苏常柴Ａ(000570)*ST常柴Ｂ2003年年度报告（英文版）

CHANGCHAI COMPANY, LIMITED ANNUAL REPORT 2003 Important Notes: Board of Directors of the Changchai Company, Limited (hereinafter referred to as the Company) individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions nor errors which would render any statement misleading. Due to certain reasons, Director Mr.Qian Shufa was absent from the Board meeting, and entrusted Director Mr. Shi Jianchun to attend and vote on his behalf. Director Mr. Zhu Xinmin was absent from the Board meeting without entrusting the other directors to vote on his behalf. Horwath Hong Kong CPA Limited produced Auditors’ Report with qualified opinion for the Company; the investors are suggested to read the Financial Report enclosed in the full text of Annual Report to understand more details. Person in charge of the Company Mr. Zhang Junyuan, person in charge of the accounting Mr. Xue Guojun and person in charge of ha ndling accounting affairs Mr. Tang Jianzhong hereby confirm that the Financial Report enclosed in the Annual Report is accurate and complete. Page 1 Content I. Company Profile-----------------------------------------------------------------------------------3 II. Abstract of Financial Highlights and Business Highlights---------------------------------4 III. Changes in Share Capital and Particulars about Shareholders----------------------------6 IV. Particulars about Directors, Supervisors, Senior Executives and Employees-----------8 V. Administrative Structure------------------------------------------------------------------------10 VI. Brief Introduction of Shareholders’ General Meeting-------------------------------------11 VII. Report of the Board of Directors------------------------------------------------------------12 VIII. Report of the Supervisory Committee-----------------------------------------------------18 XI. Significant Events------------------------------------------------------------------------------20 X. Financial Report---------------------------------------------------------------------------------24 XI. Documents Available for Reference---------------------------------------------------------48 Page 2 I. COMPANY PROFILE 1. Legal Name of the Company In Chinese: 常柴股份有限公司 In English: CHANGCHAI COMPANY, LIMITED Abbr.: CHANGCHAI CO., LTD. 2. Legal Representative: Mr. Zhang Junyuan 3. Secretary of the Board of Directors: Mr. Zhang Jianhe Authorized representative in charge of securities affairs: Mr. He Jianjiang Contact Address: No. 123, Huaide Middle Road, Changzhou, Jiangsu, China Tel: (86) 519-6600448, (86) 519-6603656-3155 Fax: (86) 519-6630954 E-mail: zjh000570@163.com, hjj000570@163.com 4. Registered Address and Office Address: No. 123, Huaide Middle Road, Changzhou, Jiangsu, China Post Code: 213002 Internet Website: http://www.changchai.com.cn E-mail: cctqm@public.cz.js.cn 5. Newspapers Chosen for Disclosing Information of the Company: Securities Times and Ta Kung Pao The Place Where the Annual Report is Prepared and Placed: Secretariat of the Board Internet Website Designated by CSRC for Publishing the Annual Report of the Company: http://www.cninfo.com.cn 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: *STchangchai A Stock Code: 000570 *STchangchai B 200570 7. Other Relevant Information of the Company (1) Initial registration date: May 5, 1994; The authority registered with: Changzhou Municipal Administration Bureau for Industry and Commence (2) The changed registration date: July 3, 2002 The authority registered with: Jiangsu Provincial Administration Bureau for Industry and Commence (2) Registered number of the corporate business license for enterprise legal person: 3200001103367 (1/2) (4) Registered number of tax: 320401137155863 (5) Name of the Certified Public Accountants engaged by the Company: Domestic: Jiangsu Gongzheng Certified Public Accountants Office address: 5/F, Tower A of Henry Bldg., No. 1, Hualong Lane, Changzhou, Jiangsu International: Horwath Hong Kong CPA Limited Address: Room 2001, Central Plaza, 18 Harbour Road, Wan Chai, Hong Kong II. ABSTRACT OF FINANCIAL HIGHLIGHTS AND BUSINESS HIGHLIGHTS (I) Total profit and its composing as of the year 2003 (In RMB’000) Page 3 Total profit 35,698.34 Net profit 54,347.09 Net profit after deducting non-recurring gains and losses 23,505.66 (Note) Profit from main operations 221,739.64 Other operating profit 10,695.25 Operating profit 46,866.43 Investment income 998.83 Subsidy income 2,036.43 Net non-operating income / expense -7,103.35 Net cash flows from operating activities 187,763.58 Net increase in cash and cash equivalent 6,802.39 Note: Items of non-recurring gains and losses: Subsidy income 2,036.43 Add: Profit of current assets 127.65 Add: Non-operating income 4,827.28 Add:Switaching back total of provision for devaluation of assets 36,149.24 Add: Disposal of investee’s equity investment 1,000.00 Less: Disposal of expenditure of fixed assets 1,374.42 Less: Non-operating expense 11,924.75 Total 30,841.43 Difference in net profit as audited by PRC Accounting Regulations and International Accounting Standards (IAS) Unit: In RMB’0000 Net profit as of the year Net assets as at Dec. 31, 2003 2003 (RMB’000) (RMB’000) As calculated pursuant to PRC 54,347 784,585 Accounting Regulations Net gain on sale of subsidiaries 5,732 10,000 Written back of unrecognized losses -8,872 of investment Income of capital public reserve reckoned into based on PRC 167 Accounting Regulations Written back of minority interest -6,965 -27,866 Others -1,777 -3 As calculated pursuant to 42,632 766,716 International Accounting Standards (II) Major accounting data and financial index over past three years ended the report year (In RMB’000) Items 2003 2002 2001 Income from main operations 1,542,779.89 1,579,968.45 1,743,487 Net profit 54,347.09 -477,475.86 -381,429 Total assets 1,944,525.31 2,184,414.07 2,926,504 Page 4 Shareholders’ equity (excluding minority 784,584.99 738,664.38 1,239,421 interests) Earnings per share (diluted) (RMB) 0.15 -1.28 -1.02 Earnings per share (weighted) (RMB) 0.15 -1.28 -1.02 Earnings per share after deducting non-recurring 0.06 -1.24 -1.02 gains and losses (RMB) (diluted) Net assets per share (RMB) 2.10 1.97 3.31 Net assets per share after adjustment (RMB) 1.67 1.82 3.19 Net cash flows per share arising from operating 0.50 0.30 0.44 activities (RMB) Return on equity (%) (diluted) 6.93 -64.64 -30.8 (III) The profit are calculated according to Regulations on the Information Disclosure of Companies Publicly Issuing Shares (No. 9) released by CSRC Supplementary statement of profit Earnings per share Profit as of the report period Return on equity (%) (RMB) Fully Weighted Fully Weighted diluted average diluted average Profit from main operations 28.26 28.26 0.59 0.59 Operating profit 5.07 5.07 0.13 0.13 Net profit 6.93 6.93 0.16 0.16 Net profit after deducting non-recurring gains and losses 3.00 3.00 0.17 0.17 (ＩＶ) Changes in shareholders’ equity in the report period (Unit: in RMB’000) Total Share capital Capital public Surplus public Statutory public Retained Items shareholders’ (share) reserve reserve welfare fund profit equity Amount at 374,249,551 697,247.33 178,241.40 89,235.89 -478,540.93 738,664.38 period-begin Increase in the 173.54 8,029.36 4,014.68 583,664.05 591,386.95 report period Decrease in the 529,441.96 790.91 395.46 8,029.36 538,262.23 report period Amount at 374,249,551 167,978.92 185,479.84 92,855.11 97,093.77 784,584.99 period -end Reason for the changes: (1) Decrease of capital public reserve was due to making up the deficits of RMB 529,316,959.68 with it in 2003; (2) Increase of retained profit was due to increase of net profit amounting to 54,347,089.3０as of the report year, and making up the deficits of RMB 529,316,959.68 with capital public reserve. III. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS Page 5 (I) Changes in share capital 1. Changes in shares Type of shares Amount at Change in Amount at period-begin this period period-end I. Unlisted Shares 1. Sponsor’s shares 153,160,000 0 153,160,000 Including: State-owned shares 153,160,000 0 153,160,000 Shares held by domestic legal person Shares held by foreign legal person Others 2. Raised legal person’s shares 10,064,000 0 10,064,000 3. Inner employee’s shares 4. Preference shares and others Total unlisted shares 163,224,000 0 163,224,000 II. Listed Shares 1. RMB ordinary shares 111,025,551 0 111,025,551 2. Domestically listed foreign shares 100,000,000 0 100,000,000 3. Overseas listed foreign shares 4. Others Total listed shares 211,025,551 0 211,025,551 III. Total shares 374,249,551 0 374,249,551 2. Issuance and listing of shares (1) The Company implemented Share Allotment Plan 1999 from Mar. 1, 2000 to Mar. 22, 2000. Based on total share capital before shares rationing amounting to 352,000,000 shares, totally 22,249,551 shares were allotted in the shares allotment activity on the basis of 3 for 10 at the shares rationing price of RMB 9 per share. Of them, 2,260,000 shares subscribed by shareholders of state-owned shares with cash; 987,500 shares subscribed by legal person shareholders with cash; 102,054 shares subscribed by Shareholders of previous transferred allotted shares and 18,899,997 shares subscribed by shareholders of public shares (including senior executives). The new additional shares amounting to 18,899,997 shares were listed for trading on Apr. 5, 2000, while 18,136 shares subscribed by senior executives of the Company were frozen temporarily. (2) In the report period, the share capital of the Company remained unchanged. (3) There exist no inner employee’s shares in the Company. (II) About Shareholders 1. Ended Dec. 31, 2003, the Company had totally 71,724 shareholders, of them, 55,655 shareholders of domestic shares holding totally 274,249,551 shares and 16,069 shareholders of foreign shares holding totally 100,000,000 shares. 2. Particulars about shares held by the top ten shareholders at the end of the report period Increase / Holding Number Proportion decrease in shares at the of share Nature of Name of Shareholder in total Type of shares the report year-end pledged shareholders shares (%) year (share) or frozen 1. CHANGZHOU STATE ASSETS State-owned 0 153,160,000 40.92 Non-circulating 0 shareholder ADMINISTRATIVE BUREAU 2. WUJIN DIESEL ENGINEER BLOCK Legal person 0 5,330,000 1.42 Non-circulating 0 FACTORY shareholder Page 6 3. BENNIU AGRICULTURAL Legal person 0 1,760,000 0.47 Non-circulating 0 MACHINERY FACTORY shareholder 4. NAM NGAI Foreign - 1,682,410 0.45 Circulating Unknown shareholder 5. MERRL LYNCH INTERNATIONAL Foreign 0 1,000,000 0.27 Circulating Unknown shareholder 6. HE YONG HANG Foreign 8,298 926,598 0.25 Circulating Unknown shareholder 7. XU BIN SHENG Foreign - 722,550 0.19 Circulating Unknown shareholder 8. LI FANG Circulating - 680,345 0.18 Circulating Unknown shareholder 9. REN XIU FU Circulating - 680,000 0.18 Circulating Unknown shareholder 10. LIU ZILI Foreign - 659,000 0.18 Circulating Unknown shareholder Notes: (1) Changzhou State Assets Administrative Bureau (“the Bureau”) is the first largest shareholder of the Company, holding 153,160,000 shares on behalf of the state without pledged or frozen. The first largest shareholder, Changzhou State Assets Administrative Bureau was changed as Changzhou State Assets Investment Management Corporation due to reform of government organ, and the relevant procedure of change was still in process. The Company shall disclose the rele vant events timely. No. 2 and No. 3 are shareholders of the domestic legal person; No.8 and No.9 are shareholders of the domestic circulating shares; No.4, 5, 6, 7 and 10 are shareholders of foreign shares. (2) Among the top ten shareholders, the Company is unknown whether there exists associated relationship and the consistent actionist regulated by the Management Measure of Information Disclosure on Change of Shareholding for Listed Companies among domestic shareholders of circulating shares and shareholders of foreign shares. 