粤高速Ａ(000429)粤高速2003年年度报告（英文版）

Annual Report for 2003 Guangdong Provincial Expressway Development Co., Ltd. March 2004 Important Notes The Board of Directors and the directors of the Company hereby warrant that there are no misstatement, misleading representation or important omissions in this report and shall assume joint and several liability for the authenticity, accuracy and completeness of the contents hereof. Director Mr. Ma Chunsheng did not attend the board meeting due to business trip and authorized another director to attend the board meeting and vote on his behalf. The board chairman of the Company Mr. Cao Xiaofeng, general manager Mr. Huo Yanbin and chief accountant Mr. Xiao Laijiu represent and warrant the financial report in this annual report is true and complete. Table of Contents I. Brief Introduction of the Company -1- II. Highlights of Accounting Data and -3- Business Data III. Particulars about Changes in Share -8- Capital and Shareholders IV. Particulars about Directors, Supervisors, -12 - Senior Executives and Employees V. Corporate Administration Structure -16- VI. Brief Introduction of Shareholders' -18- General Meeting VII. Report of the Board of Directors - 19 - VIII. Report of the Supervisory Committee -34 - IX. Important Events - 37 - X. Financial Report -41 - XI. List of Documents Available for - - Inspection This Report has been prepared in both Chinese and English. In case of any discrepancy, the Chinese version shall prevail. I Brief Introduction of the Company I. Legal name of the Company In Chinese: 广 东 省 高 速 公 路 发 展 股 份 有 限 公 司 In English: Guangdong Provincial Expressway Development Co. Ltd. English Abbreviation: GPED II. Legal Representative: Cao Xiaofeng III. The secretary to the board of directors: Xiao Laijiu Contact address：85 Baiyun Road, Guangzhou, Guangdong Tel：(020) 83731363 Fax：(020) 83731384 Email: xiaolaijiu@163.com Securities affair representative：Zuo Jiang Contact address：85 Baiyun Road, Guangzhou, Guangdong Tel：(020) 83731365 Fax：(020) 83731384 Email: zeozj@163.net IV. Registered address：85 Baiyun Road, Guangzhou, Guangdong Business address：85 Baiyun Road, Guangzhou, Guangdong Zip code：510100 Email: ygs@gpedcl.com V. Newspapers selected by the Company for information disclosure: Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao and Hong Kong Commercial Daily. Internet website for publishing the annual report of the Company: http://www.cninfo.com.cn Place for preparing and placing the annual report of the Company: 85 Baiyun Road, Guangzhou, Guangdong VI. Stock exchange for listing: Shenzhen Stock Exchange Stock abbreviation: Guangdong Expressway A, Guangdong Expressway B Stock code : 000429, 200429 VII. Other Relevant Information 1. The date of first registration: February 9, 1993 Registered address：4/F, Dongjian Building, 503 Dongfeng Central Road, Guangzhou The date of last registration change: May 12, 2003 Registered address：85 Baiyun Road, Guangzhou 2. Registration number of business license of incorporated enterprise: QGYZZ No. 002875 3. Tax registration number：440102190352102 4. The certified public accountants retained by the Company Guangzhou Yangcheng Certified Public Accountants Co., Ltd. Office address: 25/F, Jianlibao Building, 410 Dongfeng Central Road, Guangzhou. 第 1 页 Ernst and Young. Address of representative office in China: Room 1110 and 1111, Main Office Building, Guangdong International Hotel, 339 Huanshi East Road, Guangzhou. 第 2 页 II Highlights of Accounting Data and Business Data I. The total profit earned by the Company in the report year and its composition： Unit: RMB Item 2003 Total profit 410,328,890.85 Net profit 181,182,988.13 Net profit after deducting non-recurring 179,523,737.75 gains and losses Profit from main operation 518,769,487.31 Profit from other operations 8,420,685.31 Operating profit 396,789,213.58 Investment income 21,134,524.72 Subsidy income 0.00 Net non-operating income and expenses -7,594,847.45 Net amount of cash flow from operating 453,597,911.36 activities Net increase or decrease of cash and cash 116,408,374.43 equivalents Note 1. Apart from issuing financial report pursuant to Chinese accounting standards, the Company also issued financial report pursuant to international accounting standards for reference by overseas investors. The (consolidated) net profit calculated by domestic accountants pursuant to Chinese accounting standards is RMB 181,182,988.13. The (consolidated) net profit calculated by overseas accountants pursuant to international accounting standards is RMB 144,494,000.00. The difference between them is RMB 36,688,988.13. Refer to supplementary accounting information (I) in this chapter for detailed reasons for the difference. Note 2: Items of non-recurring gains and loss deducted and involved amount Unit: RMB Book amount（+ representing Items of non-recurring gains and losses gains / - representing losses） 1-1 Gains and losses on disposition of long-term equity investment 141,736.23 (Including amortization of difference of equity investment) -26,141,538.49 1-2 Gains and losses on the disposition fixed assets, construction in progress, intangible assets and other long-term assets - 2. Tax refund, deduction and exemption that is examined and approved by authority exceeding or has no official approval document - 3. Government subsidy in various forms - 4. Fund possession cost collected from non-financial enterprises and accounted for as gains and losses for the current period 25,468,237.74 第 3 页 5. Short-term investment gains and losses 6,075,742.28 6. Gains and losses on entrusted investment - 7. Non-operating income and expenses after deducting fixed 1,505,152.55 provision for impairment of assets generally made by the Company according to Accounting Regulations for Business Enterprises. 8. Provision for impairment of assets made due to force majeure -9,100,000.00 factors such as natural calamity 9. Writeback of provision for impairment made in previous years 4,151,507.88 10. Gains and losses on debt restructuring 11. Gains and losses on asset swap 12. Gains and losses on the part exceeding fair value generated by the transaction price that is apparently unfair 13. Retroactive adjustment by the change of accounting policies to the net profit of previous periods in comparative financial statements 14. Other items confirmed by CSRC Subtotal 2,100,838.19 15. Amount of influence of the above items on income tax -441,587.81 Amount involved by the above items 1,659,250.38 II. Main accounting data and financial indicators of the Company in the last three years as of the End of the Report Period are as follows: 2002 2001 Item 2003 Before After adjustment Before After adjustment adjustment adjustment Income from main operation (RMB) 797,190,721.00 753,156,947.00 753,156,947.00 625,400,744.00 625,400,744.00 Net profit (RMB) 181,182,988.13 171,955,320.42 171,024,582.16 158,930,022.26 41,608,877.38 Total assets (RMB) 6,663,419,082.32 6,140,580,965.34 6,140,580,965.34 5,775,201,426.79 5,775,201,426.79 Shareholders' equity（not including minority 3,534,078,664.97 3,366,648,343.28 3,480,312,041.99 3,331,314,404.76 3,434,952,741.39 （RMB） interests） Earnings per share (RMB/share) (fully diluted) 0.14 0.14 0.14 0.13 0.11 Earnings per share (RMB/share) (weighted 0.14 0.14 0.14 0.13 0.13 average) Earnings per share after deducting non-recurring 0.14 0.15 0.15 0.12 0.12 gains and losses (RMB/share) Net assets per share after adjustment 2.81 2.68 2.77 2.65 2.73 （RMB/share） Net assets per share after adjustment 2.80 2.65 2.75 2.63 2.72 （RMB/share） Net cash flow per share from operating activities 0.36 0.28 0.28 0.38 0.38 Return on net assets (fully diluted) 5.13% 5.11% 4.91% 4.77% 4.12% 第 4 页 Return on net assets (weighted average) 5.07% 5.05% 4.86% 4.71% 4.11% Weighted return on equity after deducting 5.03% 5.61% 5.20% 4.51% 4.41% non-recurring gains and losses III. Particulars about changes in shareholders' equity in the report period Unit: RMB Item Share capital Capital surplus Surplus Statutory Undistributed Total reserve public welfare profit shareholders' fund equities Beginning 1,257,117,748.00 1,534,806,463.84 325,585,353.11 61,370,883.06 362,802,477.04 3,480,312,041.99 balance Increase in current period 1,326.95 27,177,448.22 9,059,149.41 28,289,765.11 53,766,622.98 Decrease in current period Ending 1,257,117,748.00 1,534,807,790.79 325,762,801.33 70,430,032.47 391,096,242.15 3,534,078,664.97 balance Reason for I. The interest of Appropriatio Appropriation Profit for the Profit for the change paid-up capital n for surplus for statutory year year during the period reserve public welfare of capital fund verification of subsidiaries IV. Supplementary accounting information (I) Reason for the difference between net assets and net profits for the report period calculated pursuant to domestic and international accounting standards Unit of amount: RMB'000 Net Net assets profit Stated pursuant to Chinese accounting standards 181,183 3,533,329 Depreciation adjustment, net -10,830 -85,926 Adjustment of goodwill amortization generated by the acquisition of the shareholders' equity of affiliated companies and subsidiaries, net 8,785 21,509 Writeback adjustment of the unrealized income from the transfer of Jiujiang Bridge 2,323 -38,888 Write-off adjustment of deferred tax and assets corresponding to the unrealized income from the transfer of Jiujiang Bridge -822 2,391 Recognition and amortization of other long-term assets -2,859 13,152 Short-term investment stated according to the market value at the end of the period -4,883 -609 第 5 页 Deferred tax recognition -17,652 -30,200 The income tax and overdue fine additionally paid and appropriated as required by tax bureau in the report year -12,048 - Others 1,297 -2,589 Stated pursuant to international accounting standards 144,494 3,412,169 The overseas audit body auditing the Company is Ernst and Young. (II) According to the gist of No. 9 circular of CSRC on the promulgation of Rules on Information Disclosure of Companies Publicly Issuing Securities, the return on equity and earnings per share of the Company for 2003 calculated on fully diluted basis and weighted average basis are as follows: Return on equity Earnings per share (RMB) Profit for the report period Weighted Weighted Fully diluted average Fully diluted average Profit from main operation 14.68% 14.53% 0.41 0.41 Operating profit 11.23% 11.11% 0.32 0.32 Net profit 5.13% 5.07% 0.14 0.14 Net profit after deducting non-recurring gains and losses 5.08% 5.03% 0.14 0.14 (III) Schedule of provision for impairment of assets Unit of amount：RMB Item Beginning Increase in Amount Ending balance balance current period transferred back in current period I. Total provision for bad debts 1,470,000.00 0.00 0.00 1,470,000.00 Including ： Accounts receivable 0.00 0.00 0.00 0.00 Other receivables 1,470,000.00 0.00 0.00 1,470,000.00 II. Total provision for impairment of short-term investment 2,498,960.07 0.00 2,353,482.34 145,477.73 Including ： Stock investment 479,239.59 0.00 333,761.86 145,477.73 Bond investment 2,019,720.48 0.00 2,019,720.48 0.00 III. Total provision for impairment of inventories 0.00 0.00 0.00 0.00 Including ： Merchandise inventory 0.00 0.00 0.00 0.00 Raw materials 0.00 0.00 0.00 0.00 IV. Total provision for impairment of long-term 19,052,037.57 0.00 1,798,025.54 17,254,012.03 第 6 页 investment Including ： Long-term equity investment 7,316,627.50 0.00 1,798,025.54 5,518,601.96 Long-term creditor's right investment 0.00 0.00 0.00 0.00 V. Total provision for impairment of fixed assets 7,000,000.00 9,100,000.00 0.00 16,100,000.00 Including ： Houses and buildings 0.00 3,700,000.00 0.00 3,700,000.00 Machinery and equipment 0.00 0.00 0.00 0.00 VI. Total provision for impairment of intangible assets 0.00 0.00 0.00 0.00 Including：Patent right 0.00 0.00 0.00 0.00 Trademark right 0.00 0.00 0.00 0.00 VII. Provision for impairment of construction in progress 0.00 0.00 0.00 0.00 VIII. Provision for impairment of entrusted loan 0.00 0.00 0.00 0.00 第 7 页 III Particulars about Changes in Share Capital and Shareholders I. Statement of changes in shares Unit：share Increase or decrease this time (+/-) Se co nd Before this ar After this change Capitalizati y change Rig Bo on of of ht nus common fer Ot shar shar reserve in her Subt es es fund g s otal I. Non-negotiable shares 1. Promoter's shares 512,142,945 512,142,945 Including： State-owned shares 474,780,525 474,780,525 Domestic corporate shares 37,362,420 37,362,420 Overseas corporate shares Others 2. Raised corporate shares 166,694,053 166,694,053 Including： Domestic corporate shares 121,694,053 121,694,053 Overseas corporate shares 45,000,000 45,000,000 3. Staff shares 4. Preferred shares or others Total non-negotiable shares 678,836,998 678,836,998 II. Negotiable shares 第 8 页 1. Domestically listed RMB 274,530,750 274,530,750 common shares 2. Domestically listed foreign 303,750,000 303,750,000 investment shares 3. Overseas listed foreign investment shares 4. Others Total negotiable shares 578,280,750 578,280,750 III. Total shares 1,257,117,748 1,257,117,748 II. Share issue and listing 1. The Company did not issue shares in the recent three years. 2. In the report period，the total number of shares and share structure of the Company remained unchanged. 3. At the end of the report period, the Company did not have staff shares. III. Particulars about Shareholders 1. As of December 31, 2003，the Company had 106,094 shareholders in total. 2. Particulars about the shareholding of principal shareholders Name of shareholder Increase Number Proport Type of Quantity of Nature of or of shares ion (%) share pledged or shareholder decrease held at frozen shares in the the end of year year (shares) Guangdong Communication Non-ne State-owned 474,780,525 37.77% Nil Group Co., Ltd. gotiable shares Shareholder holding IJM OVERSEAS Note 65,055,917 5.18% Nil foreign VENTURES SDN.BHD. (1) investment shares Guangdong Expressway Co., Non-ne Corporate 19,377,187 1.54% Nil Ltd. gotiable shares Guangdong Yuecai Trust Non-ne Corporate 14,062,500 1.12% Nil Investment Co., Ltd. gotiable shares Shareholder Shanghai Haitong Securities Negotia 9,091,698 0.72% Nil holding Shenzhen Business Dept. ble negotiable 第 9 页 shares Xinhui City Siqian Town Non-ne Corporate 5,176,890 0.41% Nil Economic Union Head Office gotiable shares Shunde Foreign Economy Non-ne Corporate 4,218,750 0.34% Nil Industrial Development Co. gotiable shares Nanhai Huaying Group Non-ne Corporate 3,741,328 0.30% 3,741,328 Company gotiable shares Shunde Communication Non-ne Corporate 3,515,625 0.28% Nil Development Corporation gotiable shares Labor Union of Jiangmen Non-ne Corporate 3,353,905 0.27% Nil Highway Bureau gotiable shares (1) Among the top ten shareholders，Guangdong Communication Group Co., Ltd. holds 474,780,525 state-owned shares on behalf of the state. IJM OVERSEAS VENTURES SDN.BHD. is the shareholder holding foreign investment shares of the Company, holding 45 million non-listed foreign investment shares and 20,055,917 B shares. (2) Among the top ten shareholders，Guangdong Communication Group Co., Ltd. is the parent company of Guangdong Expressway Co., Ltd. There is no relation between other shareholders and they are not persons taking concerted action defined in Regulations on Disclosure of Information about Change in Shareholding of Shareholders of Listed Companies. (3) Among the top ten shareholders，all shares held by Nanhai Huaying Group Company were judicially frozen. (4) According to ZJGSZ (2003) No.3 approval document of CSRC - Notice of Approving the Listing of Non-listed Foreign Investment Shares of Guangdong Expressway Development Co., Ltd., 45 million non-listed foreign investment shares of Guangdong Expressway Development Co., Ltd. held by IJM OVERSEAS VENTURES SDN.BHD are to be converted into negotiable B shares and listed on March 8, 2004. 3. Brief introduction of the controlling shareholder Guangdong Communication Group Co., Ltd. is the largest shareholder of the Company. legal representative: Zhu Xiaoling. Date of establishment: August 23, 2000. Registered capital: RMB 16.8 billion. It is a solely state-owned limited company. Business scope：equity management, organization of asset reorganization and optimized allocation, raising funds by means including mortgage, transfer of property rights and joint stock system transformation, project investment, operation and management, traffic infrastructure construction, highway and railway project operation and relevant industries, technological development, application, consultation and services, highway and railway passenger and cargo transport, ship industry, relevant overseas businesses. 4. Particulars about the shareholding of the top ten shareholders holding negotiable shares Name of shareholder Number of shares held Type of at the end of year share (shares) IJM OVERSEAS VENTURES SDN.BHD. 20,055,917 B shares Haitong Securities Co., Ltd. 9,065,698 A shares DEUTSCHE BANK AG LONDON 6,728,875 B shares 第 10 页 NATWEST SECURITIES HONG KONG LIMITED 1,847,478 B shares Chen Lijuan 1,707,896 B shares Boshi Yufu Securities Investment Fund 1,550,415 A shares Zhang Xubin 1,455,700 B shares TOYO SECURITIES ASIA LIMITED-A / C CLIENT 1,378,550 B shares Wu Huaying 1,356,351 B shares EVER POINT INVESTMENTS LIMITED 1,227,000 B shares 第 11 页 IV Particulars about Directors, Supervisors, Senior Executives and Employees I. Particulars about directors, supervisors and senior executives 1. Basic information Sex A Term of No. of No. of Increase/decr g office shares held shares ease (shares) e (Year) at the held at the Name Position beginning of end of period period (shares) (shares) Cao Chairman of the board of directors Mal 38 2002—2005 18,400 18,400 0 Xiaofeng e Huo Director & general manager Mal 37 2002—2005 15,300 15,300 0 Yanbin e Xiao Director, deputy general manager, Mal 39 2002—2005 15,300 15,300 0 Laijiu chief accountant and the secretary e to the board of directors Ling Jian Director Mal 43 2003—2005 22,330 0 -22,330 e Ma Director Mal 40 2003—2005 0 0 Chunshe e ng Wang Director Mal 41 2002—2005 15,300 15,300 0 Tao e Li Director Mal 53 2002—2005 23,400 23,400 0 Wenzhen e g Liu Qin Independent director Mal 38 2002—2005 0 0 0 e He Independent director Fem 63 2002—2005 0 0 0 Hongdi ale He Independent director Mal 51 2003—2005 0 0 Qiang e Xiang Independent director Fem 48 2003—2005 0 0 Tiangui ale Li The chairman of the supervisory Mal 39 2002—2005 0 0 0 Dongsha committee e n Wu Supervisor Mal 56 2003—2005 0 0 Jianxiang e XuYan Supervisor Fem 49 2002—2005 44,550 44,550 0 ale 第 12 页 Li Mei Supervisor Fem 34 2002—2005 94,050 94,050 0 ale Tu Supervisor Fem 43 2002—2005 43,425 43,425 0 Huiling ale Dong Deputy general manager Mal 2002—2005 43,425 43,425 0 Guofeng e 34 Yun Chief economic engineer Mal 48 2002—2005 15,300 15,300 0 Wujun e Wang Chief engineer Mal 39 2002—2005 33,580 33,580 0 Jiachen e Peng Person in charge of internal audit Fem 41 2002—2005 6,100 6,100 0 Xiaofang ale Mr. Ling Jian was elected as the director of the Company in June 2003. He sold part of shares of the Company held by him before he was elected as the director of the Company. 2. Particulars about directors and supervisors holding positions at corporate shareholders Whether receiving Name of Name Position Term of office remuneration and shareholder subsidy（Yes or no） Guangdong Director of 2000.6 to the Ling Jian Communication Yes Investment Dept. present Group Co., Ltd. Guangdong General manager 2003.4 to the Ma Chunsheng Expressway Co., and member of Yes present Ltd. Party committee Guangdong Yuecai Trust Deputy general 1995.7 to the Wang Tao Yes Investment Co., manager present Ltd. IJM OVERSEAS 1996.6 to the Li Wenzheng VENTURES Finance director Yes present SDN.BHD Director of Guangdong Planning and 2003.3 to the Li Dongshan Communication Yes Financial Audit present Group Co., Ltd. Dept. Guangdong Vice chairman of 2003.3 to the Wu Jianxiang Communication Yes labor union present Group Co., Ltd. 