闽灿坤Ｂ(200512)2003年年度报告（英文版）

CONTENTS PAGE(S) I. COMPANY PROFILE II. FINANCIAL AND OPERATIONAL HIGHLIGHTS 1、 Realized profit for the year ended 31 December 2003 2、 Financial information and index 3、 Return on shareholder’s equity calculated after dilution or weighted and EPS 4、 Changes in equity for the year ended 31 December 2003 III. CHANGES OF STOCK AND SHAREHOLDER’S EQUITY 1、 Changes of stock shares 2、 About issuing and marketing of shares 3、 About stockholders IV. ADVANCED MANAGEMENT PERSONNEL AND EMPLOYEES 1、 Directors, supervisors and senior administrative officials 2、 Structure of human resource V. MANAGEMNET STRUCTURE OF THE CORPERATION 1、 Management layout of the corporation 2、 The clear separation of the corporation from its controlling shareholders in the aspects of business、personnel、assets、organization and financial affairs management, etc.. 3、 The system for examination and appraisal on, and the measures for inspiration and restraint to, the performance of the senior administrative persons 4﹑The independent directors’ performance of duty VI. RESUME OF THE SHAREHOLDERS’ GENERAL MEETING 1、About informing、calling、opening the meeting. 2、The resolutions made in the meeting 1 3、 The election and replacement of the director(s) or supervisor(s) of the corporation VII. REPORT OF THE BOARD OF DIRECTORS 1、 The operational situation during the reported period 2、 Investment status 3、 Financial status and operating achievements 4、 Changes in the macroscopic policies, laws or regulations that might bring significant influence to the company’s operating status 5、 Business plan in 2004 6、 The routine work of the Board of Directors VIII. REPORT OF THE SUPERVISORY COMMITTEE IX. MAJOR EVENTS X. FINANCIAL REPORTS (See the attachments) XI. MEMO 2 TSANN KUEN (CHINA) ENTERPRISE CO. LTD 2003 Annual Report (Prepared under International Accounting Standards) IMPORTANT STATEMENT The Board of Directors of the Corporation guarantees herein that there is no false record, misleading statement or any important omission existing in this report, and that they will bear the individual and joint responsibilities for the truthfulness, accuracy and integrity of the contents presented. None of the directors has ever declared that he (she) is uncertain of or has any objection to the truthfulness, accuracy and integrity of this annual report. Six members in the Board of Directors attended the latest meeting of the board. The director Mr. Yu Jing Lun was absent from this meeting owing to the reason that he asked for resignation from the Board of Directors for health reason. Deloitte Touche Tohmatsu CPA has issued for our company an unqualified audit report that has no explanatory statements. The chairman of the Board of Directors Mr. Tsai Yuan Song and the accounting manager Mr. Lin Zhi Hong jointly guarantee that the financial statements in this annual report are correct and complete. I. COMPANY PROFILE 1、Company’s name (Chinese) : 厦门灿坤实业股份有限公司 (English): TSANN KUEN (CHINA) ENTERPEISE CO.LTD (Abbreviation): TKC 2、Representative of legal entity : Tsai Yuan Song 3、Board of Director’s secretary : Luo Qing Xing Address for contact :No.88 Xing Long Road, Huli Industry Zone, Xiamen, P.R. China. Telephone : 0592-5600887 Fax : 0592-5600886 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. E-mail address : allenlo@tkl.tsannkuen.com Representative of the stock affairs: Address for contact : Telephone : Fax : E-mail address : 4、The official address : Xiamen, P.R. China Headquarters : No.88 Xinglong Road, Huli Industry Zone Post code : 361006 Web site : www.tsannkuen.com E-mail address : allenlo@tkl.tsannkuen.com 5、Disclosure paper : ShenZhen Home page : www.cninfo.com.cn Prepared place : No.88 Xinglong Road, Huli Industry Zone 6、Marketing place for TKC’s stock : the Shenzhen Stock Exchange Short name for stock : 闽灿坤 B Code of stock : 200512 7、Registered day and place : Jan. 1st, 1988 in Xiamen Business license number :企独闽厦总副字 00233 号 Tax register code :国税 外字 35020661202170 Appointed auditor agent :Deloitte Touche Tohmatsu CPA Auditor’s address: :222 Yan An Road East, Shanghai 1 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. II. FINANCIAL AND OPERATIONAL HIGHLIGHTS 1、 Realized profit for this year Unit: RMB’000 Item Content Amount 1 Profit before tax 148,661 2 Net profit 126,416 3 Net profit after extraordinary income or loss 107,945 4 Major operating revenue 547,421 5 Other revenue 44,495 6 Profit from operations 159,638 7 Investment income -1,212 8 Subsidiary income 138 9 Non-operating earning (or expenditure) 14,688 10 Net cash flow from operating activities 131,677 11 Net increases of cash and cash equivalents 350,221 (1)、The items and amount of the extraordinary income or loss (RMB ￥1000): a、 Subsidiary income 138 b、 Non-operating income 8436 c、 Reverse of asset impairment 12133 d、 Minority’s extraordinary income -961 e、 Income tax affected by Extraordinary items -1276 (2)、Summary of difference between IAS and PRC GAAP The above financial statement was prepared in conformity with IAS, which is different from that prepared under PRC GAAP. The profit after taxation reported under the statutory PRC GAAP for the year ended Dec. 31, 2003 is RMB 123,617 thousand Yuan, while the net assets reported thereof is RMB 1,385,708 thousand Yuan. These net profit and net assets should be adjusted, as pursuant to IAS, as following: 2 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. Net Assets 2003’s Net Profit Ended Dec. 31, 2003 RMB’000 RMB’000 As reported under PRC GAAP 123,617 1,385,708 Adjustments to conform to IAS: Adjustment to record property, plant and equipment acquired before 1994 at swap rates (2,223) 14,601 Elimination of revaluation reserves 2,664 (809) Adjustments for subsidiaries’ pre-operating fees 821 - Reverse last year accounts payable written back 1,537 - Dividends - - Others - 1,910 As reported under IAS 126,416 1,401,410 2、 Financial information and index 2003 Item / year Unit 2003 2002 2001 2002 1 Major operating income RMB’000 4,204,669 3,484,815 2,798,417 120.66% 2 Net profit RMB’000 126,416 246,731 172,521 51.24% 3 Total assets RMB’000 5,061,134 2,866,998 2,315,492 176.53% Stockholder’s equity 4 (Minority equity excluded) RMB’000 1,401,410 1,275,419 1,073,667 109.88% 5 Earning Per Share RMB 0.1438 0.2806 0.2031 51.25% EPS (after extraordinary income 6 or loss) RMB 0.1228 0.2732 0.2056 44.93% 7 Net asset per B share RMB 1.59 1.45 1.22 109.88% Net asset per B share 8 (adjusted) RMB 1.59 1.44 1.21 109.93% Net cash flow from operating 9 activities per share RMB 0.26 0.46 0.73 57.54% Return on share- Dilution 9.02% 19.35% 16.07% 46.63% 10 holder’s equity (%) Weighted 9.45% 21.01% 17.47% 44.96% 3 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 3、 Return on shareholder’s equity calculated after dilution or weighted and EPS Return on stockholder’s equity（%） EPS (RMB Yuan) Profits Dilution Weighted Dilution Weighted Major operating profit 39.06% 40.90% 0.6225 0.6225 Profit from operation 10.61% 11.11% 0.1691 0.1691 Net profit 9.02% 9.45% 0.1438 0.1438 Net profit (after extraordinary income or 7.70% 8.07% 0.1228 0.1228 loss) Notes: The above statistics of profits is prepared in accordance with The Rules for Preparing of Disclosure Information of the Publicly Issued Shareholding Companies (No. 9) issued by the China Securities Regulation Committee. The calculations are as follows: A. The formula for the fully diluted Return on shareholder’s Equity (ROE) and for the fully diluted Earning per share (EPS): The fully diluted Return on shareholder’s Equity = Profit in the reported period ÷ Net asset at the end of the period. The fully diluted Earning per share = Profit in the reported period ÷ the total shares at the end of the period. B. The formula for the Weighted Return on shareholder’s Equity (ROE) and for the Weighted Earning per share (EPS): ROE=P÷(E0＋NP÷2＋Ei×Mi÷M0－Ej×Mj÷M0) EPS=P÷(S0＋S1＋Si×Mi÷M0－Sj×Mj÷M0) In which: P stands for the profit in the reported period; M0 stands for the months in the reported period; Mi stands for the months starting from the next month of the newly increased net assets to the end of the reported period; Mj stands for the months starting from the next month of the decreased net assets to the end of the reported period. NP stands for the net profit in the reported period; E0 stands for the net asset at the beginning of the period; Ei stands for the newly increased net assets from issuing new shares or from converting bonds into shares during the reported period; Ej stands for the decreased net assets by purchasing back action or by distribution of cash dividends during the reported period; S0 stands for the total shares at the beginning of the period; S1 stands for the newly increased shares from converting public reserves into shares or from distribution of stock dividends during the reported period; Si stands for the newly increased shares from issuing new shares or from converting bonds into shares during the reported period; Sj stands for the decreased shares by purchasing back action or by shares-reducing action during the reported period. 4 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 4、 Statement of changes in equity for the year ended 31 December 2003 Unit: RMB’000 Statutory Authorized Capital Undivided Item Stock capital surplus public welfare Total reserve fund profit reserve Opening amount 676,406 128,655 220,826 41,573 249,023 1,274,916 Increase 202,922 41,859 5,980 126,416 371,197 Decrease 244,781 244,781 Ending amount 879,328 128,655 262,685 47,553 130,658 1,401,326 Reason for Distribution of Appropriation Appropriation 1. From balance changing stock dividend from profit from profit after of this year’s after taxation taxation profit. 2. Distribution of stock dividend and appropriation form profit after taxation Notes: (Effect of foreign exchange rate change RMB84,000 and minority equity RMB189,560,000 are not included.) 5 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. III. CHANGES IN STOCK SHARES AND BRIEF INTRODUCTION ABOUT SHAREHOLDERS 1、 Changes of stock shares Unit: share Increase/decrease (+, -) Shares at Reserve- Shares at Item Apportioning beginning Bonus issue converted Others Subtotal ending shares shares Share not in circulation 1、Founders’ shares 425,951,250 127,785,375 127,785,375 553,736,625 Including: Shares of State Holders Shares of legal person holders within the boundary of China Foreign legal 425,951,250 127,785,375 127,785,375 553,736,625 holder’s shares Others 2.Shares of raising legal persons 3、Shares of the internal staff 4、Preferred shares or others Total shares not in 425,951,250 127,785,375 127,785,375 553,736,625 circulation Shares in circulation 1、Common share in RMB 2.Foreign capital 250,455,000 75,136,500 75,136,500 325,591,500 shares on sale within the boundary of China 3.Foreign capital shares on sale outside the boundary of China 4、Others Total shares in 250,455,000 75,136,500 75,136,500 325,591,500 circulation Total shares 676,406,250 202,921,875 202,921,875 879,328,125 6 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 2、About issuing and marketing of shares On June 11th, 2003, the Corporation implemented the profit distribution plan that had been approved by the shareholders’ general meeting. According to the plan, stock dividend was to be distributed on the basis of 3 shares for every 10 shares held from the capitalization of retained earnings, totaling 202,921,875 shares. After the completion of this distribution, the company’s total shares have been increased from the former 676,406,250 shares to the present 879,328,125 shares. 3、Brief introduction about shareholders (1) Number of the shareholders: The total number of the company’s shareholders at the end of the reported period is 20,409. (2) Shares held by the top ten stockholders Shares held at Increase/ Shares held at Holding Kind of No Name of Shareholder the beginning Decrease the end Ratio share FORDCHEE Legal person 1 DEVELOPMENT LIMITED 197,437,500 59,231,250 256,668,750 29.19% share EUPA INDUSTRY Legal person 2 CORPORATION LIMITED 197,437,500 59,231,250 256,668,750 29.19% share FILLMAN INVESTMENTS Legal person 3 LIMITED 98,718,750 29,615,625 128,334,375 14.59% share 4 TIMMERTON CO INC 8,820,702 2,646,211 11,466,913 1.30% B share CORE PACIFIC-YAMAICHI 5 INTERNATIONAL (H.K.) B share LIMITED 2,506,870 1,567,666 4,074,536 0.46% 6 TSAI SHU HUI 2,611,392 783,418 3,394,809 0.39% B share SKANDIA GLOBAL FUNDS 7 PLC 0 3,242,439 3,242,439 0.37% B share 8 LAU MING TO 1,591,550 477,465 2,069,015 0.24% B share 9 TSAI CHIEN FANG 1,203,084 360,925 1,564,009 0.18% B share 10 THERMASTER LIMITED 457,030 966,704 1,423,734 0.16% B share Note: 1、 Top three shareholders are all legal person. None of the shares held by the top three holders was in the state of mortgage or congealment. We have no knowledge whether the circulable shares held by other shareholders was in the state of mortgage or congealment or not. 2、 By the date of Dec. 31, 2003, EUPA INDUSTRY CORPORATION LTD holds 256,668,750 shares in all, in which 87,935,250 shares belong to the circulable ones, and the remaining 168,733,500 shares belong to the non-circulable ones. 3、 The top three stockholders are the controlling stockholders. TSAI SHU HUI is the spouse of Mr. WU TSAN KUN, who is the legal representative of EUPA INDUSTRY CORPORATION LIMITED.TKC has neither knowledge about whether there is any interest-related relations between other shareholders holding circulable shares nor knowledge about whether or not 7 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. the other shareholders holding circulable shares belong to the consistent action people specified in The Regulations for Information Disclosure on the Change of Shares Held by the Shareholders of the Listed Company. (3)、Brief introduction about the controlling shareholders Legal Founding Business Registered Holder’s name Mortgage representative day scope capital FORDCHEE Yuan Song Tsai 