3. Changzhou State Assets Management Bureau is the holding shareholder of the Company as non- legal person organ. 4. At the end of the report period, particulars about shares held by the top ten shareholders of circulating shares Type of shares Holding shares at the Shareholders’ name (A-share, B-share, year-end (share) H-share and other) MAN NGAI 1,682,410 B-share MERRL LYNCH INTERNATIONAL 1,000,000 B-share HE YONG HANG 926,598 B-share XU BIN SHENG 722,550 B-share LI FANG 680,345 A-share REN XIU FU 680,000 A-share LIU ZILI 659,000 B-share LI DE DI 645,210 B-share LIV LY 637,300 B-share TOYO SECURITIES ASIA B-share 555,900 LIMITED-A/C CLIENT. Page 7 Explanation on associated The Company was unknown whether there exists associated relationship among the top ten relationship and the consistent actionist regulated by the shareholders of circulating Management Measure of Information Disclosure on Change of share Shareholding for Listed Companies among the top ten shareholders of circulating share. IV. PARTICULARS ABOUT DIRECTORS, SUPERVISORS AND SENIOR EXECUTIVES AND EMPLOYEES (I) Basic information 1. Directors, supervisors and senior executives Holding Holding Reason of Name Title Gender Age Office term shares at the shares at the change year-begin year-end Zhang Junyuan Chairman of the Board Male 49 Jun. 2003- 0 0 Jun. 2006 Xue Guojun Director, General Manager Male 40 Jun. 2003- 0 0 Jun. 2006 Zhu Zhihong Director Male 40 Jun. 2003- 0 0 Jun. 2006 Shi Jianchun Director, Deputy General Male 41 Jun. 2003- 0 0 Manager Jun. 2006 Zhu Xinmin Director, Deputy General Male 56 Jun. 2003- 0 0 Manager Jun. 2006 Xu Zhenping Director, Assistant General Male 46 Jun. 2003- 0 0 Manager Jun. 2006 Qian Shufa Independent Director Male 47 Jun. 2003- 0 0 Jun. 2006 He Yihua Independent Director Male 41 Jun. 2003- 0 0 Jun. 2006 Lu Gang Independent Director Male 39 Jun. 2003- 0 0 Jun. 2006 Lu Jin Chairman of the Supervisory Male 53 Jun. 2003- 18483 18483 Committee Jun. 2006 Ni Mingliang Supervisor Male 36 Jun. 2003- 0 0 Jun. 2006 Lu Zhonggui Supervisor Male 36 Jun. 2003- 0 0 Jun. 2006 Wu Keyun Supervisor Male 39 Jun. 2003- 0 0 Jun. 2006 Yan Gang Supervisor Male 46 Jun. 2003- 0 0 Jun. 2006 He Jianguang Chief Engineer Male 39 Jun. 2003- 0 0 Jun. 2006 Zhang Jianhe Secretary of the Board of Male 46 Jun. 2003- 0 0 Directors Jun. 2006 2. Particulars about directors, supervisors or senior executives holding the position in Shareholding Page 8 Company Directors, supervisors and senior executives of the Company didn’t hold the position in Shareholding Company. (II) Particulars about the annual payment 1. In 2003, the payment drew by Chairman of the Board, Chairman of the supervisory Committee, General Manager and other senior executives from the Company are paid according to the 2003 annual proposal on evaluating the implementation of the managers examined and approved at the 19th meeting of the 3rd Board of the Directors dated Dec. 24, 2002. The payment of supervisors are paid in monthly based on the wage management regulation of Changchai Co., Ltd. Director Mr. Zhu Zhihong and Supervisor Mr. Yan Gang received no pay from the Company. 2. The total annual payment of directors, supervisors and senior executives received from the Company was RMB 1,472,000. The total annual payment of the top three directors drawing the highest payment was RMB 586,000. The total annual payment of the top three senior executives drawing the highest payment was RMB 526,000; the annual allowance of independent directors was RMB 20,000 respectively without other treatment. 3. In 2003, of directors, supervisors and senior executives, 6 enjoy their annual payment over RMB 150,000 respectively; 2 enjoy their annual payment between RMB 100,000 to RMB 150,000 respectively, and 3 enjoy their annual payment under RMB 100,000 respectively. (III) Directors, supervisors and senior executives leaving the office and the reason in the report year In the report year, the office term of the 3rd Board of Directors and the Supervisory Committee has expired. On Jun 6, 2003, the Company held the Shareholders’ General Meeting 2002. At the meeting, Mr. Zhang Junyuan, Mr. Xue Guojun, Mr. Zhu Zhihong, Mr. Shi Jianchun, Mr. Zhu Xinmin and Mr. Xu Jianping were elected as the directors of the 4th Board of Directors; Mr. Qian Shufa, Mr. He Yihua and Mr. Lu Gang were elected as the Independent Directors of the 4th Board of Directors while the former Independent Director Mr. Li Debiao no longer held their posts due to work adjustment; Mr. Lu Jin, Mr. Yan Gang and Mr. Wu Keyun were elected as the supervisors of the 4th supervisory Committee while the former supervisors Mr. Cao Huiming, Mr. Li Zhenguo and Mr. Yin Lihou left their posts because of work adjustment; Mr. Ni Mingliang and Mr. Lu Zhonggui were elected as the employee supervisors at the Employees’ Congress. At the 1st meeting of the 4th Board of the Directors, Mr. Zhang Junyuan was elected as the Chairman of the Board. As nominated by Mr. Zhang Junyuan, Mr. Xue Guojun and Mr. Zhang Jianhe were elected as General Manager and the secretary of the Board respectively; as nominated by Mr. Xue Guojun, Mr. Shi Jianchun, Zhu Xinmin were engaged as Deputy General Manager of the Company, Mr. He Jianguang was engaged as Chief Engineer of the Company. Mr. Lu Jin was elected as Chairman of the Supervisory Committee at the 1st meeting of the 4th Supervisory Committee. The aforesaid resolutions were published in Securities Times and Ta Kung Pao dated June 7, 2003. (IV) About employees By the end of 2003, the Company had totally 3679 employees registered in book, including 2284 production personnel; 220 salespersons; 295 technicians; 53 financial personnel, 74 administration personnel. Education Background: 4 postgraduate; 176 graduated from bachelor degree; 264 persons graduated from 3-years regular college; 113 persons graduated from polytechnic school; 1489 persons graduated from senior high school and 1633 persons graduated from junior high school or lower. The Company need not bear the costs of retirees. Page 9 V. ADMINISTRATIVE STRUCTURE (I) Particulars about Company Administration In the report period, according to the requirements of standardized documents on listed companies’ administration promulgated by CSRC, the Company perfected consistently legal person administrative structure and operated strictly, which accorded with the requirements of the standardized documents as a whole. (II) Performance of Independent Directors In the report period, Mr. Qian Shufa, Mr. He Yihua and Mr. Lu Gang were elected as the independent directors of the Company in Shareholders’ General Meeting 2002. They are specialists in management, finance and law respectively. They played an important role in the science and lawfulness of the decision- making of the Board of Directors. They participated patiently in the meetings of the Board of Directors, expressed the independent opinion on the important issues examined. (III) Separation from the holding shareholders in personal, business, assets, organization and financing 1. In respect of personal: the Company established special HR department, drew independent labor personal and remuneration system, checked, trained, encouraged and punished the employees through strict regulations and systems. Engagement and dismission of the directors, supervisors and senior executives were performed in conformity with legal procedure. Directors, supervisors, senior executives and employees in all departments of the Company have taken no position in the Shareholding Company. 2. In respect of business: the Company’s the production and operation, R&D and administration were independent completely with the holding shareholders. There existed no competition in the same industry from the holding shareholder in term of products. 3. In respect of assets: the Company has independent production, auxiliary production system, auxiliary facilities, land use right, industrial property right and non-patent technology, established independent system of purchase and sale service. The assets are independent and integral and the property right is clear. 4. In respect of organization: the establishment of the Company’s organizations is independent and integral and the office address and the sites of production and operation of the Company is separated from the holding shareholder. There existed neither affiliation relationship between the function departments of the Company and the holding shareholders nor mixed operation and offices. 5. In respect of business: the Company set up independent financing department, has independent accounting personals and bank account, paid taxes according to laws and has independent accounting settlement system and perfect financing management system. VI. BRIEF INTRODUCTION OF SHAREHOLDERS’ GENERAL MEETING (I) Particulars about the Shareholders’ General Meetings in the report period In the report year, the Company held one Shareholders’ General Meeting. Shareholder General Meeting 2002 was held at the meeting room of the labor union of the Company on the morning of June 6, 2003. The Company published the notice on holding Shareholders’ General Meeting 2002 in Securities Times and Ta Kung Pao dated Apr. 25, 2002 and May 20, 2003. Total 17 shareholders and shareholders’ proxies attended the meeting, representing 160,227,862 shares, taking 42.81% of the Company’s total shares, including 159,962,433 A shares, which took 42.74% of the Company’s total shares and 265,429 B shares which took 0.07% of the Company’s total shares. The Company’s directors, supervisors, senior executives and lawyer engaged by the Company attended the meeting as nonvoting delegates. The meeting examined and approved the following issues by vote: Page 10 1. Work Report 2002 of the Board of Directors; 2. Work Report 2002 of the Supervisory Committee; 3. Annual Report 2002 and its Summary; 4. Proposal on Profit Distribution 2002 and Proposal on Making up Losses 5. Draft of Amendment of Articles of Association of the Company; 6. Proposal on reconfirming the Domestic and Overseas Audit Organ in 2002 for the Company and the auditing costs 7. Proposal on reengaging the Domestic and Overseas Audit Organization in 2003 for the Company and the auditing costs 8. Proposal on the Company’s Total External Guarantee Amount and Authorizing the Board of Directors the Examining Right of Extending Guarantees; 9. Proposal on the Company’s Accumulative Loan Amount and Authorizing the Board of Directors the Examining Right of Extending Loan 10. Proposal on Authorizing the Board of Directors to Settle the Related Transactions in 2003 As the related shareholder, Changzhou State Assets Administrative Bureau with its 153,160,000 shares executed the obviation system. 11. Proposal on reelection of the Board of Directors and allowance of the independent Directors 12.Proposal on the reelection of the Supervisory Committee (II) Particulars about the disclosure of the resolutions of the Shareholder’s General Meeting The resolutions of this Shareholders’ General Meeting were published in Securities Times and Ta Kung Pao dated June 7, 2003 (III) Particulars about the election and changing of the directors and supervisors of the Company At the Shareholder’s General Meeting 2002, the Board of Directors and the Supervisory Committee conducted the election at expiration of the office terms. Mr. Zhang Junyuan, Mr. Xue Guojun, Mr. Zhu Zhihong, Mr. Shi Jianchun, Mr. Zhu Xinmin, Mr. Xu Zhenping, Mr. Qian Shufa, Mr. He Yihua and Mr. Lu Gang were elected as the directors of the 4th Board of Directors. Mr. Lu Jin, Mr. Yan Gang, Mr. Wu Keyun, Mr. Ni Mingliang and Mr. Lu Zhonggui were elected as the supervisors of the 4th Supervisory Committee. The former director Mr. Li Debiao, the former supervisor Mr. Cao Huiming, Mr. Li Zhenguo and Mr. Yin Lihou no longer took their posts. VII. Report of the Board of Directors (I) Operation of the Company 1. Scope of main operations and its operation (1) The Company belongs to the industry of machinery manufacturing, which is mainly engaged in manufacturing and sales of agro-diesels, combine harvester and transport agro-vehicles. 