皇庭国际(000056)深国商Ｂ2003年年度报告（英文版）

SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD. ANNUAL REPORT 2003 April 23, 2004 1 Contents Ⅰ. Important Notes------------------------------------------------------------------------------ Ⅱ. Company Profile----------------------------------------------------------------------------- Ⅲ. Summary of Financial Highlight and Business Highlight--------------------------- Ⅳ. Changes in Share Capital and Particulars about Shareholders------------------- Ⅴ. Particulars about Directors, Supervisors, Senior Executives and Staffs--------- Ⅵ. Administrative Structure------------------------------------------------------------------- Ⅶ. Brief Introduction to the Shareholders’ General Meeting -------------------------- Ⅷ. Report of the Board of Directors ----------------------------------- --------------------- Ⅸ. Report of the Supervisory Committee--------------------------------------------------- Ⅹ. Significant Events---------------------------------------------------------------------------- Ⅺ. Financial Report----------------------------------------------------------------------------- Ⅻ. Documents for Reference------------------------------------------------------------------ 2 I. IMPORTANT NOTES Board of Directors of Shenzhen International Enterprise Co., Ltd. (hereinafter referred to as the Company) individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions nor errors which would render any statement misleading. Director Mr. Cai Zhuan didn’t attend the Board meeting due to business trip, and Independent Director Shen Jinghua was absent from the Board meeting due to work reason and authorized Independent Director Mr. Chen Jiehou to attend and vote on his behalf. Chairman of the Board of the Company Mr. Li Jinquan, General Manager Ms. Song Shengjun and Person in charge of Accounting and Chief Financial Supervisor Mr. Ding Jingjia hereby confirm that the Financial Report of the Annual Report is true and complete. II. COMPANY PROFILE 1. Legal Name of the Company In Chinese: 深圳市国际企业股份有限公司 In English: Shenzhen International Enterprise Co., Ltd. 2. Legal Representative: Li Jinquan 3. Secretary of the Board of Directors: Xie Wei Authorized Representative in Charge of the Securities Affairs: Zhang Weidong Tel: (0755)-82281888, 82285565 Contact Address: Investment and Management Dept., 23rd Floor, Development Center Bldg., Renmin South Road, Shenzhen Fax: (0755)-82285573 E-mail: xiewei@china-ia.com 4. Registered Address and Office Address: 23rd Floor, Development Center Bldg., Renmin South Road, Shenzhen Post Code: 518001 Company’s Internet Website: http://www.china-ia.com E-mail: szia@szonline.net 5. Newspapers Chosen for Disclosing the Information of the Company: Securities Times, Hong Kong 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: Investment and Management Dept. of the Company 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: SZIEC-A SZIEC-B Stock Code: 000056 200056 7. Initial Registration Date: March 1993; Place: Shenzhen, Guangdong Registration Date after the Adjustment: Dec. 2002; Place: Shenzhen Guangdong Registered Code of Enterprise Legal Person’s Business License: 4403011016891 3 Registered Code of Tax: 440301520200039 The Certified Public Accountants Engaged by the Company: Domestic: Reanda Certified Public Accountants Co., Ltd. Office Address: Room 808, New Dong An Market, No. 138, Wangfujing Av., Dongcheng District, Beijing International: BDO International Certified Public Accountants Office Address: 2008, East District of Zhubang 2000, No. 100, Balizhuangxili, Chaoyang District, Beijing III. SUMMARY OF FINANCIAL HIGHLIGHTS AND BUSINESS HIGHLIGHTS 1. Major accounting data and business indexes as of the year 2003 (Unit: In RMB) As of the year 2003 Item Consolidated Statement Total profit -3,126,900.46 Net profit 1,254,547.51 Net profit after deducting non-recurring gains and losses -19,127,942.22 Profit from core business 22,933,780.22 Profit from other business 13,237,384.57 Operating profit -11,915,191.05 Investment income -571,596.05 Subsidy income - Net income / expenditure from non-operating 9,359,886.64 Net cash flows arising from operating activities 24,059,344.41 Net increase in cash and cash equivalents -2,251,440.42 Note: Items of non-recurring gains and losses and the relevant amounts: Items Amount (RMB) Disposal gains and losses of long-term equity investment, projects in construction, fixed assets, intangible assets and 9,034,654.80 other long-term assets Gains and losses form short-term investment, excluded Gains and losses form short-term investment obtianed by 18,545.60 financial institutions with operating qualification approved to be set up by the administration of the State Non- operating gains and losses deducting impairment loss withdrawn by the Company according to the enterprise 325,231.84 accounting system Return of Impairment loss withdrawn in the previous years 11,932,894.63 Affected amount of Income tax of the above matters -928,837.14 Total of non-operating gains and losses 20,382,489.73 The explanation on the difference between the auditing results under PRC GAAP and IAS: As audited by Reanda Certified Public Accountants according to PRC GAAP and by BDO International Certified Public Accountants according to IAS promulgated by 4 International Accounting Standard Committee, the Company’s profit after taxation as of the year 2003 respectively was RMB 1,254,000 and RMB –2,674,000. The adjustment for the differences was as follows: (Unit: In RMB’000) Consolidated statement as of the year 2003 Profit after tax as audited by Reanda Certified Public Accountants 1,254 Adjustment to conform with IAS: Taxation paid -3,799 Increase of expenses to be apportioned -2,818 Increase of deferred expenses 69 Minority interest 2, 674 Profit after tax as audited by BDO International Certified Public Accountants -2,674 Difference in the profit after taxation as audited by Reanda Certified Public Accountants Co., Ltd. under PRC GAAP and by BDO International Certified Public Accountants under IAS is due to the different regulations in PRC GAAP and IAS. 2. Accounting data and financial indexes over the recent three year at the end of report year (Unit: In RMB) 2002 2001 Index 2003 Before After Before After adjustment adjustment adjustment adjustment Income from core business 114,629,436.25 187,832,592.39 187,832,592.39 301,449,776.02 301,449,776.02 Net profit 1,254,547.51 -25,706,674.11 -25,706,674.11 19,705,795.74 5,569,386.66 Total assets 1,070,623,528.60 1,095,417,472.51 1,095,417,472.51 1,188,321,640.00 1,166,350,253.00 Shareholder’s equity (excluding 331,894,960.72 332,919,956.01 330,640,413.21 372,763,039.20 358,626,630.12 minority interests) Earnings per share (RMB/share) Weighted average earnings per 0.006 -0.12 -0.12 0.09 0.03 share Fully diluted earnings per share 0.006 -0.12 -0.12 0.09 0.03 Earnings per share after deducting -0.088 -0.10 -0.10 -0.06 -0.04 non-recurring gains and losses Net assets per share (RMB/share) 1.50 1.51 1.50 1.69 1.62 Net assets per share after 1.46 1.45 1.44 1.51 1.49 adjustment (RMB/share) Net cash flows per share arising 0.11 0.04 0.04 -0.08 -0.08 from operating activities Return on equity (%) 0.38 -7.43 -7.77 5.43 1.55 Weighted average return on equity after deducting non-recurring -5.84 -6.29 -6.58 -3.46 -2.28 gains and losses 3.According to the regulations of CSRC Information Disclosure Compiling Rules No.9 Document for the Company issuing securities publicly, 2003 return on equity and 2003 earnings per share were accounted by way of fully diluted and weighted 5 average respectively as follows: Profit in the report period Return on equity (%) Earnings per share (RMB/Share) Fully diluted Weighted average Fully diluted Weighted average Profit from core business 6.91 6.92 0.104 0.104 Operating income -3.59 -3.60 -0.054 -0.054 Net profit 0.38 0.38 0.006 0.006 Net profit after deducting non-operating gains and -5.83 -5.84 -0.088 -0.088 losses 4. Changes in shareholders’ equity in the report year (Unit: RMB) Statutory Total Share Capital public Surplus public Items capital Retained profit shareholders’ capital reserve reserve welfare fund equity Amount at the year-begin 330,640,413. 220,901,184 51,109,680.43 124,171,534.18 25,597,979.53 -65,541,985.40 21 Increase in the report year 0 0 75,345.36 25,115.12 1,179,202.15 1,254,547.51 Decrease in the report year 0 0 0 0 Amount at the year-end 331,894,960. 220,901,184 51,109,680.43 124,246,879.54 25,623,094.65 -64,362,783.25 72 Profits Withdrawal as Withdrawal as Profits realized Causes realized as of of the year of the year as of the year the year IV. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS (I) Particulars about the changes in share: Statement of change in shares (Ended Dec. 31,2003) （Unit: share） Increase/decrease of this time (+, - ) Before the After the Items Allotment Bonus Capitalization of Additional Sub- change Others change of shares shares public reserve issuance total I. Unlisted Shares 1. Promoters’ shares 42,035,328 42,035,328 Including: State-owned share 42,035,328 42,035,328 Domestic legal person’s shares Foreign legal person’s shares Others 2. Raised legal person’s shares 51,643,584 51,643,584 3. Inner Employees’ shares 4. Preference shares or others Total Unlisted shares 93,678,912 93,678,912 II. Listed Shares 1. RMB ordinary shares 55,222,272 55,222,272 2.Domestically listed foreign 72,000,000 72,000,000 shares 6 3. Overseas listed foreign shares 4. Others Total Listed shares 127,222,272 127,222,272 III. Total shares 220,901,184 220,901,184 2. Issuance and listing of shares (1) By the end of the report year, the Company didn’t issue new shares over the past three year. (2) In the report year, both the Company’s total shares and its structure remained unchanged. (II) About Shareholders 1. Ended Dec. 31, 2003, the Company has 40,619 shareholders in total. 2. Particulars about shares held by the top ten shareholders (Ended Dec. 31, 2003) Unit: 0,000 share Increase / Number of Holding decrease in Proportion share Full name of Shareholders shares at Type of shares the report (%) pledged/ the year-end year frozen Shenzhen Special Economic Zone State-owned legal Yes 4203.533 19.03 Development (Group) Co. person share Foreign legal No Malaysia Foh Chong & Sons SDN.BHD. 3026.419 13.70 person share and B-share Shenzhen Taitian Industrial Development Domestic legal No 1907.539 8.64 Co. person share F.C.