东旭光电(000413)宝石Ｂ2003年年度报告（英文版）

Shijiazhuang Baoshi Electronic Glass Co., Ltd. Annual Report 2003 Important Notes The Board of Directors of the Company hereby guarantees that there are no misstatement, misleading representation or important omissions in this report and shall assume joint and several liability for the authenticity, accuracy and completeness of the contents hereof. The board chairman of the Company Mr. Dong Qingxiang, general manager Mr. Song Hongbo and chief accountant Mr. Zhou Yumao represent and warrant the financial report in this annual report is true and complete. Table of Contents Chapter 1 Brief Introduction of the Company Chapter 2 Financial Highlights Chapter 3 Particulars about the Changes of Share Capital and Shareholders Chapter 4 Directors, Supervisors, Senior Executives and Staff Chapter 5 Control Structure of the Company Chapter 6 Brief Introduction of Shareholders’ General Meeting Chapter 7 Report of the Board of Directors Chapter 8 Repot of the Supervisory Committee Chapter 9 Important Events Chapter 10 Financial Reports Chapter 11 List of Documents Available for Inspection - １ - Chapter 1 Brief Introduction of the Company (I) Statutory name of the Company In Chinese :石家庄宝石电子玻璃股份有限公司 In English : Shijiazhuang Baoshi Electronic Glass Co., Ltd. Short form of English Name: SJZBS (II) Legal Representative: Dong Qingxiang (III) Secretary of the Board of Directors: Luo Lina Securities affair representative: Wang Hua Contact address: No.2, Huaqing Street, Zhongshan East Road, Shijiazhuang, Hebei Province (the Securities Dept. of the Company) Tel: 0311-6044705 Fax: 0311-6041503 E-mail: bsdz@heinfo.net (IV) Registered Address: No.9, Huanghe Road, Shijiazhuang High-tech Industrial Development Area, Shijiazhuang, Hebei Province Office Address: No.9, Huanghe Road, Shijiazhuang High-tech Industrial Development Area, Shijiazhuang, Hebei Province Zip Code: 050035 E-mail: :baoshi@mx.hebei.net.cn (V) Newspapers for Information Disclosure: China Securities Daily, Hong Kong Commercial Daily Website Designated by CSRC for Publishing theAnnual Report: http://www.cninfo.com.cn The Place for Placing the Annual Report: Securities Dept. of the Company (VI) Stock Exchange for Listing: Shenzhen Stock Exchange Stock Abbreviation: Baoshi A, Baoshi B Stock Code: 000413, 200413 (VII) Other Relevant Information 1. The date when and the place where the Company made its first registration: December 26, 1992 Shijiazhuang City 2. Registration No. of Legal Entity Business License: 1300001001778 3. Tax Registration No.: 130102104395983 4. The name and office address of the Certified Public Accountants engaged by the - ２ - Company: Domestic Certified Public Accountants: Pricewaterhouse Coopers Zhongtian Certified Public Accountants Co., Ltd. Address: 12/F, Ruian Square, No.333 Huaihai Middle Road, Shanghai Overseas Certified Public Accountants: Pricewaterhouse Coopers China Co., Ltd. Business Address: New York, U.S.A. NY 10185 –1448 P.O Box 1448 Chapter 2 Highlights of Accounting Data and Business Data (I) Main profit indicators of the report year (consolidated financial statement) RMB Total profit 25,976,164 Net profit 22,070,871 Net profit after deducting non-recurring gains and 8,228,582 losses Profit from key business 22,218,606 Profit from other businesses 18,572,248 Operating profit -11,593,157 Investment income 37,998,536 Subsidy income - Net amount of non-operating income/expenditure -429,215 Net cash flow from operating activities -171,489,155 Net increase of cash and cash equivalents -51,892,951 I. Note: The amount of the items of non-recurring gains and losses deducted (RMB) 1. Fund possession cost collected 9,900,061 2. Non-operating income 75,760 3. Non-operating expenses 504,975 4. Writeback of provision for impairment of assets made in previous years 4,371,443 (II) The net profit calculated pursuant to Chinese accounting standards and International Accounting Standards (IAS) and the notes to the net profit difference 2003 RMB'000 Pre-tax profit pursuant to IAS 22071 Pre-tax profit pursuant to Chinese accounting standards 22071 and system (III) Main Accounting Data and Financial Indicators over the Past Three Years as at the End of the Report Period Unit:RMB - ３ - Item /year 2003(consolidated) 2002(consolidated) 2001(consolidated) Income from key business 80,896,915 53,621,716 62,388,165 Net profit 22,070,871 29,198,154 39,390,980 Total assets 1,412，218，041 1,505,567,156 1,538,478,066 Shareholders’ equity 599,526,291 577,455,420 547,155,173 Earnings per share 0.058 0.076 0.103 Net assets per share 1.57 1.51 1.43 Net assets per share after adjustment 1.54 1.49 1.41 Net cash flows per share from operating activities -0.45 -0.06 -0.218 Return on net assets (%) 3.68% 5.06% 7.20% Return on equity after 1.37% 5.40% 7.62% deducting non-recurring gains and losses (%) (IV) Attached Schedule of Profit Statement Profit in the report period Return on net assets (%) Earnings per share (RMB) Fully diluted Weighted Fully diluted Weighted average average Profit from key business 3.71 3.78 0.06 0.06 Operating profit -1.93 -1.97 -0.03 -0.03 Net profit 3.68 3.75 0.06 0.06 Earnings per share after deducting non-recurring gains 1.37 1.40 0.02 0.02 and losses (V) Particulars about Changes of Shareholders’ Equity during the Report Period Unit: RMB Item Share Capital common Surplus Statutory Retained profit Total capital reserve reserve public welfare shareholders’ (’0000share fund equity s) Balance at 38300 536,433,509 27,454,788 - -369,432,877 577,455,420 beginning of the period Increase in - - - - 22,070,871 22,070,871 this period Decrease in - - - - - - this period Balance at 38300 536,433,509 27,454,788 - -347,362,006 599,526,291 - ４ - end of the period Reasons of - - - - Net profit - change increase Chapter 3 Particulars about Changes in Share Capital and Shareholders (I) The changes of share capital of the Company The statement of changes of share capital: (in shares) Before the Increase/decrease this time (+ , - ) After the change Share Bonus Capitaliz Issuin Oth change allotm shares ation of g ers ent common additio reserve nal fund shares (Ⅰ) Non-negotiable Shares 233410500 233410500 1.Promoters’ shares: including 230410500 230410500 State-owned shares 3000000 3000000 Domestic corporate shares Foreign corporate shares Others 2. Raised corporate shares 4500000 4500000 3. Staff shares 4. Preferred shares or others 17100 17100 Total non-negotiable shares 237927600 237927600 Ⅱ. Negotiable Shares 1. Domestically listed RMB 45072400 45072400 common shares 2. Domestically listed 100000000 100000000 foreign-capital shares 3. Overseas listed foreign-capital shares - ５ - 4. Others Total negotiable shares 145072400 145072400 Ⅲ. Total shares 383000000 383000000 (II) Share issuance and listing The Company did not issue new shares in the previous three years by the end of the report period. （III） Particulars about shareholders 1. As of December 31, 2003, the Company had 24313 shareholders of A shares and 15881 shareholders of B shares. 2. Particulars about the shares held by the top ten shareholders (as of December 31, 2003) Name of shareholder No. of shares Proportion of total held share capital (%) 1. Shijiazhuang Baoshi Electronic Group Co., Ltd. 230410500 60.16 2. DAIWA SECS.SMBC HONG KONG 6500000 1.70 LTD-CLIEMS 3. China Electronic Import and Export Corporation 2000000 0.52 4. Zhonghua Hebei Import and Export Co. 1000000 0.26 5. Shijiazhuang Trust Investment Co. 1000000 0.26 6.Jiang Fengmei 543400 0.14 7.Chen Yongquan 539762 0.14 8.Shanghai Yibohang Trade Co., Ltd 473500 0.12 9.Wang Ximing 466000 0.12 10.Zhang Sheng 420000 0.11 Among the above ten shareholders, No.1 is the shareholder of state-owned shares. No.2, 6, 7, 9 and 10 are shareholders of domestically listed foreign investment shares. Note: 1. Shijiazhuang Baoshi Electronic Group Co., Ltd. (the Group Co.), the - ６ - shareholder holding over 5% (including 5%) of the total shares of the Company, holds 230.4105 million shares of the Company. Such shares were nor changed or pledged or trusted in the report year. 17 million shares of the Company held by it that were frozen by the Company due to guarantee were unfrozen according to the ruling of Hebei Shijiazhuang Intermediate People's Court on October 28, 2003. However, 8965517 shares of the Company held by it were frozen by Hebie Higher People's Court due to guarantee in August 2003. 2. The related relation between the top ten shareholders is unknown. They are not persons taking concerted action specified in Regulations on the Information Disclosure of the Change of Shareholding of Shareholders of Listed Companies. 3. Brief Introduction of the controlling shareholder of the Company and the actual controller of the controlling shareholder The controlling shareholder of the Company is Shijiazhuang Baoshi Electronic Group Co., Ltd. (Baoshi Group Co.) It holds 60.16% equity of the Company. Date of establishment: October 10, 1997. Nature: Wholly state-owned enterprise. Registered capital: RMB 0.9 billions, Legal representative: Dong Qingxiang. Business scope: Dealing in state-owned capital within authorized scope, color cathode-ray tube series products and supporting electronic components, etc. The actual controller of the controlling shareholder is Shijiazhuang State-owned Asset Management Committee. 4. Particulars about the shareholding of the top 10 shareholders at the end of the report period Name of shareholders Quantity of shares held at the Type of shares held end of year ① DAIWA SECS SMBC HONG KONG B shares 6500000 LTD-CLIENTS ② Jiang Fengmei B shares 543400 ③ Chen Yongquan B shares 539762 ④ Shanghai Yibohang Trade Co., Ltd A shares 473500 ⑤ Wang Ximing B shares 466000 ⑥ Zhang Sheng B shares 420000 ⑦ Shanghai Hong Kong Wanguo B shares 419358 Securities ⑧ Wu Sumei B shares 394200 - ７ - ⑨ Zhong Peijin B shares 379900 ⑩ Beijing Licheng Investment A shares 365800 Management Co., Ltd The relation between the top ten shareholders holding negotiable shares of the Company is unknown. Chapter 4 Particulars about Directors, Supervisors, Senior Executives and Staff of the Company (I) Directors, Supervisors and Senior Executives 1. Basic information Name Sex Age Position Term of office No. of shares held Dong Male 65 Chairman of 2003.6-2006.6 2000 Qingxiang Board of Directors Gao Tiezhan Male 60 Deputy Chairman 2003.6-2006.6 500 of Board of Directors Wang Male 59 Deputy Chairman 2003.6-2006.6 1500 Rongxian of Board of Directors Song Hongbo Male 49 Director & GM 2003.6-2006.6 0 Zhou Bo Male 38 Director 2003.6-2006.6 6800 Ye Huifen Female 44 Director 2003.6-2006.6 0 Hu Shouling Male 68 Independent 2003.6-2006.6 0 Director Ma Chao Male 38 Independent 2003.6-2006.6 0 Director Zhang Hao Male 59 Independent 2003.6-2006.6 0 Director Li Zhenzhong Male 60 Supervisor 2003.6-2006.6 0 Fan Zhenping Male 47 Supervisor 2003.6-2006.6 1000 Li Huiming Male 49 Supervisor 2003.6-2006.6 2400 Zhang Yanqiao Female 53 Supervisor 2003.6-2006.6 0 Li Hong Male 49 2003.6-2006.6 800 Yao Junting Male 34 Supervisor 2003.6-2006.6 0 Zhang Male 42 Supervisor 2003.6-2006.6 0 Zhanshuan Gao Dacai Female 58 Deputy GM 2003.6-2006.6 0 - ８ - Yang Guang Male 51 Deputy GM 2003.6-2006.6 0 Zhang Wenhai Male 52 Deputy GM 2003.6-2006.6 0 Gao Yanxiong Male 36 Deputy GM 2003.6-2006.6 0 Zhou Yumao Male 51 Chief accountant 2003.6-2006.6 0 Luo Lina Female 48 Board secretary 2003.6-2006.6 0 Note: The shares held by the above personnel did not change in the report period. 