1990/01/03 Investment HK$100,000 None DEVELOPMENT LTD EUPA INDUSTRY Tsan Kun Wu 1989/07/21 Investment HK$10,000 None CORPORATION LTD FILLMAN INVESTMENTS Tsan Kun Wu 1992/07/21 Investment HK$10,000 None LTD Note: The above companies are the subsidiary companies of TKE (4)、Description of the real controlling shareholder A、 Name of the real controlling shareholder: TSANN KUEN ENTERPRISE CO. LTD (situated in Taiwan) B、 Legal representative: TSAN KUN WU C、Registered day: Nov. 2nd, 1978 D、 Major product and service: Processing, manufacturing and sales of small household appliances as well as their spare parts and equipment, etc. E、 Registered capital: NT$ 2,149,900,000 F、 Equity structure: common stock 8 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. IV. ADVANCED MANAGEMENT PERSONNEL AND EMPLOYEES 1、Directors, supervisors and senior administrative officials (1) Basic information: Share-holding amount Name Postion Sex Age Term of office Reason for Begin End change Mr. Tasi Yuan CEO Male 48 2002.5.22-2005.5.20 0 0 Song Mr. Yang Wen Director Male 43 2002.5.22-2005.5.20 0 0 Fang Mr. Zhuang Director Male 49 2002.5.22-2005.5.20 0 0 Xing Mr. Yu Jing Director Male 47 2002.5.22-2005.5.20 0 0 Lun Mr. Liu Shun Director Male 44 2002.5.22-2005.5.20 0 0 Ren (independent) Mr. Wei Jun Director Male 46 2003.5.16-2005.5.20 0 0 Xian (independent) Mr. Zhou Zong Director Male 48 2003.5.16-2005.5.20 0 0 Geng (independent) Mr. Yan Liang Supervisory Male 58 2002.5.22-2005.5.20 0 0 Jie Chairman Mr. Lin Zong Supervisor Male 46 2002.5.22-2005.5.20 0 0 Ming Miss You Su Supervisor Female 37 2002.5.22-2005.5.20 0 0 Qiu Mr. Luo Qing Secretary of Male 50 2003.1.7-- 0 0 Xing board Among them: Mr. Tasi Yuan Song is the legal person of FORDCHEE DEVELOPMENT LIMITED; Mr. Yu Jing Lun is the general manager of TSANN KUEN ENTERPRISE CO. LTD (TKE); Mr. Zhuang Xing is the executive director of TKE; Mr. Yan Liang Jie is the assistant of personnel & procuring department of TKE. (2)、Salary in the reported year A、 The decision-making procedure of, and the basis for confirmation of, the remuneration to directors, supervisors and senior administrative officials: According to the company’s articles of association, the remuneration paid to the directors and supervisors is decided by the shareholders’ general meeting, while the remuneration paid to other senior administrative officials is decided by the board of directors. All the decisions on the payment to the above personnel are made on the basis of the company’s . B、 Annual remuneration (salary, bonus, allowance, etc.) to the present directors, supervisors and senior administrative officials: The number of the present directors, supervisors and senior administrative officials in the company is 11 and the total annual remuneration to them is RMB 1,240,000 Yuan, in which there is a sum of RMB 778,000 for the top three directors and another sum of RMB 646,000 for the top three senior administrative officials. C、 Remuneration range (annually) for the present directors, supervisors and senior administrative officials: Above RMB 300,000 two persons RMB 100,000 -300,000 two persons RMB 24,000 -100,000 seven persons D、 The present directors and supervisors who do not get the annual remuneration from TKC: None. E、 Changes in directors、supervisors and senior administrative officials : As the former independent director Mr. Li Hao Zheng has a sound knowledge and profound experience in the aspect of enterprise management, he was invited by our mother company TKE (Taiwan), and also he himself had consented, to take the position of the general manager of Taiwan 3C Circulation Affair Department. According to the regulation specified in The Management Standards for the Listed Company, an independent director should be independent of the company by which he is hired and of the major shareholders. Since Taiwan 3C Circulation Affair Department is an interest-relative party with TKC, to ensure the standardization of the company’s management structure, and to ensure the independence of the work of independent director(s), Mr. Li formally tendered a resignation to the Board of Directors on March 20, 2003, which has been approved by the Shareholders’ General Meeting. To coordinate the standardization of the company’s management structure and to ensure the seat percentage of independent directors in the makeup of the Board of Directors, Mr. Zhang Ke Da formally tendered a resignation to the Board of Directors on March 18, 2003, which has also been approved by the Shareholders’ General Meeting. In accordance with the regulations of The Guiding Opinion Regarding the 10 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. Establishment of Independent Director System in the Listed Company issued by CSRC and with the need to strengthen the corporation’s management, TKC appointed Mr. Wei Jun Xian and Mr. Zhou Zong Geng as independent directors of its fourth Board of Directors. 2、Structure of human resource Education level Persons Type of personnel Persons Doctor 15 Salesmen 4,429 Master 17 Financial Staff 185 Bachelor 569 Academy 1,691 Middle 4,454 Technicians 1,659 academy Technical 5,187 school Administrators 4,667 Senior high 5,521 school Middle school 10,591 Elementary 94 Workers 17,199 school Total 28,139 Total 28,139 V. MANAGEMNET STRUCTURE OF THE CORPERATION 1、 Management layout of the corporation Strictly following the requirements of The Management Standards for the Listed Company issued by CSRC, the corporation constantly improves its management structure and standardizes its operations. The actual status is as follows: (1)、About the shareholders and the shareholders’ meeting The operations of the company are in conformity with the standards. With a view to actually safeguard the legal rights and interests of middle and small shareholders, and to ensure all the shareholders to be able to fully exert their rights, the company calls and opens the shareholders’ meeting strictly following the legal procedures, (2)、About the relation of the listed company and its controlling shareholders 11 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. The behaviors of TKC’s controlling shareholders comply with the standards. No direct or indirect interference or intervention from them has occurred so far to the corporation’s decisions or activities. The corporation is strictly separated from its controlling shareholders in the aspects of personnel, assets, financial affairs、organization and business managements, so that its Board of Directors, the supervisory committee and other internal organizations can run independently. (3)、About the directors and the Board of Directors The corporation votes for its directors strictly following the director-selecting procedures stipulated in the corporation’s articles of association. The formation of the Board of Directors meets the requirements of the law and regulations. The corporation has laid down The rules of discussion for the Board of Directors and implements it strictly. (4)、About the supervisors and the supervisory committee The formation of the supervisory committee meets the requirements of the law and regulations. The corporation has drawn up the rules of discussion for the supervisory committee. With a spirit of being responsible for the shareholders, the members of the supervisory committee play their roles earnestly and carry out the supervisions on the corporation’s financial affairs as well as on the performances of the corporation’s directors, managers and other senior administrative officials. (5)、About the interest-related parties The corporation fully respects and safeguards the lawful rights and interests of its interest-related parties such as banks and their creditor(s)、 staff, consumers, etc., who help mutually to push forward the corporation to develop continuously and healthily. (6)、About information disclosure 12 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. Strictly pursuant to the requirements of the laws、regulations and its articles of association, the corporation discloses the concerned information truly、accurately、completely and promptly, so as to ensure that all the shareholders will have an equal chance to obtain information . 2、 The clear separation of the corporation from its controlling shareholders in the aspects of business、personnel、assets、organization and financial affairs management, etc. (1)、In business In the aspect of business management, the corporation gradually gets independent from its controlling shareholders by setting up an independent and integral system of business management, thus obtaining a self-relied operating ability; and enabling itself to become an independent market-oriented legal person. (2)、In personnel A、 In the aspects of labor、human and salary management, the corporation is independent completely. As its office site and its places for business and production are isolated from those of the controlling shareholders, there is no mix-up in its business and office work with those of the holders. B、No interference or intervention from the controlling shareholders has occurred to the corporation’s decisions about personnel appointment or replacement. (3)、In assets The assets of the corporation are separated strictly from those of the controlling shareholders. The corporation possesses independently its own production system, auxiliary production system and other related necessary system. Its intangible assets such as industrial property rights, trademark, non-patented technology and so on are also owned by itself independently. (4)、In financial affairs A、 The corporation has its own financial and accounting departments. It 13 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. has set up a complete set of independent accounting system and drawn up its strict financial management regulations. B、 The corporation makes its financial decisions independently and no intervention from the controlling shareholders has occurred to the corporation’s fund application. C、 The corporation opened its own bank accounts. No case has been found of transferring the corporation’s funds to the accounts of any financial company or any settlement center controlled by its big shareholder(s) or other related parties. D、 The corporation pays the taxes independently according to the law. 3、 The system for examination and appraisal on, and the measures for inspiration and restraint to, the performance of the senior administrative persons. The corporation examines and appraises on the performance of the senior administrative persons according to the relevant index and standards. The results of examination will be recorded into the person’s files and will be linked up with the treatments given to the examinee and with his (her) appointment or displacement. 4. The independent directors’ performance of duty In accordance with the regulations of The Guiding Opinion Regarding the Establishment of Independent Director System in the Listed Company issued by CSRC and with the need to strengthen the corporation’s management, TKC currently appoints 3 persons as its independent directors, who make up 43 percent of its total directors, and set up a system of independent director management. A. The independent directors attended all the corporation’s meetings of the Board of Directors and of the shareholders’ general meeting held in 2003. They can carry out their duties according to the relevant laws and regulations. B. The standard pattern for evaluation of the corporation’s policies and strategy and of the operational results (the reporting model for the 14 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. corporation’s evaluation) set up by the Board of Directors with the help of the independent directors has brought a great effect on improvement of the corporation’s management since it entered into force. C. The constructive suggestions put forward by the independent directors on the company’s current management status have enabled the company’s operation to get improvement continuously. VI. 、 RESUME OF THE SHAREHOLDERS’ GENERAL MEETING 1、About informing、calling and opening the meeting. On the date of April 10th, 2003, TKC published simultaneously an announcement on the newspapers of and as well as on the website of “www.cninfo.com.cn” to inform the TKC’s Board of Directors’ decision about the opening of 2003’s Shareholders’ Regular Meeting (which is also the 2002’s General Meeting of TKC’s shareholders). The 2002’s Shareholders’ General Meeting of TKC was opened on May 16th, 2003 at Xiamen Mandarin Hotel. Five persons in the name of the shareholder or the shareholders’ representative attended the meeting. The total share amount on behalf of by them which was entitled to vote was 496,952,422 shares, accounting for 73.47 percent of the corporation’s total shares (676,406,250 shares in all). The directors, supervisors and the lawyers of the corporation also attended the meeting, the opening of which conformed to the relative rules specified in Corporation Law and in the corporation’s articles of association. 2、 The resolutions made in the meeting and the newspapers and the date for the disclosure of the information thereof (1)、In the Shareholders’ General Meeting, the following bills were examined and passed: A、 The 2002’s Report on the Work of the Board of Directors presented by the board; B、 The 2002’s Report on the Work of the Supervisory Committee presented by the committee; C、 The 2002’s final financial statements and the 2003’s financial budget； D、 The distribution plan for 2002’s profit； 15 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. E、 The revision on the corporation’s articles of association； F、 The change of personnel in the Board of Directors； G、 The resolution on the candidates for the independent directors as well as the payment for them； H、 About renewal of appointing Deloitte Touche Tohmatsu CPA as TKC’s auditor. (2)、 All the above resolutions were publicized in the newspapers of and on May 17th, 2003. 