招商地产(000024)招商局2003年年度报告摘要（英文版）

CHINA MERCHANTS SHEKOU HOLDINGS CO., LTD. 2003 ANNUAL REPORT SUMMARY §1. Important Notes 1.1 The Board of Directors of China Merchants Shekou Holdings Co., Ltd. (hereinafter referred to as the Company) and its directors individually and collectively accepts responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions nor errors which would render any statement misleading. The 2003 annual report summary is abstracted from the full text of annual report; the investors are suggested to read the full text of annual report to understand more details. This report has been prepared in Chinese version and English version respectively. In the event of difference in interpretation between the two versions, the Chinese report shall prevail. 1.2 No directors stated that they couldn’t ensure the correctness, accuracy and completeness of the contents of the Annual Report or have objection for this report. 1.3 All directors attended the Board meeting. 1.4 Deloitte Touche Tohmatsu Certified Public Accountants issued standard unqualified Auditor’s Report for the Company. 1.5 Legal representative of the Company Mr. Sun Chengming, chief financial supervisor of the Company Mr. Huang Peikun and manager of financing dept. Mr. Li Yingxin hereby confirm that the Financial Report of the Annual Report is true and complete. §2. Company Profile 2.1 Basic information Short form of the stock China Merchants-A, China Merchants-B Stock code 000024, 200024 Listed stock exchange Shenzhen Stock Exchange Registered address and office address 9/F, New Times Plaza, Shekou Industrial Zone, Nanshan District, Shenzhen Post code 518067 E-mail of the Company investor@cmre.com.cn 2.2 Contact person and method Secretary of the Board of Directors Chen Yu Authorized representative in charge of Liu Ning securities affairs Contact address 9/F, New Times Plaza, Shekou Industrial Zone, Nanshan District, Shenzhen Telephone (86)755-26819600 Fax (86)755-26819680 E-mail investor@cmre.com.cn §3. Summary of Accounting Data and Financial Indexes 3.1 Major accounting data (Unit: RMB) Increase/decrease 2003 2002 from the previous 2001 year（％） Income from main operations 4,838,834,917 3,854,153,934 25.55% 3,320,820,664 Total profit 455,199,188 335,760,027 35.57% 291,435,832 Net profit 330,477,566 241,815,815 36.66% 174,961,781 Net profit after deducting 349,825,263 257,484,344 35.86% 189,537,364 non-recurring gains and losses At the end of At the end of Increase/decrease At the end of -1- 2003 2002 from the end of 2001 previous year（％） Total assets 5,923,647,954 5,239,818,120 13.05% 4,692,619,143 Shareholder’s equity (excluding 3,118,874,132 2,501,538,493 24.68% 2,302,681,555 minority interests) Net cash flows arising from -202,355,920 826,123,694 -124.49% 27,055,362 operating activities 3.2 Major financial indexes (Unit: RMB) Increase/decrease 2003 2002 from the previous year 2001 （％） Earning per share (diluted) 0.64 0.51 26.18% 0.37 Earning per share (weighted) 0.69 0.51 35.29％ 0.37 Return on equity (diluted) 10.60% 9.67% 9.62% 7.60% Return on equity (weighted) 12.42％ 10.09％ 23.09％ 7.79％ Return on equity as calculated based on net profit after deducting non-recurring gains 11.22% 10.29% 9.04% 8.23% and losses (diluted) Return on equity as calculated based on net profit after deducting non-recurring gains and losses 13.15％ 10.74％ 22.44％ 8.44％ (weighted) Net cash flows per share arising from -0.39 1.73 -122.61% 0.06 operating activities Increase or decrease At the end At the end from the end of At the end of 2003 of 2002 of 2001 previous year（％） Net assets per share 6.05 5.25 15.18% 4.83 Net assets per share after adjustment 5.99 5.18 15.56% 4.77 3.3 Difference of net profit as audited by Chinese Accounting Standard (CAS) and International Accounting Standard (IAS) √Applicable □Inapplicable Unit: In RMB’0000 CAS IAS Net profit 33,047.76 32,537.40 The main reason for the difference between the results under CAS and IAS is because the different accounting policies were adopted in the treatment of assets Explanation on the difference replacement over the past years, occurring and amortization of balance of equity investment, confirmation of subsidy income and income tax. §4. Changes in Share Capital and Particulars about Shareholders 4.1 Statement of change in shares (Unit: share) Before the Increase / decrease in this After the change time (+, -) change Allotment of Subtotal Shares I. Unlisted shares 1. Sponsors’ shares 209,209,000 0 0 209,209,000 Including: State-owned shares 0 0 Domestic legal person’s share 156,906,750 0 156,906,750 Foreign legal person’s share 52,302,250 0 52,302,250 Others 0 0 2. Raised legal person’s shares 0 0 3. Inner employees’ shares 0 0 4. Preference shares or others 0 0 Total unlisted shares 209,209,000 0 0 209,209,000 II. Listed shares -2- 1. RMB ordinary shares 130,965,200 39,289,560 39,289,560 170,254,760 2. Domestically listed foreign shares 136,221,800 0 136,221,800 3. Overseas listed foreign shares 0 0 4. Others 0 0 Total listed shares 267,187,000 39,289,560 39,289,560 306,476,560 III. Total shares 476,396,000 39,289,560 39,289,560 515,685,560 4.2 Statement of shares held by the top ten shareholders and the top ten shareholders of circulating share Total number of shareholders at the end of report period 74,580 Particulars about shares held by the top ten shareholders Increase / Number Nature of decrease in Holding of share shareholders Proportion Type of shares the report shares at the pledged (State-owned Name of Shareholder (Full name) in total (Circulating/No year year-end or frozen shareholder shares (%) n-circulating) (share) (share) or Foreign shareholder) China Merchants Shekou Industrial 0 156,906,750 30.43 State-owned Zone Co., Ltd. Non-circulating 0 shareholder Hong Kong Panorama Investment 0 52,302,250 10.14 Non-circulating 0 Foreign shar Ltd. eholder Foxtrol International Ltd. 0 15,400,000 2.99 Circulating 0 Foreign shar eholder Orienture Investment Ltd. 0 14,779,525 2.87 Circulating 0 Foreign shar eholder Boshi Value Increase Securities 6,483,448 6,483,448 1.26 Circulating Unknown Investment Fund Yangbang International Co., Ltd. 0 6,256,168 1.21 Circulating Unknown An Xin Securities Investment Fund 3,038,411 4,820,000 0.93 Circulating Unknown An Shun Securities Investment 588,216 4,500,000 0.87 Unknown Fund Circulating CBNY S/A PNC/Skandia Select 1,397,210 3,895,474 0.76 Unknown Fund/China Equity AC Circulating An Rui Securities Investment Fund 2,174,200 3,400,000 0.66 Circulating Unknown Explanation on associated 1. During the report period, CMSIZ became the parent company of Hong Kong relationship among the top ten Panorama Investment Ltd., Foxtrol International Ltd. and Orienture Investment shareholders or consistent Ltd.. Yangbang International Co., Ltd. became the wholly-owned subsidiary action company of Hong Kong China Merchants Holding (International) Co., Ltd.. CMSIZ became the wholly-owned subsidiary company of China Merchants Group Co., Ltd.; china Merchants Group Co., Ltd. became the holding shareholder of Hong Kong China Merchants Holdings (International) Co., Ltd.. 2. An Xin Securities Investment Fund, An Shun Securities Investment Fund and An Rui Securities Investment Fund were managed by Hua An Fund Management Co., Ltd.. 3. The Company was unknown whether there exists associated relationship or consistent action among the other shareholders. Particulars about shares held by the top ten shareholders of circulating share Full name of Shareholders Holding circulating share at the Type (A-share, B-share, H-share year-end (share) or others) Foxtrol International Ltd. 15,400,000 B Orienture Investment Ltd. 14,779,525 B Boshi Value Increase Securities Investment Fund 6,483,448 A Yangbang International Co., Ltd. 6,256,168 B An Xin Securities Investment Fund 4,820,000 A An Shun Securities Investment Fund 4,500,000 A CBNY S/A PNC/Skandia Select Fund/China 3,895,474 B Equity AC An Rui Securities Investment Fund 3,400,000 A Deutsche Bank AG London 3,241,712 B Hai Tong Securities Co., Ltd. 3,179,939 A -3- 4.3 Particulars about holding shareholders and actual controller of the Company 4.3.1 Particulars about change in holding shareholders and actual controller of the Company □Applicable √Inapplicable 4.3.2 Introduction of especial situation for holding shareholder and other actual controller 1. The holding shareholder: CMSIZ Legal representative: Fu Yuning Registration Date: April 1, 1992 Registered capital: RMB 2,236,000,000 Business scope: establishment and management of communication and transportation, industrial manufacturing, finance and insurance, foreign trade, real estate, post and telecommunications, tourism, restaurant, etc.; organization and management of the affiliated enterprises, associated enterprises, foreign-funded enterprises and enterprises in which the Company holds equity interest; dock and warehousing business; overall contracting of water/land construction projects and the related offshore petroleum development projects, and their construction organization and logistics services; product sale of the affiliated enterprises and supply and sale of the required equipment, raw materials and components and parts (where there are state regulations for special operation of special items, handle according to regulations); holding commodity exhibitions, sports games, theatrical performances and cable TV business etc.; and providing technical, operation and legal consultation related to the above business, as well as technology and information services. Actual controller: China Merchants Group Co., Ltd. Legal representative: Qin Xiao Date of foundation: Oct. 1986 Registered capital: RMB 800,000,000 Business scope: lease and agency of water/land passenger-cargo transportation, water/land conveyance and facilities; dock and warehousing business; salvage, refloatation and tugboat; construction, repairing, checking and marketing of shipping, offshore petroleum drilling equipment; repairing and checking of drilling platform and container; overall contracting of water/land construction projects and the related offshore petroleum development projects, and their construction organization and logistics services; procurement, supply and sale of water/land communication and transportation equipment; establishment of transportation and industry and commerce; organization and management of finance, insurance and the other relevant business; development, management of Shekou Industrial Zone. §5. Particulars About Director, Supervisor, Senior Executive 5.1 Particulars about changes in shares held by directors, supervisors and senior executives Holding Holding shares at the shares at the Reason of Name Title Gender Age Office term year-begin year-end change (share) (share) Sun Chengming Chairman of the Board Jun. 28, 2002 – 0 0 Male 45 Jun. 27, 2005 Fan Jianxiong Vice Chairman of the Jun. 28, 2002 – 0 0 Male 48 Board Jun. 27, 2005 Lin Shaobin Director, Jun. 28, 2002 – 0 13,000 To buy shares General Manager Male 44 Jun. 27, 2005 and share allotment Hong Xiaoyuan Director Jun. 28, 2002 – 0 0 Male 41 Jun. 27, 2005 Li Yasheng Director Jun. 28, 2002 – 0 0 Male 51 Jun. 27, 2005 Chen Gang Director Jun. 28, 2002 – 0 0 Male 46 Jun. 27, 2005 Liu Hongyu Independent director Jun. 28, 2002 – 0 0 Male 42 Jun. 27, 2005 Shi Xinping Independent director Jun. 28, 2002 – 0 0 Male 45 Jun. 27, 2005 Li Tiancai Independent director Jun. 28, 2002 – 0 0 Male 55 Jun. 27, 2005 -4- Zhou Yali Chairman of the Jun. 28, 2002 – 0 0 Male 49 Supervisory Committee Jun. 27, 2005 Feng Baihai Supervisor Jun. 28, 2002 – 0 0 Male 48 Jun. 27, 2005 Wen Chongping Supervisor Jun. 28, 2002 – 0 0 Male 53 Jun. 27, 2005 Hao Yu Employee Supervisor Jun. 28, 2002 – 0 0 Male 35 Jun. 27, 2005 Zhang Linmei Employee Supervisor Jun. 28, 2002 – 0 0 Female 28 Jun. 27, 2005 Yang Baiqian Deputy General Manger Jun. 28, 2002 – 0 0 Male 38 Jun. 27, 2005 Huang Peikun Chief Financial Jun. 28, 2002 – 0 0 Male 41 Supervisor Jun. 27, 2005 Chen Yu Secretary of the Board of Jun. 28, 2002 – 0 0 Male 32 Directors Jun. 27, 2005 Li Shuming General Manager of Jun. 28, 2002 – 10,388 10,388 Male 40 CMPS Jun. 27, 2005 Zhu Guohui General Manager of Jun. 28, 2002 – 0 0 Male 55 CMWS Jun. 27, 2005 5.2 Particulars about directors, supervisors holding the post in Shareholding Company √Applicable □Inapplicable Drawing the payment Name of shareholding Title in shareholding Name Office term or allowance Company Company (Yes / No) To take the post Sun Chengming CMSIZ General Manger No from May 2002 China Merchants Holdings To take the post No Fang Jianxiong Deputy General Manager (International) Co., Ltd. from May 2001 To take the post No Hong Xiaoyuan CMSIZ Deputy General Manager from May 2001 China Merchants Logistics To take the post No Li Yasheng General Manger Group Co., Ltd. from May 2001 To take the post No Chen Gang CMSIZ Vice Chief Economist from Jun. 1994 Secretary of Party No To take the post Zhou Yali CMSIZ Committee, the 1st Deputy from May 2002 General Manager To take the post No Feng Baihai Financing Dept. of CMSIZ General Manger from Sep. 2000 To take the post No Wen Chongping Auditing Dept. of CMSIZ General Manger from Sep. 1997 To take the post No Sun Chengming CMSIZ General Manger from May 2002 China Merchants Holdings To take the post No Fang Jianxiong Deputy General Manager (International) Co., Ltd. from May 2001 5.3 Particulars about the annual payment of directors, supervisors and senior executives Total annual payment RMB 2,188,300 Total annual payment of the top three senior executives RMB 1,096,000 drawing the highest payment Allowance of independent director RMB 30,000.00 per person/ year Other treatment of Independent Directors The Company paid training fee, traffic fee, and accommodation fee occurred when they attended regulated training, the board meeting and shareholders’ general meeting Name of directors and supervisors received no payment Sun Chengming, Fan Jianxiong, Hong Xiaoyuan, Li Yasheng, or allowance from the Company Chen Gang, Zhou Yali, Wen Chongpin and Feng Baihai Payment Number of persons RMB 100,000 ～ RMB 200,000 1 RMB 200,000 ～ RMB 300,000 3 Over RMB 300,000 4 §6. Report of the Board of Directors 6.1 Discussion and analysis to the whole operation in the report period In 2003, the Company is mainly engaged in development and operation of real estate, -5- power and water supply in the Zone and petrochemical distribution. In the report period, the Company was active and aggressive and advanced with the times. After experiencing various testing such as intensified competition in the market, influence of SARS, adjustment of bank credit policies in real estate and decrease of price in electric power etc., the Company has further gained rapid development based on what has gained in the last year. Within the year, the Company’s income from main operations and profit from main operations was RMB 4,838,834,917 and RMB 613,432,610 respectively, an increase of 25.55% and 19.02% respectively than that in the last year. The Company’s diluted earnings per share after shares