长虹美菱(000521)皖美菱Ｂ2003年年度报告（英文版）

HEIFEI MEILING COMPANY LTD ANNUAL REPORT 2003 April 2004 Important Notes: Board of Directors of Hefei Meiling Co., Ltd. (hereinafter referred to as the Company) and its directors individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions nor errors which would render any statement misleading. Huazheng Certified Public Accountants and Morison Heng Certified Public Accountants respectively issued the standard unqualified Auditors’ Report for the Company. Chairman of the Board Mr. Gu Chujun, Vice-president Mr. He Jinqi and Secretary of Financial Dept. Mr. Zhong Weiyi hereby confirm that the Financial Report of the Annual Report is true and complete. Contents Section Ⅰ. Company Profile------------------------------------------------------------- Section Ⅱ. Summary of Financial Highlight and Business Highlight-------------- Section Ⅲ. Changes in Capital Shares and Particulars about Shareholders------- Section Ⅳ . Particulars about Directors, Supervisors, Senior Executives and Employees----------------------------------------------------------------------------------- Section Ⅴ. Administrative Structure---------------------------------------------------- Section Ⅵ. Brief Introduction to the Shareholders’ General Meeting ------------- Section Ⅶ. Report of the Board of Directors ----------------------------------- ------ Section Ⅷ. Report of the Supervisory Committee------------------------------------ Section Ⅸ. Significant Events----------------------------------------------------------- Section Ⅹ. Financial Report-------------------------------------------------------------- Section XI. Documents for Reference--------------------------------------------------- Section I. Company Profile 1. Legal Name of the Company In Chinese: 合肥美菱股份有限公司 In English: HEFEI MEILING CO., LTD Abbr. in English: HFML 2. Legal Representative: Mr. Wang Jiazhang 3. Secretary of the Board of Directors and Securities Affairs Representative Secretary of the Board of Directors: Xue Hui Contact address: No. 48, Wuhu Road, Hefei Tel: (86)551-2869394 Fax: (86)551-2883122 E-mail: wyxuehui@163.com Securities Affairs Representative: Qi Dunwei E-mail: secretary@meiling.com 4. Registered Address: No. 48, Wuhu Road, Hefei Office Address: No. 48, Wuhu Road, Hefei Post Code: 230001 Company’s Internet Website: http://www.meiling.com E-mail of the Company: info@meiling.com 5. Newspapers Chosen for Disclosing the Information of the Company: Securities Times and Ta Kung Pao Internet Website Designated by CSRC for Publishing the Annual Report: http://www.cninfo.com.cn The Place Where the Annual Report is Prepared and Placed: Secretariat of the Board of Directors, on 2/F of the Company’s Office Bldg. 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: MEILINGDIANQI, MEILING-B Stock Code: 000521, 200521 7. Other relevant information Initial registration date: Dec. 31, 1992 Initial registration place: Hefei Municipal Administration Bureau of Industrial and Commerce Registration date after change: Oct.14, 2002 Registration address: Anhui Province Administration Bureau of Industrial and Commerce Registration number of business license of enterprise legal person: 001684 Registration number of tax: GSW Zi 34010414918555X Domestic Certified Public Accountants Engaged by the Company: Name: Huazheng Certified Public Accountants Address: 12th Floor, Tower A, Investment Plaza, Finance Street, West City District, Beijing International Certified Public Accountants Engaged by the Company: Name: Morison Heng Certified Public Accountants Address: 17th Floor, No.1, One Hysan Avenue, Causeway Bay, Hong Kong Section II. Summary of Financial Highlight and Business Highlight 1. The total profit and structure as of year 2003 (Unit: RMB) Total profit -197,834,320.80 Net profit -194,656,073.42 Net profit after deducting non-recurring gains and losses -180,929,418.47 Profit from main operations 230,588,924.39 Other operating profit 629,038.73 Operating profit -186,627,944.15 Investment income 2,520,278.30 Subsidy income 3,058,000.00 Net non-operating income/expenses -16,784,654.95 Net cash flow arising from operating activities 94,306,265.23 Net increase in cash and cash equivalents 63,971,960.85 Item of non-recurring gains and losses Gains and losses from disposal of fixed assets -10,982,367.95 Net income/expenses of other non-operating -5,802,287.00 Subsidy income 3,058,000.00 Total -13,726,654.95 2. The net profit as of year 2003 was RMB –194,656,000 as audited according to the Chinese Accounting Standards and that was RMB –178,073,000 as audited by Morison Heng Certified Public Accountants according to the International Financial Reporting Standards. The differences are stated as follows: Unit: RMB’000 Net profit as of Net assets as at Dec. 31, year 2003 2003 As report under PRC statutory financial (194,656) 840,932 statements IFRS adjustments: Provision for warranty expenses (975) (14,975) Remeasurement of financial assets in according 23,978 (244,354) with IAS 39 Depreciation of fixed assets (2,037) (7,079) Provision for slow moving inventories (8,593) (8,593) Other 4,210 2,677 As restated after IFRS adjustments (178,073) 568,608 3. Main accounting data and financial indexes Unit: RMB Items 2003 2002 2001 Income from main operations 1,383,809,999.35 1,261,882,198.34 1,292,676,068.23 Net profit -194,656,073.42 8,107,604.25 -349,549,858.61 Total assets 2,245,189,884.42 2,300,035,010.32 2,257,483,622.77 Shareholders’ equity 840,931,946.31 1,035,388,019.73 1,027,960,658.86 Earnings per share (weighted) -0.47 0.02 -0.85 Earnings per share (diluted) -0.47 0.02 -0.85 Earnings per share (deducting non- -0.44 0.0155 -0.66 recurring gains and losses) Net assets per share 2.0330 2.5031 2.49 Net assets per share after adjustment 1.2957 1.9205 2.36 Net cash flow per share arising from 0.23 0.156 -0.06 operating activities Return on equity (%) (diluted) -23.15 0.78 -34.00 Return on equity (%) (weighted) -20.75 0.79 -26.49 4. Supplemental statement of profit distribution Return on equity (%) Earnings per share (RMB) Profit as of report period Weighted Weighted Fully diluted Fully diluted average average Profit from main operations 27.42% 24.58% 0.56 0.56 Operating profit -22.19% -19.89% -0.45 -0.45 Net profit -23.15% -20.75% -0.47 -0.47 Net profit after deducting non-recurring gains and -21.52% -19.29% -0.44 -0.44 losses Explanation: (1) In accordance with Reporting Regulations on the Information Disclosure of Companies Publicly Issuing Stock (No. 9) promulgated by China Securities Regulatory Commission, at the end of year 2002 and 2003, the Company’s total ordinary share was 413,642,949 shares as calculated based on calculating method of weighted average. Calculation formula of major financial indexes: Earnings per share= net profit/Total ordinary share at the year-end Net assets per share= Shareholder’s equity at the year-end / Total ordinary share at the year- end Return on equity= Net profit/Shareholder’s equity at the year-end×100% Net assets after adjustment=(Shareholder’s equity at the year-end-accounts receivable more three years – expenses to be apportioned -long-term expenses to be apportioned)/Total ordinary share at the year-end Net cash flow per share arising from operating activities= Net cash flow arising from operating activities/ Total ordinary share at the year-end (2) Non-recurring gains and losses are calculated based on Q&A for Standard on the Information Disclosure of Companies Publicly Issuing Stock (No. 1) — non-recurring gains and losses (revised on Jan. 15, 2004). (3) Weighted average return on equity is calculated based on net profit after deducting non- recurring gains and losses as of report period. The calculating method of the said index referred to the regulations of Reporting Regulations on the Information Disclosure of Companies Publicly Issuing Stock (No. 9) 5. Particulars about changes in shareholders’ equity during the report period and reasons (Unit: share) Item Share capital Capital Surplus Statutory Retained profit Total reserve reserve Public welfare fund Amount at year-begin 413642949.00 572322062.28 219246331.19 65643217.32 -235466540.06 1035388019.73 Increase in this period 200000.00 200000.00 Decrease in this period 194656073.42 194656073.42 Amount at year-end 413642949.00 572522062.28 219246331.19 65643217.32 -430122613.48 840931946.31 Changes for - Loan - - Losses as of the Losses as of the reason exemption yea yea Section III. Changes in Capital Shares and Particulars about Shareholders 1. Particulars about the changes in share (ended of Dec.31, 2003) Unit: share Type of share Before the Increase/Decrease of this time (+, -) After the change Capitalization change Rationed Bonus Additional of public Others Subtotal share shares issuance reserve I. Unlisted shares 1. Sponsors’ shares 126,982,650 126,982,650 Including: State-owned share 123,396,375 123,396,375 Domestic legal person’s shares 3,586,275 3,586,275 Foreign legal person’s shares Others 2. Raised legal person’s shares 22,029,973 22,029,973 3. Inner employees’ shares 4. Preference shares or others Total unlisted shares 149,012,623 149,012,623 II. Listed shares 1. RMB ordinary share 151,530,326 151,530,326 2. Domestically listed foreign 113,100,000 113,100,000 shares 3. Overseas listed foreign shares 4. Others Total listed shares 264,630,326 264,630,326 III.Total shares 413,642,949 413,642,949 Note: In the report period, there was no change in the share capital arising form bonus shares, converting capital reserve into share capital or rationed share, etc. 2. Issuance and Listing of shares In 1996, through approval by China Securities Regulatory Commission, the Company issued 100 million shares of domestically listed foreign capital shares (B-shares) at the price of RMB 3.30 per share on Aug. 14, 1996, which were listed with Shenzhen Stock Exchange for trading on Aug. 28, 1996. In June 1997, the Company implemented the dividend distribution plan by distributing bonus shares at the rate of 3.5 shares for every 10 shares. As a result, the share capital increased by 82.3549 million shares, up to 380,226,255 shares. From July 29 to August 11, 1997, the Company conducted allotment for A-shares (at the rate of 2.22 shares for every 10 shares) at the price of RMB 4.80 per share. Totally 33.4167 million shares were placed and were listed on Aug. 23, 1997. Up to then, the Company’s share capital increased to 413,642,949 shares. 3. About shareholders (1) Ended Dec. 31, 2003, the Company had totally 94,242 shareholders, including 16,683 shareholders of B-share. (2) Particular of shares held by the top ten shareholders Proportion in Type of Share held at No. Name of shareholders total share capital share year-end (%) A 29.83% (State- 1 Hefei Meiling (Group) Holdings Co., Ltd. sha 123,396,375 owned shareholder) re 2 Yongsheng Industrial Co., Ltd. B share 2,080,000 0.50% 3 XIAO YANMEI B share 2,008,000 0.49% 4 Hefei Industrial and Commercial Bank A share 1,707,750 0.41% 5 Hefei Refrigerator Fittings Factory A share 1,707,750 0.41% 6 HUANG GUOQIANG B share 1,545,337 0.38% 7 Hefei Agency of Anhui Agricultural Bank A share 1,536,975 0.37% International Business Dept. of Anhui 1,536,975 0.37% 8 A share Industrial and Commercial Bank Anhui Province Technology Import & 1,536,975 0.37% 9 A share Export Corporation 10 China Cinda Assets Management Company A share 1,536,975 0.37% Explanation: (1) The shares held by Hefei Meiling (Group) Holdings Co., Ltd. are the promoter’s shares; the shares held by other shareholders are circulating B-shares or legal person A-shares. Among top ten shareholders, there existed no associated relationship among shareholders of non-circulating shares, or between shareholders of non-circulating and circulating shares; they do not belong to the concerted actors as specified in the Measures for Controlling Information Disclosure of Alternation in the Shares Held by Shareholders in Listed Companies; as the Company has no idea on whether there exists any business relationship among the shareholders of circulating shares or they belong to the concerted actors as specified in the Measures for Controlling Information Disclosure of Alternation in the Shares Held by Shareholders in Listed Companies. (2) In the report period, the shareholder holding over 10% of the Company’s shares was Hefei Meiling (Group) Holdings Co., Ltd. that actually holds 29.83%. The said shares had not been pledge, frozen or placed under trusteeship in the report period. (3) About the shareholder holding over 10% of the Company’s shares In the report period, the shareholder holding over 10% of the Company’s total shares was Hefei Meiling (Group) Holdings Co., Ltd. whose legal representative was Wang Jiazhang, registered address: No. 48, Wuhu Road, Hefei, registered capital: RMB 300 million, principal businesses: washing machine, VCD, water heater, plastic products, packing products, copper products, hotel, transportation and property management, etc. It actually holds 29.83% of the Company’s total shares, which have not been pledged. (4) Hefei Meiling (Group) Holdings Co., Ltd., the Company’s controlling shareholder, is a company solely owned by the state, subordinate to Hefei Municipal State-owned Assets Supervision and Administration Committee. Therefore, the Company’s actual controller is Hefei Municipal State-owned Assets Supervision and Administration Committee, which is an organization entrusted by the government at the same level, unifiedly exercises the decision making and management, comprehensive management and supervision of state assets as the owner of state assets. (5) On May 29, 2003, Hefei Meillng (Group) Holdings Co., Ltd. (“Meiling Group”) signed the Agreement of Equity Transfer with Shunde Greencool Enterprise Development Co., Ltd., (“Shunde Greencool”) which transferred 82,852,683 state-owned shares of the Company held by Meiling Group to Shunde Greencool. On Feb. 5, 2004, Meiling Group received the Reply on Relevant Problem of Equity Transfer of Hefei Meiling Co., Ltd. (State-owed Assets Right [2004] No. 31) (hereinafter referred to as the Reply) issued by State-owned Assets Supervision and Administration Commission of the State Council (“SASAC”). SASAC agreed that Hefei Meiling (Group) Holdings Co., Ltd. transferred 82,852,683 shares of 123,396,375 state-owned shares of the Company held by it to Shunde Greencool Enterprise Development Co., Ltd. in the Reply. After finishing of the aforesaid shares transfer, the Company’s total share capital is still 413,642,949 shares. Among which, Hefei Meiling (Group) Holdings Co., Ltd. holds 40,543,692 shares, taking 9.80% of total share capital of the Company with state-owned shares; Shunde Greencool Enterprise Development Co., Ltd. holds 82,852,683 shares, taking 20.03% of total share capital of the Company with non-state-owned shares. After the finishing of state-owned equity transfer, Shunde Greencool Enterprise Development Co., Ltd. will become the first largest shareholder of the Company, and Hefei Meiling (Group) Holdings Co., Ltd. will become the second largest shareholder of the Company. The relevant procedure of equity transfer has been completed in China Securities Registration & Clearing Co., Ltd. Shenzhen Branch. Shunde Greencool Enterprise Development Co., Ltd. is a limited company which jointly invested by Mr. Gu Chujun and Greencool Cryogen (China) Co., Ltd., of them, Mr. Gu Chujun holds 60% equity of Shunde Greencool and Greencool Cryogen (China) Co., Ltd. holds 40% equity of Shunde Greencool. Mr. Gu Chujun, male, 44, Chinese nationality, the founder of Greencool. Gu Chujun graduated from Tianjin University with Engineering Master Degree. Mr. Gu Chujun accumulated a wealth of experience over 15 years in refrigeration engineering and cryogen industry. Before establishment of Greencool, he ever taught at Tianjin University, actively participated in and researched thermodynamics and refrigeration engineering, and is inventor of Gu’s Cryogen. Mr. Gu has not enjoy the residence power in the other country or area. His vocation and official title within the latest five years: 1988 to now, he took the post of Chairman of the Board of Greencool Group; 2001 to now, he took the post of Chairman of the Board of Kelon Electric Appliance. Greencool Cryogen (China) Co., Ltd. is foreign enterprise, which was invested and established by British Virgin Islands GCT Investment Co., Ltd. according to approval of Tianjin Municipal People’s Government in Tianjin dated Mar. 3, 1995 (Mr. Gu Chujun owned the absolute controlling share right of British Virgin Islands GCT Investment Co., Ltd.). Registered capital of Greencool Cryogen (China) Co., Ltd. is USD 150 million, and business scopes include: Gu’s cryogen, various replacers of CFC, new-style cryogen, hot- dynamical medium, hot-circle medium and development, production and sales of raw materials of the said products; auxiliary equipment, application equipment, development, production and sales of the above products. The aforesaid events of equity transfer were published on Securities Times, China Securities and Ta Kung Pao dated May 30, 2003, May 31, 2003, Jun. 4, 2003 and Jun. 12, 2003 respectively. 