3、 The election and replacement of the director(s) or supervisor(s) of the corporation (1)、The resignation application from the former director Mr. Zhang Ke Da was passed. (2)、The resignation application from the former independent director Mr. Li Hao Zheng was passed. (3)、Mr. Wei Jun Xian and Mr. Zhou Zong Geng were elected as the independent directors of the TKC’s fourth Board of Directors. VII. REPORT OF THE BOARD OF DIRECTORS Discussion and analysis on the overall operational situation during the reported period Although affected by the continuous depression in global economy and by the influence of “SARS”, thus facing a tough adverse business situation in 2003, TKC still successfully made a big progress in the year mentioned above. In its sales strategy, TKC Group adopted a “World Factory” E.D.S.S. strategy. Together with the principle of Differential Management, Cost Guidance, All-direction Customer Orientation, as well as with its global economy, wonderful design and competitive price advantage, the Group is making itself as a world level life-servicing enterprise group that holds design integrating as its core. According to the auditor’s report, in 2003, TKC achieved a sales turnover of RMB 4,204,669,000, which is an increase of 20.66%, as compared with the same item of RMB 3,484,815,000 achieved in the same period of last year. It also obtained a 16 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. gross profit of RMB 547,421,000, which is an decrease of 12.19%, as compared with RMB 623,450,000 in last year. From the analysis for the reason of increase, one can see that it is mainly due to the expansion of production and business scale. The gross profit ratio of 2003 decreased by 4.89% compared with that of 2002. The main reasons are: in order to bear the loss together with our customers during the hard time of “SARS”, we lowered our unit price by 6% in Europe and our gross profit rate of domestic sales of household was kept only 4.79%. The profit after tax of 2003 was RMB134,052,000, which decreased by 42.88% compared with that of 2002 (RMB234,686,000). The profit ratio of 2003 decreased by 3.55% than that of 2002. The company stick to the bibusiness strategy of world factory and world channel. The company expanded its manufacturing scope to cater to the increasing competition in international consumable electronic appliances and developed the domestic market to improve the domestic market shares. From the mid of 2003, the company began to strengthen the marketing in domestic market. It changed the model of domestic division to set up Xiamen Tsann Kuen Dian Tong Electronics Co., Ltd and Shanghai Tsann Pao Electronics Co., Ltd, which focus on the consumable electronic appliances sales in domestic market. With the huge fees in early stage of operation and non-scale effect, the profit of 2003 decreased than that of 2002. According to the reason of profit decreasing, the company integrated the procure, manufacture and sales of all group and set up the net of channel for domestic sales to get the scale effect so as to rationalize the bibusiness strategy, get more net profit and returns to stockholders. 1、 The operational situation during the reported period (1)、The major business scope and its operational situation A. Classifying according to the trade and product Unit:RMB’000 17 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. Trade Product Sales Turnover Gross Profit Home comforts 708,803 123,421 Gourmet cooking 2,551,258 345,846 Tea/coffee Manufacturing breakfast 473,570 57,708 Other 65,925 1,022 Subtotal 3,799,556 527,997 Domestic Wholesaling 405,113 19,424 Total 4,204,669 547,421 B. Classifying according to the geographical location Unit:RMB’000 Area Sales Turnover Gross Profit V America 1,870,466 336,314 I Europe 904,440 89,492 I Asia 1,010,038 71,799 I Other 419,725 49,817 . Total 4,204,669 547,421 C. The products whose sales income exceeded 10% of the major operational income Unit:RMB’000 Gross profit Type of product Ratio Sales income Cost of sales ratio Home comforts 16.86% 708,803 585,382 17.41% Gourmet cooking 60.68% 2,551,258 2,205,412 13.56% Tea/coffee breakfast 11.26% 473,570 415,862 12.19% Total 88.80% 3,733,631 3,206,656 14.11% D、There was no great change in the company’s major business line or in its structure during the reported period. (2)、The operational situations and the achievements of the companies which is under TKC’s control or in which TKC holds a share. 18 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. (A)、Tsann Kuen China (Shanghai) Enterprise Ltd. a、 Business Range: Manufacturing; b、 Major Products and Services: Production of household appliances 、 electronic 、 light industrial products、modern office equipments and their related modules、various kinds of computers and their related facilities or spare parts. Development of computer software, IC packing and testing. Sale of their own products (the exporting of which will not be restricted by the requirements of license. and quota, or by whether or not being the product of class B). c、 Registered capital: US$40,000,000 d、 Scope of assets： RMB 811,540,000 e、 Net profit: RMB -73,960,000 (B)、 Tsann Kuen Xiamen Technology Co., Ltd. a、 Business Range: Manufacturing; b、 Major Products and Services: Producing and marketing network service products like internet server, router and other digital communication devices, network multi-media PC products and their assemblies, related software. Designing, researching, developing and producing sophisticated pressing modules, model normalizers and the like. c、 Registered capital: US$20,000,000 d、 Scope of assets： RMB 57,010,000 e、 Net profit: RMB 3,650,000 (C)、 Tsann Kuen Zhangzhou Enterprise Co. Ltd. a、 Business Range: Manufacturing; b、 Major Products and Services: Development, production and sale of small household 19 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. electrical appliances, new kind of electronic appliances and parts (such as electrical kits, sensors and sensitive transmitters), light industrial products, modern office supplies; designing and producing the molds related to the above products. (Excluding those products restricted by the government or those whose import or export quota is under license administration. When involved in those projects which need to be examined and approved first, the company carries out its operation and production only within the range and within the valid period set in the license.) c、 Registered capital: US$ 40,000,000 d、 Scope of assets： RMB 1,961,870,000 e、 Net profit: RMB 176,060,000 (D)、Xiamen TSANN KUEN Dian Tong Electronic Co. Ltd. a、 Business Range: Wholesale trading. b、 Major Products and Services: Wholesaling and its follow-up service of household appliances, computer sets and their attachments, communication materials, motor and electric equipments, office supplies and the related attachments (including kitchen facilities). (For those business items which need to be examined and approved first according to the laws and regulations, the company will carry out its operation only after it has obtained the license). c、 Registered capital: RMB 65,000,000 d、 Scope of assets： RMB520,030,000 e、 Net profit: RMB –52,300,000 (E) Shanghai Tsann Pao Electronics Co., Ltd a、Business Range: Wholesale trading b、Major Products and Services: Wholesaling and its follow-up service of household appliances, computer sets and their attachments, communication materials, motor and electric equipments, office supplies and the 20 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. related attachments (including kitchen facilities). (For those business items which need to be examined and approved first according to the laws and regulations, the company will carry out its operation only after it has obtained the license). c﹑Registered capital: RMB 10,000,000 d﹑Scope of assets： RMB 490,380,000 e、Net profit: RMB –52,270,000 (F) Chengdu Tsann Kuen Electronics Co., Ltd c、 Business Range: Wholesale trading. d、 Major Products and Services: Wholesaling and its follow-up service of household appliances, computer sets and their attachments, communication materials, motor and electric equipments, office supplies and the related attachments (including kitchen facilities). (For those business items which need to be examined and approved first according to the laws and regulations, the company will carry out its operation only after it has obtained the license). f、 Registered capital: RMB 5,000,000 g、 Scope of assets： RMB 43,360,000 h、 Net profit: RMB –3,720,000 (3)、Chief customers and suppliers The sum of purchasing amount from the top five suppliers in 2003 is RMB535,691,000 making up 23.12% of the company’s total purchasing amount in the year. The sum of sales amount to the top five customers in 2003 is RMB1,725,192,000 making up 41.03% of the company’s total sales amount in the year. 2、 Investment status 21 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. (1)、Utilization state of raised funds A、 Apart from the 40,000,000 shares of outbound funds raised in 1993, TKC has not raised funds since 1994. And there was no case of the utilization of the raised funds being extended till after 1998. B、The plan to issue additional 50 million B-shares and to use the fund raised from that was passed in the 1999’s Meeting of Shareholders, and on July 7, 2000 the application for issuing B-shares was approved by CSRC. After that, the related application documents were sent to CSRC for approval after they had been passed in the shareholders’ meeting held on the date of June 2nd, 2001, but till now no feedback of them has been received. (2)、Utilization state of non-raised funds： A、 In July of 2002, TKC invested funds in Longhai Developing District of Zhangzhou city to set up a subsidiary company—Tsann Kuen Zhangzhou Enterprise Co. Ltd. in which TKC holds 75 percent of its stockholder’s equity. The registered capital for this subsidiary company is US$ 40,000,000, of which US$ 17,000,000 has arrived in hand. The company contributed 75%. So far, the main workshops have been constructed. By the end of the reported period, most major production lines, such as that of roaster, coffee maker, electric fan as well as motor, have been installed and have started operations. B、 In April 2003, TKC invested funds in Huli Industrial Zone of Xiamen city to set up a new trading company—Xiamen TSANN KUEN Dian Tong Electronics Co. Ltd, in which TKC held 95 percent of its stockholder’s equity then. The registered capital for this new subsidiary company was RMB 10,000,000, all of which has arrived in position. On Dec. 25th, 2003, approved by the shareholders’ meeting, the company decided to add RMB 55,000,000 to its investment, making the registered capital of Xiamen TSANN KUEN Dian Tong Electronics Co. Ltd reach RMB 65,000,000 after this fund-adding. 65 percent of its 22 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. current stockholder’s equity is held by TKC. By the end of the reported period, this new company has already opened 10 display stores within China. C﹑ Shanghai Tsann Pao Electronics Co., Ltd. (Shanghai Tsann Pao) was established by the Company and Shanghai Huangdu Management Company (Shanghai Huangdu) in December 2002 and obtained its business licence on 2 January 2003. The registered capital was RMB 1 million, of which the Company contributed 20%. Shanghai Tsann Pao increased its paid-in capital by RMB 9 million in August 2003, of which the Company contributed RMB 1.8 million. After capital injection, the Company still holds 20% of registered capital of Shanghai Tsann Pao. Since the Company control the majority of the board of directors, and has committed to provide sufficient working capital to finance the operation of Shanghai Tsann Pao Electronics Co., Ltd., the management of the Company regards that the Company has substance control over Shanghai Tsann Pao’s financial policy since the establishment of Shanghai Tsann Pao and operation policy and is able to continue such control. As a result, the Company incorporates Shanghai Tsann Pao into the consolidation financial statements. D﹑Chengdu Tsann Kuen Electronics Co., Ltd was established by TKC and Shanghai Tsann Pao Electronics Co., Ltd in October 2003. The registered capital is RMB 5 M and TKC contributed 50%. 3、 Financial status and operating achievements Unit: RMB’000 Increase or Item/Year 2003 2002 Reason for variation decrease (%) Investment on household appliance in domestic market, which has many stock and cash from sales, and the found Total assets 5,061,134 2,866,998 76.53 of material division in Tsann Kuen (Zhangzhou) Enterprise Co., Ltd, with a lot of stock because of the prediction of rising price for aluminum Shareholders’ Increase in net profit and in 1,401,410 1,275,419 9.88 dividend distribution equity In order to bear the loss Gross profit 547,421 623,450 -12.19 together with our customers 23 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. during the hard time of “SARS”, unit price was lowered by 6% in Europe and gross profit of domestic sales was kept only 4.79% Loss from the investment of domestic household appliance sales owing to huge fees & Net profit 126,416 246,731 48.76 expenditures in early stage to set up sales net and non-scale effect. Cash and cash Cash from domestic sales and equivalent 582,689 232,468 150.65 more time deposit 4、 Changes in the macroscopic policies, laws or regulations that might bring significant influence to the company’s operating status The VAT rebate rate for export product was lowered from 17% to 14% in 2004. Accordingly, the company’s manufacture cost will rise by RMB78,000,000. 