allotment was RMB 0.641, an increase of 26.18% than that in the last year. In the report period, the Company’s development strategy was “Continuing to improve the business structure of both having growth and stability, attracting and encouraging excellent talents, continuously increasing reserve of superior lands, gaining abundant capital support through multi-channels, gradually expanding to national scope and making the main operations with development of real estate as the core strong and large step by step”. According to the said development strategy, the Company decided to peel off the business of petrochemical distribution and centralize the resources to expand the real estate business. In the report period, the Board of Directors of the Company passed relevant proposals on selling equity of CMP. The Company shall form the business structure with rapidly growing real estate development and housing lease and power and water supply in the Zone with stable earnings capability as the main body. In the report period, the Company totally carried forward sales area of commercial housing, income from housing lease and income from power and water supply amounting to 196,200 sq. m., RMB 177 million and RMB 649 million, an increase of 100%, 9.43% and 7.81% respectively than that in the last year. In the report period, while continuously increasing land reserve in Shenzhen with Shenzhen as core development zone, the Company also caught the chance to enter into the real estate market in such areas as Beijing, Shanghai, Guangzhou and Zhangzhou etc. in order to seek for more chances for development. Within the year, the areas under construction of the Company’s main projects were 763,400 sq. m.; the planned construction areas of those planned projects in CMSIZ were 306,500 sq. m.; the total newly increased land reserve outside CMSIZ reached planned construction area amounting to 1.83 million sq. m.. Besides, CMRE has priority to develop commercial housing in China Merchants CMSIZ and Zhangzhou Development Zone; the total area of leased property has reached 350,500 sq. m. and the area of property that could be leased under construction was 42,600 sq. m.. At the same time, the Company continued to keep tight cooperation relationships with domestic and foreign banks and at the same time used the financial tools in a reasonable way so that the Company’s capital cost was decreased effectively. In the capital market, the Company smoothly raised capital amounting to RMB 340 million actually through shares allotment, which further enriched the Company’s working capital. After untiring efforts, the Company’s strategic planning was realized steadily. In 2003, the Company was chosen into Indexes 100 in Shenzhen Stock, was awarded as “Top 10 in Listed Real Estate Companies of China” by such authorities as China Real Estate TOP10 Research Team and was selected into Top 50 in the Most Potential Listed Companies of China held by China Securities and Asia Business Consulting Co., Ltd.. In the report period, the Company had four major holding companies, including CMRE, CMPS, CMWS and CMP. The basic particulars and operating achievements of the major holding companies were as follows: 1. CMRE. In the report period, CMRE newly increased a construction area of 139,100 sq. m., completed an area of 257,070 sq. m. and carried forward sales area of commercial housing of 196,200 sq.m.. The accumulated leasing area in the report year -6- amounted to 3,356,000 sq. m. and the net profit realized totally was RMB 264.36 million, an increase of 31.92% than that in the last year. In the report period, CMRE was awarded as the 2nd place in comprehensive development certificate of Shenzhen Real Estate by Shenzhen Bureau of Land Planning again. 2. CMPS. In the report period, CMPS and CLP Power Hong Kong Limited signed power supply agreement of the 3rd seabed cable and the engineering of the 3rd Transformer Substation has also been finished and has been put into operation. Within the year, CMPS totally completed a volume of power supply amounting to 824 million degrees, an increase of 14.13% than that in the last year, which was over the business plan; the income from business of power supply was still better than that in the last year influenced by the decrease of electric price but made up by the increase of volume of power supply. 3. CMWS. In the report period, experiencing such difficulties as influence of SARS and frontal raid of strong typhoon landing on Shekou etc., CMWS ensured the quality of water and safety of water supply by adopting measures from the aspects of technology and craftwork; at the same time, CMWS pushed the planning management and reinforced system construction and supervision and control on the operating process in order to provide good environment for the production and operation; while the continuously good oriented economic condition in Shekou region has also supported the increase in volume of water sales. In the report year, CMWS realized volume of water sales amounting to 28.78 million tons, an increase of 6.43% than that in the last year, which has completed the business plan. 4. CMP. In the report period, influenced by War in Iraq and continuous fluctuation in international price of crude oil and facing austere operating situation such as passive consumption condition, intensified monopoly and drastic retail etc. caused by SARS, CMP finally completed the oil and gas storage and business volume amounting to 1,475,000 tons through such measures as reinforcing the internal coordination, strengthening the construction of retail network and customers’ management and strictly controlling the accounts receivable etc.. (After-period events: on Feb. 6, 2004, the Provisional Shareholders’ General Meeting of the Company considered and passed relevant proposals on selling equity of CMP and the changing procedures for industry and commerce were completed on Feb. 26, 2004. The Company would no longer burden any relevant gains and losses from CMP from Feb. 27, 2004. Since the income from main operations of CMP takes 52.37% of the Company’s total income, while its net profit takes 10.96% of the Company’s consolidated total profit, the Company’s income from main operations would decrease by a relatively large margin in the short term while the influence on profit from main operations was relatively small after the Company’s peeling off petrochemical business. Along with the rapid development in the Company’s such businesses as real estate etc. and new benefits accrued from the reinvestment of capital gained from selling of CMP, the influence on income and profit caused by the Company’s selling petrochemical business would be eliminated gradually). Schedule of main real estate projects under construction of the Company in 2003 Sales Planned Completion Constructing Name of Start areas in Type of percentage Actual/predicted construction areas in areas in projects 2003(M2) projects (pre-sold) completion time areas (M2) 2003(M2) 2003(M2) in 2003 Hillside Seaview 25,380 4,000 4,000 Villa 100% 2003.12 Villa Spring Square 15,300 15,300 15,300 Ordinary house 97% 2003.01 Sea Moon 2nd 220,367 62,119 62,119 Ordinary house 93% 2003.04 Stage Brocade Shore 175,663 175,663 175,663 Ordinary house 77% 2003.08 Rainbow Shore 161,013 161,013 Ordinary house 43% 2004.08 City Image 39,636 39,636 Ordinary house 58% 2004.10 Flower Garden 50,102 50,102 50,102 Ordinary house Unsold 2004.12 -7- 3rd Stage 1 ﹟ Plot Hillside. Orchid Ordinary house 124,000 124,000 Unsold 2004.10 