第 13 页 3. Annual remuneration The remuneration of directors and supervisors was examined and determined at the first shareholders' general meeting in 2002. The total amount of annual remuneration received by current directors, supervisors and senior executives from the Company in 2003 was RMB 1.7152 million. The total amount of the remuneration of the top three directors receiving the remuneration of the highest amount was RMB 0.4648 million. The total amount of the remuneration of the top three senior executives receiving the remuneration of the highest amount was RMB 0.4648 million. The number of the current directors, supervisors and senior executives of the Company was 20. All of them received remuneration and subsidy from the Company. The range of amount of annual remuneration is as follows: Range of annual Number of directors, supervisors and remuneration senior executives RMB 40,000 - 11 persons 70,000 RMB 70,000 - 2 persons 120,000 RMB 120,000 - 7 persons 180,000 4. Name of the directors, supervisors or senior executives who left their posts in the report period and the reason therefor As examined and adopted by 2002 annual shareholders' general meeting, Mr. You Guojing, Mr. Zhu Xiaoling, Mr. Zeng Zhaogeng and Mr. Su Yongdong, were approved to resign from the position of director and Mr. Lu Yongzheng was approved to resign from the position of supervisor due to work transfer in the report period. 5. The appointment of senior executives of the Company including the general manager, deputy general managers, financial controller and the secretary to the board of directors. As examined and adopted by a provisional meeting of the fourth board of directors, the Company appointed Mr. Huo Yanbin as the general manager of the Company and Mr. Xiao Laijiu as the secretary to the board of directors, whose term of office is the same with that of the current board of directors. II. Particulars about employees As of the end of 2003, the Company had 1050 on-the-job employees. The particulars are as follows: Number of Divided by function person Proportion Managerial personnel 210 20.00% Toll collectors 620 59.05% Road service personnel 31 2.95% Logistical personnel 189 18.00% Total 1050 100.00% 第 14 页 Divided by professional title Senior professional title 21 2.00% Semi-senior professional title 74 7.05% Junior professional title 74 7.05% Others 881 83.90% Total 1050 100.00% Divided by academic qualification Holders of master's degree or above 33 3.14% Graduates of regular universities 60 5.71% Graduates of junior colleges and secondary technical schools 423 40.29% Others 534 50.86% Total 1050 100.00% The number of retired staff and workers for whom the Company needed to pay retirement 5 pensions. 第 15 页 V Corporate administration structure I. Particulars about corporate administration The Company has constantly improved its corporate administration structure, established modern enterprise system and standardized its operation strictly according to the requirements of the Company Law, Securities Law and relevant laws and regulations of CSRC. The Company formulated and revised the Articles of Association of the Company, Rules of Procedure of the Board of Directors, Rules of Procedure of Shareholders' General Meeting, Rules of Procedure of the Supervisory Committee and Independent Director System in 2002, all of which were examined and adopted by shareholders' general meeting. In the report period，the Company added two independent directors. At present, the Company has 4 independent directors, who account for over one third of the members of the board of directors. The corporate administration structure of the Company is quite sound. There is no discrepancy with the requirements of relevant documents of CSRC. II. Particulars about duty performance of independent directors The Company appointed four independent directors, i.e., Liu Qin, He Hongdi, He Qiang and Xiang Tiangui. In the report period，the four independent directors expressed independent opinions on the appointment of senior executives and related transactions of the company, put forward professional opinions on the significant investment decisions and future development strategy of the Company, enhanced the independence of the board of directors, intensified the strategy management function of the board of directors, further optimized corporate administration structure and promoted the standardized operation of the Company. III. Notes to the separation of the Company from its controlling shareholder in respect of business, personnel, assets, organs and finance The controlling shareholder of the Company is Guangdong Communication Group Co., Ltd. It holds 474,780,525 shares of the Company，which account for 37.77% of the total share capital of the Company. The Company has sound corporate administration structure. It has been completely independent of its controlling shareholder in respect of business, personnel, assets, organs and finance and has independent and complete business and the ability of independent operation. 1. Independent business The Company is mainly engaged in the toll collection and maintenance of Guangfo Expressway and Fokai Expressway. Meanwhile, it is the joint venturer of Shenzhen Huiyan Expressway Co., Ltd., Guangdong Maozhan Expressway Co., Ltd., Guangdong Guanghui Expressway Co., Ltd., Jingzhu Expressway Guangzhu Section Co., Ltd., Zhongjiang Expressway Co., Ltd. and Guangdong Express Technology Investment Co., Ltd. The Company has outstanding main operation, independent and complete business and the ability of independent operation. All business decisions of the Company were made independently, being completely separated from the shareholder with actual control. Related transactions were carried out in light of the principle of fair transaction, which did not harm the interests of the Company and other shareholders of the Company. The content of related transactions was fully, timely and accurately disclosed, which did not have negative influence on the Company. 第 16 页 2. Complete assets The relationship of the Company's property right is clear. The assets injected by shareholders in the Company are independent and complete and have clear property right. All capital was paid up and relevant formalities of property right change were settled. 3. Independent personnel As for personnel relationship, the general manager, deputy general managers, the secretary to the board of directors and financial controller of the Company were full-time employees and received salary from the Company, who did not concurrently hold positions at the parent company. All directors and supervisors of the Company were elected through legal procedure. The general manager, deputy general managers, chief accountant, chief economic engineer and chief engineer were directly appointed by the board of directors. Other managerial personnel of all levels were directly appointed by the general manager. The Company owns independent power of personnel appointment and removal. 4. Independent finance The Company, including subsidiaries and branches, established independent accounting department，independent accounting system and regulations on financial management. The Company independently opened bank account and did not deposit funds in the accounts of the finance company or settlement center of the majority shareholder. The Company independently paid tax. The Company's financial decisions were independently made. The majority shareholder did not interfere with the use of funds by listed companies. 5. Independent organization The board of directors, the supervisory committee and other internal organs of the Company operated independently. Its organs are complete and independent. IV. The mechanism of appraisal and stimulation of senior executives and the establishment and implementation of relevant incentive system in the report period In the report period，the Company further established and improved the appraisal system applicable to senior executives, specified the post responsibilities and appraisal standard of each senior executive and regularly conducted appraisal. The Company submitted senior executive incentive scheme to the board of directors for examination according to the operating results reflected in the annual auditor's report issued by certified public accountants and implemented such scheme after examination and approval by the board of directors. 第 17 页 VI Brief Introduction of Shareholders' General Meeting I. In the report period，the Company held annual shareholders' general meeting and a provisional shareholders' general meeting. (I) 2002 annual shareholders' general meeting The 4th meeting of the fourth board of directors of the Company resolved to hold 2002 annual shareholders' general meeting and published meeting notice on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao and Hong Kong Commercial Daily on April 18, 2003. The 2002 annual shareholders' general meeting of the Company was held in China Hall on 4/F of Guangdong Foreign Investors' Activity Center on June 2, 2003. 6 shareholders (or shareholders' representatives) attended the meeting, holding and representing 573,334,529 shares which account for 45.61% of the total share capital, i.e., 1,257,117,748 shares. 3 shareholders holding domestic investment shares attended the meeting, representing 508,220,212 shares. 3 shareholders holding foreign investment shares attended the meeting, representing 65,114,317 share. The meeting complied with relevant provisions of the Company Law and the Articles of Association of the Company. The public notary of Guangdong Notary Office notarized this meeting. Guoxin United Law Office issued legal opinion for this meeting. After examination, the meeting examined and voted through the following proposals by registered ballot: 1、 2002 Work Report of the Board of Directors of the Company; 2、 2002 Work Report of the Supervisory Committee of the Company; 3、 2002 Business Report of the General Manager; 4、 2002 Final Accounting Report; 5、 2002 Profit Distribution Preplan; 6、 2002 Annual Report and Its Summary; 7、 The Proposal for Retaining Certified Public Accountants; 8、 The Proposal for Abandoning the Plan for Issuing Convertible Bonds; 9、 The Proposal for Changing the Business Scope of the Company and Revising Relevant Part of Articles of Association of the Company; 10、The Proposal for Replacing Part of Directors; 11、The Proposal for Replacing Part of Supervisors; 12、The Proposal for Electing Independent Directors of the Fourth Board of Directors of the Company. The resolutions of this meeting were published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao and Hong Kong Commercial Daily on June 3, 2003. (II) The first provisional shareholders’ general meeting in 2003 A provisional meeting of the fourth board of directors of the Company resolved to hold the first provisional shareholders’ general meeting in 2003 in the manner of voting by correspondence and published the meeting notice on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao and Hong Kong Commercial Daily on November 26, 2003. The first provisional shareholders’ general meeting of the Company in 2003 was held in China Hall on 4/F of Guangdong Foreign Investors' Activity Center on December 29, 2003. 6 shareholders (or shareholders' representatives) attended the meeting, holding and representing 573,984,829 shares which account for 45.66% of the total share capital, i.e., 1,257,117,748 shares. 3 shareholders holding domestic investment shares attended the meeting, representing 第 18 页 508,220,212 shares. 3 shareholders holding foreign investment shares attended the meeting, representing 65,764,617 share. The meeting complied with relevant provisions of the Company Law and the Articles of Association of the Company. The public notary of Guangdong Notary Office notarized this meeting. Guoxin United Law Office issued legal opinion for this meeting. The meeting examined and adopted the Proposal for the Capital Increase, Construction and Operation of Phase-II Project of Jianghe Expressway by Guangdong Jiangzhong Expressway Co., Ltd. The resolution of this meeting was published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao and Hong Kong Commercial Daily on December 30, 2003. II. Particulars about the election and replacement of director and supervisors 1. As examined and adopted by 2002 annual shareholders' general meeting, Mr. You Guojing, Mr. Zhu Xiaoling, Mr. Zeng Zhaogeng and Mr. Su Yongdong were approved to resign from the position of director due to work transfer. Mr. Ling Jian and Mr. Ma Chunsheng were elected as the directors of the fourth board of directors of the Company. 2. As examined and adopted by 2002 annual shareholders' general meeting of the Company, Mr. He Qiang and Mr. Xiang Tiangui were approved to act as independent directors of the fourth board of directors. 3. As examined and adopted by 2002 annual shareholders' general meeting, Mr. Lu Yongzheng was approved to resign from the position of supervisor due to work transfer and Mr. Wu Jianxiang was elected as a supervisor of the fourth supervisory committee of the Company. 4. As examined and adopted by the 4th meeting of the fourth board of directors, Mr. You Guojing was approved to resign from the position of chairman of the board of directors and Mr. Cao Xiaofeng was elected as the chairman of the fourth board of directors. 5. As examined and adopted by the 3rd meeting of the fourth supervisory committee, Mr. Lu Yongzheng was approved to resign from the position of chairman of the supervisory committee and Mr. Li Dongshan was elected as the chairman of the fourth supervisory committee. VII Report of the Board of Directors I. Discussion and analysis of operation Though Guangdong area was greatly affected by SARS in 2003, the toll income of the expressways controlled or partly held by the Company enjoyed growth at certain rate. Increase or Increase or decrease over the decrease over the Volume of same period of Toll income in same period of vehicle traffic in the previous year 2003 (RMB the previous year 2003 (million) (%) million) (%) Guangfo Expressway 25.22 -14.39% 292.02 1.69% Fokai Expressway 11.46 -12.16% 459.19 8.10% Jiujiang Bridge 6.87 16.82% 46.00 11.60% 第 19 页 Huiyan Expressway 12.74 14.28% 185.37 9.28% Maozhan Expressway 1.51 30.07% 43.08 31.59% Jingzhu Expressway 473.67 10.35% Guangzhu East Section 13.64 12.97% Guangzhao Expressway 3.99 ----- 91.08 ------ Guangzhao First-class 62.84 ------- Highway 7.17 ----- In the report period，the volume of vehicle traffic of Guangfo Expressway and Fokai Expressway controlled by the Company decreased and the toll income slightly increased for the following reasons: (1) Guangfo Expressway and Fokai Expressway adjusted the vehicle type classification criteria and toll coefficient in the second half of 2002, which resulted in the shunting of part of vehicles and the decrease of volume of vehicle traffic. However, due to the actual rise of overall charging standard, toll income somewhat increased over the same period of the previous year. (2) Foshan area adopted annual ticket system of toll and did not collect toll from non-local vehicles, which resulted in certain shunting of the flow of traffic of Guangfo Expressway and Fokai Expressway and slight decrease of the growth rate of their toll income. (3) Guangfo Expressway was overhauled last year, which had certain influence on the traffic capacity of the expressway. With the completion of the overhaul project and the perfection of annual ticket system of toll in Foshan, the Company expects certain growth of volume of vehicle traffic and toll income of Guangfo Expressway and Fokai Expressway. The volume of vehicle traffic and toll income of Huiyan Expressway, Maozhan Expressway, Jingzhu Expressway Guangzhu East Section, Guangzhao Expressway and Guangzhao First-class Highway partly held by the Company all enjoyed stable growth rate. Guanghui Expressway of which the Company holds 30% equity was open to traffic in December 2003. This expressway is in a developed area of Guangdong Province. The volume of its vehicle traffic has grown quickly. It will become a new channel for profit growth of the Company. In the report period，the income from main operation and net profit of the Company were RMB 797 million and RMB 181 million respectively, an increase of 5.84% and 5.85% respectively over the same period of the previous year. The cash flow from operating activities was RMB 454 million, an increase of 27.89% over the same period of the previous year. The net increase of cash and cash equivalents was RMB 116.2 million. As of December 31, 2003，the assets-liabilities ratio of the Company was 35.74%. Long-term liabilities accounted for 78.57% of total liabilities. There were no due but unsettled debts. The Company had sufficient overall equity capital and its assets and liabilities structure was good, which is exposed to low financial risk. The Company operated in good condition in 2003. The progress of the projects under construction is as follows: 59% of Jiangzhong Expressway ( including phase-II Jianghe Expressway) was completed. 65% of the overhaul project of Guangfo Expressway was completed. It is expected to be completed at the end of May 2004. In 2003, the overall financial status of the Company was good, whose comprehensive strength and operating results were constantly enhanced. II. Operating status of the Company in the report period 1. The scope of main operation and its operating status 第 20 页 Being in infrastructure industry, the Company is mainly engaged in the commercial development and operation of expressways and huge bridges. It is one of main enterprises engaged in the development of expressways and huge bridges in Guangdong expressway system. Expressway industry is an industry enjoying the key support of the state. The operation of the Company benefits from the support of national industrial policies. In the report period, the income from main operation and profit from main operation of the Company were RMB 797,190,721.00 and RMB 518,769,487.31 respectively, which came from the commercial toll collection of expressways and huge bridges. The concrete composition is as follows: Items of main operation Income from main Proportion operation (RMB) Fokai Expressway Co., 505,179,710.00 63.37% Ltd. Guangfo Expressway Co., 292,011,011.00 36.63% Ltd. Items of main operation Profit from main Proportion operation (RMB) Fokai Expressway Co., 60.12% 311,867,278.00 Ltd. Guangfo Expressway Co., 39.88% 206,902,209.31 Ltd. 2. Operating status and results of main controlled subsidiaries and joint ventures (1) Guangfo Expressway Co., Ltd. The Company holds 75% equity of this company. The registered capital of the company is RMB 200 million. It is engaged in construction and operation of Guangzhou-Foshan Expressway, including the maintenance and toll collection of the expressway, the maintenance of traffic facilities including signs and marked lines, vehicle salvage, etc. As at the end of 2003, the total assets and net profit of the company were RMB 768,243,745.15 and RMB 171,444,752.48 respectively. (2) Guangdong Fokai Expressway Co., Ltd. The Company holds 51% equity of this company. The registered capital of the company is RMB 340 million. It is engaged in operation and management of Fokai Expressway, supporting salvage, maintenance and cleaning, supply of parts and components, etc. As at the end of 2003, the total assets and net profit of the company were RMB 3,513,093,605.90 and RMB 176,572,685.04 respectively. (3) Guangdong Express Technology Investment Co., Ltd. The Company holds 95% equity of this company. The registered capital of Guangdong Express Technology Investment Co., Ltd. is RMB 100 million. It is engaged in investing in science and technology industries. As at the end of 2003, the total assets and net profit of the company were RMB 99,088,795.35 and RMB 2,727,081.45 respectively. (4) Shenzhen Huiyan Expressway Co., Ltd. The Company holds one third equity of this company. The registered capital of the company is RMB 36 million. The company is engaged in the organization and management of the construction of the main line of Shenzhen section of Huiyan Expressway, its operation, management and maintenance after its completion, collection of toll and road service management, the construction management of road, bridge and culvert 第 21 页 projects and engineering consultation. As at the end of 2003, the total assets and net profit of the company were RMB 558,962,979.04 and RMB 92,061,891.87 respectively. (5) Guangdong Maozhan Expressway Co., Ltd. The Company holds 20% equity of this company. The registered capital of the company is RMB 320 million. The company is engaged in operation, maintenance and management of Dianbai-Zhanjiang Expressway and relevant supporting facilities. As at the end of 2003, the total assets and net profit of the company were RMB 2,280,648,742.83 and RMB - 85,998,847.76 respectively. (6) Jingzhu Expressway Guangzhu Section Co., Ltd. The Company holds 20% equity of this company. The registered capital of the company is RMB 580 million. The company is engaged in the operation and management of Guangzhou-Zhuhai Expressway and provision of supporting services including fueling, salvage and supply of parts and components. As at the end of 2003, the total assets and net profit of the company were RMB 4,876,238,147.51 and RMB 4,768,853.36 respectively. (7) Zhaoqing Yuezhao Highway Co., Ltd. The Company holds 25% equity of this company. The registered capital of the company is RMB 818.3 million. It is engaged in the construction, operation and management of Guangzhao Expressway, old highways and their supporting facilities, service facilities and integrated projects. As at the end of 2003, the total assets and net profit of the company were RMB 2,380,108,009.53 and RMB - 15,708,344.79 respectively. (8) Guangdong Guanghui Expressway Co., Ltd. The Company holds 30% equity of this company. The registered capital of the company is RMB 671.9 million. It is engaged in the investment in and construction of Guanghui Expressway and supporting facilities, the toll collection and maintenance management of Guanghui Expressway. As at the end of 2003, the total assets and net profit of the company were RMB 6,205,340,108.21 and RMB - 17,613,217.28 respectively. 