方大集团(000055)方大Ｂ2003年年度报告（英文版）

方大集团股份有限公司 CHINA FANGDA GROUP CO., LTD. Annual Report 2003 Index I. Company Profile ......................................................................................................... - 1 - II. Summary of Accounting & Business Data................................................................ - 2 - III. Changes in Share Capital and Particulars about the Shareholders........................... - 5 - IV. Particulars about the Directors, Supervisors, Senior Management and Employees. - 9 - V. Managerial Structure.................................................................................................- 11 - VI. The Shareholders’ General Meeting ...................................................................... - 12 - VII. Report of the Board of Directors .......................................................................... - 13 - VIII. Report of the Supervisory Committee................................................................. - 29 - IX. Significant Events .................................................................................................. - 30 - X. Financial Statements................................................................................................ - 32 - XI. Documents for Reference....................................................................................... - 32 - Important Statements The Board of Directors and the directors of the Company guarantee that there are no significant omissions, fictitious or misleading statements carried in the Report and will accept individual and joint responsibilities for the truthfulness, accuracy and completeness of the Report. This report was examined and passed by the 13th meeting of the 3rd term Board of Directors. The report is prepared both in Chinese and English. In case of any confliction between two of the versions, the Chinese version shall prevail. Mr. Xiong Jianming, the Chairman, and Mr. Xie Chun, the Financial Principal hereby declares that: The financial statements carried in this annual report are of verity and complete. I. Company Profile 1. Legal Name of the Company in Chinese and English In Chinese: 方大集团股份有限公司 abbreviation 方大集团 In English: CHINA FANGDA GROUP CO., LTD. abbreviation CFDC 2. Legal Representative: Mr. Xiong Jianming 3. Secretary of the Board: Mr. Zhou Zhigang Securities affair liaison: Ms. Cao Naisi Address: Fangda Town, Xili Longjing, Nanshan District, Shenzhen, PRC Post code: 518055 Tel: 86(755) 26788571 ext. 6622 Fax: 86(755) 26788353 Email: zqb@fangda.com 4. Registered Address of the Company: Fangda Building, Kejinan 12th Avenue, High-tech Zone, Shenzhen, PR China. Post code: 518057 Head office: Technology Building, Fangda Town, Xili Longjing, Nanshan District, Shenzhen, PRC Post code: 518055 Website: http://www.fangda.com Email: fd@fangda.com 5. Official Medias of Information Disclosure China Securities Journal, Security Times, Hong Kong Commercial Daily Place where Annual Reports are available: Secretary Office of the Board of Directors. Website assigned by China Securities Regulatory Commission for the disclosing of Annual Report: http://www.cninfo.com.cn 6. Abbreviations and Codes of the Stock and the Stock Exchange Where Listed A Stock: Fangda A 000055 Shenzhen Stock Exchange B Stock: Fangda B 200055 Shenzhen Stock Exchange -1- 7. Miscellaneous Information of the Company Initial registration date and place: December 13th, 1995, Shenzhen Bureau of Industry & Commerce Administration Business license number: Qi-he-yue-shen-zong-zi No. 107938 Tax registration number: Guo-shui-shen-zi No. 440301192448580 Di-shui-shen-zi No.440305192448589 Public accountants invited by the Company: Domestic accountant: Shenzhen Dahua Tiancheng Certified Public Accounants Office address: 11th floor, Block B, Lianhe Plaza, No. 5022 Binhe Road, Futian, Shenzhen International accountant: Ho and Ho & Company CPAs Office address: 3rd floor, Leunfa Business Center, No. 2-12 Queen’s Road West, Hong Kong II. Summary of Accounting & Business Data 1. Major Accounting Data of Year 2003 (in RMB Yuan) Gross profit 12,999,127.48 Net profit 10,579,684.96 Net profit after deducting of non-recurring gain/loss 9,005,223.83 Profit of major business 81,559,718.85 Profit of other business 6,373,350.73 Operation profit 11,367,848.54 Revenue from investment 62,796.10 Revenue from allowances 1,518,313.10 Non-business revenue, net 50,169.74 Cash flow from business operation, net 5,022,331.62 Increment of cash & cash equivalents, net 21,144,843.67 Note: Irregular gains are amounted to RMB1,574,461.13, the followings are the details: Gain/loss from disposal of fixed assets: RMB -507,332.70 Government allowance: RMB1,518,313.10 Revenue from short-term investment: RMB317,939.20 Transferred back from bad debt reserve: RMB-311,960.91 Other non-business revenue: RMB3,990,917.05 Other non-business expenditures: RMB-3,433,414.61 -2- 2. Presentation of the Discrepancies Between the Results of Domestic and International Auditors In accordance with the auditing result of Ho and Ho & Company CPAs, the Net Profit of the Company for year 2003 based upon International Accounting Standard is RMB12,037 thousand, the followings are the adjusted items comparing with the auditing result of Shenzhen Dahua Tiancheng CPAs based upon China Accounting Standard: In RMB thousand Net profit audited by Shenzhen Dahua Tiancheng CPAs 10,580 1) Capitalizing of interest of constructions in process 1,187 2) Fixed assets depreciation (28) 3) Impact of increment from intangible asset re-evaluation 298 Net profit audited by Ho and Ho & Company CPAs 12,037 3. Accounting Data and Financial Indices of Previous 3 Years Subjects 2003 2002 2001 2001 (Adjusted) (Not adjusted) Revenue of major business (RMB) 514,002,569.34 438,191,899.30 406,956,626 406,956,626 Net profit (RMB) 10,579,684.96 -173,094,657.32 35,939,821 36,147,639 Total asset (RMB) 1,457,419,424.04 1,287,196,619.77 1,385,678,719 1,393,918,123 Shareholder’s equity (RMB) 835,169,852.50 824,590,167.54 1,017,770,501 1,029,023,539 Earnings per share (RMB) 0.04 -0.58 0.12 0.12 Net asset per share (RMB, fully amortised) 2.82 2.78 3.43 3.47 Net asset per share, adjusted (RMB) 2.70 2.74 3.42 3.45 Cash flow from business operation per share, net 0.017 -0.127 0.484 0.484 (RMB) Net ratio of return on equity (%) 1.27 -21.05 3.53 3.51 -3- 4. Indices of Net Ratio of Income on Asset and Income Per Share Period Year 2003 Year 2002 Year 2001 Year 2001 Adjusted Not adjusted Indices Net ratio of income Income per share Net ratio of income Income per share Net ratio of income Income per share Net ratio of income Income per share on asset (%) (RMB) on asset (%) (RMB) on asset (%) (RMB) on asset (%) (RMB) Profit items Fully Weighted Fully Weighted Fully Weighted Fully Weighted Fully Weighted Fully Weighted Fully Weighted Fully Weighted amortized average amortized average amortized average amortized average amortized average amortized average amortized average amortized average Profit of major biz 9.77 9.83 0.28 0.28 5.71 5.05 0.16 0.16 10.32 10.20 0.35 0.35 10.44 10.32 0.36 0.36 Operation profit 1.36 1.37 0.04 0.04 -21.14 -18.7 -0.59 -0.59 3.68 3.64 0.13 0.13 3.72 3.68 0.13 0.13 Net profit 1.27 1.27 0.04 0.04 -21.05 -18.62 -0.58 -0.58 3.53 3.49 0.12 0.12 3.51 3.47 0.12 0.12 Net profit after deducting of 1.06 1.07 0.03 0.03 -21.07 -18.64 -0.59 -0.59 3.54 3.50 0.12 0.12 3.53 3.49 0.12 0.12 irregular gain/loss 5. Particulars about the Alternation of Shareholders’ Equity of the Company in 2003 (in shares and RMB) Cash Total of Capital Capital Surplus Legal public Profit not Subjects dividend shareholders’ share reserves reserves welfare distributed announced equity At the beginning 296,400,000 412,204,879.44 92,265,490.25 32,146,318.40 23,719,797.85 - 824,590,167.54 of term Increased by current - - 1,586,952.75 528,984.25 10,579,684.96 8,892,000 21,058,637.71 term Decreased by current - - - - 10,478,952.75 - 10,478,952.75 term At the end 296,400,000 412,204,879.44 93,852,443.00 32,675,302.65 23,820,530.06 8,892,000 835,169,852.50 of term Profit and drawing Drawing of Cash Cause of Drawing of of surplus reserves public dividend changing reserves and cash dividend welfare announced announced -4- III. Changes in Share Capital and Particulars about the Shareholders 1. Changes of Share Capital in shares Changes during the year (+ -) Before the After the Conversion change Bonus Additiona change Allotment from capita Others Sub- total share l issue reserves I. Non-current shares 1. Promoters’ shares 109,032,000 109,032,000 Including: State-owned shares Domestic legal person shares 109,032,000 109,032,000 Overseas legal person shares Others: 2. Raised legal person shares 3. Employees’ shares 4. Preference shares and other Total of non-current shares 109,032,000 109,032,000 II. Current shares 1. RMB ordinary shares 42,000,000 42,000,000 2. Domestic listed foreign 145,368,000 145,368,000 shares 3. Overseas listed foreign shares 4. Others Total of current shares 187,368,000 187,368,000 III. Total shares 296,400,000 296,400,000 -5- 2. Particulars about the Shareholders 1) There are totally 40,810 shareholders of the Company, among which, 21,727 are A-share holders and 19,083 are B-share holders. 2) The top 10 shareholders (ended December 31, 2003, in shares) Increase / Number of Holding shares Proportion Category of Nature of No. Name of Shareholders decrease in the share pledged/ at the year-end (%) shares shareholders report year frozen Shenzhen Banglin Technology Development 1 - 60,000,000 20.243 Non-current 60,000,000 Legal person Co., Ltd. (known as ‘Banglin’ hereinafter) Shenzhen Shilihe Investment Co., Ltd. 2 - 47,112,000 15.895 Non-current 42,000,000 Legal person (known as ‘Shilihe’ hereinafter) Onforce International Co., Ltd. Current B 3 -1,100 21,007,000 7.087 - Foreign (Known as ‘Onforce’ shares hereinafter) Current A 4 Beijing Securities Co., Ltd. - 4,141,514 1.397 N.A. Legal person shares Shenzhen Shekou Yuer 5 - 1,920,000 0.648 Non-current 1,920,000 Legal person Industrial Co., Ltd. Current B 6 TOK YEK SENG 703,700 1,578,000 0.532 N.A. Foreign shares Current B 7 Weng Yingwen 1,074,715 1,074,715 0.362 N.A. Foreign shares Current A 8 Beijing Financial Securities - 1,018,747 0.344 N.A. Legal person shares Current B 9 HOWARD JOHN LOEWEN - 735,754 0.248 N.A. Foreign shares Current B 10 Jiang Xu 670,000 670,000 0.226 N.A. Foreign shares Note: Among the top 10 shareholders, Banglin and Onforce are under the same controlling shareholder, therefore they are regarded as related parties. As for the other holders of current shares, the Company has not been informed any situation of related parties or concerted operators. -6- 3) Information of shareholder of the Company holding over 10% (including 10%) of the total shares: Name of Percentage of Legal Date Registered Business Scope shareholder shareholding representative incorporated capital Invested in industrial business, technology RMB development and consultation Banglin 20.243% Xiong Jianming June 7, 2001 of electronic products, 30,000,000 domestic business, material supply and marketing RMB Invested in industrial Shilihe 15.895% Zhu Weiping June 12, 2001 19,780,992 business 4) Investors of Banglin Company, the largest shareholder of the Company, are natural people. Among them, as chairman of the BOD of the Company Mr. Xiong Jianming holds 85% of total share capital. Mr. Xiong Jianming is Chinese nationality, who has not enjoy the residence rights in any other country or area. For the past five years, he took the Chairman of the Board and concurrently President of the Company. -7- 5) Particulars about the shareholding situation of the top ten holders of current shares (Ended December 31, 2003, in shares) No. Name of shareholder Shares held at the end of year Category of shareholding 1 Onforce International Co., Ltd. 21,007,000 Current B shares 2 Beijing Securities Co., Ltd. 4,141,514 Current A shares 3 TOK YEK SENG 1,578,000 Current B shares 4 Weng Yingwen 1,074,715 Current B shares 5 Beijing Financial Securities 1,018,747 Current A shares 6 HOWARD JOHN LOEWEN 735,754 Current B shares 7 Jiang Xu 670,000 Current B shares 8 Li Meifang 560,500 Current B shares 9 Wang Chanjuan 545,500 Current B shares 10 Huang Peilin 496,288 Current B shares Note: The Company has not been informed by the above holders of current shares whether there are any related parties among them. -8- IV. Particulars about the Directors, Supervisors, Senior Management and Employees 1. Particulars about the Directors, Supervisors, and Senior Management 1) Details of the Directors, Supervisors, and Senior Management Shares holding at the Shares holding at the Name Position Sex Age Office term beginning of year end of year (shares) (shares) Xiong Chairman, President 31,500 31,500 m 46 2002.4.27--2005.4.27 Jianming Zhu Director, Vice 4,200 4,200 m 45 2002.4.27--2005.4.27 Weiping President Wang Director, Vice 4,200 4,200 m 45 2002.4.27--2005.4.27 Shengguo President Xiong Director 0 0 m 35 2002.4.27--2005.4.27 Jianwei Wan Independent Director 0 0 m 47 2002.4.27--2005.4.27 Jianhua Shao Independent Director 0 0 f 65 2002.4.27--2005.4.27 Hanqing Niu Hanben Independent Director m 63 2002.4.27--2005.4.27 0 0 Li Bangyan Chairman of 2002.4.27--2005.4.27 0 0 Supervisory m 39 Committee Song Supervisor 2003.9.11--2005.4.27 0 0 m 42 Wenqing Zheng Hua Supervisor f 44 2003.9.11--2005.4.27 0 0 Zhou Secretary of the 2003.10.22--2005.4.27 0 0 m 42 Zhigang Board Yu Guoan Chief Technical 2002.4.27--2005.4.27 1,400 1,400 m 44 Officer Jin Xugang Chief Marketing 2002.4.27--2005.4.27 0 0 m 38 Officer -9- 2) Particulars about directors and supervisors who take jobs in shareholding parties of the Company Name Take job in Position Job term Take salary or not Xiong Jianming Banglin Co. Chairman June, 7th, 2001 till present No Xiong Jianming Onforce Chairman March 23, 2001 till present No Zhu Weiping Shilihe Co. Chairman August 24, 2003 till present No Wang Shengguo Shilihe Co. Vice Chairman & General Manager August 24, 2003 till present No Xiong Jianwei Shilihe Co. Director August 24, 2003 till present No Song Wenqing Shilihe Co. Director August 24, 2003 till present No 3) Particulars about the salaries of the current directors, supervisors and senior management (tax included) Through the approval of 2001 Shareholders’ General Meeting, the allowance for the directors and independent directors of the 3rd term Board of Directors was RMB60 thousand per year, and for the supervisors of the 3rd term Supervisory Committee was RMB30 thousand per year. Through the approval of the 1st meeting of the 3rd term Board of Directors, the payments to senior management were formed by basic salary and floating salary based upon their achievement. The salaries for the current directors, supervisors and senior management are amounted to RMB1,822,248. There was one people whose annual payment was over RMB300,000; 4 people between RMB200,000 300,000; and 4 people between RMB100,000 200,000. The payments for the top 3 directors were amounted to RMB758,580; whereas the payments for the top 3 management person were amounted to RMB758,580; the independent directors of Mr. Shao Hanqing, Mr. Niu Hanben, and Wan Jianhua took RMB60,000 of annual payment respectively. All of the directors, supervisors and senior management of the Company took salaries from the Company and took no salaries or allowances from any of the shareholding parties or other related parties of the Company. 