(ASIA) HOLDINGS SDN.BHD. 7.58 868.419 3.93 B-share No Foreign legal No Hong Kong Mengxin Industrial Co. 374.400 1.69 person share LETSCON HOLDINGS SDN.BHD. -228.632 358.189 1.62 B-share No Foreign legal No Malaysia Uchino United Co. 288.000 1.30 person share Domestic legal No Dapu Hechang Chemical Co., Ltd. 288.000 1.30 person share Foreign legal No Hong Kong F.C. International Trade Co. 288.000 1.30 person share CBNY S/A PNC/SKANDIA SELECT B-share -83 155.142 0.70 Unknown FUND/CHINA EQUITY AC Notes: (1) There exists no associated relationship among the above shareholders, and they do not belong to the consistent actionist regulated by the Management Measure of Information Disclosure on Change of Shareholding for Listed Company. (2) Shenzhen Special Economic Zone Development (Group) Co. holds the shares of the Company on behalf of the State. In the report period, the Company disclosed that the above state-owned shares held by Shenzhen Special Economic Zone Development (Group) Co. were frozen on Jun. 14, and on July 23 respectively. Foreign shareholders: Malaysia Foh Chong & Sons SDN.BHD., F.C.(ASIA) HOLDINGS SDN.BHD., LETSCON HOLDINGS SDN.BHD., Hong Kong Mengxin 7 Industrial Co., Malaysia Uchino United Co., Hong Kong F.C. International Trade Co. and CBNY S/A PNC/SKANDIA SELECT FUND/CHINA EQUITY AC. (3) Malaysia Foh Chong & Sons SDN.BHD. holds 10,080,000 B shares in circulating and 20,184,192 unlisted foreign legal person shares. 3. The first largest shareholder of the Company (1)The largest shareholder of the Company is Shenzhen Special Economic Zone Development (Group) Co. (“SDG”), who holds 42,035,330 shares of the Company, taking 19.03% of the total shares of the Company. Its registered capital of SDG is RMB 104.85 million; legal representative is Hu Ge. It registered in Shenzhen of Guangdong. Business scope includes: industrial transportation, tourism, real estate and land development, financial business and commerce and trade, issuance of valuable securities, information consultation, textile products, knitting products, department stores, grains and oils, other foods, metal wares and electrical appliances, chemical products, contracting overseas projects and domestic projects for international bidding. (2)Shenzhen Special Economic Zone Development (Group) Co. is the state wholly owned subsidiary of Shenzhen Investment Holding Corporation (“Investment Holding”). The registered capital of Investment Holding is RMB 2 billion; legal representative is Li Heihu; registered place is Shenzhen, Guangdong. Business scope includes: Management and supervision of enterprise’s state assets, financing and property right; to share all kinds of enterprise and turn over investment, to offer credit and assurance; to impose profit after tax and occupying expenses of assets of state enterprise and the other business authorized by municipal government. 4. Other legal person’s shareholder holding over 10% (including 10%) of the total share of the Company: Malaysia Foh Chong & Sons SDN.BHD. holds 30, 264, 190 shares of the Company, taking 13.70% of the total shares; legal representative is Xiao Guangsheng; registered place is Malaysia. Business scope includes: rubber plantation, real estate development, chemical, metal wares, raw material import & export, financial companies, securities investment. 5. Particulars about circulating shares held by the top ten shareholders of the Company (Ended Dec. 31, 2003) Unit: 0,000 share Item Name of Shareholders Circulating shares held in the Type of Shares year end 1 Malaysia Foh Chong & Sons SDN.BHD. 1008.000 B-Share 2 F.C.(ASIA) HOLDINGS SDN.BHD. 868.419 B-Share 3 LETSCON HOLDINGS SDN.BHD. 358.189 B-Share 4 CBNY S/A PNC/SKANDIA SELECT 155.142 B-Share FUND/CHINA EQUITY AC 5 Wei Shi 52.020 B-Share 6 Guomeng Investment Group Co., Ltd. 44.575 B-Share 7 Wang Gonglin 34.200 B-Share 8 8 Cao Libin 33.987 A-Share 9 SUN HUNG KAI INVESTMENT SERVICES 25.340 B-Share LTD-CUSTOMERS A/C 10 Cai Wanhua 23.388 B-Share Note: The Company is unaware of whether there existed related relationship or consistent actor regulated by Information Disclosure Management Measures about Change in Shares held by the Listed Companies. V. PARTICULARS ABOUT DIRECTORS, SUPERVISORS, SENIOR EXECUTIVES AND STAFFS (I) Directors, supervisors and senior executives 1. Basic information Number of holding Number of Name Gender Age Title Office term shares at the holding shares at year-begin the year-end Li Jinquan Male 57 Chairman of the Board Jan. 2003 – Dec. 2005 144,000 144,000 Song Shengjun Female 49 Director, General Manager Jan. 2003 – Dec. 2005 172,800 172,800 Zhang Jianmin Male 45 Director Jan. 2003 – Dec. 2005 Cai Zhuan Male 39 Director Jan. 2003 – Dec. 2005 Xiao Male 56 Director Jan. 2003 – Dec. 2005 Guangsheng Chen Jiehou Male 63 Independent director Jan. 2003 – Dec. 2005 Fang Yuji Male 42 Independent director Jan. 2003 – Dec. 2005 Shen Jinghua Male 45 Independent director Jan. 2003 – Dec. 2005 Zhou Xiaoxing Female 48 Chairman of the Supervisory Jan. 2003 – Dec. 2005 Committee Zhou Xiaoling Female 44 Supervisor Jan. 2003 – Dec. 2005 Li Mugui Male 59 Supervisor Jan. 2003 – Dec. 2005 89,700 119,900 Zhong Fenjun Male 40 Deputy General Manager Jan. 2003 – Dec. 2005 Ding Jingjia Male 55 Chief Financial Supervisor Jan. 2003 – Dec. 2005 144,000 144,000 Xie Wei Male 29 Secretary of the Board Jan. 2003 – Dec. 2005 Note: Particulars about directors or supervisors holding the position in Shareholding Company Director Mr. Zhang Jianmin took the post of Deputy General Manager of Shenzhen Special Economic Zone Development (Group) Co.; Director Mr. Cai Zhuan took the post of General Manager of Shenzhen Taitian Industrial Development Co.; Director Mr. Xiao Guangsheng took the post of Director of Malaysia Foh Chong & Sons SDN.BHD.; and Supervisor Mr. Li Mugui took the post of Chairman of the Board of Dapu Hechang Chemical Co., Ltd. Supervisor Li Mugui obtained an additional 30,200 B-shares in the report period. 2. Particulars about the annual remuneration The annual remuneration of the directors, supervisors and senior executives consisted of the monthly wage (including basis wage and benefit wage) and the allowance. The total annual remuneration of the Company’s present directors, supervisors and senior executives was RMB 575,000. Among them, (1) one enjoyed the annual remuneration 9 over RMB 100,000 per year, (2) six enjoyed the annual remuneration between RMB 60,000 and 75,000 respectively, and (3) six enjoyed the annual remuneration under RMB 60,000 respectively. The total remuneration of the top three directors drawing the highest payment was RMB 190,000. The total remuneration of the top three senior executives drawing the highest payment was RMB 295,000. According to the resolutions about adjusting allowance standard of directors, independent directors and senior executives at 2003 1st Shareholders’ General Meeting held on Apr. 18, 2003, the Company respectively paid the allowance of RMB 30,000 (tax excluded) of the Board per year to independent director Mr. Chen Jiehou, Mr. Fang Yuji and Mr. Shen Jinghua. In 2003, Directors and Supervisors who didn’t receive the remuneration from the Company were: Director Li Jinquan, Director Zhang Jianmin, Director Cai Zhuan, Director Xiao Guangsheng, Independent Director Chen Jiehou, Independent Director Fang Yuji, Independent Mr. Shen Jinghua and Supervisor Li Mugui. Of them, Director Zhang Jianmin drew the annual salary from Shenzhen Special Economic Zone Development (Group) Co.; Director Xiao Guangsheng drew the annual salary from Malaysia Foh Chong & Sons SDN.BHD.. According to resolution of 1st Provisional shareholders’ General Meeting dated Apr. 18, 2003, the directors and independent directors who didn’t take posts in the Company drew RMB 30,000(tax excluded) per year; for those directors taking posts in the Company drew allowance RMB 15,000(tax excluded) per year; Supervisors drew allowance RMB 10,000(tax excluded) per year. 3. Particulars about disengagement and leaving of Directors, supervisors and senior executives in the report period. In the report period, particulars about the leaving of directors and supervisors and senior executives: Examined and approved by 2003 1st meeting of the Board of the Company, former Deputy General Manager Ms. Huang Guizhen resigned the application of post of Deputy General Manager due to personal health problem. In the report period, particulars about the disengagement of directors and supervisors and senior executives: Examined by 2003 1st Provisional Shareholders’ General meeting of the Company, Mr. Li Jinchun, Mr. Zhang Jianmin, Mr. Song Shengjun, Mr. Xiao Guangsheng and Mr. Caizhuan were elected as directors of the 4th Board and Mr. Chen Jiehou, Mr. Fang Yuji and Mr. Shen Jinghua as independent directors; Mr. Li Mugui and Ms. Zhou Xiaoling were elected as supervisors representing the shareholders of the 4th Supervisory Committee. Examined and approved by 2003 1st meeting of the 4th Board of the Company, the resolutions on the election of Director Mr. Li Jingquan as the Chairman of the Board, and Ms. Song Shengjun as General Manager, and Mr. Xie Wei as the Secretary of Board, and Mr. Zhong Fenjun as Deputy General Manger, and Mr. Ding Jingjia as Financial Supervisor of the Company. Ms Zhou Xiaoxin was examined and approved as Chairman of the supervisory Committee by 2003 1st meeting of the 4th Supervisory Committee. (II) About staff Ended Dec. 31, 2003, the Company had totally 848 employees in office. The composing of professional and background of education and the retiree are as follows: Composing of professional: salesperson: 673 persons; technicians: 75 persons; 10 financial personnel: 35 persons; administrative personnel: 65 persons. Background of education: postgraduate: 5 persons; bachelor degree: 73 persons; 3-years regular college: 130 persons; person graduated from technical secondary school: 308 persons. Numbers of Retirees: 6 VI. ADMINISTRATIVE STRUCTURE (I) The Company’s Actual Administration In the report period, strictly according to PRC Company Law, Securities Law and relevant requirements of other relevant laws and regulations, the Company standardized the operation of the Company. On the basis of establishment and perfection of Articles of Association of the Company, Rules of Procedure of the Shareholders’ General Meeting, Rules of Procedure of the Board of Directors, Rules of Procedure of the Supervisory Committee, Work Rule of General Manager and Information Disclosure System, the Company supplemented an Independent Director to consistently consummate the administrative structure of the Company. According to the requirements of Administration rules of Listed Companies and other related laws and regulations, the company will continue consummating the administration structure of the Company. (II) Performance of Independent Directors According to the regulations of Guideline on Establishing Independent Director System of Listed Companies promulgated by CSRC, the Company supplemented an Independent Director, thus the number of Independent Directors attained to three, including two specialists in real estate and one specialist in fiancé and auditing, which helped the number of independent directors surpassed 1/3 of the Board. In the report period, independent directors attended the Board meetings and Shareholders’ General Meetings actively, fulfilled the duties of Independent Directors seriously and expressed independent opinions on the significant matters of the Company. Independent directors played an important role in strengthening the independence of the Board, reinforcing strategic management function of the Board of the Company, balancing the rights of the Board and concerning the legal rights and interests of the middle and minor investors. The independent directors propelled the scientific decision of the Board and normative operation of the Company and promoted the normative operation of the Company in further step. (III) The Company was separated from Shenzhen Economic Zone Development (Group) Co., Ltd. in personnel, assets and financing, the organization and business were independent, they independently settled and undertook liabilities and risk respectively. 