2003 is a significant year for the Company, under the guide of the Board of Directors and the Management, the staff of the Company solidified and strived, overcome the unfavorable factors of SARS and rising of the material price, through putting emphasis on new products development, strengthening market exploitation and decreasing costs and expenses, changed the situation that the Company’s indexes kept descending in sequential years and realized making up the deficits and getting surpluses. The main economic indexes are increasing and the Company is pacing into favorable circulation. In the report period, the parent company produced and sold diesels amounting to 943,100 pieces and 952,000 pieces respectively, an increase of 3.09% and 3.44% respectively over the same period of the last year, realized sales income of RMB 1386.096 million, an increase of 8.46% year-on- year and realized a profit of RMB 40.1468 million, a net increase of RMB 529.4934million year-on- year with the total assets amounting to RMB 1751.7452million, net assets amounting to RMB 763.9268million and assets-liability ratio amounting to 56.39%. Page 11 In the report period, the formation of income from main operations of the Company classified according to product is as follows: Index Income from main operations Profit from main operations Product Amount (RMB) Percentage (%) Amount (RMB) Percentage (%) Diesels and 1,507,631,614.08 97.72 225,475,077.23 101.68 accessories Agro-vehicles 35,148,279.04 2.28 -3,735,439.95 -1.68 Total 1,542,779,893.12 100.00 221,739,637.28 100.00 In the report period, the formation of income from main operations of the Company classified according to area is as follows: Area Income from main Increase/decrease of income from main operations (RMB) operations compared with the previous year (%) East China 1,003,232,261.48 157,106,172.15 Northeast 140,727,042.54 22,037,854.86 Southwest 106,727,042.54 16,696,199.63 Central China 105,006,309.09 16,443,988.00 North China 68,889,246.13 10,788,055.94 Northwest 78,620,809.99 12,312,018.84 South China 53,418,073.89 8,365,270.37 (2) Particulars about diesel products taking the largest proportion in the income from main operations Sales income: RMB 1,386,095,994.79 cost of sales: RMB 1,168,978,962.32 gross profit ratio: 15.66% 2. Operation of main subsidiaries and controlling subsidiaries of the Company (Unit: RMB ’0000) Name of company Main products Registered Total assets Net profit capital Changchai Wanxian Diesel Diesels 3500.00 13621.35 92.74 Engine Co., Ltd. Changchai Yinchuan Diesel Diesels 3484.21 7940.53 -965.12 Engine Co., Ltd. Changchai Benniu Diesel Accessories of diesels 3378.64 10640.55 -1637.94 Engine Parts Co., Ltd. Changzhou Vehicle Co., Ltd. Four-wheel 5000.00 6445.77 -537.23 agro-vehicles 3. Major suppliers and customers In 2003, the purchase amount of the top five suppliers of the Company took 23.21% of the total annual amount of purchase and the sales amount of the top five customers took 31.74% of the total amount of sales of the Company. 4. Problems and difficulties arising from the operation and the solutions In the report period, the problems and difficulties arising from the operation of the Company: on the one hand, the market price of the main raw and accessorial materials kept increasing significantly, which brought along the cost strain to the Company’s operation. At the same time, the continuous increase in material price also resulted in the strained material supply and short of the products’ components. The Page 12 Company face up to difficulties and adopted many measures to decrease production costs and ensure the normal production and supply. (1) The Company developed activities of decreasing cost and expenses and the periodic expenses decreased 11%. Costs of the four factories of the Company wholly decreased, and all realized profit for the first time. In purchase, managed to adjust the price in the way of rapidly decrease and slowly increase. In products development positively adopted value engineering and developed energy saving activities to decrease synthetic energy consuming, partly digested the cost pressure of the rise in material market price. (2) Positively adjusted the products structure, tried to increase the sales of profitable products. Expand the sales proportion in the area of circulation, and put forward new products with strong competition and high additional value to the market and then keep the sales gross profit in favorable level. (3) Adjusted products sales price in time according to market change and elevated the profit interspaces. (4) Conquered difficulties in purchase and supply such as many new varieties and shortage of components resources, tried hard to make the components supply meet the requirements of production. (II) Investment in the report period 1. Application of proceeds raised through previous share offering After approved by ZJGSZ (2000) No. 7 document of CSRC, based on the total share capital of 352,000,000 at the end of the year of 1999, the Company allotted shares to all shareholders at the rate of 3 shares for every 10 shares. The total amount of shares allotted actually this time was 22,249,551 shares and the net amount of raised proceeds was RMB 194,713,059.00. The raised proceeds of this shares allotment was transferred into accounts on April 13, 2000. The public notice of change in shares was published and the change of commercial and industrial registration was completed. Ended Dec. 31, 2003, the application of proceeds raised through shares allotment of the year of 1999 of the Company was as follows: (RMB’0000) Total amount of 19471.31 Total amount of raised proceeds used in 0 raised proceeds the report period Total amount of raised proceeds used 17770.36 accumulatively Committed Planned amount Change of projects or Actual Accrued Compliance with projects of input not amount of amount of planned progress input earning and estimated earning or not Back-carried 4990 The project remained 5910 0 No all-feeding unchanged while way combine of input changed harvester Self-propelled 4980 The project remained 0 No all-feeding unchanged while way combine of input changed harvester Self-propelled 15000 The project remained 7530.36 0 No semi-feeding unchanged while way combine of input changed harvester Page 13 Total 24970 — 13440.36 — Total amount of capital in project of 4330 changed investment Project after the Corresponding Planned amount Actual Accrued Compliance with change project of of input of change amount of amount planned progress committed project input of and estimated originally earning earning or not Complementing 4330 4330 circulating funds Total — 4330 4330 — (1) Changchai Combine Harvesters Co., Ltd. (hereinafter referred to as Changlian Company), which was in charge of the projects of Back-carried all- feeding combine harvester and Self-propelled all- feeding combine harvester, implemented equity transfer on Aug. 30, 2002 (For details, please see the Company’s Annual Report 2002). (2) Jiangnan Transport Machinery Co., Ltd. (hereinafter referred to as Jiangnan Company), which was in charge of the project of Self-propelled semi- feeding combine harvester, has been in bankrupt procedure on Jun.14, 2003 (For details, please refer to Semi- Annual Report 2003 of the Company). The Company has received notice from the bankrupt clearing team of Jiangnan Company. The Company acquired the mortgage creditor’s right RMB 6,848,382.48 that is preferential repaid. The amount of repayment of other creditor’s right is RMB 3,559,837.49, totally up RMB 10,408,219.97. (3) No application of the newly raised proceeds occurred in 2003. Ended Dec.31, 2003, there were proceeds amounting to RMB 17,009,500 raised from previous share offering that has not been used and deposit in banks. Whereas two projects of the Company has been stopped in operation, the Board of Directors of the Company planned to submit the proposal to the Shareholders’ General Meeting for examination and approval which suggested to supplement current capital with the residual raised proceeds. 2.There was no project invested with proceeds not raised through share offering in the report period. (III) Financial position of the Company 1. Financial indexes (Unit: RMB’000) Name of index Dec. 31, 2003 Dec. 31, 2002 Increase/decrease (%) Total assets 1,944,525.31 2,184,414.07 -10.98 Shareholders’ equity 784,584.99 738,664.38 6.22 In 2003 In 2002 Increase/decrease (%) Profit from main operations 221,739.64 174,940.01 26.75 Net profit 54,347.09 -477,475.86 - Cash and cash equivalents Net increase 6,802.39 61,429.75 -88.93 2. Explanation on reasons of changes in financial position (1) The net profit changed, which was mainly because that the Company appropriated all impairment losses in the last year, resulting into great losses, while realized profitability through implementation of various kinds of effective measures. (2) Net increase in cash and cash equivalents decreased, which was because that the Company refunded relatively large amount of bank loans in the report period. Page 14 (IV) Routine Work of the Board of Directors The meetings and resolutions of the Board of Directors in the report period: 1.The Board of Directors held provisional meeting on Feb. 26, 2003, which examined and approved the proposal on applying for bank loan of RMB 80 million with mortgage of Changchai Building. 2.The 20th Meeting of the 3rd Board of Directors was held on Apr. 8, 2003 and the following resolutions were examined and approved in the Meeting: (1) Annual Report and its Summary 2002; (2) Work Report of the Board of Directors 2002; (3) Proposal on Profit Distribution and Loss offset 2002; (4) Opinions on special treatment of the Company’s stock. 3. The 21st meeting of the 3rd Board of Directors was held on Apr. 22, 2003 and the meeting examined and approved the following events, (1) The 1st Quarterly Report 2003; (2) Proposal on Reengaging Domestic and Oversea Auditors of the Company in 2003 and auditing charges. (3) Proposal on Amending the Articles of Association. (4) Proposal on the Company’s Total External Guarantee Amount and Authorizing the Board of Directors the Examining Right of Extending Guarantees. (5) Proposal on the Company’s Accumulative Loan Amount and Authorizing the Board of Directors the Examining Right of Extending Loan. (6) Proposal on Authorizing the Board of Directors to Settle the Related Transactions in 2003. (7) Proposal on the Election at the Expiration of the Term of Office of the Board of Directors and Allowance for Independent Directors. (8) Proposal on Holding Annual Shareholders’ General Meeting 2002. 4. The 1st meeting of the 4th Board of Directors was held on Jun. 6, 2003 and the meeting examined and approved following events: (1) Elected Mr. Zhang Junyuan as Chairman of the Board of the Company. (2) According to the nomination of Chairman of the Board, engaged Mr. Xue Guojun as General Manager of the Company and Mr. Zhang Jianhe as the Secretary of the Board of Directors. (3) According to the nomination of General Manager, engaged Mr. Shi Jianchun and Mr. Zhu Xinmin as Deputy Manager of the Company and Mr. He Jianguang as Chief Engineer. (4) Examined and approved the proposal on adjusting members of the Board of Directors Special Committee. (5) Examined and approved the proposal on extending guarantee for Changzhou Gear Factory for the credit line of RMB 20 million and the progress on extending guarantee for the company for the credit line of RMB 30 million. (6) Proposal on extending guarantee for Changzhou Weite Electric Factory for the credit line of RMB 13.6 million. 5. The 2nd meeting of the 4th Board of Directors was held on Aug. 5, 2003, which examined and approved the Company’s Semi-annual Report of 2003. 