3. Problems and difficulties occurred in operation and their solutions On the one hand, expressway is characterized by long investment cycle and low volume of vehicle traffic in initial stage. Some expressway projects in which the Company invested were newly built or still in initial stage. So far, they have not generated high investment return, which exerted apparent pressure on the profit growth of the Company. On the other, expressway is also characterized by high extent of fund accumulation. Further acquisition of more expressway assets demands huge amount of funds. For this reason，the Company will actively seek financing through various channels and raise funds by means of practicable equity financing. Meanwhile, it will also take effective measures for broadening sources of income and reducing expenditure. On the one hand, it will strengthen the collection of toll and strip part of assets that have low profitability in the near future. On the other, it will strictly control various expenses and lower operating cost. III. Particulars about investment (I) The Company did not use raised funds in the report period. (II) The actual progress of important investment projects utilizing non-raised funds 1. The 8th meeting of the third board of directors held on December 15, 2000 examined the adopted the proposal for equity participation and investment in the project of Guangzhao Expressway. The Company, Guangdong Road and Bridge Construction Development Co. and 第 22 页 Zhaoqing Highway Development Corporation enter into Contract for Cooperation on Zhaoqing Yuezhao Highway Co., Ltd. The total investment of the project of Guangzhao Expressway is about RMB 2.338 million. Its registered capital accounts for 35% of total investment of the project, being RMB 818.3 million. The total amount of the capital to be contributed by the Company is RMB 204.575 million. accounting for 25% of the registered capital. The Company made full payment according to the terms of the contract on February 24, 2003. The net profit of Zhaoqing Yuezhao Highway Co., Ltd. for the report period was RMB - 15,708,344.79. The Company shared loss of RMB 2,204,587.90. 2. As examined and adopted by the 11th meeting of the third board of directors of the Company and 2001 annual shareholders' general meeting, the Company entered into the Contract for Cooperation on the Project of Jiangzhong Expressway with Guangdong Highway Construction Company on March 21, 2002 to jointly invest in and establish Guangdong Jiangzhong Expressway Co., Ltd. and construct and operate Jiangzhong Expressway. The registered capital of the company is RMB 150 million . Guangdong Highway Construction Company and the Company respectively hold 85% and 15% equity of this company. After the first provisional shareholders’ general meeting in 2003 examined and adopted the Proposal for the Capital Increase, Construction and Operation of Phase-II Project of Jianghe Expressway by Guangdong Jiangzhong Expressway Co., Ltd., the Company and Guangdong Highway Construction Company increased investment in Guangdong Jiangzhong Expressway Co., Ltd. according to the original shareholding proportion for constructing, operating and managing phase-II project of Jianghe Expressway. The Company will add investment of around RMB 25 million and its equity proportion will remain 15%. In the report period，the Company paid capital contribution of RMB 38.06 million. As of December 31, 2003，59% of the project of Jiangzhong Expressway (including phase-II project of Jianghe Expressway) was completed. The Company invested RMB 83.29 million in total. 3. On July 14, 2000, the Company newly entered into the Contract for Cooperative Construction and Operation of Guangzhou (Luogang) to Huidong (Lingkeng) Expressway with Guangdong Changda Development Co., Ltd., Guangdong Pearl River Highway & Bridge Investment Co., Ltd. and Huizhou Highway Property Development Co., Ltd. to jointly invest in, construct and operate Guangzhou (Luogang) to Huidong (Ling Keng) expressway, and its supporting and service facilities. The total investment of the project is about RMB 6.7 billion. 35% of the total investment shall be paid by corporate shareholders in lump sum. Capital shall be contributed year by year in proportion according to the approved construction progress. The registered capital of the company is RMB 100 million. The Company shall contribute capital of RMB 30 million, which accounts for 30% of the registered capital. The capital beyond the registered capital shall be paid by shareholders according to proportion of capital contribution. The funds beyond 35% of total capital shall be raised from banks by pledging project equity. If the bank loans are deficient or the rough estimate approved by government goes beyond investment estimation, the cooperative parties shall make additional investment in the form of shareholder loan according to the proportion of capital contribution or continue to apply for bank loans to cover such deficiency or difference. Guanghui Expressway was open to traffic on December 20, 2003. The Company invested RMB 210 million in the report period. As of December 31, 2003, the Company invested RMB 600 million. 第 23 页 IV. Analysis of the financial position and operating results of the Company 1. Notes to the correction of accounting errors According to SGSNJZ (2003) No. 02911593 Tax Treatment Decision issued by South District Check Bureau of Guangzhou State Taxation Bureau on December 22, 2003, the Company should pay income tax applicable to foreign-invested enterprises and foreign enterprises totaling RMB 9,730,431.55 and local income tax of RMB 861,052.31 for the period from 1999 to 2001 as well as overdue fine of RMB 1,456,592.23 calculated until September 16, 2002. This error was corrected when the financial statements for 2003 were prepared. Retroactive adjustment was made to the financial statements for 2002. After adjustment, the year beginning balance of taxes payable increased by RMB 12,048,076.09 and surplus reserve decreased by RMB 1,807,211.41 in the financial statements for 2003. The income tax expenses for 2002 increased by RMB 930,738.26 while net profit for 2002 decreased by RMB 930,738.26. The undistributed profit and retained earnings for 2002 decreased by RMB 10,240,864.68 and RMB 12,048,076.09 respectively. 2. Change of accounting policies According to relevant provisions of CK (2003) No. 12 Document - Accounting Standards for Business Enterprises - Matters after Balance Sheet Date issued by Ministry of Finance of the People's Republic of China on April 14, 2003, the Company separately stated the dividends to be distributed in the profit distribution plan formulated by the board of directors in the period from the balance sheet date to the date of approval of the disclosure of financial report in owner's equity of balance sheet and made retroactive adjustment to the items relating to cash dividend distribution (profit distributed to investors) in the period for which comparative financial statements were prepared. After adjustment, the year beginning balance of dividends payable decreased by RMB 125,711,774.80 and undistributed profit increased by RMB 125,711,774.80 while retained earnings increased by RMB 125,711,774.80 in the financial statements for 2003. 3. Analysis of the financial position and operating results of the Company (Unit: RMB) Proportion of Item 2003-12-31 2003-1-1 increase or decrease (%) Monetary capital 248,346,361.55 131,937,987.12 88.23% Short-term investment 49,078,039.87 133,259,399.25 -63.17% Long-term equity investment 1,799,147,507.69 1,355,864,555.26 32.69% Short-term loan 320,000,000.00 100,000,000.00 220.00% Current liabilities 507,742,091.53 297,873,365.04 70.46% Shareholders' equity 3,534,078,664.97 3,480,312,041.99 1.54% Total assets 6,663,419,082.32 6,140,580,965.34 8.51% 2003 2002 Profit from main operation 797,190,721.00 753,156,947.00 5.85% Financial expenses 65,596,400.02 20,258,839.57 223.79% Operating profit 396,789,213.58 419,888,295.98 -5.50% Investment income 21,134,524.72 -8,185,173.38 第 24 页 Total profit 410,328,890.85 405,976,517.31 1.07% Net profit 181,182,988.13 171,955,320.42 5.37% Net increase of cash and cash 116,408,374.43 -329,427,880.86 equivalents Monetary capital increased mainly due to the increase of short-term loan. Short-term investment decreased mainly due to the decrease of national bond investment. Long-term equity investment increased mainly due to equity participation in Guangzhao Expressway project and capital contribution to Guangdong Guanghui Expressway Co. and Guangdong Jiangzhong Expressway Co. Short-term loan increased mainly due to the increase of short-term loans of Guangfo Expressway Co. and Fokai Expressway Co., the controlled subsidiaries of the Company. Current liabilities increased mainly due to the increase of short-term loans. Shareholders' equity increased mainly due to the increase of investment income. Total assets increased mainly due to the increase of bank loans and net profit. Profit from main operation, operating profit and total profit increased mainly due to the adjustment of objects of toll collection and the increase of volume of vehicle traffic. Financial expenses increased mainly due to the increase of investment projects and the increase of loans arising from the overhaul of Guangfo Expressway. Investment income increased mainly due to the increase of the income from Jingzhu Expressway Guangzhu East Line and Huiyan Expressway. Net profit increased mainly due to the adjustment of objects of toll collection and the increase of volume of vehicle traffic. Net increase of cash and cash equivalents increased mainly due to the increase of total profit and the amortization of long-term expenses to be amortized. V. Influence of the changes in production and operation environment and macro policies on the operating status of the Company. According to the requirements of the government of Guangdong Province, expressways in Guangdong Province should start to collect toll by using the same network from 2003. Part of joint ventures and controlled subsidiaries of the Company had to increase investment in the renovation of toll collection system, which increased the operating cost of the Company to a certain extent. VI. Guangzhou Yangcheng Certified Public Accountants Co., Ltd. and Ernst and Young issued unqualified auditor's report for the report year for the Company. VII. Business plan of the Company for the new year 1. To strengthen expressway operation management, strictly control the plans, cost, profit target management and performance appraisal of operation companies and strengthen examination, 第 25 页 internal audit and supervision. The target income from main operation and cost of main operation for 2004 are RMB 770 million and RMB 262.51 million respectively. 2. To strengthen the engineering construction of projects under construction including Jiangzhong Expressway and phase-II project of Jianghe Expressway and the management of overhaul project of Guangfo Expressway and guarantee the completion of projects on time according to required quality. 3. To pay close attention to the change of domestic securities market and actively explore new financing channels and ways. 4. To make use of traditional way of bank lending, try to obtain more credit line from banks to ensure the provision of backup funds for the development of the Company. 5. To further improve the Company's investor management system and regularly conduct investor relationship management activities. VIII. Routine Work of the Board of Directors (I) Board meetings and resolutions in the report period In the report period, the Company held 7 board meetings in total. The particulars of the meetings are as follows: 1. The 3rd meeting of the fourth board of directors of Guangdong Expressway Development Co., Ltd. was held in the meeting room of the Company in the morning of March 5, 2003. 11 directors were supposed to attend the meeting, all of whom were actually present. The meeting complied with relevant provisions of the Company Law and the Articles of Association of the Company. The meeting was convened and presided over by the chairman of the board of directors You Guojing. All supervisors and senior executives of the Company attended the meeting as nonvoting delegates. The meeting examined and adopted the following proposals: （1） 2002 Final Accounting Report of the Company; （2） 2002 Profit Distribution Preplan of the Company; （3） 2002 Work Report of the Board of Directors of the Company; （4） 2002 Business Report of the General Manager; （5） The Proposal for Allocation for Bonus; （6） The Proposal for Making Provision for Impairment of Short-term Investment; （7） The Proposal for Making Provision for Impairment of Long-term Investment; （8） The Proposal for Making Provision for Impairment of Fixed-assets; （9） 2002 Annual Report and its summary with their announcement approved. （10） The Proposal for Retaining Certified Public Accountants; （11） The Proposal for Investing in Huazheng Asset Management Co., Ltd.; （12） The Proposal for Retaining General Counsel for the Company; （13） The Proposal for Establishing Legal Affairs Dept. （14） The Proposal for Disposing of House Property in Huizhou. The resolutions of this meeting were published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao and Hong Kong Commercial Daily on March 7, 2003. 2. The 4th meeting of the fourth board of directors of Guangdong Expressway Development Co., Ltd. was held in the meeting room of the Company in the morning of April 16, 2003. 11 directors were supposed to attend the meeting, 8 of whom were actually present. Directors Li 第 26 页 Wenzheng, Wang Tao and Su Yongdong did not attend the meeting for sake of work. They entrusted other directors to attend the meeting and voted on their behalf. The meeting complied with relevant provisions of the Company Law and the Articles of Association of the Company. The meeting was convened and presided over by the chairman of the board of directors You Guojing. All supervisors and senior executives of the Company attended the meeting as nonvoting delegates. The meeting examined and adopted the following proposals: （1） The Report of the Company for the First Quarter of 2003 with its announcement approved; （2） The Proposal for Abandoning the Plan for Issuing Convertible Bonds; （3） The Proposal for Changing the Business Scope of the Company and Revising Relevant Part of Articles of Association of the Company; （4） The Proposal for Replacing the Board Chairman of the Company; （5） The Proposal for Replacing Part of Directors; （6） The Proposal for Nominating Candidates for Independent Directors of the Fourth Board of Directors; （7） The Proposal Concerning the Declaration of the Nominator of Independent Directors; （8） The Proposal for Holding 2002 Annual Shareholders' General Meeting. The resolutions of this meeting were published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao and Hong Kong Commercial Daily on April 18, 2003. 3. The fourth board of directors of Guangdong Expressway Development Co., Ltd. held a provisional meeting on May 12, 2003. The meeting examined and adopted the following proposals through voting by correspondence. （1） As the 4th meeting of the fourth board of directors approved Mr. Cao Xiaofeng to act as the chairman of the fourth board of directors, Mr. Cao Xiaofeng was approved to resign from the original position of general manager. Mr. Huo Yanbin was approved to be appointed as the general manager of the Company, whose term of office is the same with that of the current board of directors. （2） Due to work transfer, Mr. Huo Yanbin was approved to resign from the position of deputy general manager and secretary to the board of directors. Mr. Xiao Laijiu was approved to be appointed as the secretary to the fourth board of directors of the Company, whose term of office is the same with that of the current board of directors. The resolutions of this meeting were published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao and Hong Kong Commercial Daily on May 14, 2003. 4. The 5th meeting of the fourth board of directors of Guangdong Expressway Development Co., Ltd. was held in China Hall on 4/F of Guangdong Foreign Investors' Activity Center in the morning of June 2, 2003. 11 directors were supposed to attend the meeting, 6 of them were actually present. 5 directors authorized other directors to attend the meeting and vote on their behalf. The meeting complied with relevant provisions of the Company Law and the Articles of Association of the Company. The meeting was convened and presided over by the chairman of the board of directors Cao Xiaofeng. All supervisors attended the meeting as nonvoting delegates. The 第 27 页 meeting examined and adopted the Proposal for Buying National Bonds. The resolutions of this meeting were published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao and Hong Kong Commercial Daily on June 3, 2003. 5. The 6th meeting of the fourth board of directors of Guangdong Expressway Development Co., Ltd. was held in the meeting room of the Company in the morning of July 30, 2003. 11 directors were supposed to attend the meeting, all of whom were actually present. The meeting complied with relevant provisions of the Company Law and the Articles of Association of the Company. The meeting was convened and presided over by the chairman of the board of directors Cao Xiaofeng. All supervisors and senior executives of the Company attended the meeting as nonvoting delegates. The meeting examined and adopted the following proposals: （1） 2003 Semiannual Report of the Company and its summary with their announcement approved; （2） The Proposal Concerning 2003 Semiannual Profit Distribution of the Company; （3） The Proposal for Writing Back Provision for Impairment of Short-term Investment; （4） The Proposal for the Capital Increase, Construction and Operation of Phase-II Project of Jianghe Expressway by Guangdong Jiangzhong Expressway Co., Ltd. The resolutions of this meeting were published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao and Hong Kong Commercial Daily on August 1, 2003. 