4) Resigning of Directors, Supervisors and Senior Management during the report term and reason Name Resigned from the position of Reason Xiong Zhude Director, CFO Personal reason Lu Weiwei Director, Secretary of the board Personal reason Zhou Zhigang Supervisor Personal reason Ma Songlin Supervisor Personal reason 5) During the report term, Mr. Zhou Zhigang was engaged by the Company as the secretary of the Board. - 10 - 2. Number of the employees and their formation of professions, education level and particulars about the retired employees. There are totally 2208 employees currently in the Company, among which, 1315 production employees, 165 sales employees, 511 technical employees, 46 accounting employees, 171 executive and administrative employees, where no retired employees exist in the Company. 877 employees are above college education, takes 39.7% of the total employees, among which, 11 are holding doctorial degree and 34 are holding master degree. V. Managerial Structure 1. Particulars about the Managerial Structure of the Company The Company carried out its business operation strictly following with the “Management Rules of Listed Companies”, “Guide to Article of Association of Listed Companies” and “Opinions on the Standardization of Shareholders’ General Meeting of Listed Companies” issued by China Securities Regulatory Commission. During the report term, pursuant to the “Notifications on the standardization of fund transferring between listed companies and related parties and providing of external guarantee” as well as the practical situation of the Company, revised the “Article of Association”, “Rules of Shareholders’ General Meeting”, “Rules of the Board of Directors”, “Rules of the Independent Directors”, “Rules of the Supervisory Committee”, and “Detailed Rules for the President”. Which further clarified the duties and rights of the Shareholders’ General Meeting, Board of Directors, Supervisory Committee and the President, detailed examine procedures for external guarantees and credit assessment standard for the objects were set up. Currently there was not any significant discrepancy exist between the above regulations and the practical situation of the Company. 2. Performance of the Independent Directors There are totally 3 independent directors of the Company, which exceeds 1/3 of the total number of directors. During the report term, the independent directors were performing their duties earnestly and independently, and exactly according with the terms of the “Article of Association”, “Rules of the Board of Directors”, and “Rules for the Independent Directors”. They issued independent opinions on significant issues of the Company, and performed consultancy functions as independent directors should have done. 3. The Company is completely separated from the controlling shareholder in aspects of businesses, personnel, assets, organizations, and accounting. The Company has its own completed businesses and capacity of independent business operation. 1. In the aspect of business: the company has its own purchasing, production, sales, and customer service system which performing independently. There is not any material related transactions occurred with the controlling shareholders. 2. In personnel: The labor management, personnel and salary management are operated independently out - 11 - of the controlling shareholder. The senior managements take salaries from the Company and none of them takes senior management position in the controlling party. 3. In assets: The company owns its production, supplementary production system and accessory equipments independently, and possesses its own industrial properties, non-patent technologies, and trademark. 4. In organization: The production and business operation, executive management, and department setting are completely independent from the controlling shareholder. No situation of combined office exists. The Company adjusts its organizing structure only for its own practical requirement of development and management. 5. In accounting: The company has its own independent accounting and auditing division, established independent and completed accounting system and management rules, has its own bank account, and exercise its liability of taxation independently. 4. Assessment and motivation system of the senior management The Company adopts a salary system for senior management formed by basic salary and floating salary based upon assessment of their achievement. In accordance with “The detailed assessment rules of target management for the supervisory and service departments of year 2003” and “The detailed assessment rules for subsidiaries of year 2003”, the senior management are assessed on their capability of innovation, basic quality, performance, accomplishment of profit and account collecting goals. The results of assessment form the foundation of floating salary or penalty. VI. The Shareholders’ General Meeting The Shareholders’ General Meeting 2002 was held during the report term. 1. Notifying, Convening and Holding of the Meeting The convening notification of the Shareholders’ General Meeting 2002 and its agenda was published with China Securities Journal, Security Times, and Takungpao on April 26th, 2003. The meeting was held at 14:30 PM May 28, 2003 in the multi-function conference hall at the first floor of Fangda Building. Totally 20 shareholders or attorneys presented the meeting representing 136,286,661 shares, which take 45.98% of the total capital shares. Among them, there were 9 B-stock holders representing 21,988,300 shares, which take 7.42% of the total capital shares of the Company at the equity registration date. 2. Resolutions of the Shareholders’ General Meeting and Its Announcing The following resolutions were passed by the meeting: 1) Annual Report of the President 2002; 2) Annual Report of the Board of Directors 2002; 3) Annual Report of the Supervisory Committee 2002; - 12 - 4) Financial Statements 2002; 5) The Proposal of Profit Distribution and Capitalizing of Reserves for Year 2002; 6) The Profit Distribution Policies for Year 2003; 7) The Proposal of Not to Implement Capitalizing of Reserves for Year 2003; 8) The Proposal of Engaging of Certified Public Accountants; 9) Annual Report 2002 and Its Summary; 10) The Proposal of Changing of the Registered Company Address; 11) The Proposal of Expanding of the Business Scope Registration; 12) Revised Draft of the Article of Association of the Company; 13) The Proposal of Constructing of Fangda (Jiangxi) New Material Technologies Base. The above resolutions were published on the May 30th, 2003 issues of China Securities Journal, Security Times, and Takungpao. VII. Report of the Board of Directors 1. Analyses of Significant Issues (1) Analyses of Financial Data In the report term, with the hard working of the employees, the Company realized major business revenue of RMB514,002,600 that increased 17.30% over the previous year. The sales volume of multi-layer aluminium board/single-layer moulding aluminium board, and profiled aluminium products increased dramatically by 24.01% and 25.32% respectively. On the other hand, the earnings from outer-wall engineering projects were also in the trend of successive increase. For the purpose of standing a good image, the Company was doing its best in every single project. In the report term, a number of high standard projects were accomplished with superior quality, thus won compliment of the clients. 4 of the projects which the Company participated in were awarded Luban Award – the National Award for High-quality Engineering. Besides working hard to expand the sales volume, the Company also promoted deducting of cost aiming to maximise its profit margin. Came with the 5.79% increasing of sales volume, the cost of outer-wall products decreased by 2.97%. As for other products, most of the increase rates of major business cost were lower than those of major business revenue. Therefore the gross profit rate of the report term was increased by 35.75% over that of the previous year. The Company implemented cost-deducting measures in all aspects of the Company during the report term. Results were measured and tracked monthly to ensure it is effective. As the result, the expense rate of the report term decreased by 35.59% than that of the previous year. Beside that, the operation of Fangda Building, which is located in the Hi-tech Zone of Shenzhen, has stepped into a stable stage in the report - 13 - term. It brought the Company with RMB8,471,000 of leasing income, which impacted the profit by RMB6,098,300. Due to the dramatic increasing of sales volume in the report term, as well as the favourable payment conditions provided to the customers (base on the credit condition of the customers) for the purpose of expand the market share, the net account receivable increased by 22.42% over that of the previous year. While for the purpose of expand the business scale, boost the productivity, and speed up the 2nd phase of project of GaN-IC and its appliances, as well as the construction of Fangda New Material (Jiangxi) Co., Ltd. (known as Fangda New Material Co. hereinafter), the payment of advances for materials and equipments increased significantly for the report term. Thus the total asset of the Company for the report term was increased 13.22% over that of the previous year. Correspondingly, the operation cash income increased following with the increasing of sales volume and reclaim rate of sales payment. The cash reclaim/payment rate of merchandise selling and service providing was increased by 6.37% over that of the previous year. Therefore the net operational cash flow of the report term increased dramatically over that of the previous year. (2) Analyses of Operation Results 1) Forming of the triangle industrial system of new-type construction materials, electronic-mechanism equipments, semi-conductor IC and lighting products The Company launched the project of high-tech shield gate for metro system in 1999, which has a bright prospect. In the report term, the Company got an important contract of the engineering of shield gates for line 3 of Guangzhou Metro. This was a symbol for the Company to become the leading player of the shield gate market. It also promoted the forming of the 3rd major business of the Company – electronic-mechanism equipment industry. Till then, the triangle industrial systems of the Company were established by new-type construction materials, electronic-mechanism equipments, semi-conductor IC and lighting products. 2) Upgrade the management and lower the cost through internal reforming In the report term, the Company kept following with the changing of market and the requirement of development, exploring for a new managerial mode. A product-oriented department structure was established and tested to be effective and practical through over 6 months of trial operation. In the report term, due to the high-rising of raw material price in both domestic and overseas market, the Company implemented cost-deduction process with cost-controlling and risk-preventing as the core measures. Finding of new raw-material suppliers and adopting of bid purchasing helped to deduct the cost of raw-materials. Further optimise the accounting management such as expenditures and materials; standardize the internal controlling process; fine the cost accounting; management expenditures were effectively deducted through restricting of expenses and maximising of asset utilizing. It was proved - 14 - effective to the increasing of profitability during the report term. 3) Operation of new-type construction materials business was in good condition; marketing and sales work was effective For 1st half of the year, the Company’s business was depressed by the burst out of SARS; as for the 2nd half of the year, the Company again suffered from the high-rise of prices of aluminium, copper, steel and PE grain. Though with the hard working of the employees, depending on the advantage of good reputation of “Fangda” trademark, fine the developing of the marketplace, reinforce the horizontal cooperation with other companies of the industry. On the basis of enforce the market share in Shenzhen, Guangzhou, Shanghai, and Beijing, we explored the market channel to 2nd line cities such as Nanchang, Nanning and Shenyang. Orders from these cities increased significantly than that of the previous year. The sales volumes of the outer-wall materials, multi-layer aluminium board and profiled aluminium products created new records which greatly contribute to the increasing of total profit. They increased by 5.79%, 24.01% and 25.32% respectively over that of the previous year and accomplished the business goal set at the beginning of year. At the same time, the Company enforced the collecting of sales payment. That brought up the payment collection rate significantly and ensures a good accomplishment of the business goal. In the report term, the Company founded a full subsidiary – Shenzhen Fangda Heating & Aerator Technology Co., Ltd. (known as “Fangda Heating & Aerator Co.” hereinafter). Its product, “Dongyang” aluminium-copper radiator, was put into production and marketing in May. The marketing processes of its branch offices in Beijing , Xi’an, Lanzhou, and Shenyang have entered a stable operation. The sales volume was increasing steadily up to RMB4.87 million in total of the year. It was realized to output in the same year of investment. 4) The business of electronic-mechanism industry accomplished its first step and showing a strong trend of development Currently there are over 10 cities such as Beijing, Shanghai, Guangzhou and Shenzhen are constructing or already completed their metro system, while most of them are planning for the installation of shield gates. According to an incomplete survey, the total length of metro systems of the entire country will be over 1000 km at year 2010. Shield gate system is function in energy saving, environment protection and safety. It is not only a presentation of thoughtfulness for the safety of the passengers and improve the environment in metro stations, but also deducts energy consuming effectively. Using of shield gates is becoming a trend for metro systems, which is opening a wide market for the business. Through four years of technical researching and developing, the Company is now possessing mature technologies on designing, installing and testing of shield gate system, as well as an advanced project managing system. The Company is the only vendor of shield gate system in the country. “Fangda” brand full-closed shield and semi-closed shield are starting to show a prosperous prospect for the Company is the sole vendor of these products. In the report term, the Company obtained the contract of the shield gate system for line 3 of Guangzhou Metro with value of RMB81,630,000 including installation engineering. And the sales contract with Shanghai - 15 - Metro for its line 1 Guangzhong station and Nachang Station of Hong Kong Metro has been completed. According to the statistics, the Company is taking over 30% of the market share in the whole country. 