2. The positions held by the directors and supervisors of the Company at the shareholder companies: Name Company Position Dong Shijiazhuang Baoshi Electronic Chairman of board of Qingxiang Group Co., Ltd. directors Gao Tiezhan Shijiazhuang Baoshi Electronic Director, chief accountant Group Co., Ltd. and General Manager Wang Shijiazhuang Baoshi Electronic Deputy GM Rongxian Group Co., Ltd. Song Hongbo Shijiazhuang Baoshi Electronic Director Group Co., Ltd. Zhou Bo Shijiazhuang Baoshi Electronic Director Group Co., Ltd. Lu Fengyi Shijiazhuang Baoshi Electronic Director and chairman of Group Co., Ltd. Labor Union Song Hongbo Shijiazhuang Baoshi Electronic Director Chief mechanist Group Co., Ltd. Ye Huifen Shijiazhuang Baoshi Electronic Manager of Operation Group Co., Ltd. Dept. Li Shijiazhuang Baoshi Electronic Chairman of the Zhenzhong Group Co., Ltd. supervisory committee Fan Shijiazhuang Baoshi Electronic Deputy director of Public Zhenping Group Co., Ltd. Security Section Yao Junting China Electronic Import and Export Deputy GM of Finance Corporation Management Dept. Zhang Zhonghua Hebei Import and Export Deputy Manager of Zhanshuan Co. Comprehensive Management Dept. 3. Annual remuneration (1)Annual remuneration of directors, supervisors and senior executives Unit: RMB Total amount of annual 257115 remuneration The total amount of the 57837.60 - ９ - remuneration of the top three directors receiving the remuneration of the highest amount The total amount of the 115196.46 remuneration of the top three senior executives receiving the remuneration of the highest amount Subsidy of independent RMB 10,000 / person /year directors Other benefits of independent Nil directors Dong Qingxiang,Gao Tiezhan、Wang Rongxian、Zhou Bo、Ye Huifen、 Name of directors and Li Zhenzhong、Fan Jianping、Yao Junting and Zhang Zhanshuan. supervisors not receiving Except that director Zhou Bo received remuneration from the remuneration and subsidy associated company of the Company, all other above-mentioned from the Company personnel received remuneration from corporate shareholders. Range of remuneration Number of person RMB 20,000 - 30,000 4 RMB 30,000 - 40,000 3 Over RMB 40,000 1 4. Directors, supervisors and senior executives leaving their post in the report period In the report period, Wang Xi, Lu Fengyi, Luo Lina and Gao Dacai left their post due to the expiration of their term of office. On June 26, 2003, the Company held the 1st meeting of the fourth board of directors and appointed Mr. Song Hongbo as the general manager of the Company, Gao Dacai, Yang Guang, Zhang Wenhai and Gao Yanxiong as deputy general managers of the Company, Mr. Zhou Yumao as the chief accountant of the Company and Luo Lina as the board secretary of the Company. (II) Particulars about staff As of December 31, 2003, the Company has 1094 staff members in total, including 486 production staff, 13 sales staff, 93 technical staff, 23 financial staff, 127 administrative staff and 352 other staff. The personnel with university, college and secondary specialized school education accounted for 37% of the total staff and - １０ - workers. 25.22% of the staff had professional technical titles. The number of the retired staff whose retirement pension is paid by the Company is 280. Chapter 5 Company Administration Structure I. Particulars about corporate administration In the report period，the Company further improved independent director system，appointed independent directors as required within specified time limit so that the number of independent directors reached one third of total directors, actively implemented rules and regulations including the Articles of Association of the Company, Rules of Procedure of Shareholders' General Meeting, Rules of Procedure of the Board of Directors, Rules of Procedure of the Supervisory Committee and Detailed Working Rules of General Manager according to the requirements of the Company Law, the Securities Law, relevant laws and regulations of CSRC and Listing Rules of Shenzhen Stock Exchange and constantly enhanced its administration level. II. Particulars about duty performance of independent directors The Company now has 3 independent directors. The number of independent directors accounts for one third of total directors of the Company. In the report period，the independent directors of the Company seriously and independently performed their duties according to relevant provisions of the Articles of Association of the Company, attended board meetings on time, investigated the proposals examined at meetings and seriously expressed their own opinions. They expressed independent opinions on important events including related transactions and gave play to their due function. Chapter 6 Brief Introduction of Shareholders' General Meeting - １１ - I. Notice, convening and holding of shareholders' general meeting The Company held 2002 annual shareholders' general meeting in the report period. On May 24, 2003, the Company published the announcement of holding 2002 annual shareholders' general meeting of the Company on June 26, 2003 on China Securities Daily and Hong Kong Commercial Daily. The Company held 2002 Annual Shareholders' General Meeting in the meeting room of the office building of the Company in the morning of June 26, 2003. The meeting examined and adopted the following resolutions: 1. 2002 work report of the board of directors of the Company; 2. 2002 annual report of the Company and its summary; 3. 2002 work report of the supervisory committee of the Company; 4. Final accounting report of the Company for 2002; 5. Profit distribution preplan of the Company for 2002; 6. The Proposal for Amending the Articles of Association of the Company; 7. The Proposal for Reelecting the Board of Directors and the Supervisory Committee of the Company; 8. The Proposal Concerning the Subsidy of Independent Directors of the Fourth Board of Directors of the Company; 9. The Proposal for Continuing the Engagement of Pricewaterhouse Coopers Zhongtian Certified Public Accountants Co., Ltd. and Pricewaterhouse Coopers China Co., Ltd. as the Financial Auditing Organs of the Company Inside and Outside China in 2003; 10. The Proposal for the Signing of Four Agreements by Shijiazhuang Baoshi Color Bulb Co., Ltd., Shijiazhuang Representative Office of China Great Wall Asset Management Co. and Shijiazhuang Baoshi Electronic Group Co., Ltd. in Respect of the Transfer of Debts Totaling RMB 466,853,639.63. The announcement of the resolutions of this meeting was published on China Securities Daily and Hong Kong Commercial Daily on June 27, 2003. - １２ - II. Particulars about the election and replacement of director and supervisors 2002 annual shareholders' general meeting of the Company examined and adopted the Proposal for Reelecting the Board of Directors and the Supervisory Committee of the Company and elected Dong Qingxiang, Gao Tiezhan, Wang Rongxian, Song Hongbo, Zhou Bo and Ye Huifen as directors of the fourth board of directors of the Company and Hu Shouling, Ma Chao and Zhang Hao as the independent directors of the fourth board of directors of the Company. The fourth supervisory committee of the Company is composed of 7 persons. The congress of workers and staff of the Company elected Mr. Li Huiming, Mr. Li Hong and Ms Zhang Yanqiao as supervisors who are representatives of staff and workers. This meeting elected Li Zhenzhong, Fan Zhenping, Yao Junting and Zhang Zhanshuan as supervisors who are shareholders' representatives. Chapter 7 Report of the Board of Directors I. Operating status of the Company 1. The scope of the Company's main operation and its operating status: The Company is engaged in the electronic parts and components industry, mainly in the manufacturing and sales of electronic vacuum glass devices and supporting electronic parts and components, export of the self-produced products of the Company and the import of mechanical equipment, parts and components, raw and auxiliary materials needed by the Company. In 2003, the Company's business environment was still highly unfavorable. Due to keen horizontal competition at home and abroad and the challenge of new technological revolution of color TV industry, the Company's production and operation was affected by the unfavorable factors including the lowering of product price and rise of raw material price. Meanwhile, it experienced the severe test of unprecedented epidemic situation of SARS. For attaining the production and operation objective for the report year, all employees of the Company made concerted efforts to overcome the adverse influence of market environment and the epidemic - １３ - situation of SARS and ensured the normal production and operation of the Company through scientific planning, elaborate organization, technical renovation, product innovation, intensification of management and market development. In the report period, income from main operation, cost of main operation and profit from main operation of the Company were RMB 80.90 million, RMB 57.95 and RMB 22.22 million respectively. The gross profit rate and market share of its products were 28.37% and 30% respectively. 2. The Scope of the Company's key business and its operation status: The share-held subsidiaries of the Company and the results of their operation With registered capital of RMB 540.68 million, Shijiazhuang Baoshi Color Glass Bulb Co., Ltd. (Color Bulb Co.) is a share-holding subsidiary of the Company. The Company owns 81.26% equity of Color Bulb Co. Shijiazhuang Baoshi Electrical Nitre Glass Co., Ltd. (the Joint Venture Co.) establish by Color Bulb Co. and Electrical Nitre Kaisha and Nissho-Iwai Kaisha of Japan is mainly engaged in production, processing and sales of glass bulb for color kinescope and display. Color Bulb Co. owns 49% equity of the Joint Venture Co. In 2003, the Joint Venture Company produced 9.01 million color screens (21") and 15.94 million color cones (21"), sold 8.90 million color screens (21") and 15.09 million color cones (21"). The output-sales ratio was 98.8% and 94.7% respectively. In the report period, the sales income and investment income earned by the Company were RMB 1056.21 million, RMB 38.00 million respectively. 