6. The 7th meeting of the fourth board of directors of Guangdong Expressway Development Co., Ltd. was held in the morning of October 21, 2003 in the manner of voting by correspondence. All of 11 directors attended the meeting. The meeting complied with relevant provisions of the Company Law and the Articles of Association of the Company. The meeting examined and adopted the Report of the Company for the Third Quarter of 2003 and approved its announcement. 7. A provisional meeting of the fourth board of directors of Guangdong Expressway Development Co., Ltd. was held in the morning of November 25, 2003 in the manner of voting by correspondence. All of 11 directors attended the meeting. The meeting complied with relevant provisions of the Company Law and the Articles of Association of the Company. The meeting examined and adopted the proposal for holding the first provisional shareholders’ general meeting in 2003 on December 29, 2003 and agreed to submit the Proposal for the Capital Increase, Construction and Operation of Phase-II Project of Jianghe Expressway by Guangdong Jiangzhong Expressway Co., Ltd. to this shareholders' general meeting for examination. The resolutions of this meeting were published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao and Hong Kong Commercial Daily on November 26, 2003. (II) Implementation by the board of directors of the resolutions of the shareholders' general meeting 1. Implementation status of the plan for profit distribution and common reserve fund capitalization 2002 Annual Shareholders' General Meeting examined and adopted the proposal concerning profit distribution for 2002: The Company is to pay cash dividend of RMB 1.00 (including tax) for 第 28 页 each 10 shares with the total share capital at the end of 2002, i.e., 1,257,117,748 share as the base. This profit distribution plan was fulfilled in June 2003. 2. Implementation status of the matters authorized by shareholders' general meeting (1) 2002 Annual Shareholders' General Meeting examined and adopted the Proposal for Changing the Business Scope of the Company and Revising Relevant Part of Articles of Association of the Company and authorized the board of directors to go through relevant formalities. At present, the board of directors is going through the formalities for applying for the approval of the revision of Articles of Association. (2)The first provisional shareholders’ general meeting in 2003 examined and adopted the Proposal for the Capital Increase, Construction and Operation of Phase-II Project of Jianghe Expressway by Guangdong Jiangzhong Expressway Co., Ltd. and authorized the management of the Company to handle the matters including the change of the cooperation contract and articles of association of Jiangzhong Co. At present, the board of directors is going through relevant formalities for change. IX. Preplan for profit distribution and common reserve fund capitalization for the report year According to the audit of the financial position and profit status of the Company for 2003 by Yangcheng Certified Public Accountants pursuant to Chinese enterprise accounting standards, the after-tax profit of the Company for 2003 is RMB 181,182,988.13 and the accumulative distributable profit is RMB 543,985,465.17. As audited by Ernst and Young pursuant to international accounting standards, the after-tax profit of the Company for 2003 is RMB 144,494,000.00 and the accumulative distributable profit is 276,805,211.41. According to the provisions of the Articles of Association of the Company, regulations of CSRC and relevant financial regulations, profit distribution should be carried out based on the lower of the profits calculated pursuant to Chinese and international accounting standards. The distribution plan is as follows: 1. As audited by Yangcheng Certified Public Accountants, the after-tax profit of the Company for 2003 is RMB 181,182,988.13 . 10% of the after-tax profit, i.e., RMB 18,118,298.81 is to be appropriated for statutory common reserve fund and 5% thereof, i.e., RMB9,056,149.41 , is to be appropriated for statutory public welfare fund. 2. RMB 125,711,774.80 is to be allocated from the profit available for distribution to shareholders as the fund for dividend distribution for 2003. The board of directors decided the Company would distribute profit for 2003 in the form of cash dividend payment. The Company is to pay RMB 1.00 (including tax) for each 10 shares with the total share capital, i.e., 1,257,117,748 shares, as the base. Cash dividends of RMB 125,711,774.80 are to be distributed in total. The remaining undistributed profits are to be carried forward to the next year. The foreign exchange translation rate for the cash dividends payable to shareholders of B shares and overseas corporate shares is to be determined according to the bank's selling rate of HKD:RMB exchange rate published by the foreign exchange purchase bank on the date of foreign exchange purchase within two months after 2003 annual shareholders' general meeting makes the resolution for dividend distribution. X. Miscellaneous 第 29 页 1. The newspapers selected by the Company for information disclosure The Company selected Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao and Hong Kong Commercial Daily as the newspapers for information disclosure. 2. The special statement of certified public accountant to the fund occupation by the controlling shareholder and other related parties of the Company. Special Statement of the Fund Occupation by the Controlling Shareholder and Other Related Parties To all shareholders of Guangdong Provincial Expressway Development Co., Ltd.: We accepted the entrustment of Guangdong Expressway Development Co., Ltd. (hereinafter referred to as "your company") and audited the status of fund occupation between the Company and its controlling shareholder and other related parties of the Company according to the requirements of GZZJ (2004) No. 15 Document - Circular of Relevant Work Concerning the Implementation of Circular on Certain Issues Relating to Standardization of Fund Transfer Between Listed Companies and Their Related Parties and Guarantees Provided by Listed Companies issued by CSRC Guangzhou Securities Regulatory Office. We hereby give our statement based on our audit as follows: As of December 31, 2003, the debit balance of the current accounts between your company and its controlling shareholder Guangdong Communication Group Co., Ltd. as well as other related parties (not including related parties included in the scope of consolidation) was RMB 530.4157 million. Of which: The debit balance of the entrusted loan provided to related parties through non-banking financial institutions was RMB 340.9538 million. The debit balance of shareholder loans provided to related parties was RMB 129.58 million. The debit balance of the payment of toll by subsidiaries to other related parties was RMB 58.80 million. The above transactions were carried out according to the equity proportion of shareholders. The debit balance of other current accounts at the end of period was RMB 1.0819 million. Except the above circumstances, we did not find your company was involved in other circumstances of fund transfer mentioned in ZJF (2003) No. 56 Document - Circular on Certain Issues Relating to Standardization of Fund Transfer Between Listed Companies and Their Related Parties and Guarantees Provided by Listed Companies, including: 1. The Company provides interest bearing or interest free loans to its controlling shareholder and other related parties; 2. The Company advances period expenses including payroll, fringe benefits, insurance premiums and advertising costs on behalf its controlling shareholder and other related parties or costs and other expenditures are borne on behalf of one another; 3. The Company entrusts its controlling shareholder and other related parties to make investment; 4. The Company issues commercial acceptance bills without any real commercial means for its controlling shareholder and other related parties; 5. The Company extinguishes liabilities on behalf of its controlling shareholder and other related parties. 第 30 页 Appendix: Statistical Table of Fund Occupation Prepared by the Company. Guangzhou Yangcheng Certified Public Accountants Co., Ltd. Chinese C.P.A.： Liu Peilian Chinese C.P.A.： Liu Jiesheng Guangzhou China March 5, 2004 第 31 页 Statistical Table of Fund Occupation Prepared by the Company December 31, 2003 Prepared by: Guangdong Expressway Development Co., Ltd. Unit: RMB'0000 Closing time Closing time Compan Relationship point of point of Amount of fund Accumulative Amount of fund Compa y Fund occupation between fund ending beginning Corresponding items in occupation at the debit amount of occupation at the end of ny code abbrevia party occupation party balance of balance of financial statements beginning of period fund occupation period (RMB'0000) tion and the Company fund fund (RMB'0000) (RMB'0000) occupation occupation A B C D E1 E2 F1 G1 F2 G2 F3 G3 F4 G4 Guangd Guangdong Changda Controlled by the ong 000429 Highway Engineering same parent 2003-12-31 2003-1-1 Prepayment 20.00 - 20.0 Express Co., Ltd. company way Guangd Guangdong Xinyue Controlled by the ong Communication same parent 2003-12-31 2003-1-1 Prepayment 62.36 - 62.3 Express Investment Co., Ltd. company way Guangd Guangdong Nengda Controlled by the ong High Grade Highway same parent 2003-12-31 2003-1-1 Prepayment 25.83 - 25.8 Express Maintenance company way Company Guangd A joint venture Long-term ong Huiyan Expressway company of which 2003-12-31 2003-1-1 creditor's right 12,158.00 12,758.00 600.0 Express Company the Company investment way directly holds 第 32 页 33.33% equity A joint venture Guangd Beijing Gelin Enze company of which Long-term ong Organic Fertilizer Co., the Company 2003-12-31 2003-1-1 creditor's right 800.00 - 800.0 Express Ltd. indirectly holds investment way 33.25% equity A joint venture Guangd company of which Long-term ong Guangzhu East the Company 2003-12-31 2003-1-1 creditor's right 34,095.38 31,569.80 Express Expressway Company directly holds 20% investment way equity Guangd Controlled by the ong Guangdong Other same parent 2003-12-31 2003-1-1 5,880.00 5,880.00 Express Expressway Co., Ltd. receivables company way Subtotal 5,880.00 47,161.57 44,327.80 5,880.00 1,508.1 1. The Company entrusted Guangdong Yuecai Trust Investment Co., Ltd. to provide interest free entrusted loan to Shenzhen Huiyan Expressway Co., Ltd. 2. Guangdong Express Technology Investment Co., Ltd., a controlled subsidiary of the Company, provided entrusted loan of RMB 8 million to Beijing Gelin Enze Organic holds 35% equity, through Beijing Commercial Bank. The term is from June 4, 2003 to June 4, 2004. The monthly interest rate is 4.425‰. 3. The Company provided shareholder loan to Jingzhu Expressway Guangzhu Section Co., Ltd. As agreed, interest shall be calculated at compound interest rate of 8%. 4. Guangdong Fokai Expressway Co., Ltd., a controlled subsidiary of the Company, turned in toll of RMB 58.80 million to Guangdong Expressway Co., Ltd., one of its share in 2003. 第 33 页 3.The special statement and independent opinions of independent directors on the accumulative and current external guarantee provided by the Company according to ZJF (2003) No. 56 Document. After seriously listening to the report of the board of directors, management and other relevant personnel of the Company, four independent directors hereby give a statement on relevant circumstances and express the following opinions upon full discussion: (1) Fund transfers between the Company and related parties (1) The Company did not provide interest bearing or interest free loans to its controlling shareholder and other related parties. (2) The Company did not advance periodic expenses including payroll, fringe benefits, insurance premiums and advertising costs on behalf of its controlling shareholder and other related parties. Costs and other expenditures were not born on behalf of one another. (3) The Company did not entrust its controlling shareholder and other related parties to make investment. (4) The Company did not issue commercial acceptance bills without any real commercial means to its controlling shareholder and other related parties. (5) The Company did not extinguish liabilities on behalf of its controlling shareholder and other related parties. (6) The Company provided entrusted loans to related parties through banks or non-banking financial institutions. A. The Company provided entrusted shareholder loan of RMB 121.58 million and RMB 3409.8538 (including interest) respectively to is joint ventures Shenzhen Huiyan Expressway Co., Ltd. and Jingzhu Expressway Guangzhu Section Co., Ltd. "Entrusted shareholder loan" is a kind of investment mode developed during construction of and investment in expressways and generally used. This kind of mode of creditor's rights investment adapts to the characteristics of expressway construction including huge lump-sum investment, small amount of working capital needed during operation and no need of reinvestment of depreciation fund. It can effectively avoid the unreasonable stay of funds in a project company and ensure the timely recovery of funds and reinvestment in new expressway construction projects by investors. The "entrusted shareholder loan" for each project is invested and recovered by the shareholders of the project according to the shareholding proportion agreed in the cooperation contract at the same time. Rights are corresponding to obligations. No rights and interests of any investor are harmed. According to project cooperation contract, the (entrusted) shareholder loan will be gradually repaid to project shareholders during project operation. The entrusted shareholder loans provided by the Company to Shenzhen Huiyan Expressway Co., Ltd. and Jingzhu Expressway Guangzhu Section Co., Ltd. will be gradually recovered according to project cooperation contracts and the commitment of the shareholders' meeting (or the board of directors) of the project companies. The interests of the Company were not harmed. B. Guangdong Express Technology Investment Co., Ltd., a controlled subsidiary of the Company, provided fixed-term entrusted loan totaling RMB 8 million to its joint ventures. Guangdong Express Technology Investment Co., Ltd. undertook to effectively adjust entrusted loans and borrowings according to the provisions of the Circular on Certain Issues Relating to 第 34 页 Standardization of Fund Transfer Between Listed Companies and Their Related Parties and Guarantees Provided by Listed Companies and promised the amount of occupied fund would decrease by at least 30% in each fiscal year in the future. (7) Other fund transfers between the Company and related parties were normal operating fund transfers. To sum up, we think the fund transfers between the Company and its related parties did not comply with relevant provisions of the Circular on Certain Issues Relating to Standardization of Fund Transfer Between Listed Companies and Their Related Parties and Guarantees Provided by Listed Companies in certain aspect mainly due to the characteristics of the industry in which the Company is engaged. The discrepancy harmed neither the Company nor the rights and interests of the shareholders of the Company. The Company has put forward rectification measures. (2) External guarantee After examining 2003 auditor's report and upon our investigation, we found, as of the date of issuing these opinions, the Company and its controlled subsidiaries did not provide guarantees to its shareholders, the controlled subsidiaries and affiliated enterprises of its shareholders, other related parties of which the Company holds less than 50% equity, any unincorporate entities or individuals nor did the controlled subsidiaries of the Company provide other external guarantees. 第 35 页 二○○三年度报告——监事会报告 VIII Report of the Supervisory Committee I. Meetings of the supervisory committee and resolutions in the report period In the report period, the Company held 3 meetings of supervisory committee in total. The particulars of the meetings are as follows: 1. The 2nd meeting of the fourth supervisory committee of Guangdong Expressway Development Co., Ltd. was held in the meeting room of the Company on March 5, 2003. 5 supervisors were supposed to attend the meeting, all of whom were actually present. The meeting was presided over by Mr. Lu Yongzheng, the chairman of the supervisory committee. The supervisors present at the meeting made the following resolutions after serious discussion: （1） Examining and adopting 2002 Work Report of the Supervisory Committee and approving submitting it to 2002 annual shareholders' general meeting for examination; （2） Examining and adopting 2002 Final Accounting Report and approving submitting it to 2002 annual shareholders' general meeting for examination; （3） Examining and adopting 2002 Annual Report and Its Summary and approving submitting it to 2002 annual shareholders' general meeting for examination; （4） Examining and adopting 2002 Profit Distribution Plan and approving submitting it to 2002 annual shareholders' general meeting for examination; （5） Listening to the Proposal for Making Provision for Impairment of Short-term Investment, the Proposal for Making Provision for Impairment of Long-term Investment and the Proposal for Making Provision for Impairment of Fixed Assets submitted by the board of directors. The resolutions of this meeting were published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao and Hong Kong Commercial Daily on March 7, 2003. 2. The 3rd meeting of the fourth supervisory committee of Guangdong Expressway Development Co., Ltd. was held in the meeting room of the Company in the morning of April 16, 2003. 5 supervisors were supposed to attend the meeting, all of whom were actually present. The meeting complied with relevant provisions of the Company Law and the Articles of Association of the Company. The meeting was convened and presided over by Mr. Lu Yongzheng, the chairman of the supervisory committee. It examined and adopted the following proposals: （1） The Report of the Company for the First Quarter of 2003; （2） The Proposal for Replacing the Chairman of the Supervisory Committee of the Company. （3） The Proposal for Replacing Part of Supervisors. The resolutions of this meeting were published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao and Hong Kong Commercial Daily on April 18, 2003. 3. The 4th meeting of the fourth supervisory committee of Guangdong Expressway Development Co., Ltd. was held in the meeting room of the Company in the morning of July 30, 2002. 