. The Committee regards the Board of Directors and the management of the Company were operating in respect to the terms of the Article of Association, the Company Law, the Managing Standard of Public Companies, Rules of the Shareholders’General Meeting and Rules of the Board Meeting. The making and implementing of the significant decisions were scientific and legal. Therefore ensures the legality of operation of the Company. The Committee found no illegal behavior violating the Article of Association, or harming the benefits of the Company and the shareholders took place with the directors, the general manager and other senior managements in executing of their duties. 2. Inspection on the financial situations of the Company The Committee undertook inspections on the accounting system and financial situation of the Company. The Committee took for the accounting system and financial situation were in good condition. PricewaterhouseCoopers Zhongtian CPA and PricewaterhouseCoopers China Ltd. issued Auditors’ Report 2002 without issuing of opinion for the Company. In the opinion of the Supervisory Committee, the Auditor’s Report truly reflected the Company’s financial position and operation result of the year. 3. In the report period, the Company had not been involved in such activities as acquisition and sales of assets, under-table transactions or harming the benefit of the shareholders or causing losses of the assets of the Company. 4. Related transactions occurred in the report term were on fair base and harmed no benefit of the Company. -22- IX. Significant Events (I) In the report period, the Company had no material lawsuits or arbitrations. (II) In the report period, the Company had conducted no such activities as assets acquisition, sales, absorption or consolidation. (III) Significant related transactions (1) Pricing policies Pricing policies of related transactions are based upon relative agreements or normal market clauses. (2) The followings are the major related transactions with Bengang Group: a) Details of the items 2002 2001 Sales of goods 2,617,347,648 1,639,644,757 Purchasing of materials * 3,715,812,221 2,572,767,151 Payment for energy and power* 520,981,196 379,732,453 Purchasing of supplementary 1,174,970,113 938,849,601 materials and spare parts * Payment for transportation* 91,124,189 69,372,332 Payment for maintaining service * 182,972,821 110,866,265 Payment for brand name* 25,200 25,200 Payment for land using ** 2,673,192 2,673,192 b) Details of items 2002 2001 Advances collected 58,889,302 128,116,941 Advances paid 1,403,015,162 1,031,846,293 (IV) Significant contracts and their execution The execution of business contracts were in normal processing, not any dissension occurred during the report term. 1. Not any entrusting, contracting or leasing of assets occurred between the Company and other external parties. 2. In the report period, the Company had no material guarantees offered to external parties. 3. In the report period, the Company neither entrusted others to manage cash assets or loans. (V) Inviting of Certified Public Accountants For the report term, the Company invited PricewaterhouseCoopers Zhongtian CPA as the auditor of A-shares, and PricewaterhouseCoopers China Ltd. as the auditor of B-shares. The Company originally planed to invite Arthur Anderson Huaqiang CPA and Arthur Anderson International Co., Ltd. as the -23- auditors for year 2002. On may 27, 2002, the Company was informed by mail that Arthur Anderson and PricewaterhouseCoopers were consolidated for their business in China and Hong Kong. Therefore the auditors of the Company changed as the above. The auditors will provide the Company with auditing service for term of 5 years. The Company will pay RMB966 thousand for the auditors. (VI) In the report term, none of the Company or the directors and senior managements of the Company was subject to penalty or criticism of China Security Regulatory Commission or been condemned by the Stock Exchange. X. Financial Report 1. Financial Statements (Enclosed) 2. Notes to Financial Statements (Enclosed) XI. Documents for reference 1. Accounting Statements with signatures and seals of the legal representative, Chief Accountant and person in charge of accounting affairs; 2. Original copy of the Auditors’Report under the seal of the accounting firm and signed by and under the seal of certified accountants. 3. Originals of all documents and manuscripts of Public Notices of the Company disclosed in public in the newspapers as designated by China Securities Regulatory Commission. 4. The Article of Association of the Company Li Mohua The Chairman of Board Bengang Steel Plates Co., Ltd. June 23, 2003 -24- BENGANG STEEL PLATES CO., LTD. FINANCIAL STATEMENTS AND AUDITORS’REPORT FOR THE YEAR ENDED 31 DECEMBER 2002 Ｔｈｅ ｒｅａｄｅｒ ｉｓ ａｄｖｉｓｅｄ ｔｈａｔ ｔｈｉｓ ｒｅｐｏｒｔ ｈａｓ ｂｅｅｎ ｐｒｅｐａｒｅｄ ｏｒｉｇｉｎａｌｌｙ ｉｎ Ｃｈｉｎｅｓｅ． Ｉｎ ｔｈｅ ｅｖｅｎｔ ｏｆ ａ ｃｏｎｆｌｉｃｔ ｂｅｔｗｅｅｎ ｔｈｉｓ ｒｅｐｏｒｔ ａｎｄ ｔｈｅ ｏｒｉｇｉｎａｌ Ｃｈｉｎｅｓｅ ｖｅｒｓｉｏｎ ｏｒ ｄｉｆｆｅｒｅｎｃｅ ｉｎ ｉｎｔｅｒｐｒｅｔａｔｉｏｎ ｂｅｔｗｅｅｎ ｔｈｅ ｖｅｒｓｉｏｎ ｏｆ ｔｈｅ ｒｅｐｏｒｔ， ｔｈｅ Ｃｈｉｎｅｓｅ ｌａｎｇｕａｇｅ ｒｅｐｏｒｔ ｓｈａｌｌ ｐｒｅｖａｉｌ． -1- BENGANG STEEL PLATES CO., LTD. FINANCIAL STATEMENTS AND AUDITORS’REPORT FOR THE YEAR ENDED 31 DECEMBER 2002 Contents Pages Report of the auditors 1 Income statement 2 Balance sheet 3 Statement of changes in shareholders’equity 4 Cash flow statement 5 Notes to the financial statements 6 to 29 PricewaterhouseCoopers Zhong Tian CPAs Co., Ltd. 12th Floor, Shui On Plaza 333 Huai Hai Zhong Road Shanghai 200021 People's Republic of China Telephone +86 (21) 6386 3388 Facsimile +86 (21) 6386 3300 Report of the auditors PwC Shen Zi (2003) No. 1463 Ｔｏ ｔｈｅ ｓｈａｒｅｈｏｌｄｅｒｓ ｏｆ Ｂｅｎｇａｎｇ Ｓｔｅｅｌ Ｐｌａｔｅｓ Ｃｏ．