3. Main suppliers and customers The total amount of purchase from the top five suppliers accounted for 74.4% of the total purchase amount of the year. The total amount of sales to the top five customers accounted for 96.19% of the total sales amount of the Company. 4. Problems and difficulties occurred in operation and their solutions In 2003，the Company experienced the severe test of the epidemic situation of SARS. Meanwhile, under market influence, the price of raw materials of products rose while the price of products continued to lower. Facing the above unfavorable factors，the Company focused on production while paying attention to the prevention of SARS. During production and operation, it strengthened technical renovation and technological innovation, fully tapped potential, lowered product cost, actively adjusted product structure，effort development product market and thus ensured its normal production and operation and obtained certain results. - １４ - (1) Oriented toward market demand, the Component Factory of the Company actively developed new products and technologies and worked out 6 kinds of new products, i.e., two kinds of Philips-type anode cap, a kind of anode cap for flat shell, two kinds of pins for Panasonic 29" and 34" planarized kinescope and pins for Philips 21" kinescope, through elaborate organization. At present, the Company has 3 lines and over 50 varieties. For realizing the production capacity expansion and scale operation of pins and anode caps, the Company actively promoted the completion of phase-II technical renovation project. At present, equipment tender invitation and installation are under way. (2) To meet the ever-growing market demand of L-35 glass tube, the Glass Tube Factory of the Company constantly improved technological conditions and strengthened production scheduling and technical management so as to steadily enhance product output and quality and enlarge market share. (3) For constantly meeting customers' demands of big-size, planarized and high-side products, the Joint Venture Co. made great efforts to adjust product structure, organized production according to user demand and gradually increased the proportion of big-size and planarized products. The proportion of the income from big-size and planarized products to total sales income increased from 10% at the beginning of the year to 50% at the end of the year. II. Investment of the Company in the report period 1. Investment projects utilizing raised funds The Company did not raise funds in the report period. The funds raised previously were not carried forward into the report period for utilization. 2. Important projects utilizing non-raised funds in the report period There were no important investment projects utilizing non-raised funds in the report period. III. Financial status of the Company in the report period Item 200 (RMB) 2002 (RMB) Increase/dec rease (%) Total assets 1,412,218,041 1,505,567,156 -6.20 Shareholders' 599,526,291 577,455,420 3.82 equity Profit from key 22,218,606 21,720,916 2.29 business Total profit 25,976,164 35,201,642 -26.21 Net profit 22,070,871 29,198,154 -24.41 - １５ - Net increase of -51,892,951 51,223,401 - cash and cash equivalents Main reason for change: 1. Total assets decreased due to repayment of the accounts payable to Baoshi Group Co.; 2. Shareholders' equity increased due to the increase of net profit; 3. Profit from main operation increased due to the increase of income from main operation after L-35 glass tube project of the Company was put into production; 4. Total profit and net profit decreased mainly due to the decrease of operating profit; 5. Net increase of cash and cash equivalents decreased due to the writeoff of the accounts payable to Baoshi Group Co. with cash. IV. Operation plan for the next year With the development of domestic color TV industry, China has become the largest production base for color TV and its supporting products, which has provided good development opportunities to the Company. However, it should also be seen that the intensification of international trade protectionism during the development of world economy and the new technological revolution in color TV industry in recent period have made traditional color TV industry face challenge. The Company's business environment has been more rigorous and the market competition has been fiercer. The Company will pay close attention to the change of domestic and international market, seize opportunities and rise to challenges. It will establish scientific development values, closely center on the subject of development, give play to its own advantages, greatly develop its key business, actively carry out science and technology innovation and product innovation，strengthen speciality management and basic management，deepen reform and explore new mode of capital operation to realize its continuous, rapid, coordinated and healthy development in the new year. 1. With China's becoming a production base of traditional color TV and its supporting products, the demand of the Company's pins, anode caps and l-35 glass - １６ - tubes will increase greatly. The Company will seize this opportunity，actively create conditions，increase investment，constantly carry out renovation, enlarge scale and arrange the completion of the phase-II project of technical renovation of the production lines of pin and anode cap. Meanwhile, it will actively seek international partners, strive to open up international market based on consolidating and enlarging domestic market share and attain the objective of great development on the strength of high output, great variety, high quality and quick development. 2. The Company will enhance its technological development ability，speed up the localization of manufacture of raw materials for pin and anode cap products, enhance the output and quality of L-35 glass tube products, lower product cost and enhance the price competitiveness of its products through strengthening basic management, production control and technical management. 3. The Company will keep track of domestic and international market demands and product development direction, strengthen product development, actively develop new products, increase best-selling varieties, develop new users and satisfy customer demands to the greatest extent. 4. The Joint Venture Co. will give play to its technical advantages，continue to strengthen technical renovation and technological innovation，enhance the proportion of large-screen planarized color bulbs, adopt new technologies to make glass bulb develop toward the direction of light type, flat type and environment-friendliness and strive to realize wide variety, differentiation, high quality, low cost and high efficiency of color bulb products. 5. The Company will deeply explore new development strategy and strive to seek greater development through capital and assets integration. V. Business development plan for the next year V. Routine Work of the Board of Directors 1. Board meetings and resolutions in the report period (1) On January 3, 2003, the third board of directors of the Company held the 19th meeting. The meeting examined and adopted the agreement signed by Shijiazhuang Baoshi Color Bulb Co., Ltd., a controlled subsidiary of the Company, - １７ - the creditor Shijiazhuang Representative Office of China Great Wall Asset Management Co. and Shijiazhuang Baoshi Electronic Group Co., Ltd., the controlling shareholder of the Company, in respect of the transfer of debt of RMB 40 million. (2) On April 9, 2003, the third board of directors of the Company held the 20th meeting. The meeting examined and adopted the agreement signed by Shijiazhuang Baoshi Electronic Group Co., Ltd., the controlling shareholder of the Company, and Shijiazhuang Baoshi Color Bulb Co., Ltd., a controlled subsidiary of the Company in respect of the transfer of the interest accrued from the conversion of debts into shares totaling RMB 32.64 million. (3) The 21st meeting of the third board of directors of the Company was held on April 15, 2003. The meeting examined and adopted the following: 1) 2002 work report of the board of directors of the Company; 2) 2002 annual report of the Company and its summary; 3) Final accounting report of the Company for 2002; 4) Profit distribution preplan of the Company for 2002; 5) The report of the general manager of the Company on provision for impairment of assets for 2002; 6) The proposal for separate announcement of the holding of 2002 annual shareholders' general meeting of the Company. (4) The 22nd meeting of the third board of directors of the Company was held on April 25, 2003. The meeting examined and adopted the report of the Company for the first quarter of 2003. (5) On May 20, 2003, the third board of directors of the Company held the 23rd meeting. The meeting examined and adopted the agreement signed by Shijiazhuang Baoshi Color Bulb Co., Ltd., a controlled subsidiary of the Company, the creditor Shijiazhuang Representative Office of China Great Wall Asset Management Co. and Shijiazhuang Baoshi Electronic Group Co., Ltd., the controlling shareholder of the Company, in respect of the transfer of debt of RMB 120 million. (6) The 24th meeting of the third board of directors of the Company was held on - １８ - May 23, 2003. The meeting examined and adopted the following: 1) 2002 work report of the board of directors of the Company; 2) 2002 annual report of the Company and its summary; 3) 2002 work report of the supervisory committee of the Company; 4) Final accounting report of the Company for 2002; 5) Profit distribution preplan of the Company for 2002; 6) The Proposal for Amending the Articles of Association of the Company; 7) The Proposal for Reelecting the Board of Directors and the Supervisory Committee of the Company; 8) The Proposal Concerning the Subsidy of Independent Directors of the Fourth Board of Directors of the Company; 9) The Proposal for Continuing the Engagement of Pricewaterhouse Coopers Zhongtian Certified Public Accountants Co., Ltd. and Pricewaterhouse Coopers China Co., Ltd. as the Financial Auditing Organs of the Company Inside and Outside China in 2003; 10) The Proposal for the Signing of Three Agreements by Shijiazhuang Baoshi Color Bulb