5 supervisors were supposed to attend the meeting, all of whom were actually present. The meeting complied with relevant provisions of the Company Law and the Articles of Association of 第 36 页 二○○三年度报告——监事会报告 the Company. The meeting was convened and presided over by Mr. Li Dongshan, the chairman of the supervisory committee. The meeting examined and passed the following matters: （1） The meeting examined and adopted 2003 Semiannual Report and its summary. This report truly reflected the status and operating results of the Company. （2） The supervisory committee strictly supervised the operation and operation decisions of the Company in the first half of 2003. In the first half of 2003, the Company was able to strictly observe national laws and regulations and the Articles of Association of the Company in respect of management and operation. None of directors, general manager and other senior executives of the Company violated laws, regulations and the Articles of Association of the Company or harmed the interests of the Company or infringed upon the rights and interests of shareholders when they performed their duties. The resolutions of this meeting were published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao and Hong Kong Commercial Daily on August 1, 2003. II. The operation of the Company according to law The management of the Company made decisions in democratic manner and fully listened to opinions of all relevant parties. Its decision-making procedure strictly complied with the provisions of the Articles of Association of the Company and the authorization of the board of directors. Meanwhile, it formulated Rules of Procedure of the Board of Directors, Rules of Procedure of the Supervisory Committee and Rules of Procedure of Shareholders' General Meeting as well as over 50 regulations on post responsibilities, internal control, etc. No director or manager of the Company was found to violate laws, regulations, the Articles of Association of the Company or harm the Company's interests when he performed his duties. III. Inspection of the finance of the Company The supervisory committee established internal audit system and strengthened financial audit, inspection and supervision of subsidiaries. No significant regulation-violating act was found after audit. Besides, Yangcheng Certified Public Accountants and Ernst and Young audited the financial report for the report year respectively pursuant to independent audit standards for Chinese C.P.A. and international auditing standards and issued unqualified auditor's report. In the opinion of the supervisory committee, this auditor's report truly reflects the Company's financial status and operating results and is fair, objective, true and reliable. IV. Utilization of raised funds In the report period，no raised funds were used. V. Acquisition and disposal of assets by the Company The Company neither acquired nor disposed of assets in the report period. VI. Related transactions Other related transaction in which the Company was involved in the report period: The 6th meeting of the fourth board of directors and the first provisional shareholders' general meeting in 2003 examined and adopted the Proposal for the Capital Increase, Construction and Operation of 第 37 页 二○○三年度报告——监事会报告 Phase-II Project of Jianghe Expressway by Guangdong Jiangzhong Expressway Co., Ltd. The Company was approved to make additional investment of about RMB 25 million in Jiangzhong Co. Jiangzhong Co. will construct, operate and manage the phase-II Jianghe Project. The Company still holds 15% equity of Jiangzhong Co. In the opinion of the supervisory committee, this related transaction was fair and reasonable and did not harm the interests of the Company. 第 38 页 IX Important Events I. The Company was not involved in any material lawsuits and arbitration in the report year. Other arbitration matter occurred in the report period: On June 30, 2003, Shenzhen Subcommission of China International Economic and Trading Arbitration Commission made the final award on the dispute over the contract for sino-foreign cooperative construction and operation of Dianbai (Magang) to Zhanjiang (Suixi) Section of Fozhan Expressway and the supplemental agreement thereof and ruled that the Company should be compensated with damages. This arbitration matter did not have material influence on the operating results and financial status of the Company. The Company published the details about this arbitration on page 10 of Securities Times, page 24 of China Securities Daily, page 12 of Shanghai Securities Daily, page C2 of Tak Kung Pao and page A7 of Hong Kong Commercial Daily on July 4, 2003. II. Acquisition and disposal of assets, takeovers and mergers in which the Company was involved. There were no events of material acquisition or disposal of assets or asset reorganization in the report period or such events that occurred in previous periods but continued in the report period. III. Material related transactions The Company was not involved in any material related transaction in the report period. Other related transaction in which the Company was involved in the report period: The 6th meeting of the fourth board of directors and the first provisional shareholders' general meeting in 2003 examined and adopted the Proposal for the Capital Increase, Construction and Operation of Phase-II Project of Jianghe Expressway by Guangdong Jiangzhong Expressway Co., Ltd. The Company was approved to make additional investment of about RMB 25 million in Jiangzhong Co. Jiangzhong Co. will construct, operate and manage the phase-II Jianghe Project. The Company still holds 15% equity of Jiangzhong Co. Please refer to relevant announcements published by the Company on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao and Hong Kong Commercial Daily on August 1, 2003 and December 30, 2003 for the details of this related transaction. IV. Material contracts and their performance 1. The Company did not hold in trust or contract for or lease the assets of other companies nor did other companies hold in trust, contract for or lease the assets of the Company in the report period. 2. The Company did not provide important external guarantee in the report period. 3. The Company did not entrust others with money management in the report period. 4. In the report period，the Company did not sign other material contracts. V. Commitments There were neither commitments made by the Company or shareholders holding over 5% of total share capital in the report period nor such commitments that continued to the report period. 第 39 页 VI. Appointment of certified public accountants In the report period ， the Company continued to engage Yangcheng Certified Public Accountants and Ernst and Young as domestic and overseas audit bodies for the Company. The particulars about the remuneration of certified public accountants: 2003 Number of continuous years of Certified public Financial audit Other provision of audit services to accountants expenses expenses the Company Guangzhou RMB 0.6 million 11 years Yangcheng Certified Public Accountants Co., Ltd. Ernst and Young RMB 0.95 8 years million The Company did not bear the traveling expenses of certified public accountants. VII. In the report period, the Company, its board of directors and its directors were not investigated by CSRC, administratively punished or publicly criticized by CSRC or publicly condemned by stock exchange. VIII. Other important events (1) According to relevant requirements of the Circular on Certain Issues Relating to Standardization of Fund Transfer Between Listed Companies and Their Related Parties and Guarantees Provided by Listed Companies issued by China Securities Regulatory Commission and State-owned Assets Supervision and Administration Commission of the State Council (ZJF (2003) No. 56 Document, hereinafter referred to as the "Circular"), the Company conducted self inspection of the issues relating to the fund transfers with related parties and external guarantees and submitted self inspection report to Guangzhou Securities Regulatory Office on November 25, 2003. The full text of the report is as follows: 1. The fund transfers with related parties (1) The fund transfers with parent company 1) The Company entered into the Agreement for Transferring the Investment Income from Guangdong Maozhan Expressway Co., Ltd. with Guangdong Communication Industry Investment Company on August 23, 2001 to transfer all income from the actual investment held by the Company in Guangdong Maozhan Expressway Co., Ltd. at the price of RMB 228.50 million. Guangdong Communication Industry Investment Company made prepayment of RMB 114.25 million for the transfer according to the agreement. As this agreement did not take effect due to not obtaining the approval of relevant governmental department, the Company refunded part of prepayment actually made to Guangdong Communication Industry Investment Company by two installments and paid the interests as fund possession cost at the bank loan interest rate in the same period. As of October 31, 2003, the balance of reduced repayment was RMB 14.275 million. The unpaid interest accrued as fund possession cost was RMB 1.7387 million. The Company has timely performed the obligation of information disclosure in respect of the matter relating to the refund of part of prepayment and the revision of cooperation contract. 第 40 页 2) The Company entrusted Guangdong Yuecai Trust Investment Co., Ltd. to provide interest-free entrusted shareholder loan to Guangdong Fokai Expressway Co., Ltd., a subsidiary of which the Company holds 51% equity. As of December 31, 2003, the balance of the entrusted shareholder loan provided by the Company to Guangdong Fokai Expressway Co., Ltd. was RMB 488.5928 million. 3) The Company entrusted Guangdong Yuecai Trust Investment Co., Ltd. to provide interest-free entrusted shareholder loan to Shenzhen Huiyan Expressway Co., Ltd., a company of which the Company holds 33% equity. As of December 31, 2003, the balance of the entrusted shareholder loan provided by the Company to Shenzhen Huiyan Expressway Co., Ltd. was RMB 121.58 million. 4) The Company provided entrusted shareholder loan to Jingzhu Expressway Guangzhu Section Co., Ltd., a company of which the Company holds 20% equity, with interest calculated at compound interest rate of 8%. As of December 31, 2003, the balance of the shareholder loan provided by the Company to Jingzhu Expressway Guangzhu Section Co., Ltd. was RMB 238.9568 million. 5) The Company provided interest-free shareholder loan to Guangfo Expressway Co., Ltd., a company of which the Company holds 75% equity. As of December 31, 2003, the balance of the shareholder loan provided by the Company to Guangfo Expressway Co., Ltd. was RMB 45 million. (2) Self inspection of controlled subsidiaries 1) Guangfo Expressway Co., Ltd. ("Guangfo Co.") In operating fund transfers between Guangfo Co. and its controlling shareholder and other related parties, Guangfo Co. neither had its funds occupied, nor provided loans to shareholders and other related parties, nor provided loans to related parties through banks or non-banking financial institution, nor entrusted its controlling shareholder and other related parties to make investment, nor issued commercial acceptance bills without any real commercial means, nor extinguished liabilities on behalf of its controlling shareholder and other related parties. Guangfo Co. obtained interest bearing and interest free loans from related parties: As of October 31, 2003, the balance of the interest free shareholder loan obtained by Guangfo Co. from the Company was RMB 45 million. The balance of the interest free shareholder loan obtained from another shareholder Zhujiang Capital Construction Investment Co., Ltd. was RMB 15 million and that of the interest bearing loan was RMB 40 million. 2) Guangdong Express Technology Investment Co., Ltd. A. Its funds were not occupied by its controlling shareholder and other related parties; B. It provided temporary loan of RMB 0.1 million to its subsidiary Guangzhou Putian Zhongzhi Technology Industrial Co., Ltd. for turnover; C. It provided interest free entrusted loan of RMB 5 million to its subsidiary Guangzhou Putian Zhongzhi Technology Industrial Co., Ltd. through Guangzhou Minsheng Bank. The term of the loan is from August 30, 2002 to August 30, 2004; D. It provided entrusted loan of RMB 8 million to its affiliated company Beijing Gelin Enze Organic Fertilizer Co., Ltd. through Beijing Commercial Bank. The term of the loan is from June 4, 2003 to June 4, 2004. The monthly interest rate is 4.425‰; E. The Company was not involved in the circumstances of items 3, 4, 5 and 6 in Article 1 (2) 第 41 页 of the Circular. 3) Guangdong Fokai Expressway Co., Ltd. Its funds were not occupied by its controlling shareholder and other related parties as mentioned in Article 1 of the Circular. 2. Certain issues relating to external guarantee The Company and its controlled subsidiaries did not provide guarantees to its shareholders, the controlled subsidiaries and affiliated enterprises of its shareholders, other related parties of which the Company holds less than 50% equity, any unincorporate entities or individuals nor did the controlled subsidiaries of the Company provide other external guarantees. 3. Measures for settlement (1) Interpretation of entrusted shareholder loan According to this self inspection, the parent company provided entrusted shareholder loans or shareholder loans to its controlled subsidiaries or joint ventures. "entrusted shareholder loan" or "shareholder loan" is accounted for as "long-term creditor's right investment" in the financial statements of the Company. It is a mode of investment in project companies by the Company and other shareholders according to project cooperation contracts and respective equity proportion at the same time. "Entrusted shareholder loan" or "shareholder loan" is a kind of investment mode developed during construction of and investment in expressways and generally used. This kind of mode of creditor's rights investment adapts to the characteristics of expressway construction including huge lump-sum investment, small amount of working capital needed during operation and no need of reinvestment of depreciation fund. It can effectively avoid the unreasonable stay of funds in a project company and ensure the timely recovery of funds and reinvestment in new expressway construction projects by investors. The "entrusted shareholder loan" for each project is invested and recovered by the shareholders of the project according to the shareholding proportion agreed in the cooperation contract at the same time. Rights are corresponding to obligations. No rights and interests of any investor are harmed. According to project cooperation contract, the (entrusted) shareholder loan will be gradually repaid to project shareholders during project operation. The entrusted shareholder loans provided by the Company to Guangfo Expressway Co., Ltd., Guangdong Fokai Expressway Co., Ltd., Shenzhen Huiyan Expressway Co., Ltd. and Jingzhu Expressway Guangzhu Section Co., Ltd. will be gradually recovered according to project cooperation contracts and the commitment of the shareholders' meeting (or the board of directors) of the project companies. (2) Fund transfers between Guangdong Express Technology Investment Co., Ltd. and related parties Guangdong Express Technology Investment Co., Ltd. provided fixed-term entrusted loan to its joint ventures. It undertook to effectively adjust entrusted loans and borrowings according to the provisions of the Circular and promised the amount of occupied fund would decrease by at least 30% in each fiscal year in the future. （II）. The controlling shareholder of the Company remained unchanged in the report period. （III）The Company did not change its name or stock abbreviation in the report period. 第 42 页 X Financial Report REPORT OF THE AUDITORS To the members Guangdong Provincial Expressway Development Co., Ltd. (Established in the People’s Republic of China with limited liability) We have audited the accompanying consolidated balance sheet of Guangdong Provincial Expressway Development Co., Ltd. (the “Company”) and its subsidiaries (collectively referred to as the “Group”) as at 31 December 2003 together with the related consolidated income statement and consolidated cash flow statement for the year then ended. These financial statements are the responsibility of the directors. Our responsibility is to express an opinion on these financial statements based on our audit. This report is made solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. 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 management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements give a true and fair view of the financial position of the Group as at 31 December 2003 and of the results of the Group’s operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Hong Kong 5 March 2004 1 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. CONSOLIDATED INCOME STATEMENT Year ended 31 December 2003 2003 2002 Notes RMB’000 RMB’000 Turnover 4 754,775 712,896 Operating costs (247,681) (240,010) Gross profit 507,094 472,886 Other revenue 4 51,331 29,912 Administrative expenses (84,474) (87,368) Other operating expenses (11,210) (6,087) PROFIT FROM OPERATING 5 462,741 409,343 Finance costs 6 (67,741) (22,922) Share of profits less losses of associates 3,246 14,681 PROFIT BEFORE INCOME TAX 398,246 401,102 Income tax expense 7 (132,198) (152,988) PROFIT BEFORE MINORITY 266,048 248,114 Minority interests (121,554) (106,118) NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS 144,494 141,996 Dividends 8 125,712 125,712 EARNINGS PER SHARE - BASIC 9 RMB0.115 RMB0.113 Other than the net profit for the year attributable to shareholders, the Group had no recognised gains or losses. Accordingly, a consolidated statement of recognised gains and losses is not presented in the financial statements. 2 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. CONSOLIDATED BALANCE SHEET 31 December 2003 2003 2002 Notes RMB’000 RMB’000 ASSETS Non-Current Assets Fixed assets 10 4,174,182 4,180,916 Construction in progress 11 17,946 55,219 Goodwill 12 43,555 36,340 Interests in associates 13 1,725,500 1,331,072 Other investments, unlisted 14 128,119 57,638 Other long term assets 15 21,404 25,068 Bridge operating rights 17 52,830 56,352 Deferred income tax assets 7 2,392 3,214 Total Non-Current Assets 6,165,928 5,745,819 Current Assets Cash and cash equivalents 246,142 131,938 Prepayments and other receivables 19,016 35,853 Current investment securities 18 48,469 137,533 Inventories 107 127 Due from an associate 13 8,000 - Due from related companies 19 14,675 - Total Current Assets 336,409 305,451 TOTAL ASSETS 6,502,337 6,051,270 3 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. CONSOLIDATED BALANCE SHEET (CONTINUED) 31 December 2003 2003 2002 Notes RMB’000 RMB’000 EQUITY AND LIABILITIES Capital and Reserves Issued capital 22 1,257,118 1,257,118 Reserves 23 2,155,812 2,137,030 Total Equity 3,412,930 3,394,148 Minority Interests 666,560 640,305 Non-Current Liabilities Interest-bearing loans and borrowings 21 1,350,000 600,000 Due to minority shareholders 20 513,325 881,567 Deferred income tax liabilities 7 43,444 29,044 Amounts payable 2,077 2,077 Total Non-Current Liabilities 1,908,846 1,512,688 Current Liabilities Current portion of interest-bearing loans and borrowings 21 320,000 100,000 Other payables 54,846 73,541 Tax payable 26,580 3,909 Due to related companies 19 46,788 16,218 Due to a minority shareholder 20 65,787 310,461 Total Current Liabilities 514,001 504,129 Total Liabilities 2,422,847 2,016,817 TOTAL EQUITY AND LIABILITIES 6,502,337 6,051,270 Director Director 4 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. CONSOLIDATED CASH FLOW STATEMENT Year ended 31 December 2003 2003 2002 Not RMB’000 RMB’000 NET CASH INFLOW FROM OPERATING ACTIVITIES 24(a) 407,895 428,899 CASH FLOW FROM INVESTING ACTIVITIES Interest received 2,182 5,014 Purchases of current investment securities, listed (57,083) (89,154) Purchases of fixed assets and additions of construction in progress (105,017) (74,342) Acquisition of equity interest and shareholders’ loans in associates (430,518) (591,600) Acquisition of available-for-sale financial assets (30,000) (63,230) Acquisition of additional equity interests in subsidiaries - (21,293) Proceeds from partial disposal of equity interest in a subsidiary 1,711 - Proceeds from disposal of equity interests in associates - 41,153 Proceeds from disposal of an available-for-sale financial asset 17,000 - Proceeds from disposal of investment properties - 1,780 Proceeds from disposal of fixed assets 90 433 Proceeds from disposal of current investment securities, listed 149,694 88,992 Proceeds from a loan repaid by an associate 6,000 7,000 Dividends received from an associate 26,834 22,844 Advance to an associate (38,430) (180,000) Net cash outflow from investing activities (457,537) (852,403) CASH FLOW FROM FINANCING ACTIVITIES Equity dividends paid (125,712) (125,712) Dividends paid to minority shareholders (96,035) (28,099) Repayment of loans to minority