Valley Sea Moon 3rd 178,970 88,970 88,970 Ordinary house Unsold 2005.03 Stage Used for Taige Flat 42,608 42,608 Leased flat 2005.01 lease Total 1,033,030 139,063 257,082 763,411 Notes: The former name of Taige Flat is Hushan Flat, used for lease after construction; the former name of Hillside Orchid Valley is Hillside Seaview Garden 1st Stage; The project of Brocade Shore and the project of Rainbow Shore are both called “Sunshine Cincture· Seaside Garden” while being propagandized. Flower Garden 3rd Stage is developed gradually by being divided into 1﹟ plot and 2﹟ plot according to the development speed. Notes: The geographic positions of all the said projects are in the areas inside or near to Shekou Industrial Zone. Schedule of main projects of land reserve newly increased by the Company outside Shekou Industrial Zone in 2003 Projects Locations Occupation Content Planned Type of Land price Predicted areas (M2) rate construction projects (RMB’0000) time of start areas (M2) Shenzhen New Longgang, 150,443 1.56 234,164 Ordinary house 17,450 2004.10 Asia Shenzhen Shenzhen Jiangang House with low Bao’an, Shenzhen 213,187 0.5 106,600 58,000 2004.12 Mountain density Shanghai Songjiang, House with low 134,634 0.7 94,244 16,156 2004.10 Songjiang Huting Shanghai density Panyu Feieling Panyu, Guangzhou 743,533 1.27 946,065 Ordinary house 66,880 2005.02 Fengtai Liuquan Fengtai, Beijing 234,664 1.92 450,000 Ordinary house - 2004.12 Total - 1,476,457 - 1,831,073 Notes 1: Except for the said projects, CMRE, a subsidiary of the Company, and Shenzhen TCL Investment Co., Ltd. jointly cooperated and developed Plot B310-0030 in Bagualing, Futian District, Shenzhen, whose construction area is 81,756 sq. m.. Notes 2: The project of Fengtai Liuquan is to be checked and ratified by the local land planning department according to new policies. Note 3: Item of Feie Ling, Panyu is planned to be cooperated and developed by the Company and other companies. Schedule of main real estate projects planned to be constructed by the Company in Shekou Industrial Zone in 2003 Name of projects Occupation Content Planned construction Type of projects Land price Predicted areas (M2) rate areas (M2) (RMB’0000) time of start Flower Garden 2nd Emporium - 25,631 1.97 50,500 2004.05 Stage Flower Garden 3rd House - 35,735 2.5 111,625 2004.08 Stage 2﹟ Plot Hillside Seaview House - 57,752 2.5 144,400 2004.10 Garden 2nd Stage Total 119,118 306,525 Notes: The land transfer price of the said planned projects is to be based on the land transfer agreement signed finally. Classification of leased property under operation and construction of the Company in 2003 Type of Areas under Typical Areas under Typical properties operation properties construction properties Villa 67,400 M2 Jingshan Villa Flat 30,200 M2 Seaside Flat 42,600 M2 Taige Flat Financial Center, Office 76,200 M2 Peninsula Building -8- Technology Factory 96,500 M2 Building Shop 80,200 M2 Shekou Walmart Total 350,500 M2 42,600 M2 6.2 Statement of main operations classified according to industries or products Unit: RMB’0000 Cost of Increase/decrease Increase/decreas Increase/decrease Income from Gross in income from Classified according to main main profit ratio main operations e in cost of main in gross profit ratio industries or products operatio operations over over the last year operations (%) over the last year the last year (%) (%) ns (%) Development of 145,322.13 10,9614.43 24.57 101.44 129.17 -27.09 commercial house Lease of house 17,685.95 9,212.63 47.91 9.43 -6.11 21.94 Electric power and 64,909.55 54,125.58 16.61 7.80 7.47 1.53% water supply in zone Oil and gas distribution 253,389.24 239,114.05 5.63 7.70 8.49 -10.92% Including: related 0.00 0.00 -- 0.00 0.00 0.00 transactions Pricing rules for related Naught transactions Necessity and durative Naught of related transactions 6.3 Particulars about main operations classified according to areas □Applicable √Inapplicable 6.4 Particulars about the customers of purchase and sales □Applicable √Inapplicable 6.5 Operation of share-holding companies (applicable to the situation where investment equity takes over 10% of its net profit) □Applicable √Inapplicable 6.6 Explanation on reasons of material changes in main operations and its structure □Applicable √Inapplicable 6.7 Explanation on reasons of material changes in profitability capability of main operations (gross profit ratio) than that in the last year □Applicable √Inapplicable 6.8 Analysis to reasons of material changes in operating results and profit structure compared with the previous year □Applicable √Inapplicable Analysis to reasons of material changes in the whole financial position than that in the last year √Applicable □Inapplicable ①Total assets increased by 13.05% and inventories increased by 17.29%: It was due to the expansion of the Company’s scale in property development business. ②Other receivables increased by 461.09%: The main reasons for increase in other receivables in the year were because approximately RMB 90.40 million was paid to enter a land bidding and as a deposit for implementing contracts at the end of the year. ③Short-term loans increased by 58.43% while long-term loans decreased by 83.85%: In order to effectively decrease the cost of capital occupation, the Company has adjusted the structures of short-term and long-term bank loans within the year. ④Notes payable decreased by 43.71%: Since the discount interest rate of notes increased, notes’ opening was stopped in property business from October, which resulted into the decrease in balance of notes payable. -9- ⑤Other payables increased by 121.64%: The increase in land transfer account payable at the end of the year and receiving the prophase accounts from the transfer of equity of CMP led to the increase in other payables. ⑥Shareholders’ rights and interests increased by 24.68%: Its increase was because the Company conducted shares allotment to raise the proceeds and realized net profit in the report period. ⑦Profit from main operations increased by 19.02%: It was because that the profit from property development and lease business increased by a relatively large margin. ⑧ Subsidy income increased by 126.97%: The Company actually drew back value-added tax return of electric power amounting to RMB 33.16 million in the year, an increase of RMB 18.55 million than that in the last year. ⑨Net profit increased by 36.66%: The profit from property development, properties lease business and supply business of electric power increased by a relatively large margin in the year. ⑩Net increase in cash and cash equivalents decreased by 34.23%: There was no expenditure of land reserve in the year, thus net increase amount in cash and cash equivalents was relatively large; net cash arising from operating activities due to the enlargement of development and input scale and land reserve newly increased in the year did outflow by a relatively large margin. However, the Company received the capital account raised through shares allotment and prophase account from transfer of equity of CMP, which has filled up the gap of partial capital. 