6. The Board of Directors held provisional meeting on Aug. 9, 2003, which examined and approved the proposal on applying bank loan with the Company’s assets as gage. 7. The 3rd meeting of the 4th Board of Directors was held on Oct. 23, 2003, which examined and approved following events: (1) The 3rd quarterly report of 2003; (2) The self-checking report on the current account between the Company and related parties and Page 15 external guarantee. (3) The proposal on canceling part of the accounts receivable. 8. The Board of Directors held provisional meeting on Oct. 25, 2003, which examined and approved the proposal on transferring Changjin Company’s equity. 9. The Board of Directors held provisional meeting on Nov. 19, 2003, which examined and approved the proposal on settling part of the estate mortgage loan. 10. The 4th meeting of the 4th Board of Directors was held on Dec. 27, 2003, which examined and approved following events: (1) The work objective of 2004; (2) Business operation in 2003 and finance budget report in 2004; (3) Preplan on implementing the check of executives in 2003. (4) Proposal on checking the salary of high-level executives. (5) Management Institution of the investors’ relationship of Changchai Company, Limited; (6) Proposal on canceling part of the account receivable; (7) Proposal on transferring partial equity of Changzhou Vehicle Co., Ltd.; (8) Proposal on transferring partial equity of Changchai Yinchuan Diesel Co., Ltd.; (V) Preplan on profit distribution and converting of capital public reserve into share capital Audited by domestic and oversea auditors as per Chinese Accounting Standards and International Accounting Standards respectively, the net profit of the Company in 2003 was RMB 54,347,089.30 and RMB 42,632,000 respectively. The total profit available for distribution in the consolidated statement as of the year was RMB 97,093,765.01 and the profit available for distribution of the parent company was RMB 32,117,422.03. The Board of Directors decided neither to distribute profit nor convert capital public reserve into share capital in 2003. The aforesaid distribution preplan should be submitted to 2003 Shareholders’ General Meeting for examination. (VII) Other reporting issues The newspapers of information disclosure designa ted by the Company in 2003 were Securities Times and Ta Kung Pao. VIII. Report of the supervisory Committee In the report year, according to relevant laws and regulations such as Company Law of the P.R.C. and the Articles of Association of the Company etc., the Supervisory Committee seriously performed its duties, strictly supervised over the significant decisions made by the Board of Directors as well as the Company’s operation according to law, production and operation and financial management in an all-round way, boosted the Company’s standardized operation, and ensured veracity and legitimacy of its economic operation. (I) Meetings of the Supervisory Committee The meetings of the Supervisory Committee of the Company and its resolutions in the report period: 1.The 13th meeting of the 3rd Supervisory Committee was held on Apr. 8, 2003 that examined and approved Annual Report and its Summary 2002; 2.The 14th meeting of the 3rd Supervisory Committee was held on Apr. 22, 2003 that examined and approved the 1st Quarterly Report of 2003; 3.The 15th meeting of the 3rd Supervisory Committee was held on Apr. 28, 2003 that examined and approved the proposal on the event of changing-office election and the list of the candidates of the 4th Supervisory Committee; 4.The 1st meeting of the 4th Supervisory Committee was held on Jun. 6, 2003 that examined and Page 16 approved the proposal on electing chairman of the 4th Supervisory Committee; 5.The 2nd meeting of the 4th Supervisory Committee was held on Aug. 5, 2003 that examined and approved Semi-annual Report and its Summary 2003; 6.The 3rd meeting of the 4th Supervisory Committee was held on Oct. 23, 2003 that examined and approved the 3rd Quarterly Report of 2003; 7.The 4th meeting of the 4th Supervisory Committee was held on Dec. 27, 2003 that examined and approved the following events, (1) Proposal on transferring Changjin Company; (2) Proposal on transferring part equity of Changzhou Vehicle Co., Ltd.; (3) Proposal on transferring share equity of Changyin Company. (II) Independent Opinions from the Supervisory Committee 1. Operation According to Laws: In opinion of the Supervisory Committee, the Board of Directors and the managers of the Company worked in a patient and responsible way, normatively operated strictly according to Company Law of the P.R.C., Securities Law of the P.R.C. and the Articles of Association of the Company and basically established good internal control system and the procedures of decision-makings were legal. 2. Inspection of Finance of the Company: The Supervisory Committee seriously and meticulously inspected the Company’s financial systems and financial position, believed that the financial report of 2003 factually reflected the Company’s financial status and operation results, and the auditor’s opinion and assessment on relevant events issued by the domestic and overseas Certified Public Accountants were objective and fair. 3. Actual Investment Project of the Latest Raised Capital: The latest raised capital was 1999 share allotment, in which a total net amount of RMB 194,713,059.00 was raised. Due to the great change on the situation of the harvest machines market, so as to reduce the investment risk, the Board of Directors and the Supervisory Committee made the resolution on the adjustment of the investment method respectively in the 12th meeting of the 3rd Board of Directors and the 5th meeting of the 3rd Supervisory Committee, which was examined and approved by 2001 Annual Shareholders’ General Meeting. The Supervisory Committee believes that there occurred change on the raised capital and the investment method and amount of committed investment project. The procedure of change was legal. 4. Purchase and sales of assets. (1) On Oct. 30, 2003, the Company transferred 71.28% of Changjin Company’s equity that it held at the price of RMB1,000,000. (2) On Dec. 30, 2003, the Company transferred the 60% of Changyin Company’s equity and 5% of Northwest Vehicle Company that it held at the same time at the price of RMB 5, 000,000. (3) On Jan. 15, 2004, the Company transferred the 15% of Vehicle Company’s equity that it held at the price of RMB 900, 000. The Supervisory Committee believed that the transactions of assets were conducted based on the negotiated price, and the procedures of transfer were legitimate, avoiding the further loss of the shareholders’ interests and rights. 5.The related transaction of purchase and sales among the Company and Changzhou Gear Factory and the import and export company of Changchai Group was fair and reasonable and not harmful for the interests and rights of the shareholders and the Company. The detail was published on Securities Times and Ta Kung Pao dated Apr. 25, 2003. IX. Significant Events Page 17 (I) Ended as of the report period, the accumulative amount of the lawsuits and arbitrations interfered by the Company is RMB 69,881,700 million. The detail was published on Securities Times and Ta Kung Pao dated Jan. 28, 2003. Progress of lawsuits in report period, (1) Wuwei Yongyu Commercial Co., Ltd. has paid off all arrearage that owned the Company through arbitration. (2) On Nov. 3, 2003 and Nov. 20, 2003, Changzhou Intermediate People’s Court made the verdict that Shangdong Guangming Machine Plant should sell its 12,936,891 legal shares of Zhongtai Kaima Co., Ltd. to the Company at the price of RMB 1.18 per share to cancel out its arrearage. (3) Other lawsuits are all in implementation by the court. (II) Purchase and sales of assets (1) On Oct. 30, 2003, the Company signed Equity Transfer Agreement with Chouzhou Xinzhaofeng Agro- machine Co., Ltd. (hereinafter referred to as Xinzhaofeng Agro- machine Company) and agreed to transfer 71.28% equity of Changchai Jintan Diesel Co., Ltd. (hereinafter referred to as Changjin Company) to Xinzhaofeng Agro- machine Company. Taking the assessment of the assets of Changjin Company by agency, which has the Security Certification, as reference of the deal price, the final equity transfer price was settled to RMB 1,000,000. (2) On Dec.30, 2003, the Company signed Equity Transfer Agreement with Ningxia Agro- machine Corporation (hereinafter referred to as Ningxia Agro- machine Corporation) and agreed to transfer 60% equity of Changchai Yinchuan Diesel Co., Ltd. (hereinafter referred to as Changyin Company) and 5% equity of Lanzhou Changchai Northwest Vehicle Co., Ltd. (hereinafter referred to as Northwest Vehicle) to Ningxia Agro- machine Corporation. Taking the assessment of the assets of Changyin Company by agency, which has the Security Certification, as reference of the deal price, Changyin Company’s equity was transferred to pay off the debts, the price was zero and the transferring price of the Northwest Vehicle Company was RMB5 million. At the same time, Ningxia Agro- machine Corporation promised to pay off the debts of RMB 5 million which the Northwest Vehicle Company owned the Company and the debts of RMB 4 million which Changyin Company owned the Company’s holding subsidiary—Changchai Benniu Diesel Components Co., Ltd.. (3) On Jan.15, 2004, the Company signed Equity Transfer Agreement with Changzhou Roller Plant Co., Ltd. (hereinafter referred to as Roller Plant) and agreed to transfer 15% equity of Changzhou Vehicle Co., Ltd. (hereinafter referred to as Vehicle Company) to Roller Plant. Taking the assessment of the assets of Vehicle Company by agency, which has the Security Certification, as reference of the deal price, the final equity transfer price was settled to RMB 900,000. (III) In the report year, the Company had never kept as custodian, contracted or leased any other company’s assets and vice versa. (IV) Significant related transaction events (1) Changchai Group Import and Export Co., Ltd. was the subsidiary of Changchai Group Co., Ltd. which is the related company of the Company. In the report period, the Company sold it diesel products with total sum RMB 67,119,758.45 and the pricing rule of the transaction was market fair price. The method of the deal was money down and belonged to normal goods sales. Ended the report period, the accounts payable, which the Changchai Group Import and Export Co., Ltd. owned the Company was RMB 87,745,320.05, most of which were historic problems and the Company is trying to solve. (2) Changzhou Gear Plant is the underling company of Changchai Group Co., Ltd., which is the related company of the Company. In the report period, the said company was completed in restructure and was Page 18 divorced from the control of Changchai Group. In the report period, the Company purchased gears from it with total sum RMB 13,727,087.94. For details, please see Securities Times and Ta Kung Pao dated April 25, 2003. (V) In the report year, there was still RMB52 million’s guarantee unfinished which the Company provided to Changzhou Gear Plant (For details, refer to the Notice of the Resolutions of the 1st meeting of the 4th Board of Directors published on Securities Times and Ta Kung Pao dated Jun.7, 2003), and RMB 77 million’s guarantee unfinished which the Company provided to Changzhou Tractor Plant. Changzhou Tractor Plant has established detailed repayment plan, the guarantee term will up to Nov.30, 2006 and the counter- guarantee which the Changzhou Tractor Plant provided to the Company was RMB121,212,800. At present Changzhou Tractor Plant has finished its change of system and get out of the control of Changchai group, and the guarantee provided for this company was also provided counter-guarantee by the continuous enterprise. In the report year, the accumulative amount of the guarantee the Company provided for others is RMB 184.39 million, taking 