4. In the report period, no shareholder holds over 10% of total shares of the Company expect Hefei Meiling (Group) Holdings Co., Ltd.. 5. Particular about the top ten shareholders of circulation share (1) About the top ten shareholders of circulation A-share Shares held Proportion in Type of No. Name of shareholders at the year- total shares share end (%) Hefei Meicheng Absorbing Plastic Co., 1 A-share 1,305,300 0.315% Ltd. 2 YANG SHAO WEI A-share 464,614 0.112% 3 YANG DONG CHUN A-share 436,381 0.105% 4 WEI LI A-share 343,948 0.083% 5 WANG CHUAN JIU A-share 331,575 0.080% 6 YANG SHENG A-share 299,500 0.072% 7 ZHANG JU SHENG A-share 286,311 0.069% 8 WANG PEI ZHI A-share 268,428 0.065% 9 ZHAO GUAN JIE A-share 220,000 0.053% GUANGZHOU SCIENCE AND 190,000 0.046% 10 TECHNOLOGY RISK INVESTMENT A-share CO., LTD. (2) About the top ten shareholders of circulation B-share Shares held at Proportion in No. Name of shareholder Type of share the year-end total shares (%) 1 Yongsheng Industrial Co., Ltd. B-share 2,080,000 0.50% 2 XIAO YANMEI B-share 2,008,000 0.49% 3 HUANG GUO QIANG B-share 1,545,337 0.38% 4 LI XOXONG B-share 1,516,732 0.37% 5 FANG JING WEN B-share 1,514,965 0.36% 6 CAO SHENGCHON B-share 1,464,700 0.35% 7 LONG QIN FANG B-share 1,239,362 0.30% 8 CHEN YI QING B-share 976,259 0.24% SUPER WIDE 9 B-share 859,000 0.21% INTERNATIONAL LIMITED 10 ZHU YI NAN B-share 823,243 0.20% Section IV. Particulars about Directors, Supervisors, Senior Executives and Employees 1. Shares held by directors, supervisors and senior executives, their office term and remuneration Shares held Shares held Change of Name Sex Title Age Office term at period- at period- holding end begin share Chairman of the Gu Chujun Male 45 Jul. 2003-May 2005 0 0 0 Board Vice Chairman of Wang Jiazhang Male 53 May 2002-May 2005 13477 13477 0 the Board Li Shijun Male President 49 Jul. 2003-May 2005 0 0 0 Cheng Executive Male 38 Jul. 2003-May 2005 0 0 0 Xiangzhou director He Jinqi Male Vice-president 41 Jul. 2003-May 2005 0 0 0 Xue Hui Male Vice-president 41 Oct. 2003-May 2005 0 0 0 Lin Ke Male Director 41 Jul. 2003-May 2005 0 0 0 Jiang Jizhi Male Director 57 Aug. 2003-May 2005 0 0 0 Huo Yongxin Male Director 34 Jul. 2003-May 2005 0 0 0 Independent Wei Wei Male 49 May 2002-May 2005 0 0 0 director Independent Zhuo Wenyan Male 66 May 2002-May 2005 0 0 0 director Independent Wu Hanhong Male 47 Aug. 2003-May 2005 0 0 0 director Chairman of the Lu Jianqing Male Supervisory 38 Jul. 2003-May 2005 0 0 0 Committee Jing Xing Male Supervisor 50 Jul. 2003-May 2005 0 0 0 Yong Fengshan Male Supervisor 36 Jul. 2003-May 2005 0 0 0 2. Particulars about director and supervisor holding concurrent office in Shareholding Company, namely Shunde Greencool Enterprise Development Co., Ltd. and Hefei Meiling (Group) Holdings Co., Ltd. Name Title in Shareholding Company Title Office term Shunde Greencool Enterprise Gu Chujun Chairman of the Board Since 1998 Development Co., Ltd. Hefei Meiling (Group) Holdings Wang Jiazhang Chairman of the Board Since 2002 Co., Ltd. Hefei Meiling (Group) Holdings Jiang Jizhi Director, Deputy General Manager Since 2002 Co., Ltd. Hefei Meiling (Group) Holdings Yong Fengshan Director, Deputy General Manager Since 2003 Co., Ltd. 3. Foundation of annual remuneration Foundation of annual remuneration received by directors, supervisors and senior executives: the Company conducted the democratic evaluation and performance examination on the task of directors, supervisors and senior executives according to the spirit of the 11th meeting of the 4th Board of Directors and the relevant policies of labor authority and the checking system of linking their office position wages with performance; then the remuneration is decided and implemented on the basis of evaluation result which has been examined and approved by the Board of Directors or the Shareholders’ General Meeting. The Company respectively paid allowance of Independent Directors of RMB 60,000 to every independent director per year based on the decision of the 11th meeting of the 4th Board of Director. Total annual remuneration RMB 1,894,600 Total annual remuneration of the top three RMB 735,900 directors drawing the highest payment Total annual payment of the top three senior RMB 633,600 executives drawing the highest payment Allowance of independent director RMB 60,000 per person/ year since July 2003 Other treatment of independent directors Naught Name of directors and supervisors receiving no Naught payment or allowance from the Company Range of remuneration Number of persons RMB 350,000 to RMB 400,000 2 RMB 150,000 to RMB 200,000 5 RMB 100,000 to RMB 150,000 1 RMB 20,000 to RMB 40,000 6 4. Particular of the change of Director, Supervisor and Senior Executive In the report period, as discussed by the 10th meeting of the 4th Board of Directors for approval, the meeting agreed that Mr. Li Shijun, Ms. Niu Xin, Mr. Kong Tansheng and Mr. Ye Xiaosan resigned from the post of director of the 4th Board of Directors, and at the same time, the 4th Board of Directors nominated Mr. Gu Chujun, Mr. Cheng Xiangzhou, Mr. Lin Ke and Mr. Huo Yongxin as Director of the 4th Board of Directors of the Company. The said proposal was voted and approved by the 1st Extraordinary Shareholders’ General Meeting 2003. In the report period, as discussed by the 10th meeting of the 4th Board of Directors for approval, the Company agreed that Mr. Wang Jiazhang resigned from the post of Chairman of the Board of the 4th Board of Directors of the Company, and elected Mr. Gu Chujun as Chairman of the Board of the 4th Board of Directors, Mr. Wang Jiazhang was elected as Vice Chairman of the Board of the 4th Board of Directors; the Board of Director continually engaged Mr. Li Shijun as President of the Company, and meantime, engaged Mr. He Jinqi as Vice-president of the Company, engaged Mr. Xue Hui as Secretary of the Board of the Company. Additionally, the Company elected Mr. Jiang Jizhi and Mr. Wu Hanhong as director and independent directors of the 4th Board of Directors of the Company respectively. In the report period, as discussed by the 13th meeting of the 4th Board of Directors for approval, the Board of Directors engaged Chen Wenjun and Xue Hui as Vice-president of the Company respectively. 5. The number of employees, professional/occupational composition, education background and retirement The Company has 2,540 employees, including 212 professionals holding medium and senior professional titles, 1,381 production personnel, 532 salespersons, 168 administrative personnel. 728 of them hold college degrees or higher. The Company did not have to bear the expenses to retired staff and there are only 215 internally retired staff members. Professional composition: Professional Number Proportion Production personnel 1,381 54.40% Salesperson 532 20.90% Administrative personnel 168 6.60% Technicians 84 3.30% Financial personnel 66 2.60% Section V. Administrative Structure I. Company Administration In accordance with the standardization requirements of Rules for Administration of Listed Companies promulgated by China Securities Regulatory Commission and the former State Economic and Trade Commission in 2002, in the report period, the Company consistently consummated the legal person’s administration structure of the Company, established modern enterprise system and standardized the operation of the Company. Strictly according to the requirements of PRC Company Law, PRC Securities Law, and other laws and regulations, timely revised the Articles of Association, the Company worked out Procedures Rules for Shareholders General Meeting, Procedures Rules for the Board of Directors, Procedures Rules for the Supervisory Committee and other relevant documents; supplemented an independent director, which helped the number of independent directors attained to 1/3 of the directors of the Board; formed Independent Director System and Related Transaction Decision System and other internal control system, which complied with the requirements of standardization documents about administration of listed companies from administrations. 1. About shareholders and Shareholders’ General Meeting: The Company can ensure all shareholders including middle and small shareholders enjoy the equal status and all shareholders fully executed their rights; the Article of Association confirmed the authorization of the Board; the Company worked out Procedure Rules of Shareholders’ General Meeting, and convened and held Shareholders’ General Meeting strictly according to the standardization opinion of Shareholders’ General Meeting. 2. About controlling shareholder and listed company: The controlling shareholder of the Company behaved in normative way and was not involved in the decision-making and operation of the Company directly or indirectly surpassing Shareholders’ General Meeting; The Board of the Company, the Supervisory Committee of the Company and internal organizations of the Company operated independently; the related transaction of the Company was fair and reasonable, and the transaction price was objective and fair, and the Company formed normative Related Transaction System. 3. Directors and the Board of Directors: The Company elected directors strictly according to the procedures on director election as specified in the Articles of Association and the membership of the Board was in line with the requirements of the laws and regulations; the Company worked out standard Procedure Rules for the Board of Directors and Independent Director System and conducted the meetings of the Board strictly complied with specified procedures; Directors of the Company attended actively training and implemented their own obligations and responsibilities in an honest and diligent way based on the maximum interest of the Company and the shareholders. Meanwhile, they positively safeguarded the legal equity of other interest related parties. The Company set up special committees of the Board base on its actual operating decision. 4. The Supervisors and the Supervisory Committee: The Company has established the supervisory committee. The members and membership of the Supervisory Committee accorded with the requirements of the Article of the Association and relevant laws and regulations; the Company worked out Procedure Rules of the Supervisory Committee; based on the purpose of protecting the interests of shareholders the supervisors of the Company can fulfill their obligation seriously and supervise on the finance of the Company and lawfulness and regularity of directors, president and other senior executives in implementing their duties. 5. Performance evaluation and encouragement binding mechanism: the Company perfected actively a fair, transparent, and normative performance evaluation criteria and encouragement mechanism for directors, supervisors and senior executives; Engagement of senior executives was open and transparent and in line with stipulations of laws and regulations; the duties of the executives were confirmed in Post Duty System of the Company. 6. For relevant beneficial parties: the Company has been fully respecting and safeguarding the legal rights and interests of the bank, other creditors, employees, customers and other parties of related interests to propel sustained and healthy development of the Company together. 7. Information disclosure: since the establishment of the Company, the Company could disclose the relevant information in a true, accurate, complete and timely manner and protect all shareholders to enjoy the equal rights of obtaining information strictly accordingly to laws and regulations and the Article of the Association. Information disclosure played significant role in boosting the healthy development of the Company. The Company would establish Administration System of Investorship to treat all shareholders equally and safeguard the legal rights and interests of shareholders. II. Performances of Independent Directors According to the relevant provisions of the Guiding Opinions on the Establishment of Independent Director System in Listed Companies promulgated by China Securities Regulatory Commission, with approval by the Shareholders’ General Meeting held on Aug. 8, 2003, Mr. Wu Hanhong was additionally elected independent director of the 4th Board of Directors, which makes the numbers of independent directors attain to 1/3 of the Board, and the Company has also worked out the Independent Director System. The independent directors earnestly implemented their duties. The independent directors made independent and objective judgment in decision-making, without being affected by the Company and its principal shareholders. The independent directors respectively expressed independent opinions on material natters of the Company and safeguarded the Company’s overall interests, specially the minority shareholders’ legal rights and interests. III. Separation between the Company and its Controlling Shareholder in terms of Business, Personnel, Assets, Organization and Finance 1.The Board, the Supervisry Committee and the internal organizations of the Company operated independently and there existed no interfervence on the operating decision of the Company by the controlling shareholder; the staff of production and operation of the Company separated from the controlling shareholder; 2. The Company possessed its own independent labor, human resource, and salary management departments and worked out its own labor, personnel, and salary management systems 3. The Company was compeltely independent in labor, human resource, and salary management and didn’t reley on the controlling shareholder. The directors of this term were elected by the Board and examined and approved by the Shareholders’ General Meeting and then took the posts, and the vice president was nominated by the president and examined and approved by the Board and then took the post. 4.There was clear equity realtionship between the Company and the controlling shareholder and the production system and equipment facilities were independent from the controlling shareholder; the Company possesseed independent 5. The Company has established independent financial departments and accounting system. The Company has opened independent bank account and paid taxes independently. There exists no joint office work with the controlling shareholder. 