6.9 Explanation on the past, current and future important effects of the material changes in production and operation environment, macro-policies and regulations on the Company’s financial position and operating results □Applicable √Inapplicable 6.10 Completion of the profit estimation □Applicable √Inapplicable 6.11 Completion of the business plan √Applicable □Inapplicable Increase/decrease Main index Planned amount Completed amount Explanation ratio Under drastic market competition environment, the Settlement area of Company actively commercial house 15 19.62 30.80% went forward and (’0000 M2) increased sale amount of commercial house than estimated amount. Accumulated rent area of house (’0000 320 335.6 4.88% M2) The rapid increase of Sold electric amount 7.36 8.24 11.96% electric amount in (’00000000 KWH) Shekou District Sold water amount 2,800 2878 2.79% (’0000 Ton) Amount of gas storage and operation 150 147.5 -1.67% (’0000 Ton) 6.12 Application of the raised proceeds Unit: RMB’0000 - 10 - Total amount of raised 33,990.10 Total amount 2,874.00 Total amount of 2,874.00 proceeds of raised raised proceeds proceeds used used in the report accumulatively year Committed projects Planned Change Actual Accrued amount Compliance with investment projects or not investment of earnings planned progress amount amount and estimated earnings or not Rainbow Shore 20,000.00 No 20,000.00 0.00 Yes Flower Garden 3rd Stage No Yes 15,000.00 13,990.00 0.00 Plot 1# Total 35,000.00 - 33,990.00 0.00 - Explanation on projects’ All has reached planned progress and it is estimated to be completed with earnings not reaching planned carried forward in 2004. progress and earnings (in detailed projects) Explanation on change No change project. reasons and change procedures (in detailed projects) Particulars about the changed projects □Applicable √Inapplicable 6.13 Application of the proceeds not raised through shares offering (For details, please refer to 7.1 in this report) √Applicable □Inapplicable Unit: RMB’0000 Name of projects Investment Progress of projects Earnings of projects in the year amount in the year Sea Moon 2nd Stage Finished completely Realizing gross profit of sales 8,841 amounting to RMB 87.15 million Brocade Shore Finished completely Realizing gross profit of sales 21,119 amounting to RMB 119.02 million Hillside Seaview Finished completely Realizing gross profit of sales Villa 892 amounting to RMB 66.59 million Spring Square Finished completely Realizing gross profit of sales 1,646 amounting to RMB 2.65 million Rainbow Shore 19,028 Top cover in main body No earnings accrued yet Hillside Orchid Top cover in main body No earnings accrued yet Valley 19,789 City Image 6,288 Top cover in main body No earnings accrued yet Taige Flat 3,154 Top cover in main body No earnings accrued yet rd Sea Moon 3 Finished in stake base No earnings accrued yet Stage 6,096 Flower Garden 3rd Five floors on the No earnings accrued yet Stage Plot 1﹟ 2,253 ground Shenzhen New Asia 18,996 Prophase planning No earnings accrued yet Panyu Feie Ling 10,063 Prophase planning No earnings accrued yet Total 118,165 - - 6.14 Explanation of the Board of Directors on the “Qualified Opinion” made by the Certified Public Accountants □Applicable √Inapplicable 6.15 Business plan as of the next year of the Board of Directors (If it has) - 11 - √Applicable □Inapplicable Viewing 2004, people’s demand for good houses shall continue to increase, while it is hopeful that the government shall further implement strict management and control on the credit capital of land and real estate, which shall be beneficial to the enhancement of centralization degree in real estate industry and shall also be beneficial to the continuous development of advanced real estate enterprises. On the other hand, the Company shall face various kinds of challenges and shall face the short-term influence after peeling off the petrochemical business in the course of rapid growth. Thus, the Company makes year 2004 as one year of overcoming difficulties and as one year of continuing to tamp the foundation. Basing itself upon the long term, the enterprise can just make strong after making firm and can just make large after making strong. In the new year, the Company shall make the enhancement of development quality as the priority, fully exert the Company’s feature of product oriented and go all out to make the qualities of all projects much better; greatly dig the potential in management and try its best to reduce the cost; continuously probe into advanced encouragement and binding mechanism and gain talents by means of combining both internal cultivation and external import. At the same time, the Company shall still actively seek for increasing more and more better land reserve in national scope. To sum up, in 2004, the Company shall firmly develop ahead step by step according to strategic planning, try its best to continuously construct more perfect houses for people and create more wealth for the shareholders. The main indexes of the Company’s operation in 2004: In the aspect of the business of real estate, the settlement area is planned to complete 250,000 sq. m. and the leasing area is planned to accumulatively reach 3,400,000 sq. m.. In the aspect of the business of power supply in the Zone, the power sales volume is planned to complete 813 million degrees. In the aspect of the business of water supply in the Zone, the water sales volume is planned to complete 28.50 million tons. Profit estimation of the next year (If it has) □Applicable √Inapplicable 6.16 The preplan on the profit distribution and capitalization of capital public reserve of the Board of Directors According to the provision of adopting the lower amount between Chinese Accounting Standards and International Accounting Standards as the maximum for distribution, the profit available for distribution is RMB 617,588,667 in 2003. According to the provisions in relevant laws and regulations and Articles of Association of the Company, the profit distribution scheme in 2003 is as follows: 1. Appropriating 10% of net profit under Chinese Accounting Standards as statutory public reserve amounting to RMB 33,047,757; 2. Appropriating 5% of net profit under Chinese Accounting Standards as statutory public welfare amounting to RMB 16,523,878; 3. From net profit in the year, based on the issued shares amounting to 515,685,560 shares, the Company allots bonuses and cash dividends to all shareholders at the rate of 2 bonus shares and cash RMB 1.00 (tax included) for every 10 shares, which totally amounts to bonuses of 103,137,112 shares and cash dividends amounting to RMB 51,568,556.00. 4. The Company shall not convert capital public reserve into share capital this time. §7. Significant Events 7.1 Purchase of assets √Applicable □Inapplicable - 12 - Unit: RMB’0000 Related Contribution to net profit of the transaction or Transaction parties and the Company of the assets Date of purchase Purchase price not (if yes, assets purchased purchased from the date of explain principle purchase to the year-end of pricing) Negotiated and confirmed based Purchase land use right of on market price CMSIZ totally 268,444.67 Dec. 27, 2003 29,200 1211 standard sq.m. provided by government 7.2 Sales of assets √Applicable □Inapplicable Unit: RMB’0000 Related Contribution to net transaction or profit of the Company Transaction parties Profit or loss from not (if yes, Date of sale Sale price of the assets sold from and the assets sold sale explain the year-beginning to principle of the date of sale pricing) Transfer 75% equity of CMP held by the Pricing based Company, among of it, Feb. 6, 2004 46,176.70 3623 0.00 on market 60% to CML and 10% to CMSIZ Influence on consistence of business and stability of managers caused by the issues interfered in purchase and sale 1. CMRE’s purchasing land use right of CMSIZ totaling 268,444.67 sq.m. There is mainly Jingshan Villa operated by CMRE, Warmart Marketplace, several office buildings and other lease property with good quality on the land involved in the related transaction. After obtaining the above land use right, CMRE will never pay relevant land use right to CMSIZ. Meanwhile, land use right is confirmed as lease development product (inventory) and its cost amounting to RMB 292 million is amortized according to the left year-limit of land use right of every property and it will benefit for reduction of the operation cost of the Company. 