5、 Business plan in 2004 (1)、2004 sales target: RMB 6,800,000,000 (2)、Focus of operations: i. Improvement of quality ii. Integration of marketing, R&D and manufacturing. Divide the profit center according the product line. iii. Development in channel of sales and procurement. iv. Innovation of technology to improve the competition v. Provide the overall service for customers vi. Set up the overall performance appraisal system to speed the decision-making. vii. Strengthen the training to cultivate the professionals. viii. Set up the knowledge-sharing system for knowledge management. 6、 The routine work of the Board of Directors (1)、 Important resolutions made by the Board of Directors during the reported period A. 、The first meeting of 2003’s was held on the date of Jan. 6th, 2003, and the following bills were passed in the meeting: 24 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. a) About appointing Mr. Yang Wen Fang as the general manager of the corporation； b) About appointing Mr. Luo Qing Xing as the secretary and the spokesman of the Board of Directors of the corporation. B. The second meeting of 2003’s was held on the date of April 8th, 2003, and the following bills were passed in the meeting: a) The company’s 2002’s annual report and its summary； b) The 2002’s annual report on the work of the Board of Directors； c) The company’s 2002’s final financial statements and the 2003’s financial budget； d) The distribution plan for the company’s 2002’s profit； e) The company’s stock dividend distribution policy for the estimated 2003’s profit； f) About revising the company’s articles of association； g) About the change of personnel in the Board of Directors； h) About nomination of candidates for the independent directors as well as the payment for them; i) About renewal of appointing Deloitte Touche Tohmatsu CPA as TKC’s auditor; j) Proposal to call and open the TKC’s 2002’s General Meeting of Shareholders. C、 In the 2003’s third meeting held on Apr. 24th, 2003, the 2003’s first quarter financial report was passed. D、 On July 5th, 2003, in the fourth meeting of the year 2003, the following resolution was made: The Board authorized its chairman to have the full power to deal with affairs concerning the current bank loans, such as the credit quota and its extension or alteration thereof. 25 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. E、 On Aug. 18th, 2003, the Board’s fifth meeting of 2003, the company’s 2003’s semi-annual report was passed. F、 In the sixth meeting of 2003 held on Oct. 4th, 2003, the following bills were passed: 1) 、 The working standard for the company’s investor relation management. a) The regulation for information disclosure； b) The management on the investor’s relation； c) The behaviour standard for the administrator of investor’s relation. G、 The Board’s seventh meeting of 2003 was held on Oct. 19th, 2003, in which the year’s 3rd-quarter financial report was passed. H、 On Dec. 31st, 2003, the Board held its eighth meeting of 2003, in which it passed the resolution about the company’s proposal to increase fund investment to its subsidiaries. (2) 、 The Board of Directors’ execution status to the resolutions of the Shareholders’ General Meeting (including the Board’s implementation to the work authorized by the Shareholders’ General Meeting, the Board’s implementation to the company’s profit distribution plan and to the plan to convert surplus accumulated funds into stock capital during the reported period, and the realization status on the plans to apportion shares or to re-issue new shares, etc.) A、Distribution of the 2002’s yearly profit during the middle phase of 2003: On June 11th, 2003, the Corporation implemented the 2002 yearly profit distribution plan that had been approved by the Shareholders’ General Meeting. According to the plan, stock dividend was to be given on the basis of 3 shares from the capitalization of retained earnings for every 10 shares 26 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. held. The shares to be given in this distribution amounted to 202,921,875 shares in all. After the completion of this distribution, the company’s total shares has been increased to 879,328,125 shares from the former 676,406,250 ones. B、No share apportioning or new share re-issuing occurred during the reported period. C、The revision on the corporation’s articles of association The proposal to revise the corporation’s articles of association (including alteration of capital quota, change of personnel in the Board of Directors, etc.) was put forward in last year. This year, the Board carried out the revision according to the resolution of the shareholders’ meeting. So far, the revision has been completed and the content of the revised one has been examined and confirmed that it did not conflict with the laws and regulations. a. Plan of 2003’s retained earning distribution Amount Item Ratio range Actual ratio Remark (RMB’000) Undistributed profit at beginning 46,101 Net profit of this period 126,416 Appropriate of statutory surplus reserve 10% 10% 11,960 Distributable profit 160,558 Distribution of stock Items for distribution dividend with 1. Statutory public 1 shares for welfare reserve, and 5—10% 5% 5,980 bonus reserve every 10 2. Discretionary surplus shares reserves, 20% 23,919 3. Fund for dividend ---Stock dividends 54.77% 87,933 Undistributed profit at end 42,726 b. Plan of conversion from discrepancy surplus reserve into share capital 27 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. Amount Item Remarks (RMB’000) Discrepancy surplus reserve at beginning 66,775 Add: appropriation of net profit of 2003 23,919 Discrepancy surplus reserve at end 90,695 Distribution of stock Description: dividend with 0.5 shares for Minus: distribution of stock dividend with 0.5 every 10 shares for shares for every 10 shares 43,966 discrepancy surplus reserve Discrepancy surplus reserve at beginning after conversion into share capital conversion into share capital 22,809 Discrepancy surplus reserve after conversion into share capital 46,728 (3) ﹑RELATED PARTY TRANSACTIONS The ultimate holding company of the Company is Tsann Kuen Enterprise Ltd., a company incorporated in Taiwan. (a) During the year, the Group entered into the following transactions with its related companies. 2003 2002 RMB’000 RMB’000 Transactions Sales of raw materials and finished goods - Ultimate holding company 49,879 29,580 - Fellow subsidiaries 212,693 231,392 - Companies in which the Company’s directors have controlling interests 188 450 Purchases of raw materials and finished goods - Ultimate holding company 398,275 468,100 - Fellow subsidiaries 86,641 113,538 - Companies in which the Company’s directors have controlling interests 71,907 55,106 Sales of property - Ultimate holding company - 16 28 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. - Companies in which the Company’s directors have controlling interests 15,297 107 Transactions Purchases of mould and machinery - Ultimate holding company 233,056 196,572 - Fellow subsidiaries - 47,712 - Companies in which the Company’s directors have controlling interests - 245 For the Company and a subsidiary, TKS, all transactions except those with Thermaster Electronic (Xiamen) Ltd. (“THERMASTER (XIAMEN)”, a company in which the Company’s directors have controlling interests) and A-Switch Electronic (Xiamen) Limited (“A-Switch, “a company in which the Company’s directors have controlling interests”) and Union Channel Limited (“Union Channel”, a fellow subsidiary) were priced according to the “Pricing Agreements for related companies’ transaction” which have been approved by Xiamen Tax Bureau and Shanghai Jiading Tax Bureau. The transactions between the Company and Union Channel were all under the prices agreed in the contracts. The transactions between the related parties and the subsidiaries (TKL and TKK) were all under the prices agreed in the contracts. 2003 2002 RMB’000 RMB’000 Other services paid Technology and know-how usage fee (i) - Ultimate holding company 79,828 105,719 Sales commissions (i) - Fellow subsidiaries 5,247 - Agency fee (ii) - Companies in which the Company’s directors have controlling interests 1,920 1,862 Other services rendered Rental income (iii) - Companies in which the Company’s directors have controlling interests - 603 Management income (iv) - Companies in which the Company’s directors have controlling interests 883 1,579 Call center fee (v) 29 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. - Ultimate holding company 8,277 - (i) Technology and know-how usage fee and sales commissions the Group paid were arrived at fixed percentage of net sales. (ii) The Group has appointed several of its related companies as sales agents for its export sales. Those related companies sign contract in the name of the Group and collect sales proceeds on the Group’s behalf. The Group records those sales as its own sales as the Group bears substantially all the risks of these transactions. The resulting agency fee as disclosed above was arrived at as a certain percentage of operating expenses incurred by the agents. (iii) Rental income the Company received from THERMASTER (XIAMEN) and A-SWITCH were calculated based on actual occupied area, time and unit rental charge. (iv) Management income the Company received from THERMASTER (XIAMEN) was calculated at certain percentage of the managed company’s revenue income. (v) Call center fee the Company received from TKE was calculated at certain percentage of the total cost of telecom system, operation cost and training cost. (b) Directors’ remuneration Remuneration paid to directors during the year was as follows: 2003 2002 RMB’000 RMB’000 Salaries 1,233 693 (c) Amounts due from/to related companies Accounts 2003 2002 RMB’000 RMB’000 Amounts due from related companies - Ultimate holding company 58,069 20,501 - A Shareholder - 197 - Fellow subsidiaries 67,057 64,726 - Companies in which the Company’s directors have controlling interest 44,629 159,072 - Associate - 802 169,755 245,298 Amounts due to related companies - Ultimate holding company 375,893 257,264 - A Shareholders - 18,429 30 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. - Fellow subsidiaries 96,406 91,073 - Companies in which the Company’s directors have controlling interest 78,487 70,731 550,786 437,497 At 31 December 2003, balances with related companies of RMB 38 million (31 December 2002: RMB 84 million) represent sales proceeds received on the Group’s behalf. The major shareholder of the ultimate holding company has issued a letter of guarantee for the repayment of this balance. Amounts due from/to related companies were unsecured, interest free and repayable on demand. (d) Guarantee As at 31 December 2003, the Company guaranteed RMB 16,554,000 (2002: RMB 32,821,000) for TKS, a subsidiary of the Group. VIII. REPORT OF THE SUPERVISORY COMMITTEE 1、 Supervisors’ meetings (1)、The first meeting of 2003’s was held on the date of Apr. 8th, 2003. In the meeting, the 2002’s report on the work of supervisory committee and the 2002’s audit report were passed; (2)、On Aug. 18th, 2003, in the 2003’s second meeting, Passed the 2003’s semi-annual financial report.; (3)、In the 2003’s third meeting held on Oct. 19th, 2003, the 2003’s 3rd-quarter financial report was passed. 2、 No case has been found to be against the laws in the performance of the board of directors. 3、 The company’s financial statements truly reveal the financial status and the operating results of the company. 4、 No case of inside-deal has been found to be conducted by the company. 5、 The transactions with the relative parties were carried out fairly, and none of them was found to be harmful to the interest of the corporation and the shareholders. 31 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 6、 After carrying out supervisions and examinations to the year 2003’s work of the company’s directors and other senior administrative persons, no case of violation has been found, and all the above-mentioned persons were recognized to be responsible and faithful to their duties in the year 2003. IX. MAJOR EVENTS 1、Significant litigation or arbitration: none. 2、Significant purchase or disposal of assets and acquisition or merge: TKC’s factory building in No.11 Yuehua Road in Huli Industry Zone was sold to Thermaster Electronic (Xiamen) Ltd, which is a related party to TKC. TKC got income of RMB10,231,000 from this business. The price was based on its appraised value of RMB15,297,000 by valuer. 3、Significant transactions with the relative parties: (1)、 About the details of transactions with the relative parties taking place during the reported period, please refer to the notes to the financial report; (2)、All the transactions with the relative parties were done on the basis of signed by XIAMEN TAX BUREAU and the company; 4、During the reported period, none of the shareholders who held more than 5% of the company’s total shares revealed without authorization any information on any of the designated newspapers or on inter-net. 5、During the reported period, there was no change in TKC’s appointing Deloitte Touche Tohmatsu CPA to be its auditor, and the payroll for it this year was RMB 1,315,000. X. FINANCIAL REPORTS (See the attachments) 1. DTT’s audit report; 2. Financial statements: A. Consolidated balance sheet; B. Consolidated income statement; C. Consolidated cash flow statement; 32 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. XI. MEMO 1 、 The Financial statements with signatures and seals of the legal representative, the CFO and other chief accountants. 