6. There existed no breach of regulation of the controlling shareholder by occupying capital and other assets. IV. Valuation and Encouragement Mechanism for Senior Executives The Company consistently perfected fair, transparent and normative valuation standards and encouragement binding mechanism on the directors, supervisors and senior executives; the engagement and disengagement of the executives were fair and transparent in accordance with laws and regulations; the duties of the executives were confirmed in the post obligation system of the Company. The Company conducted the distribution assessment system based on the work achievements on the senior executives. According to the post duty of individuals and evaluation of work achievements and the economic benefits of the Company, the company distributed salary to the senior executives. Section VI. Shareholders’ General Meeting I. Notice for and Convening of Shareholders’ General Meeting In the report year, the Company held an annual shareholders’ general meeting and two extraordinary shareholders’ meetings. 1. The 9th meeting of the 4th Board of Directors approved the proposal on holding 2002 Shareholders’ General Meeting. The public notice on holding the Shareholders’ General Meeting was published on China Securities, Securities Times and Hong Kong Ta Kung Pao dated Apr. 25, 2003. The meeting was held at 8:30 a.m., May 28, 2003 at the meeting room 3/F of Meiling Building. 6 shareholders or their representatives attended the meeting, representing a total of 127,289,042 shares, accounting for 30.77％of the Company’s total shares (413,642,949 shares) and no shareholder of B-shares attended the meeting. The meeting was held in compliance with PRC Company Law and the Articles of Association of the Company. The Company’s directors, supervisors and senior executives attended the meeting as nonvoting delegates. The Company also invited its law adviser for the meeting. The meeting was presided by Mr. Wang Jiazhang, Chairman of the Board. 2. The 10th meeting of the 4th Board of Directors approved the proposal on holding 2003 1st Extraordinary Shareholders’ Meeting. The public notice on holding the Shareholders’ General Meeting was published on China Securities, Securities Times and Hong Kong Ta Kung Pao dated Jun. 5, 2003. The meeting was held at 8:30 a.m., July 5, 2003 at the meeting room 3/F of Meiling Building. 8 shareholders or their representatives attended the meeting, representing a total of 127,242,880 shares, accounting for 30.76％of the Company’s total 413,642,949 shares (including 127,032,880A-shares accounting for 30.71% of total shares and 210,000 B-shares accounting for 0.05% of the total shares). The meeting was held in compliance with PRC Company Law and the Articles of Association of the Company. The Company’s directors, supervisors and senior executives attended the meeting as nonvoting delegates. The Company also invited its law adviser for the meeting. 3. The 11th meeting of the 4th Board of Directors approved the proposal on holding 2003 2nd Extraordinary Shareholders’ Meeting. The public notice on holding the meeting was published on China Securities, Securities Times and Hong Kong Ta Kung Pao dated July 8, 2003. The meeting was held at 10:00 a.m., Aug. 8, 2003 at 3rd floor meeting room of Meiling Building. 6 shareholders or their representatives attended the meeting, representing a total of 126,803,677 shares, accounting for 30.65 ％ of the Company’s total 413,642,949 shares including 126,593,677A-shares accounting for 30.60% of total shares and 210,000 B-shares accounting for 0.05% of the total shares. The meeting was held in compliance with PRC Company Law and the Articles of Association of the Company. The Company’s directors, supervisors and senior executives attended the meeting as nonvoting delegates. The Company also invited its law adviser for the meeting. The meeting was presided by Mr. Wang Jiazhang, Vice Chairman of the Board. II. Resolutions of the Shareholders’ General Meeting and Publication: 1.2002 Shareholders’ General Meeting adopted the following resolutions by item-to-item voting: (1) Work Report of the Board of Directors; (2) Work Report of the Supervisory Committee; (3) Financial Settlement Report 2002 (4) 2002 Profit Distribution Proposal; (5) Proposal on Engaging the Certified Public Accountants. The resolutions of the meeting were published in China Securities, Securities Times and Hong Kong Ta Kung Pao dated May 29, 2003. 2.2003 1st Extraordinary Shareholders’ Meeting adopted the following resolutions by item-to- item voting: (1) Proposal on Resignation of Four Directors including Mr. Li Shijun etc.; (2) Proposal on Supplementing Four Directors including Mr. Gu Chujun etc.; (3) Proposal on Supplementing Three Supervisors including Mr. Lu Jianqing etc.; (4) Preplan on Amending Part of Articles of Association of the Company. The resolutions of the meeting were published in China Securities, Securities Times and Hong Kong Ta Kung Pao dated July 8, 2002. 3. 2003 2nd Extraordinary Shareholders’ Meeting adopted the following resolutions by item- to-item voting: (1) Proposal on Supplementing Mr. Jiang Jizhi as the Director of the 4th Board of the Company (2) Proposal on Supplementing Mr. Wu Hanhong as the Independent Director of the 4th Board of the Company. The resolutions of the Shareholders’ General Meeting were published in China Securities, Securities Times and Hong Kong Ta Kung Pao dated Aug. 9, 2002. III. Election and replacement of the Company’s directors and supervisors In the report period, approved by 2003 1st Shareholders’ General Meeting, Mr. Li Shijun, Mrs. Niuxin, Mr. Kong Tansheng and Mr. Ye Xiaosheng resigned the posts of directors of the 4th Board and simultaneously Mr. Gu Chujun, Mr. Cheng Xiangzhou, Mr. Lin Ke and Mr. Huo Yongxin were approved and supplemented as directors of the 4th Board. Mr. Wang Jiyin, Mr. Wen Jialin, Mr. Qiu Yi resigned the supervisors of the 4th Supervisory Committee and Mr. Lu Jianqing, Mr. Jin Xing and Mr. Yong Fengshan were supplemented as supervisors of the 4th Supervisory Committee. In the report period, approved by 2003 1st Shareholders’ General Meeting, Mr. Jiang Jizhi was supplemented as director of the 4th Board of the Company and Mr. Wu Hanhong as the independent director of the 4th Board of the Company. Section VI. Report of the Board of Directors I. Management Discussion & Analysis In 2003, the household appliance market encountered very severe competition. The selling price kept going down and the price of raw materials kept going up, and other domestic and foreign appliance enterprises entered the refridgerator industry. The whole industry grew slowly with surplus productivity. However, the previous year was the most significant year in the deveopment of the Company. To get better development, the Company successfully conducted reform and Greencool dominated the Company, which brought fresh development air to the Company. Encountered with the operation environment, with the leadership of the Board of the new term, the Company grasped the good developing situation after reconstruction, boosted development by way of reforming, made vigorous efforts to comformity management, adopted a series of correct operating strategies, fenced effectively with all knids of challenges and risks in the process of development, and got better development in the market compeitition. 1. Strenthen the comformity managemnt and set up new enterprise According to the comformity management principle of “ Clear Funtions, Condensing and Highly Efficiency, Scientific Procedures, Prior Management”, the Company estalished the new organization structure and redivided the funtions of the departments; the Company adopted open engagement through competition. For the ordinary managerial posts and the posts higher than the executives, the Company will adopted engagement, interview and assessment measures to choose talents to meet the development need of the Company in fair, open and just way; the Company conducted culture comformity in line with the requirements of new value philosophy and formed new enterprise culture. 2. Drived by techinical renovation and Research and develop new products pertinently The Company made efforts in developing new products and optimized the product structure by techinical innovation, and developed products to meet the needs of customers at different levels; Based on strenthening the product development of household refrigerator, the Company explored in deep freezing, semiconductor freezing and magnet freezing areas etc.. 3. Tie up the cooperation with dealers and emphasize on the distribution construction and midseason market The Company stuck to cooperation credo of “ Cooperate by trust and Benefit mutually to Win-Win”; the Company put emphasis on holiday marketing and midseason market; the Company would continue to propel distribution construction and bulit up strong terminal marketing team. 4. Adjust export strategy culture in light of the local distinctions and speed up entering the international market The Company grasped good export opportunity after entering WTO, optimized the business proceedings by arranging the internal management proceedings, obviated the trade risks, actively attended the international market competition, promoted the competitve edge of products of the Company in the international market, tried its best to enlarge the shares of export products. 5. Strenthen the budgeting management in further step and cut down the operating costs The Company strengthened the management of budget and expense control; the Company cut down the purchasing costs in further step; the Company continously used new technology, new techniques, and new materials to reduce designing costs in the process of product design; the Company strenthened to manage the assets and improved the operating efficiency of assets. Due to the efficient measures taken, under the situation of intense compeitition in refrigerator industy, the operation of the Company improved a lot, which simultanously bulit up stick basis to get more improvement of the Company next year. In 2003, the amount of sale in, increased 17.3% than the same period in 2002,of which the export increased 51.3% than the corresponding in 2002; The production of refrigerators(freezers)in 2003 increased 22.7% than the corresponding in 2002. II. Scope of principal businesses and operation status 1. Scope of principal businesses The Company belongs to the household appliance industry, mainly engaged in the research, manufacturing and sales of the refrigerators, and the scope of principal businesses includes the manufacturing, sales and service of various household refrigerators and auxiliary parts, and the sales and service of other household appliance products. 2. Operation based on Products in 2003 Unit: RMB’0000 Products Washing Refrigerator Air conditioner Indexes machine Income from 128307 5933 4141 principal businesses Cost of principal 107242 4686 3024 businesses 3. Operation in 2003 classified according to areas (Unit: RMB’0000) Areas Mainland of China Overseas Indexes Income from main 115282 23099 operations Profit from main 19514 3915 operations 4. Operations and achievements of main holding and share-holding companies: (Unit: RMB’0000) Names Business scope Registered capital Total assets Income from Net profit main operations Anhong Plastic Co., ABS board USD 1 million 1691 1623 9.8 Ltd. materials Hefei Meiling Production and USD 3.067 million 10878 7415 471 Packaging Co., Ltd. sales of corrugated paper Zhongke Meiling Refrigerators and RMB 60 million 7742 9839 -1059 Low Temperature ice tanks with low Technology Co., Ltd. temperature 5. The Company’s total purchase amount from the top five suppliers was RMB 256.12 million, accounting for 22.4% in its total annual purchase amount while the Company’s total sales amount of the top five customers was RMB 112.06 million, accounting for 8.14% in its total amount of sales. 6. Problems and difficulties from the operation and their solutions In 2003, household appliance enterprises faced much more intense market situation, for instance, partial price of raw materials climbed up, and the war between USA and Iraq resulted in unstable international situation; foreign brands and the famous brand of other household appliance industries at home adjusted operating strategy in succession so as to further scrabble for market share of refrigerators. At the same time, due to nonstandard competition for several years, the price of refrigerators continued to decrease, which made the average profit ratio within the industry decrease and the growth of the industry slow. Before the Company’s restructure, the historical burden left in long term due to restructure of state-owned enterprises was relatively heavy. Aiming at the said existing problems, the Company prepared to adopt the following countermeasures: (1) Through R&D of products and use of new materials and technologies, invite bidding and purchase with association of Kelon and at the same time establish strategic cooperative partnership with distributors; strengthen the cost quota management and expense management inside the Company and try hard to reduce the design cost of products and actual cost of products. (2) Plan the development strategy of Meiling in middle and long term again, implement like- minded development strategy with refrigeration as the core by making use of advantage of Green Cool, namely international background, and make the brand of Meiling professional, strong and great so as to make the operating scale of the enterprise and planning of product lines reach leading level in the industry. (3) Further reflect the principle of “Accessing to the market and make the management as priority”, adjust the flow of the Company’s core business, integrate marketing strategy, reorganize manufacture resources, create core competitive force and form special advantages in market competition. (4) Reinforce system construction, reinforce the management on accounts receivable and reinforce the assets management so as to fully standardize the operating and running behavior, prevent from operating risks and enhance the assets running quality and benefits. III. Investment in the report period 1. The use of the raised proceeds in the report period: In the report period, there was no share allotment or the use of the proceeds raised through shares allotment continuing to the report period. 