Co., Ltd., Shijiazhuang Representative Office of China Great Wall Asset Management Co. and Shijiazhuang Baoshi Electronic Group Co., Ltd. in Respect of the Transfer of Debts Totaling RMB 200 million. (7) On May 28, 2003, the third board of directors of the Company held the 25th meeting. The meeting examined and adopted the agreement signed by Shijiazhuang Baoshi Color Bulb Co., Ltd., a controlled subsidiary of the Company, the creditor Shijiazhuang Representative Office of China Great Wall Asset Management Co. and Shijiazhuang Baoshi Electronic Group Co., Ltd., the controlling shareholder of the Company, in respect of the transfer of debt of RMB 266,853,639.63. (8) On June 9, 2003, the third board of directors of the Company held the 26th meeting. The meeting examined and adopted the content and revised content of the following proposals to be submitted to 2002 annual shareholders' general meeting of the Company for examination: - １９ - 1) The Proposal for Amending the Articles of Association of the Company; 2) The Proposal for Reelecting Directors and Supervisors of the Company; 3) The Proposal Concerning the Subsidy of Independent Directors of the Fourth Board of Directors of the Company; 4) The Proposal for Revising the Proposal for the Signing of Three Agreements by Shijiazhuang Baoshi Color Bulb Co., Ltd., Shijiazhuang Representative Office of China Great Wall Asset Management Co. and Shijiazhuang Baoshi Electronic Group Co., Ltd. in Respect of the Transfer of Debts Totaling RMB 200 million. (9) On June 13, 2003, the third board of directors of the Company held the 27th meeting. The meeting examined and adopted the agreement signed by the Company, Shijiazhuang Baoshi Color Bulb Co., Ltd., a controlled subsidiary of the Company, the creditor Shijiazhuang Representative Office of China Orient Asset Management Company and Shijiazhuang Baoshi Electronic Group Co., Ltd., the controlling shareholder of the Company, in respect of the transfer of debt of RMB 110,302,337.76 and RMB 214,235,310.28. (10) The 1st meeting of the fourth board of directors of the Company was held on June 26, 2003. The meeting examined and adopted the following resolutions: 1) Electing Mr. Dong Qingxiang as the chairman of the board of directors of the fourth board of directors of the Company and Mr. Gao Tiezhan and Mr. Wang Rongxian as vice chairmen thereof; 2) Appointing Song Hongbo as the general manager of the Company, Gao Dacai, Yang Guang, Zhang Wenhai and Gao Yanxiong as deputy general managers of the Company and Zhou Yumao as the chief accountant of the Company; 3) Appointing Luo Lina as the board secretary of the Company according to the nomination of the chairman of the board of directors. (11) On August 7, 2003, the fourth board of directors of the Company held the 2nd meeting. The meeting examined and adopted the agreement signed by Shijiazhuang Baoshi Electronic Group Co., Ltd., the controlling shareholder of the Company, and Shijiazhuang Baoshi Color Bulb Co., Ltd., a controlled subsidiary of - ２０ - the Company in respect of the transfer of the interest accrued from the conversion of debts into shares totaling RMB 14.08 million. (12) The 3rd meeting of the fourth board of directors of the Company was held on August 19, 2003. The meeting examined and adopted the following: 1) 2003 Semiannual Report of the Company and its summary; 2) The 2003 semiannual profit distribution preplan of neither distributing profit nor capitalizing capital surplus. (13) The 4th meeting of the fourth board of directors of the Company was held on October 21, 2003. The meeting examined and adopted the report of the Company for the third quarter of 2003. 2. Implementation by the board of directors of the resolutions of the shareholders' general meeting The board of directors duly implemented all resolutions of the shareholders' general meeting in the report period. VI. Profit distribution preplan As audited by Pricewaterhouse Coopers Zhongtian Certified Public Accountants Co., Ltd., the net profit of the Company for 2003 was RMB 22,070,871. As the cash flow from operating activities of the Company is negative and the Company still has uncovered losses of RMB 347,362,006, the board of directors of the Company has decided neither to distribute profit nor capitalize any capital surplus for the report year. This preplan is to be submitted to 2003 annual shareholders' general meeting for examination. VII. Miscellaneous The newspapers selected by the Company for information disclosure remained China Securities Daily and Hong Kong Commercial Daily in the report period. VIII. Special audit statement of certified public accountants on fund occupation by - ２１ - the controlling shareholder and other related parties of the Company To the Board of Directors of Shijiazhuang Baoshi Electronic Glass Co., Ltd.: We accepted entrustment and audited the balance sheet of Shijiazhuang Baoshi Electronic Glass Co., Ltd. ("the Company") and the consolidated balance sheet of the Company and its subsidiaries ("the Group") as at December 31, 2003 and the profit statement of the Company and the consolidated profit statement of the Group, the profit distribution statement of the Company and the consolidated profit distribution statement, the cash flow statement of the Company and the consolidated cash flow statement of the Group for the year then ended pursuant to the independent audit standards of Chinese C.P.A. and issued Pricewaterhouse Coopers Zhongtian (2004) No. 830 unqualified auditor's report on March 31, 2004. As required by the Circular on Certain Issues Relating to Standardization of Fund Transfer Between Listed Companies and Their Related Parties and Guarantees Provided by Listed Companies ( ZJF (2003) No. 56 Document) issued by China Securities Regulatory Commission and State-owned Assets Supervision and Administration Commission of the State Council, the Company prepared the hereinafter attached statement of fund occupation by the controlling shareholder and other related parties of the Company as of December 31, 2003 (hereinafter referred to as "the Statement"). It is the responsibility of the Company to prepare the Statement according to facts, disclose it to the public and ensure its truthfulness, lawfulness and completeness. We checked the information in the Statement against the accounting information rechecked by us when auditing the financial report of the Company for 2003 and relevant content of audited financial report and found no discrepancy in all material aspects. Except the audit procedure implemented in the audit of the financial statements of the Company for 2003 in respect of related transactions, we did not implement additional audit procedure to the data in the Statement. For better understanding the fund occupation by the controlling shareholder and other related parties of the Company, the hereinafter attached Statement shall be read together with the audited consolidated financial statements. This letter shall only be used by the Company for disclosing the status of fund occupation by the controlling shareholder and other related parties, which shall not be used for any other purpose. Pricewaterhouse Coopers Zhongtian Certified Public Accountants Co., Ltd. C.P.A.: Wang Xiao C.P.A.: Xie Qian March 31, 2004 - ２２ - Appendix Statement of Fund Occupation by the Controlling Shareholder and Other Re Baoshi Electronic Glass Co., Ltd. Status of fund occupation Name of related party Relation Total transaction amount Ultimate Shijiazhuang Baoshi Electronic Group controlling 2,801 O Co., Ltd. company Operating fund transfer Shijiazhuang Baoshi Electric Glass Affiliated 16,714 Co., Ltd. company Collected fund possession cost: Ultimate Shijiazhuang Baoshi Electronic Group 329 Collected or paid fund controlling O Co., Ltd. Paid fund possession cost: possession cost company (1,199) Collected interest income Shijiazhuang Baoshi Electric Glass Affiliated Collected interest income: 661 Co., Ltd. company Debt transferred into the ultimat Ultimate Shijiazhuang Baoshi Electronic Group controlling company controlling (59,184) O Co., Ltd. company Fund transfer, etc. Ultimate Shijiazhuang Baoshi Electronic Group controlling 9,433 O Co., Ltd. company Shijiazhuang Baoshi Electronic Group Ultimate (47,820) O Total Co., Ltd. controlling company Shijiazhuang Baoshi Electric Glass Affiliated Total 17,375 Co., Ltd. company Note: Operating fund transfer is mainly the income from the sales of raw materials and power and provision of repair se assets use charge. This statement was approved by the board of directors on April 21, 2004. Persons in charge of the Company: Dong Qingxiang Controller of accounts: Song Person in charg Hongbo -23- Chapter 8 Report of the Supervisory Committee I. The meetings of the supervisory committee In the report period, the supervisory committee held three meetings in total. The particulars of the meetings are as follows: 1. The 8th meeting of the third supervisory committee of the Company was held on April 15, 2003. The meeting examined and adopted the following: (1) 2002 work report of the supervisory committee of the Company; (2) 2002 annual report of the Company; (3) Final accounting report of the Company for 2002. 2. The 1st meeting of the fourth supervisory committee of the Company was held on June 26, 2003. The meeting examined and adopted the proposal for electing Li Zhenzhong as the convener of the fourth supervisory committee of the Company. 3．