1. In respect of personnel, the Company is absolutely independent management of labor, human affairs and salaries; The Company’s senior executives including the chairman of the Board, general manager, deputy general manager, financial superintendent and the secretary of the Board haven’t been taking actual managerial positions and receiving salaries in shareholders’ companies concurrently 2. In respect of assets, the Company has clear property right of assets, and there exists no occupation of assets by the large shareholder or related parties. 11 3. In respect of finance, the Company has established the independent finance department, and established independent business accounting system and financial management system, and opened independent bank account and paid taxes independently. 4. In respect of organization, the Board of Directors, the Supervisory Committee and other internal organizations have been functioning independently. The large shareholder and its subsidiary organizations have neither assigned management plan and order to the Company and the Company’s subsidiaries, nor impacted the independency of the Company’s management and administration through other ways. 5. In respect of business, the Company has independent purchase and sales system as well as independent and complete business and management capabilities. SECTION VII. INTRODUCTION TO SHAREHOLDERS’ GENERAL MEETING In the report period, the Company totally held two Shareholders’ General Meeting with details as follows: I. On Mar. 3, the 1st Meeting of 3rd Board of Directors of the Company in 2003 made resolutions to hold the 1st Provisional Shareholders’ General Meeting for the year. The Meeting was held in Conference Room of the Company, 23/F, Development Center Building, Renmin South Road, Luohu District, Shenzhen on Apr. 18. Totally five shareholders and shareholder’s representatives attended the Meeting, presided over by Mr. Li Jinquan, Chairman of the Board, representing 115,047,543 shares, occupying 52.08% in total share capital of the Company. The Company’s directors, supervisors, senior executives and engaged lawyers attended the Meeting as non-voting delegates. The following resolutions have been considered and passed at the Meeting: 1. Electing the Members in the 4th Board of Directors 2. Electing Supervisors Representing Shareholders in the 4th Supervisory Committee 3. Resolution on Renewal of Domestic Certified Public Accountants and Changing Oversea Certified Public Accountants 4. Resolution on Adjusting Allowance Standard of Such Senior Executive as Directors and Independent Directors etc. The said resolutions were published Securities Times and Ta Kung Pao dated Apr. 19. II. On Apr. 18, the 1st Meeting of the 4th Board of Directors of the Company for 2003 made resolutions to hold Annual Shareholders’ General Meeting. The Meeting was held in the Company’s Conference Room, 23/F, Development Center Building, Renmin South Road, Luohu District, Shenzhen at 10:00 A.M. on June 4. Totally six shareholders and shareholder’s representatives attended the Meeting, presided over by Mr. Li Jinquan, Chairman of the Board, representing 115,185,325 shares, occupying 52.14% in total share capital of the Company. The Company’s directors, supervisors, senior executives and engaged lawyers of the Company attended the Meeting as nonvoting delegates and the following resolutions have been considered and passed at the Meeting: 1. Work Report of the Board of Directors 2002 12 2. Work Report of the Supervisory Committee 2002 3. Financial Settlement Report 2002 4. Profit Distribution Project 2002 5. Resolution on Engaging Mr. Shen Jinghua as Independent Director of the Company 6. Resolution on Agreeing Partial Shareholders’ Application for Transferring Their Non-listing Foreign Shares into B Shares 7. Resolution on Amending Partial Clauses in the Articles of Association of the Company The said resolutions were published on Securities Times and Ta Kung Pao dated June 5. SECTION VIII. REPORT OF THE BOARD OF DIRECTORS I. Operation in the report period 1. Scope of main operations and operating status (1) The Company is mainly engaged in the retail business of chain stores and development of real estate and is also involved in other businesses of property management etc.. Facing the strike of SARS epidemic on the economy in the first half of the year, intense competition in all commercial capital and the Company’s real estate under development period, in the report period, on the one hand, the Company tightly prepared for the construction of such projects as shopping mall in downtown of Shenzhen, on the other hand, the Company reinforced liquidizing assets and recovering accounts receivable, strictly controlled all expenses and expenditures and realized turning losses. In 2003, the Company realized income from main operations, profit from main operations and net profit amounting to RMB 114,629,436.25, RMB 22,933,780.22 and RMB 1,254,547.51 respectively. Statement of income from main operations classified according to industries: Unit: RMB Industries Income from Cost of main Gross Increase/decreas Increase/decrease of Increase/decrease main operations profit e of income cost of main of gross profit operations ratio (%) from main operations compared ratio compared operations with the last year with the last year compared with (%) (%) the last year (%) Retail 85,160,954.05 70,010,223.42 17.79 -32.07 -31.97 -0.68 commerce Real estate 13,992,353.62 12,099,934.37 13.53 -73.83 -69.24 -48.85 sales Property 15,476,128.58 7,498,948.01 51.55 71.99 54.60 11.83 rental Statement of income from main operations classified according to areas: Branches of areas Income from main operations Increase/decrease in income from main operations over the last year (%) Shenzhen 114,584,062.25 -39.00 Hefei 45,374.00 — 13 2. Operation and achievements of main holding companies and share-holding companies (1) Shenzhen International Emporium,whose 99.94% equity is held by the Company, is mainly engaged in the retail and wholesale business of chain stores with registered capital of RMB 10 million and total assets of RMB 231,720,986.16. In the report period, this company realized income from main operations of RMB 67,070,803.05, profit from main operations of RMB 12,252,922.49 and net profit of RMB-894,958.68. (2) Shenzhen Rongfa Investment Co., Ltd., whose 60% equity is held by the Company, is mainly engaged in the development of real estate with registered capital of USD 5 million and total assets of RMB 198,459,000.10. In the report period, this company realized income from main operations, profit from main operations and net profit amounting to RMB 18,197,963.62, RMB 4,372,458.73 and RMB-14,227,727.71 respectively. (3) Shenzhen SIEC Property Management Co., Ltd., whose 61% equity is held by the Company, is mainly engaged in the business of property management with registered capital of RMB 7 million and total assets of RMB 12,628,790.96. In the report period, this company realized income from main operations, profit from main operations and net profit of RMB 11,270,518.58, RMB 4,103,890.84 and RMB 927,950.75 respectively. 3. Major suppliers and customers In the report period, the total amount of purchase of the top five suppliers was approximately RMB 24.04 million, taking 24.89% of the total annual amount of purchase. The total amount of sales of the top five customers was approximately RMB 4.96 million, taking 4.33% of the total annual amount of sales. 4. Problems and difficulties from the operation and their solutions In 2003, the problems and difficulties of the Company in the operation were mainly as follows: In the report period, facing wicked influence of SARS epidemic on retail commerce, further intensification of distributary in retail market and disadvantageous condition that the State tightened the money etc., the Company met a much austere challenge. Firstly, the competitive force in the commercial market of retail business was not enough and the retail commerce was under transfer; secondly, the real estate business was still in the preparation period of project development basically. The Company mainly adopted the following measures: (1) For the commercial retail business, continue to firmly realize the transfer from operating type to service type. In the operation, speed up the adjustment in the industry and transfer the emphasis to set up large shopping mall through cooperation with foreigner investors so as to create new modern department store with this good chance; emphasize on both such two key links as commodities and service and further 14 enhance the economic benefits. (2) For real estate business, catch the emphasis, create refined products and increase the benefits. The project of Huizhou Sun 100 was accomplished as scheduled; elaborately reinforce all preparations such as design and investment attraction of large shopping mall project in downtown of Shenzhen; do the prophase work in land development in downtown of Longgang well. (3) Try hard to liquidize the stock assets and reinforce the recovery of all receivables. Transfer the storehouse in Shuibei of Shenzhen. Accounts receivable decreased by 60.71% compared with the last year and other receivables decreased by 74.44%. II. Investment in the report period Ended Dec. 31, 2003, the balance of long-term investment of the Company was RMB 21,202,024.22, which decreased by RMB 597,646.68 compared with the last year, an decrease of 2.74%. 