2. Investment of the proceeds not raised through shares offering in the report period: IV. Analysis to financial position and operating results in the report period Unit: RMB’0000 1. Operating results and cash flow Names of indexes In 2003 In 2002 Increase/decrease margin (%) Income from main operations 1,383,809,999.3 1,261,882,198.3 9.7% 5 4 Profit from main operations 230,588,924.39 274,298,902.08 -15.9% Operating expense 223,192,049.60 186,132,561.19 19.9% Managerial expense 155,571,692.15 49,150,624.40 316.5% Financial expense 39,082,165.52 34,717,989.06 12.6% Investment earnings 2,520,278.30 338,333.45 74.6% Net profit -194,656,073.42 8,107,604.25 - Net increase in cash and cash equivalents 63,971,960.85 64,935,473.57 -1.5% Reasons for changes: (1) Decrease in profit from main operations was mainly due to the decrease in product price and increase in price of raw materials. (2) Increase in operating expense was mainly because that the Company increased the marketing expense and advertisement expense of products. (3) Increase in managerial expense was mainly due to the increase in provision for bad debts appropriated. (4) Increase in investment earnings was mainly due to increase in profit distributed from investees. (5) Decrease in net profit was mainly due to the increase in price of raw materials and provision for bad debts appropriated. 2. Analysis to financial position of the Company Names of indexes In 2003 In 2002 Increase/decrease margin (%) Accounts receivable 398,255,108.92 428,431,260.53 -7.04% Other receivables 410,555,605.10 395,272,302.25 3.87% Notes receivable 138,061,153.07 99,107,011.45 39.3% Total assets 2,245,189,884.42 2,300,035,010.32 -2.4% Shareholders’ equity 840,931,946.31 1,035,388,019.73 -18.8% Reasons for changes: (1) Decrease in accounts receivable was mainly due to provision for bad debts appropriated. (2) Increase in other receivables was mainly due to increase in sales shot in the locker. (3) Increase in notes receivable was mainly due to increase in notes settlement. (4) Decrease in shareholders’ interests was mainly due to losses in the year. V. Influence of material changes in productive and operating environment and macro-policies and regulations on the Company According to circular related to decrease in export drawback rate from the State, the drawback rate of the Company’s main products was adjusted from 17% in 2003 to 13%, which impacted a certain influence on the Company’s operating results. The Company would adopt pertinent measures so as to reduce the disadvantageous influence from decrease in export drawback rate on the Company’s operating results as much as possible. VI. Particulars about reports presented by certified public accountants: Huazheng Certified Public Accountants and Morison Heng Certified Public Accountants have presented unqualified auditors’ report for the Company. VII. Business development plan for the new year Year 2004 was a very important year for the development of Meiling Company. The Company would make the brand of Meiling great, special and strong by making use of such advantages as system reorganization, industrial integration and flexible running mechanism etc. and fully expand and innovate in such aspects as marketing, R&D, manufacture and management etc. according to the requirements in operating outline of “Market closed, brand drive, management enhancement and benefits oriented” confirmed by the Board of Directors. 1. Integrating marketing resources and strengthening marketing management function Fully integrate marketing network spots and implement the whole marketing strategy of “Drive in high extreme, benefits assurance in middle extreme and competition in low extreme”; reinforce marketing planning function and realize the transfer from sales tasks oriented to marketing management; standardize the operation of market business, reduce the stock of bad goods and enhance the quality of market running; enhance brand value and increase sales volume of products by making use of advantages of associated advertisement of strong-to-strong brand. 2. Actively expanding international market and enhancing international condition of brand Make operation of international market specialized and marketing strategy of export market systemized; catch beneficial chance in export and increase the export volume to markets in advanced countries by making use of cost advantages; Make use of resources in comparative competition advantages and enhance the famous degree of brand “Meiling” in developing countries. 3. Reinforcing forces in R&D and making product development and technical innovation enhance to a new level rapidly Establish R&D teams with high quality and make material breakthrough in such core technology as deep cooling with new energies (solar energy, fuel, photo voltaic and magnetism etc.); attach importance to research in new technology, new materials and new craftworks and speed up the progress in technical betterment and improvement of products; reinforce the craftwork management in production locale and enhance the craftwork level of productive assembly. 4. Establishing prompt manufacture system and increase productive efficiency so as to shoot at making manufacture system of Meiling as surveyor’s pole in enterprises of Green Cool Conduct complete and systemic analysis and research to manufacture system and realize the full enhancement of productive efficiency of manufacture system with JIT system as the sample, improvement of productive force as the emphasis, with project team as the core, organizational laundry as the assurance and participation of all staffs as the basis, considering the special rule of production of refrigerators and actual condition of manufacture system of Meiling, adopting means of project management and making use of IE; analyze the factors influencing productive efficiency, optimize the collocation of productive resources, improve running efficiency of equipments and enhance the effective running time so as to improve productive capability of facilities through eliminating facilities malfunction; improve the craftwork of productive technology through technical innovation so as to shorten productive time of work and enhance the productive efficiency. 5. Improving planning and budget management system and emphasizing on reinforcing control and management to assets and accounts receivable Establish planning and budget management system in profit oriented. In all operating activities, the Company should conduct full research and analysis with economic benefits as the start point and should establish all plans and budgets of the Company in a scientific and objective way, making planning guidance and budget control much more reasonable and effective; improve assets management system and completely check the assets of the enterprise so as to clear assets property; timely dispose such bad assets as rejected and idle equipments etc., optimize assets structure, enhance use efficiency of assets and realize the assurance and increase of assets value so as to ensure the safety and completeness of assets; reinforce such managements as purchase, use and keep and registration of low-cost consumables and reduce the consumption; strictly implement management system of accounts receivable, standardize the credit limit and management on accounts period to customers and strengthen the risk prevention consciousness of accounts receivable. 6. Reinforcing the purchase and invitation of bidding of materials and invitation of bidding of other projects so as to reduce costs maximum Through R&D of products and technical improvement, reduce the predicted amount of material use and reduce the costs of materials; reduce costs maximum through purchase and bidding of materials and purchase and bidding of compound materials. 7. Standardizing operating behavior, optimizing human resources and enhancing the enterprise management level Establish and improve the management system with two-grade system of “The Company’s core system layer and departmental system layer” with strict implementation and operation according to laws; optimize the structure of human resources and enhance the quality of human resources; introducing new culture and building up completely new value concept of Meiling. VIII. Routine work of the Board of Directors 1. Meetings and resolutions of the Board of Directors in the report period In 2003, the Board of Directors of the Company seriously implemented its duties, exercised its authorities actively and prudently and totally held six meetings so as to listen to reports on relevant progress of work and make resolutions on significant issues: (1) The 9th Meeting of the 4th Board of Directors of the Company was held in Conference Room, 4/F of the Company on the morning of Apr. 22, 2003. 7 directors should be present and actually all of them attended the Meeting, in compliance with the provisions in Company Law of the P.R.C. and the Articles of Association of the Company. The Meeting was presided over by Mr. Wang Jiazhang, Chairman of the Board. After serious research, such resolutions as Work Report of the Board of Directors 2002, Work Report of General Manager 2002, Annual Report 2002, Summary of Annual Report 2002, Profit Distribution Preplan 2002 and Profit Distribution Policy 2003, Proposal on Renewal of Certified Public Accountants and Confirming its Remuneration, the 1st Quarterly Report 2003 and Circular on Holding Annual Shareholders General Meeting 2002 etc. have been considered and passed at the Meeting. The said resolutions were published on China Securities, Securities Times and Ta Kung Pao dated Apr. 25, 2003. (2) The 10th Meeting of the 4th Board of Directors of the Company was held in Conference Room, 4/F of the Company on the afternoon of June 3, 2003. 7 directors should be present and actually 6 of them attended the Meeting, in compliance with provisions in Company Law of the P.R.C. and the Articles of Association of the Company. The Meeting was presided over by Mr. Wang Jiazhang, Chairman of the Board. After serious research, such proposals as Proposal on Mr. Li Shijun, Ms. Niu Xin, Mr. Kong Tansheng and Mr. Ye Xiaosan’s Resigning from the Positions of Directors in the 4th Board of Directors, Proposal on Planning to Recommend Mr. Gu Chujun, Mr. Lin Ke, Mr. Cheng Xiangzhou and Mr. Huo Yongxin as Directors in the 4th Board of Directors, Preplan on Amending the Articles of Association and Circular on Holding the 1st Provisional Shareholders’ General Meeting 2004 etc. have been considered and passed at the Meeting. The resolutions were published on China Securities, Securities Times and Ta Kung Pao dated June 5, 2003. (3) The 11th Meeting of the 4th Board of Directors of the Company was held in Conference Room, 3/F, Meiling Building on the morning of July 5, 2003. 7 directors should be present and actually all of them attended the Meeting, in compliance with the provisions in Company Law of the P.R.C. and the Articles of Association. The Meeting was presided over by Mr. Gu Chujun. After serious research, such proposals as Proposal on Mr. Wang Jiazhang’s Resigning from the Position of Chairman of the 4th Board of Directors, Proposal on Electing Mr. Gu Chujun as Chairman of the 4th Board of Directors, Proposal on Electing Mr. Wang Jiazhang as Vice Chairman of the 4th Board of Directors, Proposal on Engaging Mr. Li Shijun as President and Mr. Xue Hui as Secretary of the Board of the Company, Proposal on Supplementing Mr. Jiang Jizhi as Director of the 4th Board of Directors, Proposal on Supplementing Mr. Wu Hanhong as Independent Director in the 4th Board of Directors, Proposal on Engaging Mr. He Jinqi as Vice-president of the Company and Circular on Holding the 2nd Provisional Shareholders’ General Meeting 2003 etc. have been considered and passed at the Meeting. The resolutions were published on China Securities, Securities Times and Ta Kung Pao dated July 8, 2003. (4) The 12th Meeting of the 4th Board of Directors of the Company was held in Conference Room, 4/F of the Company on the morning of Aug. 20, 2003. 9 directors should be present and actually 7 of them attended the Meeting, in compliance with the provisions in Company Law of the P.R.C. and the Articles of Association. The Meeting was presided over by Mr. Wang Jiazhang. After serious research, Semi-annual Report 2003 and Proposal on Dismissing Partial Senior Executives of the Company have been considered and passed at the Meeting. The resolutions were published on China Securities, Securities Times and Ta Kung Pao dated Aug. 25, 2003. (5) The 13th Meeting of the 4th Board of Directors of the Company was held in Conference Room, 4/F of the Company on the morning of Oct. 23, 2003. 9 directors should be present and actually 6 of them attended the Meeting, in compliance with the provisions in Company Law of the P.R.C. and the Articles of Association of the Company. The Meeting was presided over by Mr. Gu Chujun, Chairman of the Board. After serious research, the 3rd Quarterly Report 2003 and Proposal on Engaging Partial Senior Executives of the Company have been considered and passed at the Meeting. The resolutions were published on China Securities, Securities Times and Ta Kung Pao dated Oct. 25, 2003. (6) The 14th Meeting of the 4th Board of Directors of the Company was held in Conference Room, 4/F of the Company on the morning of Nov. 26, 2003. 9 directors should be present and actually 7 of them attended the Meeting, in compliance with the provisions in Company Law of the P.R.C. and the Articles of Association. The Meeting was presided over by Mr. Wang Jiazhang. After serious research, Proposal of Hefei Meiling Co., Ltd. on Replacing Partial Accounts Receivable by Partial Land Use Rights of Hefei Meiling Group Holdings Co., Ltd., Proposal of Hefei Meiling Co., Ltd. on Being Transferred Partial Lands of Hefei Meiling Group Holdings Co., Ltd. to Cancel its Arrearage Owed to the Company, Proposal of Hefei Meiling Co., Ltd. on Being Transferred Partial Lands of Hefei Meiling Group Holdings Co., Ltd. to Cancel Partial Accounts Owed by Washer Company to the Company and Proposal of Hefei Meiling Co., Ltd. on Beijing Transferred Properties and Affiliated Facilities of Hefei Meiling Washer Co., Ltd. to Cancel Partial Accounts Owed by Washer Company to the Company have been considered and passed at the Meeting. The said resolutions were published on China Securities, Securities Times and Ta Kung Pao dated Dec. 3, 2003. 