shareholders (624,407) (54,138) Proceeds from loans and borrowings 1,985,000 760,000 Repayment of loans and borrowings (975,000) (358,000) Repayment of an advance to a related company - (99,975) Net cash inflow from financing activities 163,846 94,076 INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 114,204 (329,428) Cash and cash equivalents at beginning of year 131,938 461,366 CASH AND CASH EQUIVALENTS AT END OF YEAR 246,142 131,938 ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash at bank and cash on hand 246,142 131,938 5 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS 31 December 2003 1. CORPORATE INFORMATION The Company was established in the People’s Republic of China (the “PRC”) on 9 February 1993 in the name of Guangdong Foshan-Kaiping Expressway Shareholding Company Ltd. (the “Predecessor Company”) as a joint stock limited company in accordance with the regulations for joint stock limited companies. Pursuant to the approval at the shareholders’ meeting of the Predecessor Company and the approval of the Guangdong Provincial State Asset Bureau in June 1993, Guangdong Provincial Freeway Company transferred its 75% equity interest in Guangzhou-Foshan Expressway Company Limited (“Guangfo Company”) and its 100% interest in Jiujiang Bridge to the Company in exchange for shares in the Company. In July 1996, the Company issued for subscription of 135,000,000 B shares by way of private placing with foreign investors. Dealings in the B shares on the Shenzhen Stock Exchange commenced in August 1996. After the completion of the B shares issue, the Company changed its name to Guangdong Provincial Expressway Development Co., Ltd. In January 1998, the Company issued for subscription of 100,000,000 A shares for local PRC investors. Dealings in the A shares on the Shenzhen Stock Exchange commenced in February 1998. In August 2000, the Company issued 30,000,000 listed A shares and 43,822,250 unlisted A shares by way of rights issue on the basis of three new shares of RMB1 each for every 10 existing shares for the shareholders in the register of members on 15 August 2000 at RMB11 per rights share payable in full on acceptance. On 23 April 2001, the Company transferred RMB419,039,249 of share premium and capital surplus to share capital. On 14 February 2003, Guangdong Gaosu Science and Technology Investment Company Limited (“Gaosu Company”), one of the subsidiaries, acquired 35% equity interest in Green Angel Organic Fertilizer Co., Ltd. (“Green Angel Company”), the principal activity of which is the manufacture and sale of organic fertilizer (see note 13). On 24 February 2003, the Company acquired 25% equity interest in Zhaoqing Yuezhao Expressway Company Limited (“Yuezhao Company”), the principal activity of which is the construction and operation of Guangzhou-Zhaoqing Expressway (“Guangzhao Expressway”) (see note 13). On 1 December 2003, Gaosu Company disposed of 20% equity interest (the “Partial Disposal”) in Tibet Zhongke Energy-storage Technology Development Co., Ltd. (“Zhongke Company”), the principal activity of which is investment in the battery manufacturing industry. Accordingly, Gaosu Company aggregately has 79% of the equity interest in Zhongke Company with effect from 1 December 2003 (see note 16). Apart from the above, there are no significant changes in the principal activities of the Company and its subsidiaries for the year ended 31 December 2003. The principal activity of the Company is investment holding. The ultimate holding company of the Group for the year ended 31 December 2003 was Guangdong Communications Group Company Limited, a company established in the PRC. 6 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 31 December 2003 1. CORPORATE INFORMATION (continued) The consolidated financial statements of the Group for the year ended 31 December 2003 were authorised for issue in accordance with a resolution of the directors dated 5 March 2004. The registered office of the Company is located at No. 85 Baiyun Road, Guangzhou, Guangdong Province, the PRC. The Group operates in Guangdong Province of the PRC and employed 1,100 employees as at the end of the financial year. 2. BASIS OF PRESENTATION These consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRS”), which comprise standards and interpretations approved by the International Accounting Standards Board, and International Accounting Standards and Standing Interpretations Committee interpretations approved by the International Accounting Standards Committee that remain in effect. The Group maintains its books and prepares its statutory financial statements in accordance with the relevant accounting principles and financial regulations applicable to joint stock limited companies established by the Ministry of Finance of the PRC. The accounting policies and bases adopted in the preparation of the statutory financial statements differ in certain material respects from IFRS. The material adjustments arising from restating the results and net assets to comply with IFRS have been made in the preparation of these financial statements, but will not be taken up in the accounting records of the Group. The principal adjustments made to conform to IFRS are set out below: - elimination of the unrealised profits arising on the disposal of 100% ownership of the Jiujiang Bridge and related assets to Foshan-Kaiping Expressway Company Limited (“Fokai Company”) against the Group’s share of 35% equity interest in Fokai Company in 1999; - deferred income tax; - goodwill arising on the acquisition of a subsidiary and associates; - amortisation of goodwill; - depreciation charges; - amortisation of other long term assets; - impairment loss of fixed assets; - current investment securities at market value; and - other adjustments made in accordance with the prudence concept. Further details with respect to the net impact of these IFRS adjustments are included in note 25 to the financial statements. The consolidated financial statements have been prepared on a going concern basis, notwithstanding the net current liabilities position of the Group as at 31 December 2003. This is based on the undertaking that the Group has unutilised borrowing facilities of RMB1,790,000,000 (see note 24(b)) available. Moreover, one of the minority shareholders, which was also one of the major creditors of the Group, has agreed not to demand the amount due to it and to continue to provide adequate financial support to one of the subsidiaries of the Company so that the Group can meet its liabilities as and when they fall due. 7 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 31 December 2003 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries which the Company controls at the balance sheet date. The results of subsidiaries acquired or disposed of during the period are consolidated from or to their effective dates of acquisition or disposal, respectively. The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies which may exist. All intercompany balances and transactions, and unrealised profits arising from intra-group transactions have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered. (b) Subsidiaries Subsidiaries are companies in which the Company has a long term interest of more than 50% and has effective control over the management of the companies. (c) Interests in associates Associates are companies, not being subsidiaries, in which the Group has a long term interest of not less than 20% of the equity interest and over which it is in a position to exercise significant influence. The Group’s share of the post-acquisition results and reserves of its associates is included in the consolidated income statement and consolidated reserves, respectively. The Group’s interests in its associates are stated in the consolidated balance sheet at the Group’s share of net assets under the equity method of accounting less any impairment losses. Where associates are accounted for using the equity method, unrealised profits and losses resulting from “upstream” and “downstream” transactions between the Group and the associates are eliminated to the extent of the Group’s interests in the associates. Unrealised losses are not eliminated to the extent that the transaction provides evidence of an impairment of the asset transferred. (d) Related parties Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party, or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities. (e) Foreign currency transactions Foreign currency transactions are recorded at the applicable rates of exchange ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange ruling on that date. Exchange differences are dealt with in the consolidated income statement. 8 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 31 December 2003 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (f) Fixed assets and depreciation Fixed assets are stated at acquisition cost or valuation less accumulated depreciation and any impairment losses. In connection with the Group’s reorganisation, fixed assets as at 31 January 1993 were revalued by Zhongzhou Certified Public Accountants, a firm of certified public accountants in the PRC, on a depreciated replacement cost basis. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use thereafter. Depreciation of expressways and a bridge is calculated to write off their cost on a sum-of-the-units method whereby depreciation is provided based on the share of forecasted traffic volume for a particular period over the projected total traffic volume throughout the remaining operating periods of respective expressways and bridge, the relevant joint venture period or its estimated useful life, whichever is shorter. In addition, the directors review the projected total traffic volume throughout the operating periods of respective toll expressways and a bridge on a regular basis. An independent professional traffic survey is obtained if the directors consider it appropriate. Appropriate adjustments are made should there be a material change. All direct and indirect costs relating to the construction of expressways, a bridge and office premises, including interest costs on related borrowed funds during the construction period, are capitalised as the costs of fixed assets. Amortisation of improvements relating to the expressways and a bridge is calculated on the straight-line basis to write off the cost over the period, the relevant joint venture period or its estimated useful life, whichever is shorter. Depreciation of other fixed assets is calculated on the straight-line basis to write off the cost or revaluation of each asset, less any estimated residual value, over its estimated useful life. The principal annual rates used for this purpose are analysed as follows: Buildings 3.2 ~ 4.74% Machinery 6.4 ~12% Furniture, fixtures and other equipment 18% ~ 19.4% Motor vehicles 12 ~ 18% The carrying values of fixed assets are reviewed for impairment when events or changes in circumstances indicate that the carrying values may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount. The recoverable amount of fixed assets is the greater of net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognised in the consolidated income statement for the year then ended. 9 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 31 December 2003 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (g) Construction in progress Construction in progress represents costs incurred in connection with the construction of expressways, a bridge, office premises and other fixed assets, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises direct costs of construction and capitalised borrowing costs on related bank and other borrowings during the period of construction. No provision for depreciation is made on construction in progress until such time as the relevant assets are put into use. Construction in progress is reclassified to the appropriate category of fixed assets when completed and ready for use. (h) Goodwill Goodwill represents the excess of the cost of acquisition over the fair value of identifiable net assets of subsidiaries and associates at the date of acquisition. Goodwill is amortised on the straight-line basis over five years. It is reviewed by the management of the Group for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. Goodwill is stated at cost less accumulated amortisation and any impairment losses. (i) Investments All investments are initially recognised at cost, being the fair value of the consideration given and including acquisition charges associated with the investments. After initial recognition, investments which are classified as held-for-trading and available-for-sale are measured at fair value. Gains or losses on investments held for trading are recognised in income. Gains or losses on measurement to fair value of available-for-sale investments are recognised as a separate component of equity until the investment is sold, collected or otherwise disposed of, or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in income. Investments in equity interests classified as available-for-sale and trading investments without quoted market price in an active market and whose fair value cannot be reliably measured are stated at cost less any accumulated impairment losses. For investments that are actively traded in organised financial markets, fair value is determined by reference to stock exchange quoted market bid prices at the close of business on the balance sheet date. For investments where there is no quoted market price, fair value is determined by reference to the current market value of another instrument which is substantially the same or is calculated based on the expected cash flows of the underlying net asset base of the investment. 10 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 31 December 2003 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (j) Investment properties Investment properties are stated at acquisition cost less accumulated depreciation and any impairment losses. The Group adopts the cost model set out in IAS 40 “Investment property” and the cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and location for its intended use. Expenditure incurred after the asset has been put into operation, such as repairs and maintenance, is normally charged to the income statement in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset, the expenditure is capitalised as an additional cost of the asset. The carrying values of investment properties are reviewed at each balance sheet date by the management of the Group to assess whether the carrying values may not be recoverable, and if the carrying values exceeds the estimated recoverable amount, such amounts are written down to their recoverable amounts and the impairment losses are recognised in the consolidated income statement for the year then ended. Depreciation is calculated on a straight-line basis over the estimated useful life of 20 years. (k) Bridge operating rights Bridge operating rights represent the rights to operate a bridge and are stated at cost less accumulated amortisation. Amortisation is provided on a straight-line basis over the period of the bridge operating rights granted to the Group. (l) Other long term assets Other long term assets represent losses on the disposal of residential apartments to the staff of the Group, and are eliminated by amortisation through the consolidated income statement on the straight-line basis over 10 years, being the average remaining service duration of the staff in the Group. (m) Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand and short term deposits with an original maturity of three months or less. For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above. (n) Inventories Inventories represent, primarily, low value consumables and are stated at the lower of cost and net realisable value. 11 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 31 December 2003 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (o) Interest-bearing loans and borrowings All loans and borrowings are initially recognised at cost, being the fair value of the consideration received and include acquisition charges associated with the borrowings or loans. (p) Retirement benefits The Group is required to make contributions on behalf of its employees to a government administered retirement scheme in accordance with the rules and regulations thereof. The Group’s liability with regard to this retirement scheme is limited to its contributions, which are accounted for on an accrual basis. (q) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e., assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the costs of those assets. The capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs capitalised. (r) Revenue Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, and the following specific recognition criteria must also be met before revenue is recognised: • toll revenue, net of any applicable revenue taxes, when received; • service income, by reference to the stage of completion, which is measured by reference to labour hours incurred to date as a percentage of total estimated labour hours for each contract and where the contract outcome cannot be measured reliably, recognised only to the extent of the expenses recognised that are recoverable; • rental revenue, on a time proportion basis, over the lease terms; • interest income, on a time proportion basis; and • dividend and investment income, when the shareholders’ right to receive payment has been established. 12 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 31 December 2003 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (s) Income taxes PRC income tax is provided at the rates applicable to enterprises, Sino-foreign joint stock limited companies and Sino-foreign co-operative joint venture companies in the PRC on the income for financial reporting purposes, adjusted for income and expense items which are not assessable or deductible for income tax purposes, based on existing PRC income tax legislation, practices and interpretations thereof. Tax refunds received are recorded as a reduction of income tax expense upon receipt. Deferred income tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences: • Except where the deferred income tax liability arises from goodwill amortisation or the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • In respect of taxable temporary differences associated with interests in subsidiaries, associates and joint ventures, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, carry-forward of unused tax assets and unused tax losses can be utilised: • Except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit, nor taxable profit or loss; and • In respect of deductible temporary differences associated with interests in subsidiaries, associates and joint ventures, deferred income tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. 