2、 The audit report proper with the seals of the public accounting firm and with the personal signatures and seals of its CPAs. 3、 All the company’s documents proper and announcement originals that were publicly disclosed during the reported period on the newspapers nominated by CSRC. 4、 The Corporation’s Articles of Association. The above-mentioned documents are stored in the office of the Board of Directors. (Signed by:) Tsai Yuan Song The chairman of the Board of Directors of TSANN KUEN (CHINA) ENTERPRISE CO. LTD on Apr. 16th, 2004 33 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. TSANN KUEN (CHINA) ENTERPRISE CO., LTD. Auditors’ Report and Financial Statements for the year ended 31 December 2003 (Prepared under International Financial Reporting Standards) Registered Office: 88 Xinlong Road, HuLi Industry Zone Xiamen China 34 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) CONTENTS PAGE(S) AUDITORS’ REPORT 1 CONSOLIDATED INCOME STATEMENT 2 CONSOLIDATED BALANCE SHEET 3 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 4 CONSOLIDATED CASH FLOW STATEMENT 5-6 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 7 - 37 DTT AUDITORS’ REPORT TO THE SHAREHOLDERS OF TSANN KUEN (CHINA) ENTERPRISE CO., LTD. We have audited the accompanying consolidated balance sheet of the Tsann Kuen (China) Enterprise Co., Ltd. and its subsidiaries (collectively referred to as the “Group”) as of 31 December 2003 and the related consolidated statements of income, changes in equity and cash flows for the year then ended. These financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Group as of 31 December 2003 and the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Deloitte Touche Tohmatsu Certified Public Accountants Ltd. April 16 2004 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) NOTES 2003 2002 RMB’000 RMB’000 Revenue 4 4,204,669 3,484,815 Cost of sales (3,657,248) (2,861,365) Gross profit 547,421 623,450 Other operating income 6 44,495 26,798 Selling and distribution expenses (266,532) (232,525) Administrative expenses (165,746) (140,627) Profit from operations 7 159,638 277,096 Interest income 2,441 2,331 Interest expenses (13,418) (5,736) Profit before tax 148,661 273,691 Income tax expense 8 (14,609) (39,005) Profit before minority interests 134,052 234,686 Minority interests (7,636) 12,045 Net profit for the year 126,416 246,731 RMB RMB Basic earnings per share 10 14 cents 28 cents See accompanying notes to the financial statements. 2 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) NOTES 2003 2002 RMB’000 RMB’000 ASSETS Non-current assets Property, plant and equipment 11 1,611,324 1,254,747 Investment properties 12 - 2,051 Goodwill 13 7,880 9,093 Land use rights 14 79,623 81,529 Investment in associate 16 - 200 Other investments 17 71 71 1,698,898 1,347,691 Current assets Inventories 18 1,316,084 421,004 Trade and other receivables 19 1,244,048 620,537 Amounts due from related companies 29(c) 169,755 245,298 Restricted deposit 23 49,660 - Bank balances and cash 582,689 232,468 3,362,236 1,519,307 Total assets 5,061,134 2,866,998 EQUITY AND LIABILITIES Capital and reserves Share capital 20 879,328 676,406 Other reserves 21 391,424 349,990 Retained profits 130,658 249,023 1,401,410 1,275,419 Minority interests 189,560 130,482 Non-current liabilities Long-term payable-due after one year 22 - 15,609 Long-term bank loans 23 50,000 - 50,000 15,609 Current liabilities Trade and other payables 24 2,004,929 809,483 Long-term payable-due within one year 22 23,414 15,610 Amounts due to related companies 29(c) 550,786 437,497 Income tax liabilities 14,943 32,749 Short-term bank loans 23 826,092 150,149 3,420,164 1,445,488 Total equity and liabilities 5,061,134 2,866,998 See accompanying notes to the financial statements. 3 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) Other reserves (note 21) Statutory Discretionary Statutory Share Share surplus surplus public Translation Retained capital premium reserve reserve welfare reserve reserve Sub-total profits Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 YEAR ENDED 31 DECEMBER 2002 Balance at 1 January 2002 450,938 128,655 87,659 114,151 29,164 394 360,023 262,706 1,073,667 Exchange differences arising from translation of subsidiaries’ financial statements not recognised in income statement - - - - - 115 115 - 115 Capitalisation 225,468 - - (112,734) - - (112,734) (112,734) - Net profit for the year - - - - - - - 246,731 246,731 Appropriations - - 24,819 65,358 12,409 - 102,586 (147,680) (45,094) Balance at 31 December 2002 676,406 128,655 112,478 66,775 41,573 509 349,990 249,023 1,275,419 YEAR ENDED 31 DECEMBER 2003 Balance at 1 January 2003 676,406 128,655 112,478 66,775 41,573 509 349,990 249,023 1,275,419 Exchange differences arising from translation of subsidiaries’ financial statements not recognised in income statement - - - - - (425) (425) - (425) Capitalisation 202,922 - - - - - - (202,922) - Net profit for the year - - - - - - - 126,416 126,416 Appropriations - - 11,960 23,919 5,980 - 41,859 (41,859) - Balance at 31 December 2003 879,328 128,655 124,438 90,694 47,553 84 391,424 130,658 1,401,410 See accompanying notes to the financial statements. 4 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) NOTES 2003 2002 RMB’000 RMB’000 OPERATING ACTIVITIES Profit from operations 159,638 277,096 Adjustments for: Depreciation of property, plant and equipment and investment properties 246,759 213,887 Impairment loss (reversed) recognized on property, plant and equipment (1,956) 68,866 (Gain) loss on disposals of property, plant and equipment and investment properties (11,035) 2,828 Amortisation of land use rights 1,906 1,905 Amortisation of goodwill 1,213 1,213 Accounts payable written back (2,050) (10,890) Effect of foreign exchange rate changes (425) 115 Operating cash flows before movements in working capital 394,050 555,020 Increase in inventories (895,080) (74,180) Increase in trade and other receivables (821,733) (110,638) Decrease in amounts due from related companies 75,543 76,358 Increase in trade and other payables 1,395,718 125,395 Increase (decrease) in amounts due to related companies 15,594 (148,224) Cash generated by operations 164,092 423,731 Income taxes paid (32,415) (21,647) NET CASH FROM OPERATING ACTIVITIES 131,677 402,084 INVESTING ACTIVITIES Interest received 2,441 2,331 Proceeds on disposals of property, plant and equipment and investment properties 16,580 4,027 Purchases of property, plant and equipment (507,179) (379,831) Acquisition of land use rights - (15) Acquisition of investment in an associate - (200) Acquisition of subsidiary 25 1,000 - NET CASH USED IN INVESTING ACTIVITIES (487,158) (373,688) 5 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) NOTE 2003 2002 RMB’000 RMB’000 FINANCING ACTIVITIES Cash received from minority shareholders 50,642 22,738 Interest paid on bank loans (13,418) (5,736) Dividends paid - (45,094) Repayments of bank loans (1,118,465) (466,307) New bank loans raised 1,844,408 451,694 Increase in restricted deposit (49,660) - Repayment of long-term payable (7,805) (6,610) NET CASH FROM (USED IN) FINANCING ACTIVITIES 705,702 (49,315) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 350,221 (20,919) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 232,468 253,387 CASH AND CASH EQUIVALENTS AT END OF YEAR 582,689 232,468 ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Bank balances and cash 582,689 232,468 6 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) 1. GENERAL Tsann Kuen (China) Enterprise Co., Ltd. (“the Company”) was established in the People’s Republic of China (“the PRC”) in 1988 under the name of Tsann Kuen China (Xiamen) Ltd. as a wholly owned foreign investment enterprise. On February 16, 1993, with the approval of the Ministry of Foreign Trade and Economic Co-operation, the Company was reorganised into a joint stock company limited by shares and was renamed as Tsann Kuen (China) Enterprise Co., Ltd. In June 1993, the Company issued 40,000,000 new shares pursuant to an international placing and public offer and these new shares (“B shares”) were then listed on the Shenzhen Stock Exchange on June 30, 1993. The Company and its subsidiaries are hereinafter collectively referred to as the Group. As at 31 December 2003, the Group has 28,139 (31 December 2002: 13,789) employees. 2. PRESENTATION OF FINANCIAL STATEMENTS The Company and its subsidiaries maintain their accounting records and prepare their statutory financial statements in accordance with accounting standards and regulations of the People's Republic of China that are applicable to the Company and its subsidiaries. These financial statements (“IFRS financial statements”) have been prepared in accordance with International Financial Reporting Standards (“IFRSs”). The basis of accounting under IFRSs differs in certain respects from that used in the preparation of the Company and its subsidiaries’ statutory financial statements. In preparing these IFRS financial statements, appropriate adjustments, which are not taken up in the accounting records of the Company and its subsidiaries, have been made to the Company and its subsidiaries’ statutory financial statements. These financial statements are presented in Renminbi (“RMB”) since that is the currency in which the majority of the Group’s transactions are denominated. 7 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements have been prepared under the historical cost convention. The principal accounting policies adopted are set out below. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and enterprises controlled by the Company (its subsidiaries) made up to 31 December each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee enterprise so as to obtain benefits from its activities. The shares of Shanghai Tsann Pao Electronics Co., Ltd. hold by the Company does not exceed 50%. However, the management regards that the Company has substance control over Shanghai Tsann Pao’s finance and operation policy, so the Company incorporates the financial statements of Shanghai Tsann Electronics Co., Ltd. On acquisition, the assets and liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess (deficiency) of the cost of acquisition over (below) the fair values of the identifiable net assets acquired is recognised as goodwill (negative goodwill). The interest of minority shareholders is stated at the minority’s proportion of the fair values of the assets and liabilities recognised. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the Group. All significant intercompany transactions and balances between group enterprises are eliminated on consolidation. Investments in associates An associate is an enterprise over which the Group is in a position to exercise significant influence, but not control, through participation in the financial and operating policy decisions of the investee. 8 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Investments in associates are carried in the balance sheet at cost as adjusted by post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual investments. Any excess (deficiency) of the cost of acquisition over (below) the Group’s share of the fair values of the identifiable net assets of the associate at the date of acquisition is recognised as goodwill (negative goodwill). Where a group enterprise transacts with an associate of the Group, unrealised profits and losses are eliminated to the extent of the Group’s interest in the relevant associate, except to the extent that unrealised losses provide evidence of an impairment of the asset transferred. Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition. Goodwill is recognised as an asset and amortised on a straight-line basis over its estimated useful life. Revenue recognition Sales of goods are recognised when goods are delivered and title has passed. Services income is recognised when services are rendered. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. Rental income, from properties under operating leases is recognised on a straight-line basis over the term of the relevant lease. Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Rentals payable by the Group as lessee under operating leases are charged to the income statement on a straight-line basis over the term of the relevant lease. 9 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Foreign currencies Transactions in currencies other than RMB are initially recorded at the rates of exchange prevailing on the first day of the month in which the transactions take place which approximates to the rates of exchange prevailing on the dates of transactions. Monetary assets and liabilities denominated in such currencies are retranslated at the rates prevailing on the balance sheet date. Profits and losses arising on exchange are included in net profit or loss for the year. On consolidation, the assets and liabilities of the subsidiary operations which are denominated in a reporting currency different from that of the Group are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the year. Exchange differences arising, if any, are classified as equity and transferred to the Group’s translation reserve. Such translation differences are recognised as income or as expenses in the period in which the subsidiary is disposed of. Research and development costs Expenditure on research activities is recognised as an expense in the period in which it is incurred. Expenditure on development activities is recognised as an expense in the period in which it is incurred except where an asset is created that can be identified; it is probable that the asset created will generate future economic benefits; and the development cost of the asset can be measured reliably. Any such development costs incurred are recognised as an intangible asset and amortised on a straight-line basis over the life of the project from the date of commencement of commercial operation. Borrowing costs Borrowing costs are recognised in net profit or loss in the period in which they are incurred. Subsidy income Subsidy income is recognised when the Group’s rights to receive is established. Retirement benefit costs The employees of the Group are members of state-managed retirement benefit schemes, under which the Group’s obligations are equivalent to those arising in a defined contribution retirement benefit plan. Payments made to state-managed retirement benefit schemes are charged as expenses as they fall due. 10 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill (or negative goodwill) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. 