5) The business of semi-conductor IC and lighting products is growing steadily In the report term, the GaN-IC and its appliance project was operating steadily, a break through in production has been realized which increased both of the output and sales volume by 3 times over the previous year. The quality of extend chips and LED chips have already reached the level of the same products of overseas vendors. High power blue LED chips and white LED complex fluorescence powder were successfully developed. It makes the Company become the leader of this area in the country both in technology and production scale. For the purpose of further expanding of production capacity to an economical scale, the Company was reinforcing the construction of the 2nd phase of the project. Further researches were carried forward to reduce cost and increase its market share. For Ga-N LED has its feature of smaller, energy saving, long life, maintenance free, rapid reaction, and environment protection, it consumes only 1/8 to 1/10 of energy than ordinary bulb with its working life extended up to 80000 hours under the same condition. The needs of lighting consume 10-20% of the total energy consumption, thus LED is a prospective substitute of ordinary bulb and fluorescence lamp. It will greatly benefit energy saving and environment protection in the future. Currently many countries and regions such as Japan, US, EU, Korea, and Taiwan are currently promoting their semi-conductor lighting programme. The Energy Ministry of the United States predicted in its Next Generation of Lighting (NGLI) that, at around 2010, 55% of the ordinary bulbs and fluorescence lamps will be replaced by semi-conductor lamps. Whereas the 21st Century Lighting Programme of Japan is planning to replace traditional lamps by semi-conductor lamps in a large area before 2006. It opens a large market for the Company. The National Semi-conductor Lighting Programme promoted by the Ministry of Science and Technologies of China will be launched in June 2003. It will be conducted by the government and promoted by enterprises with cooperation of manufacturers, researchers and educators. The programme will put high-power high-brightness LED chips at the material position. The Company will keeps following with the national programme and enforces the researching of high-power semi-conductor chips, to meet with the requirement of rapid growing market. 6) Achievement in developing of overseas markets The export volume of aluminium-plastic multiplex board increased by 195% over the previous year. New importers from 6 countries such as Turkey, US, and India were engaged on the basis of existing countries of Thailand and Russia. The sales volume of steel vesicant doors to US, South Africa, and Saudi Arabic was growing steadily. 7) Launch of strategic scheme of development In the report term, Fangda New Material Technologies Base was launched in the National High & New - 16 - Tech Development Zone of Nanchang Jiangxi. Its 1st phase will be completed in 2004. New equipments will be introduced on the base of the original production lines to expand productivity. Upon the completion of the construction, the productivity of outer-wall materials, aluminium-plastic board, aluminium single board, aluminium-copper radiator, doors for export, and profiled aluminium products will be increased significantly over present, while the operation cost is expected to be lowered and the benefit of scaled production will effective. Also in the report term, Fangda Building located in the high-tech zone of Shenzhen was completed and put into operation. Except several floors were adopted by the Company as researching base. The rest of floors were rented by Shenzhen New Businesses Base for Overseas Students and other technical enterprises as the “cradle” of high-tech projects. The Company has started to enjoy the benefit from the rent of offices and accessory installations. 8) Reinforce technical innovation and basic management During the report period , the company continuously enlarges the scientific research investment, speeding up the optimizing of product formation and technical development to increase the technological content of its products, then fulfils the enterprise stable development by the technology innovation. The Company invested RMB12.4055 million in researching and development in the report term, 19 of new products and technologies were developed and 52 of patents were obtained, including 8 patents of inventions. The environment friendly energy-saving draught outer-wall product has passed the assessment of Shenzhen government as a new product. In the report term, Shenzhen Fangda Decorating Engineering Co., Ltd., the full subsidiary of the Company, first passed the annual examination of ISO14000 environment management system and OHSAS vocational health & security management system. The Company also passed the secondary examination of ISO90001 2000 quality management system certification. In the report term, the Company was awarded: the large taxation enterprise of Shenzhen; listed among the national large scale industrial enterprises; Platinum Award of European International Quality & Technology Grand Prize; The top 100 manufacturers of construction material industry and the top 100 enterprises of Shenzhen. The trade name “Fangda” was awarded as the provincial well known trade name, and was elected one of the 10 most potential trade names of Shenzhen in the public voting hosted by Shenzhen Business & Industry Bureau. The construction projects of the multi-function building No. 12 of China Agriculture Development Bank Shanxi Branch, electricity building of Jinjiang Fujian, Shenzhen Bao’an Stadium, and Chengdu Shuangliu International Airport buildings which the Company participated were awarded the National High-quality Constructions of Year 2003. Fangda building was awarded the high-quality modelling project of Shenzhen and 2003 National Decorating Engineering Technology Award. Thermoplastic glue continuous compound honeycomb aluminium plate, product of the company, was awarded the Certificate of National Key Products by the Ministry of Science and Technology, Ministry of - 17 - Business, and National Bureau of Quality Supervisory & Quarantine. The shield gate system, GaN blue-green LED project, and other 3 projects were listed by the 2003 Provincial Key New Product Scheme. 2. Business Operation of the Company The Company is mainly engaged in development, design, manufacture, construction, sale and after service of new construction materials, compound materials, metal products, environmental protection facilities and equipments, safety and guard equipments, metallurgy equipments, optical, mechanical and electronic integration products, macromolecule materials and products, precision chemical products, mechanical equipments, photoelectric materials and equipments, photoelectric equipments, electronic display equipments, audiovisual and transportation installations, shield gates for metro systems, heating and aeration equipment, water supply and drainage equipment, central air-conditioning equipment, semi-conductor and appliance, ICs, lighting products and equipments, and solar energy products. The major business revenue of the Company and net profit are primarily coming from high-tech construction materials. Products that bring the company by over 10% of its gross profit or major business revenue are: outer-wall materials, compound aluminium plate and single layer profiled aluminium plates, profiled aluminium products and coloured profiled plates. The formation of major business and profitability of the report term have not changed significantly comparing with that of the previous year. The distributions of major business revenue and profit on industries, products, and geographical areas are as the followings: - 18 - In RMB Yuan Distribution on Major business Cost of major Gross Increase/decrease of Increase/decrease of Increase/decrease of categories of revenue business profit income from major cost of major gross profit ratio products ratio business compared business compared compared with the (%) with the previous with the previous previous year (%) year (%) year (%) Outer-wall 319,633,216.51 257,817,242.46 19.34 5.79 -2.97 60.36 products Compound aluminium plate and single layer 159,365,209.40 132,652,269.75 16.76 24.01 27.57 -12.16 profiled aluminium plates Profiled aluminium products and 61,274,871.43 56,097,492.09 8.45 25.32 21.61 49.29 coloured profiled plates Major business Cost of major Gross Increase/decrease of Increase/decrease of Increase/decrease of Distribution on revenue business profit income from major cost of major gross profit ratio categories of ratio business compared business compared compared with the industries (%) with the previous with the previous previous year (%) year (%) year (%) Sales of 251,373,173.42 222,436,550.45 11.51 15.51 7.43 137.32 products Construction 338,603,671.64 274,903,234.56 18.81 6.76 2.35 22.78 and installations Sub-total 589,976,845.06 497,339,785.01 15.7 10.32 4.56 41.95 Amortizing between the departments 75,974,275.72 75,657,803.22 inside the company Total 514,002,569.34 421,681,981.79 17.96 17.3 10.9 35.75 - 19 - Geographical Major business revenue Increase/decrease of income from major business distribution compared with the previous year (%) North 116,110,187.00 27.94 South west 52,181,588.85 22.68 East 116,992,349.58 82.94 North east 13,327,845.92 -4.74 Centre 3,164,528.89 398.91 North west 11,614,424.33 -21.27 South 186,432,434.62 -10.48 Export 14,179,210.15 326.18 Total 514,002,569.34 17.3 3. Business Performances of the Fully Owned Subsidiaries and Controlled Subsidiaries At December 31, 2003, the company possesses 10 fully owned subsidiaries, they are, Fangda Decorates Co., Ltd., Jiangxi Fangda New-type Aluminium Industry Co., Ltd. (“Fangda Aluminium”), Shenzhen Fangda Safe Guard Technologies Co., Ltd. (“Fangda Safe Guard”), Shenzhen Fangda Specialized Structures Co., Ltd. (“Fangda Specialized Structures”), Shenzhen Fangda Guoke Electronic-Optical Technologies Co., Ltd. (“Fangda Guoke”), Hong Kong Junjia Group Co., Ltd. (“Junjia Co.”), Shenzhen Fangda Logistics Co., Ltd. (“Fangda Logistics”), Fangda US Technologies Co., Ltd. (“Fangda US”) Fangda Heating & Aeration Co., and Fangda New Materials (Jiangxi) Co. The Company also possesses 2 controlled subsidiaries, they are Fangda Yide New Materials Co., Ltd., (“Fangda Yide”), and Jiangxi Fangda Fuke Information Material Co., Ltd. (“Fangda Fuke”). 1) Fangda Decorates Co., Ltd. is one of the largest manufacturers of outer-wall materials in the country. It is engaged in the designing, manufacturing and engineering of exterior-walls, doors and windows, interior and exterior decorating. It is registered to RMB 50 million of capital, and total asset amounted to RMB764.3936million. For the report term, this company has realized net profit of RMB23.0511million. 2) Fangda Aluminium is one of the largest manufacturers of profiled aluminium products, which engaged itself in the development, manufacturing and sales of various types of profiled aluminium products. It was registered to RMB20 million of capital, while its total asset amounted to RMB142.4868 million. For the report term, this company has realized net profit of RMB-0.6635million. 3) Fangda Safe Guard Company is engaged in the designing, manufacturing, sales, installation of fire-resist doors, anti-break safe doors, roll-up gates, fire-resist glasses, and specialized doors. The company was registered to RMB8 million of capital, and total asset amounted to RMB132.1413 million. For the report term, this company has realized net profit of RMB-3.8753 million. 4) Fangda Specialized Structures is engaged in the designing, manufacturing, and sales of mobile houses and specialized structuring products. It was registered with RMB8 million of capital, and total asset is - 20 - amounted to RMB33.82 million. This company realized net profit of RMB-3.8877 million. 5) Fangda Guoke was engaged in the development, manufacturing and sales of GAN based IC and middle appliances. The company was registered with RMB18 million of capital, and total asset is RMB64.7714 million. In the report term, this company has realized net profit of RMB-1.5928 million. 6) Junjia Co. is engaged in investment of industries. It is registered with HKD10 thousand of capital and total asset is RMB42.2451 million. For the report term, the company realized net profit of RMB-165.53 . 7) Fangda Logistics is engaged in trading of materials. It was registered with RMB30 million of capital, and total asset of RMB29.9982 million. For the report term, the company realized net profit of RMB-1,755.60 . 8) Fangda US Co. is engaged in science and technologies development and overseas marketing. It was registered with USD4.9863 million, and total asset amounted to RMB38.9989 million. For the report term, the company realized net profit of RMB-1.5029 million. 9) Fangda Heating & Aeration Co. is engaged in the designing, manufacturing and sales of various heating and aeration equipments. It was registered with RMB30 million of capital, and total asset of RMB35.2846 million. For the report term, the company realized net profit of RMB-3.4439 million. 10) Fangda New Materials (Jiangxi) Co. is engaged in the manufacturing and sales of new construction materials, compound materials, outer-wall materials, and aluminium products. It was registered with USD12 million of capital, and total asset amounted to RMB107.9070 million. No sales income occurred during the report term. 11) Fangda Yide is the largest manufacturer of modern aluminium-plastic compound plates and single layer profiled aluminium plates of the country. It is engaged in the researching, developing, manufacturing and trading of new type compound materials. It was registered with USD3.2 million, and total asset of RMB315.5942 million. For the report term, the company realized net profit of RMB10.5980million. 12) Fangda Fuke is engaged in the development, manufacturing, and sales of GAN based IC and upper products of appliances. It was registered with RMB20 million of capital, and total asset of RMB25.3633 million. For the report term, the company realized net profit of RMB-2.0013 million. 4. Particulars about the major suppliers and buyers In the report term, the purchasing volume from the top 5 suppliers took 24.58% of the total purchasing volume of the year. While the sales volume to the top 5 buyers took 29.28% of the total sales volume of the year. 5. Measures to be adopted in resolving of the problems exist in business operation 1) The construction of Fangda (Jiangxi) New Material Technology Zone is the first important work of year 2004. The first phase of construction, basic moving-in and expanding of productions of outer-wall material, doors, aluminium-copper compound radiator, single layer aluminium plate and - 21 - aluminium-plastic compound plates will be completed during 2004. 2) Push forward the construction of the 2nd phase of semi-conductor business and realize scaled production. Enforce the researching of high-power high-brightness chips and green light extending chips to meet with the needs of semi-conductor lighting market. Further explore new application and market, enable the products of the Company applicable in background lighting and IC industry. 3) Further enforce the marketing of shield gate for metro systems, as well as the developing of its core technology for the purpose of increasing the market share up to 50%. 4) Enforce the marketing of aluminium-copper radiators, especially stress on the retailing market which is higher in profit margin and faster in fund circulation. Do the best to break through the condition of 2003. Further developing of aluminium and steel radiator products bases on aluminium-copper radiator products. Make “Dongyang” radiator the leading product of the domestic market.s 5) Keep develop the window function of Fangda US to expand the export of steel doors, aluminium-plastic compound plates products. The trade name registration for the above products shall be completed. Try best to get through the UL certification. Promote the products through channels such as the internet, to develop long-term large buyers. 