13 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 31 December 2003 4. TURNOVER AND REVENUE Revenue mainly represents toll income from the operations of toll expressways and a bridge and other revenue, net of relevant revenue taxes. An analysis of turnover and revenue is as follows: 2003 2002 RMB’000 RMB’000 Toll income 797,191 753,157 Less: Revenue taxes (42,416) (40,261) Turnover 754,775 712,896 Interest income 26,175 8,930 Income on current investment securities, listed 3,547 1,266 Service income 4,322 7,655 Dividend income from an available-for-sale financial 1,696 - Gain on a partial disposal of equity interest in a 142 - Gain on disposal of investment properties - 671 Rental income 3,853 6,517 Other operating income 11,596 4,873 Other revenue 51,331 29,912 Total revenue 806,106 742,808 The Company and its subsidiaries are subject to the following types of revenue taxes of the PRC: - Business Tax (“BT”), levied at 5% on toll income and other service income; - City Development Tax, levied at 5% to 7% of BT; and - Education Supplementary Tax, levied at 3% of BT. 14 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 31 December 2003 5. PROFIT FROM OPERATING ACTIVITIES The Group’s profit from operating activities is arrived at after charging/(crediting) the following: 2003 2002 RMB’000 RMB’000 Operating costs 247,681 240,010 Depreciation charges 173,386 155,369 Amortisation of bridge operating rights 3,522 3,522 Amortisation of goodwill 16,986 12,902 Amortisation of other long term assets 3,664 3,664 Staff costs: - Wages and salaries 34,500 32,792 - Housing benefits 2,983 1,571 - Retirement benefits 5,582 4,689 - Staff welfare and bonuses 2,433 8,303 Loss on disposal of fixed assets 121 2,330 Loss on disposal of equity interest in an associate - 203 Provision for impairment loss of fixed assets 4,200 5,273 (Write-back) /provision for impairment loss of an available-for-sale financial asset (1,404) 7,651 Rental expenses 1,435 1,344 15 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 31 December 2003 6. FINANCE COSTS 2003 2002 RMB’000 RMB’000 Interest expenses on: - Related party loans and an advance 2,717 7,095 - Bank loans 64,514 15,827 - Other loan 510 - 67,741 22,922 7. INCOME TAX EXPENSE Major components of income tax expense for the year ended 31 December 2003 are analysed as follows: Note 2003 2002 RMB’000 RMB’000 Current income tax: - Current income tax charge 106,385 106,133 - Adjustments in respect of current income tax of previous periods 7.1 10,591 19,386 Deferred income tax: - Relating to reversal of deductible temporary differences 822 822 - Relating to origination of taxable temporary differences 14,400 26,647 Income tax expense reported in consolidated income statement 132,198 152,988 PRC income tax for the Company and its subsidiaries operating in the PRC has been provided at the applicable income tax rate of 33% on the assessable profits, except for Guangfo Company and Zhongke Company, which are subject to income tax rates of 18% and 15%, respectively. The effective income tax rates applicable to the Company and its subsidiaries are analysed as follows: 2003 2002 The Company 33% * 33% * Guangfo Company 18% ** 18% ** Fokai Company 33% * 33% * Gaosu Company 0/33% **** 0 **** Guangzhou Proteam Technology Incorporation 33% * 33% * 16 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 31 December 2003 (“Proteam Incorporation”) Zhongke Company 15% *** 15% *** * In accordance with the tax regulations in the PRC, the applicable PRC income tax rate for the Company, Fokai Company and Proteam Incorporation is 33%. As Proteam Incorporation had accumulated taxable losses as at 31 December 2003, no provision for PRC income tax has been made for the year then ended. ** In accordance with the tax regulations in the PRC, the applicable PRC income tax rate to Guangfo Company is 18%. 17 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 31 December 2003 7. INCOME TAX EXPENSE (continued) *** In accordance with the tax regulations in the PRC, the applicable PRC income tax rate to Zhongke Company is 15%. As Zhongke Company had accumulated taxable losses as at 31 December 2003, no provision for PRC income tax has been made for the year then ended. **** Pursuant to an approval document issued by Guangzhou Tax Bureau, Gaosu Company was exempt from income tax from 1 August 2002 to 31 July 2003 and is subject to income tax on the assessable profits at rates of 33% commencing 1 August 2003. A reconciliation of the expected tax with the actual tax expenses is presented below: Notes 2003 2002 RMB’000 RMB’000 Profit from operating activities before income tax and minority interests 398,246 401,102 Tax at an applicable tax rate of 33% 131,421 132,364 Tax refunds of the Company - (2,640) Effect attributable to subsidiaries charged at tax rates of (29,544) (27,784) Tax losses of the Company and subsidiaries 11,321 11,974 Tax effect of expenses not deductible in determining taxable profits 8,409 9,488 Tax expenses in respect of current year 121,607 123,402 At effective income tax rate of 30.5% (2002: 30.8%) Adjustments in respect of PRC income tax of previous periods: - current income tax 7.1 10,591 19,386 - deferred income tax 7.2 - 10,200 Income tax expense included in the consolidated income statement for the year ended 31 December 132,198 152,988 18 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 31 December 2003 7. INCOME TAX EXPENSE (continued) Deferred income tax Deferred income tax as at 31 December 2003 related to the following: Consolidated Consolidated balance sheet income statement 2003 2002 2003 2002 RMB’000 RMB’000 RMB’000 RMB’000 Deferred income tax liabilities - Depreciation differences between tax base and carrying amount of expressways (43,444) (29,044) (14,400) (26,647) Deferred income tax assets - Unrealised profit from disposal of fixed assets 2,392 3,214 (822) (822) Deferred income tax charge (15,222) (27,469) Net deferred income tax liabilities (43,444) (29,044) Net deferred income tax assets 2,392 3,214 7.1 According to the request of the local tax bureau in 2003, the amortisation charges of the excess of the purchase consideration paid for individual acquisition over the net assets acquired by the Company at the acquisition date, (the “Amortisation Charges”), amounting to RMB33,395,000 for previous years, could not be treated as tax-deductible expenses until the disposal of the underlying investments. In view of the fact that the disposal schedule of the above-mentioned underlying investments could not be reliably estimated by the directors of the Company, deferred income tax assets in relation to Amortisation Charges have not been recognised in the financial statements for the year ended 31 December 2003. Accordingly, the adjustments in respect of the current income tax of the previous periods of the Company amounting to RMB10,591,000 have been included in the financial statements for the year ended 31 December 2003. According to the request of the local tax bureau in 2002, certain depreciation charges in relation to expressway and interest expenses in relation to a shareholders’ loan were deemed as non tax- deductible expenses. Accordingly, the adjustments in respect of current income tax of previous periods amounting to RMB14,931,000 have been included in the financial statements for the year ended 31 December 2002. 7.2 According to the request of the local tax bureau in 2002, the straight-line basis, instead of the sum-of-the-units method, the previous calculation method of depreciation for tax filing purpose, should be adopted in calculation of depreciation charges of Foshan-Kaiping Expressway (“Fokai Expressway”) for tax filing purpose, with effect from 1 January 2000, and retrospectively. Accordingly, deferred income tax liabilities amounted to RMB27,535,000, in relation to the difference between the tax base and the carrying amount of expressways for prior years. In addition, deferred income tax assets of RMB17,335,000 were provided in 2002 on the 19 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 31 December 2003 depreciation difference between the tax base and the carrying amount of certain fixed assets in Fokai Company as it was expected that Fokai Company would have sufficient profits in the future to enable the deferred income tax assets to be recovered. 20 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 31 December 2003 8. DIVIDENDS PAID AND PROPOSED During the year ended 31 December 2003, a dividend of RMB0.1 per share (totalling RMB125,712,000) was declared and paid. In addition, a further dividend of RMB0.1 per share has been proposed and will be submitted for formal approval at the 2004 annual general meeting. Accordingly, this dividend (totalling RMB125,712,000) has not been recognised as a liability as at 31 December 2003. During the year ended 31 December 2002, a dividend of RMB0.1 per share (totalling RMB125,712,000) was declared and paid. In addition, a further dividend of RMB0.1 per share was proposed and approved at the 2003 annual general meeting, and was paid in 2003 following that approval. Accordingly, that dividend (totalling RMB125,712,000) was not recognised as a liability as at 31 December 2002. 9. EARNINGS PER SHARE The basic earnings per share is calculated by dividing the net profit attributable to shareholders for the year of RMB144,494,000 (2002: RMB141,996,000) by the weighted average number of 1,257,117,749 (2002: 1,257,117,749) shares in issue. No diluted earnings per share were presented as there were no dilutive potential ordinary shares as at the year end. 21 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 31 December 2003 10. FIXED ASSETS Furnit fixtu Expressways and o and bridges Improvements Buildings Machinery equipm RMB’000 RMB’000 RMB’000 RMB’000 RMB’ Cost or valuation: At beginning of year 4,520,080 44,148 182,525 141,316 68, Additions 59,131 81,670 1,778 17,944 4, Disposals - - (165) (80) ( At 31 December 2003 4,579,211 125,818 184,138 159,180 72, Accumulated depreciation: At beginning of year 565,761 38,027 43,175 89,598 45, Provided during the year 132,695 1,359 9,337 16,457 3, Disposals - - (89) (44) ( At 31 December 2003 698,456 39,386 52,423 106,011 47, Provision for impairment loss of fixed assets: At beginning of year 2,600 - - 5,273 Provided during the year - - 3,700 500 At 31 December 2003 2,600 - 3,700 5,773 Net book value: At 31 December 2003 3,878,155 86,432 128,015 47,396 24, At 31 December 2002 3,951,719 6,121 139,350 46,445 23, 22 10. FIXED ASSETS (continued) In connection with the Group reorganisation, fixed assets as at 31 January 1993 were revalued by Zhongzhou Certified Public Accountants on a depreciated replacement cost basis. The revaluation surplus of RMB147,600,000 arising from the revaluation has been approved by the Guangdong Provincial State Assets Bureau and reflected in the Group’s financial statements. The 1993 valuation was a one-off exercise which established the deemed cost of the fixed assets injected on the formation of the Company. As a result, the directors consider that the requirements of IAS 16 “Property, plant and equipment” with respect to carrying assets at amounts other than cost less accumulated depreciation are not applicable. Xiebian Interchange and Yayao Interchange (“Two Interchanges”) with the carrying amounts of RMB138,341,000 as at 31 December 2003 have been included in consolidated financial statements for the year then ended, for which Guangfo Company respectively accounted for 33% and 60% equity interest in the project companies for the individual interchange (“Project Companies”). According to the establishment agreement of the Project Companies, which were incorporated solely for the construction of the Two Interchanges, the Two Interchanges should be handed over to the local government authorities upon completion of construction. As a result, the directors of the Group considered that the capital expenditures for the Project Companies should be accounted for as fixed assets in the consolidated financial statements, rather than interest in a subsidiary or an associate in accordance with the accounting principle of substance over form, in view of the future economic benefits, in excess of the originally assessed standard of performance of Guangzhou-Foshan Expressway (“Guangfo Expressway”), would flow to Guangfo Company. 11. CONSTRUCTION IN PROGRESS Construction in progress consists of various construction projects in progress. These projects mainly include construction of the Siling Complex and the improvement project of Guangfo Expressway. 12. GOODWILL RMB’000 Cost: At 1 January 2003 81,727 Additions during the year 24,201 At 31 December 2003 105,928 Accumulated amortisation: 23 At 1 January 2003 45,387 Provided during the year 16,986 At 31 December 2003 62,373 Net book value: At 31 December 2003 43,555 At 31 December 2002 36,340 24 12. GOODWILL (continued) Additions of goodwill of RMB22,701,000 and RMB1,500,000 arising on the acquisitions of 25% equity interest of Yuezhao Company and 33.25% equity interest of Green Angel Company, respectively (see note 13), represent the excess of the purchase consideration paid for the equity interest over the fair values ascribed to the net underlying assets acquired at the date of acquisition, and is eliminated by amortisation through the consolidated income statement on the straight-line basis over five years. 13. INTERESTS IN ASSOCIATES Particulars of the associates, which operate in the PRC, are analysed as follows: Date of Attributable equity Principal activities Name establishment interest of the Group 2003 2002 Shenzhen Huiyan 20 November 33.33% 33.33% Construction and Expressway Company 1991 * * operation of Limited Huizhou-Yantian (“Huiyan Company”) Port Expressway, Shenzhen section Guangdong Maozhan 8 February 20% * 20% * Construction and Expressway Company 1999 operation of Limited Dianbai-Zhanjiang (“Maozhan Company”) Expressway Guangdong Guanghui 12 August 30% * 30% * Construction and Expressway Company 1999 operation of Limited Guangzhou-Huido (“Guanghui Company”) ng Expressway Beijing-Zhuhai 13 May 20%* 20%* Construction and Expressway 1993 operation of Guangzhou-Zhuhai Guangzhou-Zhuhai Section Company Limited Expressway (“Guangzhu Company”) Zhaoqing Yuezhao 23 November 25%* - Construction and Expressway Company 1998 operation of 25 Limited Guangzhou-Zhaoqi (“Yuezhao Company”) ng Expressway Green Angel Organic 23 January 33.25%* - Manufacture and Fertilizer Company 2002 sale of organic Limited fertilizer (“Green Angel Company”) * The Group’s profit sharing in associates is in proportion to its share of equity interest therein. 13. INTERESTS IN ASSOCIATES (continued) 2003 2002 Notes RMB’000 RMB’000 Share of net assets 13.1 864,536 527,794 Due from associates Current portion 13.2 8,000 - Non-current portion 13.2 860,964 803,278 1,733,500 1,331,072 13.1 Share of net assets Pursuant to the approval of the Company’s directors at a meeting held on 15 December 2000, approval from the Bureau of Foreign Trade and Economic Cooperation of Guangdong Province dated 23 December 2002 and approval from Guangdong Provincial Development and Planning Commission dated 28 January 2003, the Company entered into an acquisition agreement with Guangdong Provincial Road Construction Company Ltd. and Zhaoqing Municipal Road Development Co., Ltd. to acquire 25% equity interest in Yuezhao Company, at a consideration of RMB204,575,000 with effect from 24 February 2003. Goodwill of RMB22,701,000 arose on the acquisition of equity interest in Yuezhao Company at the date of acquisition. Pursuant to the approval of the Gaosu Company’s directors’ meeting held on 27 December 2002, Gaosu Company entered into an agreement to acquire 35% equity interest in Green Angel Company at a consideration of RMB6,563,000, with effect from 14 February 2003. Accordingly, goodwill of RMB1,500,000 arose on the acquisition of equity interest in Green Angel Company at the date of acquisition. Pursuant to the approval of the shareholders’ meeting of Green 26 Angel Company held on 18 January 2003, Green Angel Company increased its registered capital from RMB15,000,000 to RMB20,000,000. Accordingly, Gaosu Company contributed RMB1,750,000 in the current year, and the attributable equity interest of Gaosu Company remained unchanged at 35% in Green Angel Company. Pursuant to the approval of the shareholders’ meeting of Guanghui Company held on 25 January 2003, Guanghui Company increased its registered capital from RMB100,000,000 to RMB671,900,000. Accordingly, the Company contributed RMB171,570,000 in the current year, and the attributable equity interest of the Company remained unchanged at 30% in Guanghui Company. 13.2 Due from associates The loan of RMB121,580,000 to Huiyan Company represents part of a shareholders’ loan made through Guangdong Financial Trust and Investment Corporation, which is a financing institution authorised to lend money to PRC Companies. The loan to Huiyan Company is unsecured, interest-free and has no fixed terms of repayment. Huiyan Company repaid a shareholders’ loan to the Company for the year ended 31 December 2003, amounting to RMB6,000,000. An advance of RMB398,430,000 to Guanghui Company is unsecured, interest-free and has no fixed terms of repayment. 13. INTERESTS IN ASSOCIATES (continued) 13.2 Due from associates (continued) The loan of RMB8,000,000 to Green Angel Company is unsecured, bears interest rate at 5.31% per annum with maturity in June 2004. The remaining balance of amounts due from associates represents the loan to Guangzhu Company, which is unsecured and has no fixed terms of repayment. The nominal interest rate of the loan to Guangzhu Company was 8% per annum (effective interest rate for 2003: 8%, 2002: 8%). The amount of interest receivable from Guangzhu Company as at the year end is calculated by reference to the principal sum which should include the gross amount of the outstanding unpaid interest at the end of the prior year. 14. OTHER INVESTMENTS, UNLISTED 27 2003 2002 Notes RMB’000 RMB’000 Investments in available-for-sale financial assets 132,527 63,251 Less: Provision for impairment loss of an available-for-sale financial assets (6,247) (7,651) 14.1 126,280 55,600 Investment properties 3,970 3,970 Less: Accumulated depreciation and provision for impairment loss of investment properties (2,131) (1,932) 14.2 1,839 2,038 128,119 57,638 Notes: 14.1 During the year, RMB38,060,000 was contributed by the Company as part of a capital injection in Jiangmen-Zhongshan Expressway Company Limited, which has been included in the investments in available-for-sale financial assets. The remaining balance of investments in available-for-sale financial assets mainly represents respective investments in equity interest in a battery manufacturing company registered in the PRC and unlisted securities firms registered in the PRC. For the investments in available-for-sale financial assets as at 31 December 2003, as the directors consider there is no quoted market price in an active market and whose fair value cannot be reliably measured, the investments in available-for-sale financial assets are stated at cost less any accumulated impairment losses. 14.2 Investment properties as at 31 December 2003 mainly represent real estates for rental purpose located in Shunde city in Guangdong Province, the PRC. 28 15. OTHER LONG TERM ASSETS RMB’000 Cost: At 1 January 2003 and 31 December 2003 36,633 Accumulated amortisation: At 1 January 2003 11,565 Provided during the year 3,664 At 31 December 2003 15,229 Net book value: At 31 December 2003 21,404 At 31 December 2002 25,068 Other long term assets represent losses on disposal of residential apartments to staff. In accordance with the relevant regulations issued by the State Council of the PRC applicable to companies established in the PRC, the residential apartments of the Group were sold to the staff of the Group at a discounted value according to their remaining duration of service in the Group. 29 16. INVESTMENTS IN SUBSIDIARIES As at 31 December 2003, the Company had five subsidiaries which were established and operating in the PRC. All material intercompany transactions and balances have been eliminated on consolidation. Particulars of the subsidiaries are shown as follows: Date of Paid-up Principal activities Name establishmen capital Attributable equity t interest of the Group RMB’000 2003 2002 Guangzhou-Foshan Expressway 7 July 200,000 75% 75% Operation of Company Limited 1988 Guangfo (“Guangfo Expressway Company”) Guangdong Provincial Foshan-Kaiping 12 March 1,108,00 51% 51% Operation of Fokai Expressway 1996 0 Expressway and Limited Liability Jiujiang Bridge Company (“Fokai Company”) Guangdong Gaosu Science and 13 August 100,000 95% 95% Investment in the Technology 2001 industry of science Investment and technology Company Limited (“Gaosu Company”) Guangzhou Proteam Technology 26 October 5,000 57% 57% Manufacture Incorporation 1998 and sale of (“Proteam telecommunication Incorporation”) and network systems Tibet Zhongke 30 Energy-storage 22 March 1,000 75% 94% Investment in the Technology 2001 battery Development Co., manufacturing Ltd. (“Zhongke industry Company”) Pursuant to the approval of Fokai Company’s shareholders’ meeting held on 24 January 2003, Fokai Company increased its registered capital from RMB340,000,000 to RMB1,108,000,000 by transferring capital surplus of RMB768,000,000 to registered capital and the attributable equity interest of the Company remained unchanged at 51% in Fokai Company. Pursuant to the approval of Gaosu Company’s directors’ meeting held in November 2003, Gaosu Company entered into a Partial Disposal Agreement to dispose of 20% equity interest in Zhongke Company at a consideration of RMB2,282,000 with effect from 1 December 2003, resulting in a gain on disposal of RMB142,000, which has been included in the consolidated income statement for the year ended 31 December 2003. Accordingly, Gaosu Company aggregately held 79% equity interest in Zhongke Company with effect from 1 December 2003. 