， Ｌｔｄ． (Incorporated in the People’s Republic of China with limited liability) We were engaged to audit the accompanying balance sheet of Bengang Steel Plates Co., Ltd. (the “Company”) as of 31 December 2002 and the related income and cash flow statements for the year then ended, prepared in accordance with International Financial Reporting Standards. These financial statements set out on pages 2 to 29 are the responsibility of the Company’ s management. As disclosed in Note 2 to the financial statements, during the year ended 31 December 2002, the Company identified under-recording of advances from customers, prepayments to Benxi Iron and Steel (Group) Limited, the Parent Company, and bank balances as of 31 December 2001 by approximately RMB 485,866,000, RMB 485,830,000 and RMB 36,000 respectively. The understatement was corrected and accounted for retrospectively in the balance sheet. The net asset value of the Company as at 31 December 2001 and the profit for the year then ended have not been affected. As disclosed in Note 23 (c) to the financial statements, the Company entered into various related party transactions with the Parent Company and the fellow subsidiaries. The details of certain related party transactions were provided by the Parent Company, and the related ledgers and supporting documents were kept by the Parent Company. As there were understatements of prepayment to the Parent Company and we were not able to examine the related accounting records and financial statements of the Parent Company and the fellow subsidiaries in detail, we were therefore not able to obtain the relevant audit evidence to assess the completeness and accuracy of the above-mentioned adjustments, the related party transactions with the Parent Company and the fellow subsidiaries and their impact on the financial statements for the year ended 31 December 2002. Because of the significance of the matters discussed in the preceding paragraphs, we do not express an opinion on the financial statements of the Company. PricewaterhouseCoopers Zhong Tian CPAs Co., Ltd. 23 June 2003 -1- BENGANG STEEL PLATES CO., LTD. INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002 For the year ended 31 December Notes 2002 2001 RMB’000 RMB’000 Sales 4, 23(a) 7,750,477 5,242,814 Cost of sales 23(a) (6,966,569) (4,795,957) Gross profit 783,908 446,857 Distribution costs 23(a) (84,389) (29,903) Administrative expenses (50,293) (77,987) Other operating (expenses)/income (31,582) - Profit from operations 5 617,644 338,967 Finance costs - net 7 (71,828) (40,574) Profit before tax 545,816 298,393 Income tax expense 8 (199,696) (32,262) Net profit 346,120 266,131 Dividends 21(c), 26 - 199,993 Earnings per share - Basic 9 RMB0.30 RMB0.23 - Diluted 9 N/A N/A -2- -3- BENGANG STEEL PLATES CO., LTD. BALANCE SHEET AS OF 31 DECEMBER 2002 As restated 31 December 31 December Notes 2002 2001 RMB’000 RMB’000 (Note 2) ASSETS Non-current assets Property, plant and equipment 10 3,800,562 3,890,425 Deposits with a related party 23(b) - 164,766 Deferred tax assets 11 24,509 19,043 3,825,071 4,074,234 Current assets Inventories 12 732,496 824,427 Trade and notes receivable 13 124,972 188,480 Due from related parties 23(b) 1,392,160 789,400 Prepaid taxes 14 18,005 89,133 Other receivables and prepayments 15 8,314 11,020 Cash and bank balances 16 896,669 83,320 3,172,616 1,985,780 Total assets 6,997,687 6,060,014 EQUITY AND LIABILITIES Capital and reserves Share capital 20 1,136,000 1,136,000 Reserves 21 3,036,874 2,890,747 4,172,874 4,026,747 Non-current liabilities Borrowings 17(a) 928,597 866,043 -4- Current liabilities Trade and other payables 18 163,412 108,591 Due to related parties 23(b) 60,630 62,320 Value-added tax payable 55,013 - Advances from customers 2 939,042 638,958 Borrowings 17(b) 678,119 357,355 1,896,216 1,167,224 Total equity and liabilities 6,997,687 6,060,014 -5- BENGANG STEEL PLATES CO., LTD. STATEMENT OF CHANGES IN SHAREHOLDERS’EQUITY FOR THE YEAR ENDED 31 DECEMBER 2002 Reserves Revaluation Statutory Retained Share capital Share premium reserve reserves earnings Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Note 20) (Note 21) (Note 21) (Note 21) (Note 21) Balance at 1 January 2001 1,136,000 1,072,187 319,843 204,203 706,619 3,438,852 Disposal of revalued property, plant and equipment - - (8,712) - 8,712 - Net profit for the year - - - - 266,131 266,131 Revaluation surplus (Note 21) - - 321,764 - - 321,764 Appropriation from net profit (Note 21) - - - 41,226 (41,226) - Balance at 1 January 2002 1,136,000 1,072,187 632,895 245,429 940,236 