11 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Property, plant and equipment Properties in the course of construction for production, rental or administrative purposes, or for purposes not yet determined, are carried at cost, less any recognised impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Group’s accounting policy. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use. Other items of property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss. Depreciation is charged so as to write off the cost of assets, other than properties under construction, over their estimated useful lives and after taking into account their residual value, using the straight-line method, on the following bases: Buildings 20 years Machinery and equipment 10-15 years Motor vehicles 5 years Furniture and office equipment 5 years Moulds 5 years Leasehold improvement 5-12 years The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in income statement. Land use rights Land use rights are measured initially at cost and amortised on a straight-line basis over their estimated useful lives. Investment property Investment property, which is property held to earn rentals or for capital appreciation, is stated at cost less accumulated depreciation and any recognised impairment loss. Depreciation is charged so as to write off the cost of investment property over the estimated useful lives of 20 years and after taking into account their residual value, using the straight-line method. 12 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Impairment At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the greater of net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately. Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price less all estimated costs to completion and costs to be incurred in marketing, selling and distribution. 13 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Financial instruments Financial assets The Group’s principal financial assets are bank balances and cash, trade and other receivables, amounts due from related companies and other investments. Trade and other receivables and amounts due from related companies are stated at their nominal value as reduced by the appropriate allowances for estimated irrecoverable amounts. Other investments consist of investments available-for-sale which are initially recorded at cost and are measured at subsequent reporting dates at fair value at the balance sheet date, unless the fair value of which cannot be reasonably estimated are stated at cost, in which case other investments are stated at cost, net of any impairment loss. Increases or decreases in the carrying amount of such investments are recognised as income or expenses of the year. Bank balances and cash are stated at their nominal values. Financial liabilities Significant financial liabilities include interest-bearing bank borrowings, trade and other payables, amounts due to related companies and a long-term payable. Interest bearing bank borrowings are recorded at the proceeds received, net of direct issue costs. Finance charges are accounted for on an accrual basis. Trade and other payables, amounts due to related companies and long-term payable are stated at their nominal values. 4. REVENUE An analysis of the Group’s revenue is as follows: 2003 2002 RMB’000 RMB’000 Manufacturing 3,799,556 3,484,815 Retailing 405,113 - 4,204,669 3,484,815 14 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) 5. BUSINESS AND GEOGRAPHICAL SEGMENTS Business segments For management purposes, the Group is currently organised into two operating divisions-retailing and manufacturing, which are the basis that the Group reports its primary segment information. Principal activities are as follows: Retailing - Whole sale and retail of consumable electronic appliances, computers and communication equipments. Manufacturing - Manufacture and distribution of household electronic appliances. In prior years, the Company was not involved in retailing. The operation began with effect from 2 January 2003. Segment information about these business is presented below. 2003 Manufacturing Retailing Eliminations Consolidated RMB’000 RMB’000 RMB’000 RMB’000 REVENUE External sales 3,799,556 405,113 - 4,204,669 Inter-segment sales 22,993 - (22,993) - Total revenue 3,822,549 405,113 (22,993) 4,204,669 RESULT Segment result 293,071 (133,433) - 159,638 Interest income 2,247 194 - 2,441 Interest expenses (10,311) (3,107) - (13,418) Profit before tax 285,007 (136,346) - 148,661 Income tax expense (14,609) - - (14,609) Profit before minority interests 270,398 (136,346) - 134,052 Minority interests (18,251) 10,615 - (7,636) Net profit for the year 252,147 (125,731) - 126,416 15 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) 5. BUSINESS AND GEOGRAPHICAL SEGMENTS - continued OTHER INFORMATION Manufacturing Retailing Consolidated RMB’000 RMB’000 RMB’000 Capital addition 517,451 87,423 604,874 Depreciation 245,685 1,074 246,759 Amortization of goodwill and land use right 3,119 - 3,119 Reverse of impairment loss (1,956) - (1,956) 2002 Manufacturing Retailing Elimination Consolidated RMB’000 RMB’000 RMB’000 RMB’000 REVENUE External sales 3,484,815 - - 3,484,815 Inter-segment sales - - - - Total revenue 3,484,815 - - 3,484,815 RESULT Segment result 277,096 - - 277,096 Interest income 2,331 - - 2,331 Interest expenses (5,736) - - (5,736) Profit before tax 273,691 - - 273,691 Income tax expense (39,005) - - (39,005) Profit after tax 234,686 - - 234,686 OTHER INFORMATION Manufacturing Retailing Consolidated RMB’000 RMB’000 RMB’000 Capital addition 379,846 - 379,846 Depreciation 213,887 - 213,887 Amortization of goodwill and land use right 3,118 - 3,118 Impairment loss 68,866 - 68,866 16 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) 5. BUSINESS AND GEOGRAPHICAL SEGMENTS - continued BALANCE SHEET 2003 2002 Assets Liabilities Assets Liabilities RMB’000 RMB’000 RMB’000 RMB’000 Manufacturing 4,140,422 2,506,604 2,866,998 1,461,097 Retailing 920,712 963,560 - - 5,061,134 3,470,164 2,866,998 1,461,097 The number of employees for the year for each of the Group’s principal divisions was as follows: 2003 2002 Manufacturing 22,922 13,789 Retailing 5,217 - 28,139 13,789 The Group’s secondary basis of segmentation is by geographical market. An analysis of Group’s revenue and result by geographical market is as follows: Sales revenue by geographical market 2003 2002 RMB’000 RMB’000 North America 1,771,419 1,903,110 South America 99,047 65,404 Europe 904,440 858,710 PRC Mainland 486,575 80,249 Japan 401,221 271,841 Others (Note) 541,967 305,501 4,204,669 3,484,815 Note: Others include Taiwan and Hong Kong. The assets, including additions thereto during the year, are located in the PRC. 17 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) 6. OTHER OPERATING INCOME 2003 2002 RMB’000 RMB’000 Income from sales of materials 22,112 15,837 Profit (loss) on disposal of property, plant and equipment and investment properties 11,035 (2,828) Call centre fee 8,277 - Management income 883 1,579 Accounts payable written back (Note) 2,050 10,890 Subsidy income 138 717 Rental income - 603 44,495 26,798 Note: During the year, the directors reviewed certain long outstanding accounts payable over three years due to loss of contact with the suppliers and considered that these amounts will not require to be settled. Accordingly, these accounts payable were written back. 7. PROFIT FROM OPERATIONS Profit from operations has been arrived at after charging (crediting): 2003 2002 RMB’000 RMB’000 Staff costs 391,548 289,722 Depreciation of property, plant, equipment and investment properties 246,759 213,887 Amortisation - goodwill (included in administrative expenses) 1,213 1,213 - land use rights (include in administrative expenses) 1,906 1,905 Impairment loss (reversed) recognized (included in cost of sales) (1,956) 68,866 Net foreign exchange losses (gain) 10,192 (2,121) Research and development costs 22,939 35,657 8. INCOME TAX EXPENSE 2003 2002 RMB’000 RMB’000 PRC income tax for the year 13,839 40,420 Under (over) provision of PRC tax expenses in prior year 770 (1,415) 14,609 39,005 18 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) 8. INCOME TAX EXPENSE - continued According to the “Detailed Rules and Regulations for Implementation of the Income Tax Law of the People’s Republic of China Concerning Enterprises with Foreign Investment and Foreign Enterprises”, an export oriented enterprise established with foreign investment which, on the expiry of the period of reduction of or exemption from enterprise income tax as stipulated in the tax law, has an export value for the year amounting to 70% or more of the value of its product output for that year may pay enterprise income tax at one-half of the prevailing rate pursuant to the provisions of the tax law. However, an export oriented enterprise located in economic zones which pays enterprise income tax at 15% has to levy income tax at 10%. Income tax for the current year has been provided at the rate of 10%. Tsann Kuen China (Shanghai) Enterprise Ltd. (“TKS”), a subsidiary of the Company, is an export oriented enterprise located in Shanghai, which is entitled to income tax exemption for two years commencing from the first profitable year and a reduction in the applicable tax rate for the next three years. Year 2003 is the second year that TKS enjoys the 50% relief. No provision for current taxation has been made for TKS for year 2003, as it has no assessable income. Tsann Kuen (China) Technology Co., Ltd. (“TKK”), a subsidiary of the Company, is a production enterprise located in Xiamen, which is entitled to income tax exemption for two years commencing from the first profitable year and a reduction in the applicable tax rate for the next three years. No current taxation provision has been made for TKK as it has not had any assessable income since its establishment. Tsann Kuen (Zhangzhou) Enterprise Co., Ltd. (“TKL”), a subsidiary of the Company, is a production enterprise located in Zhangzhou, which is entitled to income tax exemption for two years commencing from the first profitable year and a reduction in the applicable tax rate for the next three years. The year ended 31 December 2003 is the first profitable year of TKL, so it enjoys income tax exemption. No provision for current taxation has been made for Xiamen Tsann Kuen Dian Tong Electronics Co., Ltd., Shanghai Tsann Pao Electronics Co., Ltd., Fuzhou Tsann Kuen Electronics Co., Ltd., Nanjing Tsann Kuen Electronics Co., Ltd., Beijing Tsann Kuen Electronics Co., Ltd., Shanghai Tsann Hung Electronics Co., Ltd., Chengdu Tsann Kuen Electronics Co., Ltd., Wuhan Tsann Kuen Electronics Co., Ltd., Shengyang Tsann Kuen Electronics Co., Ltd., Hebei Shijiazhuang Tsann Kuen Electronics Co., Ltd., Tianjing Tsann Pao Electronics Co., Ltd., Zhengzhou Tsann Kuen Electronics Co., Ltd., and Kunming Tsann Kuen Electronics Co., Ltd., subsidiaries of the Company, as they have not had any assessable income since their establishment. 19 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) 8. INCOME TAXES EXPENSES - continued The charge for the year can be reconciled to the profit per the income statement as follows: 2003 2002 RMB’000 % RMB’000 % Profit before tax 148,661 273,691 Tax at the PRC tax rate of 10% (2002: 10%) 14,866 10.0 27,369 10.0 Tax effect of expenses that are not deductible in determining taxable profit 234 0.2 4,282 1.6 Tax effect of income that are not taxable in determining taxable profit (558) (0.4) - - Effect of different tax rate of a subsidiary - - 339 0.1 Effect of tax holiday enjoyed by subsidiaries (17,971) (12.1) - - Tax loss of subsidiaries not recognised 18,038 12.1 7,015 2.6 Tax expense and effective tax rate for the year 14,609 9.8 39,005 14.3 No deferred tax asset has been recognised in respect of the tax losses of the subsidiaries amounting to RMB 285,520,000 (2002: RMB 105,140,000) is not recognised in the consolidated financial statements due to the unpredictability of future profit streams. The unrecognised tax losses will be expired in following period: RMB’000 Expired in 2005 6,900 Expired in 2006 28,090 Expired in 2007 70,150 Expired in 2008 180,380 9. DIVIDENDS On 16 May 2003, there was a bonus issue of 30 bonus shares for every 100 shares held from the capitalisation of retained earnings. In respect of current year, the directors propose a bonus issue of 15 bonus shares for every 100 shares held from the capitalisation of discretionary surplus fund and retained earning. This is subject to the approval of the shareholders at the Next Annual General Meeting. 20 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) 10. EARNINGS PER SHARE The calculation of the basic earnings per share is based on the following data: Earnings 2003 2002 RMB’000 RMB’000 Earnings for the purposes of basic earnings per share (net profit for the year) 126,416 246,731 Number of shares 2003 2002 RMB’000 RMB’000 Number of ordinary shares for the purposes of basic earnings per share 879,328 879,328 The number of ordinary shares for 2002 has been adjusted as a result of this year’s capitalisation issues. 