The 2nd meeting of the fourth supervisory committee of the Company was held on August 19, 2003. The meeting examined and adopted 2002 semiannual report of the Company. II. The independent opinions of the supervisory committee of the Company (1) The operation of the Company according to law In 2003, the Company was able to operate in accordance with relevant laws and regulations of the state, the Articles of Association of the Company and the resolutions of shareholders' general meeting. Its decision making procedure was legal. The Company established corresponding internal control system while gradually perfecting its corporate administration structure. No act of the directors and managers of the Company was found to violate the laws, regulations and the Articles of Association or harm the Company's interests when they performed their duties. （2）The 2003 financial reports of the Company truly reflected the financial status and operating results of the Company. The standard unqualified auditors' report issued by Pricewaterhouse Coopers Zhongtian Certified Public -1- Accountants Co., Ltd. was objective and fair. （3）. The Company did not raise funds in the report period. （4）. The Company neither acquired nor disposed of assets in the report period. （5）. The related transactions were fair and did not harm the interests of the Company. Chapter 9 Important Events (I) Material lawsuits and arbitration The Company did not get involved in any material lawsuit or arbitration in the report period. (II) Material Related Transactions 1. The related transactions in respect of purchase and sales of commodities and provision of labor service Related Contents of Transaction Pricing Mode Proporti Influence parties transactions amount principle of on of the on the (RMB) settle same profit of the ment kind of Company transacti on Baoshi Sales of 8,683,658 Agreed Curren 9.17% Group Co. finished price cy Profit products increase Sales of 19,570,828 Agreed Curren 15.48% Profit power price cy increase Sales of raw 2,692,847 Agreed Curren 53.84% Profit materials price cy increase The Joint Sales of Agreed Curren Profit Venture Co. finished 24,545,371 price cy 25.93% increase products Sales of 92,287,526 Agreed Curren 73.01% Profit power price cy increase Provision of 28,942,564 Agreed Curren 79.46% Profit labor price cy increase service 2. The current debts and creditor’s rights between the Company and related parties Related parties Amount (RMB) Reason of formation Influence on the Company -2- The Group Co. （437,536,039） Debt transfer and The Company operating transfer collected reasonable fund occupation fee from the Group Co. The Joint Venture 116,135,038 According to the Color Bulb Co. Co. agreement between collected reasonable Color Bulb Co. and fund occupation fee from the Joint the Joint Venture Venture Co. Co., the Joint The development of Venture Co. color bulb project by borrowed the money the Joint Venture Co. from Color Bulb Co. increased the to develop the investment income of project of color the Company bulb. 3. Other material related transactions (1) SBCB, a controlled subsidiary of the Company signed agreement with creditor China Great Wall Asset Management Co. and Baoshi Group Co. on January 3, 2003, April 9, 2003, May 20, 2003 and May 28, 2003 respectively. Great Wall Asset Management Co. agreed that SBCB's borrowings and accrued interests totaling RMB 459,493,639.63 would be borne by Baoshi Group Co. Baoshi Group Co. will repay the borrowings. SBCB will no longer assume this debt to Great Wall Asset Management Co. The above agreements were examined and passed at 2002 annual shareholders' general meeting of the Company. (2) The Company, SBCB, a controlled subsidiary of the Company, creditor China Orient Asset Management Company and Baoshi Group Co. signed agreement on May 29, 2003. For meeting the need of the conversion of debts into shares by Baoshi Group Co., Orient Asset Management Company approved the Company's transfer of its borrowing of RMB 110,302,337.76 and SBCB's transfer of its borrowing of RMB 214,235,310.28 to Baoshi Group Co. In case Baoshi Group Co. fails to normally convert debts into shares for certain reason, the relationship of creditor's right and debt will be restored to the original state. This agreement is to be submitted to 2003 annual shareholders' general meeting for examination and adoption. (3) Baoshi Group Co., the controlling shareholder of the Company, and -3- SBCB, a controlled subsidiary of the Company, signed agreements on April 3, 2003 and August 6, 2003. Both parties agreed to transfer the interest of RMB 32.64 million and RMB 14.08 million accrued from the limit of conversion of debts into shares to Baoshi Group Co. If there is any new change in the conversion of debts into shares by Baoshi Group Co. and such change is related to the above interests, the problem shall be settled by Baoshi Group Co. and have nothing to do with SBCB. The above agreements were examined and adopted at the 20th meeting of the third board of directors and the 2nd meeting of the fourth board of directors. III. Important contracts and their performance 1. The Company did not hold in trust or contract for or lease the assets of other companies nor did other companies hold in trust, contract for or lease the assets of the Company in the report period. 2. The Company did not provide guarantee to others in the report period. 3.The Company did not entrust others to management its cash assets in the report IV. The commitments made by the Company and shareholders holding over 5% of the total shares of the Company in the report period 1. The Company published the announcement of the resolutions of the 9th meeting of the third Board of Directors on China Securities Daily and Hong Kong Commercial Daily on November 7, 2001. The Board of Directors of the Company and Baoshi Group Co. has reached agreement on the competition between the Company and Baoshi Group Co. in the same industry arising from the project of renovating and constructing L-35 glass tube production line and will properly solve this issue by the means of asset exchange or other means. At present, this matter is in active discussion. 2. The Company published the announcement of the resolutions of the 11th meeting of the third board of directors on China Securities Daily and Hong Kong Commercial Daily on December 14, 2002. The Company planned to solve part of accounts payable by Baoshi Group Co. to Color Bulb Co. formed during business transaction by debt reorganization or assets reorganization in 2002. As of the end of 2003, the Company had settled it by debt restructuring. 3. As of October 31, 2001, the Joint Venture Co. borrowed funds of RMB 0.26 billion from SBCB. It plans to fully repay the borrowing in the next two years. The Company will urge both parties to implement the plan. In the report period, the Joint Venture Co. repaid RMB -4- 93.38 million according to plan. At the end of the report period, the balance of the funds borrowed by the Joint Venture Co. from SBCB was RMB 116.14 million. V. The engagement of certified public accountants and the payment of remuneration 1. Engagement of certified public accountants 2002 annual shareholders' general meeting of the Company examined and adopted the proposal for continuing the engagement of Pricewaterhouse Coopers Zhongtian Certified Public Accountants Co., Ltd. and Pricewaterhouse Coopers China Co., Ltd. as the auditing organ of the Company inside and outside China in 2003. 2. Payment of remuneration The Company paid remuneration of RMB 1.5 million in total to Pricewaterhouse Coopers Zhongtian Certified Public Accountants Co., Ltd. and Pricewaterhouse Coopers China Co., Ltd. in the report period. The traveling expenses were borne by the audit bodies themselves. 3. Pricewaterhouse Coopers Zhongtian Certified Public Accountants Co., Ltd. and Pricewaterhouse Coopers China Co., Ltd. had provided audit services to the Company for 10 consecutive years. VI. In the report period, the Company, its board of directors and its directors were not investigated by CSRC, administratively punished or publicly criticized by CSRC or publicly condemned by stock exchange. Chapter 10 Financial Report I. Auditor's report (attached hereinafter) II. Financial statements (attached hereinafter) III. Notes to financial statements (attached hereinafter) Chapter 11 List of Documents Available for Inspection 1. Financial statements bearing the seal and signature of the Company's legal representative, financial controller and the person in charge of accounting organ. 2. The original of the auditors' report bearing the seal of the certified public accountants and the seal and signature of C.P.A. 3. The original of all Company's documents and the original manuscripts of announcements publicly disclosed on China Securities Daily and Hong Kong Commercial Daily in the report period. Shijiazhuang Baoshi Electronic Glass Co., Ltd. April 22, 2004 -5- SHIJIAZHUANG BAOSHI ELECTRONIC GLASS COMPANY LIMITED (Incorporated in the People’s Republic of China with limited liability) FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 -6- Report of the Auditors TO THE SHAREHOLDERS OF SHIJIAZHUANG BAOSHI ELECTRONIC GLASS COMPANY LIMITED We have audited the accompanying consolidated balance sheet of Shijiazhuang Baoshi Electronic Glass Company Limited (the Company) and its subsidiary (the Group) as of December 31, 2003 and the related consolidated income and cash flows statements for the year then ended. These consolidated financial statements set out on pages 2 to 25 are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of 31 December 2003, and the consolidated results of its operations and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards. PricewaterhouseCoopers China Limited Shanghai, People’s Republic of China 18 April 2004 -7- SHIJIAZHUANG BAOSHI ELECTRONIC GLASS COMPANY LIMITED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003 (All amounts are shown in Rmb thousands unless otherwise stated) 2003 2002 Notes Sales 1 80,897 53,622 Cost of sales (57,949) (31,245)   Gross profit 22,948 22,377 Other operating income 18,648 27,963 Distribution costs (1,850) (1,222) Administrative expenses (34,271) (27,982) Other operating expenses (505) (2,293)   Profit from operations 2 4,970 18,843 Finance costs - net 3 (16,993) (15,965) Share of result of associate before tax 10 37,999 36,087   Profit before tax 25,976 38,965 Income tax expense 5 (162) (1,963)   Profit from ordinary activities after tax 25,814 37,002 Extraordinary item 6 - 1,356   Group profit before minority interest 25,814 38,358 Minority interest 22 (3,743) (4,294)   Net profit 22,071 34,064   Earnings per share (Rmb Yuan per share) -basic 7 Rmb0.06 Rmb0.09   -8- SHIJIAZHUANG BAOSHI ELECTRONIC GLASS COMPANY LIMITED CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2003 (All amounts are shown in Rmb thousands unless otherwise stated) 31 December 31 December 2003 2002 Notes ASSETS Non-current assets Property, plant and equipment 8 189,770 218,589 Land use right 9 14,135 14,431 Investment in associate 10 869,217 869,944 Deferred asset 11 5,737 -   1,078,859 1,102,964   Current assets Inventories 12 51,718 24,276 Receivables and prepayments 13 126,041 67,810 Amount due from the holding company 14 - 40,977 Amount due from associate 10 65,333 138,392 Amounts due from related parties 15 7,960 4,794 Other long-term assets receivable within one year 16 58,000 58,000 Cash and cash equivalents 24,255 68,669   333,307 402,918   Total assets 1,412,166 1,505,882   EQUITY AND LIABILITIES Shareholders’ equity Ordinary shares 21 383,000 383,000 Reserves 23 569,399 569,399 Accumulated losses (352,554) (374,625)   599,845 577,774   Minority interest 22 95,927 92,184   Non-current liabilities Deferred income 20 - -   - - -  Current liabilities