4,026,747 Dividends relating to 2001 (Note 21) - - - - (199,993) (199,993) Disposal of revalued property, plant and equipment - - (13,969) - 13,969 - Net profit for the year - - - - 346,120 346,120 Appropriation from net profit (Note 21) - - - 57,737 (57,737) - Balance at 31 December 2002 1,136,000 1,072,187 618,926 303,166 1,042,595 4,172,874 -6- -7- BENGANG STEEL PLATES CO., LTD. CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002 For the year ended 31 December Notes 2002 2001 RMB’000 RMB’000 Cash flows from operating activities Cash generated from operations 22 1,034,359 239,083 Interest paid (72,132) (81,234) Taxes paid (198,000) (67,562) Net cash from operating activities 764,227 90,287 Cash flows from investing activities Proceeds from disposal of property, plant and equipment 6,966 - Purchases of property, plant and equipment (145,360) (777,557) Interest received 4,191 5,933 Net cash used in investing activities (134,203) (771,624) Cash flows from financing activities Proceeds from borrowings 662,056 714,838 Repayments of borrowings (278,738) (212,510) Dividends paid (199,993) - Net cash from financing activities 183,325 502,328 Net increase / (decrease) in cash and cash equivalents 813,349 (179,009) Cash and cash equivalents at beginning of year 83,320 262,329 Cash and cash equivalents at end of year 16 896,669 83,320 -8- -9- GENERAL Bengang Steel Plates Co., Ltd. (the “Company”) was incorporated as a joint stock limited company in the People’s Republic of China (the “PRC”) on 27 June 1997 by Benxi Iron and Steel (Group) Limited (“the Parent Company”), through reorganisation of assets and liabilities of its plants, namely, Steel Smelting Plant, Primary Rolling Plant and Continuous Hot Rolling Plant. The Company was incorporated through the issuance of 400,000,000 Domestically Listed Foreign Shares (“B Shares”) through a private placement and 616,000,000 unlisted State Shares to the Parent Company. In November 1997, the Company issued 120,000,000 Renminbi denominated Domestic Shares (“A Shares”). The Company’s A Shares and B Shares have been listed on the Shenzhen Stock Exchange since 1997. The registered office of the Company is located at No. 16 Renmin Road, Benxi City, Liaoning Province, the PRC. The Company is principally engaged in steel smelting, metallurgy, processing and distribution business of related products in the PRC. The directors considered that the Parent Company is also the ultimate parent company of the Company. CORRECTION OF FUNDAMENTAL ERRORS During the year ended 31 December 2001, the Company transferred part of advances received from its customers to the Parent Company. As such transfers of funds were mistakenly not reflected in the financial statements of the Company for the year ended 31 December 2001, the advances from customers, prepayment to the Parent Company and bank balances as of 31 December 2001 were understated accordingly by approximately RMB 485,866,000, RMB 485,830,000 and RMB 36,000 respectively. These fundamental errors were identified and adjusted in 2002 such that the comparative figures of the financial statements for the year ended 31 December 2002 were restated accordingly. The correction of these fundamental errors did not have any impact on the net asset value of the Company as of 31 December 2001 and its operating results for the year then ended. As disclosed in note 23 to the financial statements, the Company has various related party transactions with the Parent Company and fellow subsidiaries. The details of certain related party transactions were provided by the Parent Company to the Company, and the related ledgers and supporting documents were kept by the Parent Company. The Company is not able to provide the auditors with all the related accounting records and financial statements of the Parent Company and fellow subsidiaries for examination. -10- ACCOUNTING POLICIES (a) Basis of preparation The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) including International Accounting Standards and interpretations issued by the International Accounting Standards Board. This basis of accounting differs from that used in the preparation of the Company’s statutory financial statements (“PRC statutory financial statements”). The PRC statutory financial statements of the Company comprising the financial statements have been prepared in accordance with the relevant accounting principles and regulations applicable to the Company, as appropriate in the PRC. Appropriate adjustments have been made to the PRC statutory financial statements to conform with IFRS. Differences arising from the restatement have not been incorporated in the statutory accounting records of the Company. The financial statements have been prepared under the historical cost convention, except as disclosed in the accounting policies below. (b) Foreign currencies (i) Measurement currency Items included in the financial statements of the Company are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity (“the measurement currency”). The financial statements are presented in Renminbi, which is the measurement currency of the