2. Implementation of the Board of Directors on resolutions of Shareholders’ General Meeting In the report period, the Company totally held one Annual Shareholders’ General Meeting and two Provisional Shareholders’ General Meeting. The Board of Directors seriously implemented their duties according to the Articles of Association of the Company and seriously implemented all resolutions of Shareholders’ General Meeting. IX. The profit distribution preplan and predicting profit distribution policy 2004 1. The profit distribution preplan Since there incurred a loss in the operation in 2003, the Company decided neither to distribute profits nor convert reserve into share capital in 2003. The profit distribution plan would be carried out after losses offsetting. The said preplan should be submitted to Annual Shareholders’ General Meeting 2003 for consideration after being considered and passed by the Board of Directors. 2. Predicting profit distribution policy 2004 In 2004, the profit would be used for offset losses in priority and profit distribution would be conducted after losses offsetting. X. Other reporting issues In 2003, the newspapers designated by the Company for information disclosure were Securities Times, China Securities and Ta Kung Pao. In 2004, the newspapers designated by the Company for information disclosure were changed into Securities Times and Ta Kung Pao. XI. Special explanation of Huazheng Certified Public Accountants on Capital Occupation and External Guarantees of the Company’s Controlling Shareholder and Other Related Parties Special Auditing Explanation on Capital Current Between Hefei Meiling Co., Ltd. and its Related Parties HZSHZ [2004] No. B92 All shareholders of Hefei Meiling Co., Ltd.: Accepting commission, we have audited the accounting statements of Hefei Meiling Co., Ltd. in 2003 and have issued HZNSZ [2004] No. 15 Auditors’ Report. According to the requirements in Item I in Circular on Standardizing Listed Companies’ Capital Current with Related Parties, External Guarantees and Other Several Problems released by China Securities Regulatory Commission Issuance and Regulatory Department with ZJF (2003) No. 56 Document, we have conducted special auditing on the capital current between Hefei Meiling Co., Ltd. and its related parties in 2003. The responsibility of Hefei Meiling Co., Ltd. is to truly prepare and provide the information about capital current with related parties and to make external disclosure while our responsibility is to express examination explanation on the said capital current of related parties according to the requirements of China Securities Regulatory Commission. Our auditing is conducted according to Independent Auditing Standards of Chinese CPA. During the auditing, considering the actual condition of Hefei Meiling Co., Ltd., we have examined the capital current with related parties and have implemented the examining procedures necessary in our opinion including spot-checking accounts record and consulting relevant information etc.. After auditing, in our opinion, the explanation of Hefei Meiling Co., Ltd. on capital current with related parties ended Dec. 31, 2003 is as follows: (I) Operating capital current between Hefei Meiling Co., Ltd. and its controlling shareholder and other related parties: See Appendix 1. (II) Capital current between Hefei Meiling Co., Ltd. and its controlling shareholder and other related parties: 1. Borrowing the Company’s capital to its controlling shareholder and other related parties with compensation or without compensation: See Appendix 2. 2. Providing entrusted loan for related parties through bank or non-bank financial institutions: Not existing the said situation. 3. Entrusting the controlling shareholder and other related parties to conduct investing activities: Not existing the said situation. 4. Opening the trade acceptance without true transaction background for the controlling shareholder and other related parties: Not existing the said situation. 5. Refunding liabilities for the controlling shareholder and other related parties: Not existing the said situation. Huazheng Certified Public Accountants Chinese CPA: Lv Yongjun Beijing, China Chinese CPA: Li Jing Apr. 20, 2004 Appendix 1 Statement of operating capital current: Balance at the Names of Credit amount in Balance at the end Contents beginning of Debit amount in 2003 2003 of 2003 related parties 2003 （Sales of goods and tax （purchase of goods included） and tax included） Anhui Material processing Anhong and sales of ABS -2,293,672.67 10,708,723.75 6,770,230.34 -4,933,847.92 Plastic Co., particle Ltd. Meiling Packaging Purchase of packaging boxes 56,346,690.43 3,061,448.75 Products Co., Ltd. Zhongke Meiling Low Purchase of ice tanks and sales of materials 362,930.31 106,830,491.13 127,425,961.34 15,768,884.20 Temperature Co., Ltd. Hefei Meiling Purchase of washers Washer and sales of materials -886,291.48 27,558,772.29 75,252,139.46 -2,757,353.92 Company Meiling Purchase of Refrigerating components and 5,725,707.74 6,871,536.30 62,001,112.68 6,571,698.90 Appliance sales of materials Co., Ltd. Meiling Purchase of Colored Metal components and 630,599.40 1,006,398.12 28,670,436.69 3,815,058.05 Products Co., sales of materials Ltd. Meiling Xigema Air- Purchase of air- conditioners 4,845,654.32 43,374,096.99 4,535,863.48 conditioner Company Hefei Meiling Purchase of Electronic components and 1,638,290.74 93,874.41 12,389,917.12 6,811,747.55 Co., Ltd. sales of materials Hefei Meiling Purchase of components 25,000.01 2,758,810.77 0.00 Industrial and Trade Co., Ltd. Hefei Meiling Purchase of Economic components and -2,695,033.29 6,773,593.02 37,216,525.14 -6,862,523.03 Development sales of materials Company Total 11,597,683.02 159,843,389.02 452,205,920.96 26,010,976.06 Notes: “-” in the said balance at the beginning and end of the period was accounts receivable of Hefei Meiling Co., Ltd. Appendix 2 Statement of non-operating capital: Balance at the Debit amount in Credit amount in Names of related parties Balance in 2003 beginning of 2003 2003 2003 Hefei Meiling Group Holding Co., 101,105,322.12 13,503,599.61 13,006,808.55 101,602,113.18 Ltd. Hefei Meiling Washer Co., Ltd. 279,184,909.33 30,006,425.53 14,316.63 309,177,018.23 XII. Independent Opinion of Independent Directors on Capital Occupation and External Guarantees of the Company’s Controlling Shareholder and Other Related Parties According to the spirit in Circular on Standardizing Listed Companies’ Capital Current with Related Parties, External Guarantees and Other Some Problems released by CSRC, based on the attitude of being serious and responsible, we have examined and carried out the Company’s related transactions and external guarantees with independent opinion expressed as follows: 1. Special Explanation of Huazheng Certified Public Accountants on Capital Current and External Guarantees Between Hefei Meiling Co., Ltd. and its Related Parties (Hereinafter referred to as Special Explanation) has disclosed capital current and external guarantees between the Company and its controlling shareholder and other related parties in a true and complete way. We agreed the Special Explanation. 2. The said decision-makings of bank loan guarantees have been approved by the Board of Directors and the Shareholders’ General Meeting with legal procedures. The Company has implemented corresponding obligations of information disclosure timely and fully. Independent Directors: Wei Wei, Zhuo Wenyan and Wu Hanhong Apr. 23, 2004 Section VIII. Report of the Supervisory Committee In the report period, the Supervisory Committee earnestly implemented powers and obligations of supervisors according to the PRC Company Law, the Articles of Association of the Company and relevant laws and regulations and in compliance with the Rules of Procedures for the Supervisory Committee, fully exercised the supervision over the Board of Directors and its members and the senior executives, and plaid a good role in the standardized operation and sustainable development of the Company. I. Meetings of the Supervisory Committee in the report period In the report period, the members of the Supervisory Committee not only attended 2002 Shareholders’ General Meeting and all the Board meetings as non-voting delegates, but also held six meetings with the main content as follows: (1) The 4th meeting of the 4th Supervisory Committee was held in the meeting room on 4F of the Company on Apr. 22, 2003. 3 supervisors were expected to attend the meeting and all of them were actually present. The meeting was held in compliance with the relevant provisions of the PRC Company Law and Articles of Association of the Company. Through patient research, the present supervisors examined and approved Annual Report for 2002, Summary of Annual Report for 2002, Work Report of the Supervisory Committee for 2002, the 1st Quarterly Report in 2003 and Proposal on Holding Annual Shareholders’ General Meeting for 2002. (2) The 5th meeting of the 4th Supervisory Committee was held in the meeting room on 4F of the Company on June 3, 2003. 3 supervisors were expected to attend the meeting and all of them were actually present. The meeting was held in compliance with the relevant provisions of the PRC Company Law and Articles of Association of the Company. Through patient research, the meeting examined and approved Proposal on Agreeing Mr. Wang Jiyin, Mr. Weng Jialin and Ms. Qiu Yi to Assign Supervisor and Proposal on Commending Lu Jianqing, Jing Xing and Yong Fengshan as Supervisors of the 4th Supervisory Committee. (3) The 6th meeting of the 4th Supervisory Committee was held in the meeting room on 3F of Meiling Building on July 5, 2003. 3 supervisors were expected to attend the meeting and all of them were actually present. The meeting was held in compliance with the relevant provisions of the PRC Company Law and Articles of Association of the Company. Through patient research, the meeting examined and approved Proposal on Commending Lu Jianqing as Chairman of the Supervisory Committee of the Company and Relevant Proposal on Holding the 2nd Provisional Shareholders’ General Meeting in 2003. (4) The 7th meeting of the 4th Supervisory Committee was held in the meeting room on 4F of the Company on Aug. 20, 2003. 3 supervisors were expected to attend the meeting and all of them were actually present. The meeting was held in compliance with the relevant provisions of the PRC Company Law and Articles of Association of the Company. Through patient research, the meeting examined and approved Semiannual Report for 2003 and Proposal on Deposing Partial Senior Executives. (5) The 8th meeting of the 4th Supervisory Committee was held in the meeting room on 4F of the Company on Oct. 23, 2003. 3 supervisors were expected to attend the meeting and all of them were actually present. The meeting was held in compliance with the relevant provisions of the PRC Company Law and Articles of Association of the Company. Through patient research, the meeting examined and approved the 3rd Quarterly Report of 2003. (6) The 9th meeting of the 4th Supervisory Committee was held in the meeting room on 4F of the Company on Nov. 26, 2003. 3 supervisors were expected to attend the meeting and all of them were actually present. The meeting was held in compliance with the relevant provisions of the PRC Company Law and Articles of Association of the Company. The meeting examined and approved Proposal on Replacing Partial Land Use Right of Hefei Meiling (Group) Holdings Co., Ltd. in Partial Accounts Receivable of Hefei Meiling Co., Ltd., Proposal on Hefei Meiling Co., Ltd.’s Accepting Partial Land of Hefei Meiling (Group) Holdings Co., Ltd. to Offset the Debt Owed to the Company, Proposal on Hefei Meiling Co., Ltd.’s Accepting Partial Land of Hefei Meiling (Group) Holdings Co., Ltd. to Offset the Debt of Washing-machine Co., Ltd. Owed to the Company and Proposal on Hefei Meiling Co., Ltd.’s Accepting Houses and Affiliated Equipments of Hefei Meiling Washing-machine Co., Ltd. to Offset the Debt of Washing-machine Co., Ltd. Owed to the Company. II. Independent opinion of the Supervisory Committee on the relevant events in 2003 1. Operation according to the laws In the report period, the Board of Directors conducted operation in a standardized way and seriously implemented various resolutions and authorizations of the Shareholders’ General Meeting strictly according to the PRC Company Law, Securities Law, Administration Rule for Listed Company, Articles of Association of the Company, and other laws and regulations. The decision-making procedures were scientific and legal. The Supervisory Committee supervised over and checked the procedure of holding, resolutions of the Shareholders’ General Meeting and the Board of Directors, implementation of the resolutions of the Shareholders’ General Meeting by the Board of Directors, performance of duties of the directors, managers and other senior executives and implementation of the internal management system of the Company and there found no behaviors of breaking laws, regulations and Articles of Association of the Company. The decision-making and operation of related transaction of the significant investment of the Company was disposed in the classified authorization scope through legal decision-making procedure and did not damage the interest of the Company and the shareholders of the Company, especially the minority shareholders. 2. Financial inspection In the report period, the Supervisory Committee conducted earnest and careful inspection over the Company’s financial position. In the opinion of the Supervisory Committee, the Company maintained good financial position, operated the funds with high efficiency, conducted standardized financial management and kept healthy internal system. Hua Zheng Certified Public Accountants and Morison Heng Certified Public Accountants respectively issued standard unqualified auditor’s report for the Company’s financial report of 2003, which truly, accurately and completely reflected the Company’s financial position and operation result. 