Trade and other payables 17 180,960 216,446 Amount due to related parties 15 2,387 876 Amount due to the holding company 14 437,221 - Current tax liabilities 7,422 8,721 Short-term borrowings 18 5,404 15,404 Long-term borrowings due within one year 18 - 511,477 Other long-term liabilities due within one year 19 83,000 83,000   716,394 835,924   Total liabilities 716,394 835,924   Total equity and liabilities 1,412,166 1,505,882   These financial statements have been approved by the Board of Directors on 21 April 2004. -9- SHIJIAZHUANG BAOSHI ELECTRONIC GLASS COMPANY LIMITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2003 (All amounts are shown in Rmb thousands unless otherwise stated) Capital Statutory Statutory Share accumulation accumulated welfare Capital fund fund fund Balance at 1 January 2002 383,000 506,397 41,265 20,634 Profit for the year - - - - Minority share in profit of subsidiary - - - - Gain arising from liabilities waived and appropriated to reverse (note 23) - 1,103 - -      Balance at 31 December 2002 383,000 507,500 41,265 20,634      Balance at 1 January 2003 383,000 507,500 41,265 20,634 Profit for the year - - - - Minority share in profit of subsidiary - - - -      Balance at 31 December 2003 383,000 507,500 41,265 20,634      SHIJIAZHUANG BAOSHI ELECTRONIC GLASS COMPANY LIMITED CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003 (All amounts are shown in Rmb thousands unless otherwise stated) 2003 2002 Notes Cash flows from operating activities Cash used in operations 24 (157,568) (12,333) Tax paid (13,921) (14,348)   Net cash used in operating activities (171,489) (26,681)   Cash flows from investing activities Purchase of property, plant and equipment (2,876) (28,760) Proceeds from sales of property, plant and equipment 134 90 Loan repayments received from SBEG 97,320 55,210 Interest received from SBEGs 6,613 15,180 Dividends received 18,405 32,366   Net cash from investing activities 119,596 74,086   Increase/(Decrease) in cash and cash equivalents (51,893) 47,405 Cash and cash equivalents at beginning of the year 64,851 17,446   Cash and cash equivalents at end of the year 12,959 64,851   2003 2002 Cash and cash equivalents in balance sheet 24,255 68,669 Less: Restricted cash at bank (11,296) (3,818)   Cash and cash equivalents in cash flow statement 12,959 64,851   Restricted cash at bank is the deposit of bank accepted notes payable. 1 GENERAL INFORMATION THE COMPANY The Company, Shijiazhuang Baoshi Electronic Glass Company Limited, was incorporated on 26 December 1992 in Shijiazhuang, Hebei Province, the People’s Republic of China (the “PRC”) as a joint stock limited company. The address of the Company’s registered office is No.9 Yellow River Road, High-technological development zone, Shijiazhuang. The principal activities of the Company and its subsidiaries and associates (collectively known as the “Group” ), were the manufacture and sale of black and white television bulbs (“BW Bulbs”) and black and white television cathode ray tubes (“BW CRTs”). In June 1997, the Company suspended production of its primary products due to a significant adverse change in market demand for black and white television sets. On 30 March 2000, the shareholders approved and authorised the sale of all plant and machinery relating to production of BW Bulbs and BW CRTs together with part of the associated liabilities to the holding company, Shijiazhuang Baoshi Electronic Group Company Limited, in exchange for certain assets and liabilities of a division of the holding company with the principal activities of manufacturing colour television tube components. The Company’s principal activities therefore become the manufacture and sale of components for colour television cathode ray tubes. Approved in 2002 annual shareholders’ meeting, business scope of the Company expended to exportation of self-produced finished goods and importation of production-needed equipments, spare parts and row materials in addition to the original business areas. THE SUBSIDIARY AND THE ASSOCIATED UNERTAKINGS At 31 December 2003, the Company had the following interests in a subsidiary and an associate. Attributable Year of equity Principal Name incorporation interest activities Subsidiary Shijiazhuang Baoshi Colour 1994 81.26% Investment holding Bulb Company Limited (“SBCB”) of SBEG Associate Manufacture and Shijiazhuang Baoshi Electric 1997 39.82% sale of colour Glass Company Limited (“SBEG”) television bulbs On 3 July 1997, SBEG was established as a Sino-foreign investment enterprise between SBCB, Nippon Electric Glass Co., Ltd. and Nissho Iwai Corporation. SBCB holds 49% equity interests of SBEG. 2 BASIS OF PREPARATION The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, including International Accounting Standards and interpretations issued by the International Accounting Standards Board. The consolidated financial statements have been prepared under the historical cost convention. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current event and actions, actual results ultimately may differ from those estimates. 3 GROUP REPORTING (1) Subsidiaries Subsidiaries, which are those entities in which the Group has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies are consolidated. The existence and effect of potential voting rights that are presently exercisable or presently convertible are considered when assessing whether the Group controls another entity. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition plus costs directly attributable to the acquisition. The excess of the cost of acquisition over the fair value of the net assets of the subsidiary acquired is recorded as goodwill. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless cost cannot be recovered. Where necessary, accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the Group. (2) Associates Associates are entities over which the Group generally has between 20% and 50% of the voting rights, or over which the Group has significant influence, but which it does not control. Investments in associates are accounted for by the equity method of accounting. Under this method the company’s share of the post-acquisition profits or losses of associates is recognised in the income statement and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the cost of the investment. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not to recognise further losses, unless the Group has incurred obligations or made payments on behalf of the associates. 4 FOREIGN CURRENCY TRANSLATION (1) Measurement currency Items included in the financial statements of each entity in the Group are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity (“the measurement currency”).The consolidated financial statements are presented in Renminbi, which is the measurement currency of the parent. (2) Transactions and balances Foreign currency transactions are translated into the measurement currency using the exchange rates publicized by People’s Bank of China prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies, are recognised in the income statement. 5 PROPERTY, PLANT AND EQUIPMENT All property, plant and equipment is stated at historical cost less depreciation Depreciation is calculated on the straight-line method to write off the cost or revalued amount of each asset to their residual values over their estimated useful lives as follows: Years Buildings 20-21 Plant and machinery 11-12 Motor vehicles 11-12 Office equipment 11-12 Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in operating profit. Interest costs on borrowings to finance the construction of property, plant and equipment are capitalised, during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are expensed. Repairs and maintenance are charged to the income statement during the financial period in which they are incurred. The cost of major renovations is included in 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 Group. Major renovations are depreciated over the remaining useful life of the related asset. 6 LAND USE RIGHT Land use rights are stated at cost less amortisation. Amortisation is provided to write off the cost of land use rights over the approved use period of 50 years on a straight-line basis. 7 IMPAIRMENT OF LONG LIVED ASSETS Property, plant and equipment and other non-current assets, including intangible assets are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount which is the higher of an asset’s net selling price and value in use. 8 INVESTMENTS The Group classified its investments in debt and equity securities into the following categories: trading, held-to-maturity and available-for-sale. The classification is dependent on the purpose for which the investments were acquired. Management determines the classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis. Investments that are acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as trading investments and included in current assets; for the purpose of these financial statements short term is defined as 3 months. Investments with a fixed maturity that management has the intent and ability to hold to maturity are classified as held-to-maturity and are included in non-current assets, except for maturities within 12 months from the balance sheet date which are classified as current assets; during the period the Group did not hold any investments in this category. Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are classified as available-for-sale; and are included in non-current assets unless management has the express intention of holding the investment for less than 12 months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in current assets. Purchases and sales of investments are recognised on the trade date, which is the date that the Group commits to purchase or sell the asset. Cost of purchase includes transaction costs. 9 INVENTORIES Inventories comprise raw materials, work in progress, finished goods, spare parts and low cost consumables for use in the production process. Inventories are stated at the lower of cost or net realisable value. Cost is determined using weighted average basis. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity) but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses. 10 TRADE RECEIVABLES Trade receivables are carried at original invoice amount less provision made for impairment of these receivables. A provision for impairment of trade receivables is established when there is an objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. 11 CASH AND CASH EQUIVALENTS Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. 