6) The severe competition in the market was not yet improved during the report term. For the year 2004, the Company will stress on the developing of new products and technologies with optimal market, as well as optimising products formation and raise products with high value. 7) Keep enhancing the management force, to cut down production cost and increase efficiency through technical innovation and promoting of QC. 8) For year 2004, the pressure of price rising of steel, aluminium, copper and chemical materials still severe. The Company will further enforce purchasing management and establish a price information system. On the one hand, optimising the bidding process of large purchasing orders, on the other hand, engage with long-term co-operators to minimise the impact of the market vibration. 9) The Company enforced the clearing of receivable accounts. At the 2nd half of the report year, with the implementing of new motivating system on payment collecting, the receivable accounts were effectively controlled. For the year of 2004, the Company will further enforce the assessment on the risks and credit of the buyers for controlling of the sales risks. 6. Investment in the Report Term 1) Utilizing of funds raised through public offering The Company raised no funds through public offering in the report term. The fund raised previously has been utilized completely in year 2000. 2) Utilizing of funds raised through channels other than public offering In the report term, the Company implemented investment amounted to RMB168.4055 million, which increase by RMB75.5231 million (81.31%) over the previous year. The investment were put into the following projects: a. The construction of Fangda Building located in Shenzhen Hi-tech Zone was planned to be invested - 22 - with RMB170 million, while RMB1.83 million was made during the report term. At the end of December 31, 2003, the investment on this project has accumulated to RMB168.7155 million. The process has reached up to 99%. Currently the building has been put into operation and started to contribute to the business performance of the Company. b. During the report term, the Company has made supplementary investment on Fangda US Co. of USD4.5 million. c. During the report term, the Company invested together with Fangda Decorates Co. RMB30 million on founding of Fangda Heating & Aeration Co., Ltd. The company is engaged in manufacturing and sales of aluminium-copper compound radiators. The project was put into operation in the same report term of investment and realized a certain sales income. d. During the report term, the Company invested together with Hong Kong Junjia USD12 million on founding of Fangda New Materials (Jiangxi) Co., Ltd. Currently the company is under construction and makes no impact on the business performance of the Company. - 23 - 7. Financial Situation The financial indices of the Company of the report term are as below: in RMB yuan Dec. 31, 2003 Dec. 31, 2002 Increase/decrease Items ( %) Total assets 1,457,419,424.04 1,287,196,619.77 13.22 Shareholders’ equity 835,169,852.50 824,590,167.54 1.28 2003 2002 Increase/decrease Items ( %) Major business profit 81,559,718.85 47,290,962.29 72.46 Net profit 10,579,684.96 -173,094,657.32 - Net increase of cash and cash equivalents 21,144,843.67 -241,372,402 - Primary causations of the changes in above indices: 1) Causations of the increasing of total asset: a. A preferable payment policy was adopted in the report term that lead to the increasing of credit account. b. For the needs of productivity expanding, the advance payments for materials and equipments were increased in the report term. Therefore the advance payment of the report term increased significantly over the previous year. c. Investment on founding of new subsidiaries that caused increasing of preliminary expenses. That led to the increase of long-term expenses to be amortized comparing with the previous year.s 2) Causations of the significant increasing of major business profit a. The sales income of the term was increased by some 17.3% over the previous year. b. Particular scheme was implemented to reduce cost in every single section of purchasing and production. The operation was proved to be effective and lead to the increasing of gross profit ratio by 35.75% over the previous term. 3) The net profit was increased significantly due to: a. For the previous year, a big amount of bad debt reserve was drawn (RMB95.3281 million), whereas the account receivable was in normal condition, thus no such big bad debt reserve was drawn upon this report term. b. For the newly founded Fangda New Materials (Jiangxi) Co., not yet been put into operation, therefore its preliminary expenses has not been deducted from the gain/loss account, where there was - 24 - RMB5.8916 million of preliminary expenses been deducted for the previous year. 4) The net increase of cash and cash equivalents was increased significantly due to the Company enforced the clearing of credit accounts, that led to the payment collecting increased by 30.77% over that of the previous year, and the payment collecting ratio increased by 9.74% over the previous year. Besides, for the needs of business development and operation, the Company applied for a certain amount of bank loan during the report term. 8. Routine Processes of the Board of Directors (1) Meetings of the board and resolutions 1) The 5th meeting of the 3rd term of board was held by means of telecommunication on April 4th, 2003. The proposal about engaging of the certified public accountants for year 2002 was examined and passed. This resolution was not disclosed. 2) The 6th meeting of the 3rd term of board was held by means of telecommunication on April 11th, 2003. The proposal about engaging of the certified public accountants for year 2002 was examined and passed. This resolution was not disclosed. 3) The 7th meeting of the 3rd term of board was held in the afternoon of April 23, 2003 in the meeting room on the 5th floor of the technical building of the Company. The following proposals were passed as resolutions: 2002 Annual Report of the President 2002 Annual Report of the Board of Directors The proposal on drawing of devalue reserves for the year of 2002 The proposal on changing of accountancy estimations; 2002 Financial Statements The proposal on profit distribution and capitalizing of reserves for year 2002; Profit distribution policies for year 2003; The proposal on not implementing capitalizing of reserves for year 2003; The proposal on inviting of certified public accountants; The proposal on assigning of official information disclosure presses; 2002 Annual Report of the Company and its summary text; The 1st Quarterly Report of 2003; The revised draft of the Article of Association; The proposal on constructing of Fangda (Jiangxi) New Material Technologies Base; The proposal on applying for an integrated credit scheme from the banks in year 2003; The proposal on structural reconstruction of the Company; The proposal on holding of the 2002 Shareholders’ General Meeting. The above resolutions were published by April 26, 2003 issues of China Securities Journal, - 25 - Securities Times and Takungpao. 4) The 8th meeting of the 3rd term of board was held by means of telecommunication on May 28th, 2003. The following resolutions were passed through the meeting: (1) The plan of structural reconstruction of the Company; (2) The proposal on investment on founding of a new enterprise. The above resolutions were not disclosed. 5) The 9th meeting of the 3rd term of board was held in the afternoon of August 1st, 2003 in the meeting room on the 5th floor of the technical building of the Company. The following resolution was passed through the meeting: The 2003 Semi-annual Report and its summary text. The above resolutions were published by August 5th, 2003 issues of China Securities Journal, Securities Times and Takungpao. 6) The 10th meeting of the 3rd term of board was held in the afternoon of September 6th, 2003 in the meeting room on the 5th floor of the technical building of the Company. The following resolution was passed through the meeting: It was approved that Mr. Xiong Zhude no longer take the position of director. It was approved that Mr. Xiong Zhude no longer take the position of chief financial officer. Mr. Lu Weiwei was approved to quit from his positions of director and secretary of the board. The above resolutions were not disclosed. 7) The 11th meeting of the 3rd term of board was held in the afternoon of October 22nd, 2003 in the meeting room on the 5th floor of the technical building of the Company. The following resolution was passed through the meeting: As nominated by Chairman Xiong Jianming, Mr. Zhou Zhigang was approved to be engaged as the secretary of the board. The 3rd Quarterly Report and its summary text. The above resolutions were published by October 24th, 2003 issues of China Securities Journal, Securities Times and Takungpao. 8) The 12th meeting of the 3rd term of board was held in the afternoon of December 18th, 2003 in the meeting room on the 5th floor of the technical building of the Company. The following resolution was passed through the meeting: The proposal of assigning information disclosure presses was passed. - 26 - The proposal of enlarging the business range registration of the Company was passed. The amendment draft of the Article of Association The amendment draft of the Regulations of the Shareholders’ General Meeting. The amendment draft of the Executive Regulations of the Board of Directors. The amendment draft of the Detailed Executive Regulations of the President. The amendment draft of the Executive Regulations of the Independent Directors. The above resolutions were published by December 20th, 2003 issues of China Securities Journal, Securities Times and Hong Kong Commercial Daily. (2) Implementing of the resolutions Under the authorization of the Shareholders’ General Meeting, the following subjects were implemented and completed: 1) Amending of the Article of Association of the Company; 2) Implementing of the profit distribution plan for year 2002, which is, RMB0.7 for each 10 shares (tax included). Dividend for B-stocks were converted to HKD at the exchange rate of RMB: HKD=100:106.11. 3) Amending of the business registration 9. The plan of profit distribution and capitalization of capital public reserve for the report term The Company affirmed respectively RMB10,579,684.96 and RMB12,036,684.96 of net profit according to Chinese accounting standards and international accounting standards in 2003. Plus retained profit at the beginning of term, distributable profit of 2003 was respectively RMB32,712,530.06 and RMB59,908,000.00. According to Detailed Rules for Implementation of Domestically Listed Foreign Shares of Limited Liability Company and Articles of Association, based on the lower of distributable profit affirmed respectively according to Chinese accounting standards and international accounting standards when the Company distributed dividend, the distributable profit for shareholders in 2003 was RMB32,712,530.06. The Company suggested to distribute RMB0.30 (including tax) cash dividend per 10 shares to all shareholders on the basis of the share capital of 296,400,000 shares by the end of 2003 and the distributed cash was amounted to RMB8,892,000. The retained profit of RMB23,820,530.06 will be transferred to the coming years for distribution. The dividend of B share was paid in HKD as the middle price of HKD against RMB promulgated by the People’s Bank of China on the 3rd working day prior to the date of the public notice on profit distribution. No capitalization of public reserves will be implemented for the year of 2003. - 27 - 10. Miscellaneous 1) The proposal of assigning official information disclosing presses was passed by the 12th meeting of the 3rd term board of directors. China Securities Journal, Securities Times and Hong Kong Commercial Daily were assigned the official information disclosing presses of the Company. 2) Shenzhen Dahua Tiancheng Certified Public Accountant issued the following statement on the adopting of the Company’s capital by the controlling shareholders or other related parties: As the certified public accountant invited by China Fangda Group Co., Ltd. (“Fangda Group”) as its auditor for the fiscal year of 2003, and in accordance with the “Notifications on the standardization of fund transferring between listed companies and related parties and providing of external guarantee”(Zheng-jian-fa [2003]56) issued by China Securities Regulatory Commission, we issue the following statement on the adopting of the Company’s capital by the controlling shareholders or other related parties: We found no situation exist as adopting of the capital of Fangda Group by the related parties during the auditing process of year 2003. We found no situation exist as violating Term 1 of the “Notifications on the standardization of fund transferring between listed companies and related parties and providing of external guarantee”(Zheng-jian-fa [2003]56) during the period since it was issued. 3) Statement of the independent directors on the Company’s implementing of Notifications on the standardization of fund transferring between listed companies and related parties and providing of external guarantee”(Zheng-jian-fa [2003]56) issued by China Securities Regulatory Commission, and special statement on the external guarantee issues, as well as the independent opinion: In accordance with the “Notifications on the standardization of fund transferring between listed companies and related parties and providing of external guarantee”(Zheng-jian-fa [2003]56) issued by China Securities Regulatory Commission (“the Notification”), we examined carefully on the implementing of the regulations and the situations of both current and history external guarantees provided. The followings is the statement on related issues: Till the end of the report term, the Company hasn’t provided any guarantee to any of the controlling shareholders, any related parties holding not more than 50% of the capital shares, or any of the legal person or individual. No situation was found that the Company was forced by the controlling shareholder to provide guarantee to any other parties. The Company provides guarantees only to the fully owned subsidiaries and controlled subsidiaries during the report term. - 28 - The Company regulated its external guarantee policies and assessment procedures strictly in accordance with the requirements of the Notification. The examination procedures and assessment of the receivers’ credit level for the external guarantees were clearly stipulated in the revised Article of Association which was adopted by the 12th meeting of the 3rd term Board of Directors. We agree unanimously that the Company’s controlling process and implementing of the Notification were meeting with the requirement of the Notification. VIII. Report of the Supervisory Committee 1. The Supervisory Committee conducted 4 meetings during the report term. (1) The 4th meeting of the 3rd term Supervisory Committee was held in the meeting room of the Company on April 23, 2003. The following resolutions were adopted in the meeting: 1 The 2002 Annual Report of the Supervisory Committee; 2 The 2002 Financial Statements and the proposal on profit distribution and capitalizing of reserves for year 2002; 3 2002 Annual Report of the Company and its summary text; 4 The 1st Quarterly Report of 2003; The above resolutions were published by April 26, 2003 issues of China Securities Journal, Securities Times and Takungpao. (2) The 5th meeting of the 3rd term Supervisory Committee was held on August 1st, 2003 in the meeting room of the Company. The supervisors examined and passed the 2003 Semi-annual Report and its summary text. The resolutions were published by August 5th, 2003 issues of China Securities Journal, Securities Times and Takungpao. (3) The 6th meeting of the 3rd term Supervisory Committee was held on October 22nd , 2003 in the meeting room of the Company. The supervisors examined and passed the 3rd Quarterly Report of 2003 and its summary text. The resolutions were published by October 24th, 2003 issues of China Securities Journal, Securities Times and Takungpao. - 29 - (4) The 7th meeting of the 3rd term Supervisory Committee was held on December 18th, 2003 in the meeting room of the Company. The supervisors examined and passed the amendment of “Working Rules of the Supervisory Committee”. The resolutions were published by December 20th, 2003 issues of China Securities Journal, Securities Times and Hong Kong Commercial Daily. 