1. Application of raised proceeds in the report period In the report period, there was no application of raised proceeds and the proceeds raised through previous share offering was used up in the previous year. 2. Investment of proceeds not raised through share offering in the report period In the report period, the Company’s non-raised proceeds was mainly invested and constructed in the project of large shopping mall in downtown of Shenzhen. Based on gaining the land use right of this project formally in 2002, the Company changed to engage America RTKL Company, a famous company of commercial construction and design in the world, to conduct design of project plan in the report period and the preliminary design of the project was accomplished. The Company gradually developed the investment attraction of the project gradually in the global scope and speed up the preparation of the construction capital in the project. III. Financial position and operating results in the report period 1. Analysis to the financial position and operating results Names In 2003 (RMB) In 2002 (RMB) Increase/decrease Reasons for changes (%) Total assets 1,070,623,528.60 1,095,417,472.51 -2.26 Decrease in advance from customers and tax payable Shareholders’ 331,894,960.72 330,640,413.21 0.38 Profitability in the report equity period Income from 114,629,436.25 187,832,592.39 -38.97 Decrease in income from main operations commerce and real estate Profit from main 22,933,780.22 37,028,171.06 -38.06 Decrease in income from operations main operations Net profit 1,254,547.51 -25,706,674.11 - Great increase in non-operating income Accounts 9,411,095.78 23,954,726.34 -60.71 Recovering account from receivable houses sales in the last period Other receivables 26,581,274.41 103,994,457.85 -74.44 Recovering arrearages from other companies 15 Advance from 14,847,560.93 22,966,383.30 -35.35 Advance from customers in customers the last year was confirmed as income Tax payable 2,567,964.43 7,108,990.58 -63.88 Income tax and operating tax turned in Operating 25,371,642.98 33,080,226.84 -23.30 Decrease in such expenses as expense advertisement expense Managerial 5,761,570.72 24,191,364.32 -76.18 Writing off provision for bad expense debts and reducing expenditure Financial 16,953,142.14 22,902,062.12 -25.98 Decrease in interest expense expenditure Non-operating 10,158,597.99 1,421,406.16 614.69 Gaining earnings from sales income of fixed assets Net increase in -2,251,440.42 737,144.88 -405.43 Decrease in cash from cash and cash financing activities equivalents 2. Explanation of the Board of Directors on influence of correction in material accounting errors Shenzhen Local Tax Bureau Luohu Sub-branch conducted checking to the income tax of Shenzhen Rongfa Investment Co., Ltd., a subsidiary of the Company, in 2000 and in previous years. After the checking, the said company should complementarily hand in corporate income tax amounting to RMB 3,799,238.00 and late fee amounting to RMB 75,984.76 for year 2000. According to the provisions in Circular on Printing and Issuing Answer on Problems Related to Implementing Accounting System for Business Enterprises and Relevant Accounting Standards (CK [2003] No. 10 Document) released by Ministry of Finance, the corporate income tax handed in complementarily would be disposed in accounting according to the regulations in material accounting errors, while late fee was reckoned into the non-operating expenditure in the current period, where the Company could not adjust the gains and losses in previous periods in a retroactive way. Thus, the correction was made, which influenced on the tax receivable at the beginning of the year by an increase of RMB 3,799,238.00, retained earnings at the beginning of the year by a decrease of 2,279,542.80 (Including decrease in retained earnings at the beginning of the year amounting to RMB 1,937,611.38 and decrease in surplus reserve amounting to RMB 341,931.42) and minority interests by a decrease of RMB 1,519,695.20. The Board of Directors considered that the said accounting error adjustment was in compliance with the relevant regulations of the State. IV. Business plan in the new year In 2004, the retail business at home would be opened completely to foreign investment with cancellation of limits in regions, equity and quantity. Moreover, the State would also further tighten money. Thus the Company faced new challenge from 16 operating environment, however, the Company would also face significant development chance at the same time. Therefore, the Company as a whole must strengthen and develop such consciousnesses as paramountcy consciousness, opportunity consciousness, hardship consciousness, innovation consciousness and trial and struggle consciousness and ensure the great increase in economic benefits within year 2004 with “Development and Benefits” as the guide policy in the whole year. In order to realize the said objective, the Company planned to set about in the following several aspects: 1. Catch the historical chance in equity reform of state-owned enterprises in local of Shenzhen, deepen system reform, continue to improve the Company’s legal person’s administrative structure and probe into implementing equity encouragement plan so as to keep and introduce into talents and establish one “Learning oriented team”. 2. For retail business, change the operating strategy and tightly catch three large transfers: transfer from traditional retail business to new and modern department store with integration of shopping, leisure and entertainment, transfer from operating type to service type and transfer from extensive type to intensive type; with global investment attraction as the cut-in point, introduce into strategic cooperative partners and introduce into great brand, capital, talents and management in the 1st line in total and full directions; constructing shopping mall in downtown of Shenzhen into the commercial building occupying the top in Shenzhen in 21st century; at the same time, catching the good chance of start of Shenzhen Metro at the end of the year, construct Jiabin International Emporium into a refined store in the 1st class in Luohu. 3. For real estate business, tightly catch the strategic positioning of commercial real estate with refined building as the emphasis; in 2004, reinforce all preparations for the construction of Shenzhen downtown shopping mall and Longgang Central District, ensure the working start in the second half of year 2004 and try hard to cultivate new growth point of profit; plan the development and preparation of the land in Bantian amounting to 100,000 sq. m.; at the same time, increase land reserve in Longgang, Guangzhou and etc. so as to found a solid foundation for the Company’s sustainable development in the future. 4. Enlarge the Company’s financing and expand the financing channels so as to really reduce the Company’s financial expense. V. Routine work of the Board of Directors (I) In the report period, meetings and resolutions of the Board In the report period, the Company totally held six meetings with details as follows: 1. The 1st Meeting of the 3rd Board of Directors for 2003 was held in Conference Room, 23/F, Development Center Building, Renmin South Road, Shenzhen on Mar. 3. 7 directors should be present and actually 7 directors attended the Meeting. The following resolutions have been considered and passed at the Meeting: (1) Resolutions on Recommending and Electing Candidates of Directors in the 4th Board of Directors (2) Resolution on Renewal of Domestic Certified Public Accountants and Changing Oversea Certified Public Accountants 17 (3) Resolution on Adjusting Allowance Standard of Such Senior Executives as Directors, Independent Directors and Supervisors etc. (4) Resolution on Holding the 1st Provisional Shareholders’ General Meeting for 2003 The said resolutions were published on Securities Times and Ta Kung Pao dated Mar. 4. 2. The 1st Meeting of the 4th Board of Directors in 2003 was held in Conference Meeting, 23/F, Development Center Building, Renmin South Road, Shenzhen on Apr. 18. 7 directors should be present and actually 6 directors attended the Meeting. The following resolutions have been considered and passed at the Meeting: (1) Electing Director Li Jinquan as Chairman of the Board with Term of 3 Years (2) Engaging Ms. Song Shengjun as General Manager and Mr. Xie Wei as Secretary of the Board with Term of 3 Years (3) Agreeing Ms. Huang Guizhen, the Former Deputy General Manager of the Company, to Resign from the Position of Deputy General Manager due to Personal Reason and Newly Engaging Mr. Zhong Fenjun as Deputy General Manager of the Company and Mr. Ding Jingjia as Chief Financial Officer of the Company with Term of 3 Years (4) Work Report of the Board of Directors 2002 (5) Annual Report 2002 and its Summary (6) Financial Settlement Report 2002 (7) Profit Distribution Preplan 2002 The said resolutions were published on Securities Times and Ta Kung Pao dated Apr. 22. 3. The 2nd Meeting of the 4th Board of Directors in 2003 was held in Conference Meeting, 23/F, Development Center Building, Renmin South Road, Shenzhen on Apr. 29. 7 directors should be present and actually 5 directors attended the Meeting. The following resolutions have been considered and passed at the Meeting: (1) The 1st Quarterly Report 2003 (2) Resolution on Recommending Mr. Shen Jinghua as Candidate of Independent Directors of the Company (3) Resolution on Amending Partial Clauses in the Articles of Association (4) Resolution on Holding Annual Shareholders’ General Meeting 2002 4. The 3rd Meeting of the 4th Board of Directors in 2003 was held in Conference Meeting, 23/F, Development Center Building, Renmin South Road, Shenzhen on May 23. 7 directors should be present and actually 4 directors attended the Meeting. The following resolutions have been considered and passed at the Meeting: (1) Resolution on Agreeing Transferring Unlisted Foreign Shares Held by Malaysia Foh Chong & Sons SDH.BHD, Hong Kong Mengxin Industrial Co., Hong Kong F.C. International Trade Co. and Malaysia Uchino United Co., foreign shareholders of the Company, into Circulating B Shares (2) Resolution on Amending Partial Clauses in the Articles of Association of the 18 Company (3) Resolution on Changing the Time of Holding and Relevant Topics of Annual Shareholders’ General Meeting 2002 The said resolutions were published on Securities Times and Ta Kung Pao dated May 24. 5. The 4th Meeting of the 4th Board of Directors in 2003 was held in Conference Meeting, 23/F, Development Center Building, Renmin South Road, Shenzhen on Aug. 25. 7 directors should be present and actually 4 directors attended the Meeting. Semi-annual Report 2003 and Summary of Semi-annual Report have been considered and passed at the Meeting. The said resolutions were published on Securities Times and Ta Kung Pao dated Aug. 26. 6. The 5th Meeting of the 4th Board of Directors in 2003 was held in Conference Meeting, 23/F, Development Center Building, Renmin South Road, Shenzhen on Oct., 27. 