12 SHARE CAPAITAL Ordinary shares are classified as equity. Dividends on ordinary shares are recognised in equity in the period in which they are declared. 13 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 income statement over the period of the borrowings. 14 TAXATION PRC income taxes are provided for based on the estimated assessable profits and tax rates applicable to the Company and other companies comprising the Group. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Tax rates enacted or substantively enacted by the balance sheet date are used to determine deferred income tax. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. 15 EMPLOYEE BENEFITS The Group participates in a government defined contribution retirement pension scheme to which it is required to pay monthly retirement contributions at the rate of 20% (2002: 20%) of the wages of existing employees. Under the scheme, retirement benefits of existing and retired employees are provided by the government - managed pension fund and the Group has no further obligations beyond the monthly contributions. The Group’s contributions are charged to income statement in the period to which they relate. 16 REVENUE RECOGNITION Revenue comprises the invoiced value for the sale of goods and services net of value-added tax, rebates and discounts, and after eliminating sales within the Group. Revenue from the sale of goods is recognised when significant risks and rewards of ownership of the goods are transferred to the buyer. Revenue from rendering of services is based on the stage of completion determined by reference to services performed to date as a percentage of total services to be performed. Interest income is recognised on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the Group. 17 FINANCIAL INSTRUMENTS Financial assets and financial liabilities carried on the balance sheet include cash and bank balances, trade receivables, trade payables and borrowings. 18 COMPARATIVES Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year. 19 FINANCIAL RISK The Group’s activities expose it to a variety of financial risks, including: (1) Foreign exchange risk Most of the transactions of the Group were settled in Renminbi. In the opinion of the directors, the Group do not have significant foreign currency exposure. (2) Interest rate risk The interest rates and terms of repayment of borrowings are disclosed in Note 18. Other financial assets and liabilities do not have material interest rate risk. (3) Credit risk At 31 December 2003, the trade receivables of the Group were spread among a number of customers in the PRC. Details of amounts due from the holding company and related companies are included in Note 14 and Note 15. The other financial assets of the Group do not represent a concentration of risk. 20 FAIR VALUE ESTIMATION The Group’s investments in associated undertakings are investments in unlisted companies. As there is no market value available, their fair values are based on directors’ best estimate of their net assets, profit generating ability and other circumstances as considered appropriate. The fair values of cash and bank, trade receivables and payables, amounts due from and to related companies, and borrowings are not materially different from their carrying amounts. 1 SALES 2003 2002 Salesofcomponents 51,318 53,622 Sales of glass tube 29,579 -   80,897 53,622   2 OPERATING ITEMS The following items have been included in arriving at operating profit: 2003 2002 Depreciation on property, plant and equipment (Note 8) 20,851 17,338 Impairment of property, plant and equipment (Note 8) (125) 1,051 Loss/(Profit) on disposal of property, plant and equipment (included in “Other operating expenses”, Note 24) 109 (70) Amortisation of: - land use rights (included in “Administrative expenses”; Note 9) 296 326 Trade receivables – impairment charge for bad and doubtful debts (included in “Administrative expenses”) (1,464) (469) Provision for inventory obsolescence (included in “Administrative expenses”) 940 (2,317) Costs of inventories recognised as expense (included in ‘Cost of Sales’) 38,917 18,690 Amortisation of deferred income (included in “Other operating expenses”; Note 24) - (3,764) Staff costs (Note 4) 22,562 20,936 3 FINANCE COSTS - NET 2003 2002 Interest expense on borrowings 27,270 36,660 Interest income (11,262) (20,961) Net foreign exchange transaction losses 949 247 Others 36 19   Finance costs, net 16,993 15,965   4 STAFF COSTS 2003 2002 Wages and salaries 13,337 12,444 Retirement benefits 3,952 3,628 Others 5,273 4,864   22,562 20,936   Average number of full time people employed by the Group during the year 1,212 1,158   5 INCOME TAX EXPENSE 2003 2002 Current tax 162 1,963   Taxable income is calculated based on total revenue less deductible cost of goods sold, expenses and other non-operating gains (losses) under the existing tax regulations. As the Group was qualified as a high-technological enterprise and was established in a high-technological development zone, the prevailing enterprise income tax rate is 15%. (2002:15%) As of 31 December 2003 and 31 December 2002, there was no material deferred tax asset and liability was included in the consolidated financial statements. 6 EXTRAORDINARY ITEMS 2003 2002 Waive of debts - 1,356   7 EARNINGS PER SHARE Basic earnings per share is calculated by dividing the net profit for the year by the number of shares in issue during the year: 2003 2002 Net profit for the year 22,071 34,064 Less: Extraordinary items (Note 6) - (1,356)   Net profit before extraordinary items 22,071 32,708   Number of shares in issue 383,000 383,000 Earnings per share excluding extraordinary items (Rmb Yuan) Rmb0.06 Rmb0.09   No diluted earning per share was presented as there were no dilutive potential ordinary shares issued/outstanding during the year. 8 PROPERTY, PLANT AND EQUIPMENT Plant and Motor Office Buildings machinery vehicles equipment CIP Total Year ended 31 December 2002 Opening net book amount 115,009 45,782 1,111 2,142 44,149 208,193 Additions 3,424 3,095 197 249 21,860 28,825 CIP transfer to fixed assets 8,936 - - - (8,936) - Disposals - (21) (9) (10) (40) Impairment charge - (472) - (579) - (1,051) Depreciation charge (7,619) (9,012) (262) (445) - (17,338) Closing net book amount 119,750 39,372 1,037 1,357 57,073 218,589 At 31 December 2002 Cost 175,814 123,548 3,173 4,999 57,073 364,607 Accumulated depreciation (56,064) (84,176) (2,136) (3,642) - (146,018) Net book amount 119,750 39,372 1,037 1,357 57,073 218,589 Year ended 31 December 2003 Opening net book amount 119,750 39,372 1,037 1,357 57,073 218,589 Additions - 2,463 - 14 208 2,685 CIP transfer to fixed assets 10,078 36,550 - - (46,628) - CIP transfer to others - - - - (10,515) (10,515) Disposals - (263) - - - (263) Impairment reversal - 125 - - - 125 Depreciation charge (note 2) (8,443) (10,724) (624) (1,060) - (20,851) Closing net book amount 121,385 67,523 413 311 138 189,770 At 31 December 2003 Cost 185,892 162,423 3,173 5,013 138 356,639 Accumulated depreciation (64,507) (94,900) (2,760) (4,702) - (166,869) Net book amount 121,385 67,523 413 311 138 189,770 9 LAND USE RIGHT 31 December 31 December 2003 2002 Opening net book amount 14,431 14,757 Less: Amortisation charge (note 2) (296) (326)   Closing net book amount 14,135 14,431   Cost 15,997 15,997 Accumulated amortisation (1,862) (1,566)   Net book amount 14,135 14,431   10 INVESTMENT IN ASSOCIATES 31 December 31 December 2003 2002 Share of net assets of SBEG 818,415 798,821 Amount due from SBEG 116,135 209,515   934,550 1,008,336 Less: Amount due from SBEG within one year (65,333) (138,392)   869,217 869,944   Amount due from SBEG is unsecured, of which Rmb94,123 thousand is the loan to SBEG (2002: Rmb191,444 thousand) and bears interest at 5.76% in the year ended 2003. (2002: 6.21% from January to June and 5.76% from July to December). 31 December 31 December 2003 2002 At beginning of the year 798,821 795,100 Decrease in investment (18,405) (32,366) Share of result of SBEG 37,999 36,087   At end of the year 818,415 798,821   11 DEFERRED ASSETS 31 December 31 December 2003 2002 At beginning of the year - - Current year addition 5,737 - Current year amortization - -   At end of the year 5,737 -   12 INVENTORIES 31 December 31 December 2003 2002 At net realisable value – Raw materials and low cost consumables 11,782 6,257 Work in progress 5,381 1,377 Finished goods 31,548 14,814 Spare parts 3,007 1,828   51,718 24,276   Provisions have been made based on the difference between cost of individual items and its net realisable value. 13 RECEIVABLES AND PREPAYMENTS 31 December 31 December 2003 2002 Trade receivables 40,658 33,148 Less : Provision for impairment of receivables (10,184) (13,799)   Trade receivables - net 30,474 19,349 Notes receivable 24,898 31,223 Prepayments 3,003 2,809 Other receivables 67,639 14,345 Prepaid expenses 27 84   126,041 67,810   14 AMOUNTS DUE FROM / DUE TO THE HOLDING COMPANY Amount due from / due to the holding company are unsecured and have no fixed terms of repayment. The related interest is calculated at a rate equivalent to the interest rates of the short-term bank loans. 15 AMOUNTS DUE FROM / DUE TO RELATED PARTIES These are amounts due from/due to subsidiaries of the holding company. The balances are unsecured, no interest free and have no fixed terms of repayment. 16 OTHER LONG-TERM ASSETS RECEIVABLE WITHIN ONE YEAR Other long-term assets receivable within one year represents the amount receivable under a foreign currency swap transaction entered into by SBCB in 1993. This amount was due to be received in November 1998 (see Note 19). 17 TRADE AND OTHER PAYEBLES 31 December 31 December 2003 2002 Accrued interest 79,313 133,107 Trade payables 30,662 22,792 Payables to contractors 12,066 14,042 Accrued utility expenses 7,860 4,547 Notes payable 24,128 15,686 Advances from customers 1,310 514 Staff welfare funds 2,794 5,884 Staff welfare 17,170 8,065 Audit fee payable 1,500 1,000 Others 4,157 10,809   180,960 216,446   18 BORROWINGS 31 December 31 December 2003 2002 Due to State Assets Administration Companies - Short-term borrowings - 10,000 - Long-term borrowings due with one year - 511,477   Sub-total (Note (i)) - 521,477   Due to other lenders - Short-term borrowings (Note (ii)) 5,404 5,404   5,404 526,881   - The weighted average effective interest rates at the balance sheet date were as follows: 31 December 31 December 2003 2002 Bank and other borrowings 5.31% 5.4%   18 BORROWINGS (Continued) (i) In accordance with the relevant circulars issued by the State Council and the People’s Bank of China, the borrowings from the original lenders listed below have been transferred to the State Assets Administration Companies. The balance of 31 December 2002 is tabulated below: Original lender Current lender 31 December 2002 terms of Interest rate under Collateral Principal original agreement original contract Agriculture Bank of China China Great Wall Assets Shijiazhuang Hua’an sub-branch Administration Company 45,703 1999.12.31-2001.12.31 6.56% Agriculture Bank of China China Great Wall Assets Shijiazhuang Hua’an sub-branch Administration Company 300,228 1995.3.23-2001.12.31 Floating rate Secured over fixed assets with an original cost amounting to Rmb170,000,000 and guaranteed by a third-party.  