2. The independent opinions of the Supervisory Committee 1) In 2003, according to relevant regulations, laws and Articles of Association, the Supervisory Committee supervised over the procedure of holding, discussion and decision of the Board of Directors, the implementation of the resolutions of the shareholders’ General Meeting and the management system by the Board of Directors and the current management teams and believed that the Board of Directors and the current management teams worked in an honest, diligent and active way, actually and effectively implemented every resolution and authorization of the Shareholders’ General Meeting. The procedure of decision-making was in conformity with Company Law and Articles of Association of the Company. The Company established more perfect internal control system. The directors and senior executives had no actions of breaking national laws and regulations and Articles of Association or damaging the interest of the Company when they performed their duties. 2) Through the hard work of all of the employees and management team, the Company was turned over to make profit. 2003 auditor’s report with no classified opinions issued by Shenzhen Dahua Tiancheng Certified Public Accountants and Hong Kong Ho & Ho and Company truly reflected the actual financial status and operation result of the Company. 3) The net amount of the raised capital from shares allotment in 1999 was RMB 112,878,400 and the raised capital was put into use according to the proposed usage of the raised capital disclosed in Share Allotment Prospectus. 4) Neither acquisition nor selling of asset occurred during the report term. 5) No related transactions occurred during the report term. IX. Significant Events - 30 - 1. There was not any significant lawsuit or arbitration event occurred during the report term. The Company’s subsidiary, Fangda Decoration Corporation applied for arbitration to Dalian Arbitration Committee in Nov.2002 and required Dalian Hongjin World Trade Co., Ltd. to pay RMB 25.01 million engineering payment. This case is currently under processing. Fangda Decoration Corporation indicted to Guangzhou Intermediate People’s Court in Dec.2002 and required to Guangzhou Donghe Real Estate Co., Ltd. and Zhonghai Development (Guangzhou) Co., Ltd. to pay RMB 18.30 million engineering expense. This case is currently under processing. 2. Neither acquisition / selling of asset, intake, nor merger event occurred during the report term. 3. No significant related transactions occurred during the report term. 4. Particulars about material contracts and their fulfilling 1) Not any entrusting, contracting or leasing of assets occurred between the Company and other external parties. 2) In the report period, the Company had no invalid guarantees offered to external parties. All guarantees provided were to those fully owned subsidiaries or controlled subsidiaries. The following are the details: (in 10 thousand RMB) Name of the parties Relation with the Date of the Guaranteed Type of Term Completed accepted the guarantee Company contract amount guarantee effective on provided Fangda Decorations Fully owned subsidiary Nov. 14, 2003 3000 Credit 1 yr No Fangda Decorations Fully owned subsidiary Oct. 7, 2003 1552.95 Engineering 2 yrs No Fangda Yide Controlled subsidiaries July 1, 2003 4000 Credit 1 yr No Fangda Aluminium Fully owned subsidiary Dec. 17,2003 500 Credit 1 yr No Fangda Fuke Controlled subsidiaries July 14, 2003 500 Credit 1 yr No Total of guaranteed 9552.95 amount Total of the balance of 9552.95 guaranteed amount Ratio of guaranteed 11.44% amount over the total asset of the Company - 31 - 3) In the report term, the Company neither entrusted nor entrusted by others to manage cash assets or loans. 4) In the report term, Fangda Decoration Co. and its overseas partner French Faweilai Far East Co., Ltd. signed together the sales and installation contract with Guangzhou Metro Co., Ltd. for the shield gate system of the No.3 metro line of Guangzhou. The contract is amounted to RMB81.63 million. 5. There was not any change on inviting of the certified public accountants. The domestic audition of 2003 was undertook by Shenzhen Dahua Tiancheng CPA; while the overseas audition of 2003 was undertook by Ho and Ho & Company CPAs. The Company issued payment of RMB350 thousand to Shenzhen Dahua Tiancheng CPA and Ho and Ho & Company respectively for the auditing of the report term. The above two CPAs have been the auditors of the Company for successively two years. X. Financial Statements 1. Auditors’ Report Shenzhen Dahua Tiancheng Certified Public Accountants audited 2003 financial statements of the Company and issued standard auditor’s report with no classified opinion. (See the attachment) 2. Financial Statements (See the attachment) 3. Notes to the Financial Statements (See the Attachment) XI. Documents for Reference 1. Original copy of the 2003 Annual Report carrying the signature of the Chairman of Board. (English and Chinese version) 2. Accounting Statements with signatures and seals of the legal representative and Chief Accountant; 3. Original copy of the Auditors’ Report under the seal of the CPA and signed by and under the seal of certified accountants. 4. Originals of all documents and manuscripts of Public Notices of the Company disclosed in public in the newspapers as designated by China Securities Regulatory Commission. 5. The Article of Association of the Company adopted by the latest Shareholders’ General Meeting. The Board of Directors of China Fangda Group Co., Ltd. February 21st, 2004 - 32 - China Fangda Group Company Limited Report and Financial Statements For the year ended 31st December 2003 Ho and Ho & Company Certified Public Accountants Hong Kong China Fangda Group Company Limited Report and Financial Statements For the year ended 31st December 2003 Content Pages Report of the Auditors 1 Consolidated income statement 2 Consolidated balance sheet 3-4 Consolidated statement of changes in equity 5 Consolidated cash flow statement 6-7 Notes to the financial statements 8 – 36 REPORT OF THE AUDITORS To the shareholders of China Fangda Group Company Limited 方大集團股份有限公司 (incorporated in the People’s Republic of China with limited liability) We have audited the accompanying consolidated balance sheet of China Fangda Group Company Limited (the “Group”) as of 31st December 2003 and the related consolidated statements of income, cash flows and statement of changes in equity for the year then ended. These consolidated financial statements set out on pages 2 to 36 are the responsibility of the Group’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing as promulgated by the International Federation of Accountants. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of 31st December 2003, and the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards promulgated by the International Accounting Standards Board. Ho and Ho & Company Certified Public Accountants 15th February 2004, Hong Kong 1 China Fangda Group Company Limited Financial Statements for the year ended 31st December 2003 Consolidated income statement for the year ended 31st December 2003 (Expressed in Renminbi Thousand Yuan) Note 2003 2002 RMB’000 RMB’000 (Re-stated) Turnover 4 522,474 438,192 Cost of sales (434,815) (390,900) Gross profit 87,659 47,292 Other operating income 5 2,806 25,831 Distribution expenses (24,950) (22,208) Administrative expenses (42,499) (211,003) Other operating expenses 6 (1,219) (11,392) Profit (loss) from operations 7 21,797 (171,480) Net financing costs 8 (7,659) (4,469) Investment income 9 318 38 Profit (loss) from ordinary activities before taxation 14,456 (175,911) Income tax expenses 10 130 (46) Profit (loss) after taxation 14,586 (175,957) Minority interests (2,549) 3,847 Profit (loss) attributable to shareholders 12,037 (172,110) Dividend 11 8,892 20,748 Earnings (Loss) per share – Basic 12 RMB0.04 (RMB0.58) 2 China Fangda Group Company Limited Financial Statements for the year ended 31st December 2003 Consolidated balance sheet as at 31st December 2003 (Expressed in Renminbi Thousand Yuan) Note 2003 2002 RMB’000 RMB’000 (Re-stated) Assets Non-current assets Property, plant and equipment 14 504,405 346,358 Construction in progress 15 5,048 139,940 Investments in an unconsolidated subsidiary 16 2,004 2,004 Investments in securities 17 8,870 8,770 Goodwill 18 1,656 1,911 Intangible assets 19 8,996 9,684 Other assets 1,545 667 Total non-current assets 532,524 509,334 Current assets Inventories 20 131,201 120,098 Investments in securities 17 - 400 Trade accounts receivable 21 444,567 363,138 Bills receivable 2,178 1,000 Other receivable 22 26,848 23,250 Prepaid expenses and other current assets 25,648 11,570 Cash and bank balances 297,986 260,482 Total current assets 928,428 779,938 Total assets 1,460,952 1,289,272 3 China Fangda Group Company Limited Financial Statements for the year ended 31st December 2003 Consolidated balance sheet as at 31st December 2003 (Expressed in Renminbi Thousand Yuan) Note 2003 2002 RMB’000 RMB’000 (Re-stated) Equity and liabilities Shareholders’ equity Share capital 23 296,400 296,400 Reserves 24 542,302 551,013 838,702 847,413 Minority interests 25 7,062 4,513 Non-current liabilities Long-term bank borrowings 26 - 20,000 Current liabilities Trade accounts payable 80,069 75,690 Bills payable 81,645 113,633 Accrued expenditures and other payables 27 58,474 35,523 Short-term bank borrowings 26 395,000 192,500 Total current liabilities 615,188 417,346 Total liabilities 615,188 437,346 Total equity and liabilities 1,460,952 1,289,272 The financial statements on pages 2 to 36 were approved and authorized for issue by the Board of Directors on 15th February 2004 and are signed on its behalf by: Director Director 4 Financial Stat Consolidated statement of changes in equity for the year ended 31st December 2003 (Expressed in Renminbi Thousand Yuan) Public Share Capital Statutory welfare capital surplus reserves fund RMB’000 RMB’000 RMB’000 RMB’000 Balance at 1st January 2002 - As previously reported 296,400 388,542 59,871 32,022 - Prior year adjustment - - 248 124 - As re-stated 296,400 388,542 60,119 32,146 Final dividend paid for 2001 - - - - Loss attributable to shareholders - As previously reported - - - - - Prior year adjustment - - - - - As re-stated - - - - Balance at 31st December 2002 and 1st January 2003 296,400 388,542 60,119 32,146 Final dividend paid for 2002 Profit attributable to shareholders - - - - Appropriation - - 1,058 529 Balance at 31st December 2003 296,400 388,542 61,177 32,675 5 China Fangda Group Company Limited Financial Statements for the year ended 31st December 2003 Consolidated cash flow statement for the year ended 31st December 2003 (Expressed in Renminbi Thousand Yuan) Note 2003 2002 RMB’000 RMB’000 (Re-stated) Profit /(loss) from operation 14,456 (175,911) Adjustments for: Amortization of intangible assets 1,296 918 Depreciation of property, plant and equipment 28,784 27,123 Amortization of other non-current assets 1,366 - Amortization of goodwill 255 230 Loss on disposal of property, plant and equipment 507 141 Gain on disposal of securities (318) - Interest expenses 12,197 12,167 Provision for recognized impairment loss of assets (11,249) 123,905 Operating cash flows before movements in working capital 47,294 (11,427) Decrease (increase) in inventories 459 (49,711) Increase in trade accounts receivable (84,684) (98,862) Increase in other receivable, prepaid expenses and other current assets (6,469) (1,182) Increase in trade accounts payable 25,342 126,082 Increase in accrued expenses and other payables 22,951 7,939 Cash generated by operations 4,893 (27,161) Income tax refund (paid) 130 (3,291) Net cash from (used in) operating activities 5,023 (30,452) 6 China Fangda Group Company Limited Financial Statements for the year ended 31st December 2003 Consolidated cash flow statement for the year ended 31st December 2003 (Expressed in Renminbi Thousand Yuan) Note 2003 2002 RMB’000 RMB’000 (Re-stated) Net cash from (used in) operating activities 5,023 (30,452) Investing activities Proceeds on disposal of property, plant and equipment 790 61 Proceeds on disposal of securities 718 - Purchase of non-trading securities (100) (1,717) Deposit paid on property, plant and equipment (7,316) - Purchase of property, plant and equipment (11,715) (3,047) Purchase of construction in progress (42,461) (60,388) Purchase of intangible assets (608) (50) Purchase of other non-current assets (2,244) 189 Acquisition of additional interests in a subsidiary - (9,500) Increase in more than 3 months bank deposit with original maturity (16,359) (85,661) Net cash used in investing activities (79,295) (160,113) Financing activities Interest paid (13,384) (12,167) Dividend paid (20,748) (29,640) New bank loans raised 493,000 637,000 Repayments of bank borrowings (363,451) (646,000) Net cash from (used in) financing activities 95,417 (50,807) Net increase (decrease) in cash and cash equivalents 21,145 (241,372) Cash and cash equivalents at beginning of year 174,821 416,193 Cash and cash equivalents at end of year 29 195,966 174,821 7 China Fangda Group Company Limited Financial Statements for the year ended 31st December 2003 Notes to the financial statements for the year ended 31st December 2003 1. General information China Fangda Group Company Limited (the “Company”) was established as a joint stock limited company in the People’s Republic of China (the “PRC”) in October 1995. With the approval from Shenzhen Administration of Industry and Commerce, the Company changed to a sino-foreign joint venture joint stock limited company and obtained the business registration certificate on 12th November 1997. Its domestically listed foreign ordinary public shares (B shares) and domestically listed RMB ordinary public shares (A shares) have been listed on the Shenzhen Stock Exchange since November 1995 and April 1996 respectively. The largest shareholder of the Company is Shenzhen Banglin Technology Development Company Limited, a limited company incorporated in the PRC. The Company together with its subsidiaries is collectively referred to as the “Group”. The Group is principally engaged in the design, manufacture, sale and installation of curtain walls, doors and windows and various kinds