31 17. BRIDGE OPERATING RIGHTS RMB’000 Cost: At 1 January 2003 and 31 December 2003 66,918 Accumulated amortisation: At 1 January 2003 10,566 Provided during the year 3,522 At 31 December 2003 14,088 Net book value: At 31 December 2003 52,830 At 31 December 2002 56,352 Fokai Company acquired the bridge operating rights to operate the Jiujiang Bridge for the period from 1 January 2000 to 10 June 2018. 18. CURRENT INVESTMENT SECURITIES 2003 2002 RMB’000 RMB’000 Government bonds, listed 44,138 133,601 Shares, listed 4,331 3,932 48,469 137,533 The amount consists of investments in listed PRC government bonds and listed shares through authorised financial institutions registered in the PRC. The market values of listed government bonds and listed shares as at 31 December 2003 were RMB44,138,000 and RMB4,331,000, respectively. The government bonds held at the balance sheet date have nominal interest rate of 3.27% (2002: from 2.6% to 3.3%), receivable annually in arrears and with maturity on 24 April 2008. The government bonds and listed shares were carried at market value as at 31 December 2003. The losses of RMB694,000 and RMB2,734,000, arising from the changes in the market values of the government bonds and listed shares dated 31 December 2003, respectively, have been included in the consolidated income statement for the year then ended. 32 19. DUE FROM/TO RELATED COMPANIES The amounts due from related companies are unsecured, interest-free and were fully settled in January 2004. The amounts due to related companies are unsecured, interest-free and have no fixed terms of repayment. 20. DUE TO MINORITY SHAREHOLDERS The amounts due to minority shareholders at the balance sheet date are unsecured and are analysed as follows: 2003 2002 RMB’000 RMB’000 Interest-bearing borrowings: Current portion - 10,000 Non-current portion 498,325 15,000 498,325 25,000 Non-interest-bearing borrowings: Current portion 65,787 300,461 Non-current portion 15,000 866,567 80,787 1,167,028 579,112 1,192,028 The maturities of the amounts due to minority shareholders as at the balance sheet date are analysed as follows: 2003 2002 RMB’000 RMB’000 Amounts repayable: Within one year 65,787 310,461 In the second year 15,000 79,882 In the third to fifth years, inclusive 40,000 167,886 Beyond five years 458,325 633,799 579,112 1,192,028 33 The amounts of RMB498,325,000 due to minority shareholders are unsecured and bear interest at rates ranging from 4.941% to 5.184% per annum. The remaining balances of the amounts due to minority shareholders are unsecured, interest-free and have no fixed terms of repayment. 34 21. INTEREST-BEARING LOANS AND BORROWINGS 2003 2002 RMB’000 RMB’000 Bank loans, unsecured 1,520,000 700,000 Other loan, unsecured 150,000 - 1,670,000 700,000 The maturities of the above amount are analysed as follows: Loans and borrowings repayable: Within one year 320,000 100,000 In the second year 150,000 100,000 In the third to fifth years, inclusive 1,200,000 500,000 1,670,000 700,000 Long term portion 1,350,000 600,000 The bank loans are unsecured and bear interest at rates ranging from 4.779% to 5.022% per annum. A loan agreement was entered into dated 13 November 2003 for the loan of RMB150,000,000 borrowed from a company incorporated in the PRC by Fokai Company made through the Industrial and Commercial Bank of China, which is unsecured, bears interest at 3.6% per annum and reaches maturity in 2005. 22. ISSUED CAPITAL 2003 2002 RMB’000 RMB’000 Registered, issued and fully paid: - 633,836,999 unlisted A shares of RMB1 each 633,837 633,837 - 45,000,000 unlisted foreign investment shares of RMB1 each 45,000 45,000 - 303,750,000 listed B shares of RMB1 each 303,750 303,750 - 274,530,750 listed A shares of RMB1 each 274,531 274,531 1,257,118 1,257,118 In July 1996, the Company issued for subscription of 135,000,000 B shares by way of private placing with foreign investors. Dealings in the B shares on the Shenzhen Stock Exchange commenced in August 1996. 35 Pursuant to the resolution at a shareholders’ general meeting in May 1997, the Company distributed a scrip dividend of 1.7 shares for every 10 shares of RMB1 and a bonus issue of 3.3 shares for every 10 shares of RMB1 to shareholders in the register of members dated 20 June 1997. In January 1998, the Company issued for subscription of 100,000,000 A shares for local PRC investors. Dealings in the A shares on the Shenzhen Stock Exchange commenced in February 1998. 36 22. ISSUED CAPITAL (continued) Pursuant to the approval of the Company’s shareholders at a general meeting held on 22 August 2000, the Company issued 30,000,000 listed A shares and 43,822,250 unlisted A shares by way of rights issue on the basis of three new shares of RMB1 each for every 10 existing shares for the shareholders in the register of members on 15 August 2000 at RMB11 per rights share payable in full on acceptance. Pursuant to the approval of the Shenzhen Stock Exchange and China Securities Regulatory Commission (“CSRC”), dealings of 53,020,500 unlisted A shares on the Shenzhen Stock Exchange commenced on 5 February 2001. Pursuant to the approval of the Company’s shareholders at a general meeting held on 23 April 2001, the Company transferred RMB419,039,249 of share premium and capital surplus to share capital in the financial statements for the year ended 31 December 2001. Pursuant to the approvals of the Ministry of Foreign Trade and Economic Cooperation and CSRC dated 5 November 2002 and 16 January 2003, respectively, the existing 45,000,000 unlisted foreign investment shares will commence dealing on the Shenzhen Stock Exchange, which is still subject to further approval from relevant government bodies. 23. RESERVES Share premium Statutory and Statutory public Discretionary capital surplus welfare surplus Retained surplus reserve fund reserve profits Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 At beginning of year 1,534,761 150,854 80,636 114,565 256,214 2,137,030 Net profit for the year - - - - 144,494 144,494 Cash dividends - - - - (125,712) (125,712) Transfer to reserves - Statutory surplus reserve - 16,913 - - (16,913) - - Statutory public welfare fund - - 8,457 - (8,457) - - Discretionary surplus reserve - - - - - - 37 1,534,761 167,767 89,093 114,565 249,626 2,155,812 In accordance with the Company Law of the PRC and the Company’s articles of association, the Company is required to transfer part of the profit after tax as reported in the Group’s statutory financial statements, to the statutory surplus reserve and the statutory public welfare fund. In addition, the board of directors may determine to appropriate part of the profit after tax to the discretionary surplus reserve. At the board of directors’ meeting held on 5 March 2004, the directors proposed to transfer RMB16,913,000 and RMB8,457,000 to each of the statutory surplus reserve and the statutory public welfare fund, respectively. These represent approximately 10% and 5% of the profit after tax as reported in the Group’s statutory financial statements for the year ended 31 December 2003. 38 23. RESERVES (continued) According to the relevant regulations in the PRC, the retained profits available for distribution as dividends is the lower of the amounts determined under PRC accounting regulations and the amounts determined under IFRS. 24. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (a) Reconciliation of profit before income tax to net cash inflow from operating activities 2003 2002 RMB’000 RMB’000 Profit before income tax 398,246 401,102 Adjustments for: Share of profits less losses of associates (3,246) (14,681) Depreciation charges 173,386 155,369 Loss on disposal of fixed assets 121 2,330 Provision for impairment loss of fixed assets 4,200 5,273 (Write-back) /provision for impairment loss of an available-for-sale financial asset (1,404) 7,651 Gain on partial disposal of equity interest in a subsidiary (142) - Amortisation of goodwill 16,986 12,902 Amortisation of bridge operating rights 3,522 3,522 Amortisation of other long term assets 3,664 3,664 Interest expenses 67,741 22,922 Interest income (26,175) (8,930) Gain on disposal of investment properties - (671) Dividend income from an available-for-sale financial asset (1,696) - Loss on disposal of equity interests in an associate - 203 Income on current investment securities, listed (3,547) (1,266) Operating profit before working capital changes 631,656 589,390 Decrease in inventories 20 1 Increase in prepayments and other receivables (449) (9,958) Increase in amounts due from related companies (14,675) - Increase/(decrease) in amounts due to related companies 5,235 (4,116) Decrease in amounts due to a minority shareholder (36,616) - Decrease in other payables (18,868) 12,208 Cash generated from operations 566,303 587,525 39 Interest paid (64,103) (28,900) Income taxes paid (94,305) (129,726) Net cash inflow from operating activities 407,895 428,899 40 24. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (continued) (b) Unutilised borrowing facilities As at 31 December 2003, the unutilised borrowing facilities available to settle the Group’s capital commitment for investment and construction amounted to RMB1,790,000,000 (2002: RMB 450,000,000). The above borrowing facilities as at 31 December 2003 were made available in accordance with the terms and conditions set out in the offered borrowing facilities as follows: 2003 2002 RMB ’000 RMB ’000 Amounts to be drawn down: Within one year 190,000 250,000 In the second to fifth years, inclusive 1,600,000 200,000 1,790,000 450,000 25. IMPACT OF IFRS ADJUSTMENTS ON CONSOLIDATED PROFIT ATTRIBUTABLE TO SHAREHOLDERS AND CONSOLIDATED NET ASSETS Consolidated profit Consolidated attributable to shareholders net assets as at Year ended 31 December 31 December 2003 2002 2003 RMB’000 RMB’000 RMB’000 As reported under PRC accounting principles 181,183 171,955 3,534,079 IFRS and other adjustments, net * (36,689) (121,149) (29,959) As restated under IFRS 144,494 141,996 3,412,930 * The adjustments include, primarily, adjustments for the elimination of the unrealised profits arising on the disposal of 100% ownership of the Jiujiang Bridge and related assets to Fokai Company against the Group’s share of 35% equity interest in Fokai Company in 1999, deferred income tax, goodwill arising on the acquisition of a subsidiary and associates, amortisation of goodwill, depreciation 41 charges, amortisation of other long term assets, impairment loss of fixed assets, current investment securities at market value and other adjustments in accordance with the prudence concept. 42 26. COMMITMENTS AND CONTINGENT LIABILITIES (a) Capital expenditure commitments The Group has capital expenditure commitments not provided as at the balance sheet date as follows: 2003 2002 RMB’000 RMB’000 Authorised, but not contracted for 800 147,640 Contracted for 1,138,123 1,536,023 1,138,923 1,683,663 (b) Operating lease commitments – the Group as lessee At the balance sheet date, the Group does not have any significant operating lease commitments. (c) Contingent liabilities At the balance sheet date, the Group does not have any significant contingent liabilities. 27. RETIREMENT BENEFITS AND HOUSING BENEFITS (a) Retirement benefits As stipulated by the regulations issued by the State Council of the PRC, the Group participates in a defined contribution retirement plan organised by the Guangdong Provincial Government. All staff are entitled to an annual pension which is equal to a fixed proportion of their final basic salary on retirement. The Group is required to make contributions to the retirement plan at rates ranging from 12% to 19% (2002: 15% to 18%) of the basic salaries of its staff. The Group has no obligations for the pension benefits beyond the annual contributions as described above. During the year, contributions to registered insurance companies made by the Group 43 under the defined contribution retirement scheme amounted to RMB5,582,000 (2002: RMB4,689,000). (b) Housing benefits In accordance with the PRC housing reform regulations, the Group is required to make contributions to the government administered housing fund schemes at rates ranging from 8% to 20% (2002: 8% to 20%) of the specified salary amounts of the PRC employees. The employees are required to make a contribution equal to the Group’s contributions out of their payroll. The employees are entitled to claim the entire sum of the fund under certain specified withdrawal circumstances. The Group has no further obligation for housing benefits beyond the said contributions. For the year ended 31 December 2003, the Group contributed RMB2,983,000 (2002: RMB1,571,000) to the said housing fund schemes. 44 28. RELATED PARTY DISCLOSURE (a) Related party transactions The following is a summary of the significant transactions carried out between the Group and its related parties in the ordinary course of business during the year: 2003 2002 RMB’000 RMB’000 Repayment of an advance to a related company - 99,975 Shareholders’ loan to an associate (see note 13) 8,000 - Loan from a minority shareholder (see note 20) 40,000 - Repayment of loan to minority shareholders (see note 20) 624,407 54,138 Proceeds from a loan repaid by an associate (see note 13) 6,000 7,000 Acquisition of equity interest and a shareholders’ loan in an associate from a related company - 591,600 Acquisition of equity interest in a subsidiary from a related - 10,000 company Disposal of equity interest in an associate to a related party - 3,523 Construction fees payable to a related company and a minority shareholder 25,100 21,252 Expressway maintenance and repair expenses payable to related companies and a minority shareholder 21,640 20,784 Interest expenses payable to minority shareholders (see note 20) 3,907 1,178 Interest expenses payable to a related company 795 2,004 Interest receivable from associates (see note 13) 25,256 4,165 Rental expenses payable to a related company 1,304 1,399 Advance to an associate (see note 13) 38,430 180,000 The repayment of an advance to a related company as at 31 December 2002 was unsecured, bore interest at the prevailing market rate of 5.49% per annum based on the rates quoted by the People’s Bank of China. Pursuant to an agreement between a related company and the Company, the Company acquired 20% equity interest in Guangzhu Company at a consideration of RMB280,067,000 and granted a shareholders’ loan to Guangzhu Company, amounting to RMB311,533,000, with effect from 1 November 2002. Pursuant to an agreement between a related company and the Company, the Company acquired an additional 10% equity interest in Gaosu Company at a consideration of RMB10,000,000, with effect from 28 February 2002. 45 Pursuant to the disposal agreement entered into between a related company and the Company, the Company disposed of its 25% equity interest in Guangdong Jindaoda Expressway Economic Development Company Limited in April 2002 under normal commercial terms and conditions. Construction fees payable to a related company and a minority shareholder were based on actual costs incurred and under normal commercial terms and conditions. 46 28. RELATED PARTY DISCLOSURE (continued) (a) Related party transactions (continued) Expressway maintenance and repair expenses payable to related companies and a minority shareholder were based on actual costs incurred and under normal commercial terms and conditions. Rental expenses payable to related companies were based on actual costs incurred and under normal commercial terms and conditions. (b) Directors’ remuneration During the year, the executive members of the board of directors received remuneration, inclusive of basic salaries, bonuses and allowances, totalling RMB3,035,000 (2002: RMB5,098,000). The Company contributed RMB45,000 (2002: RMB2,067,000) to defined contribution retirement schemes administered by registered insurance companies for the executive directors. 29. FINANCIAL INSTRUMENTS AND CONCENTRATION OF RISKS The Group conducts its major operations in the PRC and exposes to market risks from changes in interest. In addition, they are also subject to special considerations and risks including risks associated with, inter alia, the political, economic and legal environment and restrictions pertaining to the setting of a stable toll tariff. Financial assets of the Group include cash, investments, prepayments and other receivables. Financial liabilities of the Group include bank loans, amounts due to related companies, other payables and amounts due to minority shareholders. (a) Credit risk Substantial amounts of the Group’s cash balances are deposited with the China Construction Bank, the Bank of China, the Agriculture Bank of China, the China International Trust and Investment Company Industrial Bank, the Shenzhen Development Bank, the Industrial and Commercial Bank of China, the China Everbright Bank, Huaxia Bank, the Bank of Communications, the Shanghai Pudong Development Bank, China Minsheng Banking Corp., Ltd., the China Merchants Bank, the Guangzhou Commercial Bank, Beijing City Commercial Bank Co., Ltd. and Industrial Bank Co., Ltd. The Group has no significant concentration of credit risk with any single counterparty 47 or group counterparties. (b) Liquidity risk The Group policy is to maintain sufficient cash and cash equivalents or have available funding through an adequate amount of committed annual credit facilities from banks to meet its commitments over the next year in accordance with its strategic plan. 48 29. FINANCIAL INSTRUMENTS AND CONCENTRATION OF RISKS (continued) (c) Interest rate risk The Group’s exposure to interest rate risk relates principally to its bank loans and amounts due to minority shareholders. The Group’s income and operating cash flows are substantially independent of changes in market interest rate prices. (d) Foreign exchange risk The Group has no significant foreign exchange risk due to limited foreign currency transactions. (e) Fair values The fair values of cash, investments, prepayments, other receivables, amounts due to related companies, other payables and amounts due to minority shareholders are not materially different from their carrying amounts. Investments held for trading, are estimated by reference to their quoted market prices at the balance sheet date. Available-for-sale financial assets are measured at cost less impairment losses, if appropriate, as there are no quoted market prices in an active market and whose fair values cannot be reliable (see note 14). Fair value estimates are made at a specific point in time and based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. 30. SEGMENT INFORMATION The Group’s revenue and profit for the year were almost entirely derived from the management and operations of toll expressways and a bridge, which are located in the Guangdong Province, the PRC. Accordingly, no segmental analysis by activity and geographical area is provided. 49 31. COMPARATIVE AMOUNTS Certain comparative amounts in the prior year have been reclassified so as to conform to the current year’s presentation. 32. APPROVAL OF THE FINANCIAL STATEMENTS The financial statements were approved and authorised for issue by the board of directors on 5 March 2004. 50