8 directors should be present and actually 5 directors attended the Meeting. The following resolutions have been considered and passed at the Meeting: (1) The 3rd Quarterly Report 2003 (2) Resolution on Amending Partial Clauses in the Articles of Association The said resolutions were published on Securities Times and Ta Kung Pao dated Oct. 29. (II) Implementation of resolutions of Shareholders’ General Meeting by the Board of Directors In the report period, the Board of Directors timely arranged the personnel to seriously implement the resolutions in an active attitude strictly according to the resolutions of Shareholders’ General Meeting and safeguard the shareholders’ rights and interests in a comparatively good way. VI. Preplan of profit distribution of the report year Ended Dec.31, 2003, the profit after taxation was RMB 1,254,000 and RMB –2,674,000 respectively audited by Reanda Certified Public Accountants as per Domestic Accounting Standards and BDO Certified Public Accountants as per International Accounting Standards. According to the principle of taking the lower amount for profit distribution, calculated as per International Accounting Standards, the profit after taxation in 2003 was RMB –2,674,000, after appropriating the statutory surplus public reserve of RMB 50,230.24 and statutory public welfare fund of RMB 25,115.12, adding the undistributed profit carried down from the end of 2002 amounting to RMB -65,541,985.40, the total profit available for distribution to shareholders was RMB -64,362,783.25. The profit distribution preplan of 2003 was: neither to distribute profit nor to convert public reserve into share capital. This distribution preplan is planned to implement subject to the examination and approval of Shareholders’ General Meeting. VII. Other disclosed event 19 1. Special explanation of Reanda Certified Public Accountants on the capital occupied by related parties “We were entrusted by Shenzhen International Enterprise Co., Ltd. (hereinafter referred to as “the Company”) made special examination for the capital of the Company occupied its controlling shareholder and other related parties ended as at Dec. 31, 2003 according to Notification of Problems on Standardizing Current Capital between Listed Company and Related Parties and Guarantee for External Parties of Listed Company with ZJF (2003) NO. 56 of CSRC (hereinafter referred to as “the Notification”). The responsibilities of the Board of Directors of the Company is to supply the true, legal and complete physical witnesses, original written materials, copied materials, oral witnesses and other evidences that we believed to be necessary about the capital occupancy of the controlling shareholder and other related parties according to the Notification and our duties are to examine the current capital of the controlling shareholder and other related parties and issue special explanation according to relevant regulations of the Notification. In the process of examination, we implemented the examination procedures that we believed to be necessary including acquainting, inquiring and checking relevant written witnesses. As examined, we believe: ended as at Dec. 31, 2003, there existed neither the event of capital occupied by the controlling shareholder and other related parties stated in Term 2 of Article 1 of the Notification between the Company and the controlling shareholder and other related parties nor paying the period expense such as wage, welfare, insurance and advertisement in advance and undertaking cost and other expenditures.” 2. Independent opinion of the independent directors on the special explanation on current capital and guarantee between the Company and the controlling shareholder and other related parties According to Notification of Problems on Standardizing Current Capital between Listed Company and Related Parties and Guarantee for External Parties of Listed Company with ZJF (2003) NO. 56 of CSRC and under the spirit of seeking truth from facts, we checked the guarantee for external parties of Shenzhen International Enterprise Co., Ltd. and current capital with related parties in a patient and responsible way and answered the problems as follows: (1) The Company has not provided any guarantee for related parties strictly according to relevant regulations of CSRC; (2) Due to the need of operation, the Company has provided guarantee for bank loan of the share-controlling subsidiaries, Shenzhen International Emporium, Shenzhen Rongfa Investment Co., Ltd. and Shenzhen Longgang International Emporium Co., Ltd. amounting to RMB 25 million. The aforesaid guarantees were made decision according to the procedures stated in Articles of Association of the Company, Work Rule of the Board of Directors and so on. (3) Ended as at Dec. 31, 2003, except for the Company’s providing guarantee for bank loan of RMB 10 million of Shenzhen SZ-HK Industry Trade Import & Export Company, the Company and the share-controlling subsidiaries listed into the consolidation scope had no other guarantee for external parties. 20 (4) The Company patiently implemented the obligations of information disclosure of guarantee for external parties strictly according to Rules for Share’s Listing and Articles of Association of the Company and provided actually all materials of guarantee for external parties to CPA according to the regulations. (5) Special Explanation on Capital Occupancy of the Controlling Shareholders and Other Related Parties of Shenzhen International Enterprise Co., Ltd. issued by the audit organization of the Company actually reflected the situations of the Company. SECTION IX. REPORT OF THE SUPERVISORY COMMITTEE I. Particulars on the work of the Supervisory Committee in the report year The Supervisory Committee held 3 meetings in the report year besides attending the Board meetings as non-voting delegates: 1. The 1st Meeting of the 3rd Supervisory Committee of 2003 was held in the Company’s meeting room on Mar. 3, 2003. 3 supervisors should attend the meeting and all of them were all present. The meeting examined and approved the following resolutions: (1) The resolution of the shareholder’s representative, Li Mugui and Zhou Xiaoling as the candidates of the supervisors of the 4th Supervisory Committee. The candidate of the supervisor of the 4th Supervisory Committee elected by the shareholder’s representative was Zhou Xiaoxing; (2) The meeting approved the resolution of reengagement of domestic CPAs and change of foreign CPAs. The public notice on resolution of this meeting was published on Securities Times and Ta Kung Pao dated Mar. 5, 2003. 2. The 1st Meeting of the 4th Supervisory Committee of 2003 was held in the Company’s meeting room on Apr. 18, 2003. 3 supervisors should attend the meeting and 2 of them were all present. The meeting examined and approved the following resolutions: (1) 2002 Work Report of the Supervisory Committee (2) 2002 Annual Report and Summary (3) 2002 Profit Distribution Preplan (4) Electing Supervisor Zhou Xiaoxing as Chairman of the Supervisory Committee of the Company with the office term of three years. The public notice on resolution of this meeting was published on Securities Times and Ta Kung Pao dated Apr. 22, 2003. 3. The 2nd Meeting of the 4th Supervisory Committee of 2003 was held in the Company’s meeting room on Aug. 25, 2003. 3 supervisors should attend the meeting and all of them were all present. The meeting examined and approved Semiannual Report 2003 and its Summary. The public notice on resolution of this meeting was published on Securities Times and Ta Kung Pao dated Aug. 26, 2003. II. Independent opinions of the Supervisory Committee on the Company’s operation 1. Operation according to law In the report period, the Supervisory Committee supervised over the Company’s operation according to laws and believed that the Company could legally operate 21 strictly according to Company Law and relevant laws and regulations, patiently implement the guideline of Legal System, Supervision, Self-discipline and Standardization promulgated by CSRC, disclose relevant information of the Company completely and in time and did not occur phenomenon breaking regulations. The decision-making procedure was in conformity with laws and regulations and the internal control system was basically perfect. The directors, general manager and other senior executives worked in a diligent and responsible way and strictly executed every resolutions of the Shareholders’ General Meeting in the report period and had not no actions breading laws, regulations and Articles of Association or damaging the interest of the Company and the right and interest of the shareholders when they performed their duties. 2. Financial status Lianda Xinlong Certified Public Accountants and Dehao International Certified Public Accountants issued standard unqualified auditors’ reports for 2003, which truly reflected the Company’s financial status and operation results. 3. In the report year, the Company had no use of raised funds. 4. Purchase and sale of assets in the report year. In the report period, the Company had no significant purchase and sale of assets. The purchase and sale of assets occurred was the need of the normal operation business. The trading price of purchase and sale of assets was reasonable. There existed no internal transactions and the transactions did not damage the right and interest of part shareholders or cause assets run off. 5. Correlative transaction in the report year In the report year, the Company’s correlative transactions belonged to allowable commercial behavior, were fair and reasonable and did not damage the interest of the Company. SECTION X. SIGNIFICANT EVENTS I. Material lawsuit and arbitration There was no new significant lawsuit or arbitration in the report year. The progress of the significant lawsuit or arbitration in previous years is as follows: 1. The Company took proceedings against Shenzhen Shen Fa Enterprise Co., Ltd. for dispute of debts. The mediate has come into effect through (1997) SLFJTZ No. 34 issued by Shenzhen Luohu People’s Court, which confirmed the debts of RMB 8 million that Shen Fa Enterprise Co., Ltd owed to the Company ended January 31, 1997. The Company made application to the Court for implementing the case according to law. Shen Fa Enterprise Co., Ltd. offset the debts with the No. II-7 resident district of Yantai Development Zone with area of 18388.44 M2 amounting to RMB 4,989,400 in land assessment value, which was priced for the 70% equity rights of Yantai Tong Fa Real Estate Co., Ltd as owned by Shen Fa. Shenzhen Luohu People’s Court resealed up two houses of Shen Fa Enterprise Co., Ltd. locating in Taoyuan New Village, Taoyuan Road, Nanshan District in Nov. 2003 and the left debt was in the process of further execution. 