23.29% of its net assets. In addition, the Company provided the subsidiaries guarantee of RMB24.8 million. These guarantees all happened in previous years, and authorized by Shareholders’ General Meeting 2002, the Board of Directors has the right to exam and to approve the extending guarantees in the scope of original guarantee amount. The above-mentioned guarantee items are subject to the approval of the Shareholders’ General Meeting. According to the relevant regulations of the Notice on Regulating the Current Capital between Listed Company and Related Parities and Several Problems on the External Guarantees Provided by Listed Companies, the guarantee of RMB13.6 million which the Company provided to Changzhou Weite Electric Machine Factory (the affiliated company of Changchai Group Co., Ltd.) belonged to guarantee against the regulation, taking 1.72% of the Company’s equity. Now the Company is carrying out the settlement method with the relevant department. Special explanations of CPA on the capital occupied by the Company’s holding Shareholders and other related parities: 1. Current of operating funds between the Company and its stockholding subsidiaries, holding shareholders and other related parties (1) Changzhou Municipal State Assets Administrative Bureau is the first largest shareholder of the Company. In the year 2003, there exists no current fund between Changzhou State Assets Administrative Bureau and the Company. (2) Changchai Wanzhou Diesel Engineer Co., Ltd. is the holding subsidiary of the Company. In 2003, the Company offered the accessories of diesel with worth of RMB160, 800, and paid RMB 114, 600 for the personnel dispatched in the subsidiary of the Company. Ended Dec. 31, 2003, the balance of item “accounts receivable- Changchai Wanzhou Diesel Engineer Co., Ltd.” in the book of the Company was RMB 55,035,965,30, which was the same with that in the book of Changchai Wanzhou Diesel Engineer Co., Ltd.. The accumulative annual debit amount was RMB 275,448.70, while the annual average balance was RMB 56,168,813,31. The annual purchase and sale and the current balance in the period-end between the Company and Changchai Wanzhou Diesel Engineer Co., Ltd. were offset in the process of consolidating the statements. (3) Changzhou Vehicle Co., Ltd. is the stockholding subsidiary of the Company. In 2003, the Company offered the accessories of diesel with worth of RMB 3.8665 million, and paid RMB 305,200 for the personnel dispatched in the subsidiary of the Company. Ended Dec. 31, 2003, the balance of item “accounts receivable- Changzhou Vehicle Co., Ltd.” in the book of the Company was RMB 7,305,635.02; the balance of item “other receivables- Changzhou Vehicle Co., Ltd.” was RMB Page 19 20,652,514.00, which were the same with those in the book of Changzhou Vehicle Co., Ltd.. The accumulative annual debit amount in item accounts receivable was RMB 4,171,716.52, while the annual average balance was RMB 8,429,441.76. The accumulative annual debit amount in item other receivables was RMB 13,800,000.00, the accumulative annual credit amount in item other receivables was RMB 13,800,000.00, while the annual average balance was RMB 20,652,514.00. The annual purchase and sale and current balance in the period-end between the Company and Changzhou Vehicle Co., Ltd. were offset in the process of consolidating the statements. (4) Changchai Group Import & Export Company is the related party of the Company. In 2003, the Company offered the diesel engine with worth of RMB 76,160,700. Ended Dec. 31, 2003, the balance of item “accounts receivable- Changchai Group Import & Export Company” in the book of the Company was RMB 75,645,320.05. The accumulative annual debit amount was RMB 76,160,734.79, while the annual average balance was RMB 81,660,873.24. (5) Changchai Group Co., Ltd. is the actual controlling company of Changchai Co., Ltd.. In 2003, Changchai Co., Ltd. disposed of vehicle paid a debt amounting to RMB 8,512,990.00 to Changchai Group Co., Ltd.. Ended Dec. 31, 2003, the balance of item “other receivable - Changchai Group Co., Ltd.” in the book of Changchai Co., Ltd. was RMB 83,232,120.39; the accumulative annual debit amount was RMB 24,841,990.00, while the annual average balance was RMB 70,811,125.39. (6) Changchai Industrial Corporation is the associated company of Changchai Co., Ltd.. In 2003, Changchai Co., Ltd. provided diesel engine and fittings with worth of RMB 688,700 for Changchai Industrial Corporation. Ended Dec. 31, 2003, the balance of item “other receivable – Changchai Industrial Corporation” in the book of Changchai Co., Ltd. was RMB 12,888,744.02; the accumulative annual debit amount was RMB 688,744.02, while the annual average balance was RMB 12,544,372.01. 2. Current of non-operating funds between Changchai Co., Ltd. and its stockholding subsidiaries, holding shareholders and other related parties (1) In 2003, Changchai Co., Ltd. provided the provisional loan of RMB 1,329,000.000 for Changchai Group Co., Ltd.. (2) On May 7, 2003, Changchai Co., Ltd. signed the Agreement on Transfer of Account with Changchai Group Jiangnan Transportation Mechanism Co., Ltd. and Changc hai Group Co., Ltd., which Changchai Group Co., Ltd. repaid the debt in arrears of RMB 15 million owed by Jiangnan Transportation Mechanism Co., Ltd. to Changchai Co., Ltd. before the end of 2004. (3) Except for the above cases, Changchai Co., Ltd. did not provided the commission loan for the related parties through finance institution such as the bank or others except for the bank, did not entrusted holding shareholders and other related parties to do investing activities, did not wrote trade acceptance draft without actual dealing for the holding shareholders and other related parties, and did not repaid the debt instead of the holding shareholders and other related parties. Special explanations and independent opinions of independent directors on the Company’s accumulative and current external guarantees: Most of the guarantee, which the Company provided for others, belonged to historic problems. The Company has adopted active measure to clean up step by step and to decrease risks. The guarantee provide to supply merchants all take the purchase account payable as the counter-guarantees and no risks on the whole. (VI) In the report period, the Company had not entrusted financing. (VII) The shareholder holding over 5% of the Company’s equity is Chouzhou State-owned Assets Administration. In the report period no promise events occurred which would produce significant effects Page 20 to the Company’s operation achievements and finance status. (VIII) The 21 st meeting of the 3rd Board of Directors examined and approved to engage Jiangsu Gongzheng Certified Public Accountants Co., Ltd. and Hong Kong Howath Certified Public Accountants as the domestic and overseas audit organizations of the Company in 2003. The public notice was published on Securities Times and Ta Kung Pao dated Apr. 25, 2003. The audit expense the Company paid to Jiangsu Gongzheng Certified Public Accountants Co., Ltd and Hong Kong Howath Certified Public Accountants for the year 2003 is RMB 800,000. The two audit organizations audited the annual financial report of the Company for sequential two years. (IX) In the report period, no such situations occurred on the Company, the Board of Directors and Directors such as been check by CSRC, administrative punished, publicly criticized and condemned by Shenzhen Stock Exchange. (X) Other significant events In the report period, the bankrupt clearing work of Jiangnan Transport Mechanics Co., Ltd. which the Company held shares was finished. The Company received notice from the bankrupt clear team of Jiangnan Company. The Company acquired the mortgage creditor’s right RMB6, 848,382.48 which are preferential repaid. The amount of repayment of other creditor’s right is RMB 3,559,837.49, totally up RMB10,408,219.97. X.Financial Report REPORT OF THE AUDITORS TO THE SHAREHOLDERS OF CHANGCHAI COMPANY LIMITED (Incorporated in the People’s Republic of China with limited liability) We have audited the financial statements on pages 3 to 31 which have been prepared in accordance with International Accounting Standards, other than as set out below. Respective responsibilities of Directors and Auditors The Company’s directors are responsible for the preparation of financial statements which give a true and fair view. In preparing financial statements which give a true and fair view, it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion, based on our audit, on those statements and to report our opinion to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. Basis of opinion We conducted our audit in accordance with International Standards on Auditing. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the Directors in the preparation of the financial statements and of whether the accounting policies are appropriate to the Group’s circumstances, consistently applied and adequately disclosed. We planned our audit in accordance with International Standards on Auditing so as to obtain all the information and explanations which was considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion. Page 21 Qualified opinion arising from disagreement over accounting treatment and limitation in audit scope As set out in more details in note 2 to the consolidated financial statements, two of the Group’s subsidiaries (the “Unconsolidated Subsidiaries”) ceased operations in 2002 and no reliable financial information of the Unconsolidated Subsidiaries is available. As of 31 December 2003, the Group accounted for its interest in the Unconsolidated Subsidiaries using the cost method of accounting. Provision for impairment loss has been made at 31 December 2003 to write down the Group’s interests in the Unconsolidated Subsidiaries to their expected net realisable value of Nil. In our opinion, the financial statements of the Unconsolidated Subsidiaries should have been consolidated into the Group’s consolidated financial statements in accordance with International Accounting Standard IAS 27 “Consolidated financial statements and accounting for investments in subsidiaries”. However, there were no practical audit procedures that we could perform to obtain reliable financial information of the Unconsolidated Subsidiaries and report on the amounts which should have been consolidated. Except for any adjustments that might have been found to be necessary had the above disagreement over accounting treatment not existed, in our opinion the financial statements give a true and fair view of the state of affairs of the Group as at 31 December 2003 and of its profit and cash flows for the year then ended. HORWATH HONG KONG CPA LIMITED 2001 Central Plaza Certified Public Accountants 18 Harbour Road Wanchai 30 March 2004 Hong Kong Chan Kam Wing, Clement Practising Certificate number P02038 Page 22 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003 (Amounts expressed in thousands of RMB, except earnings per share) 2003 2002 Note RMB’000 RMB’000 Turnover 4 1,542,780 1,655,562 Cost of sales (1,321,041) (1,472,787) Gross profit 221,739 182,775 Other operating income 25,147 28,257 Selling expenses (75,307) (114,642) General and administrative expenses (100,369) (571,273) Other operating expenses (14,452) (15,147) Profit/(loss) from operations 5 56,758 (490,030) Finance costs, net 6 (16,992) (35,085) Share of losses from associates (1,294) (3,018) Other investment income/(loss) 1,170 (2,853) Gain/(loss) on disposal of property, plant and equipment 290 (743) Impairment loss on property, plant and equipment reversed/(made) 1,241 (34,760) Gain on disposal of a subsidiary 6,732 23,472 Other expenses, net (8,028) (3,642) Profit/(loss) from ordinary activities 39,877 (546,659) Income tax expense 7 (395) (27) Net profit/(loss) after taxation 39,482 (546,686) Minority interests 3,150 31,350 Net profit/(loss) after taxation and minority interests 42,632 (515,336) Profit/(loss) per share – Basic 8 RMB0.11 RMB(1.38) The notes on pages 9 to 31 form part of these financial statements. 