11. PROPERTY, PLANT AND EQUIPMENT Machinery Furniture and Motor and office Leasehold Construction Buildings equipment vehicles equipment Moulds improvement in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 COST At 1 January 2003 263,761 483,721 34,517 88,520 1,416,962 - 92,449 2,379,930 Additions 866 109,418 19,386 59,010 90,743 26,286 299,165 604,874 Transfers 3,313 62,768 - 4,765 191,794 8,269 (270,909) - Disposals (640) (2,351) (2,512) (5,290) (1,004) - - (11,797) At 31 December 2003 267,300 653,556 51,391 147,005 1,698,495 34,555 120,705 2,973,007 ACCUMULATED DEPRECIATION AND IMPAIRMENT At 1 January 2003 56,132 171,533 24,312 57,085 816,121 - - 1,125,183 Charge for the year 13,203 44,964 3,651 9,267 175,153 415 - 246,653 Impairment loss - (1,956) - - - - - (1,956) Eliminated on disposals (169) (1,285) (2,025) (4,240) (478) - - (8,197) At 31 December 2003 69,166 213,256 25,938 62,112 990,796 415 - 1,361,683 NET BOOK VALUES At 31 December 2003 198,134 440,300 25,453 84,893 707,699 34,140 120,705 1,611,324 At 31 December 2002 207,629 312,188 10,205 31,435 600,841 - 92,449 1,254,747 21 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) 12. INVESTMENT PROPERTIES RMB’000 COST At 1 January 2003 5,660 Disposals (5,660) At 31 December 2003 - DEPRECIATION At 1 January 2003 3,609 Charge for the year 106 Eliminated on disposals (3,715) At 31 December 2003 - CARRYING AMOUNT At 31 December 2003 - At 31 December 2002 2,051 All the investment properties are sold to a related party, Xiamen Thermaster Electronic Co., Ltd. at a consideration RMB 14,384,000. There is no rental income earned by the Group in 2003 (2002: RMB 603,000). 13. GOODWILL RMB’000 COST At 1 January and 31 December 2003 12,124 AMORTISATION At 1 January 2003 3,031 Charge for the year 1,213 At 31 December 2003 4,244 CARRYING AMOUNT At 31 December 2003 7,880 At 31 December 2002 9,093 Goodwill is amortised over its estimated useful life. The foreseeable life of the goodwill arising on past acquisition is 10 years. 22 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) 14. LAND USE RIGHTS RMB’000 COST At 1 January 2003 and at 31 December 2003 89,699 ACCUMULATED AMORTISATION At 1 January 2003 8,170 Charge for the year 1,906 At 31 December 2003 10,076 NET BOOK VALUES At 31 December 2003 79,623 At 31 December 2002 81,529 As at 31 December 2003, the Company has balance payable of RMB 23 million in respect of the acquisition of the land use rights, which the Company has not yet obtained the land use right certificate. The net book value of above land use right is RMB 58,068,000 (2002: RMB 59,316,000). As at 31 December 2003, TKS, a subsidiary of the Group, has not yet obtained the land use right certificate for part of its land. The net book value of above land use right is RMB 2,778,000 (2002: RMB 2,893,000). As at 31 December 2003, land use rights have remaining amortisation periods from 36 to 55 years. 15. SUBSIDIARIES Details of the Company’s subsidiaries at 31 December 2003 are as follows: Place and date Proportion of Name of subsidiary of establishment Registered capital ownership interest Principal activity Direct Indirect Tsann Kuen China Shanghai, PRC USD 40,000,000 62.5% - Production and sale of household (Shanghai) Enterprise 17 August 1993 appliance. Ltd. Tsann Kuen (China) Xiamen, PRC USD 20,000,000 75% - Production and sale of digital Technology Co., Ltd. 4 August 2000 telecom equipment. Tsann Kuen (Zhangzhou) Zhangzhou, PRC USD 40,000,000 75% - Production and sale of household Enterprise Co., Ltd. 26 July 2002 appliance. Xiamen Tsann Kuen Xiamen, PRC RMB 65,000,000 (Note 1) - Whole sale and retail of Dian Tong Electronics 28 March 2003 consumable electronic Co., Ltd. appliances, computers and communication equipments. 23 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) 15. SUBSIDIARIES - continued Place and date Proportion of Name of subsidiary of establishment Registered capital ownership interest Principal activity Direct Indirect Shanghai Tsann Pao Shanghai, PRC RMB 10,000,000 (Note 2) - Whole sale and retail of Electronics Co., Ltd. 2 January 2003 consumable electronic (Note 2) appliances, computers and communication equipments. Nanjing Tsann Kuen Nanjing, PRC RMB 1,000,000 - 100% Whole sale and retail of Electronics Co., Ltd. 21 November 2003 consumable electronic appliances, computers and communication equipments. Beijing Tsann Kuen Beijing, PRC RMB 2,000,000 - 100% Whole sale and retail of Electronics Co., Ltd. 5 September 2003 consumable electronic appliances, computers and communication equipments. Fuzhou Tsann Kuen Fuzhou, PRC RMB 2,000,000 - 100% Whole sale and retail of Electronics Co., Ltd. 27 October 2003 consumable electronic appliances, computers and communication equipments. Shanghai Tsann Hung Shanghai, PRC RMB 2,500,000 - 100% Whole sale and retail of Electronics Co., Ltd. 21 July 2003 consumable electronic appliances, computers and communication equipments. Chengdu Tsann Kuen Chengdu, PRC RMB 5,000,000 50% 50% Whole sale and retail of Electronics Co., Ltd. 13 October 2003 consumable electronic appliances, computers and communication equipments. Wuhan Tsann Kuen Wuhan, PRC RMB 1,000,000 - 100% Whole sale and retail of Electronics Co., Ltd. 8 December 2003 consumable electronic appliances, computers and communication equipments. Shenyang Tsann Kuen Shenyang, PRC RMB 1,000,000 - 100% Whole sale and retail of Electronics Co., Ltd. 18 November 2003 consumable electronic appliances, computers and communication equipments. Hebei Shijiazhuang Shijiazhuang, PRC RMB 1,000,000 - 100% Whole sale and retail of Tsann Kuen 23 December 2003 consumable electronic Electronics Co., Ltd. appliances, computers and communication equipments. Tianjing Tsann Pao Tianjing, PRC RMB 1,000,000 - 100% Whole sale and retail of Electronics Co., Ltd. 17 December 2003 consumable electronic appliances, computers and communication equipments. 24 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) 15. SUBSIDIARIES - continued Place and date Proportion of Name of subsidiary of establishment Registered capital ownership interest Principal activity Direct Indirect Zhengzhou Tsann Kuen Zhengzhou, PRC RMB 1,000,000 - 100% Whole sale and retail of Electronics Co., Ltd. 29 December 2003 consumable electronic appliances, computers and communication equipments Kunming Tsann Kuen Kunming, PRC RMB 1,000,000 - 100% Whole sale and retail of Electronics Co., Ltd. 25 December 2003 consumable electronic appliances, computers and communication equipments Note 1: Xiamen Tsann Kuen Dian Tong Electronics Co., Ltd. was established by the Company and Thermaster Electronic Co., Ltd. in Mach 2003. The registered capital is RMB 10 million, of which the Company contributed 95%. At 31 December 2003, the registered capital increased to RMB 65 million and the contribution rate of the Company changed to 65%. According to the agreement between the Company and Thermaster Electronic Co., Ltd., the Company takes 95% of total operating loss in 2003 of Xiamen Tsann Kuen Dian Tong Electronic Co., Ltd. Note 2: Shanghai Tsann Pao Electronics Co., Ltd. (Shanghai Tsann Pao) was established by the Company and Shanghai Huangdu Management Company (Shanghai Huangdu) in December 2002 and obtained its business licence on 2 January 2003. The registered capital was RMB 1 million, of which the Company contributed 20%. Shanghai Tsann Pao increased its paid-in capital by RMB 9 million in August 2003, of which the Company contributed RMB 1.8 million. After capital injection, the Company still holds 20% of registered capital of Shanghai Tsann Pao. Since the Company control the majority of the board of directors, and has committed to provide sufficient working capital to finance the operation of Shanghai Tsann Pao Electronics Co., Ltd., the management of the Company regards that the Company has substance control over Shanghai Tsann Pao’s financial policy since the establishment of Shanghai Tsann Pao and operation policy and is able to continue such control. As a result, the Company incorporates Shanghai Tsann Pao into the consolidation financial statements. 25 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) 15. SUBSIDIARIES - continued Note 2: At December 31, 2003, the Company’s subsidiaries, Shanghai Tsann Pao Electronics Ltd. and Xiamen Tsann Kuen Dian Tong Electronics Co., Ltd. is in an accumulated loss position. The Company has committed to provide financial supports to the two subsidiaries to help them to carryout business plan and repay bank loans. However, the minority investors of the two companies do not express that they have the responsibility and intentions to financially support the subsidiaries and taken the operation loss, so the Company take all the operation loss of the two subsidiaries. 16. INVESTMENT IN ASSOCIATE 2003 2002 RMB’000 RMB’000 Cost of investment - Shanghai Tsann Pao Electronics Co., Ltd. - 200 The detailed information of Shanghai Tsann Pao Electronic Co., Ltd. is set out in note 15. 17. OTHER INVESTMENTS 2003 2002 RMB’000 RMB’000 Available for sale: Unlisted shares 71 71 The fair value of unquoted entity shares above cannot reliably determined as these equity shares do not have quoted market prices in an active market nor are other methods of reasonably estimating the fair values readily available. Accordingly, these investments are not re-measured to their fair value. 18. INVENTORIES 2003 2002 RMB’000 RMB’000 Raw materials 542,346 222,531 Work-in-progress 231,425 125,841 Finished goods 69,377 72,632 Merchandise 472,936 - 1,316,084 421,004 26 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) 18. INVENTORIES - continued 2003 2002 RMB’000 RMB’000 Carrying amount of inventories which are carried at net realisable value - Raw materials 60,404 10,759 - Work-in-progress 35,538 6,810 - Finished goods 6,552 30,161 - Merchandise 127,959 - 230,453 47,730 19. OTHER FINANCIAL ASSETS Trade and other receivables at the balance sheet date comprise amounts receivable from the sale of goods of RMB 475 million (31 December 2002: RMB 372 million) and advances to suppliers and other prepayments of RMB 769 million (2002: RMB 249 million). The average credit period taken on sale of goods is 46 days. An allowance has been made for estimated irrecoverable amounts from the sale of goods of RMB 12 million (2002: RMB 10 million). This allowance has been determined by reference to past default experience. The directors consider that the carrying amount of trade and other receivables and amounts due from related companies approximates to their fair value. Bank balances and cash comprise cash and short-term deposits held for treasury function. The carrying amount of these assets approximates to their fair value. Fair value The carrying amount of financial assets recorded in the consolidated financial statements approximates to their respective fair values. Fair value estimates are made at specific point in time and are based on relevant market information. The estimate is subjective in nature and involved uncertainty and matters of significant judgment and therefore cannot be determined with precision, changes in valuation methods and assumptions could significantly affect the estimates. 27 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) 19. OTHER FINANCIAL ASSETS - continued Credit risk The Company’s principal financial assets are bank balance and cash, trade and other receivables, amounts due from related companies and other investments, which represent the Group’s maximum exposure to credit risk in relation to financial assets. The Group’s credit risk is primarily attributable to its trade and other receivables and amounts due from related companies. The amounts presented in the consolidated balance sheet are net of allowances for doubtful receivables, estimated by the Group’s management based on prior experience and their assessment of the current economic environment. The credit risk of amounts due from related companies is limited because the amounts are guaranteed by the major shareholder of the ultimate holding company. The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings in the PRC. Concentration of credit risk For the year 2002 and 2003, net sales to the Group’s five largest customers accounted for approximately 66.00% and 41.03%, respectively, of the Group’s total revenue. Net sales to the Group’s largest customer, Salton Inc., accounted for 44.11% and 26.54% of the Group’s total revenue for 2002 and 2003, respectively. Details of the amounts receivable from the five non-related customers with the largest receivable balances at year end are as follows: Percentage of trade receivable 2003 2002 Five largest receivable balances 25.87% 21.02% Foreign exchange risk The Company and its subsidiaries, TKL and TKS, are export-oriented enterprises with the United States as their largest market. Changes in international exchange rates, the rate for United States dollars in particular, will have an impact on the revenue of the Group. In addition, the Group purchases its equipment from overseas and the purchase price of its equipment is denominated in foreign currency. 28 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) 20. SHARE CAPITAL 2003 2002 RMB’000 RMB’000 Registered, issued and fully paid: Legal person shares of RMB 1 each 641,672 493,594 B shares of RMB 1 each 237,656 182,812 879,328 676,406 Balance at 1 January 676,406 450,938 Capitalisation issue (note 9) 202,922 225,468 Balance at 31 December 879,328 676,406 All the shares rank pari passu with each other in all respects except that the B shares are listed on the Shenzhen Stock Exchange. 21. OTHER RESERVES (a) Other reserves of the Group include statutory surplus reserve, discretionary surplus reserve and statutory public welfare reserve, which form part of shareholders’ equity. Statutory surplus reserve / Discretionary surplus reserve In accordance with relevant PRC laws and regulations and the Company’s Articles of Association, the Company is required to appropriate 10% of its profit after taxation reported in its PRC statutory financial statements to the statutory surplus fund. Allocation to a discretionary surplus reserve shall be approved by the shareholders in general meeting. The appropriation of statutory surplus reserve may cease to apply if the balance of the statutory surplus reserve has reached 50% of the Company’s registered capital. Surplus reserve can be used to make up losses or for conversion into share capital. The Company may, upon the approval by a resolution of shareholders’ general meeting, convert its surplus reserves into share capital by issuing new shares to existing shareholders in proportion to their original shareholding or by increasing the nominal value of each share. However, when converting the Company’s statutory surplus reserve into share capital, the amount of such fund remaining unconverted must not be less than 25% of the registered capital. 