3. Sell 75% equity of CMP To realize the continuous and rapid development of the Company, the Company made the middle term development stratagem based on its own competition advantage and the industry’s development foreground: continue to perfect the business structure with growth and stability, attract and spirit up the excellent persons, continuously add land reserve with good quality, obtain full capital support from more channels, exploit to the whole country step by step, extend and strengthen core business as the core of development of real estate step by step. The capital motion of transferring equity of CMP by the Company is the important step of implementing development stratagem of specialization of industry and strength. By transferring equity of CMP, the Company can obtain a large amount of capital that supplies powerful capital guarantee for the extending of business of real estate and meanwhile, the industry span of the Company has shrank in some degree, the future core business more stood out and the strength in the fields of development and operation of real estate and so on further strengthened. The Company mainly adopts style of share-controlling operation, every business is independent and the transfer of equity of CMP has no influence on the stability of the management team of the Company. 7.3 Important guarantee √Applicable □Inapplicable Unit: RMB’0000 - 13 - Guarantee Name of the Date of happening Complete Amount of Guarantee for related Company (date of signing Guarantee term Implementation guarantee type party (yes or guaranteed agreement) or not not) Common Dec.31, 2002- CMRE Dec. 31, 2002 45,000 No No Guarantee Dec.30, 2005 Common Sep.10. 2003- CMRE Sep.10, 2003 45,000 No No Guarantee Sep.10, 2006 Common Jul. 18, 2003- CMRE July 18, 2003 80,000 No No Guarantee Jul. 17, 2005 Common July 13, 2001- CMRE Jul. 13, 2001 20,000 No No Guarantee July 12, 2004 Common Sep. 13, 2002- CMRE Sep. 13, 2002 20,000 No No Guarantee Sep. 12, 2004 Common Sep. 26, 2003- CMRE Sep. 26, 2003 20,000 No No Guarantee Sep. 25, 2004 Total amount of guarantee 91,732.85 Total balance of guarantee 13,095.36 Including: total balance of related guarantee 0.00 Total amount of guarantee the listed company provided for its share-controlling 91,723.85 subsidiaries Total amount of guarantee breaking regulations 0.00 Proportion of total amount of guarantee in net assets of the Company 4.20% 7.4 Related credits and liabilities current √Applicable □Inapplicable Unit: RMB’0000 Supply funds to related parties Related parties supplied funds to the Related parties Company Occurred amount Balance Occurred amount Balance Shenzhen Merchants 0.00 0.00 0.00 506.70 Innovation Co., Ltd. CMSIZ 0.00 0.00 31,047.00 30,847.26 CML 0.00 0.00 12,005.94 12,005.94 Total amount 0.00 0.00 43,359.90 43,359.90 7.5 Entrusted assets □Applicable √Inapplicable 7.6 Implementation of commitment items √Applicable □Inapplicable CMSIZ, the control shareholder of the Company, promised not to engage in any business or activities possibly competing with the Company in terms of business, new commodities and new technology in any forms (including but not limited to direct operation, indirect operation, joint investment). It also promised to urge its wholly or partially (over 50% equity) owned subsidiaries and actually controlled affiliates to follow the promise. In the report period, the control shareholder strictly implemented such commitment. 7.7 Significant lawsuit and arbitration √Applicable □Inapplicable (I) In March 2000, Guangdong Conghua Agricultural Production Materials Co. Ltd. (hereinafter referred to as Conghua Agricultural Materials) lodged a complaint to the Company and the Company’s subsidiary, HK Ruijia Investment Industrial Co., Ltd. and Sinochem Corporation. On Dec. 27, 2002, Guangdong Province Shenzhen Intermediate People’s Court made judgement that would require the Company to - 14 - repay RMB 13,766,090 and its interest and the Company has paid in 2003. (II) In Nov. 2003, Shenzhen Intermediate People’s Court made the judgement of the first trial for the case of original water dissension between Shenzhen Water Group Co., Ltd. (SZWG) and Shenzhen China Merchants Water Supply Co., Ltd. (CMWS) and judged CMWS to refund RMB 20,250,560 to SZWG. CMWS has appealed to the case and the lawsuit is in process. CMWS has withdrawn estimated liabilities amounting to RMB 20,250,560 based on the civil judgement of Shenzhen Intermediate People’s Court. 7.8 Particulars about the performance of obligations of Independent Directors In the report period, in the attitude of being responsible for all shareholders, according to Company Law, Securities Law and other laws and regulations, the three independent directors of the Company implemented obligations of honesty and credit, actively attended the meeting of the Board, patiently participated in the decision-making of significant events of the Company, issued independent opinion for several related transactions in the report period and played an active role in the scientific and objective decision-making of the Board. §8.Report of the Supervisory Committee I. The routine work of the Supervisory Committee The Supervisory Committee of the Company has patiently performed its duty according to Company Law and Article of Association and other relevant regulation. In the report period, the Supervisory Committee totally held five meetings, attended all meetings of the Board of Directors as non-voting delegates, participated in the discussion about the significant decision-making issues of the Company, examined the periodic report of the Company. The Supervisory Committee supervised over the procedures of holding and decision-making of the Shareholders’ General Meeting and the Board of Directors, implementation of the resolutions of the Shareholders’ General Meeting by the Board of Directors, duty performance by senior executives as well as the performance of the management system of the Company, legal operation and scientific decision-making of the Board of Directors and ensured the normative operation of the Company’s financing according to relevant laws and regulations. In the report period, the meetings held by the Supervisory Committee of the Company are as follows: (I) The 4th meeting of the 4th Supervisory Committee was held on March 14, 2003 and the meeting mainly examined Report of the Supervisory Committee in 2002 Annual Report (Draft). The resolution was disclosed on Securities Times, China Securities and Ta Kung Pao dated March 18, 2003. (II) The 5th meeting of the 4th Supervisory Committee was held on Apr. 10, 2003 and the meeting mainly discussed the related transaction that the Company respectively purchased 45% and 5% equity of Zhangzhou CMB Real Estate Co., Ltd. held by China Merchants Zhangzhou Development Zone Co., Ltd. and China Merchants Zhangzhou Development Zone Public Utility Co., Ltd. and expressed independent opinions on it. The resolution was disclosed on Securities Times, China Securities and Ta Kung Pao dated Apr. 