23 CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2003 (Amounts expressed in thousands of RMB) 2003 2002 Note RMB’000 RMB’000 Assets and liabilities Non-current assets Land use rights 9 61,113 78,874 Property, plant and equipment 9 504,539 574,157 Construction in progress 10 74,881 90,693 Investments in associates 11 9,751 66,695 Other long-term investments 12 116,876 101,887 767,160 912,306 Current assets Inventories 14 245,480 287,733 Value-added tax recoverable 13,556 31,922 Due from CGC 15 96,121 35,820 Due from associates and related parties 16 87,745 140,311 Trade and other receivables 349,895 436,373 Prepa yments 24,027 12,047 Short-term investment 13 - 130 Pledged bank deposits 36,804 10,793 Cash and cash equivalents 339,633 360,561 1,193,261 1,315,690 Total assets 1,960,421 2,227,996 The notes on pages 9 to 31 form part of these financial statements. 24 CONSOLIDATED BALANCE SHEET (CONTINUED) AS AT 31 DECEMBER 2003 (Amounts expressed in thousands of RMB) 2003 2002 Note RMB’000 RMB’000 Capital and reserves Share capital 18 374,250 374,250 Reserves 19 392,466 349,834 766,716 724,084 Minority interests 9,876 14,663 Non-current liabilities Borrowings – long term portion 17 37,500 60,000 Current liabilities Borrowings 17 433,675 591,370 Other payables, advances from customers and accruals 217,279 242,932 Tax payable 3,413 5,018 Dividends payable 3,040 3,040 Due to associates and related parties 16 12,082 26,151 Notes and trade payables 476,840 560,738 1,146,329 1,429,249 Total equity and liabilities 1,960,421 2,227,996 These financial statements were approved and authorised for issue by the board of directors on 30 March 2004. ………………………………………….. ………………………………………….. Zhang Jun Yuan Xue Guo Jun Chairman Director & General Manager The notes on pages 9 to 31 form part of these financial statements. 25 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2003 (Amounts expressed in thousands of RMB) Reserves Statutory Statutory Discretionary Retained surplus public surplus earnings/ Unrecognised Share Capital reserve welfare reserve (accumulated Total investment Total capital reserve fund fund fund losses) reserves losses equity RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Note 18) (Note 19(e)) (Note 19(b)) (Note 19(c)) (Note 19(b)) Balance at 31 December 2001 374,250 858,179 89,427 89,427 58,162 (222,161) 873,034 (7,864) 1,239,420 Net loss for the year - - - - - (515,336) (515,336) - (515,336) Profit appropriations - statutory surplus reserve fund - - 41 - - (41) - - - - statutory public welfare fund - - - 41 - (41) - - - Transfer from reserve - (163,997) (1) (1) (58,162) 222,161 - - - Realisation of unrecognised investment loss - - - - - (7,864) (7,864) 7,864 - Balance at 31 December 2002 374,250 694,182 89,467 89,467 - (523,282) 349,834 - 724,084 Net profit for the year - - - - - 42,632 42,632 - 42,632 Profit appropriations - statutory surplus reserve fund - - 4,015 - - (4,015) - - - - statutory public welfare fund - - - 4,015 - (4,015) - - - Transfer from Reserve (Note 19(e)) - (529,317) (396) (396) - 530,109 - - - Balance at 31 December 2003 374,250 164,865 93,086 93,086 - 41,429 392,466 - 766,716 The notes on pages 9 to 31 form part of these financial statements. 26 CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003 (Amounts expressed in thousands of RMB) Note 2003 2002 RMB’000 RMB’000 Operating activities Operating profit/(loss) before taxation 39,877 (546,659) Adjustments for: Share of results of associates 1,294 3,018 Interest income (1,452) (3,440) Interest expenses 26,181 44,414 Depreciation and amortisation 48,509 58,141 Gain on disposal of a subsidiary (6,732) (23,472) Loss on disposal of associates - 5,027 (Gain)/loss on disposal of property, plant and equipment (290) 10,212 Provision for bad and doubtful debts 5,795 411,942 (Release of)/provision for inventories (8,160) 13,240 Loss of subsidiaries not consolidated - 121 (Release of)/provision for impairment loss on property, plant and equipment and construction in progress (1,241) 34,375 Construction in progress written off - 2,766 Cash flows before changes in working capital 103,781 9,685 Decrease in inventories 30,101 57,449 (Increase)/decrease in due from CGC (60,301) 21,427 Net decrease /(increase) in trade and other receivables, amounts due from related parties, and prepayments 129,269 (37,909) Net (decrease)/ increase in amounts due to related parties, notes and trade payables, tax payable, advances from customers, other payables and accruals (25,494) 92,272 Cash generated from operations 177,356 142,924 Interest paid (26,181) (44,414) Income tax paid (1,213) (1,776) Net cash generated from operating activities 149,962 96,734 The notes on pages 9 to 31 form part of these financial statements. 27 CONSOLIDATED CASH FLOW STATEMENT (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2003 (Amounts expressed in thousands of RMB) Note 2003 2002 RMB’000 RMB’000 Investing activities Disposal of Jiangsu Changchai United Harvest Machinery Co., Ltd., net of cash disposed of - (41,568) Disposal of Changchai Jin Tan Diesel Engines Co., Ltd., net of cash disposed of 20 (719) - Acquisition of property, plant and equipment (6,072) (5,925) Expenditures for construction in progress (7,195) (26,449) Acquisition of other long term investments - (767) Increase in amounts due from associates - (12,273) (Increase)/decrease in pledged bank deposits (26,011) 3,156 Proceeds from disposal of investments in associates - 15,202 Proceeds from disposal of property, plant, equipment and land use rights 7,800 14,366 Proceeds from disposal of other long term investments - 111 Interest received 1,452 3,440 Cash outflow of subsidiaries not consolidated - (240) Net cash used in investing activities (30,745) (50,947) Financing activities Proceeds from bank loans 615,920 512,510 Repayment of bank loans (756,065) (505,890) Dividends paid - (1,770) Net cash (used in)/generated from financing activities (140,145) 4,850 Net (decrease)/increase in cash and cash equivalents (20,928) 50,637 Cash and cash equivalents, beginning of year 360,561 309,924 Cash and cash equivalents, end of year 339,633 360,561 The notes on pages 9 to 31 form part of these financial statements. 28 NOTES TO THE FINANCIAL STATEMENTS (Expressed in Renminbi thousands) 1. Organisation and principal activities Changchai Co., Ltd. (the “Company”) was established as a joint stock limited company in the People’s Republic of China (the “PRC”) in 1994. The address of the Company’s registered office is No.123 Huai De Zhong Rd., Changzhou, Jiangsu Province. The Company’s domestic investment ordinary shares (“A shares”) and domestically listed foreign investment ordinary shares (“B shares”) have been listed on the Shenzhen Stock Exchange since 1994 and 1996 respectively. The Company is principally engaged in the manufacture and sale of small and medium diesel engines under the “Changchai” brand name for use in agricultural machinery such as tricycles, tractors and water pumps, and agricultural product processing machinery such as rice mills, oil presses and pulverizing machinery. The principal activities of its subsidiaries are shown in Note 25. The Company together with its subsidiaries listed in Note 25 are hereinafter collectively referred to as the “Group”. 2. Summary of significant accounting policies The financial statements of the Group have been prepared in accordance with International Accounting Standards (“IAS”). The Group also prepares financial statements which comply with accounting regulations in the People ’s Republic of China. A reconciliation of the Group’s results and shareholders’ equity under IAS and PRC accounting regulations is presented in Note 27. The principal accounting policies adopted are as follows: (a) Basis of preparation The consolidated financial statements have been prepared based on the books and records maintained by the Company and its subsidiaries. Two of the Group’s subsidiaries, Chengdu Changwan Diesel Engines Co., Ltd. (“CCDE”) and Chongqing Wanchou Changwan Diesel Engines Spare Parts Co., Ltd. (“CWCD”), did not operate during the year and have no key management staff, accounting staff or reliable financial information of their results and financial position. As a result, certain account balances and transactions of CCDE and CWCD as reflected in their financial statements for the year ended 31 December 2003 cannot be satisfactorily substantiated or otherwise supported. The financial statements of CCDE and CWCD have not been consolidated into the Group’s consolidated financial statements. The Group’s interests in the subsidiaries were accounted for using cost method of accounting as at 31 December 2003. 29 (b) Consolidation The consolidated financial statements of the Group incorporate the financial statements of the Company and all other operating subsidiaries that are controlled by the Company. Where an entity either began or ceased to be controlled by the Company during the year, the results are included only from the date control commenced or up to the date control ceased. All material intra-group transactions and balances are eliminated on consolidation. (c) Subsidiary A subsidiary is a company, in which the Company has the power to govern the financial and operating policies of the subsidiary so as to obtain benefits from its activities. Details of the Company’s subsidiaries as of 31 December 2003 are set out in Note 25 to the financial statements. (d) Associated company An associate is a company, other than a subsidiary, in which the Company has a long term equity interest and over which the Company is in a position to exercise significant influence in management, including participation in financial and operating policy decisions. Associated companies are accounted for using the equity method of accounting. As at the balance sheet date, the Group’s interest in the associate is carried at the amount that reflects its share of the net assets of the associate. (e) Joint venture A jointly controlled entity is a contractual arrangement whereby the Group and other parties undertake an economic activity which is subject to joint control and none of the participating parties has unilateral control over the economic activity. The consolidated income statement and balance sheet include the Group’s share of the results of jointly controlled entities for the year, and their assets and liabilities, are accounted for using the proportionate consolidation method. (f) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net assets of the acquired subsidiary or associate at the date of acquisition. Goodwill on acquisition is reported in the balance sheet as an intangible asset and amortised using the straight-line method over a period of 5 years. The carrying amount of goodwill is reviewed annually and written down for permanent impairment where it is considered necessary. 30 The gain or loss on disposal of an entity includes the unamortised balance of goodwill relating to that entity. (g) Other investments Available-for-sale investments are investments intended to be held for an indefinite period of time, which may be sold in response to meet for liquidity for changes in interest rates, and are included in non-current assets unless management has the express intention of holding the investment for less than 12 months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in current assets. (g) Other investments (continued) Purchases and sales of investments are recognised on the trade date, which is the date that the Group commits to purchase or sell the asset. Cost of purchase includes transaction cots. Available -for-sale investments are subsequently carried at fair value. Realised and unrealised gains and losses arising from changes in the fair value are included in the consolidated income statement in the period in which they arise. For available -for-sale investments that have a quoted market prices in an active market, the fair value is based on quoted prices. For available -for-sale investments that do not have quoted market prices, the fair value is constructed on the basis of the market prices of the similar financial statements or derived from cash flow model. For available -for-sale investments that the fair value cannot be reliably determined, the investments are carried at cost less accumulated impairment losses. Realised and unrealised gains and losses arising from changes in the fair value of available -for-sale investments are included in the consolidated income statement in the period in which they arise. (h) Land use rights Land use rights are stated at cost less accumulated amortisation and any impairment losses. Amortisation is provided using the straight line basis over their estimated useful lives. (i) Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses. 