29 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) 21. OTHER RESERVES - continued (a) Other reserves of the Group include statutory surplus reserve, discretionary surplus reserve and statutory public welfare reserve, which form part of shareholders’ equity. - continued Statutory public welfare reserve In accordance with relevant PRC laws and regulations and the Company’s Articles of Association, the Company is required to appropriate 5% to 10% of the profit after tax as reported in its PRC statutory financial statements to the statutory public welfare reserve. The statutory public welfare fund shall only apply to collective welfare of staff and workers and welfare facilities remain a property of the Company. When the public welfare reserve is utilised, an amount equal to the cost of the assets acquired is transferred to discretionary surplus reserve. On disposal of the relevant assets, the original transfers from the reserve are reversed. (b) Basis for profit distribution In accordance with the Company’s Articles of Association, profit available for distribution to shareholders should be based on the lower of the amount determined under PRC GAAP and the amount determined under IFRS after deduction of the current year’s appropriation to the statutory reserves. The unappropriated profit carried forward for distribution to shareholders as at 31 December 2003 was approximately RMB 172,517,000. 22. LONG-TERM PAYABLE The amount represents outstanding balance for land use rights acquired in 2000. It is interest free and is repayable as follows: 2003 2002 RMB’000 RMB’000 Within one year 23,414 15,610 In the second year - 15,609 23,414 31,219 Less: Amount due for settlement within 12 months (Shown under current liabilities) (23,414) (15,610) Amount due for settlement after 12 months - 15,609 30 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) 23. BANK LOANS 2003 2002 RMB’000 RMB’000 Secured loans 48,100 - Unsecured loans 827,992 150,149 Total 876,092 150,149 The borrowings are repayable as follows: On demand or within one year 826,092 150,149 In the second year - - In the third to fifth years inclusive 50,000 - 876,092 150,149 Less: Amount due for settlement within12 months (shown under current liabilities) (826,092) (150,149) Amount due for settlement after 12 months 50,000 - At 31 December 2003, RMB 110,000,000 of short-term bank loan is interest free (2002: 30,000,000) and the remaining loans carry fixed interest rates ranging from 1.28% to 5.80% (2002: 2.76% to 4.89%) per annum. At 31 December 2003, RMB 48,100,000 (2002: Nil) of short-term bank loans are secured on deposits RMB 49,660,000 of the Group. The directors consider the carrying amount of the bank loans approximates to their fair value. Analysis of borrowings by currency: 2003 2002 RMB’000 RMB’000 Renminbi 470,642 90,000 US Dollar 355,450 60,149 826,092 150,149 31 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) 24. OTHER FINANCIAL LIABILITIES Trade and other payables comprise amounts outstanding for trade purchase and ongoing costs. The directors consider that the carrying amount of trade and other payables and amounts due to related companies approximates to their fair value. 25. ACQUISITION OF SUBSIDIARIES In January 2003, Shanghai Tsann Pao Electronics Co., Ltd. began its operation. Since the Company has substantial control over it, the Company treated it as subsidiary since January 2003. It has been accounted for by the purchase method of accounting, see note 15(2). RMB’000 Net assets acquired: Bank and cash balance 1,000 Minority interest on acquisition date (800) Net assets shared by the Company 200 Net cash inflow arising on acquisition: Bank balance and cash acquired 1,000 Shanghai Tsann Pao Electronics Co., Ltd. contributed RMB 317,170,000 of revenue and RMB 44,266,000 of loss before tax for the period between the date of substantial control and the balance sheet date. 26. CAPITAL COMMITMENTS 2003 2002 RMB’000 RMB’000 Commitments for the acquisition of property, plant and equipment 83,301 32,821 32 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) 27. OPERATING LEASE COMMITMENTS The Group as lessee 2003 2002 RMB’000 RMB’000 Minimum lease payments under operating leases recognised in income for the year 32,051 12,509 At the balance sheet date, the Group had outstanding commitments under non-cancellable operating leases, which fall due as follows: 2003 2002 RMB’000 RMB’000 Within one year 188,358 29,276 In the second to fifth years inclusive 740,154 122,732 After five years 2,271,206 1,273,564 3,199,718 1,425,572 28. RETIREMENT BENEFIT PLANS The employees of the Group are members of a state-managed retirement benefit scheme operated by the local government. The Group are required to contribute a specified percentage of their payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the Group with respect to the retirement benefit scheme is to make the specified contributions. The total cost charged to income statement is RMB 7.9 million (2002: RMB 7.6 million) which represents contributions payable to these schemes by the Group at rates specified in the rules of the schemes for the current year. As at 31 December 2003, no contributions due in respect of the current reporting period had not been paid over to the schemes (2002: Nil). 33 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) 29. RELATED PARTY TRANSACTIONS The ultimate holding company of the Company is Tsann Kuen Enterprise Ltd., a company incorporated in Taiwan. (a) During the year, the Group entered into the following transactions with its related companies. 2003 2002 RMB’000 RMB’000 Transactions Sales of raw materials and finished goods - Ultimate holding company 49,879 29,580 - Fellow subsidiaries 212,693 231,392 - Companies in which the Company’s directors have controlling interests 188 450 Purchases of raw materials and finished goods - Ultimate holding company 398,275 468,100 - Fellow subsidiaries 86,641 113,538 - Companies in which the Company’s directors have controlling interests 71,907 55,106 Sales of property - Ultimate holding company - 16 - Companies in which the Company’s directors have controlling interests 15,297 107 Transactions Purchases of mould and machinery - Ultimate holding company 233,056 196,572 - Fellow subsidiaries - 47,712 - Companies in which the Company’s directors have controlling interests - 245 For the Company and a subsidiary, TKS, all transactions except those with Thermaster Electronic (Xiamen) Ltd. (“THERMASTER (XIAMEN)”, a company in which the Company’s directors have controlling interests) and A-Switch Electronic (Xiamen) Limited (“A-Switch, “a company in which the Company’s directors have controlling interests”) and Union Channel Limited (“Union Channel”, a fellow subsidiary) were priced according to the “Pricing Agreements for related companies’ transaction” which have been approved by Xiamen Tax Bureau and Shanghai Jiading Tax Bureau. 34 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) 29. RELATED PARTY TRANSACTIONS - continued (a) During the year, the Group entered into the following transactions with its related companies. - continued The transactions between the Company and Union Channel were all under the prices agreed in the contracts. The transactions between the related parties and the subsidiaries (TKL and TKK) were all under the prices agreed in the contracts. 2003 2002 RMB’000 RMB’000 Other services paid Technology and know-how usage fee (i) - Ultimate holding company 79,828 105,719 Sales commissions (i) - Fellow subsidiaries 5,247 - Agency fee (ii) - Companies in which the Company’s directors have controlling interests 1,920 1,862 Other services rendered Rental income (iii) - Companies in which the Company’s directors have controlling interests - 603 Management income (iv) - Companies in which the Company’s directors have controlling interests 883 1,579 Call center fee (v) - Ultimate holding company 8,277 - (i) Technology and know-how usage fee and sales commissions the Group paid were arrived at fixed percentage of net sales. (ii) The Group has appointed several of its related companies as sales agents for its export sales. Those related companies sign contract in the name of the Group and collect sales proceeds on the Group’s behalf. The Group records those sales as its own sales as the Group bears substantially all the risks of these transactions. The resulting agency fee as disclosed above was arrived at as a certain percentage of operating expenses incurred by the agents. 35 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) 29. RELATED PARTY TRANSACTIONS - continued (a) During the year, the Group entered into the following transactions with its related companies. - continued (iii) Rental income the Company received from THERMASTER (XIAMEN) and A-SWITCH were calculated based on actual occupied area, time and unit rental charge. (iv) Management income the Company received from THERMASTER (XIAMEN) was calculated at certain percentage of the managed company’s revenue income. (v) Call center fee the Company received from TKE was calculated at certain percentage of the total cost of telecom system, operation cost and training cost. (b) Directors’ remuneration Remuneration paid to directors during the year was as follows: 2003 2002 RMB’000 RMB’000 Salaries 1,233 693 (c) Amounts due from/to related companies Accounts 2003 2002 RMB’000 RMB’000 Amounts due from related companies - Ultimate holding company 58,069 20,501 - A Shareholder - 197 - Fellow subsidiaries 67,057 64,726 - Companies in which the Company’s directors have controlling interest 44,629 159,072 - Associate - 802 169,755 245,298 Amounts due to related companies - Ultimate holding company 375,893 257,264 - A Shareholders - 18,429 - Fellow subsidiaries 96,406 91,073 - Companies in which the Company’s directors have controlling interest 78,487 70,731 550,786 437,497 36 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) 29. RELATED PARTY TRANSACTIONS - continued At 31 December 2003, balances with related companies of RMB 38 million (31 December 2002: RMB 84 million) represent sales proceeds received on the Group’s behalf. The major shareholder of the ultimate holding company has issued a letter of guarantee for the repayment of this balance. Amounts due from/to related companies were unsecured, interest free and repayable on demand. (d) Guarantee As at 31 December 2003, the Company guaranteed RMB 16,554,000 (2002: RMB 32,821,000) for TKS, a subsidiary of the Group. 30. APPROVAL OF FINANCIAL STATEMENTS The financial statements were approved by the Board of Directors and authorised for issue on 16 April 2004. 31. LANGUAGE The Chinese text of the financial statements is a translated version for reference only. The English text of the financial statements will prevail over the Chinese text. * * * * * 37 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. SUPPLEMENTAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2003 SUMMARY OF DIFFERENCES BETWEEN IFRS AND PRC GAAP These financial statements are prepared in conformity with IFRS which are different from its statutory financial statements which are prepared in accordance with PRC GAAP. The statutory financial statements for the year ended 31 December 2003 reported profit for the year as RMB 123,617,000 and net assets as RMB 1,385,708,000. The principal IFRS adjustments made for profit after taxation and net assets are as follows: Profit for the year Net assets RMB’000 RMB’000 As reported under PRC GAAP 123,617 1,385,708 Adjustments to conform to IFRS: Adjustment to record property, plant and equipment acquired before 1994 at swap rates (2,223) 14,601 Elimination of revaluation reserves 2,664 (809) Adjustment for pre-operating expenses of a subsidiary 821 - Reverse accounts payable written back 1,537 - Others - 1,910 As reported under IFRS 126,416 1,401,410 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) 2003 2002 RMB’000 RMB’000 (Company) (Company) Revenue 1,555,095 2,878,661 Cost of sales (1,312,882) (2,267,615) Gross profit 242,213 611,046 Other operating income 51,436 17,979 Loss from subsidiaries (4,440) (43,458) Selling and distribution expenses (81,222) (182,876) Administrative expenses (67,647) (112,485) Profit from operations 140,340 290,206 Interest income 1,450 1,515 Interest expenses (4,784) (403) Profit before tax 137,006 291,318 Income tax expense (14,609) (36,693) Net profit for the year 122,397 254,625 TSANN KUEN (CHINA) ENTERPRISE CO., LTD. BALANCE SHEET AS AT 31 DECEMBER 2003 (Prepared under International Financial Reporting Standards) 2003 2002 RMB’000 RMB’000 (Company) (Company) ASSETS Non-current assets Property, plant and equipment 658,738 861,117 Investment properties - 2,051 Goodwill 7,881 9,093 Land use rights 76,916 78,751 Investments in subsidiaries 391,008 277,698 Investments in associates - 200 Other investments 71 71 1,134,614 1,228,981 Current assets Inventories 92,507 303,017 Trade and other receivables 335,696 278,542 Amounts due from related companies 514,740 138,507 Trustee loan 120,000 - Bank balances and cash 139,311 124,187 1,202,254 844,353 Total assets 2,336,868 2,073,334 EQUITY AND LIABILITIES Capital and reserves Share capital 879,328 676,406 Other reserves 391,346 349,481 Retained profits 146,801 269,191 1,417,475 1,295,078 Non-current liabilities Long-term payable – due after one year - 15,609 Long-term bank loans 50,000 - 50,000 15,609 Current liabilities Trade and other payables 280,903 438,864 Long-term-payable – due within one year - 15,610 Amounts due to related companies 235,138 232,265 Income tax liabilities 15,077 31,228 Short-term bank loans 338,275 44,680 869,393 762,647 Total equity and liabilities 2,336,868 2,073,334 40