345,931  Bank of China Shijiazhuang China Orient Asset Zhongshan sub-branch Administration Company 165,546 1996.2.15-2001.2.15 Floating rate Bank of China Shijiazhuang China Orient Asset Yuhua sub-branch Administration Company 10,000 1997.1.21-1998.1.21 11.1%  175,546  521,477  According to the relevant circulars of the State Council and the “Regulation for the Financial Assets Management Companies”, after the above borrowings transfers, the Company shall comply with the conditions stipulated by the original agreements with respect to China Great Wall Asset Administration Company and China Oriental Asset Administration Company from 1 April 2000. The Company, SBCB and the holding company have subscribed to the agreements with China Great Wall Assets Administration Company and China Orient Assets Administration Company respectively in May, 2003, totally Rmb521,477 thousand of loans which was previously payable to the about two State Assets Administration Companies was transferred and payable to the holding company. For details, please refer to Note 25 Related Party Transactions (iv) other transactions with the holding company. 18 BORROWINGS (Continued) (ii) Borrowings due to other lenders were overdue as at 31 December 2003. Up till 31 December 2003, extensions had still not been formally granted by lenders. The Company’s Board of Directors had obtained the confirmation from the lenders that no additional interest will be charged on these overdue borrowings. The details of the borrowings are listed below: 31 December 2003 Lender Principal Period Interest rate Hebei Finance Bureau 404 1995.6.1-1995.11.30 7.2% Financing Bureau of Shijiazhuang 1995.3.1-1997.3.1 12.8% Finance Bureau 5,000  5,404  Short-term borrowings included borrowings dominated in foreign currency amounting to US$48,795, with the Rmb equivalent of 403,892. 19 OTHER LONG-TERM LIABILITIES DUE WITHIN ONE YEAR Other long-term liabilities due within one year represent US$10,000,000 payable under a foreign currency swap transaction entered into by SBCB in 1993. This amount was payable in November 1998 (see Note 16). The Company is still in a process of negotiating the settlement of this swap transaction. 20 DEFERRED INCOME Deferred income represents the premium arising from a transfer of assets to SBEG as capital contribution in 1997. This premium has been deferred and is being amortised to the income statement over a period of five years. The movement of the deferred income is as follows: 31 December 31 December 2003 2002 Opening net book amount - 3,764 Less: Amortisation charge - (3,764)   Closing net book amount -   Original amount - 32,256 Accumulated amortisation - (32,256)   Net book amount - -   21 SHARE CAPITAL The par value of the shares of the Company is Rmb 1 Yuan each. 31 December 31 December 2003 2002 Category of shares: Unlisted shares State 230,411 230,411 Legal persons 7,500 7,500   237,911 237,911   Listed shares A shares 45,089 45,089 B shares 100,000 100,000   145,089 145,089   383,000 383,000   22 MINORITY INTEREST 31 December 31 December 2003 2002 At beginning of the year 92,184 87,889 Share of net profit of subsidiary 3,743 4,295   At end of the year 95,927 92,184   23 RESERVES (i) Capital accumulation fund 31 December 31 December 2003 2002 At beginning of the year 569,399 568,296 Waive of SBCB’s trade payables - 1,103   At end of the year 569,399 569,399   Capital accumulation fund has no change in 2003. 31 December 2002 Attributable Appropriations equity interest Amount to Reserve Waive of SBCB’s trade payables 81.26% 1,356 1,103 Transactions of the following nature are recorded in the Capital accumulation fund: (a) share premium arising from the issue of shares at a price in excess of their par value; (b) donations received; (c) surplus arising from the revaluation of assets; (d) any other items required by PRC regulations to be so treated. Amounts in the Capital accumulation fund can be utilised to offset prior years' losses or for issue of bonus shares. (ii) Statutory accumulation and welfare funds The PRC Company Law requires a company to appropriate ten percent of its profit after taxation for the year computed in accordance with PRC accounting regulations (after offsetting any prior years' losses) to the Statutory accumulation fund. When the balance of such fund reaches 50 percent of the company's share capital, any further appropriation is optional. The Statutory accumulation fund can be utilised to offset prior years' losses or for issuance of bonus shares. However, the fund shall be maintained at a minimum amount equivalent to 25 percent of share capital after any such issuance. The PRC Company Law also requires a company to appropriate between five percent and ten percent of profit after taxation for the year to the Statutory welfare fund computed in accordance with PRC accounting regulations. The fund shall be utilised for the collective benefits of the workforce, including the provision of staff quarters or housing. No other distribution shall be made from the fund other than upon liquidation of the company. The Statutory accumulation and welfare funds represent amounts appropriated in accordance with the PRC accounting regulations in previous years. 24 CASH USED IN OPERATIONS Reconciliation of profit before tax and extraordinary items to cash used in operations: 2003 2002 Netprofit 22,071 34,064 Adjustments for: Minority interest (Note 22) 3,743 4,294 Extraordinaryitem(Note6) - (1,356) Incometaxexpense(Note5) 162 1,963   Profit before tax and extraordinary items 25,976 38,965   Adjustments for: Depreciation (Note 8) 20,851 17,338 Impairment charge (Note 8) (125) 1,051 Amortisation of land use rights (Note 9) 296 326 Profit on disposal of property, plant and equipment (Note 2) 109 (70) Amortisation of deferred income (Note 2) - (3,764) Interestexpense(Note3) 27,270 36,660 Interest income (Note 3) (11,262) (20,962) Exchange loss (Note 3) 949 - Share of result of associate (Note 10) (37,999) (36,087) Changes in working capital - trade and other receivables (137,331) (79,869) -inventories (29,321) (1,016) - trade and other payables (16,981) 35,095   Cash used in operations (157,568) (12,333)   25 RELATED PARTY TRANSACTIONS The ultimate parent of the Group is Shijiazhuang Baoshi Electronic Group Company Limited(“The holding company”), a company incorporated in the People’s Republic of China. The associate of the Group is Shijiazhuang Baoshi Electric Glass Company Limited (“SBEG”), a company incorporated in the People’s Republic of China. In addition to the related party balances and transactions described elsewhere in this report, the following significant transactions were carried out with related parties: Related party transactions were carried out on commercial terms and conditions and at market prices. (i) Sale of goods and services 2003 2002 Sale of goods to: The holding company 11,377 1,179 SBEG 27,543 20,962   38,920 22,141   Services and energy rendered to: The holding company 19,570 16,180 SBEG 137,692 115,612   157,262 131,792   Rental for assets leased to: SBEG 1,906 1,906 (ii) Purchase of goods and services 2003 2002 Rental for assets leased from the holding company 3,242 3,242 25 RELATED PARTY TRANSACTIONS (Continued) (iii) Interest earned 2003 2002 Interest earned from the holding company (a) 3,287 3,569 Interest charged from the holding company (a) (11,986) - Interest earned from SBEG (b) 6,613 15,181   (2,086) 18,750   (a) The Group charges interests on the amount due from the holding company, and is charged interests on the amount due to the holding company. The related interest is calculated at a rate equivalent to the interest rates of the short-term bank loans and the average monthly outstanding balance with the holding company. (b) The Group charges interests on the loan to SBEG, which recorded in amount due from SBEG with the balance is Rmb94,123 thousand at 31 December 2003. The related interest rate was 5.76% in the year ended 31 December 2003. (2002: 6.21% from January to June and 5.76% from July to December). (iv) Other transactions with the holding company 2003 Loans transferred to the holding company (a) (521,477) Loans exchange losses transferred to the holding company (a) (949) Loans interests transferred to the holding company (a) (b) (69,410) Cash paid to the holding company 97,798 Accountsreceivableofrelatedpartytransferredtothe holding company 36,800 Cash received from the holding company (22,505) Wages paid by the holding company (15,892) Others 1,878 (a) In accordance with the agreements reached on 29 May 2003 amongst SBCB, the Company, the holding company and China Orient Assets Administration Company, Rmb175,546 thousand of loans principles, Rmb949 thousand of related foreign exchange loss and Rmb55,334 thousand of related interest, which were previously payable to China Orient Assets Administration Company was transferred and payable to the holding company. In accordance with the agreement reached on 13 May 2003 and 26 May 2003 amongst SBCB, the Company, the holding company and China Great Wall Assets Administration Company, Rmb345,931 thousand, which was previously payable to China Great Wall Assets Administration Company was transferred and payable to the holding company. (b) In accordance with the agreement reached by SBCB and the holding company, SBCB transferred Rmb14,076 thousand of accrued interests (including: China Orient Assets Administration Company Rmb4,738 thousand and China Great Wall Assets Administration Company Rmb9,338 thousand) to the holding company. 2003 2002 As reported in the consolidated financial statements prepared in accordance with PRC requirements 25,976 35,201   Adjustments for: Amortization of deferred income - 3,764 Waive of debts and interest expenses which is recogniszed as - 1,356 capital accumulation fund in accordance with PRC requirements  Subtotal - 5,120   As stated in the consolidated financial statements prepared in accordance with IFRS 25,976 40,321  