of construction materials, and photoelectric materials, parts, equipment and electron display equipment. As of 31st December 2003, the Group has 1.408 employees. As of 31 December 2003, the Company has direct or indirect interests in the following subsidiaries. Particulars of which are set out below: Place of Incorporation Attributable equity Principal Name of Company and operation interest Activities Direct Indirect Fangda Focus Nanchang, 70% 25% Design, manufacture and Information Material PRC sale of photoelectric Co., Limited materials, parts and equipment Fangda Guoke Photo Shenzhen, PRC 77% 23% Design, manufacture and Electricity Technology sale of photoelectric Co., Limited material, parts and equipment Fangda New Materials Nanchang, 75% 25% Manufacture and sale of (Jiangxi) Co., Limited PRC construction material Fangda Technology United States 100% Trading USA. INC. 8 China Fangda Group Company Limited Financial Statements for the year ended 31st December 2003 1. General information (Continued) Place of Incorporation Attributable equity Principal Name of Company and operation interest Activities Direct Indirect Jiangxi Fangxi New Nanchang, 99% 1% Design, manufacture, sale Aluminum Co., Limited PRC and installation of curtain walls, doors and windows Shenzhen Fangda Shenzhen, PRC 95% 5% Design and installation of Decoration Work Co., building materials Limited Shenzhen Fangda Shenzhen, PRC 25% 75% Transportation and storage Logistic Co., Limited Shenzhen Fangda Safty Shenzhen, PRC 25% 75% Design, manufacture and Technology Co., sale of security equipment Limited and environmental protection equipment Shenzhen Fangda Shenzhen, PRC 51% 49% Production and installation Special Structure Work of building material Co., Limited Shenzhen Fangda Yide Shenzhen, PRC 75% - Design, manufacture and New Materials Co., sale of new materials Limited Smart Winner Holdings Hong Kong, 100% - Investment holding Limited PRC Shenzhen Fangda Heating Shenzhen, PRC 90% 10% Designed, manufacturing & Aerator Technology and sale of Co., Ltd air-conditioning equipment During the year ended 31st December 2003, the Group established two new wholly owned subsidiary, namely Fangda New Materials (Jiangxi) Co., Limited and Shenzhen Fangda Heating & Aerator Technology Co., Ltd. 2. Prior year adjustments During the year ended 31st December 2003, the Group has made the following prior year adjustments in respect of the accounting errors of previous years: i) According to the confirmation from the tax bureau, the Group had over-provided Various tax expenses totaling RMB232,000 for the years for and before 2001. ii) The Group had understated the sales by RMB718,000 for 2002. 9 China Fangda Group Company Limited Financial Statements for the year ended 31st December 2003 3. Principal accounting policies a) Statement of compliance The consolidated financial statements of the Group have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) promulgated by the International Accounting Standards Board (“IASB”). IFRS includes International Accounting Standards (“IAS”) and related interpretations. The Group maintains its accounting records and prepares its statutory financial statements in accordance with the PRC Accounting Standards for Business Enterprises and the Accounting System for Business Enterprises (“Statutory Financial Statements”). The accounting policies and basis adopted to the preparation of the Statutory Financial Statements differ in certain respects from IFRS. The differences arising from the restatement of the results of operations and the net assets for compliance with IFRS are adjusted in financial statements but will not be taken up in the accounting records of the Group. b) Basis of preparation The consolidated financial statements have been prepared in Renminbi (“RMB”), the currency in which the majority of the Group’s transactions are denominated. Except for certain financial instruments which are stated at their fair value, the financial statements have been prepared on the historical cost basis. The accounting policies have been consistently applied by the Group and are consistent with those of the previous year. The principal accounting policies adopted in this report are set out below: c) Basis of consolidation The consolidation financial statements include the financial statements of the Company and its subsidiaries. Subsidiaries are those enterprises controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. The results of subsidiaries are included in the consolidated financial statements from the date that control effectively commences until the date that control effectively ceases, and the share attributable to minority interests is deducted from or added to the profit from ordinary activities after taxation. All significant inter-company balances, transactions, and any unrealized gains arising from inter-company transactions are eliminated on consolidation. 10 China Fangda Group Company Limited Financial Statements for the year ended 31st December 2003 3. Principal accounting policies (Continued) d) Foreign currency transactions Transactions in foreign currencies are translated to RMB at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet dates are re-translated to RMB at the foreign exchange rate ruling at that date. Non-monetary assets and liabilities denominated in foreign currencies, that are stated at historical cost are translated to RMB at the foreign exchange rate ruling at the date of the transaction. Exchange gains and losses are recognized as income or expense in the income statement, except those capitalized as construction in progress and those arising from the translation at closing rates of foreign currency assets hedged by foreign currency borrowings, and the gains and losses on those foreign currency borrowings (to the extent of exchange differences arising on the foreign currency assets), which are taken directly to reserves. The results of foreign enterprises are translated into RMB at the average exchange rates for the year; balance sheet items are translated into RMB at the rates of exchange ruling at the balance sheet date. The resulting exchange differences are dealt with as a movement in reserves. On disposal of a foreign enterprise, the cumulative amount of the exchange differences which relate to that foreign enterprise is included in the calculation of the profit of loss on disposal. e) Property, plant and equipment i) Owned assets Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. The cost for self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of production overheads and borrowing costs. Where an item of property, plant and equipment comprises major components having difference useful lives, they are accounted for as separate items of property, plant and equipment. ii) Subsequent expenditure Expenditure incurred to replace a component of an item of property, plant and equipment, including inspection and overhead expenditure, is capitalized. Other subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the item of property, plan and equipment. All other expenditure is recognized in the consolidated income statement as an expense as incurred. 11 China Fangda Group Company Limited Financial Statements for the year ended 31st December 2003 3. Principal accounting policies (Continued) e) Property, plant and equipment (Continued) iii) Depreciation Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of items of property, plant and equipment. The estimated useful lives are as follows: Estimated residual value Year as a percentage of costs Leasehold land 50 - Buildings 35 – 45 10% Machinery and electronic equipment 10 10% Transport and other equipment 5 10% iv) Disposals Gains or losses arising from the retirement or disposal of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the income statement on the date of retirement or disposal. f) Construction in progress Construction in progress represents properties under construction and is stated in the consolidated balance sheet at cost less impairment losses. Cost comprises direct cost of construction as well as interest charges and foreign exchange differences on related borrowing funds to the extent that they are regarded as an adjustment to interest charges during the period of construction. Construction in progress is transferred to property, plant and equipment when the asset is substantially ready for its intended use. No depreciation is provided in respect of construction in progress. g) Goodwill Goodwill arising on an acquisition represents the excess of the cost of the acquisition over the fair value of the net identifiable assets acquired. Goodwill is stated at cost less accumulated amortization and impairment losses. Goodwill is amortised from the date of initial recognition on a straight-line basis to the consolidated income statement over its estimated useful life of 10 yuears.. The unamortized balance of goodwill is reviewed at least annually. Where the balance exceeds the value of expected future benefits, the difference is charged to the income statement immediately. 12 China Fangda Group Company Limited Financial Statements for the year ended 31st December 2003 3. Principal accounting policies (Continued) g) Goodwill (Continued) On disposal of subsidiaries any attributable amount of purchased goodwill not previously amortised through the income statement or which has previously been dealt with as a movement on group reserves is included in the calculation of the profit or loss on disposal. h) Intangible assets – Patents, know-how and trademarks Patents, know-how and trademarks that are acquired by the Group are stated in the balance sheet at cost less accumulated amortization and impairment losses. Amortization is charged to the income statement on a straight-line basis over their estimated useful life of 10 years from the date of acquisition. Subsequent expenditure on an intangible asset after its purchase or its completion is recognized as an expense when it is incurred unless it is probable that this expenditure will enable the asset to generate future economic benefits in excess of its originally assessed standard of performance and this expenditure can be measured and attributed to the asset reliably. If these conditions are met, the subsequent expenditure is added to the cost of the intangible asset. i) Investment Dated debt securities that the Group has the ability and intention to hold to maturity are classified as “held-to-maturity securities”. For the periods presented, none of the Group’s debt securities were classified as held-to maturity securities. Securities that are acquired principally for the purpose of generating a profit from short term fluctuations in price or dealer’s margin are classified as “trading securities”. Trading securities are stated in the consolidated balance sheet at fair value with the changes in the fair value included in the income statement. Securities other than those classified as held-to-maturity and trading are classified as “non-trading securities”. Non-trading securities are stated in the consolidated balance sheet at cost less impairment losses. j) Impairment The carrying amounts of long-lived assets are reviewed periodically in order to assess whether the recoverable amounts have declined below the carrying amounts. These assets are tested for impairment whenever events or changes in circumstances indicate that their recorded carrying amounts may not be recoverable. When such a decline has occurred, the carrying amount is reduced to the recoverable amount. The recoverable amount is the greater of the net selling price and the value in use. In determining the value in use, expected future cash flows generated by the asset are discounted to their present value. The amount of the reduction is recognized as an expense in the income statement. 13 China Fangda Group Company Limited Financial Statements for the year ended 31st December 2003 3. Principal accounting policies (Continued) j) Impairment (Continued) The Group assesses at each balance sheet date whether there is any indication that an impairment loss recognized for an asset in prior years may no longer exist. An impairment loss is reversed if there has been a favorable change in the estimates used to determine the recoverable amount. A subsequent increase in the recoverable amount of an asset, when the circumstances and events that led to the write-down or write-off cease to exist, is recognized as income. k) Inventories Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and selling expenses. The cost of inventories is calculated based on the weighted average costing method and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of overheads based on normal operating capacity. (l) Construction contracts Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the balance sheet date, as measured by the proportion that contract costs incurred for work performed to date to the estimated total contract costs. Variations in contract work, claims and incentive payments are included to the extent that they have been agreed with the customer. Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that it is probable will be recoverable. Contract costs are recognised as expenses in the period in which they are incurred. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. m) Trade and other receivables Trade and other receivables are stated at cost less allowance for doubtful accounts. An allowance for doubtful accounts is provided based upon the evaluation of the recoverability of these accounts at the balance sheet date. n) Trade and other payables Trade and other payables are stated at their cost. 14 China Fangda Group Company Limited Financial Statements for the year ended 31st December 2003 3. Principal accounting policies (Continued) o) Provisions A provision is recognized in the balance sheet when the Group has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risk specific to the liability. p) Dividends Dividends on ordinary shares are recognized as a liability in the period in which they are declared. q) Revenue i) Construction contract income Where the outcome of a construction contract can be estimated reliably, revenue is recognised by reference to the stage of completion of the contract activity, as measured by the proportion that contract costs incurred for work performed to date to the estimated total contract costs. Variations in contract work, claims and incentive payments are included to the extent that they have been agreed with the customer. Where the outcome of a construction contract cannot be estimated reliably, contract revenue is only recognised to the extent of contract costs incurred that it is probable will be recoverable. ii) Sales of goods Revenue from the sale of goods is recognized in the income statement when the significant risks and rewards of ownership have been transferred to the buyer. iv) Rental income from operating leases Rental income receivable under operating leases is recognized in the income statement in equal installments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives granted are recognized in the income statement as an integral part of the aggregate net lease payments receivable. Contingent rentals are recognized as income in the accounting period in which they are earned. r) Government grants A government grant is initially recognized as deferred revenue, when there is reasonable assurance that the Group will comply with the conditions attaching with it and that the grant will be received. 