15, 2003. (III) The 6th meeting of the 4th Supervisory Committee was held on Apr. 17, 2003 and the meeting examined and approved the 1st Quarterly Report of 2003 of the Company. The resolution was disclosed on Securities Times, China Securities and Ta Kung Pao dated Apr. 19, 2003. (IV) The 7th meeting of the 4th Supervisory Committee was held on June 16, 2003 and the meeting examined and approved Proposal on Changing Financing Way into Allotment Share of the Company and Proposal on Change of Supervisor. The resolution was disclosed on Securities Times, China Securities and Ta Kung Pao dated June 18, 2003. (V) The 8th meeting of the 4th Supervisory Committee was held on July 23, 2003 and the meeting examined and approved 2003 Semi-annual Report and Summary. The resolution was disclosed on Securities Times, China Securities and Ta Kung Pao dated July 25, 2003. (VI) The 9th meeting of the 4th Supervisory Committee was held on Oct. 20, 2003 and the meeting examined and approved the 3rd Quarterly Report of 2003. The resolution was disclosed on Securities Times, China Securities and Ta Kung Pao dated Oct. 22, 2003. (VII) The 10th meeting of the 4th Supervisory Committee was held on Nov. 25, 2003 and the meeting examined and approved the following proposals: 1. Proposal on transferring 10% equity of CMP held by the Company to CMSIZ - 15 - 2. Proposal on transferring 65% equity of CMP held by the Company to CML 3. Proposal on transferring land use right of CMSIZ to CMRE 4. Proposal on continuing to lease assets to China Merchants Harbor (Shenzhen) Co., Ltd. The resolution was disclosed on Securities Times, China Securities and Ta Kung Pao dated Nov. 27, 2003. II. The Supervisory Committee expressed independent opinions for the following matters 1. Operation according to Law The Company established legal person administration structure and more perfect internal control system according to relevant laws, regulations and Article of Association. The procedures of decision-making of the Company are compliant with the laws and regulations and there existed no actions of breaking the laws, regulations and Article of Association and harmful to the Company’s interest in terms of implementation of the Company’s duty by the directors and managers. 2. Financial Inspection Deloitte Touche Tohmatsu Certified Public Accountants and Deloitte Touche Tohmatsu Certified Public Accountants Ltd. audited 2003 financial statements of the Company respectively and all issued the auditor’s reports with standard non-reservation opinion. In the opinion of the Supervisory Committee, the financial statements of the Company as of Dec. 31,2003 factually and objectively reflected the financial situation and operation result of the Company. 3. Application of Raised Funds In the report period, the Company implemented share allotment and the actual raised capital is RMB 339,901,009. The Supervisory Committee supervised over the collection and use of the raised capital and the raised capital has started to be put into use of the items promised in Share Allotment Explanation. Ended as of the report period, the invested projects are in process according to the planned progress. 4. Purchase or Sales of Assets and Correlative Transactions In the report year, the trading prices for purchase or sales of assets were reasonable. Neither inside trading has been found, nor there occurred damage of the interests and rights of some shareholders or loss of the Company’s assets. The Company conducted relevant corrective transactions strictly according to the legal procedures required by the government authority and didn’t damage the listed company’s interest. §9. Financial Report 9.1 AUDITORS' REPORT TO THE SHAREHOLDERS OF CHINA MERCHANTS SHEKOU HOLDINGS COMPANY, LIMITED 招商局蛇口控股股份有限公司 (A joint stock company with limited liability established in The People's Republic of China) We have audited the accompanying balance sheet of China Merchants Shekou Holdings Company, Limited as of December 31, 2003 and the related statements of income, cash flows and changes in equity for the year then ended. These financial statements are the responsibility of the Group's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2003 and the results of its operations and its cash flows for the year then ended, in accordance with International Financial Reporting Standards. Deloitte Touche Tohmatsu March 5, 2004 9.2 - 16 - CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2003 NOTES 2003 2002 Rmb Rmb Revenue 3 4,751,795,645 3,805,477,315 Cost of sales (4,102,298,506) ____________ (3,276,355,782) ____________ Gross profit 649,497,139 529,121,533 Other operating income 5 15,770,259 10,026,221 Dividend income from available-for-sale investments 5,980,118 4,081,679 Interest income and foreign exchange gains 4,677,187 8,295,115 Distribution costs (21,235,128) (19,559,953) Administrative expenses (118,749,482) (111,493,230) Other operating expenses 6 (76,772,792) ____________ (70,888,124) ____________ Profit from operations 7 459,167,301 349,583,241 Interest expenses and other finance costs 8 (5,088,038) (11,105,927) Share of results of associates 4,499,139 3,416,702 Loss on disposal of associates (580,478) (2,051,414) Amortisation of goodwill of associates - ____________ (249,737) ____________ Profit before tax 457,997,924 339,592,865 Income tax 9 (105,774,284) ____________ (68,637,698) ____________ Profit after tax 352,223,640 270,955,167 Minority interest (26,849,908) ____________ (23,609,987) ____________ Net profit for the year 325,373,732 ____________ 247,345,180 ____________ Basic earnings per share (restated) 11 0.67 cents ____________ 0.52 cents ____________ - 17 - CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 2003 NOTES 2003 2002 Rmb Rmb ASSETS Non-current assets Property, plant and equipment 12 422,613,416 440,507,871 Construction in progress 13 19,214,103 38,623,829 Investment properties 14 1,416,611,756 1,105,684,275 Goodwill 15 759,647,757 808,037,055 Negative goodwill 16 (62,783,638) (66,760,423) Land use rights 17 17,244,562 16,444,654 Investments in associates 19 54,267,115 33,277,724 Interests in a property development project 20 20,014,427 - Available-for-sale investments 21 31,689,195 ____________ 30,181,680 ____________ 2,678,518,693 ____________ 2,405,996,665 ____________ Current assets Inventories 22 108,573,497 66,198,918 Completed properties for sale 396,114,760 220,242,811 Properties under development 23 1,501,561,637 1,598,758,488 Trade and other receivables 24 546,591,726 347,101,786 Amounts due from associates 2,938,545 4,165,439 Bank balances and cash 24 695,034,863 ____________ 608,134,674 ____________ 3,250,815,028 ____________ 2,844,602,116 ____________ Total assets 5,929,333,721 ____________ 5,250,598,781 ____________ - 18 - NOTES 2003 2002 Rmb Rmb EQUITY AND LIABILITIES Capital and reserves Share capital 25 515,685,560 476,396,000 Reserves 26 2,517,131,714 ____________ 1,947,381,467 ____________ 3,032,817,274 ____________ 2,423,777,467 ____________ Minority interests 225,736,181 ____________ 200,962,243 ____________ Non-current liabilities Bank loans - due after one year 27 45,462,725 281,561,556 Rental received in advance 28 6,990,000 7,660,000 Deferred tax liabilities 29 37,195,980 ____________ 27,558,521 ____________ 89,648,705 ____________ 316,780,077 ____________ Current liabilities Trade and other payables 30 1,332,908,273 1,180,406,154 Provision for litigation claims 31 21,850,560 17,790,566 Receipts in advance and deposit received 453,262,880 584,827,120 