2. As the plaintiff in the debt dispute, Shenzhen Economic Zone Development (Group) took proceedings against the Company. According to (2000) YFJYZZ No. 170 civil 22 verdict issued by Guangdong Superior People’s Court, the Company should repay RMB 7,112,950, USD 1 million and corresponding interests. The two sides came into Reconciliation Agreement on February 4, 2002. The implementation of the agreement has been disclosed in Annual Report 2002 and there was no other progress in the report period. 3. Concerning the lawsuit that Guangdong International Trust Development Co., Ltd. Shenzhen Branch indicted the Company to default rent and management fee, Shenzhen Intermediate People’s Court made civil judgement that judged the Company to repay RMB 4,696,048.34 rent and RMB 118,149.92 management fee. The two parties reached pacification agreement on July 11, 2002. But the pacification agreement has not implemented by the two parties and at present, the case is in the process of further active negotiation and resolving. 4. The Company provided guarantee for bank loan of RMB 10 million of Shenzhen SZ-HK Industry Trade Import & Export Company and the loan bank, Shenzhen Development Bank Shennan East Road Sub-branch as accuser indicted to Shenzhen Intermediate People’s Court and required the Company to undertake joint repayment liability. Under the arbitration, the Company reached the pacification agreement with the bank. Ended as at Mar. 20, 2004, the Company has paid RMB 5,048,681.39 in place of Shenzhen SZ-HK Industry Trade Import & Export Company and applied to execute SZ-HK Industry Trade Import & Export Company to Shenzhen Intermediate People’s Court on Mar. 27, 2003. The case is in process of further execution. II. In the report period, the Company had no significant purchase and sale of assets. III. In the report period, the Company had no significant related transactions. IV. Significant Contracts and Implementation of Contracts 1. In the report year, the Company had never kept as custodian, contracted or leased any other company’s assets and vice versa. 2. Significant guarantee contract in the report period In the report period, the Company provided guarantee for bank loan of the share-controlling subsidiaries, Shenzhen International Emporium, Shenzhen Rongfa Investment Co., Ltd. and Shenzhen Longgang International Emporium Co., Ltd. amounting to RMB 25 million. The aforesaid guarantees were made decision according to the procedures stated in Articles of Association of the Company, Work Rule of the Board of Directors and so on. Except for that, the Company and the share-controlling subsidiaries had no other guarantee. 3. In the report year, the Company hadn’t entrusted others to manage assets or handle loans for it. 4. In the report year, the Company hadn’t singed other significant contracts. V. The Company or the shareholders holding more than 5% equity has not disclosed other commitments in the designated newspapers or webs in the report period. VI. In the report year, the Company engaged Reanda Certified Public Accountants and BDO Certified Public Accountants as the domestic and overseas Certified Public Accountants. The total remuneration the Company paid to Certified Public Accountants in 2003 was RMB 0.65 million, among of which RMB 0.4 million for Lianda Xinlong Certified Public Accountants, which provided audit service for the Company since 2001; RMB 0.25 million for Dehao International Certified Public 23 Accountants, which provided audit service for the Company since 2002. VII. The Board of Directors, the Supervisory Committee, directors, supervisory and senior executives of the Company have neither been checked, given administrative punishment or been given public criticism of CSRC nor publicly condemned by Shenzhen Stock Exchange. VIII. In the report year, the Company did not occurred significant events stated in Article 62 of Securities Law and Article 17 of Detailed Rules for Implementation of Information Disclosure in Companies with Publicly Issued Shares and significant events the Board of Directors judged as. SECTION XI. FINANCIAL REPORT I. Auditor’s report (attached) II. Financial statement (attached) III. Appendix of financial statement (attached) SECTION XII. DOCUMENTS AVAILABLE FOR REFERENCE 1. The financial statements carried with signatures and seals of the Company’s legal representative, person in charge of accounting affairs and person in charge of accounting institution. 2. Original of the Auditors’ Report carried with the seals of CPAs, the signatures and seals of CPA. 3. Originals of all documents and manuscripts of all public notices disclosed in Securities Times and Wen Wei Po designated by CSRC in the report year. This annual report is prepared in both Chinese and English. Should there be any difference in interpretation between the two versions, the Chinese version shall prevail. Board of Directors of Shenzhen International Enterprise Co., Ltd. April 23, 2004 24 AUDITORS’ REPORT TO THE SHAREHOLDERS OF SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD. (incorporated in the People’s Republic of China with limited liability) We have audited the financial statements of Shenzhen International Enterprise Co., Ltd. (“the Company”) and its subsidiaries (collectively “the Group”) for the year ended 31 December 2003 and 2002 on pages 2 to 18 which have been prepared in accordance with International Accounting Standards. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS The Directors of the Company are responsible for the preparation of financial statements, which give a true and fair view. In preparing financial statements, which give a true and fair view, it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion, based on our audit, on those accounts and to report our opinion to you. BASIS OF OPINION We conducted our audit in accordance with International Standards on Auditing issued by the International Federation of Accountants. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group’s circumstances, consistently applied and adequately disclosed. We planned 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. OPINION In our opinion, the financial statements give a true and fair view, in all material respects, of the state of affairs of the Group as at 31 December 2003 and 2002 and of its profit and cash flows for the year then ended. BDO Reanda Certified Public Accountants Beijing, China, 20 April 2004 25 SHENZHEN INTERNATINAL ENTERPRISE CO., LTD. CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003 AND 2002 Notes 2003 2002 RMB'000 RMB'000 Turnover 3&4 114,629 187,832 Cost of sales (93,110) (150,804) Gross profit 21,519 37,028 Other revenue less other expenses (10,366) (46,834) 11,153 (9,806) Net finance costs 5 (16,953) (22,902) Profit before taxation 6 (5,800) (32,708) Taxation 7 (4,930) (539) Profit after taxation (10,730) (33,247) Minority interests (8,083) 9,508 Profit attributable to shareholders (2,647) (23,739) Basic earnings per share RMB(0.01) RMB(0.11) Fully diluted earnings per share RMB(0.01) RMB(0.11) The accompanying notes form an integral part of these financial statements. 26 SHENZHENG INTERNATIONAL ENTERPRISE CO., LTD. CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2003 AND 2002 Notes 2003 2002 RMB'000 RMB'000 ASSETS Non-current assets Fixed assets 9 351,537 362,679 Construction in progress - - Intangible assets 10 3,687 4,139 Deferred expenditures 11 6,973 5,861 Long term investment 12 16,570 16,570 Goodwill 13 3,920 4,448 382,687 393,697 Current assets Inventories 14 431,701 368,490 Accounts receivables 9,411 23,955 Prepayments and other receivables 77,268 139,606 Deferred expenses 59 476 Cash and cash equivalents 15 152,077 154,521 670,516 687,048 Current liabilities Bank loans 16 562,280 560,846 Bills payable 5,000 7,000 Amounts due to a shareholder 27,536 20,113 Accounts payables 28,666 24,812 Receipts in advance and other payables 47,332 72,294 Dividends payable 5,128 5,271 Taxes payable 2,568 3,310 Accruals 16,952 18,628 695,462 712,274 Net current assets/(liabilities) (24,946) (25,226) Non-current liabilities 17 2,700 2,700 Minority interests 14,892 22,975 Total net assets 340,149 342,796 Representing: Share capital 18 220,901 220,901 Reserves 19 175,357 175,623 Accumulated losses 19 (56,109) (53,728) Total shareholders’ funds 340,149 342,796 27 On behalf of the Board ___________________________________ ___________________________________ Director Director The accompanying notes form an integral part of these financial statements. SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD. CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003 AND 2002 Notes 2003 2002 RMB'000 RMB'000 Net cash inflow/(outflow) from operating activities 20(a) 17,697 50,496 Returns on investments and servicing of finance: Interest paid (12,068) (32,889) Interest received - 3,421 Dividend paid (144) - Dividend received 219 100 Net cash outflow from returns on investment and servicing of finance (11,993) (29,368) Taxation: Tax paid (14,216) (45,507) Net cash outflow from taxation (14,216) (45,507) Investment activities: Proceeds on disposal of fixed assets 9,328 98 Proceeds from disposal of a jointly controlled entity - 6,000 Acquisition of fixed assets (2,208) (3,188) Acquisition of construction in progress - (888) Additions of other deferred expenses (2,486) (3,099) Net cash outflow from investment activities 4,634 (1,077) Net cash outflow before financing (3,878) (25,456) Financing: Bank loans 20(b) 1,434 26,406 28 Net cash inflow from financing activities 1,434 26,406 (Decrease)/Increase in cash and cash equivalents (2,444) 950 (Increase)/Decrease in bank balances pledged as securities to 8,307 597 loans Cash and cash equivalents at the beginning of the year 45,471 43,924 Cash and cash equivalents at the end of the year 20(c) 51,334 45,471 The accompanying notes form an integral part of these financial statements. 29 SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2003 AND 2002 Share Accumulated Reserves Total Capital losses RMB'000 RMB'000 RMB'000 RMB'000 Balance at 1 January 2002 220,901 175,316 (29,682) 366,535 Net loss for 2002 - - (23,739) (23,739) Profit appropriation - 307 (307) - Balance at 31 December 2002 220,901 175,623 (53,728) 342,796 Net loss for 2003 - - (2,647) (2,647) Profit appropriation - 75 (75) - Transfer - (341) 341 - Balance at 31 December 2003 220,901 175,357 (56,109) 340,149 The reason for the transfer made in the year 2003 is the adjustment of the fundamental error of the taxation for the year 2000. The company adjusts its statutory surplus reserve of RMB 341,931.42 as at the beginning of the year 2003 subject to accounting errors. On the basis of IAS, the Group adjusts its surplus of RMB 341,931.42 according to related proportion of ownership in this year. The accompanying notes form an integral part of these financial statements. 