Company. (ii) Transactions and balances Foreign currency transactions are translated into the measurement currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies, are recognised in the income statement. (c) Property, plant and equipment Property, plant and equipment are initially measured at cost. Subsequent to initial recognition, property, plant and equipment are stated at revalued amounts less accumulated depreciation and accumulated impairment loss. The initial cost of an asset comprises its -11- purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Valuation by independent valuers is performed periodically. Any increase in valuation is credited to the revaluation reserve in shareholders’equity. Any decrease in valuation is first offset against an increase on earlier valuation in respect of the same asset and is thereafter charged to the income statement. Increase in revaluation directly related to a previous decrease in carrying amount for the same asset that was recognised as an expense is credited to operating profit to the extent that it offsets the previously recorded reduction. 3. ACCOUNTING POLICIES (continued) (c) Property, plant and equipment (continued) Depreciation is calculated using the straight-line method to write off the revalued amount, after taking into account the estimated residual value, of each asset over its expected useful life. The expected useful lives are as follows: Plant and buildings 10-35 years Machinery and equipment 5-15 years Motor vehicles and office equipment 5-8 years Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in operating profit. When revalued assets are sold, the amounts included in the revaluation reserve are transferred to retained earnings. Interest costs on borrowings to finance the construction of property, plant and equipment are capitalised during the period of time that is required to complete and prepare the asset for its intended use. All other borrowing costs are expensed. Repairs and maintenance are charged to the income statement during the accounting period in which they are incurred. The cost of major renovations is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Company. Major renovations are depreciated over the remaining useful life of the related asset. Construction-in-progress represents plant and property under construction and machinery pending installation and is stated at cost. This includes cost of construction, plant and equipment and other direct costs plus borrowing costs which include interest charges and exchange differences arising from foreign currency borrowings used to finance these projects -12- during the construction period, to the extent these are regarded as an adjustment to interest costs. Construction-in-progress is not depreciated until such time as the assets are completed and put into operational use. (d) Inventories Inventories are stated at the lower of cost or net realisable value. Cost is determined using the weighted average method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity) but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses. -13- 3. ACCOUNTING POLICIES (continued) (e) Trade receivables Trade receivables are carried at original invoice amount less provision made for impairment of these receivables. A provision for impairment of trade receivables is established when there is an objective evidence that the Company will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, discounted at the market rate of interest for similar borrowers. (f) Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. (g) Borrowings Borrowings are recognised initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings. (h) Operating leases Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. (i) Provisions Provisions are recognised when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Company expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The Company recognised a provision for onerous contracts when the expected benefits to be derived from a contract are less than the unavoidable costs of meeting the obligations under -14- the contract. (j) Revenue recognition Revenue comprises the invoiced value for the sale of goods and services net of value-added tax, rebates and discounts. Revenue from the sale of goods is recognised when significant risks and rewards of ownership of the goods are transferred to the buyer. Interest income is recognised on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the Company. 3. ACCOUNTING POLICIES (continued) (k) Taxation The Company provides for income taxes on the basis of its profit for financial reporting purposes, adjusted for income and expense items, which are not assessable or deductible for income tax purposes. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Currently enacted tax rates are used in the determination of deferred income tax. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. (l) Dividends Dividends are recorded in the Company’s financial statements in the period in which they are approved by the Company’s shareholders. (m) Pension scheme Pursuant to the PRC laws and regulations, contributions to the defined contribution retirement plan for the Company’s local staff are to be made monthly to a government agency based on 29% of the total salary of the employees, of which 24% is borne by the Company and the remainder is borne by the employees. The government agency is responsible for the pension liabilities relating to such employees on their retirement. Contributions to the plan are charged to the income statement as incurred. (n) Financial instruments -15- Financial assets and financial liabilities carried on the balance sheet include cash and bank balances, receivables, prepayments, payables and borrowings. The accounting policies on recognition and measurement of cash and bank balances, trade receivables and borrowings are disclosed in the respective accounting policies found in Note 3. All other financial assets without a quoted market price in an active market are measured at cost subject to impairment review. Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement on initial recognition. Interest, dividends, gains, and losses relating to a financial instrument classified as a liability are reported as expense or income. Distributions to holders of financial instruments classified as equity are charged directly to equity. Financial instruments are offset when the Company has a legally enforceable right to offset and intend to settle either on a net basis or to realise the asset and settle the liability simultaneously. -16- 3. ACCOUNTING POLICIES (continued) (o) Impairment of assets (i) Financial instruments Financial instruments are reviewed for impairment at each balance sheet date. For financial assets carried at amortised cost, whenever it is probable that the Company will not collect all amounts due according to the contractual terms of loans or receivables, an impairment or bad debt loss is recognised in the income statement. Reversal of impairment losses previously recognised is recorded when the decrease in impairment loss can be objectively related to an event occurring after the write-down. Such reversal is recorded in income. However, the increased carrying amount is only recognised to the extent it does not exceed what amortised cost would have been had the impairment not been recognised. (ii) Assets other than financial instruments Assets other than financial instruments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognised in the income statement or treated as a revaluation decrease for property, plant and equipment that are carried at revalued amount to the extent that the impairment loss does not exceed the amount held in the revaluation reserve for the same asset. The recoverable amount is the higher of an asset’s net selling price and value in use. The net selling price is the amount obtainable from the sale of an asset in an arm’s length transaction less the costs of disposal while value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Recoverable amounts are estimated for individual assets or, if it is not possible, for the cash-generating unit. Reversal of impairment losses recognised in prior years is recorded when there is an indication that the impairment losses recognised for the asset no longer exist or have decreased. The reversal is recorded in the income statement or as a revaluation increase. However, the increased carrying amount of an asset due to a reversal of an impairment loss is recognised to the extent it does not exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognised for that asset in prior years. -17- (p) Comparatives Where necessary, comparative figures have been adjusted to conform to changes in presentation in the current year. The changes in comparatives represent the prior year adjustments mentioned in Note 2. -18- SALES The Company conducts its business in the iron and steel industry. No segment information is presented as the Company operates in one industry and one geographical area. PROFIT FROM OPERATIONS The following items have been charged/(credited) in arriving at profit from operations: For the year ended 31 December 2002 2001 RMB’000 RMB’000 Depreciation on property, plant and equipment (Note 10) 420,594 296,335 Impairment of property, plant and equipment (Note 10) 25,620 - Reversal of impairment charges upon disposal (Note 22) (7,157) - Loss on disposal of property, plant and equipment (Note 22) 10,131 41 Repairs and maintenance 186,151 118,461 Operating lease rentals in respect of lands 2,673 2,673 Cost of inventories 5,075,410 3,794,805 Provision for obsolete inventories - 10,163 Provision for bad and doubtful receivables - 9,502 Staff costs (Note 6) 104,452 112,282 STAFF COSTS For the year ended 31 December 2002 2001 RMB’000 RMB’000 Wages and salaries 74,248 82,091 Contributions to a retirement plan 19,809 19,189 Other social security costs 10,395 11,002 -19- 104,452 112,282 The average number of full-time employees in 2002 was 3,551 (2001: 4,348). -20- FINANCE COSTS –NET For the year ended 31 December 2002 2001 RMB’000 RMB’000 Interest expenses - Bank borrowings 72,132 61,171 Less: amount apitalized in construction-in-progress (12,395) -21-