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. Expenditure incurred after the property, plant and equipment have been put into operation, such as repairs and maintenance and overhaul costs, is normally charged to the consolidated income statement in the year 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 property, 31 plant and equipment, the expenditure is capitalised as additional cost of the property, plant and equipment. (i) Property, plant and equipment (continued) Depreciation is provided using the straight line method to write off the cost of property, plant and equipment, over their estimated useful lives from the date on which they become fully operational and after taking into account their estimated residual values. The estimated useful lives of property, plant and equipment are as follows: Buildings 20-30 years Plant and machinery 6-15 years Motor vehicles 5-10 years Furniture, fixtures and equipment 5-10 years When assets are sold or retired, their cost and accumulated depreciation are eliminated from the accounts and any gain or loss resulting from their disposal is included in the consolidated income statement. (j) Construction in progress Construction in progress comprises factory and office buildings, plant and machinery under construction or installation, including the related furniture, fixtures and office equipment, and is stated at cost less any impairment losses. Construction in progress is transferred to property, plant and equipment when it is ready for its intended use. No provision for depreciation is made on construction in progress. (k) Impairment of assets Assets 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 consolidated income statement for items of assets carried at cost. 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 arm’s length transaction 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. (l) Inventories 32 Inventories comprise raw materials, work-in-progress and finished goods. Inventories are stated at the lower of cost and net realisable value. Cost includes direct materials, direct labour costs and overheads that have been incurred in bringing the inventories and work in progress to their present location and condition and is calculated using the weighted average method. Net realisable value is estimated by the management and is determined by reference to the selling price less all costs to completion and costs to be incurred in selling and distribution. Spare parts and consumables are stated at cost less any provision for obsolescence. (m) Receivables Trade receivables are carried at anticipated realisable value. An estimate is made for doubtful receivables based on a review of all outstanding amounts at the year-end. Bad debts are written off during the year in which they are identified. (n) Short term investments Short term investments are stated at market value at balance sheet date. Unrealised gains and losses are included in net profit or loss for the year. (o) Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise cash in hand, deposits held at call with banks, and investments in money market instruments, net of bank overdrafts. In the consolidated balance sheet, bank overdrafts are included in borrowings in current liabilities. (p) Pension obligations As a statutory requirement, the Company and its subsidiaries have to contribute 21% of total salaries as retirement benefits for employees to a government agency. All contributions are dealt with in the income statement. 33 (q) Provisions A provision is recognised when, and only when an enterprise has a present obligation (legal or constructive) as a result of a past event and it is probable (i.e. more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditure expected to be required to settle the obligation. (r) Foreign currencies The Group’s maintains its books and records in RMB. Foreign currency transactions during the year are translated into RMB at the rates of exchange prevailing at the transaction dates as quoted by the People’s Bank of China (“PBOC”). Monetary assets and liabilities denominated in foreign currencies are translated into RMB at the rates prevailing at the balance sheet date as quoted by the PBOC. Exchange differences arising are included in consolidated income statement. (s) Related party Parties are considered to be related if one party has the ability, directly or indirectly, to control the other or exercise signific ant influence over the other party in making financial and operating decision. Related parties include the holding company, fellow subsidiaries, associates and joint ventures of the Company, or any persons or its close family members who are in a position to exercise significant influence over that related party. (t) Financial assets and liabilities Investments, trade receivables and marketable securities are stated at carrying amounts determined in accordance with Notes 2(g), (m) and (n) respectively. Other financial assets and financial liabilities are stated at cost. (u) Revenue recognition i) Sales are recognised upon delivery of products and customer acceptance. ii) Service income is recognised upon deliver of services. iii) Interest income is recognised on a time proportional basis, taking into 34 account the principal amounts outstanding and the interest rates applicable. (v) Deferred taxation Deferred taxation is provided under the liability method in respect of significant temporary differences between the tax base of an asset or liability and its carrying amount in the balance sheet. The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes. Deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which the deductible temporary difference can be utilised. (w) Borrowing costs Borrowing costs that are directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to be ready for their intended use or sale are capitalised as part of the assets. All other borrowing costs are recognised as an expense in the period in which they are incurred. (x) Contingencies Contingent liabilities are not recognised in the consolidated financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognised in the consolidated financial statements but disclosed when an inflow of economic benefits is probable. 3. Segment information (a) Primary reporting format - business segments The Group is principally engaged in the production and sale of small and medium diesel engines and related products and operates in the PRC. (b) Secondary reporting format - geographical segments In 2003, over 90% of sales of the Group is generated from sales in the PRC. 4. Turnover 35 Turnover represents the gross value of goods and services invoiced to customers, net of value-added tax, additional tax and allowances for discounts and returns. 5. Profit/(loss) from operations 2003 2002 RMB’000 RMB’000 Profit/(loss) from operations is stated after charging/(crediting): Depreciation of property, plant and equipment and amortisation 47,113 56,143 Amortisation of land use rights 1,396 1,998 Provision for doubtful debts 5,795 411,942 Provision for inventories (reversed)/made (8,160) 13,240 Research and development expenses 1,701 1,621 Staff costs - Salaries and welfare 84,151 115,815 - Contributions to statutory pension scheme 15,219 17,062 6. Finance costs 2003 2002 RMB’000 RMB’000 Interest expenses on bank loans 26,181 44,414 Interest income from bank deposits (1,452) (3,440) Cash discounts on payables (9,009) (7,178) Others 1,272 1,286 16,992 35,082 Net exchange loss - 3 16,992 35,085 7. Taxation (a) Taxation in the consolidated income statement represents: 2003 2002 RMB’000 RMB’000 Current year taxation 395 27 The Company is subject to an EIT rate of 33% on taxable income determined according to the PRC tax laws. As certified by Jiangsu Science and Technology Commission, the Company has been granted a New and High Technology Enterprise. 36 With the approval from local tax authorities, some of the Company’s subsidiaries enjoy preferential EIT rates ranging from 0% to 15% on their taxable income. According to Circular Guofa [2000] No.2 issued on 11 January 2000, effective from 1 January 2002, the above tax benefits and financial refund would require approval from the State Council. There was no assurance that the above preferential tax treatment would be still available to the Company and its subsidiaries in the future. (b) Deferred taxation No provision for deferred taxation has been made in the financial statements as the directors are of opinion that the recognition of deferred tax assets arising on the temporary differences are uncertain. 8. Profit/(loss) per share Profit/(loss) per share is calculated based on the profit attributable to shareholders for the year of approximately RMB42,632,000 (2002 : loss of RMB515,336,000) by the number of shares in issue during the year of 374,250,000 shares (2002 : 374,250,000 shares). 37 9. Land use rights, property, plant and equipment Furniture, fixtures Land use Plant and Motor and rights Buildings machinery vehicles equipment Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Cost: At 1 January 2003 91,345 497,814 401,608 31,244 48,120 1,070,131 Additions 100 436 4,439 953 144 6,072 Transfer from construction in progress - 524 18,072 670 457 19,723 Disposals - (1,525) (5,361) (3,802) (1,112) (11,800) Disposal of a subsidiary (18,076) (31,571) (35,681) - (103) (85,431) At 31 December 2003 73,369 465,678 383,077 29,065 47,506 998,695 Accumulated depreciation: At 1 January 2003 12,471 95,917 223,213 21,895 19,692 373,188 Charge for the year 1,396 12,317 27,089 3,054 4,653 48,509 Written back on - Disposals - (1,342) (2,844) (2,456) (795) (7,437) Disposal of a subsidiary (1,611) (4,068) (18,120) - (89) (23,888) At 31 December 2003 12,256 102,824 229,338 22,493 23,461 390,372 Impairment loss: At 1 January 2003 - 29,270 14,642 - - 43,912 Written back on disposals - - (1,241) - - (1,241) At 31 December 2003 - 29,270 13,401 - - 42,671 Net book value: At 31 December 2003 61,113 333,584 140,338 6,572 24,045 565,652 At 31 December 2002 78,874 372,627 163,75 3 9,349 28,428 653,031 As of December 31, 2003, the Group’s property, plant and equipment with an aggregate net book value of approximately RMB168,177,000 (2002: approximately RMB60,806,000) had been pledged as collateral for certain bank loans (see Note 17). 