30 SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 AND 2002 (Expressed in Renminbi Yuan) 1. Corporate information Shenzhen International Enterprise Co., Ltd. (“ the Company”) was incorporated in 1983 in the People’s of Republic China and was restructured as a stock limited company in 1993. The Company issued A and B shares in 1994 and 1995 respectively in the Shenzhen Stock Exchange. The principal activities of the Company and its subsidiaries (together with the Company referred to as the “Group”) are chain departmental stores, property development, management and trading. 2. Principal accounting policies (a) Statement of compliance The financial statements of the Group have been prepared in accordance with International Accounting Standards (“IAS”). The Group also prepares a set of financial statements which comply with the People’s Republic of China (“PRC”) accounting regulations. A reconciliation of the Group’s results and shareholders’ equity under IAS and PRC accounting regulations is presented in note 27 & 28. A summary of the principal accounting policies is set out below. (b) Basis of preparation of the accounts The measurement basis used in the preparation of the financial statements is historical cost. (c) Basis of consolidation The consolidated financial statements of the Group include the financial statements of the Company and all its subsidiary companies made up to 31 December each year. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from or to the date of their acquisition or disposal, as appropriate. All material inter-company transactions and balances are eliminated on consolidation. Details of the Company’s subsidiary companies are set out in note 21. Goodwill arising on acquisition of subsidiary companies, being the excess of the cost of investments in these companies over the fair value of the Group’s share of the separable net assets acquired, is amortized on a straight-line basis to the income statement over its estimated useful economic life. The excess of the Group’s share of the fair value of the separable net assets of subsidiaries acquired over the cost is credited to capital reserve. On disposal of a subsidiary during the year, any attributable amount of purchased goodwill not previously amortized through the consolidated income statement or which has 31 previously been dealt with as a movement on the Group’s reserves is included in the calculation of the profit or loss on disposal. 2． Principal accounting policies - continued (d) Long term investments (i) Investments held on a continuing basis for an identified long-term purpose are classified as “long term investment”. Long term investments are stated in the balance sheet at cost less any provisions for diminution in value. Provisions are made when the fair values have declined below the carrying amounts, unless there is evidence that the decline is temporary, and are recognized as an expense in the income statement, such provisions being determined for each investment individually. Provisions against the carrying value of investment securities are written back when the circumstances and events lead to the write-down or write-off ceasing to exist and there is persuasive evidence that the new circumstances and events will persist for the foreseeable future. (ii) Profits or losses on disposal of investments are determined as the difference between the net disposal proceeds and the carrying amount of the investments and are accounted for in the income statement as they arise. (e) Fixed assets Fixed assets are carried in the balance sheet on the following basis: (i) Fixed assets are stated in the balance sheet at cost less accumulated depreciation. (ii) The carrying amount of fixed assets is reviewed periodically in order to assess whether the recoverable amount has declined below the carrying amount. When such a decline has occurred, the carrying amount is reduced to the recoverable amount. The amount of reduction is recognized as an expense in the income statement. In determining the recoverable amount, expected future cash flows generated by the fixed assets are discounted to their present values. When the circumstances and events lead to the write-down or write-off cease to exist, any subsequent increase in the recoverable amount of an asset is written back to the income statement. The amount written back is reduced by the amount that would have been recognized as depreciation if the write-down or write-off had not occurred. (iii) Subsequent expenditure relating to a fixed asset that has already been recognized is added to the carrying amount of the asset when it is probable that future economic benefits, in excess of the originally assessed standard of performance of the existing asset, will flow to the enterprise. All other subsequent expenditure is recognized as an expense in the period in which it is incurred. (iv) Gains or losses arising from retirement or disposal of a fixed asset are determined as the difference between the estimated net disposal proceeds and the carrying amount of the asset and are recognized in the income statement on the date of retirement or disposal. (f) Depreciation and amortization (i) Depreciation is calculated to write off the costs or valuation of fixed assets, after taking into account their estimated residual values, over their estimated useful lives using the straight-line method. The estimated useful lives are as follows: Buildings and land use rights 30 years Office equipment 5 years Motor vehicles 5 years Others 5 years Leasehold improvement 5 years 32 No depreciation is applied to construction in progress. 2. Principal accounting policies - continued (ii) Goodwill arising on consolidation or on equity accounting is amortized on a straight-line basis over an estimated useful economic life of not more than 10 years. (iii) Leasehold improvement is amortized on a straight-line basis over an estimated useful economic life of not more than 10 years. (g) Revenue recognition Provided it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognized in the income statement as follows: (i) Sale of goods Revenue is recognized when goods are delivered to the customers’ premises which is taken to be the point in time when the customer has accepted the goods and the related risks and rewards of ownership. Revenue excludes value added or other sales taxes and is after deduction of any trade discounts. (ii) Sale of property Revenue from sale of property is recognized when the sales agreements are signed between the Group and the customers and the sales proceeds can be collected with reasonable assurance. (iii) Rental income from operating leases Rental income receivable under operating leases is recognized on a straight-line basis over the term of the lease. (iv) Service income Service income is recognized when services are rendered. (v) Dividends Dividend income from investments is recognized when the shareholder’s right to receive payment is established. (vi) Interest income 33 Interest income from bank deposits is accrued on a time-apportioned basis on the principal outstanding and at the rate applicable. (h) Inventories Inventories are carried at the lower of cost and net realizable value. Cost is calculated using the weighted average cost formula and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. 2. Principal accounting policies - continued When inventories are sold, the carrying amount of those inventories is recognized as an expense in the period in which the related revenue is recognized. The amount of any write-down of inventories to net realizable value and all losses of inventories are recognized as an expense in the period in which the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realizable value, is recognized as a reduction in the amount of inventories recognized as an expense in the period in which the reversal occurs. (i) Deferred taxation Deferred taxation is provided using the liability method in respect of the taxation effect arising from all material timing differences between the accounting and tax treatment of income and expenditure which are expected with reasonable probability to crystallize in the foreseeable future. Future deferred tax benefits are not recognized unless their realization is assured beyond reasonable doubt. (j) Translation of foreign currencies Foreign currency transactions during the year are translated into Renminbi at the exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated into Renminbi at the exchange rates quoted by the People’s Bank of China at the balance sheet date. Exchange gains and losses are dealt with in the income statement. (k) Operating leases Rental payable under operating leases is accounted for in the income statement on a straight-line basis over the periods of the respective leases. (l) Retirement costs The Group participates in retirement schemes are operated by local authorities and the annual cost of providing retirement benefits is charged to the consolidated profit and loss account according to the contribution determined by the relevant schemes. (m) Borrowing costs Borrowing costs are expensed in the income statement in the period in which they are 34 incurred, except to the extent that they are capitalized as being directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale. (n) Related parties For the purposes of these financial statements, parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the party are subject to common control or common significant influence. Related parties may be individuals or other entities. (o) Cash equivalents Cash equivalents are short-term, highly liquid investments which are readily convertible into known amounts of cash without notice and which are within three months of maturity when acquired. For the purposes of the cash flow statement, cash equivalents would also include advances from banks repayable within three months from the date of the advance. 3. Turnover Turnover represents the invoiced value of goods sold to customers which excludes value added tax, other sales taxes and trade discounts, and after eliminating inter-company transactions. 4. Segment information An analysis of the Group’s turnover by principal activities for the year ended 31 December 2003 is as follows: 2003 2002 RMB'000 RMB'000 By activities: Property sales 85,161 125,360 Department store sales 13,992 53,474 Rendering of services 15,476 8,998 114,629 187,832 All sales were made in the PRC during the year. 5. Net finance costs 2003 2002 RMB'000 RMB'000 Interest income (4,650) (3,444) Net foreign exchange (gain)/loss 922 260 Interest expenses -Bank borrowings (exclusive of capitalized interest) 19,771 25,306 Others 910 780 16,953 22,902 6. Profit before taxation Profit before taxation is stated after charging and crediting the following: 2003 2002 RMB'000 RMB'000 After charging: Depreciation 16,599 16,372 35 Amortization of goodwill 528 528 Amortization of intangible assets 451 237 Amortization of deferred expenditures 1,374 6,014 Rental under operating leases 731 Interest expenses 19,771 25,306 Provision for bad debts (11,813) (3,460) Provision for diminution in value of inventories (322) (5,540) And after crediting: Interest income 4,650 3,444 Rental income 32,637 20,161 Gain on disposal of fixed assets 9,035 31 7. Taxation 2003 2002 RMB'000 RMB'000 Current taxation 4,930 539 4,930 539 The income tax rate applied by the Group on the estimated assessable profit for the year is at a rate of 15%, which is the prevailing income tax for all PRC enterprises in Shenzhen. 