3. Purchase and sale of assets and related transactions As checked, the Supervisory Committee believes that the related transaction of the significant assets replacement between the Company and Hefei Meiling (Group) Holdings Co., Ltd. in the report period was disposed under the principle of fairness and obtained the independent opinion issued by relevant agency institutions. The related transactions existed no inside transaction and did not damage the interest of partial shareholders and caused run-off assets of the Company. Section IX. Significant Issues I. The Company had not been involved in any material lawsuit or arbitration in the report period. II. Purchase and sale of the Company’s assets in the report period In order to further enlarge the production scale of the enterprise, improve the operation benefit, drop the risk of doubtful debts from accounts receivable, optimize the quality of assets of Meiling Electric, make the enterprise suit with the competition need of the international market and the civil home appliances industry, realize the health and continuable development of the Company and meanwhile further protect the interest of the minority shareholders, combing the request of Notification of Problems on Standardizing Current Capital between Listed Companies and Related Parties and Guarantee for External Parties of Listed Companies of CSRC, the Company planned to replace the land use right with 934,984.67 sq.m. locating in Economic Technology Development Zone, Hefei, Anhui held by Meiling Group and the houses and affiliated equipments of Washing-machine Company in the account receivable totaling RMB 427,250,900, the debts amounting to RMB 101,105,300 of Hefei Meiling (Group) Holdings Co., Ltd. owed to the Company, the debts amounting to RMB 309,184,900 of Hefei Meiling Washing-machine Co., Ltd. owed to the Company. The Company held the 14th meeting of the 4th Board of Directors on Nov. 26, 2003. Through sufficient discussion, the present directors approved Proposal on Replacing Partial Land Use Right of Hefei Meiling (Group) Holdings Co., Ltd. in Partial Accounts Receivable of Hefei Meiling Co., Ltd., Proposal on Hefei Meiling Co., Ltd.’s Accepting Partial Land of Hefei Meiling (Group) Holdings Co., Ltd. to Offset the Debt Owed to the Company, Proposal on Hefei Meiling Co., Ltd.’s Accepting Partial Land of Hefei Meiling (Group) Holdings Co., Ltd. to Offset the Debt of Washing-machine Co., Ltd. Owed to the Company and Proposal on Hefei Meiling Co., Ltd.’s Accepting Houses and Affiliated Equipments of Hefei Meiling Washing-machine Co., Ltd. to Offset the Debt of Washing-machine Co., Ltd. Owed to the Company. The related directors obviated voting and the present directors with voting right examined and approved the above proposals and the independent directors expressed the opinion of independent directors. On Nov. 26, 2003, the Company signed Agreement on Replacing Partial Land Use Right of Hefei Meiling (Group) Holdings Co., Ltd. in Partial Accounts Receivable of Hefei Meiling Co., Ltd., Agreement on Hefei Meiling Co., Ltd.’s Accepting Partial Land of Hefei Meiling (Group) Holdings Co., Ltd. to Offset the Debt Owed to the Company, Agreement on Hefei Meiling Co., Ltd.’s Accepting Partial Land of Hefei Meiling (Group) Holdings Co., Ltd. to Offset the Debt of Washing-machine Co., Ltd. Owed to the Company and Agreement on Hefei Meiling Co., Ltd.’s Accepting Houses and Affiliated Equipments of Hefei Meiling Washing-machine Co., Ltd. to Offset the Debt of Washing-machine Co., Ltd. Owed to the Company respectively with Group Company and Washing-machine Company. Because this purchase of assets belongs to related transaction, this transaction must be authorized by CSRC and the Provisional Shareholders’ General Meeting of the stock company. The associated shareholders having relationship with this related transaction will give up the voting right for this proposal in the Provisional Shareholders’ General Meeting III. Other related transactions in the report period are normal related transactions and please refer to note of financial statement for the detail. IV. Significant contracts (1) Entrusted, contracted and leased assets During the report period, the Company didn’t entrust, contract or lease the assets of other companies, and no other companies entrusted, contracted or leased the Company’s assets. In the report period, the Company didn’t entrust others to carry out cash assets management. (2) Guarantee In the report period, the Company provided guarantee of RMB 4.5 million for its share- controlling subsidiary, Anhui Anhong Plastic Co., Ltd. (the Company holds 75% equity of it). On Mar. 10, 2004, the 15th meeting of the 4th Board of Directors of the Company decided to provide guarantee for the current capital loan amounting to RMB 20 million of Zhongke Meiling Cryogenics Limited Company (the Company holds 70% equity of it) with the term from Mar. 5, 2004 to Mar. 5, 2006. The accumulated amount of guarantee of the Company so far is RMB 24.50 million, taking by 2.37% of the net assets of the Company. V. Fulfillment of the Company or shareholders holding above 5% shares on the public disclosed commitment As of December 31, 2002, the debt of Hefei Meiling (Group) Holdings Co., Ltd. was RMB101,105,322.12. The reason of debt is mainly because the Group Company acquired the assets of the air-conditioner plant of the Company, equity of the Washing Machine Company and relevant fund occupation fee it undertook. The 19th meeting of the 3rd Board of Directors of the Company reviewed and passed the plan to resolve the debt of the Group Company, i.e. for the total debt of RMB367,813,045.81 as of June 30, 2001, 8% will be withdrawn in 2001; 20% in 2002; 30% in 2003, 30% in 2004 and 12% in 2005. In 2002, the Company acquired some land usage right and exclusive use right of “Meiling” trademark from Hefei Meiling (Group) Holdings Co., Ltd., with a total amount of RMB253,011,300.00. The 14th meeting of the 4th Board of Directors of the Company put forward to replacing the land use right with 934,984.67 sq.m. locating in Economic Technology Development Zone, Hefei, Anhui held by Meiling Group and the houses and affiliated equipments of Washing-machine Company in the account receivable totaling RMB427,250,900, the debts amounting to RMB101,105,300 of Hefei Meiling (Group) Holdings Co., Ltd. owed to the Company, the debts amounting to RMB309,184,900 of Hefei Meiling Washing-machine Co., Ltd. owed to the Company. If the proposal on this significant asset exchange is authorized by CSRC and the provisional Shareholders’ General Meeting of the stock company, Hefei Meiling (Group) Holdings Co., Ltd. will complete the clear plan originally made. VI. Engagement, change of the engagement or disengagement of Certified Public Accountants In the report period, the Company has not continued to engage PricewaterhouseCoopers Certified Public Accountants as the international audit institution of the Company and engaged Hong Kong Morison Heng Certified Public Accountants and Hua Zheng Certified Public Accountants as the audit institutions of the Company. The remuneration paid to Hong Kong Morison Heng Certified Public Accountants and Hua Zheng Certified Public Accountants were respectively HKD 0.46 million and RMB 0.4 million. Morison Heng Certified Public Accountants and Hua Zheng Certified Public Accountants have provided audit service for the Company for respectively one year and three years. VII. Events condemned in public by Shenzhen Stock Exchange in the report period In the report period, the Company has no events condemned in public by Shenzhen Stock Exchange in the report period. VIII. In the report period, the Company has not occurred the significant events stated in Article 62 of Securities Law and Article 17 of Implementation Rule for Information Disclosure of the Companies Publicly Issuing Share (Trial Implementation) and the items that were regarded as the significant events by the Board of Directors of the Company. Date of public Newspapers for information Content of public notice notice disclosure China Securities, Securities May 30, 2003 Suggestive Public Notice on Equity Transfer Times, Ta Kung Pao China Securities, Securities May 31, 2003 Summary of Purchase Report Times, Ta Kung Pao Report of Change of Shares Held China Securities, Securities June 4, 2003 Times, Ta Kung Pao Public Notice on Resolution of the 10th Meeting China Securities, Securities June 5, 2003 of the 4th Board of Directors Times, Ta Kung Pao Public Notice on Resolution of the 5th Meeting of China Securities, Securities June 5, 2003 the 4th Supervisory Committee Times, Ta Kung Pao Public Notice on Resolution of the 1st Provisional China Securities, Securities July 8, 2003 Shareholders’ General Meeting in 2003 Times, Ta Kung Pao Public Notice on Resolution of the 2nd Provisional China Securities, Securities Aug. 9, 2003 Shareholders’ General Meeting in 2003 Times, Ta Kung Pao Public Notice on Exchange of Significant Assets China Securities, Securities Dec. 3, 2003 of the Company Times, Ta Kung Pao Suggestive Public Notice on Losses Forecast in Securities Times, Ta Kung Jan. 6, 2004 2003 Pao Public Notice on Reply of State-owned Assets Supervision and Administration Commission for Securities Times, Ta Kung Feb. 6, 2004 Relevant Problems of Transfer of State-owned Pao Shares of the Company Section X. Financial Report (Attachment) Section XI. Documents Available for Reference I. Financial Statements signed by and under the seal of the Chairman of the Board, Deputy President and person in charge of accounting institution; II. Original of Auditors’ Report carried with the seals of the domestic and international certified public accountants as well as personal signatures and seals of certified public accountants; III. All the originals of the Company’s documents and public notice disclosed in the newspapers designated by China Securities Regulatory Commission All the aforesaid documents are placed at the head office of the Company, and the Company shall timely make them available whenever it is asked to supply by China Securities Regulatory Commission/Shenzhen Stock Exchange, or any shareholder asks for reading according to the relevant law and regulations or the Articles of Association. Chairman of the Board: Gu Chujun Board of Directors of Hefei Meiling Co., Ltd. April 26, 2004 HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2003 CONTENTS PAGE(S) REPORT OF THE AUDITORS 1 CONSOLIDATED INCOME STATEMENT 2 CONSOLIDATED BALANCE SHEET 3 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 4 CONSOLIDATED CASH FLOW STATEMENT 5 NOTES TO THE FINANCIAL STATEMENTS 6 - 25 SUPPLEMENTARY INFORMATION REPORT OF THE AUDITORS TO THE MEMBERS OF HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 (Incorporated in the People’s Republic of China with limited liability) We have audited the consolidated financial statements on pages 2 to 25 which have been prepared in accordance with International Financial Reporting Standards. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS The Company’s directors are responsible for preparation of financial statements which give a true and fair view. In preparing financial statements, which give a true and fair view, it is fundamental that that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion, based on our audit, on those financial statements and to report solely to you. BASIS OF OPINION We conducted our audit in accordance with International Standards on Auditing. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion. In forming our opinion, we have considered the adequacy of the disclosures made in the financial statements concerning the following event: As fully described in note 16 & 17, the Company had executed agreements with HMHC and Heifei Meiling Washing Machine Co. Ltd. (“Washing Machine Co.”) to transfer its trade receivables of approximately RMB427,290,900, the amount due from HMHC and the amount due from Washing Machine Co. in exchange for land use rights as well as building and production facilities with valuation of RMB797,541,900 and RMB40,563,800 respectively. OPINION In our opinion the financial statements give a true and fair view of the state of the Group’s affairs as at December 31, 2003 and of its loss and cash flows for the year then ended. Morison Heng Chartered Accountants Certified Public Accountants Hong Kong: April 20, 2004 -1- HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2003 Notes 2003 2002 RMB’000 RMB’000 Turnover 3 1,393,196 1,236,938 Cost of sales (1,157,593 ) (976,667) Gross profit 235,603 260,271 Other revenues 4 6,297 22,631 Distribution costs (144,294 ) (184,985) Administrative expenses (129,600 ) (55,506) Other operating expenses (112,473 ) (552) (Loss)/Profit from operations 5 (144,467 ) 41,859 Finance costs 7 (38,740 ) (34,963) Share of profit of associates 2,408 454 (Loss)/Profit before taxation (180,799 ) 7,350 Income tax 8 (402 ) (117) (Loss)/Profit after taxation (187,201 ) 7,233 Minority interests 24 3,128 655 Net (loss)/profit for the year (178,073 ) 7,888 Earnings per share Basic 9 (0.43 ) 0.02 Diluted 9 (0.43 ) 0.02 -2- HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 2003 Notes 2003 2002 RMB’000 RMB’000 ASSETS Non-currents assets Land use rights 10 124,216 127,550 Fixed assets 11 494,232 545,022 Construction in progress 12 7,685 4,768 Intangible assets 13 134,460 150,193 Investments in associates 14 28,004 27,944 Available-for-sale investments 15 30,690 30,690 Amount due from controlling shareholder 16 85,221 140,225 Amount due from a related company 17 160,508 128,292 1,065,016 1,154,684 Current assets Inventories 18 188,607 268,700 Receivables and prepayments 19 518,186 524,962 Cash and cash equivalents 20 255,290 176,163 962,083 969,825 Current liabilities Trade and other payables 21 733,249 677,249 Borrowings 22 626,059 621,575 Dividend payable - 2,478 Provision 23 14,975 14,000 1,374,283 1,315,302 Net current liabilities (412,200 ) (345,477) Total assets less current liabilities 652,816 809,207 Non-current liabilities Borrowings 22 67,910 43,300 Minority interests 24 16,298 19,426 NET ASSETS 586,608 746,481 CAPITAL AND RESERVES Issued capital 25 413,643 413,643 Reserves 26 857,410 857,210 Accumulated losses (702,445 ) (524,372) 568,608 746,481 Approved by the Board of Directors on April 20, 2004 DIRECTOR DIRECTOR -3- HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2003 Statutory Statutory Discretio Share Capital common public comm capital reserve reserve fund welfare fund reserve RMB’000 RMB’000 RMB’000 RMB’000 RMB’0 Balance at December 31, 2001 413,643 571,429 65,426 65,643 153,82 Share of capital reserve of an associate - 892 - - - Net profit for the year - - - - - Balance at December 31, 2002 413,643 572,321 65,426 65,643 153,82 Transfer from waiver of short term loan - 200 - - - Net loss for the year - - - - - Balance at December 31, 2003 413,643 572,521 65,426 65,643 153,82 -4- HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2003 Notes 2003 2002 RMB’000 RMB’000 Cash flows from operating activities (Loss)/ Profit before taxation (180,799 ) 7,350 Adjustment for: Write-back of provision for inventories - (6,114) Provision for inventories 36,743 - Provision for warranty expenses 975 - Provision for impairment loss of amount due from associates 1,660 - Provision for impairment loss of amount due from controlling shareholder 2,339 - Provision for impairment of receivables 38,186 15,631 Depreciation 45,951 46,240 Amortisation of land use rights 3,334 1,511 Amortisation of intangible assets 17,064 5,375 Loss on disposal of fixed assets 10,359 169 Interest income (851 ) (1,224) Interest expense 39,651 36,179 Share of profit of associates (2,408 ) (454) Operating profit before working capital changes 12,204 104,663 Decrease in inventories 43,350 32,137 Increase in receivables and prepayments (31,410 ) (22,614) Decrease/ (Increase) in trade and other payables 56,000 (67,931) Cash generated from operations 80,144 46,255 Interest paid (39,651) (36,179) Net cash generated from operating activities 40,493 10,076 Cash flows from investing activities Proceeds from disposal of fixed assets 4,691 1,732 Investment in an associate 286 (25,055) Payment for land use rights 0 (150) Purchase of fixed assets (5,490 ) (44,619) Payment for construction in progress (7,638 ) (7,678) Purchase of intangible assets (1,331 ) (7,568) Decrease in amount due from a related company (32,216 ) 17,503 Increase in amount due from controlling shareholder 52,665 (4,461) Interest received 851 1,224 Purchase of available-for-sale investments - (18,960) Net cash used in investing activities 11,818 (88,032) Cash flows from financing activities Bank loans 29,294 128,015 Dividends