15 China Fangda Group Company Limited Financial Statements for the year ended 31st December 2003 3. Principal accounting policies (Continued) s) Expenses i) Operating lease payments Payments made under operating lease are recognized in the income statement on straight-line basis over the terms of the respective leases. Lease incentive received is recognized in the income statement as an integral part of the total lease expense. Contingent rental are charged to the income statement in the accounting period in which they are incurred. ii) Net financing costs Net financing costs comprise interest payable on borrowings, calculated using the effective interest rate method, interest receivable on funds invested and foreign exchange gains and losses. Interest income is recognized in the income statement as it accrues, taking into account the effective yield on the assets. Interest expenses are recognized in the income statement using the effective interest rate method. iii) Borrowing costs Borrowing costs are expensed in the income statement in the period in which they are incurred, except to the extent that they are capitalized as being directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale. The capitalization of borrowing costs as part of the cost of a qualifying asset commences when expenditures for the asset are being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalization of borrowing costs is suspended or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or complete. t) Retirement benefits The Group participates in retirement schemes operated by local authorities and the annual cost of providing retirement benefits is charged to the income statement according to the contribution determined by the relevant schemes. The Group has no further liability to the retirement schemes operated by the local authorities. 16 China Fangda Group Company Limited Financial Statements for the year ended 31st December 2003 3. Principal accounting policies (Continued) u) Income tax Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognized in the income statement except to the extent that it relates to items recognized directly to equity, in which case it is recognized in equity. Current tax is the expected tax payable on the taxable income for the year using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment of tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Initial recognition of assets or liabilities that affect neither accounting nor taxable profit is regarded as temporary difference which is not provided for. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date. A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asst can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized. v) Cash equivalents Cash equivalents represent short-term, highly liquid investments that are readily convertible to a known amount of cash and subject to an insignificant risk of changes in value. w) Segment reporting A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segment. 17 China Fangda Group Company Limited Financial Statements for the year ended 31st December 2003 4. Turnover Turnover represents revenue from construction contracts, the sale value of goods supplied to customers, and rental income from property leasing. The amount of each significant category of revenue recognized in turnover during the year is as follows:- 2003 2002 RMB’000 RMB’000 (Re-stated) Revenue from contracts works 338,584 280,266 Sales of goods 175,419 157,926 Rental income from property leasing 8,471 - 522,474 438,192 5. Other operating income 2003 2002 RMB’000 RMB’000 Gain on disposal of property, plant and equipment 27 17 Surplus on property, plant and equipment - 37 Refund of value-added tax - 24,567 Waiver of value-added tax 657 - Receipt of government grant 1,518 - Other sundry income 604 1,210 2,806 25,831 6. Other operating expenses 2003 2002 RMB’000 RMB’000 Amortization of goodwill 255 230 Donation 370 - Recognised loss on property, plant and equipment - 7,525 Recognised loss on intangible assets - 637 Recognised loss on investments in an unconsolidated Loss on disposal of property, plant and equipment 534 - Other sundry expenses 60 - 1,219 11,392 18 China Fangda Group Company Limited Financial Statements for the year ended 31st December 2003 7. Profit (loss) from operations Profit (loss) from operations is arrived at after charging (crediting): 2003 2002 RMB’000 RMB’000 Staff costs -Wages and salaries 39,908 34,778 -Staff welfare 1,308 2,374 -Contribution to statutory retirement scheme 2,652 2,054 43,868 39,206 Depreciation on property, plant and equipment 28,754 27,123 Amortisation of intangible assets 1,296 918 Taxes other than income taxes 11,164 10,664 Bad and doubtful debts 313 95,328 (Write-up) Write-down of inventories to net realization value (11,563) 17,415 8. Net financing costs 2003 2002 RMB’000 RMB’000 Interest expenses 13,384 10,768 Less: Amount capitalised in construction in progress (1,187) - 12,197 10,768 Interest income (5,432) (7,698) Foreign exchange loss, net 25 51 Others 869 1,348 7,659 4,469 Others The effective interest rate for capitalisation is 4.41% (2002: NIL) 9. Investment income 2003 2002 RMB’000 RMB’000 Gain on disposal of securities 318 - Others - 38 318 38 19 China Fangda Group Company Limited Financial Statements for the year ended 31st December 2003 10. Income tax Income tax in the income statement represent: 2003 2002 RMB’000 RMB’000 PRC current income tax provision Current year - - Over (under) provision for prior years 130 (46) 130 (46) Deferred taxation - - 130 (46) The basis tax rate applicable to the Group is 15% except that the following subsidiaries which were approved to entitle the preferential tax treatment, with full exemption from income tax for two years and 50% reduction in the next three years starting from the first profit-making year after offsetting forward from prior years their estimated assessable profit: - Shenzhen Fangda Safty Technology Co., Limited Fangda Focus Information Material Co., Limited No PRC income tax has been provided as the Group has adequate unexpired tax losses to offset the taxable profits for the year.. No deferred tax asset in respect of tax losses available to offset future profits has been recognised because it is not certain that the tax losses could be utilized in the foreseeable future. 11. Dividend 2003 2002 RMB’000 RMB’000 Dividends proposed after the balance sheet date of RMB 0.03 per share (2002:RMB 0.07 per share) 8,892 20,748 Pursuant to a resolution passed at the Directors’ meeting on 15th February 2004, a final dividend of RMB 0.03 (2002: RMB0.07) per share totaling RMB8,892,000 (2002: RMB20,748,000) was proposed for shareholders’ approval at the Annual General Meeting. The final dividend proposed after the balance sheet date has not been recognized as a liability at the balance sheet date. 20 China Fangda Group Company Limited Financial Statements for the year ended 31st December 2003 11. Dividend (Continued) Dividends attributable to the previous financial year, approved and paid during the year represent: 2003 2002 RMB’000 RMB’000 Final dividends in respect of the previous financial year, approved and paid during the year, of RMB 0.07 per share (2002: RMB 0.1 per share) 20,748 29,600 12. Earnings (loss) per share The earnings (loss) per share for the year ended 31st December is calculated based on the net profit (loss) attributable to shareholders of RMB12,037,000 (2002: Loss of RMB172,110,000) and the weighted average number of ordinary shares outstanding during the year of 29,640,000 shares (2002: 29,640,000 shares). The amount of diluted earning per share is not presented as there were no dilutive potential ordinary shares in expositing during the years presented. 13. Employee benefit plan As stipulated by the regulation of the PRC, the Group participates in various defined contribution retirement plans organized by municipal and provincial government for its staff. The Group is required to make contributions to the retirement plan at rates ranging from 16% to 30% of the salaries, bonus and certain allowances of its staff. A member of the plan is entitled to a pension equal to a fixed proportion of the salary prevailing at his or her retirement date. The Group has no other material obligations for the payment of pension benefits associated with these plans beyond the annual contribution described above. The Company’s contribution to the defined contribution plans is recognized as an expense in the income statement as incurred. 21 Financia 14. Property, plant and equipment Machinery and Leasehold land Buildings electronic equipment RMB’000 RMB’000 RMB’000 Cost Balance at 1st January 2003 80,074 185,648 175,466 Additions 1 3,648 5,798 Transfer from construction in progress - 170,441 5,972 Disposal - (1,444) (500) Balance at 31st December 2003 80,075 358 293 358,293 186,736 Accumulated depreciation Balance at 1st January 2003 8,087 34,459 62,778 Depreciation charge for the year 1,777 5,827 17,833 Written back on disposal - (306) (216) Balance at 31st December 2003 9,864 39,980 80,395 Net book value At 31st December 2003 70,211 318,313 106,341 At 31st December 2002 71,987 151,189 112,688 All of the buildings owned by the Group are located in the PRC under medium lease (lease periods of 10 years or mo As at 31st December 2003, certain properties with net book value of RMB169,191,000 were leasing out for genera The depreciation charge for these properties for the year was RMB1,136,000.(2002: NIL) 22 China Fangda Group Company Limited Financial Statements for the year ended 31st December 2003 15. Construction in progress 2003 2002 RMB’000 RMB’000 Balance at beginning of year 139,940 113,085 Additions 41,521 60,388 Amount transferred to property, plant and equipment (176,413) (33,533) Balance at end of year 5,048 139,940 16. Investments in an unconsolidated subsidiary 2003 2002 RMB’000 RMB’000 Unlisted shares, at cost 7,057 7,057 Less: Impairment loss recognised (5,053) (5,053) 2,004 2,004 Particulars of the unconsolidated subsidiary are as follows: Place of Incorporation Attributable equity Principal Name of Company and operation interest Activities 上海飛翼幕牆有限公司 Shanghai, PRC 60% Ceased business The unconsolidated subsidiary has ceased all business operation and in liquidation since 2001. 17. Investments in securities 2003 2002 RMB’000 RMB’000 Non-trading Investments Unlisted shares in the PRC, at cost Ordinary shares 2,500 2,500 Legal person shares 6,270 6,270 8,770 8,770 Trading Investments Equity fund in the PRC, at cost - 400 As the above trading investments do not have a quoted market price in an active market and for which other methods of reasonably estimating fair value are clearly inappropriate or unworkable, so they are stated at cost less impairment in value. 23 China Fangda Group Company Limited Financial Statements for the year ended 31st December 2003 18. Goodwill RMB’000 Cost At 1st January 2003 and at 31st December 2003 2,551 Accumulated amortisation At 1st January 2003 640 Charge for the year 255 At 31st December 2003 895 Net book value At 31st December 2003 1,656 At 31st December 2002 1,911 The goodwill is amortised on a straight-line basis over 10 years. The amortisation charge for the year is included in “other operating expenses”. 19. Intangible assets RMB’000 Cost At 1st January 2003 13,447 Additions 608 At 31st December 2003 14,055 Accumulated amortization At 1st January 2003 3,763 Charge for the year 1,296 At 31st December 2003 5,059 Net book value At 31st December 2003 8,996 At 31st December 2002 9,684 The intangible assets represent costs for acquisition of technical patents, know-how and trademarks. The amortisation charge of other intangible assets for the year is included in “other operating expenses”. 24 China Fangda Group Company Limited Financial Statements for the year ended 31st December 2003 20. Inventories 2003 2002 RMB’000 RMB’000 Contract works in progress 76,977 85,928 Raw materials 32,015 28,416 Work-in-progress 4,384 2,503 Finished goods 24,078 21,066 137,454 137,913 Less: Allowance for diminution in value of inventories (6,253) (17,815) 131,201 120,098 The cost of inventories recognized as expenses in the consolidated income statement can be specified as follows: 2003 2002 RMB’000 RMB’000 Cost of sales 421,682 380,237 Allowance for diminution in value of inventories (11,562) 17,415 410,120 397,652 21. Trade accounts receivable 2003 2002 RMB’000 RMB’000 (Re-stated) Third parties 523,188 463,025 Less: Allowance for doubtful accounts (78,621) (99,887) 444,567 363,138 22. Other receivable 2003 2002 RMB’000 RMB’000 Third parties 43,155 42,499 Less: Allowance for doubtful accounts (16,307) (19,249) 26,848 23,250 25 China Fangda Group Company Limited Financial Statements for the year ended 31st December 2003 23. Share capital 2003 2002 No. of No. of shares shares ’000 RMB’000 ‘000 RMB’000 Registered, issued and fully paid: Listed:- A shares of RMB1.00 each 42,000 42,000 42,000 42,000 B shares of RMB1.00 each 145,368 145,368 145,368 145,368 187,368 187,368 187,368 187,368 Unlisted:- Legal person shares of RMB 1.00 each 109,032 109,032 109,032 109,032 296,400 296,400 296,400 296,400 There was no movement in the share capital of the Company during the year. All A shares and B shares rank pari passu in all material respect. 