8. Earnings per share The calculation of basic and diluted earning per share is based on the consolidated loss for the year of RMB2,647,000 (2002: RMB23,739,000) and the 220,901,184 shares (2002: 220,901,184 shares) in issue. 9. Fixed assets Building and land Office Motor vehicles Total use rights equipment RMB'000 RMB'000 RMB'000 RMB'000 Cost or valuation at 1 January 2003 456,838 6,509 9,471 472,818 Additions 5,533 - 2,208 7,741 Disposals (489) (370) (4,021) (4,880) at 31 December 2003 461,882 6,139 7,658 475,679 Accumulated depreciation at 1 January 2003 100,744 3,158 6,237 110,139 charge for the year 13,335 609 2,655 16,599 written back (7) (333) (2,256) (2,596) at 31 December 2003 114,072 3,434 6,636 124,142 36 Net book value at 31 December 2003 347,810 0 2,705 0 1,022 351,537 at 31 December 2002 356,094 3,351 3,234 362,679 As at 31 December 2003, land and buildings with net book values of RMB 328,692,000 (2002:RMB320,161,000) have been mortgaged to the banks to secure general banking facilities for the Company and its subsidiaries (Note 24). 37 10. Intangible assets 2003 2002 RMB'000 RMB'000 Software 3,687 4,139 Total 3,687 4,139 11. Deferred expenditures 2003 2002 RMB'000 RMB'000 Leasehold improvement 6,973 5,861 Total 6,973 5,861 12. Long term investments 2003 2002 RMB'000 RMB'000 Unlisted shares in PRC 16,570 16,570 Total 16,570 16,570 13. Goodwill 2003 2002 RMB'000 RMB'000 Cost 5,284 5,284 Amortization as at the beginning of the year (836) (308) Amortization for the year (528) (528) Net book value 3,920 4,448 During the year of 2001, the Company acquired a further 10% equity interest in a subsidiary at a cost higher than the 10% of the fair value of the subsidiary. Accordingly, goodwill of RMB 5,284,000 is generated, and the balance is capitalized. 14. Inventories 2003 2002 RMB'000 RMB'000 Inventories at department store 47 2,882 Completed properties for sale 431,654 365,608 Total 431,701 368,490 As at 31 December 2003, completed properties for sale with a carrying value of RMB 249,248,996.00 (2002: RMB 170,342,554.42) have been mortgaged to the banks to secure general 38 banking facilities for the Company and its subsidiaries. 15. Cash and cash equivalents 2003 2002 RMB'000 RMB'000 Cash and bank balances 152,057 154,308 Marketable securities 20 213 Total 152,077 154,521 As at 31 December 2003, fixed bank deposits of RMB 100,742,750.00 (2002:RMB109,050,000.00) have been mortgaged to the banks to secure general banking facilities. 16. Bank loans 2003 2002 RMB'000 RMB'000 Mortgaged loans 455,801 400,566 Guaranteed loans 106,479 160,280 Total 562,280 560,846 17. Non-Current Liabilities 2003 2002 RMB'000 RMB'000 Deferred taxation 2,700 2,700 Total 2,700 2,700 During the year, the Company does not have significant timing difference arising from sale of property under development. 18. Share capital A share B share Total RMB'000 RMB'000 RMB'000 At 31 December 2003 148,901 72,000 220,901 At 31 December 2002 148,901 72,000 220,901 The par value for per share is RMB1.00. 39 19. Reserves Statutory Discretionary Capital Surplus Accumulate surplus public Total reserve reserve d losses reserve welfare fund RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 At 1 January 2003 51,110 59,576 39,225 25,712 (53,728) 121,895 Transferred - 50 (341) 25 266 - Profit for the year - - - - (2,647) (2,647) At 31 December 2003 51,110 59,626 38,884 25,737 (56,109) 119,248 Statutory surplus reserve According to the PRC Company Law, the Company is required to transfer at least 10% of its profit after taxation, as determined under PRC accounting regulations, to the statutory surplus reserve until the reserve balance reaches 50% of the registered capital. The transfer to this reserve must be made before the distribution of dividends to shareholders. Statutory surplus reserve can be used to make good previous years’ losses, if any, and for capitalization issues provided that the balance after such issue is not less than 25% of the registered capital. Discretionary public welfare fund According to the Company’s articles of association, the Company is required to transfer a certain percentage of its profit after taxation, as determined under PRC accounting regulations, to the discretionary public welfare fund. The discretionary public welfare fund can only be used for the collective welfare of the Company’s employees such as the construction of staff quarters. The fund forms part of the shareholders’ equity as individual employees can only use these facilities, the titles of which will remain with the Company. The appropriation to this fund must be made before the distribution of dividends to shareholders. The articles of association of the Company specify that a maximum of 5% of its profits can be appropriated to the discretionary public welfare fund and the rate of appropriation is to be determined by the board of directors annually. Surplus reserve The rate of appropriation to these reserves is to be determined by the board of directors annually. General reserve can be used to make good previous years’ losses, if any, and for capitalization issues. 40 20. Notes to the consolidated cash flow statement (a) Reconciliation of profit before taxation to net cash inflow from operating activities is as follows: 2003 2002 RMB'000 RMB'000 Profit before taxation (5,800) (32,708) Interest expenses 19,771 25,306 Interest income (4,650) (3,444) Foreign exchange loss 922 260 Provision for bad debts (11,813) (3,460) Provision for inventory (322) (5,540) Depreciation 16,599 16,372 Amortization of goodwill 528 528 Amortization of intangible assets 451 237 Amortization of other deferred expenses 1,374 6,014 Decrease/(increase) in deferred expenses 417 (15) Increase/(decrease) in accruals (1,676) (974) Gain on disposals of fixed assets (9,035) (31) investment income (26) 803 Decrease/(increase) in inventories (50,802) (7,304) Decrease/(increase) in accounts receivable 13,728 32,263 Decrease/(increase) in prepayments and other receivables 69,745 50,179 Increase/(decrease) in bills payable (2,000) 7,000 Increase/(decrease) in amounts due to a shareholder 7,423 (27,710) Increase/(decrease) in accounts payable (2,430) (27,923) Increase/(decrease) in receipts in advance and other payables (24,707) 20,644 17,697 50,496 (b) Analysis of change in financing during the year 2003 2002 RMB'000 RMB'000 Balance as at the beginning of the year 560,846 534,440 Additions during the year 562,280 549,346 Repayments during the year (560,846) (522,940) Balance as at the end of the year 562,280 560,846 20. Notes to the consolidated cash flow statement -continued 41 (c) Analysis of cash and cash equivalents 2003 2002 RMB'000 RMB'000 Cash and bank balances 152,077 154,521 Less: Fixed deposits pledged as securities to bank loans (100,743) (109,050) Cash and cash equivalents 51,334 45,471 21. Principal Subsidiaries Place of Equity Principal Interest Subsidiaries establishment/ Registered capital activities held incorporation Shenzhen International Arcade Department Shenzhen RMB 10,000,000 99.94% Co., Ltd. store operation Shenzhen Longgang Department International Arcade Enterprise Shenzhen RMB 15,000,000 100% store operation Co., Ltd. Shenzhen International Arcade Department Shenzhen RMB 10,000,000 100% Chain Store store operation Shenzhen International Arcade Property Shenzhen RMB 7,000,000 61% Property Management Co., Ltd. management Property Shenzhen Rongfa Investment Shenzhen USD 5,000,000 construction 60% Co., Ltd. and trading Shenzhen Grace International Meizi Town Industry and Shenzhen RMB5,000,000 Cosmetic retail 64% Conmmerce Co., Ltd. Property Huizhou Rongfa Industry Huizhou RMB6,000,000 construction 95.34% Investment Co., Ltd. and trading Anhui International Arcade Property Hefei RMB500,000 60.90% Property Management Co., Ltd. management 22. Contingent liabilities During the year, a subsidiary provided guarantee to mortgagees for the mortgage loans for the purchases of residential properties in Grace Mansion for the maximum period of 20 years to the extent of RMB490million. 23. Contingent assets 42 As a plaintiff, the subsidiary raised in a court case for taking back the loan RMB 6,147,005.00 from Longhua Town Buoluo County Guangdong in 1989. The defendant is the government of Longhua Town. In 1990, as the defendant was unable to meet the repayment, the court suspended the case, and the subsidiary wrote off its rights. Till December of 2002, the court seal up all the land for industry and business of defendant about 27,147.48 square meters. The amount of 1,659,700.00 had been received in 2003 and written back in the provision of bad debt of this period. 24. Pledge of assets As at 31 December 2003, bank fixed deposits of RMB100,743,000 (2002: RMB109,050,000) and land and buildings with a net book value of RMB577,941,000 (2002: RMB320,161,000) have been pledged to the banks for the general banking facilities granted to the Group. 25. Operating leases Leases as leasor The Group leases out certain properties under non-cancelable operating leases. Rental income to be received as follows: 2003 2002 RMB'000 RMB'000 Land and buildings - expiring in the first year 16,676 19,000 - expiring in the second to fifth years inclusive 7,652 80,000 - expiring after the fifth year 9,297 - 33,625 99,000 26. Material related party transactions There are no significant related party sales and purchases during the year. 27. Impact of IAS adjustments on profit/loss Profit for the year ended 2003 2002 RMB'000 RMB'000 As reported in financial statements prepared in accordance with PRC GAAP 1,254 (25,707) Provision for doubtful debts - 264 43 Provision for obsolete stock - 5,564 Taxation paid (3,799) - Additional depreciation charge (2,818) (812) Additional amortization charge 69 (3,048) Minority interest 2,647 - (2,647) (23,739) 28. Impact of IAS adjustments on consolidated net assets 31 December Consolidated net assets 2003 2002 RMB'000 RMB'000 As reported in financial statements prepared in accordance with PRC GAAP 331,895 332,920 Provision for depreciation (1,691) (812) Consolidate adjustments 9,876 10,627 Amortization of goodwill 69 62 340,149 342,797 29. Approval of financial statements The financial statements were approved by the Board of Directors on 21 April 2004. 44