38 10. Construction in progress 2003 2002 RMB’000 RMB’000 Cost: At beginning of the year 106,693 129,029 Additions 7,195 26,449 Disposal of subsidiaries (137) (4,373) Other disposals (3,147) (17,773) Transfer to property, plant and equipment (19,723) (26,639) At end of the year 90,881 106,693 Provision for impairment loss: At beginning of the year 16,000 16,000 Additions - - At end of the year 16,000 16,000 Net book value 74,881 90,693 11. Investments in associates 2003 2002 RMB’000 RMB’000 Share of net assets of associates 9,760 11,053 Amounts due (to)/from associates (9) 55,642 9,751 66,695 The Group’s major associates were incorporated and are operating in the PRC, as follows: Percentage holding 2003 2002 Name of associates % % Nature of business Direct holding: Changzhou Fuji Changchai 33 33 Manufacture and sale of Robin Gasoline Engine Co., gasoline engines and relevant Ltd. components Beijing Tsinghua Xing Ye 25 25 Project investment, business Investment Management Co., administration consultng and Ltd. investment consulting 39 Shenzhen Gamma Web System 34 34 Provision of internet service, Co., Ltd. (“Shenzhen Gamma”) development and sale of computer software and hardware Changchai Group Jiangnan - 34.9 Manufacture and sale of Vehicle Co., Ltd. (“Jiangnan vehicles and agricultural Vehicle”) machinery The names of the above associates were directly translated from Chinese and may not represent their legal names. 12. Other investments 2003 2002 RMB’000 RMB’000 Unlisted investments, at cost 117,676 102,687 Less : Provision (800) (800) 116,876 101,887 13. Short term investments 2003 2002 RMB’000 RMB’000 Unlisted investment, at cost - 140,130 Less : Provision - (140,000) - 130 14. Inventories 2003 2002 RMB’000 RMB’000 Raw materials 177,195 187,064 Work in progress 43,207 52,592 Finished goods 64,274 98,497 284,676 338,153 Less : Provision for inventory obsolescence (39,196) (50,420) 245,480 287,733 15. Due from CGC 40 As of 31 December 2003, 40.92% (2002: 40.92%) of the Company’s share capital (the “State-owned shares”) was registered in the name of Changzhou State Assets Bureau (“CSAB”). Pursuant to documents issued by Changzhou Municipal Government and CSAB, Changchai Group Company Limited (“CGC”) is entitled to dividends derived from the state-owned shares. The Company’s management is of the view that CGC is able to exercise control over the Company. Included in balance due from CGC is a loan of RMB2,660,722 (2002 : RMB5,390,000) to CGC which bears interest at rate of 6.72% (2002 : 6.72%) per annum. The remaining balance is unsecured, interest free and had no fixed repayments terms. 41 16. Amounts due from/(to) associates and related parties The balances are unsecured, interest-free and have no fixed terms of repayment. 17. Borrowings 2003 2002 RMB’000 RMB’000 The bank loans are repayable as follows: Within one year 433,675 591,370 In the second year - 60,000 In the third to fifth years inclusive 37,500 - 471,175 651,370 Less : amount due within one year shown under current liabilities (433,675) (591,370) Amount due for settlement after one year 37,500 60,000 Secured 168,700 54,885 Unsecured 302,475 596,485 471,175 651,370 At 31 December 2003, the Group has pledged certain of its property, plant and equipment with a carrying amount of approximately RMB168,177,000 (2002: approximately RMB60,806,000) to secure bank loans granted to the Group. Interest rates for bank loans are charged in the range of 5.040% - 7.722% per annum (2002: 5.040% - 7.722% per annum). 18. Share capital 2003 2002 RMB’000 RMB’000 Registered, issued and fully paid shares of RMB 1 each State-owned shares 153,160 153,160 Legal person shares 10,064 10,064 A shares – PRC investors 111,026 111,026 274,250 274,250 B shares 100,000 100,000 42 374,250 374,250 The B Shares rank pari passu in all respects with the A Shares. 19. Reserves (a) Pursuant to the relevant PRC regulations and the Articles of Association of the Company, profit after taxation shall be appropriated in the following sequence: (i) make up accumulated losses. (ii)transfer 10% of the profit after tax to the statutory surplus reserve. When the balance of the statutory surplus reserve reaches 50% of the paid up share capital, such transfer needs not be made. (iii) transfer 5% to 10% of the profit after tax to the statutory public welfare fund. (iv) transfer such amount to the discretionary surplus reserve as approved by the shareholders in general meetings. (v) distribute dividends to shareholders. The amounts of transfer to the statutory surplus reserve and statutory public welfare fund shall be based on profit after tax in the statutory accounts prepared in accordance with PRC accounting standards and regulations. (b) Statutory surplus reserve and discretionary surplus reserve According to the relevant PRC regulations, statutory surplus reserve and discretionary surplus reserve can be used to make up losses or to increase share capital. Except for the reduction of losses incurred, other usage should not result in the statutory surplus reserve falling below 25% of the registered capital. (c) Statutory public welfare fund According to the relevant PRC regulations, statutory public welfare fund is restricted to capital expenditure for employees’ collective welfare facilities. Staff welfare facilities are owned by the Group. The statutory public welfare fund is not normally available for distribution to shareholders except in liquidation. (d) Profit distribution 43 Pursuant to the relevant PRC regulations and the Articles of Association of the Company, profit distributable to shareholders shall be the lower of the amount determined in accordance with the PRC accounting standards as stated in the statutory financial statements and that adjusted in accordance with IAS. In the PRC statutory financial statements as at 31 December 2003, retained profits carried forward amounted to RMB97,094,000 (2002 : accumulated losses of RMB477,557,000). (e) According to the Board of Directors’ resolution passed on April 8, 2003, capital reserve of RMB529,317,000 was utilised to offset accumulated losses. 20. Disposal of a subsidiary In October 2003, the Group disposed of its subsidiary Changchai Jin Tan Diesel Engines Co., Ltd. for a consideration of RMB1,000,000. The net assets of the subsidiary at the date of disposal were as follows: RMB’000 Property, plant and equipment 61,543 Construction in progress 137 Long-term investment 970 Inventories 20,312 Trade and other receivables 44,434 Prepayments 5,724 Short-term investment 30 Cash and cash equivalents 1,719 Tax payable Borrowings (40,050) Notes and trade payables (66,235) Other payables, advances from customers and accruals (31,136) Minority interest (1,637) (5,732) Gain on disposal 6,732 Total consideration 1,000 Satisfied by: Cash 1,000 Net cash outflow arising on disposal: Cash consideration 1,000 Bank balances and cash disposed of (1,719) 44 (719) 21. Related party transactions During the year, the Group entered into the following transactions with related parties which are not members of the Group: 2003 2002 RMB’000 RMB’000 Sale of goods to related companies controlled by CGC 67,120 90,441 Purchase of goods from related companies controlled by CGC 361 43,102 22. Capital commitments As at 31 December 2003, the Group had commitments to purchase property, plant and equipment as follows: 2003 2002 RMB’000 RMB’000 Contracted but not provided for 1,400 8,342 23. Contingent liabilities As at 31 December 2003, the Group had outstanding guarantees in favour of banks for bank loans made to the following parties: 2003 2002 RMB’000 RMB’000 Related companies 17,560 181,560 Third parties 166,830 43,200 184,390 224,760 24. Pension schemes The Group participates in a defined contribution retirement scheme (the “Scheme”) arranged by the Shanghai Municipal Government. The Group is obligated to make an annual contribution based on 21% (2002: 21%) of the aggregate payroll. Total contributions made by the Group under the Scheme during the year amounted to 45 RMB15,219,000 (2002 : RMB17,062,000). 25. Principal subsidiaries At 31 December 2003, the Company held shares in the following subsidiaries, all of which are unlisted and incorporated in the PRC:- Percentage holding 2003 2002 Name of subsidiaries % % Nature of business Changchai Wanxian Diesel 60 60 Manufacture and sale of diesel Engines Co., Ltd. engines Changchai Yinchuan Diesel 60 60 Manufacture and sale of diesel Engines Co., Ltd. engines Changzhou Changchai Benniu 75 75 Manufacture and sale of spare Diesel Engines Spare Parts Co., parts for diesel engines Ltd. Changchai Jin Tan Diesel - 71.28 Manufacture and sale of diesel Engines Co., Ltd engines Changzhou Vehicle Co., Ltd. 50 50 Manufacture and sale of agricultural vehicles and spare parts Chengdu Changwan Diesel 51 51 Sale of diesel engines Engines Co., Ltd. * 25. Principal subsidiaries (continued) Percentage holding 2003 2002 Name of subsidiaries % % Nature of business Chongqing Wanchou Changwan 96.67 96.67 Sales of diesel engines spare Diesel Engines Spare Parts Co., parts Ltd. * * The financial statements of these subsidiaries were excluded from the consolidated financial statements on the grounds that they ceased operations during the year and no reliable financial information available. The investments in these subsidiaries under cost accounting are included in other investments. 46 The names of the above companies were directly translated from Chinese and may not represent their legal names. 26. Financial assets and liabilities (a) Interest rate risk The interest rates of unsecured bank loans are shown in Note 17 to the financial statements. Other financial assets and liabilities do not have material interest rate risk. (b) Credit risk Trade receivables of the Group are spread among a number of customers in the PRC. Other than that, financial assets of the Group do not represent a concentration of risk. The carrying amount of financial assets best represents their maximum credit risk exposure at the balance sheet date. (c) Fair value The fair value of cash and bank balances, trade receivables, other receivables, amounts due from/to associated/related companies, trade payables and other payables are not materially different from their carrying amounts. Fair value of financial assets or financial liabilities have been determined by generally acceptable accounting principles and are subject to assumptions. Changes in valuation methods and assumptions may significantly affect the estimates. 27. Impact of IAS adjustments on profit after taxation and minority interests and shareholders’ equity The statutory accounts of the Group are prepared in accordance with PRC accounting regulations applicable to joint stock limited companies. These accounting principles differ in certain significant respects from IAS. The effects of these differences on the profit after taxation and minority interests for the year ended 31 December 2003 and shareholders’ funds at that date are summarised as follows: Profit after taxation and minority Shareholders’ 47 interests equity RMB’000 RMB’000 As determined pursuant to PRC accounting regulations 54,347 784,585 Net gain on disposal of a subsidiary 5,732 10,000 Consolidation of unrecognised losses of subsidiaries (8,872) - Income treated as change in capital reserve in PRC accounts 167 - Excess loss shared by minority not recognised (6,965) (27,866) Others (1,777) (3) As determined pursuant to IAS 42,632 766,716 28. Language The English text of the financial statements is a translated version for the convenience of English readers and for reference only. The Chinese text of the financial statements will prevail over the English text. XI. Documents Available for Reference The following documents are included: 1. Text of Annual Report 2003 carried with sign manual of Chairman of the Board 2. Accounting statements carried with the signatures and seals of the Company’s principal, principal in charge of accounting and accounting institutions. 3. Text of Auditors’ Report carried with seal of certified public accountants and signature and seal of CPA 4. All originals and original manuscripts of the Company’s documents and notices ever disclosed in Securities Times and Ta Kung Pao designated by CSRC in the report period 5. The Articles of Association of the Company The said documents available for reference are completely prepared in Secretariat of the Board of Directors of the Company. The Annual Report is prepared both in Chinese and English. In the event of any interpretations between these two versions, the Chinese one will prevail. Board of Directors of Changchai Company, Limited Mar. 18, 2004 48