Amounts due to associates 2,577,732 2,938,647 Tax liabilities 89,418,928 48,201,620 Bank loans - due within one year 27 681,113,188 ____________ 474,914,887 ____________ 2,581,131,561 ____________ 2,309,078,994 ____________ Total equity and liabilities 5,929,333,721 ____________ 5,250,598,781 ____________ The financial statements on pages 2 to 35 were approved and authorised for issue by the board of directors on March 5, 2004 and are signed on its behalf by: ______________________________ ______________________________ DIRECTOR DIRECTOR - 19 - CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2003 Statutory Discretionary Statutory Share Share surplus surplus public Capital Oth capital premium reserve reserve welfare fund surplus reser Rmb Rmb Rmb Rmb Rmb Rmb Rm Balance at January 1, 2002 476,396,000 1,075,150,683 217,528,507 212,559,063 78,631,937 66,373,525 4,244 Exchange differences arising on translation of overseas operations not recognised in the income statement - - - - - - Net profit for the year - - - - - - Transfer to (from) reserves - - 30,835,559 - 19,266,541 - Dividends - ___________ - ____________ - ___________ - ___________ - ___________ - __________ ______ Balance at December 31, 2002 and January 1, 2003 476,396,000 1,075,150,683 248,364,066 212,559,063 97,898,478 66,373,525 4,244 Exchange differences arising on translation of overseas operations not recognised in the income statement - - - - - - Rights issue of shares 39,289,560 311,566,211 - - - - Share issue expenses - (10,954,762) - - - - Net profit for the year - - - - - - Transfer to (from) reserves - - 11,888,458 (72,439,025) 10,613,256 - Dividends - ___________ - ____________ - ___________ - ___________ - ___________ - __________ ______ Balance at December 31, 2003 515,685,560 ___________ 1,375,762,132 ____________ 260,252,524 ___________ 140,120,038 ___________ ___________ 108,511,734 66,373,525 __________ 4,244 ______ CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2003 2003 2002 Rmb Rmb OPERATING ACTIVITIES Profit from operations 459,167,301 349,583,241 Adjustments for: Amortisation of goodwill 52,907,142 49,214,936 Depreciation of property, plant and equipment 52,500,486 51,752,893 Depreciation of investment properties 66,903,432 53,985,470 Depreciation of land use rights 670,092 654,703 Dividends received from available-for-sale investments (5,980,118) (4,081,679) Impairment loss on property, plant and equipment 143,218 465,163 Reversal of impairment losses on property, plant and equipment (463,750) (3,009,259) Reversal of impairment loss on goodwill (4,360,108) - Impairment loss on land use rights - 529,060 Interest income (4,434,917) (7,229,439) Net loss on disposal of property, plant and equipment 99,142 2,906,930 Release of negative goodwill (3,976,785) (3,871,170) ____________ ____________ Operating profit before working capital changes 613,175,135 490,900,849 (Increase) decrease in inventories (41,657,321) 91,852,532 Decrease in completed properties for sale 1,121,016,075 359,285,080 Increase in properties under development (1,198,777,720) (808,894,488) Increase in trade and other receivables (198,058,965) (5,775,403) Decrease (increase) in amounts due from associates 1,226,894 (3,875,968) Decrease in rental received in advance (670,000) (1,110,800) (Decrease) increase in trade and other payables (275,931,179) 343,542,806 Increase in provision for litigation claims 4,059,994 5,990,566 (Decrease) increase in receipts in advance and deposits received (131,564,240) 445,181,854 Decrease in amounts due to associates (360,915) (11,015,814) ____________ ____________ Cash (used in) generated from operations (107,542,242) 906,081,214 Income tax paid (54,919,517) (44,200,025) Interest expenses and other finance costs paid (29,979,935) (67,958,402) ____________ ____________ NET CASH (USED IN) GENERATED FROM OPERATING ACTIVITIES (192,441,694) 793,922,787 ____________ ____________ - 21 - NOTES 2003 2002 Rmb Rmb INVESTING ACTIVITIES Increase in construction in progress (36,661,064) (22,499,268) Additions of property, plant and equipment (32,299,888) (72,285,557) Acquisition of an associate (24,787,914) - Acquisition of interests in a property development project (20,014,427) - Additions of investment properties (11,499,983) (45,345,051) Acquisition of available-for-sale investments (1,507,515) (500,000) Acquisition of additional interest in a subsidiary (4,950,000) - Additions of land use rights (1,470,000) - Net partial proceeds received from proposed disposal of subsidiaries 38 137,005,162 - Dividends received from available-for-sale investments 5,980,118 4,081,679 Interest received 4,434,917 7,229,439 Proceeds from disposal of associates 3,929,970 592,700 Proceeds from disposal of property, plant and equipment 3,809,602 5,829,431 Dividends received from associates 3,787,214 5,205,576 Acquisition of a subsidiary 32 - 34,882,586 ____________ ____________ NET CASH GENERATED FROM (USED IN) INVESTING ACTIVITIES 25,756,192 (82,808,465) ____________ ____________ FINANCING New bank loans raised 2,640,595,365 2,160,000,000 Issue of shares 350,855,771 - Contribution from minority shareholders of a subsidiary 1,500,000 - Repayment of bank loans (2,670,495,895) (2,685,381,399) Dividends paid (57,167,520) (52,403,561) Share issue expenses (10,954,762) - Dividends paid to minority shareholders (747,268) (1,194,758) ____________ ____________ NET CASH GENERATED FROM (USED IN) FINANCING ACTIVITIES 253,585,691 (578,979,718) ____________ ____________ NET INCREASE IN CASH AND CASH EQUIVALENTS 86,900,189 132,134,604 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 608,134,674 476,000,070 ____________ ____________ - 22 - CASH AND CASH EQUIVALENTS AT END OF YEAR, represented by bank balances and cash 695,034,863 608,134,674 9.3 Explanation on changes of accounting policy, accounting estimation and settlement compared with the latest annual report. 1. Detailed explanation of change of accounting policy According to relevant regulations of CK [2003] NO. 10 of Finance Ministry, when adopting right and interest method to settle long-term equity investment occurred after Mar. 17, 2003, the difference of shareholders’ equity of the invested companies belonged to the Company over the initial investment cost changes from crediting long-term equity investment-equity investment difference to crediting capital public reserve-equity investment reserve. The change of the accounting policy is suitable for the future. According to Finance Ministry’s notification on printing and sending amendment items of Enterprise Accounting Rule-Items after the Date of Balance Sheet (CK [2003] NO. 12), cash dividend for the investors in profit distribution proposal made by the Board after the date of Balance Sheet to the date that financial report is authorized and reported changes from confirming it into dividend payable as adjustment items to singly listing in shareholders’ equity of Balance Sheet. The change of the accounting policy adopts backward adjustment method. The change of accounting policy has no significant influence on net profit of the Company. 2. Accounting evaluation has no change. 3. Settlement method has no change. 9.4 Explanation on change of consolidated scope compared with the latest annual report Subsidiaries increased and consolidated in the report period: 1. Dongduan China Merchants Ranhua Shisha Gas Station Co., Ltd. 2. Shenzhen China Merchants Property Consulting Co., Ltd. Board of Directors of China Merchants Shekou Holdings Co., Ltd. Mar. 9th, 2003 - 23 -