24. Reserves Statutory Statutory Capital surplus public Retained reserve reserve welfare fund profits Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Balance at 1st January 2002 - As previously reported 388,542 59,871 32,022 271,666 752,101 - Prior year adjustment - 248 124 290 662 - As re-stated 388,542 60,119 32,146 271,956 752,763 Final dividend paid for 2001 - - - (29,640) (29,640) Loss attributable to shareholders - As previously reported - - - (172,398) (172,398) - Prior year adjustment - - - 288 288 - As re-stated - - - (172,110) (172,110) Balance at 31st December 2002 and 1st January 2003 388,542 60,119 32,146 70,206 551,013 Final dividend paid for 2002 (20,748) (20,748) Profit attributable to shareholders - - - 12,037 12,037 Appropriations - 1,058 529 (1,587) - Balance at 31st December 2003 388,542 61,177 32,675 59,908 542,302 26 China Fangda Group Company Limited Financial Statements for the year ended 31st December 2003 24. Reserves (Continued) a) Capital reserve In accordance with the articles of association, the Company shall record the following as capital reserve: (i) share premium; (ii) donations; (iii) appreciation arising from revaluation of assets; and (iv) other items in accordance with the articles of association and relevant regulations in the PRC. Capital reserve may be utilized to offset prior years’ losses or for the issuance of bonus shares. As at 31st December 2003, the capital reserve of the Company mainly represents share premium. b) Statutory surplus reserve According to the Company’s Articles of Association, the Company and its subsidiaries are required to transfer 10% of its net profit, as determined in accordance with the PRC Accounting Rules and Regulations, to statutory surplus reserve until the reserve balance reaches 50% of the registered capital. The transfer to this reserve must be made before distribution of a dividend to shareholders. Statutory surplus reserve can be used to make good previous years’ losses, if any, and may be converted into shares capital by the issue of new shares to shareholders in proportion to their existing shareholdings or by increasing the par value of the shares currently held by them, provided that the balance after such issue is not less than 25% of the registered capital. c) Public welfare fund reserve According to the Company’s Articles of Association, the Company and its subsidiaries is required to transfer 5% of its net profit, as determined in accordance with the PRC Accounting Rules and Regulations, to the statutory public welfare fund. This fund can only be utilized on capital items for the collective benefits of the Company’s employees such as the construction of dormitories, canteen and other staff welfare facilities. This fund is non-distributable other than on liquidation. The transfer to this fund must be made before distribution of a dividend to shareholders. d) Retained profits available for distribution According to the Company’s Articles of Association, the amount of retained profits available for distribution to shareholders of the Company is the lower of the amount determined in accordance with the PRC Accounting g Rules and Regulations and the amount determined in accordance with IFRS. At 31st December 2003, the amount of retained profits available for distribution was RMB 32,713,000 (2002: RMB 44,468,000), being the amount determined in accordance with the PRC Accounting Rules and Regulations. Final dividend of RMB 8,892,000 (2002: RMB 20,748,000) proposed after the balance sheet date has not been recognized as a liability at the balance sheet date. 27 China Fangda Group Company Limited Financial Statements for the year ended 31st December 2003 25. Minority interests 2003 2002 RMB’000 RMB’000 Balance at 1st January 4,513 23,074 Acquisition of additional interests in subsidiaries - (14,714) Share of net profit (loss) of subsidiaries 2,549 (3,847) 7,062 4,513 26. Long –term bank borrowings a) Long-term borrowings represent: The analysis of long-term bank borrowings is as follows: 2003 2002 Interest rate Interest rate per annum Amount per annum Amount RMB’000 RMB’000 Interest bearing borrowing - Secured 4.94% 20,000 4.78%-4.94% 50,000 - Guaranteed - - 4.54% 50,000 - Unsecured and not guaranteed - - 4.78%-5.30% 112,500 20,000 212,500 Less: Current portion 20,000 192,500 - 20,000 The maturities of the Group’s long-term bank borrowings are as follows: 2003 2002 RMB’000 RMB’000 Within one year 20,000 192,500 Between one to two years - 20,000 20,000 212,500 28 China Fangda Group Company Limited Financial Statements for the year ended 31st December 2003 26. Long –term bank borrowings (Continued) b) Short-term borrowings represent: 2003 2002 RMB’ RMB’000 Short-term bank loans 375,000 - Current portion of long-term bank loans 20,000 192,500 395,000 192,500 The analysis of short-term bank borrowings is as follows: 2003 2002 Interest rate Interest rate per annum Amount per annum Amount RMB’000 RMB’000 Interest bearing borrowing - Secured 4.78%-4.94% 50,000 - - - Guaranteed 4.80% 90,000 - - - Unsecured and not guaranteed 4,54%-5.31% 235,000 - - 375,000 - As of 31 December 2003, the Group’s long-term bank borrowings of RMB20,000,000 and short-term bank borrowings of RMB 50,000,000 were secured by the Group’s fixed bank deposit of USD1,700,000 (Equivalent approximately to RMB 13,940,000). 27. Accrued expenses and other payables 2003 2002 RMB’000 RMB’000 (Re-stated) Accrued expenditure 6,945 10,226 Taxes other than income tax 9,611 7,337 Receipts in advance 30,030 6,655 Others 11,887 11,305 58,473 35,523 28. Financial instruments Financial assets of the Group include cash and bank balances, trade and other receivables and other assets. Financial liabilities of the Group include bank loans; and trade and other payables. The Group has no derivative instruments that are designated and qualified as hedging instruments at 31st December 2003 and 2002. Exposure to credit, interest rate and currency risk arises in the normal course of the Group’s business. 29 China Fangda Group Company Limited Financial Statements for the year ended 31st December 2003 28. Financial instruments (Continued) a) Credit risk The carrying amounts of trade account receivables represent the Group’s maximum exposure to credit risk in relation to financial assets. The Group’s trade account receivable relate to sales to unrelated parties. The Group performs ongoing credit evaluations of its customers’ financial condition and generally does not require collateral on trade accounts receivable. The Group maintains an allowance for doubtful accounts and actual losses have been within management’s expectations. No other financial assets carry a significant exposure to credit risk. b) Interest rate risk The interest rates and term of repayment of the bank loans of the Group are disclosed in note 26. c) Foreign currency risk Substantially all of the revenue-generating operations of the Group are transacted in Renminbi, which is not fully convertible into foreign currencies. On 1st January 1994, the PRC government abolished the dual rate system and introduced a single rate of exchange as quoted by the People’s Bank of China. However, the unification of the exchange rate does not imply convertibility of Renminbi into Hong Kong Dollars or other foreign currencies. All foreign exchange transactions continue to take place either through the People’s Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the People’s Bank of China. Approval of foreign currency payments by the People’s Bank of China or other institutions requires submitting a payment application form with suppliers’ invoice, shipping documents and signed contracts. d) Fair value The estimated fair value amounts have been determined by the Group using market information and valuation methodologies considered appropriate. However, considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates are not necessarily indicative of the amounts the Group could realize in a current market exchange. The use of different market assumptions and / or estimation methodologies may have a material effect on the estimated fair value amounts. The fair value of long-term indebtedness is estimated by discounting future cash flows thereon using market interest rates offered to the Group for debts with substantially the same characteristics and maturities. Investments in unlisted equity securities have no quoted market process in the PRC. Accordingly, a reasonable estimate of the fair value could not be made without incurring excessive costs. The fair values of other financial instrument approximate their carrying amounts due to the nature or short-term maturity of these instruments. 30 China Fangda Group Company Limited Financial Statements for the year ended 31st December 2003 29. Cash and cash equivalents For the purpose of cash flow statement, the balance of cash and cash equivalents is analysed as below: 2003 2002 RMB’000 RMB’000 Cash and bank balances 297,986 260,482 Less: Deposits with banks with original maturity more than 3 months (102,020) (85,661) 195,966 174,821 30. Pledged of assets As of 31st December 2003, the Group’s fixed bank deposits totaling USD1,700,000, equivalent approximately to RMB13,940,000 (2002: USD4,700,000, equivalent approximately to RMB38,500,000) were pledged for the banking facilities granted to the Group. 31. Operating lease commitments a) As leasee Non-cancelable operating lease rental are payable as follows: 2003 2002 RMB’000 RMB’000 Less than one year 739 172 Between one and five years 2,742 689 More than five years 1,314 - 4,795 861 The leases run for an initial period of five to eight years, with an option to renew the lease when all terms are renegotiated. b) As leasor Non-cancelable operating lease rental are receivable as follows: 2003 2002 RMB’000 RMB’000 Less than one year 15,472 - Between one and five years 7,053 - 22,525 - The leases run for an initial period of one to two years, with an option to renew the lease when all terms are renegotiated. 31 China Fangda Group Company Limited Financial Statements for the year ended 31st December 2003 32. Capital commitments Capital commitments outstanding at 31st December 2002 and 2003 but not provided for in the financial statements were as follows: 2003 2002 RMB’000 RMB’000 Purchase of property, plant and equipment 14,206 38,217 33. Contingent liabilities At 31st December, 2003, the Group had a number of outstanding legal actions taken for recovery of trade receivable. The Group had made appropriate provision for these trade receivable. 34. Related parties transactions For the purpose of this report, parties are considered to be related to the Group if the Group has the ability, directly of indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the party are subject to common control or common significant influence. Related parties may be individuals or entities There were no transactions with related parties during the year. 35. Segment information Segment information is presented in respect of the Group’s business and geographical segments. Business segment information is chosen as the primary reporting format because this is more relevant to the Group’s internal financial reporting. The Group comprises the following main business segments: Contract works: Design and installation of curtain walls, doors and windows. Manufacturing: The manufacture and sale of photoelectric and construction materials. Property leasing: The leasing of office premises to generate rental income and to gain from the appreciation in the properties’ values in the long term. The Group evaluates the performance and allocates resources to its operating segments on an operating income basis, without considering the effects of finance costs or investment income. The accounting policies of the Group’s segment are the same as those described in the Principal Accounting Policies Corporate administrative costs and assets are not allocated to the operating segments. 32 Financia Business segment Reportable information on the Group’s business segments is as follows:- Inter- Contract works Manufacturing Property leasing elim 2003 2002 2003 2002 2003 2002 2003 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Revenue from external customers 338,584 280,266 175,419 157,926 8,471 - - Inter-segment revenue 20 36,927 75,954 59,691 - - (75,974) Total 338,604 317,193 251,373 217,617 8,471 - (75,974) Segment results 24,784 (106,467) (6,859) (45,041) 4,963 - (507) Unallocated operating income and expenses Profit from operations Net Financing income Investment income Profit from ordinary activities before taxation Income tax expenses Profit before minority interest Assets and liabilities dedicated to a particular segment’s operations are included in that segment’s total assets and li one segment or are considered to be corporate assets are not allocated. 33 Financia Business segment (Continued) Contract works Manufacturing Property leasing Un 2003 2002 2003 2002 2003 2002 2003 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Segment assets 550,347 435,744 330,190 580,661 169,191 - Unallocated assets - - - - - - 411,2 Total assets 550,347 435,744 330,190 580,661 169,191 -- 411,2 Segment liabilities 129,626 145,026 146,309 85,374 - - Unallocated liabilities - - - - - 339,2 Total liabilities 129,626 145,026 146,309 85,374 - 339,2 Segment capital expenditure is the total cost incurred during the year to acquire segment assets that are expected to be u Contract works Manufacturing Property 2003 2002 2003 2002 2003 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Capital expenditure on property, plant and equipment 5,237 1,740 12,564 5,396 170,327 Depreciation on property, plant and equipment 2,126 2,810 30,598 24,313 1,136 Amortisation on intangible assets 73 66 1,223 852 - Geographical segment As the Group was carrying out its activities principally in the PRC, no geographic segmental information is presented. 34 China Fangda Group Company Limited Financial statements for the year ended 31st December 2003 48. Differences between financial statements prepared under the PRC Accounting Rules and Regulations and IFRS Other than the differences in the classifications of certain financial captions and the accounting for the items described below, there are no material differences between the Group’s financial statements prepared under the PRC Accounting Rules and Regulations and IFRS. The major differences are: i) Capitalization of general borrowing costs Under the PRC Accounting Rules and Regulations, only borrowing costs on funds that are specifically borrowed for construction are eligible for capitalization as property, plant and equipment. Under IFRS, to the extent that funds are borrowed generally and used for the purpose of obtaining qualifying assets, the borrowing costs should be capitalized as part of the cost of that asset. ii) Depreciation of property, plant and equipment Under the PRC Accounting Rules and Regulations, the depreciable amount of a property, plant and equipment should be allocated on a systematic basis over its useful lives. Due to the reason as discussed in (i) above, the depreciable amount of the asset transferring from construction in progress upon its completion under the PRC Accounting Rules and Regulations are different from the amount under IFRS. iii) Reversal of revaluation surplus on patent rights The amount represents the difference treatment on revaluation surplus on patent rights between the PRC and IFRS financial statements of previous years. Accordingly, the related amortisation charge was eliminated during the year. iv) Written off of pre-operating expenses Under the PRC Accounting Rules and Regulations, pre-operating expenses are capitalised before the commencement of operation and will be written off when the enterprise commences operation. Under IFRS, pre-operating expenses are expensed when incurred. v) Adjustment to investment income The amount represents the difference treatment on investment income between the PRC and IFRS financial statements of previous years. vi) Dividend declared after the balance sheet date Before 1st January 2003, under the PRC Accounting Rules and Regulations, dividends are recognized in the period to which the dicvidends relate. Under IFRS, dividends should be recognised as a liability in the period in which they are declared or approved. Annual Report 2003 CHINA FANGDA GROUP CO., LTD. 48. Differences between financial statements prepared under the PRC Accounting Rules and Regulations and IFRS (Continued) vi) Dividend declared after the balance sheet date (Continued) Effects of major differences between the PRC Accounting Rules and Regulations and IFRS on net profit (loss) are analyzed as follows: 2003 2002 Note RMB’000 RMB’000 (Re-stated) Net profit (loss) under the PRC Accounting Rules and Regulations 10,580 (173,094) Adjustments: Capitalisation of interest for construction in progress (i) 1,187 - Depreciation of property, plant and equipment (ii) (28) - Reversal of revaluation gain of patent rights and related amortization (iii) 298 1,007 Written off of pre-operating expenses (iv) - 3,585 Adjustment of investment income (v) - (3,608) 1,457 984 Net profit (loss) under IFRS 12,037 (172,110) Effects of major differences between the PRC Accounting Rules and Regulations and IFRS on shareholders’ fund are analyzed as follows: 2003 2002 Note RMB’000 RMB’000 (Re-stated) Shareholders’ fund under the PRC Accounting Rules and Regulations 835,170 824,590 Adjustments: Capitalisation of interest for construction in (i) progress 3,560 2,373 Depreciation of property, plant and equipment (ii) (28) - Reversal of revaluation gain of patent rights and (iii) related amortization - (298) Declaration of dividend after balance sheet date (vi) - 20,748 3,532 22,823 Shareholders’ fund under IFRS 838,702 847,413 -1-