paid (2,478 ) (322) (Increase)/ Decrease in pledged bank deposits (34,500 ) 33,878 Net cash (used in)/ generated from financing activities (7,684 ) 161,571 Net increase in cash and cash equivalents 44,627 83,615 Cash and cash equivalents at the beginning of the year 152,163 68,548 Cash and cash equivalents at the end of the year 20 196,790 152,163 -5- HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 NOTES TO THE FINANCIAL STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2003 1. GENERAL Hefei Meiling Company Limited (the “Company”) is a joint stock limited company incorporated in the People’s Republic of China (the “PRC”). The Company and its subsidiaries (the “Group”) are mainly engaged in the manufacturing of household refrigerators and sale of household electronic appliances. The Company’s A shares and B shares are listed on the Shenzhen Stock Exchange. The Company’s controlling shareholder is Hefei Meiling Holding Company (“HMHC”), a state-owned enterprise established in the PRC. Currently, 30% (2002: 30%) of the Company’s issued shares are held by HMHC. 2. SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to December 31, 2003. All significant inter-company transactions and balances within the group are eliminated on consolidation. Subsidiaries A company is a subsidiary in which the Company, directly or indirectly, controls more than half of the voting power or issued share capital or controls the composition of the board of directors. Associates An associate is an enterprise over which the Group is in a position to exercise significant influence, but not control, through participation in the financial and operating policy decisions of the investee. The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Investment in associates are carried in the balance sheet at cost as adjusted by post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual investments. Any excess (deficiency) of the cost of acquisition over (below) the Group’s share of the fair values of the identifiable net assets of the associate at the date of acquisition is recognised as goodwill (negative goodwill). Where a group enterprise transacts with an associate of the Group, unrealised profits and losses are eliminated to the extent of the Group’s interest in the relevant associate, except to the extent that unrealised losses provide evidence of an impairment of the asset transferred. -6- HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 Revenue recognition Revenue from the sale of goods is recognised when significant risks and rewards of ownership of goods are transferred to the buyer. Interest income is recognised on a time proportion basis, taking into account the principal amounts outstanding and the interest rates applicable. Land use rights Land use rights are stated at cost less accumulated amortisation. Land use rights are amortised over the lease period using the straight-line method. Fixed assets and depreciation Fixed assets are stated at cost less accumulated depreciation and impairment loss. Depreciation is provided to write off the cost of fixed assets over their expected useful lives using the straight-line method as follows: Buildings 30 - 40 years Plant and machinery 10 - 16 years Furniture, fixtures and office equipment 8 - 12 years Motor vehicles 8 - 15 years Internally-generated intangible assets – research and development expenditure Expenditure on research activities is recognised as an expense in the period in which it is incurred. An internally-generated intangible asset arising from development expenditure is recognised only if all of the following conditions are met: - an asset is created that can be identified; - it is probable that the asset created will generate future economic benefits; and - the development cost of the asset can measured reliably. Where no internally-generated intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred. Internally-generated intangible assets are amortised on a straight-line basis over their useful lives. Computer software The cost of acquisition of new computer software is capitalized and treated as an intangible asset of there costs are not integral part of the related hardware, Computer software is amortised on the straight-line basis over their estimate useful lives, but not exceeding 10 years. -7- HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 Patents and trademarks Patents and trademarks are measured initially at purchase cost and are amortised on a straight- line basis over their estimated useful lives, but not exceeding 20 years. Impairment of assets At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment loss is recognised as an expense immediately. Where an impairment loss is subsequently reversed, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, such that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately. Investments Investments are recognised on a trade-date basis and are initially measured at cost, including transaction costs. At subsequent reporting dates, debt securities that the Group has the expressed intention and ability to hold to maturity (held-to-maturity debt securities) are measured at amortised cost, less any impairment loss recognised to reflect irrecoverable amounts. The annual amortisation of any discount or premium on the acquisition of a held-to-maturity security is aggregated with other investment income receivable over the term of the instrument so that the revenue recognised in each period represents a constant yield on the investment. Investments other than held-to-maturity debt securities are classified as either held-for-trading or available-for-sale. Where securities are held for trading purposes, gains and losses arising from changes in fair value are included in net profit or loss for the period. Available-for-sale investments are not subsequently fair-valued because they do not have quoted market prices in active markets and whose fair values cannot be reliably measured. These investments are carried at cost, and are subject to review for impairment. Operating leases Leases where substantially all the risks and rewards of ownership of assets remain with the leasing company are accounted for as operating leases. Rental applicable to such leases are charged to the income statement as incurred over the lease terms. Inventories Inventories are stated the lower of cost and net realisable value. Cost is calculated using the weighted average method and, the case of work in progress and finished goods, comprises direct materials, direct labour and an appropriate proportion of overheads based on a normal level of activity. Net realisable value is based on the estimated selling prices less any further costs to be incurred to completion and disposal. -8- HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 Trade receivable Provision is made against trade receivable to the extent they are considered to be doubtful. Trade receivable in the balance sheet is stated net of such provision. Taxation Income tax represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income and expense that are taxable or deductible in other years, and it further excludes income statement items that are never taxable and deductible. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill (or negative goodwill) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the year when the liability is settled or the asset realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Provisions Provision are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required so settle the obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. Borrowings Borrowings are recognised initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the consolidated income statement over the period of the borrowings. -9- HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 Cash and cash equivalents For the purpose of the cash flow statement, cash and cash equivalents comprise cash on hand, demand deposits and short-term, highly liquid investments which are readily convertible into known amount of cash and which are subject to an insignificant risk of change in value. Financial instruments Financial assets and liabilities carried in the consolidated balance sheet include cash and cash equivalents, available-for-sale investments, receivables, payables and borrowings. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. Foreign currencies Transactions in foreign currencies are recorded at rates of exchange ruling on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into Renminbi at the rates of exchange ruling on the balance sheet date. Profits and losses arising on exchange foreign currency translation are dealt with in the income statement. On consolidation, the balance sheet of overseas subsidiaries are translated in Renminbi dollar at the rates ruling on the balance sheet date. Income and expenses items are translated at average rates for the year. The resulting exchange differences arising on consolidation are dealt with in the exchange reserve. Retirement scheme The Group participates in a defined contribution retirement scheme organized by the municipal government where the Group operates. The scheme is funded by monthly payments by the Group at 20% of the employees’ basic salaries. Once the contributions have been paid, the Group has no further payment obligations. Contributions to the scheme are charged to the consolidated income statements in the year to which they related. Segment reporting Business segments provide products or services that are subject to risks and returns that are different from those of other business segments. Geographical segments provide products or services within a particular economic environment that is subject to risks and returns that are different from those of components operating in other economic environments. - 10 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 3. TURNOVER Turnover represents revenue from the sales of household refrigerators and other household electrical appliances and accessories of household appliances to external customers at invoiced value net of discounts, value added tax and returns. Business segment information is not shown as the sale of household refrigerators accounted for more than 90% (2002: more than 90%) of the consolidated revenue and result of the Group. All assets and operations of the Group are located in the PRC, which is considered as one geographic location in an environment with similar risks and returns. Approximately 90% (2002: approximately 90%) of the Group’s sales were made in the PRC. Accordingly, no geographical segment information is shown. 4. OTHER REVENUE 2003 2002 RMB’000 RMB’000 Sale of scrap materials 629 7,875 Tax refund on export sales and new products 3,058 1,957 Long outstanding payables written-back - 10,577 Dividend income 1,664 - Gain on disposals of fixed assets 13 - Others 933 2,222 6,297 22,631 - 11 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 5. (LOSS)/PROFIT FROM OPERATIONS (Loss)/Profit from operations is arrived at: 2003 2002 RMB’000 RMB’000 After charging: Provision for impairment of receivables 23,227 15,631 Provision for guarantee 975 - Depreciation of fixed assets 45,951 46,240 Amortisation of land use rights 3,334 1,511 Amortisation of intangible assets 17,065 5,375 Warranty expense 11,420 12,158 Research and development expenditure 8,920 2,484 Operating lease in respect of buildings 6,650 6,883 Staff costs 65,713 83,527 Loss on disposal of fixed assets 10,359 169 And after crediting: Interest income 851 1,224 Write-back of provision for inventories - 6,114 6. STAFF COSTS 2003 2002 RMB’000 RMB’000 Wages, salaries and bonuses 57,633 71,771 Staff welfare 7,771 5,304 Contributions to retirement scheme 309 6,452 65,713 83,527 Average number of employees of the Group during the year 2,322 2,576 7. FINANCE COSTS 2003 2002 RMB’000 RMB’000 Interest income from bank deposits 851 1,224 Net exchange gain /(loss) 24 (8) Interest expense on bank borrowings (39,651) (36,179) (38,740) (34,963) - 12 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 8. INCOME TAX 2003 2002 RMB’000 RMB’000 Income tax for the year: Current tax - - Share of tax of associates 402 117 402 117 PRC income tax comprises income tax of the Company and its subsidiaries, Zhongke Meiling Cryogenics Company Limited and Anhui Anhong Plastics Co., Ltd., and is calculated at rates applicable to the relevant companies ranging from 24% to 33%. The charge for the year can be reconciled to the profit per the income statement as follows. 2003 2002 RMB’000 RMB’000 (Loss) / Profit before tax (180,799) 7,350 Tax calculated at a tax rate of 24% to 33% (2002: 24% to 33%) (59,664) 2,426 Deferred taxation not recognized 60,098 3,140 Expenses not deductible for taxation purposes - 116 Utilisation of previously unrecognised tax losses (32) (5,565) Tax charge 402 117 Details of the unprovided deferred tax asset at December 31, 2003 are as follows: 2003 2002 RMB’000 RMB’000 Provision for receivables and inventories 108,352 151,328 Tax losses 42,289 46,447 150,641 197,775 - 13 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 9. (LOSS)/EARNINGS PER SHARE (Loss)/earnings per share is calculated by dividing net (loss)/profit by the weighted average number of ordinary shares in issue during the year. 2003 2002 Net (loss)/profit (RMB178,073,000) RMB7,888,000 Weighted average number of ordinary shares in issue 413,643,000 413,643,000 Basic (loss)/profit per share (RMB0.43) RMB0.02 The Company has no potential dilutive shares, therefore basic and diluted (loss)/earnings per share are the same. 10. LAND USE RIGHTS RMB’000 COST At January 1, 2003 and at December 31, 2003 134,161 ACCUMULATED AMORTIZATION At January 1, 2003 6,611 Charge for the year 3,334 At December 31, 2003 9,945 NET BOOK VALUE At December 31, 2003 124,216 At December 31, 2002 127,500 At December 31, 2003, the net book value of land use right of the Group amounted to RMB63,147,500 (2002: Nil) were pledged as security for bank borrowings. - 14 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 11. FIXED ASSETS Furniture, fixtures Plant and and office Motor Buildings machinery equipment vehicles Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 COST At January 1, 2003 240,961 537,840 34,932 20,302 834,035 Additions 250 3,107 869 1,264 5,490 Transfer form construction in progress 2,772 1,924 25 - 4,721 Disposal/Written off (6,282) (39,415) (4,302) (3,831) (53,830) At December 31, 2003 237,701 503,456 31,524 17,735 790,416 ACCUMULATED DEPRECIATION At January 1, 2003 36,693 218,869 20,050 13,401 289,013 Charge for the year 6,790 31,977 5,229 1,955 45,951 Disposal/Written off (740) (31,192) (4,014) (2,834) (38,780) At December 31, 2003 42,743 219,654 21,265 12,522 296,184 NET BOOK VALUES At December 31, 2003 194,958 283,802 10,259 5,213 494,232 At December 31, 2002 204,268 318,971 14,882 6,901 545,022 At December 31, 2003, the net book value of buildings amounted to RMB65,168,000(2002: RMB66,839,000) of the Group that were pledged as security for bank borrowings. 12. CONSTRUCTION IN PROGRESS 2003 2002 RMB’000 RMB’000 Balance at beginning of year 4,768 9,183 Additions 7,638 7,678 Transfer to fixed assets (4,721) (12,093) Balance at end of year 7,685 4,768 - 15 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 13. INTANGIBLE ASSETS Computer Technical software Trademark know-how Total RMB’000 RMB’000 RMB’000 RMB’000 COST At January 1, 2003 7,490 130,078 18,000 155,568 Additions 1,331 - - 1,331 At December 31, 2003 8,821 130,078 18,000 156,899 ACCUMULATED AMORTISATION At January 1, 2003 698 4,377 300 5,375 Charge for the year 1,764 13,050 2,250 17,064 At December 31, 2003 2,462 17,427 2,550 22,439 NET BOOK VALUE At December 31, 2003 6,359 112,651 15,450 134,460 At December 31, 2002 6,792 125,701 17,700 150,193 14. INVESTMENTS IN ASSOCIATES 2003 2002 RMB’000 RMB’000 Cost of investment 26,429 26,715 Share of post-acquisition profits 2,343 337 Share of post-acquisition capital reserve 892 892 Less: provision for impairment loss (1,660) - 28,004 27,944 Particulars of associates, which are unlisted companies are as follows: Registered Equity Name capital Principal activities interest held 2003 2002 Hefei Meiling Packing USD3,067,000 Manufacturing and sale of 48.28% 48.28% Product Co., Ltd packing materials Hefei Meiling – Sigema USD1,000,000 Manufacturing and sale of air 20% 20% Appliances Co., Ltd conditioners 合肥技術產權交易所 RMB3,500,000 Clearing house 28.57% - Hefei Meiling-Sigema Appliance Co., Ltd, is planning to liquidate and full provision for impairment loss was made during the year. - 16 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 15. AVAILABLE-FOR-SALE INVESTMENTS 2003 2002 RMB’000 RMB’000 At beginning of year 30,690 11,730 Additions - 18,960 At end of year 30,690 30,690 Available-for-sale investments include investments in listed and unlisted companies. Investment in a listed company represents legal person shares in the listed company. Pursuant to the “Standard Opinion on Joint Stock Companies Limited by Shares” issued by relevant PRC authorities, legal person shares are not transferable or allowed to be traded on the stock markets except with the approval of relevant authorities. 16. AMOUNT DUE FROM CONTROLLING SHAREHOLDER 2003 2002 RMB’000 RMB’000 Amount due from controlling shareholder 103,941 156,606 Less: Provision for impairment (18,720) (16,381) 85,221 140,225 (a) The balance mainly represents recharge of advertising and other selling expenses to HMHC, interest charge on the outstanding balance and receivables arising from disposal of equity interests in certain companies to HMHC. According to an agreement dated March 20, 2001, no interest would be charged to HMHC on the outstanding balance commencing January 1, 2001. (b) Pursuant to an agreement dated March 5, 2002 entered into between the Company and HMHC, the outstanding balance will be fully repaid by the end of 2005. (c) On November 26, 2003, the Company entered into agreements with HMHC, and Hefei Meiling Washing Machine Co Ltd (“Washing Machine Co.”) to transfer its trade receivable of RMB427,290,900, the amount due from HMHC and the amount due from Washing Machine Co. in exchange for the land use rights with valuation of RMB797,541,900. The land use rights are owned by HMHC and located in Economic and Technolgical Development Zone of Hefei and the buildings and production facilities of Washing Machine Co. The transaction of exchange of assets is subject to the approval of shareholders and China Securities Regulatory Commission. - 17 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 17. AMOUNT DUE FROM A RELATED COMPANY 2003 2002 RMB’000 RMB’000 Amount due from a related company 312,287 280,071 Less: Provision for impairment (151,779 ) (151,779) 160,508 128,292 (a) The balance was due from Hefei Meiling Washing Machine Co., Ltd (“Washing Machine Co.”), a subsidiary of HMHC. The year end balance mainly represents advances to Washing Machine Co. for the purchase of property, plant and machinery, for financing its operations, and interest charge on the outstanding balance. According to an agreement dated March 20, 2001, no interest would be charged to Washing Machine Co. on the outstanding balance commencing January 1, 2001. (b) Pursuant to agreements dated November 26, 2003 entered into between the Company, Washing Machine Co., and HMHC the outstanding balance will be settled by the transfer of building and production facilities with a valuation of RMB40,563,800 and land use rights owned by HMHC. (c) The amount due from Washing Machine Co. is guaranteed by HMHC. 18. INVENTORIES 2003 2002 RMB’000 RMB’000 Raw materials 38,483 55,800 Work in progress 9,830 8,392 Finished goods 140,294 204,508 188,607 268,700 Included above are raw materials of RMB1,067,975 (2002: RMB7,974,000) and finished goods RMB18,774,554 (2002: RMB27,340,000) carried at net realizable value. - 18 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 19. RECEIVABLES AND PREPAYMENTS 2003 2002 RMB’000 RMB’000 Trade receivables 615,573 571,464 Less: Provision for impairment (301,501) (240,522) Trade receivables, net 314,072 330,942 Other receivables 15,932 64,247 Less: Provision for impairment (917) (23,710) Other receivables, net 15,015 40,537 Bills receivables 138,061 92,312 Amounts due from related companies 6,974 27,469 Prepayments 44,064 33,702 518,186 524,962 20. CASH AND CASH EQUIVALENTS For the purpose of the consolidated cash flow statement, cash and cash equivalents comprise the following: 2003 2002 RMB’000 RMB’000 Cash at bank and in hand 255,290 176,163 Less: Pledged bank deposits (58,500) (24,000) 196,790 152,163 The effective average interest rate on short-term bank deposits was 0.99% (2002: 0.99%) per annum. 21. TRADE AND OTHER PAYABLES 2003 2002 RMB’000 RMB’000 Trade payable 296,185 379,281 Bills payable 204,000 80,000 Amounts due to related companies 29,126 13,687 Provision for loss on guarantee - 55,500 Other payables and accruals 99,618 75,928 Receipts in advance 104,320 72,853 733,249 677,249 (a) Bills payable are secured by bank deposits of RMB58,500,000 (2002: RMB24,000,000). - 19 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 22. BORROWINGS 2003 2002 RMB’000 RMB’000 Bank borrowings On demand or within one year 626,059 621,575 In the second year to fifth year inclusive 67,910 43,300 Total borrowings 693,969 664,875 (a) Bank borrowings to the extent of RMB42,000,000 (2002: RMB42,000,000) were secured over certain buildings of the Company. (b) Certain bank borrowings of the Group are guaranteed by the following companies: 2003 2002 RMB’000 RMB’000 HMHC 591,140 604,755 A third party - 8,920 591,140 613,675 (c) On March 27, 2003, one of the Group’s major bankers had confirmed that it would provide banking facilities totaling RMB700,000,000 to the Group for a period to December 31, 2004. As at December 31, 2002 banking facilities of RMB219,590,000 has not been utilised. (d) The interest rate exposure of the borrowings of the Group is as follows: 2003 2002 RMB’000 RMB’000 Total borrowings - at fixed rates 693,969 664,875 2003 2002 Weighted average effective interest rate: - bank borrowings 5.37% 5.43% - 20 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 22. BORROWINGS - continue e. The carrying amount and estimated fair value of the Group’s non-current borrowings at December 31, 2003 are set out as follows: 2003 2002 RMB’000 RMB’000 Carrying amount 67,910 43,300 Estimated fair value 67,743 43,645 The fair value of non-current borrowings is estimated by applying a discounted cash flow approach using current market interest rates for similar indebtedness. Fair value estimates are made at specific point in time and are based on relevant market information. These estimates are subjective in nature and involved uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in valuation methods and assumptions could significantly affect the estimates. 23. PROVISION 2003 2002 RMB’000 RMB’000 Balance at beginning of year 14,000 14,000 Provision for the year 12,395 12,158 Utilised during the year (11,420) (12,158) Balance at end of year 14,975 14,000 The Group provides a three-year warranty on compressors of refrigerators and undertakes to repair or replace items that fail to perform satisfactorily during the warranty period. A provision of RMB14,975,000 (2002: RMB14,000,000) has been recognised at the year end for expected warranty claims based on past experience of the level of repairs and returns. - 21 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 24. MINORITY INTERESTS 2003 2002 RMB’000 RMB’000 At beginning of year 19,426 2,081 Additions - 18,000 Share of net loss of subsidiaries (3,128) (655) At end of year 16,298 19,426 25. SHARE CAPITAL Registered, issued and fully paid ordinary shares of RMB1 each: 2003 2002 RMB’000 RMB’000 A shares (unlisted) 149,056 149,056 A shares (listed) 151,487 151,487 B shares (listed) 113,100 113,100 413,643 413,643 Pursuant to Company’s articles of association, A and B shares are all registered ordinary share. Except for the currency in which dividends are payable, these shares carry equal rights. 26. RESERVES The movements of reserves are as follows: Statutory Statutory Discretionary common public common Capital reserve welfare reserve reserve fund fund fund Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Balance at January 1, 2002 571,42 65,426 65,643 153,820 856,318 9 Share of capital reserve of an associate 892 - - - 892 Balance at December 31, 2002 572,32 1 65,426 65,643 153,820 857,210 Transfer from waiver of short term loan 200 - - - 200 Balance at December 31, 2003 572,52 1 65,426 65,643 153,820 857,410 - 22 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 26. RESERVES - continue In accordance with relevant PRC regulations applicable to joint stock limited companies and the Company’s articles of association, the Company is required to allocate its profit after taxation to the following reserves: Statutory common reserve fund Each year the Group is required to transfer 10% of its profit after taxation as reported under its PRC statutory financial statements to the statutory common reserve fund until the balance reaches 50% of the registered share capital. This reserve can be used to make up prior years losses or to increase share capital. Except for making up of prior year losses, any other usage should not result in the balance of this reserve falling below 25% of the registered capital. Statutory public welfare fund Each year the Group is required to transfer 5% to 10% of its profit after tax as reported under its PRC statutory financial statements to the statutory public welfare fund. The use of this reserve is restricted to capital expenditure for staff welfare facilities owned by the Group. The statutory public welfare fund is not available for distribution to shareholders (except in liquidation). Once capital expenditure for staff welfare facilities has been made, an equivalent amount must be transferred from the statutory public welfare fund to the discretionary common reserve fund. Discretionary common reserve fund The discretionary common reserve fund can be set up by means of appropriation from retained earnings or transferred from the statutory public welfare fund. The reserve can be used to reduce losses, to increase share capital or for payment of dividends. Any transfer to the reserve requires the approval of shareholders in general meeting. No profit appropriation will be made for the year 2003 as the net profit for the year has been utilised to make up accumulated losses. 27. DISTRIBUTABLE PROFITS Pursuant to relevant PRC regulations and the articles of association of the Company, profit distributable to shareholders shall be the lower of the distributable profits as determined in accordance with PRC accounting standards and the distributable profits as adjusted in accordance with IFRS. - 23 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 28. FINANCIAL INSTRUMENTS Credit risk The carrying amount of accounts receivable included in the consolidated balance sheet represents the Group’s maximum exposure to credit risk in relation to its financial assets. Trade receivables are spread among a number of customers in the PRC and overseas. Details of the amounts due from HMHC and a related company are included in note 16 and note 17 respectively. Cash is placed with reputable banks. No other financial assets carry a significant exposure to credit risk. Foreign exchange risk The Group operates in the PRC and its transactions are primarily denominated in RMB, the national currency. In the opinion of the directors, the Group does not have significant foreign exchange risk exposure. Interest rate risk The Group has no significant interest-bearing assets, as such its income and operating cash flows are substantially independent of changes in market interest rates. The interest rates of the Group’s borrowings are disclosed in note 22. In the opinion of the directors, the Group’s exposure to interest rate risk was not significant. Fair value The carrying amounts of the following financial assets and financial liabilities approximate their fair value: cash, receivables, payables and borrowings. 29. CAPITAL COMMITMENTS Capital expenditure contracted for at the balance sheet date but not recognised in the consolidated financial statements is as follows: 2003 2002 RMB’000 RMB’000 Fixed assets 5,700 16,649 - 24 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 30. RELATED PARTY TRANSACTIONS During the year, the Group had the following transactions with the following related parties in normal course of its business: 2003 2002 RMB’000 RMB’000 HMHC - Purchase of trademark “Meiling” - 130,000 - Purchase of land use rights - 123,011 - Purchase of available-for-sale investments - 18,960 - Purchase of property, plant and equipment - 8,000 Washing Machine Co. - Purchase of goods 72,252 61,706 - Sale of goods 27,559 19,490 Other subsidiaries of HMHC - Purchase of goods 242,758 197,440 - Sale of goods 14,745 5,420 - Purchase of equity interest in an associate - 25,055 - Purchase of property, plant and equipment - 34,560 (a) Amount due from/to related companies are unsecured, interest free and repayable on demand. (b) The total remuneration of the directors for the year was RMB780,000 (2002: RMB402,000). 31. SUBSIDIARIES As at December 31, 2003, the Company had the following unlisted subsidiaries which are limited liability companies incorporated in the PRC: Registered Equity Name capital Principal activities interest held 2003 2002 Anhui Anhong Plastics Co., USD1,000,000 Manufacturing and sales of 75% 75% Ltd accessories of household appliances Zhongke Meiling RMB60,000,000 Development, manufacturing 70% 70% Cryogenics Company and sale of cryogenic Limited refrigerators - 25 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED DECEMBER 31, 2003 The impact of IFRS adjustments on the PRC statutory financial statements is as follows: Net profit for Net assets the year ended As at December 31, 2003 December 31, 2003 RMB’000 RMB’000 As report under PRC statutory financial (194,656) 840,932 statements IFRS adjustments: Provision for warranty expenses (975) (14,975) Remeasurement of financial assets in according 23,978 (244,354) with IAS 39 Depreciation of fixed assets (2,037) (7,079) Provision for slow moving inventories (8,593) (8,593) Others 4,210 2,677 As restated after IFRS adjustments (178,073) 568,608 - 26 -